<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LORAL SPACE & COMMUNICATIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
BERMUDA 13-3867424
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1105
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
AVI KATZ, ESQ.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1105
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
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WITH COPIES TO:
<TABLE>
<S> <C>
BRUCE R. KRAUS, ESQ. ROBERT ROSENMAN, ESQ.
WILLKIE FARR & GALLAGHER CRAVATH SWAINE & MOORE
787 SEVENTH AVENUE WORLDWIDE PLAZA
NEW YORK, NEW YORK 10019 825 EIGHTH AVENUE
(212) 728-8000 NEW YORK, NEW YORK 10019
(212) 474-1000
</TABLE>
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APPROXIMATE DATE OF THE COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE(2)
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<S> <C> <C> <C> <C>
6% Series D Convertible Redeemable Preferred Stock.... 8,000,000 $31.5900(1) $252,720,000 $ 66,718
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Common Stock, $.01 par value.......................... 20,171,152(3) 9.4063(4) $189,735,907 $ 50,090
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Common Stock, $.01 par value.......................... 45,896,978 9.4063(4) $431,720,744 $113,974
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Total................................................. -- -- -- $230,782
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 based on the average of the
closing bid and asked prices of the Series D Preferred Stock on April 5,
2000.
(2) $230,782 was wired to the SEC's account at Mellon Bank in payment of the
required registration fee due in connection with this Registration
Statement.
(3) Registrant's estimate of the number of shares of Common Stock issuable as
dividend payments, redemption payments, in respect of conversion, and
otherwise with respect to the Series D Preferred Stock.
(4) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 based on the average of the
high and low sales prices of the Common Stock on the New York Stock Exchange
on April 11, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus; one to be
used in connection with the registration for resale by holders of 8,000,000
shares of the Series D Preferred Stock and 20,171,152 shares of the Registrant's
common stock issuable upon conversion of such stock, or otherwise in connection
therewith (the "Preferred Offering Prospectus"), and the other to be used in
connection with the registration of 45,896,978 shares of the Registrant's common
stock to be resold by Lockheed Martin Investments, Inc. and its affiliates (the
"Lockheed Martin Offering Prospectus").
The Preferred Offering Prospectus begins on the following page, and the
Lockheed Martin Offering Prospectus begins after the back cover page of the
Preferred Offering Prospectus.
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL 12, 2000
PRELIMINARY 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
------------------------
The holders of restricted shares of the Series D Preferred Stock named on
page 44 should deliver this prospectus when they offer or sell their shares of
the 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 Series D Preferred Stock. After that, the
shares will be free of restrictions under the securities laws. We originally
issued the 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 the 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 April 11, 2000 the last reported sale price of our common stock was
$9.4375 per share. The Series D Preferred Stock is eligible for trading in the
Portal Market, a subsidiary of The Nasdaq Stock Market, Inc.
OWNERS OF THE SERIES D PREFERRED STOCK AND COMMON STOCK FACE BUSINESS AND
FINANCIAL RISKS. A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 5.
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.
, 2000
<PAGE> 4
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.
Loral......................... 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, broadband data services, satellite
manufacturing and technology and global mobile
telephone services.
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
the following:
- 8,000,000 shares of Series D Preferred
Stock owned by selling stockholders
named on page 44;
- 20,171,152 shares of common stock which
are issuable upon conversion of the
Series D Preferred Stock or in
connection with dividend, redemption,
or other payments thereon;
<PAGE> 5
TERMS OF THE SERIES D PREFERRED STOCK
Liquidation Preference........ Each share of Series D Preferred Stock has a
"liquidation preference" of $50, which is the amount a holder of one share of
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 the Series D Preferred
Stock.
Ranking....................... The 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 the 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 that it be
ranked equal with the 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 Series D Preferred Stock have the
right to convert some or all of their shares of
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 the Series D Preferred Stock
would receive 2.5214 shares of our common stock
for each $50 liquidation preference of Series D
Preferred Stock (that is, $50/$19.8303).
Holders of 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.
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Mandatory Conversion of the
Series D Preferred Stock by
Us............................ Beginning on February 15, 2003, we will have
the right to cause some or all of the 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 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 the
Series D Preferred Stock by
Us............................ We will be required to redeem any 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 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 the
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
the 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.
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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 the 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 the Series D
Preferred Stock............... We have agreed for the benefit of the holders
of the Series D Preferred Stock that we will
maintain the effectiveness, under the
Securities Act, of the shelf registration
statement that includes this prospectus for a
period of up to two years after the 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. The
Series D Preferred Stock is eligible for
trading in the Portal Market, a subsidiary of
The Nasdaq Stock Market, Inc.
For detailed information regarding the 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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<PAGE> 8
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 and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). 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 the 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
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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. 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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<PAGE> 10
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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<PAGE> 11
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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<PAGE> 15
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 THE SERIES D PREFERRED STOCK, AND NO SUCH MARKET
MAY DEVELOP.
There is no public market for the 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 Series D Preferred Stock may remain relatively illiquid.
PRICES OF OUR COMMON STOCK AND THE 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 the 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 December 31, 1999, 245,030,237 shares of our common stock were
outstanding. In addition, there were 13,356,864 stock options outstanding on
such date, of which 5,667,416 were immediately exercisable, warrants outstanding
that were exercisable for 349,963 shares of our common stock and 14,909,437
shares of our 6% Series C preferred
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stock which were convertible into 37,273,593 shares of our common stock. 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.
In addition, as of December 31, 1999, Lockheed Martin Corporation held
45,896,978 shares of our Series A preferred stock, which was converted into
45,896,978 shares of our common stock on March 31, 2000, 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 but has agreed to refrain from selling any of these shares before May 19,
2000, subject to certain exceptions. 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 later of the six-month
anniversary date of this prospectus or November 19, 2000, 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 Loral's
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 the Loral parent
company 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 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 the 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 the Series D Preferred Stock will be The Bank of New
York unless we select a successor.
RANKING
The 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 the 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 the 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 the 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 the 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").
The 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 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 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 the Series D Preferred Stock
will be entitled to receive a dividend. Dividends:
- are cumulative from the issue date of the 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 the 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 the 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 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
Series D Preferred Stock.
Unless full cumulative dividends on all outstanding shares of 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 the 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 the 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 the Series D Preferred Stock.
MANDATORY CONVERSION
At any time on or after February 15, 2003, we may at our option cause the
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 Series D Preferred Stock equal to $50.00 (the Liquidation Preference per
share of 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 the Series
D Preferred Stock not more than four business days after the date of the press
release announcing our intention to convert the 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) the Series D
Preferred Stock conversion date, (ii) the number of shares of common stock to be
issued upon conversion of each Series D Preferred Stock, (iii) the number of
Series D Preferred Stock to be converted (and, if fewer than all the Series D
Preferred Stock are to be converted, the number of Series D Preferred Stock to
be converted from such holder), (iv) the place(s) where the Series D Preferred
Stock are to be surrendered for delivery of shares of common
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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 a share of 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 Series D
Preferred Stock for accumulated and unpaid dividends or for dividends with
respect to the common stock issued upon such conversion.
On and after the mandatory conversion date, dividends will cease to accrue
on shares of 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 the 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 the 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 Series D Preferred Stock (or by holders that
would hold fewer than 100 shares of Series D Preferred Stock following such
conversion) prior to our conversion of other shares of Series D Preferred Stock.
MANDATORY REDEMPTION
Unless already converted, the 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
the 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 the
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 the
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
the 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 common stock, whether we will issue such common stock or convert the
Series D Preferred Stock into common stock. No fractional shares of common stock
will be delivered to the holders of the 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 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 the 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 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 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 Series D Preferred Stock) divided by the conversion price then
applicable. A holder's right to convert shares of 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 the Series D Preferred Stock would receive 2.5214 shares of our common stock
for each $50.00 liquidation preference of 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 the 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 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 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 a share of Series D Preferred Stock at the close of
business on a Record Date with respect to the payment of dividends on the 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.
A share of 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 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 the 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 the Series D Preferred Stock of any change of control resulting
in an adjustment to the conversion price.
VOTING RIGHTS
Holders of shares of the 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
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 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 arising as a result of a voting
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rights triggering Event will continue until all dividends in arrears on the
Series D Preferred Stock are paid in full, at which time the term of office of
any such members of the Board of Directors so elected shall terminate and such
directors shall be deemed to have resigned.
In addition, the Series D Preferred Stock schedule provides that without
the approval of holders of at least 66 2/3% of the shares of 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 the 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 the Series D Preferred Stock or
authorize the issuance of any additional shares of Series D Preferred
Stock.
The 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 Series
D Preferred Stock, shall not require the consent of the holders of 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 Series D Preferred Stock, and
- we will not require the consent of the holders of 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 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, the 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 the 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 the Series D Preferred Stock schedule.
Except as described herein, the Series D Preferred Stock schedule does not
provide the holders of the 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 the 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 the 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 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 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 the Series D Preferred Stock and all other Parity Securities are
not paid in full, the holders of the 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.
The Series D Preferred Stock schedule does not contain any provision
requiring funds to be set aside to protect the liquidation preference of the
Series D Preferred Stock, although such liquidation preference will be
substantially in excess of the par value of such shares of Series D Preferred
Stock. Consequently, there will be no restriction upon our surplus solely
because the liquidation preference of the Series D Preferred Stock will exceed
the par value thereof and there will be no remedies available to holders of the
Series D Preferred Stock before or after the payment of any dividend, other than
in connection with
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our 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 the Series D Preferred Stock and its par value.
COVENANT TO REPORT
We will, pursuant to the 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 Series D Preferred Stock are outstanding, we will furnish copies
of the SEC Reports to the holders of 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 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 the 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 the Series D
Preferred Stock and the date when all 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 Transfer Restricted Securities Series D Preferred Stock
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 Transfer Restricted Securities (provided, that we
will have the option of suspending the effectiveness of the shelf registration
statement or notifying holders of 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
Series D Preferred Stock and each share of common stock issuable upon conversion
of the Series D Preferred Stock or in satisfaction of any dividend on the 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 the
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 the Series D
Preferred Stock; and
- will be paid in cash on each Dividend Payment Date specified in the
Series D Preferred Stock annex with respect to shares of 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 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 the Series D
Preferred Stock (and the common stock into which the 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 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 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 Series D Preferred Stock represented by the Global
Certificate are exchangeable for certificates in definitive form (the
"Definitive Securities") of like tenor as such 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 Series D Preferred Stock represented by the Global
Certificate. Any shares of Series D Preferred Stock that are exchangeable
pursuant to the preceding sentence are 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 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 the 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 the 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 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 Series
D Preferred Stock represented by the Global Certificate for all purposes under
the relevant schedule to our Bye-laws. 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 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 the relevant schedule to our Bye-laws 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 the 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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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 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 Series D Preferred
Stock (including, without limitation, the presentation of Depositary interests
in the Global Certificate are credited, and only in respect of the 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 the 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 common stock, par value $.01 per
share. As of December 31, 1999, we had 245,030,237 shares of 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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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 the 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 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 the Series D Preferred Stock, as discussed below.
Dividends on the Series D Preferred Stock paid with 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 the 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 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 the Series D Preferred Stock, and may not be entitled to
recognize a loss on such redemption.
The conversion of 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 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 distributions are effectively connected with the conduct by
the non-U.S. Holder of a trade
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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 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 will be subject to U.S. Federal income taxation on gains realized on a
sale or exchange of 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 Series D
Preferred Stock or 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
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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 such 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 the
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 the Series D Preferred Stock.
The Series D Preferred Stock 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 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 the 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. The 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 Series D Preferred Stock listed below and/or the number
of shares of common stock into which such 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 STOCKHOLDERS PREFERRED STOCK SHARES
- -------------------- --------------- ----------
<S> <C> <C>
Warburg Dillon Read LLC.................... 763,000 1,923,824
RAM Trading Ltd. .......................... 150,000 378,209
SAM Investments Ldc........................ 100,000 252,139
JMG Triton Offshore Fund, Ltd. ............ 78,750 198,560
JMG Capital Partners, LP................... 18,750 47,276
Triton Capital Investments, Ltd. .......... 15,000 37,821
</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 the 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 common stock or preferred stock, we cannot predict the
number of shares of common stock and preferred stock that will be held by the
selling stockholders upon termination of this offering.
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PLAN OF DISTRIBUTION
The 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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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 the 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 the 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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<PAGE> 50
LEGAL MATTERS
The validity of the 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 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> 51
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;
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 the Series D Preferred Stock and 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.
----------------------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Forward-Looking Statements.......... 17
Ratios.............................. 18
Use of Proceeds..................... 18
Description of Indebtedness......... 19
Description of Preferred Stock...... 21
Description of Common Stock......... 36
Taxation............................ 40
Selling Stockholders................ 44
Plan of Distribution................ 45
Legal Matters....................... 47
Experts............................. 47
Incorporation of Certain Documents
by Reference...................... 48
Where You Can Find More
Information....................... 48
</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
, 2000
-------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE> 53
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL 12, 2000
PRELIMINARY PROSPECTUS
LORAL SPACE & COMMUNICATIONS LTD.
45,896,978 SHARES OF COMMON STOCK
------------------------
The shares of 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 April 11, 2000, the last reported sale price of our common stock was
$9.4375 per share.
OWNERS OF THE COMMON STOCK FACE BUSINESS AND FINANCIAL RISKS. A DESCRIPTION
OF THOSE RISKS BEGINS ON PAGE 3.
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.
, 2000
<PAGE> 54
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, broadband data
services, satellite manufacturing and technology and global mobile telephone
services.
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.
<PAGE> 55
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.
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<PAGE> 56
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 and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). 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 the 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
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<PAGE> 57
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. 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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<PAGE> 58
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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<PAGE> 59
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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<PAGE> 60
- 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
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<PAGE> 61
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.
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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
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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
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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.
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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
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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 December 31, 1999, 245,030,237 shares of our common stock were
outstanding. In addition, there were 13,356,864 stock options outstanding on
such date, of which 5,667,416 were immediately exercisable, warrants outstanding
that were exercisable for 349,963 shares of our common stock and 14,909,437
shares of our 6% Series C preferred stock which were convertible into 37,273,593
shares of our common stock. 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.
In addition, as of December 31, 1999, Lockheed Martin Corporation held
45,896,978 shares of our Series A preferred stock, which was converted into
45,896,978 shares of our common stock on March 31, 2000, 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 law
but has agreed to refrain from selling any of these shares before May 19, 2000,
subject to certain exceptions. 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 later of the six-month anniversary of the date of
this prospectus or November 19, 2000, 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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USE OF PROCEEDS
We will receive no proceeds from sales of securities under this prospectus.
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DESCRIPTION OF COMMON STOCK
We have authorized 750,000,000 shares of Common Stock, par value $.01 per
share. As of December 31, 1999, we had 245,030,237 shares of 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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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 the 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 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 the Common Stock, as discussed below. Dividends on
the Common Stock paid with 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 the 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.
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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 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 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 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 will be subject to U.S. Federal income taxation on
gains realized on a sale or exchange of 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.
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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 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 such 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 the
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.
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Purchasers of 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 purchasers should consult their tax advisers as to the tax laws of
applicable jurisdictions and the specific tax consequences of acquiring, holding
and disposing of the Common Stock.
The Common Stock 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
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.
23
<PAGE> 77
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 later of the six-month anniversary of the date of this
prospectus or November 19, 2000, subject to certain extensions, and Lockheed
Martin has agreed to refrain from selling shares of the Lockheed Martin Common
Stock until May 19, 2000, subject to certain exceptions. Additionally, in the
Amended Shareholders Agreement, Lockheed Martin agreed 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.
24
<PAGE> 78
PLAN OF DISTRIBUTION
The Common Stock offered pursuant to this prospectus may be sold from time
to time to purchasers directly by the Selling Shareholders. Loral is registering
the 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 Common Stock under this prospectus, including Lockheed
Martin, Investments, Inc. The Selling Shareholders may offer or sell the 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 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 Common Stock, through short sales of shares of
Common Stock, or a combination of any such methods. The 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
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 Common Stock may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Shareholders and/or the purchasers of 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 Loral 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 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 Common Stock
under this prospectus and will pay all fees and expenses of their counsel and
accountants. Loral will pay the fees and expenses of its counsel and accountants
in connection with the registration of the Common Stock. All other fees and
expenses in connection with the registration of the Common Stock will be shared
equally by the Company 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 Common Stock may be deemed to
be "underwriters" within the meaning of the Securities Act, and any profit on
the sale of the 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. Loral has agreed
to indemnify each Selling Shareholder against certain liabilities, including
certain liabilities arising under the Securities Act. The Selling Shareholders
have agreed to indemnify the Company against certain liabilities, including
certain liabilities arising under the Securities Act. Loral also may agree
similarly to indemnify
25
<PAGE> 79
underwriters, broker-dealers or agents participating in transactions involving
offers or sales of the 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 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 Loral and Lockheed Martin.
Upon the Company 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 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 Common Stock involved, (iii) the price at which the 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.
26
<PAGE> 80
LEGAL MATTERS
The validity of the 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 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;
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 the 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 & Communica-
27
<PAGE> 81
tions 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.
28
<PAGE> 82
- ------------------------------------------------------
- ------------------------------------------------------
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........................ 3
Forward-Looking Statements.......... 14
Use of Proceeds..................... 15
Description of Common Stock......... 16
Taxation............................ 20
Selling Shareholders................ 24
Plan of Distribution................ 25
Legal Matters....................... 27
Experts............................. 27
Incorporation of Certain Documents
by Reference...................... 27
Where You Can Find More
Information....................... 28
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LORAL SPACE LOGO]
45,896,978 SHARES OF
COMMON STOCK
-------------------------
PROSPECTUS
, 2000
-------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the
Registrant in connection with this offering, other than underwriting discounts
and commissions. All the amounts shown are estimates, except the SEC
registration fee:
<TABLE>
<S> <C>
SEC registration fee............................... $230,782
Printing fees...................................... 85,000
Legal fees and expenses............................ 85,000
Accounting fees and expenses....................... 20,000
Miscellaneous fees and expenses.................... 10,000
--------
Total.................................. $430,782
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bermuda law permits a company to indemnify its directors and officers,
except for any act of fraud or dishonesty. The Registrant has provided in its
Bye-Laws that its directors and officers will be indemnified and held harmless
against any expenses, judgments, fines, settlements and other amounts incurred
by reason of any act or omission in the discharge of their duty, other than in
the case of fraud or dishonesty.
Bermuda law and the Bye-Laws of the Registrant also permit the Registrant
to purchase insurance for the benefit of its directors and officers against any
liability incurred by them for the failure to exercise the requisite care,
diligence and skill in the exercise of their powers and the discharge of their
duties, or indemnifying them in respect of any loss arising or liability
incurred by them by reason of negligence, default, breach of duty or breach of
trust.
The Registrant intends to enter into indemnification agreements with its
officers and directors. To the extent permitted by law, the indemnification
agreements may require the Registrant, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities arising from
willful misconduct of a culpable nature) and to advance their expenses incurred
as a result of any proceedings against them as to which they could be
indemnified.
The Registrant maintains a directors' and officers' liability insurance
policy.
II-1
<PAGE> 84
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.1** -- Memorandum of Association
4.2*** -- Third Amended and Restated Bye-Laws
4.3*** -- Schedule IV to the Third Amended and Restated Bye-Laws
5* -- Opinion of Appleby, Spurling & Kempe
8* -- Opinion of Willkie Farr & Gallagher
10.1* -- Purchase Agreement, dated as of February 14, 2000, between
Loral and the initial purchasers
10.2*** -- Registration Rights Agreement, dated as of February 18,
2000, relating to the Registrants 6% Series D Convertible
Redeemable Preferred Stock due 2007
10.3*** -- Amended Shareholders Agreement, dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation
12*** -- Statement Re: Computation of Ratios
23* -- Consent of Deloitte & Touche LLP
24 -- Power of Attorney (included on the signature page hereto)
</TABLE>
- ---------------
* Filed herewith.
** Incorporated by reference to Loral's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 1-14180).
*** Incorporated by reference to Loral's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (File No. 1-14180).
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
II-2
<PAGE> 85
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described under item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding), is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 86
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON APRIL 12, 2000.
LORAL SPACE & COMMUNICATIONS LTD.
BY:/s/ BERNARD L. SCHWARTZ
---------------------------------------
BERNARD L. SCHWARTZ
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Loral Space and
Communications Ltd., hereby severally and individually constitute and appoint
Bernard L. Schwartz, Michael P. DeBlasio, Nicholas C. Moren, Harvey B. Rein,
Richard J. Townsend, Eric J. Zahler and Avi Katz and each of them, as the true
and lawful attorneys-in-fact for the undersigned, in any and all capacities,
with full power of substitution, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorney-in-fact, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorneys-in-fact may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and April 12, 2000
- ------------------------------------------------ Chief Executive Officer
Bernard L. Schwartz (Principal Executive
Officer)
/s/ HOWARD GITTIS Director April 12, 2000
- ------------------------------------------------
Howard Gittis
/s/ ROBERT B. HODES Director April 12, 2000
- ------------------------------------------------
Robert B. Hodes
</TABLE>
II-4
<PAGE> 87
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ GERSHON KEKST Director April 12, 2000
- ------------------------------------------------
Gershon Kekst
/s/ CHARLES LAZARUS Director April 12, 2000
- ------------------------------------------------
Charles Lazarus
/s/ Director April 12, 2000
- ------------------------------------------------
Malvin A. Ruderman
/s/ E. DONALD SHAPIRO Director April 12, 2000
- ------------------------------------------------
E. Donald Shapiro
/s/ Director April 12, 2000
- ------------------------------------------------
Arthur L. Simon
/s/ DANIEL YANKELOVICH Director April 12, 2000
- ------------------------------------------------
Daniel Yankelovich
/s/ RICHARD J. TOWNSEND Senior Vice President & April 12, 2000
- ------------------------------------------------ CFO
Richard J. Townsend (Principal Financial
Officer)
/s/ HARVEY B. REIN Vice President and April 12, 2000
- ------------------------------------------------ Controller
Harvey B. Rein (Principal Accounting
Officer)
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5
11 April 2000
Loral Space & Communications Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM 12
Bermuda
Dear Sirs
LORAL SPACE & COMMUNICATION LTD. (THE "COMPANY")
We have acted as Bermuda counsel to the Company, a Bermuda limited liability
company, in connection with its registration for resale of 8,000,000 shares of
6% Series D Convertible Redeemable Preferred Stock due 2007 (the "Preferred
Shares ") and the 20,171,152 shares of Common Stock, of US$0.01 par value
("Common Shares"), issuable upon conversion thereof (the "Conversion Shares")
and the shares of Common Stock of US$0.01 par value issuable in connection with
dividend, redemption, or other payments on the Preferred Stock (the "Payment
Shares") as provided for in the Registration Statement on Form S-3 with respect
thereto (the "Registration Statement"), filed with the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended.
For the purposes of this opinion, we have been supplied with and reviewed a copy
of the Registration Statement, and have relied upon the Memorandum of
Association and Bye-Laws of the Company and such other documents, certificates
and records and have made such investigations as we deem necessary or
appropriate in order to give the opinion expressed herein.
ASSUMPTIONS
We have assumed:
(i) The genuineness of all signatures on the documents which we have
examined.
(ii) The conformity to original documents of all documents produced to us as
copies and the authenticity of all original documents which, or copies
of which, have been submitted to us.
<PAGE> 2
- 2 -
OPINION
Based upon and subject to the foregoing and subject to the reservations
mentioned below and to any matters not disclosed to us, we are of the opinion
that:
(i) the Preferred Shares have been duly authorized, validly issued and
fully paid and the Conversion Shares and the Payment Shares, when
issued in accordance with the terms of the Company's Bye-laws, will be
duly authorized, validly issued and fully paid and non-assessable;
(ii) the statements set forth in the Prospectus under the headings
"Description of Preferred Stock" and "Taxation - Bermuda Tax
Considerations," to the extent that they constitute matters of Bermuda
law, or legal conclusions with respect thereto, have been reviewed by
us and are accurate in all material respects and fairly present the
information disclosed therein in all material respects.
RESERVATIONS
Our reservations are as follows:
(A) We express no opinion as to any law other than Bermuda law and none of
the opinions expressed herein relates to compliance with or matters
governed by the laws of any jurisdiction other than Bermuda. Where an
obligation is to be performed in a jurisdiction other than Bermuda, a
Bermuda court may decline to enforce it to the extent that such
performance would be illegal or contrary to public policy under the
laws of such other jurisdiction.
(B) We express no opinion as to the availability of equitable remedies,
such as specific performance or injunctive relief, or as to any matters
which are within the discretion of the Bermuda courts, such as the
award of costs, or questions related to jurisdiction. Further, we
express no opinion as to the validity or binding effect in Bermuda of
any waiver of or obligation to waive any provision of law (whether
substantive or procedural) or any right or remedy arising through
circumstances not known at the time of the filing of the Registration
Statement.
(C) Section 9 of the Interest and Credit Charges (Regulation) Act 1975
provides that the Bermuda courts have discretion as to the amount of
interest if any payable on the amount of a judgment after date of
judgment. If the court does not exercise that discretion, then interest
will accrue at the statutory rate which is currently seven per cent per
annum.
(D) Where a party is vested with a discretion or may determine a matter in
its opinion, such discretion may have to be exercised reasonably or
such an opinion may have to be based on reasonable grounds.
(E) For the purposes of this opinion:
<PAGE> 3
- 3 -
(i) The term "fully paid" means, in relation to the issued shares
of a company limited by shares (that is to say, a company
having the liability of its members limited by its Memorandum
of Association to the amount, if any, unpaid on the shares
held by them), that members holding such shares have no
liability to make any contribution or other payment to the
company in respect of those shares.
(ii) The term "non-assessable" means, in relation to fully paid
shares of a company, that such member shall not be bound by an
alteration to the Memorandum of Association or to the Bye-laws
of that company after the date upon which he became a member,
if insofar as the alteration requires him to take, or
subscribe for additional shares, or in any way increases his
liability to contribute to the share capital of or otherwise
to pay money to the company.
We consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the reference to our firm under the caption "Legal Matters,"
"Description of Preferred Stock,"Description of Common Stock" and "Taxation" in
the Prospectus which is a part of the Registration Statement. This opinion is
issued on the basis that it will be construed in accordance with the provisions
of Bermuda law. It is issued solely for the benefit of the addressee in relation
to the transaction described above and is not to be relied upon by any other
person, firm or entity, provided that Willkie Farr & Gallagher may rely on our
opinion expressed in clause (ii) with respect to the statements set forth in the
Prospectus under the heading "Description of Preferred Stock" as though it were
addressed to them.
Yours faithfully,
APPLEBY, SPURLING & KEMPE
<PAGE> 1
EXHIBIT 8
[Letterhead of Willkie Farr & Gallagher]
April 11, 2000
Loral Space & Communications Ltd.
600 Third Avenue
New York, NY 10016
Ladies and Gentlemen:
We have acted as counsel to Loral Space & Communications Ltd. (the "Company"), a
company organized under the laws of Bermuda, in connection with the preparation
of a Registration Statement on Form S-3 (as amended, the "Registration
Statement") relating to the offer and sale from time to time by the selling
holders named in the Registration Statement of up to (i) 8,000,000 shares of the
Series 6% Series D Convertible Redeemable Preferred Stock Due 2007 (the
"Preferred Shares") of the Company and (ii) 66,068,130 shares of the common
stock of the Company, par value $.01 per share (together with the Preferred
Shares, the "Securities").
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the Memorandum of
Understanding and the Bye-Laws of the Company and such corporate records,
agreements, documents and other instruments as we have deemed necessary for the
purpose of this opinion. We have also examined such other documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied on statements and
certificates of officers and representatives of the Company and public
officials, and, with the consent of Appleby, Spurling & Kempe, we have relied,
as to matters of Bermuda law, upon the opinion of Appleby, Spurling & Kempe,
dated today.
<PAGE> 2
Based upon the foregoing and having regard for such legal questions as we have
deemed relevant, the legal conclusions set forth in the discussion of U.S. tax
law under the heading "Taxation--United States Tax Considerations" are our
opinions, and it is our opinion that this discussion addresses the material U.S.
tax consequences of an investment in the Securities.
We call to your attention that we are members of the Bar of the State of New
York and do not purport to be experts in, or to render any opinions with respect
to, the laws of jurisdictions other than the State of New York, except for the
federal laws of the United States of America and the Revised Uniform Limited
Partnership Act of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included as
part of the Registration Statement. In giving such consent, we do not admit
hereby that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXECUTION COPY
LORAL SPACE & COMMUNICATIONS LTD.
8,000,000 Shares
of 6% Series D Convertible
Redeemable Preferred Stock due 2007
(Liquidation Preference $50 per share) (1)
PURCHASE AGREEMENT
February 14, 2000
LEHMAN BROTHERS INC.
as Representative of the
several Initial Purchasers named in
Schedule I hereto
c/o Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street
New York, New York 10285
Dear Sirs:
Loral Space & Communications Ltd., a company organized and
existing under the laws of Bermuda (the "Company"), proposes, subject to the
terms and conditions stated herein, to issue and sell to the several Initial
Purchasers named in Schedule I hereto (the "Initial Purchasers") 8,000,000
shares (the "Firm Securities") of its 6% Series D Convertible Redeemable
Preferred Stock due 2007, liquidation preference $50 per share, par value $0.01
per share (the "Preferred Stock"). In addition, the Company proposes to grant to
the Initial Purchasers an option to purchase from the Company up to an
additional 1,600,000 shares of Preferred Stock (the "Option Securities"), as
provided in Section 2(b) below. The Firm Securities and any Option Securities
purchased by the Initial Purchasers are collectively referred to herein as the
"Securities". Lehman Brothers Inc. ("Lehman") has been appointed to act as
Representative of the Initial Purchasers under this Agreement. The Securities
will be convertible, at the option of the holders thereof, into shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), at the
conversion price of $19.8308 per share, subject to certain adjustments.
- ----------
(1) Plus an option to purchase up to 1,600,000 additional shares from the
Company.
<PAGE> 2
2
The Securities will be offered without being registered under
the Securities Act to qualified institutional buyers in compliance with the
exemption from registration provided by Rule 144A under the Securities Act and
in offshore transactions in reliance on Regulation S.
Holders (including subsequent transferees) of the Securities
will have the registration rights set forth in the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company has agreed
to file with the Commission, under certain circumstances, a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement").
The following terms as used in this Agreement shall have the following
meanings:
"Affiliate" shall have the meaning as defined in Rule 144
under the Securities Act.
"Business Day" means any Monday through Friday on which
trading is conducted on the NYSE.
"Closing Date" shall have the meaning assigned thereto in
Section 3(b).
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock" shall have the meaning assigned thereto in the
first paragraph of this Agreement.
"Communications Act" means the Communications Act of 1934.
"Cyberstar" shall mean Loral Cyberstar, Inc., a Delaware
corporation.
"DTC" means The Depository Trust Company.
"Exchange Act" means the Securities Exchange Act of 1934.
"Execution Time" means the date and time that this Agreement
is executed and delivered by the parties hereto.
"FCC" means the Federal Communications Commission.
"Final Memorandum" means the final offering memorandum dated
February 14, 2000, including any information incorporated by reference therein.
"First Closing Date" shall have the meaning assigned thereto
in Section 3(a).
<PAGE> 3
3
"foreign purchasers" shall have the meaning assigned thereto
in Section 4(a).
"GTL" means Globalstar Telecommunications Limited, a Bermuda
company.
"Globalstar" means Globalstar, L.P., a Delaware limited
partnership.
"Initial Purchasers" means the parties named in Schedule I
hereto.
"Investment Company Act" means the Investment Company Act of
1940 and the rules and regulations thereunder.
"Loral Affiliates" means each of GTL, Globalstar, SS/L,
Cyberstar and SatMex, and any other subsidiary (as defined in Rule 405 under the
Securities Act) of the Company.
"LQP" means Loral/QUALCOMM Partnership, L.P., a Delaware
limited partnership and the general partner of LQSS.
"LQSS" means Loral/QUALCOMM Satellite Services, L.P., a
Delaware limited partnership and the managing general partner of Globalstar.
"Material Adverse Change" means, with respect to any entity,
any material adverse change in or affecting the business, results of operations,
financial condition, owners' equity (stockholders' equity in the case of a
corporation and partners' equity in the case of a partnership) or prospects of
such entity, taken as a whole.
"NASD" means the National Association of Securities Dealers,
Inc.
"Option" shall have the meaning assigned thereto in Section
2(b).
"Option Closing Date" shall have the meaning assigned thereto
in Section 3(b).
"Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of Globalstar, L.P. dated as of March 6, 1996,
as amended as of April 8, 1998, and as further amended as of January 26, 1999
and as of February 1, 2000, among LQSS, the Company and certain limited partners
named therein.
"Preliminary Memorandum" means the preliminary offering
memorandum, dated February 7, 2000, including any information incorporated by
reference therein.
<PAGE> 4
4
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the First Closing Date, among the Company and the Initial
Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Rules and Regulations" means the rules and regulations in
effect at any relevant time adopted by the Commission under the Securities Act
or the Exchange Act, as applicable.
"SatMex" means Satelites Mexicanos, S.A. de C.V., a company
organized under the laws of Mexico.
"Securities Act" means the Securities Act of 1933.
"Shelf Registration Statement" shall have the meaning set
forth in the third paragraph of this Agreement.
"Skynet" means Loral Skynet, a Delaware corporation.
"SpaceCom Credit Agreement" means that certain Amended and
Restated Credit and Participation Agreement among Loral SpaceCom Corporation,
Space Systems/Loral, Inc., certain lending banks, Bank of America National Trust
and Savings Association, as Administrative Agent, and Istituto Bancario San
Paolo Di Torino S.P.A., individually and as Italian Export Financing Arranger
and as Selling Bank, dated as of November 14, 1997, providing for up to $850
million of credit extensions, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
"SS/L" means Space Systems/Loral Inc., a Delaware corporation.
"Transfer Agent" means The Bank of New York.
The sale of the Firm Securities and any Option Securities to
the Initial Purchasers will be made without registration under the Securities
Act, in reliance on exemptions from the registration requirements of the
Securities Act and the Rules and Regulations. The Initial Purchasers have
advised the Company that the Initial Purchasers will offer and sell the
Securities purchased by them hereunder in accordance with Section 4 as soon as
they deem advisable.
In connection with the sale of the Securities, the Company has
prepared the Preliminary Memorandum and the Final Memorandum. Each of the
Preliminary
<PAGE> 5
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Memorandum and the Final Memorandum sets forth certain information concerning
the Company, the Loral Affiliates and the Securities. The Company hereby
confirms that it has authorized the use of the Preliminary Memorandum and the
Final Memorandum in connection with the offer and sale of the Securities by the
Initial Purchasers.
Unless stated to the contrary, all references herein to the
Final Memorandum are to the Final Memorandum at the Execution Time and are not
meant to include any amendment or supplement, subsequent to the Execution Time,
and any references herein to the terms "amend", "amendment" or "supplement" with
respect to the Final Memorandum shall be deemed to refer to and include any
information filed under the Exchange Act subsequent to the Execution Time which
is incorporated by reference therein.
1. Representations and Warranties of the Company. The Company
represents and warrants to each Initial Purchaser as set forth below in this
Section 1 that:
(1) The Preliminary Memorandum, at the date thereof, did not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Final Memorandum, at the date
hereof, does not, and at each Closing Date will not (and any amendment or
supplement thereto, at the date thereof and at each Closing Date, will not),
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no representation or warranty as to the information contained in or
omitted from the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the Initial
Purchasers specifically for inclusion therein.
(2) The documents incorporated by reference in each of the
Preliminary Memorandum and the Final Memorandum when they were filed with the
Commission conformed in all material respects to the requirements of the
Exchange Act and the Rules and Regulations and none of such documents contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by reference in
the Final Memorandum, when such documents are filed with the Commission, will
conform in all material respects to the requirements of the Exchange Act and the
Rules and Regulations and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(3) It is not required by applicable law or regulation in
connection with the offer, sale and delivery of the Securities to the Initial
Purchasers in the manner
<PAGE> 6
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contemplated by this Agreement to register the Securities under the Securities
Act, provided that no form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act ("Regulation D"))
has been or will be used by the Initial Purchasers or any of their
representatives in connection with the offer and sale of any of the Securities,
including, but not limited to, any advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(4) Each of the Company and GTL has been duly incorporated as
an exempted company and is validly existing as an exempted company in good
standing under the laws of Bermuda, with all requisite power and authority and,
except as disclosed in the Final Memorandum, has all necessary material
government authorizations, licenses, certificates, franchises, permits and
approvals required to own its properties and to conduct its business as
described in the Final Memorandum; Globalstar has been duly formed and is
validly existing as a limited partnership under the laws of the State of
Delaware, and has been duly qualified for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases property, or conducts any business, so as to require such qualification
(except where the failure to so qualify would not result in a Material Adverse
Change with regard to the Company); and Globalstar has all requisite power and
authority and, except as disclosed in the Final Memorandum, has all necessary
material government authorizations, licenses, certificates, franchises, permits
and approvals required to own its properties and to conduct its business as
described in the Final Memorandum; SS/L and Cyberstar have been duly
incorporated and are validly existing in good standing under the laws of the
State of Delaware, with all requisite power and authority and, except as
disclosed in the Final Memorandum, have all necessary material government
authorizations, licenses, certificates, franchises, permits and approvals
required to own their properties and to conduct their businesses as described in
the Final Memorandum; SatMex has been duly formed and is validly existing as a
company under the laws of Mexico, with all requisite power and authority and,
except as disclosed in the Final Memorandum, has all necessary material
government authorizations, licenses, certificates, franchises, permits and
approvals required to own its properties and conduct its business as described
in the Final Memorandum; each other Loral Affiliate that is a corporation has
been duly incorporated and is validly existing in good standing under the laws
of its jurisdiction of incorporation; each Loral Affiliate that is a partnership
has been duly formed and is validly existing under the laws of its jurisdiction
of formation. Since the respective dates as of which information is given in the
Final Memorandum, and except as otherwise disclosed in the Final Memorandum,
there has not been, and prior to the Closing Date there will not be, any
Material Adverse Change in the capital stock or partnership interests,
short-term debt or long-term consolidated debt of the Company and its
subsidiaries, taken as a whole, or any Material Adverse Change in or affecting
the Company and its subsidiaries, taken as a whole, otherwise than as set forth
or contemplated, or under arrangements referred to, in the Final Memorandum (as
amended or supplemented).
<PAGE> 7
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(5) The Securities satisfy the eligibility requirements of
Rule 144A(d)(3) under the Securities Act and the Company will use its best
efforts to have the Securities designated PORTAL eligible securities in
accordance with the rules and regulations of the NASD.
(6) Neither the Company nor any Loral Affiliate is an
"investment company" within the meaning of such term under the United States
Investment Company Act of 1940.
(7) The Company has authorized capital stock as set forth in
its Statement of Capital Increase, and all the issued shares of Common Stock
have been duly and validly authorized and issued, are fully paid and
nonassessable and conform in all material respects to the description in the
Final Memorandum; and the Common Stock is approved for trading on the NYSE and
is not subject to any preemptive or similar rights; and the schedule to the
Bye-Laws of the Company (the "Preferred Stock Schedule") setting forth the terms
of the Securities conforms in all material respects with the description thereof
in the Final Memorandum.
(8) The Registration Rights Agreement has been duly authorized
by the Company and, when executed by the proper officers of the Company
(assuming due execution and delivery by the Initial Purchasers) and delivered by
the Company, will constitute the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditor's rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
enforcement of rights to indemnity or contribution may be limited by Federal or
state securities laws or principles of public policy; and the Registration
Rights Agreement conforms in all material respects to the description thereof
contained in the Final Memorandum.
(9) This Agreement has been duly authorized, executed and
delivered by the Company.
(10) The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any Loral Affiliate is a party or by which
the Company or any Loral Affiliate is bound or to which any of the property or
assets of the Company or any Loral Affiliate is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws (or other
constitutive documents) of the Company or any Loral
<PAGE> 8
8
Affiliate, or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any Loral
Affiliate or any of their properties or assets; no consent, approval,
authorization or order of, or filing or registration with, any such court or
governmental agency or body is required for the issue and sale of Securities by
the Company and the consummation of the transactions contemplated by this
Agreement and the Registration Rights Agreement, except a filing required by
Bermuda law for which a waiver has been obtained, and except as may be required
under the various state securities or Blue Sky Laws or as may be required by the
laws of any country other than the United States in connection with the resale
of the Securities by the Initial Purchasers or as may be required under the
Securities Act pursuant to the terms of the Registration Rights Agreement.
(11) Except (i) as may otherwise be disclosed in or
contemplated by the Final Memorandum and (ii) with regard to the exchange of
certain shares of 6% Series C convertible redeemeable preferred stock for
3,857,777 shares of Common Stock, since September 30, 1999, the Company has not
issued or granted any securities, including any sales pursuant to Rule 144A,
Regulation D or Regulation S under the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock options plans or other
employee compensation plans or pursuant to outstanding options, rights, warrants
or securities.
(12) Except as disclosed in the Final Memorandum, neither the
Company nor any Loral Affiliate has sustained, since the date of the latest
audited financial statements included in the Final Memorandum, any material loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and, since such date, there has not been
any Material Adverse Change, or any development involving a prospective Material
Adverse Change, in or affecting the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Final Memorandum.
(13) Deloitte & Touche LLP, whose report appears in the Final
Memorandum, are independent public accountants with respect to each of the
Company and certain of the Loral Affiliates. The financial statements included
or incorporated by reference in the Final Memorandum or Preliminary Memorandum
present fairly the financial condition, results of operations and changes in
financial condition of the entities purported to be shown thereby at the dates
and for the periods indicated and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be noted therein) throughout the periods indicated.
(14) Except as described in the Final Memorandum, the Company
and each of the Loral Affiliates carry, or are covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of their
respective businesses and the
<PAGE> 9
9
value of their respective properties and as is customary for companies engaged
in similar businesses in similar industries.
(15) Each of the Company and the Loral Affiliates and their
respective equipment suppliers owns or possesses adequate patent rights or
licenses or other rights to use patent rights, inventions, trademarks, service
marks, trade names and copyrights (except as otherwise described in the Final
Memorandum) necessary to conduct the general business proposed to be operated by
the each of such suppliers, the Company and the Loral Affiliates, and none of
the Company or the Loral Affiliates or, to the knowledge of the Company, any of
their respective equipment suppliers, has received any notice of infringement of
or conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trademarks, service marks, trade names or copyrights which,
singularly or in the aggregate, could result in a Material Adverse Change with
regard to the Company and the Loral Affiliates, taken as a whole.
(16) Except as described or contemplated in the Final
Memorandum, there are no legal or governmental proceedings pending to which the
Company or any Loral Affiliate is a party or of which any property or assets of
the Company or any Loral Affiliate is the subject which, if determined adversely
to the Company or any Loral Affiliate, would result in a Material Adverse Change
with regard to the consolidated Company and the Loral Affiliates, taken as a
whole, and to the best of the Company's knowledge, except as described in the
Final Memorandum, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(17) Other than as disclosed in the Final Memorandum, (i) no
default exists, and no event has occurred which with notice or lapse of time, or
both, would constitute a default in the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust, loan or
credit agreement, lease or other agreement or instrument to which the Company or
any Loral Affiliate is a party or by which the Company or any Loral Affiliate is
bound, except any such default or event as would not singly or in the aggregate
result in a Material Adverse Change with regard to the Company and the Loral
Affiliates, taken as a whole, and (ii) neither the Company nor any Loral
Affiliate is in violation in any material respect of any applicable law.
(18) (i) The FCC has authorized LQP to construct a mobile
satellite system capable of operating in the 1610-1626.5/2483.5-2500 MHz
frequency bands, consistent with the technical specifications set forth in its
application, the FCC's rules and the conditions set forth in the FCC's Order and
Authorization (DA 95-128), released January 31, 1995, as affirmed and modified
by the Memorandum Opinion and Order, FCC 96 279 (released June 27, 1996), as
modified by the FCC's Order and Authorization, DA 96 1924 (released November 19,
1996); however, such authorization is presently subject to modification, stay or
revocation through judicial appeals.
<PAGE> 10
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(ii) Participation by Globalstar in the development and
operation of the Globalstar System as described in the Final Memorandum
does not violate the Communications Act, or the rules and regulations
thereunder.
(iii) The construction, launch and operation by Globalstar of
the Globalstar satellite constellation authorized by the Order and
Authorization (DA 95-128), released January 31, 1995 as modified by the
Erratum, DA 95 373 (released February 29, 1995), as affirmed and
modified by the Memorandum Opinion and Order, FCC 96 279 (released June
27, 1996), as modified by the FCC's Order and Authorization, DA 96 1924
(released November 19, 1996), would not violate provisions of the
Communications Act or the FCC's rules and policies thereunder relating
to control of FCC authorizations, provided that L/Q Licensee, Inc.
remains in ultimate control of the authorized facilities as defined by
the rules and policies of the FCC and that there is no transfer of
control of L/Q Licensee, Inc. without prior approval of the FCC.
(19) Neither the Company nor any Loral Affiliate, nor any
director, officer, agent, employee or other person associated with or acting on
behalf of the Company or any Loral Affiliate, has used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(20) Except as disclosed in the Final Memorandum, there has
been no storage, disposal, generation, manufacture, refinement, transportation,
handling or treatment of toxic wastes, medical wastes, hazardous wastes or
hazardous substances by any of the Company or the Loral Affiliates (or, to the
knowledge of the Company, any predecessors in interest of any of them) at, upon
or from any of the property now or previously owned or leased by the Company or
any Loral Affiliate, as the case may be, in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial action
which would not result in, or would not be reasonably likely to have, singularly
or in the aggregate with all such violations and remedial actions, a Material
Adverse Change with regard to the Company and the Loral Affiliates, taken as a
whole; there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by the
Company, any Loral Affiliate or any of their respective predecessors or with
respect to which the Company has knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which would not
result in or would not be reasonably likely to have, singularly or in the
aggregate with all such spills, discharges, leaks, emissions, injections,
escapes, dumpings and releases, a Material
<PAGE> 11
11
Adverse Change with regard to the Company and the Loral Affiliates, taken as a
whole; and the terms "hazardous wastes", "toxic wastes", "hazardous substances"
and "medical wastes" shall have the meanings specified in any applicable local,
state, Federal and foreign laws or regulations with respect to environmental
protection.
(21) The partnership interests in Globalstar held by the
Company and GTL pursuant to the Partnership Agreement are duly and validly
authorized, executed, issued and delivered in accordance with the terms of the
Partnership Agreement, are fully paid and constitute the valid and binding
obligations of Globalstar; all the issued and outstanding capital stock of each
other Loral Affiliate has been duly authorized and validly issued and is fully
paid and nonassessable; and, except as disclosed in the Final Memorandum and
except for the stock of GTL that is owned by the Company and has been pledged to
Lockheed Martin, common stock of GTL owned by the Company that is subject to
outstanding options, shares of Loral SpaceCom Corporation and SS/L pledged as
security for borrowings under the SpaceCom Credit Agreement, partnership
interests in Globalstar owned by the Company, some of which are subject to a
pledge in the event of a drawing by the Company under a credit agreement, dated
as of June 30, 1998, among the Company, the lenders party thereto from time to
time and Bank of America National Trust and Savings Association, as
administrative agent, interests in Firmanento Mexicano, S. de R.L. de C.V. that
have been pledged to the Mexican government and shares of SatMex pledged in
favor of certain banks in connection with the SatMex Credit Agreement dated as
of February 23, 1998 and the Indenture dated March 4, 1998 relating to the
Senior Secured Floating Rate Notes, the capital stock of such Loral Affiliate
owned by the Company, directly or indirectly, is owned free from liens,
encumbrances, equities, claims and defects.
(22) The Partnership Agreement has been duly executed by the
Company and certain Loral Affiliates (to the extent that they are parties
thereto) and is a valid, binding and enforceable agreement, except as
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and (ii)
Federal or state securities laws or principles of public policy with regard to
rights to indemnity under the Partnership Agreement to the extent an indemnified
party thereunder may be deemed or alleged to be an underwriter pursuant to such
laws; provided, however, that no representation is made hereunder with respect
to the enforceability of any provisions contained in the Partnership Agreement
which state that the parties thereto have agreed to further negotiate with
respect to certain matters as specified therein or which provide for the grant
of exclusive service territories.
(23) For U.S. Federal income tax purposes, the Company is not,
and does not expect to become, a "passive foreign investment company" within the
meaning of Section 1297 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code").
<PAGE> 12
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(24) Each of the Company and each Loral Affiliate that is
subject to U.S. law is in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974,
including the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or the Loral
Affiliates would have any liability; neither the Company nor any of the Loral
Affiliates have incurred or expects to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 (other than routine minimum funding obligations), 4971 or 4975
of the Code; and nothing has occurred, whether by action or failure to act, with
respect to the operation of any "pension plan" for which the Company or any of
its subsidiaries would have any liability that is intended to be qualified under
Section 401(a) of the Code that could reasonably be expected to result in the
loss of such qualification.
(25) The proceeds from the offering of Securities will be used
as contemplated in the Final Memorandum.
(26) The Securities have been duly and validly authorized and,
when the Securities have been issued and delivered by the Company and paid for
pursuant to this Agreement on the Closing Date, the Securities will be duly and
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Final Memorandum.
(27) The Company and the Loral Affiliates have timely filed
all material tax returns and notices and have paid all Federal, state, county,
local and foreign taxes of any nature whatsoever to the extent such taxes have
become due. Neither the Company nor any Loral Affiliate has any knowledge, or
any reasonable grounds to know, of any tax deficiencies which would,
individually or in the aggregate, result in a Material Adverse Change with
respect to the Company and its subsidiaries, taken as a whole.
(28) Each of the Company and the Loral Affiliates (i) makes
and keeps accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are executed
in accordance with management's authorization, (B) records transactions as
necessary to permit preparation of its financial statements and to maintain
accountability for its assets and (C) permits access to its assets only in
accordance with management's authorization.
(29) Neither the Company nor any Loral Affiliate has taken,
nor will any of them take, directly or indirectly, any action designed to cause
or that would result in, or which constitutes or that might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Securities to facilitate the sale or resale of the Securities.
<PAGE> 13
13
(30) None of the Company, the Loral Affiliates or any person
acting on its or their behalf has engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the Securities, and
the Company and the Loral Affiliates and any person acting on its or their
behalf have complied and will comply with the offering restrictions requirement
of Regulation S, except no representation, warranty or agreement is made by the
Company in this paragraph with respect to the Initial Purchasers.
2. Purchase and Sale of the Securities.
(a) Subject to the terms and conditions and upon the basis of
the representations and warranties herein set forth, (i) the Company agrees to
issue and sell to the Initial Purchasers the Firm Securities at a purchase price
of $48.625 per share, plus accrued dividends, if any, from February 18, 2000 to
the First Closing Date and (ii) each of the Initial Purchasers agrees, severally
and not jointly, to purchase from the Company the number of Firm Securities set
forth opposite such Initial Purchaser's name in Schedule I hereto.
(b) The Company hereby grants to the Initial Purchasers an
option (the "Option"), exercisable at the election of Lehman, to purchase from
the Company the Option Securities at a purchase price of $48.625 per share, plus
accrued dividends, if any, from February 18, 2000 to the Closing Date for the
Option Securities. Upon exercise of the Option, each of the Initial Purchasers
agrees, severally and not jointly, and otherwise on the terms and subject to the
conditions herein set forth, to purchase from the Company the number of Option
Securities in the respective proportions which the number of Firm Securities set
forth opposite the name of each Initial Purchaser in Schedule I hereto bears to
the aggregate number of Firm Securities, subject to such adjustments as the
Initial Purchasers shall deem advisable.
(c) The Company shall not be obligated to deliver any of the
Firm Securities or the Option Securities to be delivered on the First Closing
Date or any Closing Date, as the case may be, except upon payment for all the
Securities to be purchased on such Closing Date as provided herein.
3. Delivery of and Payment for Securities.
(1) Delivery of and payment for the Firm Securities and the
Option Securities (if the Option provided for in Section 2(b) hereof shall have
been exercised on or before the second Business Day prior to the First Closing
Date) shall be made at the offices of Cravath, Swaine & Moore, 825 Eighth
Avenue, New York, New York 10019 (or such other place as mutually may be agreed
upon), at 10:00 a.m., New York City time, on February 18, 2000, or such later
date (not later than February 25, 2000,) as the Initial Purchasers shall
designate, which date and time may be postponed by agreement between the Initial
Purchasers and the Company or as provided in Section 8 hereof (such
<PAGE> 14
14
date and time of delivery and payment for the Securities being herein called the
"First Closing Date").
(2) The Option may be exercised in whole or in part at any
time (but not more than once) on or before the 30th day after the date of the
Final Memorandum upon written or telegraphic notice by the Initial Purchasers to
the Company setting forth the number of Option Securities as to which the
Initial Purchasers are exercising the Option and the time and date, not earlier
than the later of either the First Closing Date or the third Business Day after
the date of such exercise, as determined by the Initial Purchasers, when the
Option Securities are to be delivered (the "Option Closing Date"). Delivery of
certificates for, and payment of, the Option Securities shall be made at the
offices set forth above for delivery and payment of the Firm Securities. The
First Closing Date and the Option Closing Date are herein individually referred
to as a "Closing Date" and collectively referred to as the "Closing Dates".
(3) The Securities to be purchased by the Initial Purchasers
hereunder shall be delivered by or on behalf of the Company to the Initial
Purchasers against payment of the purchase price therefor by wire transfer in
immediately available funds. On each Closing Date, payment will be made against
delivery of one or more global securities certificates to be deposited with, or
on behalf of, DTC, and registered in the name of Cede & Co., as DTC's nominee.
4. Sale and Resale of the Securities by the Initial
Purchasers. Each Initial Purchaser represents and warrants to and agrees with
the Company that:
(1) it has offered and will offer to sell the Securities only
to, and has solicited and will solicit offers to buy the Securities only from,
(i) in the United States, persons that in purchasing such Securities will be
deemed to have represented and agreed as provided under "Investor
Representations and Restrictions on Resale" in Exhibit A hereto and (ii) in the
case of offers outside the United States, to persons other than U.S. persons
("foreign purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)) in reliance upon Regulation S
under the Securities Act and persons that, in each case, in purchasing such
Securities are deemed to have represented and agreed as provided in the Final
Memorandum under the caption "Notice to Investors";
(2) with respect to resales made in reliance on Rule 144A of
any of the Securities, to deliver either with the confirmation of such resale or
otherwise prior to settlement of such resale a notice to the effect that the
resale of such Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A;
<PAGE> 15
15
(3) with respect to offers outside the United States, to
foreign purchasers in reliance upon Regulation S under the Securities Act in
each case, in purchasing such Securities are deemed to have represented and
agreed as provided in the Final Memorandum under the caption "Transfer
Restrictions";
(4) to use reasonable efforts to advise all purchasers of the
Securities in writing in the confirmation sent to such purchasers, of the
changes in the change in control provision in the Final Memorandum under the
caption "Description of Preferred Stock"; and
(5) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(1) such Initial Purchaser understands that no action has
been or will be taken in any jurisdiction by the Company that
would permit a public offering of the Securities, or
possession or distribution of either Memorandum or any other
offering or publicity material relating to the Securities, in
any country or jurisdiction where action for that purpose is
required;
(2) such Initial Purchaser will comply with all applicable
laws and regulations in each jurisdiction in which it
acquires, offers, sells or delivers Securities or has in its
possession or distributes either Memorandum or any such other
material, in all cases at its own expense;
(3) the Securities have not been registered under the
Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S.
persons except in accordance with Rule 144A or Regulation S
under the Securities Act or pursuant to another exemption from
the registration requirements of the Securities Act and the
Rules and Regulations;
(4) such Initial Purchaser has offered the Securities and
will offer and sell the Securities (A) as part of their
distribution at any time and (B) otherwise until 365 days
after the later of the commencement of the offering and the
Closing Date (or Option Closing Date, if later), only in
accordance with Rule 903 of Regulation S or as otherwise
permitted in Section 4(a); accordingly, neither such Initial
Purchaser, its Affiliates nor any persons acting on its or
their behalf have engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with
respect to the Securities, and any such Initial Purchaser, its
Affiliates and any such persons have complied and will comply
with the offering restrictions requirement of Regulation S;
and such Initial Purchaser has not and will not engage in any
hedging transactions with regard to the
<PAGE> 16
16
Securities except in compliance with the Securities Act and
the Rules and Regulations;
(5) such Initial Purchaser has (A) not offered or sold
and, prior to the date six months after the Closing Date, will
not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom,
and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is
of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996
(as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on;
(6) such Initial Purchaser understands that the Securities
have not been and will not be registered under the Securities
and Exchange Law of Japan, and represents that it has not
offered or sold, and agrees not to offer or sell, directly or
indirectly, any Securities in Japan or for the account of any
resident thereof except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law
of Japan and otherwise in compliance with applicable
provisions of Japanese law; and
(7) such Initial Purchaser agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases
Securities from it during the restricted period a confirmation
or notice to substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 365 days after the later of the commencement of
the offering and the final closing date, except in either case in
accordance with Regulation S (or Rule 144A if available) under the
Securities Act. Terms used above have the meaning given to them by
Regulation S."
<PAGE> 17
17
Terms used in this Section 4(d) have the meanings given to
them by Regulation S.
5. Covenants of the Company. The Company agrees with each
Initial Purchaser that:
(1) The Company will furnish to each Initial Purchaser and to
counsel for the Initial Purchasers, without charge, during the period referred
to in paragraph (c) below, as many copies of the Final Memorandum, including any
documents incorporated by reference therein and any amendments and supplements
thereto, as it may reasonably request. The Company will pay the expenses of
printing or other production of all documents relating to the offering.
(2) The Company will not amend or supplement the Final
Memorandum, other than by filing documents under the Exchange Act which are
incorporated by reference therein, without the prior written consent of the
Initial Purchasers, which consent shall not be unreasonably withheld or delayed;
provided, however, that, prior to the completion of the distribution of the
Securities by the Initial Purchasers (as determined by Lehman), the Company will
not file any document under the Exchange Act which is incorporated by reference
in the Final Memorandum unless, prior to such proposed filing, the Company has
furnished the Initial Purchasers with a copy of such document for their review
and the Initial Purchasers have not reasonably objected to the filing of such
document. The Company will promptly advise the Initial Purchasers when any
document filed under the Exchange Act which is incorporated by reference in the
Final Memorandum shall have been filed with the Commission.
(3) If at any time prior to the completion of the sale of the
Securities by the Initial Purchasers (as determined by Lehman), any event occurs
as a result of which the Final Memorandum, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it should be
necessary to amend or supplement the Final Memorandum to comply with applicable
law, the Company will promptly notify the Initial Purchasers of the same and,
subject to the requirements of paragraph (b) of this Section 5, will promptly
prepare and provide to the Initial Purchasers pursuant to paragraph (a) of this
Section 5 an amendment or supplement which will correct such statement or
omission or effect such compliance.
(4) The Company will arrange for the qualification of the
Securities for sale by the Initial Purchasers under the laws of such
jurisdictions as the Initial Purchasers may designate and will maintain such
qualifications in effect so long as required for the sale of the Securities,
provided, however, that in no event shall the Company be obligated in connection
therewith to qualify as a foreign corporation or to execute a general consent to
service of process or to take any action that would subject it
<PAGE> 18
18
to taxation in such jurisdiction. The Company will promptly advise the Initial
Purchasers of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose.
(5) Neither the Company nor any of the Loral Affiliates nor
any person acting on their behalf will, directly or indirectly, make offers or
sales of any security, or solicit offers to buy any security, under
circumstances that would require the registration of the Securities under the
Securities Act and the Rules and Regulations. Neither the Company nor any of the
Loral Affiliates, nor any person acting on their behalf will engage in any form
of general solicitation or general advertising (within the meaning of Regulation
D), or in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(6) So long as any of the Securities are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act, the
Company will, during any period in which it is not subject to and in compliance
with Section 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. This covenant is intended to be for the
benefit of the holders, and the prospective purchasers designated by such
holders, from time to time of such restricted securities.
(7) The Company will use its best efforts to cause the
Securities to be eligible for clearance and settlement through DTC.
(8) Neither the Company nor any of the Loral Affiliates will
not, until 90 days following the First Closing Date, without the prior written
consent of Lehman, agree to offer to sell, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exchangeable for, or warrants to acquire Common Stock or create a "put
equivalent position" (within the meaning of Rule 16a-1(h) under the Exchange
Act) with respect to the Common Stock, other than (i) Common Stock the issuance
of which is permitted to satisfy the Company's dividend, conversion and
redemption obligations (including in respect of any dividend make-whole
payments) pursuant to the terms of the Securities, (ii) Common Stock, or options
to purchase Common Stock, issued in connection with any employee stock option
plan, stock ownership plan or dividend reinvestment plan, (iii) Common Stock
issued pursuant to warrants or convertible Securities outstanding on the date
hereof and (iv) strategically driven private placements of the Company's
securities with strategic investors provided that the purchaser of such
securities shall agree not to sell such stock within 90 days following the date
of the First Closing Date.
<PAGE> 19
19
(9) In connection with any disposition of Securities pursuant
to a transaction made in compliance with applicable state securities laws and
(i) satisfying the requirements of Rule 144(k) under the Securities Act, (ii)
made pursuant to an effective registration statement under the Securities Act or
(iii) that does not require registration under the Securities Act, the Company
will reissue certificates evidencing such Securities without the legend set
forth under the heading "Notice to Investors" in the Final Memorandum (provided
that, in the case of clause (iii) above, the Company has received an opinion of
counsel to the effect that registration under the Securities Act is not required
in connection with such disposition and that upon such transfer such securities
will not constitute restricted securities under the Securities Act if the
Company so requests).
(10) The Company shall apply the net proceeds of the sale of
the Securities as set forth in the Final Memorandum. The Company shall take such
steps as shall be necessary to ensure that Company shall not become an
"investment company" within the meaning of such term under the Investment
Company Act of 1940.
(11) The Company agrees to pay (i) all expenses (including
stock transfer taxes) incurred in connection with the delivery to the Initial
Purchasers of the Securities, (ii) all fees and expenses (including, without
limitation, fees and expenses of the Company's accountants and counsel, but
excluding fees and expenses of counsel for the Initial Purchasers) in connection
with the preparation, printing, delivery and shipping of the Final Memorandum
(including the financial statements therein and all amendments and exhibits
thereto), the Preliminary Memorandum, and any amendments or supplements of the
foregoing, and the reproduction, delivery and shipping of this Agreement, (iii)
all filing fees and fees and disbursements of counsel to the Initial Purchasers
incurred in connection with the qualification of the Securities under state
securities laws as provided in Section 5(d) hereof, (iv) any applicable listing
or similar fees, (v) the cost of printing certificates representing the
Securities, (vi) the cost and charges of any transfer agent or registrar, and
(vii) all other costs and expenses incident to the performance of its
obligations hereunder for which provision is not otherwise made in this Section
5. It is understood, however, that, except as provided in this Section and
Section 7 hereof, the Initial Purchasers shall pay all their own costs and
expenses, including the fees of their counsel, stock transfer taxes due upon
resale of any of the Securities by them and any advertising expenses incurred in
connection with any offers they may make (such costs and expenses to be borne in
equal proportions by the Initial Purchasers). If the sale of the Securities
provided for herein is not consummated by reason of acts of the Company pursuant
to Section 8 hereof which prevent this Agreement from becoming effective, or by
reason of any failure, refusal or inability on the part of the Company to
perform in all material respects any agreement on its part to be performed or
because any condition of the Initial Purchasers' obligations hereunder to be
performed by the Company is not fulfilled or if the Initial Purchasers shall
decline to purchase the Securities for any reason permitted under this Agreement
(except termination of this Agreement pursuant to Sections 8(c) through (f)),
the Company shall reimburse the Initial
<PAGE> 20
20
Purchasers for all reasonable out-of-pocket disbursements (including reasonable
fees and disbursements of counsel) incurred by the Initial Purchasers in
connection with any investigation or preparation made by them in respect of the
marketing of the Securities or in contemplation of the performance by them of
their obligations hereunder. If this Agreement is terminated pursuant to Section
8 hereof by reason of the default of one or more Initial Purchasers, the Company
shall not be obligated to reimburse any defaulting Initial Purchasers on account
of these expenses.
(12) During a period of five years from the date of the Final
Memorandum, the Company shall furnish to the Initial Purchasers copies of all
reports or other communications furnished to shareholders and copies of any
reports or financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Company
shall be listed promptly after such materials are so furnished or filed.
(13) The Company and the Loral Affiliates will not, resell any
of the Securities that have been reacquired by them, except for Securities
purchased by the Company and its subsidiaries or any of their Affiliates and
resold in a transaction registered under the Securities Act.
(14) The Company will use its best efforts to cause the shares
of Common Stock issuable in respect of the Securities to be approved for listing
on the NYSE.
(15) None of the Company, the Loral Affiliates or any person
acting on its or their behalf (other than the Initial Purchasers) will engage in
any directed selling efforts (as that term is defined in Regulation S) with
respect to the Securities, and the Company and the Loral Affiliates and each
person acting on its or their behalf (other than the Initial Purchasers) will
comply with the offering restrictions requirement of Regulation S.
6. Conditions of Initial Purchasers' Obligations. The
respective obligations of the Initial Purchasers hereunder to purchase the Firm
Securities and the Option Securities, as the case may be, are subject to the
following conditions:
(1) The representations and warranties of the Company made in
this Agreement qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, as of the
date hereof and each Closing Date (as if made as of such Closing Date);
(2) The Company shall have performed in all material respects
their respective obligations hereunder;
<PAGE> 21
21
(3) No Initial Purchaser shall have been advised by the
Company or shall have discovered and disclosed to the Company that the Final
Memorandum, as of the date thereof, or as of the applicable Closing Date,
contained or contains an untrue statement of fact which, in the opinion of the
Initial Purchasers or in the opinion of counsel to the Initial Purchasers is
material, or omitted or omits to state a fact which, in the opinion of the
Initial Purchasers or in the opinion of counsel to the Initial Purchasers, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(4) On or prior to each Closing Date, the Initial Purchasers
shall have received from Cravath, Swaine & Moore, counsel for the Initial
Purchasers, such opinions or letters with respect to such matters as the Initial
Purchasers may reasonably request, and such counsel shall have received such
documents and information as they reasonably request to enable them to pass upon
such matters.
(5) On each Closing Date there shall have been furnished to
the Initial Purchasers the opinion (addressed to the Initial Purchasers) of
Willkie Farr & Gallagher, counsel to the Company, dated such Closing Date and in
form and substance satisfactory to counsel for the Initial Purchasers, to the
effect that:
(1) Globalstar has been duly formed and is validly
existing as a limited partnership in good standing under the
laws of the State of Delaware; SS/L, Skynet and Cyberstar have
been duly incorporated and are validly existing as
corporations in good standing under the laws of the State of
Delaware; each of Globalstar, SS/L, Skynet and Cyberstar has
been duly qualified for the transaction of business and is in
good standing under the laws of each other jurisdiction in the
United States in which it owns or leases property, or conducts
any business, so as to require such qualification (except
where the failure to so qualify would not have a material
adverse effect on the Company, Globalstar, SS/L, Skynet and
Cyberstar, taken as a whole; and each of Globalstar, SS/L,
Skynet and Cyberstar has all requisite power and authority
and, except as disclosed in the Final Memorandum, all material
governmental authorizations, licenses, certificates,
franchises, permits and approvals required to own its
properties and to conduct its business as described in the
Final Memorandum;
(2) to such counsel's knowledge, except as described
in the Final Memorandum, the Company has not granted any
outstanding options, warrants or commitments with respect to
any shares of the capital stock of the Company, whether issued
or unissued;
(3) the Securities conform in all material respects
to the description thereof contained in the Final Memorandum;
(4) to such counsel's knowledge, no litigation or
governmental proceedings are pending or threatened against the
Company or the Loral
<PAGE> 22
22
Affiliates which would adversely affect the Company's ability,
individually or in the aggregate, to perform its obligations
under this Agreement or is required to be disclosed in the
Final Memorandum and which is not disclosed and correctly
summarized therein;
(5) each of this Agreement and the Registration
Rights Agreement has been duly authorized, executed and
delivered by the Company and conforms in all material respects
to the description thereof contained in the Final Memorandum,
and, assuming due execution and delivery thereof by the
Initial Purchasers, constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and
to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law) (except that no opinion need be expressed with respect to
the indemnification or contribution provisions contained
herein or therein);
(6) The execution, delivery and performance by the
Company of this Agreement or the Registration Rights
Agreement, and the consummation of the transactions therein
contemplated, will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument known to
such counsel to which the Company or any Loral Affiliate is a
party or by which the Company or any Loral Affiliate is bound
or to which any of the property or assets of the Company or
any Loral Affiliate is subject (except such breaches or events
of default with respect thereto as are disclosed in the Final
Memorandum), nor will such actions result in any violation of
the provisions of the charter or by-laws (or other
constitutive documents) of the Company or any Loral Affiliate
or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any Loral Affiliate or any of
their properties or assets;
(7) no consent (other than required filings by the
Bermuda Monetary Authority), approval, authorization or order
of any court, regulatory body, administrative agency or other
governmental body is required to be obtained for the execution
and delivery of this Agreement or the Registration Rights
Agreement, the consummation of the transactions contemplated
hereby and thereby or the sale of the Securities and the
Common Stock issuable in respect thereof as contemplated in
the Final Memorandum, under any provision of law or regulation
applicable to the
<PAGE> 23
23
Company of the State of New York or the United States of
America, except as may be required under the various state
securities or Blue Sky laws or as may be required by the laws
of any country other than the United States in connection with
the resale of the Securities by the Initial Purchasers or as
may be required under the Securities Act and the Rules and
Regulations pursuant to the terms of the Registration Rights
Agreement;
(8) there is no restriction upon the voting or
transfer of any Securities pursuant to any agreement or other
instrument of which such counsel has knowledge except as
described in the Final Memorandum; and no holders of
Securities of the Company have rights to the registration
thereof except as described in the Final Memorandum;
(9) The statements set forth in the Final Memorandum
under Material United States Federal Income Tax
Considerations", insofar as such statements constitute a
summary of the legal matters, documents or proceedings
referred to therein fairly present the information referred to
therein with respect to such legal matters, documents and
proceedings;
(10) The Partnership Agreement has been duly and
validly authorized, executed and delivered by LQSS, Globalstar
and the Company and, to the knowledge of such counsel, the
other parties to such agreement have authorized, executed and
delivered such agreement and assuming such authorization,
execution and delivery by such other parties, such agreement
is valid and binding and enforceable against the parties
thereto, except as enforceability may be limited by (A)
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in
equity or at law) and (B) Federal or state securities laws or
principles of public policy with regard to rights to
indemnity; provided, however, that no opinion is given with
respect to the enforceability of any provisions contained in
the Partnership Agreement which state that the parties thereto
have agreed to further negotiate with respect to certain
matters as specified therein;
(11) LQP (or its subsidiary) has agreed to use the
license to operate mobile satellite services in the
1610-1626.5 MHz L-band and the 2483.5-2500 MHz S-band granted
by the FCC for the exclusive benefit of Globalstar;
(12) after giving effect to the sale of the
Securities by the Initial Purchasers as contemplated in the
Final Memorandum, the Company will not be an "investment
company" under the Investment Company Act;
<PAGE> 24
24
(13) assuming the accuracy of the representations and
warranties and compliance with the agreements contained
herein, no registration of the Securities under the Securities
Act is required for the offer and sale by the Initial
Purchasers of the Securities in the manner contemplated by
this Agreement prior to the effectiveness of the Shelf
Registration with respect to the Securities;
(14) To such counsel's knowledge, except for the
statements set forth in GTL's offering memorandum dated
January 21, 1999, regarding the offering of the Series A
Preferred Stock, under the heading "Regulation -- United
States FCC Regulation" and the Annual Report of GTL for the
fiscal year ended December 31, 1998, under the heading
"Business--Licensing", there are no pending or threatened
proceedings which could have a material adverse effect on the
validity of the authorization for construction, launch and
operation of the Globalstar satellite constellation.
(15) The FCC has authorized LQP to construct a mobile
satellite system capable of operating in the
1610-1626.5/2483.5-2500 MHz frequency bands, consistent with
the technical specifications set forth in its application, the
FCC's rules and the conditions set forth in the FCC's Order
and Authorization (DA 95-128), released January 31, 1995, as
modified by the Erratum, DA 95-373 (released February 29,
1995), as affirmed and modified by the Memorandum Opinion and
Order, FCC 96-279 (released June 27, 1996), as modified by the
FCC's Order and Authorization, DA 96-1924 (released November
19, 1996); and pursuant to FCC approval, LQP has assigned such
authorization to L/Q Licensee, Inc.; however, such
authorization is presently subject to modification, stay or
revocation as a result of pending judicial appeals.
(16) The construction, launch and operation by
Globalstar, of the Globalstar satellite constellation
authorized by the Order and Authorization, (DA 95-128)
released Jan. 31, 1995, as modified by the Erratum, (DA
95-373) released February 28, 1995, as affirmed and modified
by the Memorandum Opinion and Order (FCC 96-279) released June
27, 1996, as modified by the FCC's Order and Authorization, DA
(96-1924 (released November 19, 1996), would not violate
provisions of the Communications Act or the FCC's rules and
policies thereunder relating to control of FCC authorizations,
provided that L/Q Licensee, Inc. remains in ultimate control
of the authorized facilities as defined by the rules and
policies of the FCC and that there is no transfer of control
of L/Q Licensee, Inc. without prior approval of the FCC.
<PAGE> 25
25
In rendering such opinion, such counsel may limit its opinion
to the laws of the State of New York, the laws of the United States and the
Delaware Revised Uniform Limited Partnership Act and as to matters of fact, such
counsel may rely to the extent deemed proper, on certificates of responsible
officers of the Company and public officials.
Such counsel shall also state that in connection with the
preparation of the Preliminary Memorandum and the Final Memorandum, no facts
have come to its attention which lead it to believe that the Final Memorandum,
as of the Execution Time and each Closing Date, contained any untrue statement
of material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that such counsel will express no opinion or belief with respect to the
financial data contained in the Final Memorandum or with respect to any matters
addressed by the opinion of Appleby, Spurling & Kempe set forth in Section 6(f)
hereof with respect to Bermuda law matters.
(6) On each Closing Date there shall have been furnished to
the Initial Purchasers the opinion (addressed to the Initial Purchasers) of
Appleby, Spurling & Kempe, counsel to the Company, dated such Closing Date and
in form and substance satisfactory to counsel for the Initial Purchasers to the
effect that:
(1) each of the Company and GTL has been duly
incorporated as an exempted company and is validly existing as
an exempted company in good standing under the laws of
Bermuda; and has full power and authority and has obtained all
Bermuda governmental authorizations, licenses, certificates,
franchises, permits and approvals required to own its
properties and to conduct its business as described in the
Final Memorandum;
(2) the Company has authorized share capital as set
forth in the Final Memorandum, and all the issued shares of
Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and not subject to
further calls;
(3) the Securities have been duly authorized and
executed and are in a form contemplated by the Preferred Stock
Schedule and, when the Securities are issued and delivered
pursuant to this Agreement, the Securities will be duly and
validly issued, fully paid and nonassessable; the offer and
sale of the Securities has been duly authorized by the
Company; the issuance of the Securities is not subject to any
preemptive or similar rights under the Company's Memorandum of
Association or
<PAGE> 26
26
Bye-Laws, in each case as amended; and the Securities conform
to the descriptions thereof in the Final Memorandum;
(4) 27,600,000 shares of Common Stock have been duly
and validly authorized and reserved for issuance in respect of
the Securities and, when issued and delivered, such shares of
Common Stock will be duly and validly issued, fully paid and
nonassessable and will conform to the description thereof in
the Final Memorandum;
(5) to such counsel's knowledge, no litigation or
governmental proceeding is pending or threatened against the
Company or GTL in Bermuda which would adversely affect the
Company's ability to perform its obligations under this
Agreement;
(6) the execution, delivery and performance by the
Company of each of this Agreement and the Registration Rights
Agreement have been duly authorized by the Company and the
consummation by the Company of the sale of the Securities in
accordance therewith will not (A) conflict with the Company's
Memorandum of Association or Bye-Laws, in each case as
amended, or (B) violate or conflict with any provision of law
or regulation of Bermuda applicable to the Company or GTL;
(7) no consent, approval, authorization or order of
any court, regulatory body, administrative agency or other
governmental body is required to be obtained for the sale of
Securities under any provision of law or regulation of Bermuda
applicable to the Company or for the consummation of the
transactions contemplated by this Agreement or the
Registration Rights Agreement, except for the consent of the
Bermuda Monetary Authority which has been obtained;
(8) there is no restriction upon the voting or
transfer of any Securities or the shares of Common Stock
issuable in respect thereof pursuant to (A) the law of Bermuda
or (B) the Company's Memorandum of Association or Bye-laws, in
each case as amended;
(9) the statements set forth in the Final Memorandum
in the legends and under the headings "Description of
Preferred Stock", "Description of Common Stock", "Material
United States Federal Income Tax Considerations" and "Notice
to Investors", insofar as such statements describe the
Securities and constitute a summary of the legal matters
referred to therein, fairly present the information referred
to therein with respect to such legal and other matters;
<PAGE> 27
27
(10) a final and conclusive judgment of a New York
court under which a sum of money is payable (not being a sum
payable in respect of taxes or other charges of a like nature,
in respect of a fine or other penalty or in respect of
multiple damages as defined in The Protection of Trading
Interests Act, 1981) may be the subject of enforcement
proceedings in the Supreme Court of Bermuda under the common
law doctrine of obligation by action for the debt evidenced by
the New York court's judgment; assuming that (1) the court
that gave such judgment was competent to hear the action in
accordance with private international law principles as
applied to courts in Bermuda and (2) such judgment is not
contrary to public policy in Bermuda, has not been obtained by
fraud or in proceedings contrary to natural justice and is not
based on an error in Bermuda law, such counsel believes that,
on general principles, such a judgment would be enforceable in
the Supreme Court of Bermuda; and enforcement of such a
judgment against assets in Bermuda may involve the conversion
of the judgment into Bermuda dollars, but the Bermuda Monetary
Authority's policy is to give the consents necessary to enable
recovery in the currency of the obligation;
(11) the submission by the Company to the
jurisdiction of the State and Federal courts sitting in the
City of New York contained in each of this Agreement and the
Registration Rights Agreement constitutes a legal, valid and
binding obligation of the Company, provided that such
submission is valid under the laws of New York; and
(12) the choice of the laws of the State of New York
to govern each of this Agreement and the Registration Rights
Agreement is a valid choice of law under Bermuda law assuming
that such choice is valid under the laws of the state of New
York.
(7) There shall have been furnished to the Initial Purchasers
certificates, dated the applicable Closing Date and addressed to the Initial
Purchasers, signed by the Chief Executive Officer or President and by the Chief
Financial Officer or Treasurer of the Company, in each case, to the effect that:
(i) the representations and warranties of the Company contained in this
Agreement qualified as to materiality are true and correct and those not so
qualified are true and correct in all material respects, as if made at and as of
such Closing Date, and the Company has in all material respects complied with
all the agreements and satisfied all the conditions on its part to be complied
with or satisfied at or prior to such Closing Date; and (ii) the signers of said
certificates have carefully examined the Final Memorandum, and (A) as of the
date of the Final Memorandum, the Final Memorandum does not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (B) since the date
of the Final Memorandum there has occurred no
<PAGE> 28
28
event required to be set forth in an amendment or supplement to the Final
Memorandum which has not been so set forth.
(8) Since the date of the Final Memorandum, none of the
Company and the Loral Affiliates shall have sustained any loss or interference
with its business by fire, explosion, flood, accident or other calamity, whether
or not covered by insurance, or shall have been subject to any labor dispute, or
shall have become a party to or the subject of any action, suit or proceeding
before any court or governmental agency, authority or body or arbitrator, nor
shall any other event have occurred (whether or not the possibility of such
event is disclosed in the Final Memorandum), that is likely to result in a
Material Adverse Change, nor shall there have been a Material Adverse Change, in
each case with respect to the Company and its subsidiaries, taken as a whole,
whether or not arising in the ordinary course of business, which loss, action,
suit, proceeding or change is, in the Initial Purchasers' judgment, so material
and adverse as to render it impracticable or inadvisable to proceed with the
payment for and delivery of the Securities.
(9) At the Execution Time and on each Closing Date, the
Initial Purchasers shall have received a letter of Deloitte & Touche LLP dated
as of such date and addressed to the Initial Purchasers, confirming that they
are independent certified public accountants within the meaning of the
Securities Act and the applicable published Rules and Regulations with respect
to the Company and stating, as of the date of such letter (or, with respect to
matters involving changes or developments since the respective dates as of which
specified financial information is given in the Final Memorandum, as of a date
not more than five Business Days prior to the date of such letter), the
conclusions and findings of such firm with respect to the financial information
included in the Final Memorandum, in form and substance satisfactory to the
Initial Purchasers.
(10) The Initial Purchasers shall have been furnished such
additional documents and certificates as the Initial Purchasers or counsel for
the Initial Purchasers may reasonably request.
All references in Sections 6(b) through (j) of this Section 6
to the Final Memorandum shall be deemed to include any amendment or supplement
thereto at the applicable Closing Date.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to Lehman and to counsel for the Initial
Purchasers. The Company shall furnish to Lehman conformed copies of such
opinions, certificates, letters and other documents in such number as the
Initial Purchasers shall reasonably request. If any of the conditions specified
in this Section 6 shall not have been fulfilled when and as required by this
Agreement, this Agreement and all obligations of the Initial Purchasers
hereunder may be canceled at, or at any time prior to, the Closing Date, by
Lehman. Any such cancelation shall be without liability of the Initial
Purchasers to the Company. Notice of
<PAGE> 29
29
such cancelation shall be given to the Company in writing, or by telecopy or
telephone and confirmed in writing.
7. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser from and against any loss,
claim, damage or liability (or any action in respect thereof), joint or several,
to which such Initial Purchaser may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Memorandum (as amended or supplemented) or the Final Memorandum (as amended or
supplemented) or (ii) the omission or alleged omission to state in the
Preliminary Memorandum (as amended or supplemented) or the Final Memorandum (as
amended or supplemented) a material fact required to be stated therein or
necessary to make the statements therein not misleading; and shall reimburse
each Initial Purchaser promptly upon demand for any legal or other expenses
reasonably incurred by such Initial Purchaser in connection with investigating,
preparing to defend or defending against any such loss, claim, damage, liability
or action, as such expenses are incurred; provided, however, that the Company
shall not be liable under this Section 7(a) in any such case to the extent, but
only to the extent, that any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Preliminary Memorandum (as amended
or supplemented) or the Final Memorandum (as amended or supplemented) in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Initial Purchasers specifically for inclusion
therein and provided further that as to the Preliminary Memorandum (as amended
or supplemented) or the Final Memorandum (as amended or supplemented), the
Company shall not be liable under this Section 7(a) on account of any loss,
claim, damage, liability or action arising from the sale of Securities to any
person where such person was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Final Memorandum, as the same may be
amended or supplemented, within the time required by the Securities Act, and the
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact in such Preliminary Memorandum was
corrected in the amended or supplemented Final Memorandum, unless such failure
resulted from non-compliance by the Company with Section 5(a).
(b) Each Initial Purchaser severally, but not jointly, shall
indemnify and hold harmless the Company from and against any loss, claim, damage
or liability (or any action in respect thereof) to which the Company may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage or liability (or action in respect thereof) arises out of or is based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Memorandum (as amended or supplemented) or the
Final Memorandum (as amended or supplemented), or (ii) the omission or alleged
omission to state in the Preliminary Memorandum (as amended or supplemented) or
the Final Memorandum (as amended or supplemented), a material fact
<PAGE> 30
30
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse the Company promptly for any legal or other
expenses reasonably incurred by the Company in connection with investigating,
preparing to defend or defending against any such loss, claim, damage, liability
or action, as such expenses are incurred; provided, however, that in no case
shall any Initial Purchaser be liable or responsible for any amount in excess of
the discount, commissions and other compensation applicable to the Securities
purchased by it hereunder; and provided further, however, that such
indemnification or reimbursement shall be available in each such case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through the Initial
Purchasers by or on behalf of such Initial Purchaser specifically for inclusion
therein.
(c) Promptly after receipt by any indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure so to notify the indemnifying party shall not relieve
it from any liability which it may have under this Section 7 except and to the
extent the indemnifying party is materially prejudiced thereby. If any such
claim or action shall be brought against any indemnified party and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under such subsection for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) such indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified party
to employ separate counsel or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably satisfactory to the
indemnified party, in which case, if such indemnified party promptly notifies
the indemnifying party in writing that it elects to employ separate counsel at
the expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same
<PAGE> 31
31
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to local
counsel) at any time for all such indemnified parties, which firm shall be
designated in writing by the Initial Purchasers, if the indemnified parties
under this Section 7 consist of any Initial Purchaser, or by the Company, if the
indemnified parties under this Section consist of the Company. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Initial Purchasers from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Initial Purchasers in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, or actions in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Initial Purchasers shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by the Company, on the one hand, and the
total discounts and commissions received by the Initial Purchasers, on the other
hand, bear to the total gross proceeds from the offering of Securities, in each
case as set forth in the table on the cover page of the Final Memorandum.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Initial Purchasers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Initial Purchasers agree that it
would not be just and equitable if contributions pursuant to this subsection (d)
were to be determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to in this subsection (d) shall be deemed to include, for
purposes of this subsection (d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating, preparing to defend
or defending against any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Initial Purchaser
shall be required to contribute any amount in excess of the amount by
<PAGE> 32
32
which the discount, commissions and other compensation applicable to the
Securities purchased by it hereunder exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations in this subsection (d) to contribute are several in proportion to
their respective purchasing obligations and not joint. Each party entitled to
contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought for any obligation it may
have hereunder or otherwise.
(e) The obligations of the Company under this Section 7 shall
be in addition to any liability which the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Initial Purchaser within the meaning of the Securities Act; and the
obligations of the Initial Purchasers under this Section 7 shall be in addition
to any liability that the respective Initial Purchasers may otherwise have, and
shall extend, upon the same terms and conditions, to each director of the
Company (including any person who, with his or her consent, is named in the
Final Memorandum as about to become a director of the Company), and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
8. Effective Date and Termination. Until the First Closing
Date, this Agreement may be terminated by Lehman by giving notice as hereinafter
provided to the Company if (a) the Company shall have failed, refused or been
unable, at or prior to the First Closing Date, to perform in all material
respects any agreement on its part to be performed hereunder, (b) any other
condition to the Initial Purchasers' obligations hereunder is not fulfilled, (c)
trading in the Common Stock or in securities generally on the New York Stock
Exchange, the American Stock Exchange, Nasdaq or the over-the-counter market
shall have been suspended or limited (which shall not include any limitation on
program trading pursuant to the rules of the New York Stock Exchange) or minimum
prices shall have been established on either of such exchanges or such markets
by the Commission or such exchange or other regulatory body or governmental
authority having jurisdiction, (d) a banking moratorium is declared by either
Federal or state authorities or (e) the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United States
or there is a declaration of a national emergency or war by the United States,
or (f) there shall have been such a material adverse change in general economic,
political or financial conditions, or the effect of international conditions on
the financial markets in the United States shall be such, as to, in the judgment
of the Initial Purchasers, make it inadvisable or impracticable to proceed with
the delivery of the Securities. Any termination of this Agreement pursuant to
this
<PAGE> 33
33
Section 8 shall be without liability on the part of the Company or any Initial
Purchaser, except as otherwise provided in Sections 5(k) and 8 hereof.
Any notice referred to above may be given at the address
specified in Section 10 hereof in writing or by telecopy or telephone, and if by
telecopy or telephone, shall be immediately confirmed in writing.
9. Survival of Certain Provisions. The agreements contained in
Section 7 hereof and the representations, warranties and agreements of the
Company and the Initial Purchasers contained in this Agreement shall survive the
delivery of the Securities to the Initial Purchasers hereunder and shall remain
in full force and effect, regardless of any termination or cancelation of this
Agreement or any investigation made by or on behalf of any indemnified party.
10. Notices. Except as otherwise provided in the Agreement,
whenever notice is required by the provisions of this Agreement to be given to
the following parties, such notice shall be in writing to the following
addresses:
(a) to the Company:
Loral SpaceCom Corporation
600 Third Avenue
New York, New York 10016
Attention: Avi Katz
(b) to the several Initial Purchasers:
c/o Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street
New York, New York 10285
Attention: Syndicate Department
11. Information Furnished by Initial Purchasers. The Company
and the Initial Purchasers severally confirm that the statements set forth in
"Plan of Distribution" in the Final Memorandum or any Preliminary Memorandum
constitute the only written information furnished by or on behalf of any Initial
Purchaser referred to in paragraphs (a) and (b) of Section 7 hereof. The Initial
Purchasers severally agree that such information is correct.
12. Parties. This Agreement shall inure to the benefit of and
be binding upon the several Initial Purchasers, the Company and their respective
successors.
<PAGE> 34
34
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (a) the representations, warranties, indemnities
and agreements of the Company contained in this Agreement shall also be deemed
to be for the benefit of the person or persons, if any, who control any Initial
Purchaser within the meaning of Section 15 of the Securities Act and (b) the
indemnity agreement of the Initial Purchasers contained in Section 7 hereof
shall be deemed to be for the benefit of directors of the Company and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended to confer or shall be construed to give
any person, other than the persons referred to in this paragraph, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
14. JURISDICTION; CONSENT TO SERVICE OF PROCESS. THE COMPANY
HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY LAWSUITS, CLAIMS OR
OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREE NOT TO
COMMENCE ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. THE
COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE
LAYING OF VENUE OF ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED
STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY HAS APPOINTED AVI
KATZ AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A. (HEREINAFTER REFERRED
TO IN SUCH CAPACITY AS THE "PROCESS AGENT"), AS ITS AUTHORIZED AGENT UPON WHOM
PROCESS MAY BE SERVED IN ANY SUCH SUIT OR PROCEEDING. THE COMPANY REPRESENTS TO
THE INITIAL PURCHASERS THAT IT HAS NOTIFIED THE PROCESS AGENT OF SUCH
DESIGNATION AND APPOINTMENT AND THAT THE PROCESS AGENT HAS ACCEPTED THE SAME IN
WRITING. THE COMPANY HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT
SUCH SERVICE. IF THE PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S AGENT FOR
SERVICE OF PROCESS, THE COMPANY SHALL
<PAGE> 35
35
APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND NOTIFY LEHMAN OF SUCH APPOINTMENT.
THE COMPANY FURTHER AGREES THAT SERVICE OF PROCESS UPON THE PROCESS AGENT AND
WRITTEN NOTICE OF SAID SERVICE TO THE COMPANY MAILED BY FIRST CLASS MAIL OR
DELIVERED TO THE PROCESS AGENT SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT THE INITIAL PURCHASERS' RIGHT OR THE RIGHT OF ANY PERSON CONTROLLING ANY
OF THE INITIAL PURCHASERS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
THE COMPANY AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER LAWFUL MANNER.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
<PAGE> 36
Please confirm, by signing and returning to us two
counterparts of this Agreement, that you are acting on behalf of yourselves and
the several Initial Purchasers and that the foregoing correctly sets forth the
Agreement among the Company and the several Initial Purchasers.
Very truly yours,
LORAL SPACE & COMMUNICATIONS LTD.,
By: /s/ Avi Katz
------------------------------
Name:
Title:
Confirmed and accepted as of the date first above mentioned:
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
ING BARINGS LLC
C.E. UNTERBERG, TOWBIN
CREDIT LYONNAIS SECURITIES (USA) INC.
SG COWEN SECURITIES CORPORATION
By: LEHMAN BROTHERS INC.,
By: /s/ Larry S. Wieseneck
- ----------------------------------
Authorized Representative
<PAGE> 37
SCHEDULE I
<TABLE>
<CAPTION>
Initial Purchasers Number of Firm
Securities to be
Purchased
----------------
<S> <C>
Lehman Brothers Inc..................................................... 2,800,000
Banc of America Securities LLC.......................................... 2,000,000
Bear, Stearns & Co. Inc................................................. 2,000,000
ING Barings LLC......................................................... 400,000
C.E. Unterberg, Towbin.................................................. 400,000
Credit Lyonnais Securities (USA) Inc.................................... 200,000
SG Cowen Securities Corporation......................................... 200,000
=========
Total............. 8,000,000
</TABLE>
<PAGE> 38
EXHIBIT A
Offers and Sales by the Initial Purchasers
The Preferred Stock and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") have not been registered
under the Securities Act and may not be offered or sold within the United States
or to United States persons (as such terms are defined under the Securities Act)
except pursuant to an exemption from, or in a transaction not subject to the
registration requirements of the Securities Act. Accordingly, in the United
States, the Securities are being offered hereby only to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) in reliance on the
exemption from the registration requirements of the Securities Act provided by
Rule 144A. Prospective investors are hereby notified that sellers of the
Securities may be relying on the exemption from the provisions of Section 5 of
the Securities Act provided by Rule 144A thereunder.
Investor Representations and Restrictions on Resale
Each purchaser of Securities that is purchasing in a sale made
in reliance on Rule 144A will be deemed to have represented and agreed as
follows (terms used in this paragraph that are defined in Rule 144A are used
herein as defined therein):
(1) The purchaser is a qualified institutional buyer and is
aware that the sale to it is being made in reliance on Rule 144A, and
such qualified institutional buyer is acquiring such Securities for its
own account or for the account of another qualified institutional
buyer; or if the Securities are to be purchased for one or more
accounts ("investor accounts") for which it is acting as fiduciary or
agent, each such account is a qualified institutional buyer on like
basis.
(2) The purchaser understands that the Securities are being
offered in a transaction not involving any public offering in the
United States within the meaning of the Securities Act, that the
Securities have not been registered under the Securities Act and that
(A) the Securities may be offered, resold, pledged or otherwise
transferred only (i) to a person who the seller reasonably believes is
a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A, in a transaction meeting the requirements of
Rule 144 under the Securities Act or in accordance with another
exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (ii) to
the Company, (iii) pursuant to an effective registration statement or
(iv) in an offshore transaction meeting the requirements of Rule 904 of
Regulation S and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other
applicable jurisdiction and (B) the purchaser will, and each subsequent
holder is required to, notify any subsequent purchaser from it of the
resale restrictions set forth in (A) above.
<PAGE> 39
2
(3) The purchaser understands that the certificates evidencing
the Securities will, unless otherwise agreed by the Company and the
holder thereof, bear a legend substantially to the following effect:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR ANY APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, OR (c) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND, IN THE CASE OF CLAUSE (c), BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE
COMPANY, (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR (4) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE."
(4) The purchaser acknowledges that none of the Company, the
Initial Purchasers or any person representing the Company or the
Initial Purchasers has made any representation to it with respect to
the Company or the offering or sale of the Securities, other than the
information contained in the Offering
<PAGE> 40
3
Memorandum dated February 14, 2000 prepared in connection with the sale
of Securities, which has been delivered to it and upon which it is
relying in making its investment decision with respect to the
Securities. The purchaser has access to such financial and other
information concerning the Company and the Securities as it has deemed
necessary in connection with its decision to purchase the Securities,
including an opportunity to ask questions of and request information
from the Company and the Initial Purchasers.
(5) The purchaser acknowledges that the Company, the Initial
Purchasers and others will rely upon the truth and accuracy of the
foregoing acknowledgments, representations and agreements and agrees
that, if any of the foregoing acknowledgments, representations or
agreements deemed to have been made by it are no longer accurate, it
shall promptly notify the Initial Purchasers. If such purchaser is
acquiring the Securities as a fiduciary or agent for one or more
investor accounts, such purchaser represents that it has sole
investment discretion with respect to each such account and that it has
full power to make the foregoing acknowledgments, representations and
agreements on behalf of each such account.
The Securities may not be sold or transferred to, and each
purchaser, by its purchase of the Securities shall be deemed to have represented
and covenanted that it is not acquiring the Securities for or on behalf of, and
will not transfer the Securities to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974; 'ERISA')
except that such a purchase for or on behalf of a pension or welfare plan shall
be permitted:
(1) to the extent such purchase is made by or on behalf of a
bank collective investment fund maintained by the purchaser in which no
plan (together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
assets in such collective investment fund and the conditions of Section
III of Prohibited Transaction Class Exemption 91-38 issued by the
Department of Labor are satisfied;
(2) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchaser
in which, at any time while the Securities are outstanding, no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total of
all assets in such pooled separate account and the conditions of
Section III of Prohibited Transaction Class Exemption 90-1 issued by
the Department of Labor are satisfied;
(3) to the extent such purchase is made on behalf of a plan by
(i) an investment advisor registered under the Investment Advisers Act
of 1940 that had as of the last day of its most recent fiscal year
total assets under its management
<PAGE> 41
4
and control in excess of $50.0 million and had stockholders' or
partners' equity in excess of $0.75 million as shown in its most recent
balance sheet prepared in accordance with generally accepted accounting
principles, or (ii) a bank as defined in Section 202 (a)(2) of the
Investment Advisers Act of 1940 with equity capital in excess of $1.0
million as of the last day of its most recent fiscal year, or (iii) an
insurance company which is qualified under the laws of more than one
state to manage, acquire or dispose of any assets of a plan, which
insurance company has as of the last day of its most recent fiscal
year, net worth in excess of $1.0 million and which is subject to
supervision and examination by state authority having super-vision over
insurance companies and, in any case, such investment adviser, bank or
insurance company is otherwise a qualified professional asset manager,
as such term is used in Prohibited Transaction Class Exemption 84-14
issued by the Department of Labor, and the assets of such plan when
combined with the assets of other plans established or maintained by
the employer (or affiliate thereof) or employee organization and
managed by such investment advisor, bank or insurance company, and the
conditions of Section I of such exemption are otherwise satisfied;
(4) to the extent that assets used to acquire the Securities
are assets of an insurance company general account and the purchase of
the Securities is exempt under the provisions of Prohibited
Transactions Exemption 95-60 issued by the Department of Labor;
(5) to the extent such plan is a governmental plan (as defined
in Section 3 of ERISA) which is not subject to the provisions of Title
I of ERISA of Section 401 of the Internal Revenue Code; or
(6) to the extent such purchase is made on behalf of a plan by
an in-house asset manager and the conditions of Part I of Prohibited
Transactions Class Exemption 96-23 issued by the Department of Labor
are satisfied.
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Registration Statement of
Loral Space & Communications Ltd. (a Bermuda company) on Form S-3 of our reports
with respect to the consolidated financial statements of Loral Space &
Communications Ltd. and Globalstar L.P. and the financial statement schedule of
Loral Space & Communications Ltd., appearing in or incorporated by reference in
the Annual Report on Form 10-K of Loral Space & Communications Ltd. for the year
ended December 31, 1999 and to the references to us under the headings "Experts"
in the Prospectuses, which are part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Jose, California
April 11, 2000
