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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3867424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the registrant's 2000 definitive proxy statement.
At March 15, 2000, 249,507,509 common shares were outstanding, and the
aggregate market value of such shares (based upon the closing price on the New
York Stock Exchange) held by non-affiliates of the registrant was approximately
$2.8 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2000 definitive proxy statement (to be filed
not later than 120 days after the end of the registrant's fiscal year) are
incorporated by reference into Part III.
The financial statements required by Rule 3.09 of Regulation S-X of the
registrant's significant investee, Globalstar, L.P., are incorporated by
reference herein from the Annual Report on Form 10-K filed by Globalstar
Telecommunications Limited and Globalstar, L.P.
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PART I
ITEM 1. BUSINESS
THE COMPANY
OVERVIEW
Loral Space & Communications Ltd. together with its subsidiaries ("Loral"
or the "Company") is one of the world's leading satellite communications
companies, with substantial activities in satellite manufacturing and
satellite-based communications services. We have assembled the building blocks
necessary to provide a seamless, global networking capability for the
information age. Our four operating segments are:
Fixed Satellite Services. Through the Loral Global Alliance, which
currently consists of Loral Skynet, Loral CyberStar, Inc. ("Loral
CyberStar"), our 49% owned affiliate Satelites Mexicanos, S.A. de C.V.
("Satmex"), and our 47% owned affiliate Europe*Star Limited
("Europe*Star"), we have become one of the world's leading providers of
satellite services using geostationary communications satellites. We lease
transponder capacity on our satellites to our customers who use the
capacity for various applications, including broadcasting, news gathering,
Internet access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television, or DTH. The
Loral Global Alliance currently has ten high-powered geosynchronous
satellites in orbit: the seven satellite Telstar fleet and three Satmex
satellites, with footprints covering almost all of the world's population.
Broadband Data Services. Through Loral CyberStar and our 82% owned
subsidiary CyberStar, L.P. ("CyberStar LP", and together with Loral
CyberStar, the "Loral CyberStar Group"), we currently (i) deliver
U.S.-based Internet content via satellite to more than 130 Internet Service
Providers, or ISPs, in more than 32 foreign countries, which reach
approximately seven million residential customers around the world, (ii)
distribute high-speed data over private corporate very small aperture
terminal, or VSAT, networks, which reach approximately 2.5 million
corporate desktops around the world, and (iii) offer business television,
or BTV, services by satellite to corporations. Our broadband strategy will
build on these existing resources and will initially focus on two
attractive opportunities for early market entry: consumer broadband
services and streaming media services.
Satellite Manufacturing and Technology. Space Systems/Loral, Inc.
("SS/L") is one of the world's leading manufacturers of satellites and
space systems, providing its customers with a full suite of services,
including: developing custom designs to meet their requirements,
manufacturing and testing, and arranging for launch services and insurance.
Global Mobile Telephone Service. We are the managing general partner
and 40% owner of Globalstar, L.P. ("Globalstar"). Globalstar owns and
operates a 52-satellite constellation, including four in-orbit spares, that
forms the backbone of a global telecommunications network designed to serve
virtually every populated area of the world. In the first quarter of 2000,
the Globalstar system commenced operations, and as of February 29, 2000,
there were 14 gateways available for service covering 78 countries.
Billable service has commenced in 20 countries, including Austria,
Argentina, Brazil, Canada, Greece, Italy, South Korea, Switzerland and the
United States.
Our strategy is to capitalize on our market position and advanced
technologies to offer value-added satellite-based services as part of the
evolving worldwide communications networks. Where appropriate, we seek to form
strategic alliances with major telecommunications service providers and
equipment manufacturers to enhance and expand our satellite-based service
opportunities. For example, we are a partner in SkyBridge Limited Partnership
("SkyBridge"), a partnership led by Alcatel, that is building a low earth orbit
satellite system for the delivery of broadband and multimedia services
worldwide. We, together with partners, also act as the Globalstar service
provider in Canada, Mexico, Brazil and Russia.
Loral was incorporated on January 12, 1996 as a Bermuda exempt company and
has its registered and principal executive offices at Cedar House, 41 Cedar
Avenue, Hamilton, HM 12, Bermuda.
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FIXED SATELLITE SERVICES
Following our acquisition of the Loral Skynet business from AT&T in March
1997, we have rapidly established ourselves through a series of subsequent
acquisitions and joint venture transactions as one of the world's leading
providers of fixed satellite services. These satellites, which are known as GEO
satellites, fly in geosynchronous earth orbit approximately 22,000 miles above
the Equator. In this orbit, the satellites remain in a fixed position relative
to points on the earth's surface. GEO satellites provide reliable, high
bandwidth services anywhere in their coverage areas and therefore serve as the
backbone for many forms of telecommunications.
In the United States and other developed countries, customers lease
transponder capacity primarily for distribution of network and cable television
programming, for DTH video transmission and for live video feeds from breaking
news and sporting events. In the developing world, a substantial portion of such
capacity is dedicated to long-distance telephone service as well as television
services. GEO satellites are increasingly used throughout the world for
international Internet communications, high-speed data services for businesses
through VSAT networks, and for distance learning and educational television.
Loral Global Alliance
Through the Loral Global Alliance, we offer our customers an integrated
portfolio of satellite capacity that provides "one stop shopping" for local,
regional and global GEO satellite services. The alliance, which consists of
Loral Skynet, Loral CyberStar, Satmex and Europe*Star, currently has ten
satellites in orbit with a total of 195 C-band and 297 Ku-band 36 MHz
transponder-equivalents and a collective footprint covering almost all of the
world's population. As of December 31, 1999, Loral Global Alliance backlog
(including 100% of Satmex backlog) totaled $1.5 billion, comprised of leases
with customers having an average term of approximately 4.5 years, utilizing
approximately 268 36 MHz transponder-equivalents, with approximately 146
additional 36 MHz transponder-equivalents available for lease, excluding 21 36
MHz transponders not available due to previous sales or other events. Moreover,
in January 2000, Telstar 12 commenced service with 57 36 MHz
transponder-equivalents, of which 51 were available for lease. Discussions set
forth in Part I regarding the number of transponders are in 36 MHz equivalents,
unless otherwise noted.
The Loral Global Alliance provides for cross-selling arrangements among the
alliance members' respective sales forces and for cooperative marketing and
promotional activities. We believe that these arrangements will enable the
members of the alliance to compete more effectively in sales of communications
satellite services worldwide. In addition, the alliance offers in-orbit backup
capabilities for its members in regions where members' fleets have overlapping
coverage.
Loral Skynet
Loral Skynet's core business is providing satellite capacity to support
distribution of U.S. television network programming. The ABC, CBS and Fox
television networks are its major customers. All ABC, CBS and Fox stations have
their antennae pointed at Loral Skynet's satellites, creating a configuration
known as a "neighborhood" that is attractive to other users requiring similar
distribution channels. Other Loral Skynet customers include HBO, Disney, Time
Warner and third-party resellers, such as sports syndicators and distance
learning providers.
Loral Skynet currently has four high power GEO satellites in operation.
Telstar 4 was placed in service in November 1995 and has 24 C-band and 24
Ku-band transponders. Telstar 4 provides coverage over the continental United
States, Hawaii, Puerto Rico and the U.S. Virgin Islands. Telstar 5, with 24
C-band and 24 Ku-band transponders, was built by SS/L and was placed into
service on July 1, 1997. Telstar 5 provides coverage over the continental United
States, Hawaii, Puerto Rico, the Caribbean and into Canada and portions of Latin
America. As of December 31, 1999, Telstar 4 was operating at approximately 85%
utilization and Telstar 5 was operating at approximately 77% utilization.
Telstar 6, built by SS/L, was launched in February 1999 and commenced
commercial operations in March 1999. Telstar 6 is a broadcast video and data
communications satellite with 24 C-band and 24 Ku-band
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transponders. It provides coverage over the continental United States, Hawaii,
Puerto Rico, the Caribbean and into Canada and portions of Latin America and as
of December 31, 1999 was operating at approximately 52% utilization.
Telstar 7, built by SS/L, was launched in September 1999 and commenced
commercial operations in November 1999. Telstar 7 is a broadcast video and data
communications satellite with 24 C-band and 24 Ku-band transponders. It provides
coverage over the continental United States, Hawaii and Puerto Rico as well as
parts of the Caribbean, Canada and Latin America and as of December 31, 1999 was
operating at approximately 37% utilization.
Loral CyberStar
On March 20, 1998, we acquired Orion Network Systems, Inc., a rapidly
growing provider of satellite-based communications services, which recently
changed its name to Loral CyberStar, Inc. We completed our integration plan for
Loral CyberStar and transferred management of Loral CyberStar's satellite
capacity leasing and satellite operations to Loral Skynet, effective January 1,
1999.
Loral CyberStar's leasing business currently provides satellite capacity
for video distribution, satellite news gathering and other satellite services
primarily to broadcasters, news organizations, telecommunications service
providers and ISPs. Loral Cyberstar's customers include PSINet, HBO, Disney,
Cable & Wireless and United Pan Europe Communications.
Telstar 11 (formerly known as Orion 1), a high power satellite with 48
Ku-band transponders, commenced operations in January 1995, and provides
coverage to 34 European countries, much of the United States and parts of
Canada, Mexico and North Africa. As of December 31, 1999, Telstar 11 was
operating at approximately 90% utilization.
Telstar 12 (formerly known as Orion 2), a high power satellite with 57
Ku-band transponders, expands Loral CyberStar's European coverage and extends
coverage to portions of the former Soviet Union, Latin America, the Middle East
and South Africa. Telstar 12 was launched in October 1999 into 15 degrees W.L.
and commenced operations in January 2000. Although Telstar 12 was originally
intended to operate at 12 degrees W.L., Loral Cyberstar reached an agreement
with Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued
to develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to
use its 14.8 degrees W.L. orbital slot and to assert its priority rights at such
location on Loral CyberStar's behalf. As part of this coordination effort, Loral
CyberStar agreed to provide to Eutelsat four 54 MHz transponders on Telstar 12
for the life of the satellite. Eutelsat also has the right to acquire, at cost,
four transponders on the next replacement satellite for Telstar 12. As part of
the international coordination process, Loral continues 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.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") all transponder capacity (except for one
C-band transponder retained by APT) and existing customer leases on the Apstar
IIR satellite for approximately $273 million. Insurance proceeds from the May 4,
1999 launch failure of the Orion 3 satellite were used to fund the initial
payments and for a significant portion of the last installment of approximately
$182 million in March 2000.
Apstar IIR, which was manufactured by SS/L, was launched in October 1997
and has an estimated remaining useful life of approximately 13 years. Loral
CyberStar has full use of 27 C-band and 24 Ku-band transponders aboard Apstar
IIR for the remaining life of the satellite. Located at 76.5 degrees E.L.,
Apstar IIR covers a region that includes Asia, Europe, Africa and Australia,
which represents over 75% of the world's population. Under the purchase
agreement, Loral CyberStar will also have the option to lease replacement
satellites from APT upon the end of life of Apstar IIR. In November 1999, the
satellite was renamed Telstar 10/Apstar IIR. As of December 31, 1999, Telstar
10/Apstar IIR was operating at approximately 44% utilization.
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Satmex
In December 1997, a joint venture in which we hold a 65% economic interest
completed the acquisition from the Mexican government of a 75% interest in
Satmex. Satmex, which owns and operates three GEO communications satellites, is
currently the dominant satellite communications company providing fixed
satellite services in Mexico, and intends to expand its services to become a
leading provider of satellite services throughout Latin America.
Satmex provides satellite transmission capacity to broadcasting customers
for network and cable television programming, DTH service and on-site
transmission of live news reports, sporting events and other video feeds. Satmex
also provides satellite transmission capacity to telecommunications service
providers for public telephone networks in Mexico and elsewhere and to corporate
customers for their private business networks for data, voice and video
applications. Satmex has landing rights to provide broadcasting and
telecommunications transmission capacity in Mexico, the United States, Canada
and 23 nations and territories in the Latin American region. Satmex's
broadcasting customers include Televisa and Television Azteca, and its
telecommunications services customers include Telmex, Bell South and
Interpacket.
Satmex's satellites, Solidaridad 1, Solidaridad 2 and Satmex 5, have
utilization rates as of December 31, 1999 of approximately 47%, 81% and 74%,
respectively. These satellites have a total of 144 transponders operating in C-
and Ku-bands, with an aggregate footprint covering substantially all of the
continental United States and the Caribbean as well as all of Latin America,
other than certain regions in Brazil. We believe that this capacity is one of
the largest blocks of satellite capacity dedicated primarily to the Latin
American region. Satmex holds 20-year concession titles to operate in these
three orbital locations, each of which will expire on October 22, 2017. The
concession titles are renewable thereafter, subject to certain conditions, for
an additional 20-year term without additional payment. In addition, Satmex
operates two satellite control centers.
During 1999, Loral Skynet purchased three Ku-band transponders on the
Satmex 5 satellite from Satmex for $25.5 million.
Europe*Star
In December 1998, we finalized our strategic partnership with Alcatel to
jointly build and operate Europe*Star, a geostationary satellite system to be
marketed as part of the Loral Global Alliance. Alcatel serves as the primary
contractor while SS/L is providing the satellite bus and will test and integrate
the satellites. Europe*Star, in which we own a 47% interest, will provide
broadcast and telecommunications services via two high power all Ku-band
satellites, which are expected to be launched in 2000 and 2002, respectively.
Europe*Star intends to provide satellite services to Europe, Southeast Asia, the
Middle East, South Africa and India.
Total revenues for the fixed satellite services segment, including
intercompany and affiliate sales, were $342 million, $254 million and $83
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
segment's intercompany sales were $11 million in 1999, $5 million in 1998 and $1
million in 1997. Affiliate sales for Satmex were $136 million in 1999 (including
approximately $28 million to Loral companies), $105 million in 1998 and $13
million in 1997. The segment had EBITDA of $193 million, $171 million and $52
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Total assets for the segment were $3.9 billion, $3.4 billion and $1.8 billion as
of December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, funded backlog for the segment was $1.5
billion and $746 million, respectively, including intercompany backlog of $3
million in 1999 and $6 million in 1998 and affiliate backlog for Satmex of $364
million in 1999 and $133 million in 1998. Approximately $340 million of the
segment's 1999 external funded backlog is expected to be realized in 2000.
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BROADBAND DATA SERVICES
Through the Loral CyberStar Group we distribute multimedia (video, data and
voice) and deliver Internet access and services to businesses and ISPs.
Currently, we:
- deliver U.S.-based Internet content via satellite to more than 130 ISPs
in more than 32 foreign countries, which reach approximately seven
million residential customers around the world;
- distribute high-speed data over private corporate VSAT networks which
currently reach approximately two-and-a-half million corporate desktops
around the world; and
- offer business television services by satellite to corporations for the
delivery of teleconferences, distance learning and training, and special
events.
Satellite-based broadband delivery systems have a number of favorable
technical characteristics, including point-to-multipoint broadcasting
capability, geographic ubiquity, rapid deployment, high capacity and low cost.
We believe that these characteristics will be of increasing importance in the
near future as broadband Internet access becomes an increasingly universal
requirement and Internet content continues to become richer and more complex,
particularly in the most popular sites.
Our broadband strategy will combine our existing resources and current
business base with existing fiber-based terrestrial networks, new technologies
and the resources of strategic partners to address both the expanding market for
today's broadband services and to become a leading medium for delivery of even
richer Internet content in the future. Our existing resources include: a current
customer base of 130 ISPs and 250 enterprise customers; proprietary software for
satellite delivery of large, complex files to multiple locations; satellite
systems expertise; access to our GEO constellation and orbital slots around the
world; access to fiber networks and Internet backbone entry (peering) points;
network operating centers; alliances with high-technology providers; and a
global sales force.
We have identified two attractive opportunities for early market entry:
consumer broadband services and streaming media services.
Consumer Broadband Services
We plan to serve the growing consumer broadband services market, initially
in North America, with an affordable, ubiquitous, two-way, high-speed Internet
access service employing a hybrid satellite/fiber network. When fully deployed,
this network will be capable of serving at least ten million homes and small
businesses.
The network will offer point-to-point downlink data rates of 1.5 megabits
per second and uplink data rates of 128 kilobits per second. In addition, the
system will offer streaming multimedia in multicast mode at speeds of up to 30
megabits per second. The user will have access to stored or live multicasts and
both real-time and non-real-time streaming services. The network will use four
closely-located satellites that customers can access through a single compact
satellite dish: Ku-band satellites for multicasting and Ka-band satellites with
multiple spot beams for delivery of two-way point to point services.
Because this high-capacity system can be rapidly deployed and will be
available anywhere in the satellites' broad coverage area, end-users not served
by digital subscriber lines, or DSL, or cable modems will be an important
market. And because of the system's multimedia multicasting and competitive
pricing, we expect to compete effectively in areas served by these terrestrial
services as well.
We intend to serve as the "wholesaler" of this connectivity service. We
anticipate that our customers (ISPs, cable companies and telephone companies)
will market and sell the service to their customers as a high-value extra
feature in their own portfolio of services, emphasizing its "always-on"
high-speed connectivity and multimedia multicasting capabilities. We believe our
network will be attractive to our reseller customers because it provides an
immediate national presence and preserves their ability to collect consumer
viewing-habit information.
The network will eventually consist of four satellites and fourteen
gateways linked by fiber to the Internet backbone, all controlled by a fully
backed-up network operations center. The consumer premises equipment
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will consist of a set-top box with up to 30 gigabytes of storage connected to a
single small satellite dish capable of seeing our four closely located broadband
satellites. We are currently in discussions with several strategic partners who
would participate in the development of the ground system and customer premises
equipment for the delivery of this service. We will serve as the system
integrator and principal owner and manager of this business, as we do for
Globalstar.
We plan to use Ku-band transponders on two satellites in Loral's current
fleet, Telstar 4 and Telstar 6, along with our existing gateway and Internet
peering site at Mount Jackson, Virginia, for the initiation of this two-way
broadband service in early 2001. Two high-powered Ka-band satellites, each with
48 spot beams, are under construction at SS/L. They are scheduled to be launched
in 2002 and 2003, expanding coverage to the entire Western Hemisphere.
We currently estimate that the required investment for the consumer
broadband services business in North America will be approximately $3 billion,
with the services implemented and the associated investments made in several
phases.
Streaming Media Services
We believe that streaming media -- the continuous distribution of rich
video content -- will be an increasingly important component of total Internet
traffic in the future, fueling end-user demand for faster delivery than the
traditional architecture of the Internet will allow. In the workplace, these
technologies will support more sophisticated work processes and greater
productivity, and will be important components of on-line advertising, content
and e-commerce. We plan to focus our marketing efforts initially on our existing
base of ISP and corporate customers.
We intend to exploit the technical advantages of satellites to deliver
streaming media services more effectively than terrestrial alternatives. Instead
of flooding the Internet with multiple point-to-point transmissions of these
massive files, our system will move content directly from its source via
satellite to multiple servers located at the "edge of the net," near the end
user. This should eliminate bottlenecks, improve quality, lower cost and expand
content choices and applications. We will be able to deliver content either as a
constant stream or to cache servers in ISP or enterprise facilities for
distribution as requested by the end-user.
We intend to enter three streaming media business segments:
- IP Transport Service to the Edge of the Net: Content and applications
service providers with their own encoding capabilities will be able to
use our network to update their servers at the edge of the Net and reach
"new media" viewers with their product offerings more efficiently.
- Content Aggregation Services: For customers who wish to outsource more of
the streaming media distribution process, we will receive and store
customer's content on our own servers at our satellite uplink facilities,
encode the content into digital format, schedule and monitor transmission
and provide customer care. This service will allow customers to
distribute their customized broadband applications and content
(particularly video) throughout the network to lower the cost and improve
the speed and quality of delivery to the end-user.
- Business Portal Service: We plan to offer enterprise customers a library
of selected business-related content and applications (training,
corporate communications, etc.), accessed through a single Internet site.
We expect that this portal will derive revenue not only from hosting the
video content, but also from advertising, e-commerce, subscriptions and
pay-per-view services.
We currently estimate the required investment for the streaming media
services business at approximately $500 million.
We expect to use strategic alliances to enhance the establishment and
prospects of both our planned consumer broadband and streaming media businesses.
We have extensive experience in forming technical and marketing partnerships, as
we did with Globalstar. We have several partnerships with Alcatel, a leading
provider of telecommunications services and technology, including DSL (digital
subscriber lines), and owner of approximately 18% of CyberStar LP. During 1999,
we formed several significant alliances with high-
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technology companies to offer services that increase high-speed, uninterrupted
access to the Internet and improve the efficiency of delivering multimedia
products and services to corporations, broadcasters, content developers, ISPs
and other enterprises. Among the most recently formed alliances are: an
agreement to provide PSINet with a high-speed, satellite-based Internet link
into South America; a trial with RealNetworks to offer satellite-based
audio/video streaming media service to European ISP customers; and a joint
marketing agreement with Akamai to improve delivery of web content to ISPs
worldwide.
On July 31, 1999, CyberStar LP acquired Global Access Services ("Global
Access"), a business television unit of Williams Communications, Inc. for
approximately $11 million in cash. Global Access provides business television,
video conferencing and other communication services to companies in various
parts of the world including Europe, South America, Asia and the Americas,
through networks operated in Singapore, Dallas, London and Johannesburg.
In December 1999, the Brazilian government awarded Loral CyberStar a
license to deliver domestic and international data communications services in
Brazil. Under this license -- one of the first to be awarded to a foreign
company under the country's recent market-opening regulations -- Loral CyberStar
can provide the Brazilian and the international business community with
broadband data services capable of delivering content directly to the user's
desktop, as well as a network infrastructure for advanced telecommunications
services.
Total revenues for the broadband data services segment were $85 million and
$40 million for the years ended December 31, 1999 and 1998, respectively. EBITDA
before development costs for the segment were losses of $8 million and $13
million in 1999 and 1998, respectively. Total development and start-up costs for
Cyberstar LP were $27 million, $33 million and $33 million for 1999, 1998 and
1997, respectively. Total assets for the segment were $114 million, $153 million
and $25 million as of December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, funded backlog for the segment was $236
million and $147 million, respectively, which was all from external sources.
Approximately $85 million of 1999 external funded backlog is expected to be
realized in 2000.
SATELLITE MANUFACTURING AND TECHNOLOGY
SS/L is a worldwide leader in the design, manufacture and integration of
satellites and space systems. SS/L draws on its 40-year history, during which
satellites manufactured by SS/L have achieved more than 700 years of cumulative
on-orbit experience. SS/L also provides Loral with visibility into emerging and
new satellite-based technologies and applications. SS/L manufactures satellites
that provide telecommunications, weather forecasting and broadcast services.
SS/L is the leading supplier of satellites to Intelsat, an international
consortium of 135 member nations which is currently the world's largest operator
of commercial communications satellites. Other customers include EchoStar, TCI,
Globalstar, Loral Skynet, Sirius Satellite Radio (formerly known as CD Radio)
and Cable & Wireless Optus of Australia.
As one of the premier providers of satellites and other space systems, SS/L
competes principally on the basis of technical excellence, a long record of
reliable performance, competitive pricing and on-orbit delivery packages. We
believe that SS/L's advanced manufacturing and testing facilities and long-term
customer relationships have enabled SS/L to compete effectively in the
commercial space systems marketplace.
SS/L has a history of technical innovation that includes the first
three-axis stabilized satellites, bipropellant propulsion systems for commercial
satellites that permit significant increases in the satellites' payload and
extend the satellites' on-orbit lifetime, rechargeable nickel-hydrogen batteries
with a life span of 10 years or more, the use of advanced composites to
significantly enhance satellite performance at lighter weights and the first
communications satellite with more than ten kilowatts of power. SS/L was also
the first satellite manufacturer to employ heat pipes to control heat transfer
in commercial satellites, thereby providing a more benign temperature
environment and increased reliability. SS/L also created the first multi-mission
geostationary satellite and was one of the first U.S. companies to acquire space
technology from Russia's space industry, obtaining exclusive rights outside the
former Eastern bloc to an electric propulsion subsystem that is five times more
efficient than bipropellant propulsion systems.
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SS/L is actively pursuing research and development projects for both
communications payload equipment and supporting bus elements. SS/L recently
announced that it will be developing new satellites that will be 40% more
powerful than its existing satellites, significantly increasing both
communications capacity and service quality.
SS/L, Alcatel Space Industries and Finmeccanica S.p.A. have generally
agreed to operate as a team on satellite programs worldwide. We believe that
this strategic alliance has enhanced SS/L's technological and manufacturing
capabilities and marketing resources and affords it improved access to
international government and commercial customers.
SS/L's major contracts fall into two categories: firm fixed-price contracts
and cost-plus-award-fee contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price without adjustment
for actual costs incurred in connection with the contract. Risk of loss due to
increased cost, therefore, is borne by SS/L. The majority of SS/L's contracts
are fixed-price contracts. Under such contracts, SS/L may receive progress
payments, or it may receive milestone payments upon the occurrence of certain
program achievements. Under a cost-plus-award-fee contract, the contractor
recovers its actual allowable costs incurred and receives a fee consisting of a
base amount that is fixed at the inception of the contract (the base amount may
be zero) and an award amount that is based on the customer's subjective
evaluation of the contractor's performance based on criteria stated in the
contract.
Many of SS/L's contracts and subcontracts may be terminated at will by the
customer or the prime contractor. In the event of a termination at will, SS/L is
normally entitled to recover the purchase price for delivered items,
reimbursement for allowable costs for work in process and an allowance for
profit or an adjustment for loss, depending on whether completion of performance
would have resulted in a profit or loss. No assurance can be given that these
terminations will not occur in the future.
Total revenues for the satellite manufacturing and technology segment,
including intercompany sales, were $1.4 billion for each of the years ended
December 31, 1999, 1998 and 1997, respectively. The segment's intercompany sales
were $255 million in 1999, $272 million in 1998 and $199 million in 1997. The
segment had EBITDA of $146 million in 1999 before a $44 million charge, and $118
million and $111 million in 1998 and 1997, respectively. The $44 million charge
pertains to an agreement reached with ChinaSat to extend the delivery date of a
satellite and other contract modifications, in return for two 36 MHz and one 54
MHz transponders on Telstar 10/Apstar IIR. After the charge, EBITDA for 1999 was
$102 million. Total assets for the segment were $1.6 billion, $1.7 billion and
$1.5 billion as of December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, funded backlog for the segment was $1.3
billion and $1.5 billion, respectively, including intercompany backlog of $256
million in 1999 and $111 million in 1998. Approximately $800 million of the 1999
external funded backlog is expected to be realized in 2000. Revenues recorded
under contracts with Globalstar were $360 million, $599 million and $408 million
for the years ended December 31, 1999, 1998 and 1997, respectively. In addition,
sales to two other customers represented in excess of 10% of the Company's
consolidated revenues in 1999 and 1998. For the years ended December 31, 1999,
1998 and 1997, the satellite manufacturing and technology segment expended $35
million, $35 million and $24 million for research and development projects,
respectively.
GLOBAL MOBILE TELEPHONE SERVICE
Globalstar owns and operates a 52-satellite constellation, including four
in-orbit spares, that forms the backbone of a global telecommunications network
designed to serve virtually every populated area of the world. Globalstar's
network, which we refer to as the Globalstar system, uses Qualcomm's patented
CDMA (code division multiple access) technology to provide high-quality mobile
and fixed telephone service to customers who live, work or travel beyond the
reach of adequately developed communications networks. Qualcomm has agreed that
Globalstar will be the only provider of mobile satellite services to which it
will license its patented CDMA technology.
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Globalstar's service provider partners, who are experienced
telecommunications companies, are actively launching, or preparing to launch,
service in key markets worldwide. Globalstar and its service provider partners
have also begun intensive marketing campaigns and are adopting multifaceted,
locally oriented marketing strategies to serve their markets. Under Globalstar's
agreements with its service providers, these partners are the exclusive
providers of Globalstar service within their assigned territory and will retain
their exclusivity as long as they meet minimum performance goals. Under these
agreements, Globalstar acts as a wholesaler of capacity on its space segment to
its service providers. Globalstar has assigned the largest service territories
to its founding strategic partners, including France Telecom, Vodafone AirTouch,
ChinaSat, Elsacom and Dacom.
In the first quarter of 2000, the Globalstar system commenced operations,
and as of February 29, 2000, there were 14 gateways available for service
covering 78 countries. By the end of 2000, we expect a total of 27 or more
gateways to be available for service, covering approximately 131 countries.
As of February 29, 2000, Globalstar service providers were providing
billable service in 20 countries, including Austria, Argentina, Brazil, Canada,
Greece, Italy, South Korea, Switzerland and the United States. By the end of
2000, service providers plan to have billable service available in a total of
approximately 120 countries.
The Globalstar system is designed to offer a cost-effective communications
solution for areas underserved or unserved by existing telecommunications
infrastructures. Globalstar mobile phones are simple to use -- just like
ordinary cellular telephones -- and are among the smallest, lightest and least
expensive satellite phones currently available. These phones are multimode,
functioning as cellular phones where terrestrial cellular service is available
and as satellite phones where cellular service is not available. Globalstar
phones provide this multimode capability without separate modules or plug-ins.
Globalstar pay phones and fixed wireless phones for business and residential use
provide basic telephone service in rural villages and at remote industrial and
residential sites.
Globalstar phones have familiar features such as phone book, voicemail,
short messaging service, and, in some service areas, call forwarding. Globalstar
plans to introduce additional features this year, including data calls, Internet
access through data packet switching, email and fax capability, caller ID and
position location. Globalstar's utilization of Qualcomm's CDMA technology should
enable it to swiftly adopt future improvements as this industry-leading wireless
technology evolves. In addition, because the intelligence of the Globalstar
system is located on the ground, future enhancements are easily implemented.
Globalstar's full constellation has been launched and all satellites are
performing normally. Based on Globalstar's experience to date, these satellites
are now expected to have a useful life of 10 years, rather than the original
expectation of 7 1/2 years. The Globalstar satellites use a simple, traditional
"bent pipe" design, amplifying and reflecting received signals directly back to
earth, with no intersatellite links. Gateways owned and operated by Globalstar
service providers then connect customer calls through the existing public
telephone network. As a result, the Globalstar system will complement and
extend, rather than bypass, the existing telephone network infrastructure.
Globalstar recently completed a period of intensive user trials in which over
one million calls were placed under a variety of conditions, including
simulations of full capacity utilization. Trial users rated call quality equal
to, or better than, digital cellular connections.
According to industry sources, more than 80% of the world's land mass is
not covered by cellular service. Globalstar believes, based on market research,
that its addressable market -- those who live, work or regularly travel to areas
underserved or unserved by existing telecommunications infrastructure and who
desire and have the ability to pay for telephone service such as that offered by
Globalstar -- has approximately 40 million potential customers. Globalstar's
first generation system is expected to have a system capacity of approximately
seven million subscribers, less than one fifth of Globalstar's potential
addressable market. In fact, because of the limited spectrum available for use
by mobile satellite services like Globalstar, the combined capacity of
Globalstar and the other existing and announced mobile satellite service systems
are capable of serving only a portion of this market.
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Globalstar's original consortium of 12 leading international
telecommunications service providers and manufacturers has grown into an
international organization with marketing channels in 131 countries and
agreements with over 220 local service providers. Globalstar-supported
cooperative advertising is creating brand awareness globally and within selected
market segments, while sales channels are focused both on the mass market and
targeted market segments, including:
- government, including police, emergency and military users;
- commercial freight and fishing vessels, cruise ships and recreational
boats;
- truck drivers and business travelers;
- the forestry, mining, oil and gas and other natural resource industries;
- wilderness guides and outdoor enthusiasts;
- agribusiness; and
- utilities.
Globalstar's service providers have an existing customer base of more than
100 million cellular customers from which they intend to identify for direct
marketing efforts those who work in, or frequently travel to, or through, areas
without cellular service.
Globalstar expects to spend $325 million for the enhancement of its system
software, for the eight spare satellites being constructed by SS/L, and for
financing provided to Globalstar's service providers to assist in the purchase
of gateways, fixed access terminals and handsets (of which $231 million is
expected to be received from the service providers as repayment of such
financing). In addition, cash interest, preferred dividends and operating costs
are expected to be approximately $125 million per quarter in 2000. Globalstar
raised $268.5 million through the sale of equity interests on February 1, 2000.
Globalstar believes that its cash on hand ($329 million at February 29, 2000),
available credit under its two bank facilities and vendor financing arrangements
(approximately $425 million at February 29, 2000), service revenues and other
anticipated cash inflows will be sufficient to cover its expected cash outflows
provided that its $250 million credit facility is renegotiated. If Globalstar
cannot renegotiate its $250 million credit facility, it believes it will be able
to obtain additional funds. There can be no assurance, however, that such funds
will be available on favorable terms or on a timely basis, if at all.
The global mobile telephone service segment had development and start-up
costs of $184 million, $145 million and $87 million for the years ended December
31, 1999, 1998 and 1997, respectively. Total assets for the segment were $3.8
billion, $2.7 billion and $2.1 billion as of December 31, 1999, 1998 and 1997,
respectively.
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REGULATION
As an operator of a privately-owned global satellite system, Loral is
subject to: (i) the regulatory authority of the U.S. government; (ii) the
regulatory authority of other countries in which Loral operates; (iii) the
Intelsat consultation process; and (iv) the frequency coordination process of
the International Telecommunications Union ("ITU").
U.S. REGULATION
The ownership and operation of Loral's satellite systems in the U.S. is
regulated by the Federal Communications Commission (the "FCC"). Loral is subject
to the FCC's jurisdiction primarily for: (i) the licensing of satellites and
earth stations; (ii) avoidance of interference with other radio stations; and
(iii) compliance with FCC rules governing U.S.-licensed satellite systems.
Violations of the FCC's rules can result in various sanctions including fines,
loss of authorizations, or the denial of new authorizations or renewal
authorizations. Loral is not regulated as a common carrier and, therefore, is
not subject to rate regulation or the obligation not to discriminate among
customers. Loral must pay FCC filing fees in connection with its space station
and earth station applications; must pay annual regulatory fees that are
intended to defray the FCC's regulatory expenses; must file annual status
reports with the FCC; and, to the extent Loral is deemed to be providing
interstate/international telecommunications, must contribute to funds used to
support universal service.
Authorization to Launch and Operate Satellites. The FCC grants
authorizations to satellite operators that meet its legal, technical and
financial qualification requirements. The FCC often receives applications from
multiple operators to operate a satellite at a given orbital slot. There can be
no assurance that in the process of resolving such mutually exclusive
applications, Loral's application will be granted. Under the FCC's financial
qualification rules, an applicant must demonstrate that it has sufficient funds
to construct, launch, and operate each requested satellite for one year. Most
satellite authorizations also include specific construction and launch
milestones which Loral must meet. Licenses are issued for an initial ten-year
term and the FCC gives licensees an "expectancy" with respect to the replacement
of their authorized satellites. At the end of a ten-year license term, a
satellite that has not been replaced, or that has been relocated to another
orbital location following its replacement, may be allowed to continue
operations for a limited period of time pursuant to a grant of special temporary
authority from the FCC. Such operations, however, are subject to certain
restrictions.
Loral has final FCC authorization for the following satellites which
operate in the C-band, the Ku-band, or both bands: Telstar 4 at 89(LOGO) W.L.,
Telstar 5 at 97(LOGO) W.L., Telstar 6 at 93(LOGO) W.L., Telstar 7 at 129(LOGO)
W.L., Telstar 8 at 77(LOGO) W.L., Telstar 9 at 69(LOGO) W.L., Telstar 11 at
37.5(LOGO) W.L. and Orion A at 47(LOGO) W.L. Certain of these authorizations are
subject to pending petitions for reconsiderations submitted by third parties,
which are still pending. The final FCC authorizations for certain of these
satellites also do not cover certain design changes or milestone extension
requests that are the subject of pending modification applications. Certain of
these applications have been opposed by other satellite operators. There can be
no assurance that such design changes or milestone extensions will be granted by
the FCC. The failure to obtain a milestone extension could result in the loss of
the related FCC authorization. If Loral is unable to obtain FCC approval to
implement its requested technical modifications for any particular
authorization, it will be obligated to operate the related satellite in
accordance with the original authorization. Loral has special temporary
authority to operate an additional satellite, Telstar 12, at 15(LOGO) W.L.,
pending FCC action on its request for final authority.
In addition, Loral has final authorization to operate at the following
orbital slots: Ka-band at 89(LOGO) W.L., 81(LOGO) W.L., 93(LOGO) W.L., 115(LOGO)
W. L., 78(LOGO) E.L. and 105.5(LOGO) E.L. and hybrid Ka/Ku-band at 47(LOGO) W.L.
Loral has requested authority to implement inter-satellite links at all of these
locations and has requested other technical modifications to certain of these
authorizations. Certain applications to make this design modification and
requests for milestones extensions to do so are pending before the FCC, which
has not yet assigned the frequencies which will be used for inter-satellite
links. Certain of these applications have been opposed by other satellite
operators. There can be no assurance that the FCC will grant such modifications
or milestone extensions.
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Loral also has conditional authorizations and applications pending before
the FCC for other orbital locations. Under the FCC's rules, an applicant may
commence satellite construction prior to receiving an authorization to launch
and operate, although it must notify the FCC that it intends to commence
construction. Any construction engaged in is at the applicant's own risk. While
Loral therefore may proceed with the construction of planned satellites without
prior FCC approval, it must accept the risk that the FCC may not grant the
application, may not assign the satellite to its proposed orbital location, or
otherwise may act in a manner that limits or eliminates some or all of the value
of the construction previously done on the satellite.
Scope of Services Authorized. In 1996, the FCC largely eliminated the
regulatory distinction between U.S. domestic satellites and U.S.-licensed
international satellites. As a result, each of Loral's satellites may be used,
to the extent technically feasible, to provide both U.S. domestic and
international services.
Coordination Requirements. The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the operations of adjacent
satellites. The FCC requires adjacent satellite operators to coordinate with one
another to minimize frequency conflicts. The FCC reserves the right to require
that an FCC licensed satellite be relocated to a different orbital location if
it determines that such a change is in the public interest. The FCC might
exercise this authority in instances where operators are unable to coordinate
with each other.
REGULATION BY NON-U.S. NATIONAL TELECOMMUNICATIONS AUTHORITIES
Foreign laws and regulatory practices governing the provision of satellite
services to licensed entities and directly to end users vary substantially from
country to country. Some countries may require Loral to confirm that it has
successfully completed technical consultation with Intelsat before providing
services on a given satellite. See "-- Intelsat Consultation." In addition,
Loral may be subject to communications and/or broadcasting laws with respect to
its provision of international satellite services, which vary from country to
country.
Many countries have liberalized their regulations to permit entities to
seek licenses to provide voice, data or video services. This trend should
accelerate with the commitments by many World Trade Organization ("WTO")
members, in the context of the WTO Agreement on Basic Telecommunications
Services, to open their satellite markets to competition. Other countries,
however, have maintained strict monopoly regimes. In such markets, the provision
of service from Loral and other U.S.-licensed satellites may be more
complicated.
In addition to the orbital slots licensed by the FCC, Loral has been
assigned orbital slots by certain other countries. For example, Loral has been
authorized to use numerous Ku and Ka orbital slots by the Papua New Guinea
government. In March 1999, the Brazilian telecommunications authority announced
that Loral Skynet do Brasil had won Brazil's auction for its 63(LOGO) W.L.
Ku-band orbital slot. Loral operates capacity on the Telstar 10/Apstar IIR
C/Ku-band satellite licensed by China and located at 76.5(LOGO)E.L. Satmex, of
which Loral owns 49%, is licensed by Mexico to operate the C/Ku-band satellites
Solidaridad 1 at 109.2(LOGO)W.L., Solidaridad 2 at 113.0(LOGO) W.L., and Satmex
5 at 116.8(LOGO) W.L. Europe*Star, of which Loral owns 47%, is licensed by
Germany to operate a Ka-band satellite at 45(LOGO) E.L.
Loral's ability to provide satellite service in a particular country or
region is subject to the technical constraints of its satellites, international
coordination, local regulatory approval and any limitation as to the scope of
the approval so obtained.
Intelsat Consultation. In connection with its international satellite
services, Loral must currently complete a consultation process with Intelsat
under Article XIV of the Intelsat Agreement to ensure technical compatibility of
Loral's facilities and their operation with the spectrum and orbital locations
of existing or planned Intelsat satellites. This process, however, may be
eliminated as a result of the privatization of Intelsat.
The ITU Frequency Coordination Process. All satellite systems are subject
to ITU frequency coordination requirements and must obtain appropriate authority
to provide service in a given territory. The result of the required
international coordination process may limit the extent to which all or some
portion of a particular authorized orbital slot may be used for commercial
operations, with a corresponding impact on the
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useable capacity of a satellite at that location. In addition, the result of the
process by which satellite systems must seek authorization to provide service in
a given territory may limit the extent to which such service may be provided
from a given orbital location.
All of the registrations for Loral's satellites are or will be subject to
the ITU coordination process. Only national governments file required
coordination documents at the ITU. These documents are used by Loral and other
satellite operators as a basis for coordination of satellite systems. There may
be more than one ITU filing submitted for any particular orbital slot, or an
orbital slot adjacent thereto, thus requiring coordination between or among the
affected operators. The results of this coordination process may impose
technical constraints on Loral's ability to operate its satellites at a given
orbital location, if at all. Loral cannot guarantee successful frequency
coordination for its satellites. See "Certain Factors That May Affect Future
Results -- Our business is regulated, causing uncertainty and additional costs."
GLOBALSTAR SYSTEM
The Globalstar system requires regulatory authorization for two pairs of
frequencies: user links (from the user to the satellites and vice versa) and
feeder links (from the gateways to the satellites and vice versa). In January
1995, the FCC granted authority for the construction, launch and operation of
the Globalstar system and assigned spectrum for its user links. A modification
of this authorization in November 1996 assigned feeder link frequencies. This
license is held by L/Q Licensee, a subsidiary of Loral/Qualcomm Partnership,
L.P., which has agreed to use the FCC license exclusively for Globalstar's
benefit. The FCC license grants authority to construct, launch and operate the
Globalstar system with user links in the 1.6 and 2.4 GHz bands, consistent with
the United States band plan for Mobile Satellite Services Above 1 GHz Systems,
and feeder link frequencies in the 5 and 7 GHz bands. These feeder link
frequencies were allocated internationally at the 1995 World Radiocommunication
Conference, and the FCC assigned them for use by Globalstar in the United States
in accordance with this international allocation. However, use of the feeder
link frequencies remains subject to applicable restrictions, which may be
promulgated in an FCC proceeding to adopt the international allocations into the
U.S. Table of Frequency Allocations. The FCC initiated such a proceeding on
August 4, 1998.
The operation of Globalstar in the assigned user links and feeder links
must be coordinated with licensees of other existing radio services operating in
these bands in accordance with FCC and international rules and policies. Such
coordination may adversely affect the usefulness of the frequencies for
Globalstar's operations.
The FCC license only authorizes the construction, launch and operation of
Globalstar's satellite constellation. Separate authorizations must be obtained
from the FCC for operation of gateways and Globalstar phones in the United
States. Globalstar's U.S. service provider has received a license for the U.S.
gateway, and its application for a license for Globalstar phones has been
granted, although a petition for reconsideration remains pending. One of
Globalstar's three manufacturers has obtained equipment authorization from the
FCC for the Globalstar phones.
Even though the Globalstar system is licensed to operate in the United
States by the FCC, in order to provide service in other countries, Globalstar or
its service providers must obtain the required regulatory authorizations in
those countries. There can be no assurance that the required authorizations will
be obtained in every country in which Globalstar proposes to operate or that
they will be obtained in a timely manner, or that, if granted, they will
authorize service on the same terms as the U.S. license.
EXPORT REGULATION
Exports from the United States of commercial communication satellites, and
certain related items, technical data and services, are subject to United States
export control laws and regulations. These export control laws and regulations
affect the export of satellites and certain related items, technical data and
services to foreign launch providers, insurers, customers, potential customers
and business partners, as well as to foreign Loral employees, foreign regulatory
bodies, foreign national telecommunications authorities and to foreign persons
generally. Commercial communications satellites and certain related items,
technical data and services have been added to the United States Munitions List
and export jurisdiction over these satellites and
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certain related items, technical data and services has been transferred to the
U.S. Department of State and made subject to the Arms Export Control Act and the
International Traffic in Arms Regulations. Other items, technical data and
services exported by Loral remain subject to the export jurisdiction of the U.S.
Department of Commerce, pursuant to the Export Administration Act and the Export
Administration Regulations.
U.S. Government licenses or other approvals generally must be applied for
by Loral and obtained before such exports are made. There can be no assurance
that such licenses or approvals will be granted. Also, licenses or approvals may
be granted with limitations, provisos or other requirements imposed by the U.S.
Government as a condition of approval, which may affect the scope of permissible
activity under the license or approval. U.S. Government approval may be required
before such satellites and related items, technical data and services are
re-exported or transferred from one foreign person to another foreign person.
There can be no assurance that such approvals will be granted. Also, such
approvals may be granted subject to limitations, provisos or other requirements
imposed by the U.S. Government as a condition of approval, which may affect the
scope of permissible activity under the license or approval. See "Certain
Factors That May Affect Future Results -- We are subject to export controls,
which may result in delays, unforeseen additional costs and uncertainties in
certain markets."
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PATENTS AND PROPRIETARY RIGHTS
SS/L relies, in part, on patents, trade secrets and know-how to develop and
maintain its competitive position. It holds 163 patents in the United States and
266 patents abroad and has applications for 84 patents pending in the United
States and 269 patents pending abroad. SS/L patents include those relating to
communications, station keeping, power control systems, antennae, filters and
oscillators, phase arrays and thermal control as well as assembly and
inspections technology. The SS/L patents that are currently in force expire
between 2000 and 2018.
In connection with the Globalstar system, Globalstar's design and
development efforts have yielded 26 patents issued and 32 patents pending in the
United States, as well as 22 patents issued and 142 patents pending
internationally for various aspects of communications satellite system design
and implementation of CDMA technology relating to the Globalstar system.
Qualcomm has obtained more than 300 issued patents and has more than 800 patents
pending in the United States applicable to Qualcomm's implementation of CDMA.
The issued patents cover, among other things, Globalstar's process of combining
signals received from multiple satellites to improve the signal received and
minimize call fading.
Loral CyberStar and CyberStar LP have two and one patents in the United
States, respectively. In addition, Loral CyberStar, Loral SpaceCom Corporation
and CyberStar LP have one, three and 17 patents pending in the United States,
respectively, and one, 11 and eight patents pending abroad, respectively.
There can be no assurance that any of the pending patent applications by
the Company or Globalstar will be issued. Moreover, because the U.S. patent
application process is confidential, there can be no assurance that third
parties, including competitors, do not have patents pending that could result in
issued patents which the Company or Globalstar would infringe. In such an event,
the Company or Globalstar could be required to pay royalties to obtain a
license, which could increase costs.
FOREIGN OPERATIONS
Sales to foreign customers, primarily in Europe and Asia, represented 14%,
16% and 30% of the Company's consolidated revenues for the years ended December
31, 1999, 1998 and 1997, respectively. As of December 31, 1999, 1998 and 1997,
the Company had substantially all of its long-lived assets located in the United
States with the exception of the in-orbit satellites. See "Certain Factors that
May Affect Future Results -- We face risks in conducting business
internationally" for a discussion of the risks related to operating
internationally.
EMPLOYEES
As of December 31, 1999, the Company had approximately 4,000 full-time
employees (including approximately 560 employees of Globalstar and Satmex), some
of whom are subject to collective bargaining agreements.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, we or our representatives have made or may make forward-
looking statements, orally or in writing. They can be identified by the use of
forward-looking words such as "believes", "expects", "plans", "may", "will",
"would", "could", "should", "anticipates", "estimates", "project", "intend", or
"outlook" or their negatives or other variations of these words or other
comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements may be included in, but are not
limited to, various filings made by us with the Securities and Exchange
Commission, press releases or oral statements made by or with the approval of an
authorized executive officer. We warn you that forward-looking statements are
only predictions. Actual events or results may differ materially as a result of
risks that we face, including those presented below. The following are
representative of factors that could affect the outcome of the forward-looking
statements.
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 preferred stock to help pay
for the growth and operation of our businesses. If any of our subsidiaries or
affiliates finds itself faced with an imminent default, we may be faced with a
choice between providing additional support to that company or accepting the
loss of some or all of our equity investment.
THE ABILITY OF OUR SUBSIDIARIES AND AFFILIATES TO PAY DIVIDENDS TO US OR
OTHERWISE SUPPORT OUR OBLIGATIONS IS LIMITED BY THE TERMS OF THEIR DEBT
INSTRUMENTS.
For example, under the terms of Loral SpaceCom Corporation's credit
facility, it may pay dividends to us only if cumulative dividend payments do not
exceed 50% of its cumulative consolidated net income and the ratio of its funded
debt to EBITDA is less than 3.0 to 1.0. Loral SpaceCom Corporation's ability to
repay cash advances made to it by its 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
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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 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 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 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
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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, 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.
- 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
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the backup satellite control processor would result in the loss of Solidaridad
1, which would be fully covered by insurance.
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 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.
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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.
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 incur a loss of
approximately $35 million if it is unable to find a replacement customer for
this launch vehicle.
In February 1999, the U.S. government informed Hughes Space &
Communications, Inc. that it intended to deny an export license for a
telecommunications satellite it was building for Asia Pacific Mobile
Telecommunications. We do not know what this denial may mean for future
applications of export licenses to Chinese customers or the resolution of the
ChinaSat-8 suspension. If the U.S. government continues to deny export licenses
for satellites sold to the Chinese or other markets, SS/L's business could be
hurt.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department and the State Department has
issued regulations relating to the export of and disclosure of technical
information related to, satellites and related equipment. SS/L anticipates that
obtaining licenses and technical assistance agreements under these new
regulations will take more time and will be considerably more burdensome than in
the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against foreign satellite manufacturers for new satellite contracts.
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SS/L IS THE TARGET OF A GRAND JURY INVESTIGATION WHICH MAY ADVERSELY AFFECT
SS/L'S ABILITY TO EXPORT ITS PRODUCTS.
SS/L could be accused of criminal violations of the export control laws
arising out of the participation of its employees in a committee formed to
review the findings of the Chinese regarding the 1996 crash of a Long March
rocket in China. Under the applicable regulations, SS/L could be debarred from
export privileges without being convicted of any crime if it is indicted for
these alleged violations, and loss of export privileges would harm SS/L's
business. Whether or not SS/L is indicted or convicted, SS/L will remain subject
to the State Department's general statutory authority to prohibit exports of
satellites and related services if it finds that SS/L has violated the Arms
Export Control Act. Further, the State Department can suspend export privileges
whenever it determines that grounds for debarment exist and that suspension "is
reasonably necessary to protect world peace or the security or foreign policy of
the United States." If SS/L were to be indicted and convicted of a criminal
violation of the Arms Export Control Act, it:
- would be subject to a fine of $1 million per violation;
- could be debarred from certain export privileges; and
- could be debarred from participation in government contracts.
Since some of SS/L's satellites are built for foreign customers and/or are
launched on foreign rockets, a debarment would have a material adverse effect on
SS/L's business, which in turn would affect us.
WE SHARE CONTROL OF OUR AFFILIATES WITH THIRD PARTIES.
Third parties have significant ownership, voting and other rights in many
of our subsidiaries and affiliates. As a result, we do not always have full
control over management of these entities and the rights of these third parties
and fiduciary duties under applicable law could result in these entities taking
actions not in our best interests or in refraining from taking actions that we
deem advisable. To the extent that these entities are or become customers of
SS/L, these conflicts could become acute. For example:
- Although we are the managing general partner and largest equity owner of
Globalstar, our control is limited by the supermajority rights of
Globalstar's limited partners.
- Primary operational control of Satmex is vested in Mexican nationals, as
required by Mexican law, subject to certain supermajority rights which we
retain.
- The Europe*Star joint venture, initiated by Alcatel, is under its
control, subject to our supermajority rights.
- Future joint ventures between Alcatel and us within the Loral Global
Alliance will be controlled by the initiating party, subject to
supermajority rights in favor of the non-initiating party.
- Alcatel is an investor in CyberStar LP and has supermajority rights in
it.
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.
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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 so 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(LOGO) 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
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enough subscribers either to compete effectively or to implement fully its
current business plan. Moreover, if ICO Global emerges from its bankruptcy
proceedings with a debt-free or reduced debt capital structure and a viable
business plan, it would 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 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.
THE YEAR 2000 PROBLEM COULD CAUSE COMPLICATIONS.
As of the date of this Report on Form 10-K, our computer systems and
software programs are functioning properly. However, there is still a
possibility that some computer systems and software programs may not function
properly later in the Year 2000 and beyond because of a once common programming
standard which used two digits instead of four digits to signify a year. This
problem is often referred to as the "Year 2000" problem.
If we are unable to fix a serious Year 2000 problem, there could be an
interruption or failure in our operations. Likewise, if our suppliers or
customers are unable to fix a material Year 2000 problem, a resulting
interruption or failure of their business could hurt our company.
ITEM 2. PROPERTIES
The Company leases approximately 47,000 square feet for its corporate
offices in New York. The Company's subsidiaries also maintain office space,
manufacturing and telemetry, tracking and control facilities primarily in the
United States. Management believes that the facilities are sufficient for its
current operations.
Fixed Satellite Services
Loral Skynet owns two telemetry, tracking and control stations covering
approximately 39,000 square feet on 220 acres in Hawley, Pennsylvania and Three
Peaks, California and leases approximately 51,000 square feet of office space in
Bedminster, New Jersey and Richmond, California.
Broadband Data Services
Loral CyberStar owns seven acres of land in Mt. Jackson, Virginia and
leases approximately 78,000 square feet for office space worldwide and its
operations center in Mt. Jackson, Virginia.
CyberStar LP leases approximately 14,000 square feet for office space and
its network operations center in Mountain View, California and approximately
37,000 square feet of office space in London, England, Plano, Texas and St.
Paul, Minnesota.
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Satellite Manufacturing and Technology
SS/L's research, production and testing facilities are carried on in
SS/L-owned facilities covering approximately 562,000 square feet on 84 acres in
Palo Alto, California. In addition, SS/L leases approximately 780,000 square
feet of space from various third parties in Palo Alto, California, Menlo Park,
California and Mountain View, California.
ITEM 3. LEGAL PROCEEDINGS
Export Control Matters. Various agencies and departments of the U.S.
government regulate Loral's ability to pursue business outside the United
States. Exports of space-related products, services and technical information
require U.S. government licenses. There can be no assurance that Loral or SS/L
will be able to obtain necessary licenses or approvals, and the inability to do
so, or the failure to comply with the terms thereof when granted, could have a
material adverse effect on their respective businesses.
On February 15, 1996, a Chinese Long March rocket carrying an Intelsat
satellite built by SS/L crashed seconds after launch. Thereafter, at the request
of insurance companies concerned about underwriting future Long March launches,
the manufacturer of the Long March, China Great Wall Industries Corporation
("CGWIC"), asked SS/L employees and personnel from other interested companies to
serve on a committee formed to consider whether studies of the crash made by the
Chinese had correctly identified the cause of the failure. In meetings with
CGWIC, the committee reviewed CGWIC's launch failure analysis, which consisted
of a preliminary explanation for the crash (a failed solder joint) and CGWIC's
plan for further studies it planned to make.
In May 1996, an SS/L employee transmitted a copy of the committee's
preliminary report to the members of the committee and, contrary to the
intentions of SS/L's management, to CGWIC before consulting with the U.S. State
Department. Upon becoming apprised of the facts, SS/L immediately informed the
State Department, and thereafter submitted a detailed voluntary written
disclosure to the State Department that included copies of the written materials
provided to CGWIC and descriptions of the committee's meetings with the Chinese
and of the events surrounding disclosure of the preliminary report. For the next
18 months, the Company had no notice of any adverse action being taken or
contemplated in connection with the matter.
SS/L is a target of a grand jury investigation being conducted by the U.S.
Attorney for the District of Columbia as to whether an unlawful transfer of
technology occurred in connection with the committee's work. The Company and
several of its employees have received subpoenas from that grand jury. SS/L is
not in a position to predict the outcome of this investigation. If SS/L were to
be indicted and convicted of a criminal violation of the Arms Export Control
Act, it would be subject to a fine of $1 million for each violation, and could
be debarred from certain export privileges and, possibly, from participation in
government contracts. Since many of SS/L's satellites are built for foreign
customers and/or launched on foreign rockets, such a debarment would have a
material adverse effect on SS/L's business, which would in turn affect the
Company. Indictment for such violations would subject SS/L to discretionary
debarment from further export licenses. 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 a violation of the Arms
Export Control Act that puts SS/L's reliability in question, and it can suspend
export privileges whenever it determines that grounds for debarment exist and
that such suspension "is reasonably necessary to protect world peace or the
security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to those conclusions.
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In May 1997, SS/L applied for an export license for the launch of another
SS/L satellite in China, which was granted following the required Presidential
waiver in February 1998. The Company believes that the authorizations were
properly granted, and does not believe that it or any of its officers acted
improperly in obtaining them. The policy of the Bush administration, which has
been continued under President Clinton, has been to grant such waivers routinely
as being in the national interest; indeed, the Company is unaware of any
requested waiver for a Chinese satellite launch ever having been denied.
According to press reports, President Bush signed three waivers covering nine
Long March launches, and President Clinton has signed eight waivers covering 11
Long March launches. This policy has, until recently, also enjoyed bipartisan
Congressional support. On December 23, 1998, the Office of Defense Trade
Controls ("ODTC") of the U.S. Department of State temporarily suspended the
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 program. According to ODTC, the
purpose of the temporary suspension is to permit that agency to review the
agreement for conformity with newly-enacted legislation (Section 74 of the Arms
Export Control Act) with respect to the export of missile equipment or
technology. SS/L has complied with ODTC's instructions, and believes that a
review of the agreement will conclude that its terms comply with the new law.
The ODTC, however, has not completed its review, and the scheduled launch date
for ChinaSat-8 is being delayed. 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, Loral has agreed to provide to the customer two 36 MHz and one 54 MHz
transponders on Telstar 10/Apstar IIR for the customer's use for the life of
those transponders. As a result, the Company recorded a net charge to earnings
of $35 million. 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 incur a loss of
approximately $35 million if it is unable to find a replacement customer for
this launch vehicle.
PanAmSat Arbitration. 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.
CCD Lawsuits. On September 12, 1991, Loral Fairchild Corp. ("Loral
Fairchild"), a subsidiary of Loral Corporation, filed suit against a number of
companies including Sony Corporation ("Sony"), Matsushita Electronics
Corporation ("Matsushita") and NEC Corp. claiming that such companies had
infringed Loral Fairchild's patents for a "charged coupled device" ("CCD"),
commonly used as an optical sensor in video cameras and fax machines. Although
the CCD patents have expired, Loral Fairchild is seeking reasonable royalties
through the expiration date from a number of defendants. On February 22, 1996, a
jury in the United States District Court for the Eastern District of New York
found unanimously that Sony had infringed the CCD patents. The trial judge,
however, in an order dated July 12, 1996, reversed the jury verdict. Loral
Fairchild appealed and sought certiorari unsuccessfully. Although Loral
Fairchild has settled its claim against one of the other defendants for
approximately $450,000 its claims against other defendants remain pending. In
view of the court's decision, however, a substantial portion, but not all, of
the damage claims against the other defendants are adversely affected.
Matsushita has been granted a declaratory judgment that it has a valid and
enforceable license under the CCD patents. In addition, a trial on Matsushita's
claim against Loral Fairchild for tortious interference was conducted during
July 1996, and a verdict was rendered in favor of Loral Fairchild in September
1997.
Environmental Regulation. Operations at SS/L, Loral Skynet, Loral
CyberStar, CyberStar LP and Globalstar are subject to regulation by various
federal, state and local agencies concerned with environmental
25
<PAGE> 27
control. The Company believes that these facilities are in substantial
compliance with all existing federal, state and local environmental regulations.
With regard to certain sites, environmental remediation is being performed by
prior owners who retained liability for such remediation arising from
occurrences during their period of ownership. To date, these prior owners have
been fulfilling such obligations and the size and current financial condition of
the prior owners make it probable that they will be able to complete their
remediation obligations without cost to the Company or Globalstar.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
26
<PAGE> 28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol LOR. The following table presents, the reported high
and low sales prices of the Company's common stock as reported on the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Quarter ended March 31, 1999................................ $22 7/16 $14 7/16
Quarter ended June 30, 1999................................. 20 3/4 14 3/8
Quarter ended September 30, 1999............................ 22 7/8 16 1/4
Quarter ended December 31, 1999............................. 24 3/4 13 1/2
YEAR ENDED DECEMBER 31, 1998
Quarter ended March 31, 1998................................ $30 1/2 $19
Quarter ended June 30, 1998................................. 33 15/16 24 1/2
Quarter ended September 30, 1998............................ 31 7/8 12 1/8
Quarter ended December 31, 1998............................. 20 1/2 10 3/4
</TABLE>
The Company does not currently anticipate paying any dividends or
distributions on its common stock or the Series A Convertible Preferred Stock.
As required, Loral is currently paying dividends on its 6% Series C Convertible
Redeemable Preferred Stock and will be paying dividends on its 6% Series D
Convertible Redeemable Preferred Stock. Loral's indenture relating to its 9.5%
senior notes also imposes limitations on Loral's ability to pay dividends to its
shareholders. The credit facility maintained by the Company's wholly owned
subsidiary, Loral SpaceCom Corporation ("Loral SpaceCom"), restricts the ability
of Loral SpaceCom to transfer cash or pay dividends to its parent (see Note 8 to
Loral's consolidated financial statements). The guarantee by certain Loral
subsidiaries of Globalstar's $500 million credit facility restricts these
subsidiaries from making dividend payments to Loral, if cash on hand at the
subsidiaries is not at least $50 million and the subsidiaries do not hold an
intercompany note from Loral for at least $100 million. Loral CyberStar's
indentures relating to its senior notes and its senior discount notes also
contain restrictions on Loral CyberStar's ability to make dividend payments to
its parent.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
At February 29, 2000, there were 6,866 holders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from, and should be
read in conjunction with, the related financial statements.
27
<PAGE> 29
LORAL SPACE & COMMUNICATIONS LTD.
(in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED YEAR ENDED
------------------------------------ DECEMBER 31, MARCH 31,
1999 1998(1) 1997(1) 1996(1) 1996(1)
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $1,457,720 $1,301,702 $1,312,591
Management fee from affiliate........ -- $ 5,088 $ 5,608
Operating income (loss)(2)........... (62,263) (33,780) 13,552 (12,201) 2,587
Equity in net loss of
affiliates(1)(3)................... (177,819) (120,417) (49,037) (4,709) (8,628)
Net income (loss)(2)................. (201,916) (138,798) 40,004 8,877 (13,785)
Preferred dividends and
accretion(4)....................... (44,728) (46,425) (26,315)
Net income (loss) applicable to
common stockholders(2)............. (246,644) (185,223) 13,689 8,877 (13,785)
Earnings (loss) per share -- basic
and diluted........................ (.85) (.68) .06 .04 (.08)
OTHER DATA:
Ratio of earnings to fixed charges... 1.9x 3.7x
Deficiency of earnings to cover fixed
charges............................ $ 191,932 $ 140,438
CASH FLOW DATA:
(Used in) provided by operating
activities......................... $ (26,405) $ 86,795 $ (173,609) $ (3,003) $ (1,319)
Used in investing activities......... 659,533 555,613 1,079,411 1,962 115,031
Provided by (used in) equity
transactions....................... (24,633) 589,187 (18,097) 602,413 116,362
Provided by financing transactions... 403,664 199,856 316,912 583,292
Dividends paid per common share...... N/A
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- MARCH 31,
1999 1998(1) 1997(1) 1996(1) 1996(1)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 239,865 $ 546,772 $ 226,547 $1,180,752 $ 12
Total assets......................... 5,610,421 5,229,215 3,010,447 1,699,326 354,396
Convertible preferreds(4)............ 583,292
Debt, including current portion...... 1,999,322 1,555,775 435,398
Non-current liabilities.............. 252,052 231,384 230,411 26,834
Shareholders' equity/Invested
equity............................. 2,750,664 2,935,721 1,980,520 1,070,069 354,396
</TABLE>
- ---------------
(1) On March 20, 1998, Loral acquired all of the outstanding stock of Loral
CyberStar in exchange for common stock of Loral. The 1998 financial
information includes Loral Cyberstar commencing from April 1, 1998. In 1997,
Loral increased its ownership in SS/L to 100%, prior to 1997, SS/L was
accounted for under the equity method of accounting. On March 14, 1997,
Loral acquired Loral Skynet from AT&T; Loral's financial information
includes the results of Loral Skynet from that date. Financial information
as of and for the year ended March 31, 1996, represents the space and
communications operations of Loral Corporation ("Old Loral"). The results of
operations for the year ended March 31, 1996 include allocations and
estimates of certain expenses of Loral based upon estimates of actual
services performed by Old Loral on behalf of Loral. Interest expense was
allocated to Loral based on Old Loral's historical weighted average interest
rate applied to the average investment in affiliates.
(2) The results of operations for the year ended December 31, 1999 includes a
pre-tax charge of $35 million ($21 million after taxes) relating to an
agreement reached with a customer to extend the delivery date of a satellite
and other modifications to the contract in return for providing transponders
on another Loral satellite for their remaining lives.
(3) The Company's principal affiliates are Globalstar, Satmex since November 17,
1997 and Europe*Star since December 1998. Loral also has investments in
SkyBridge and other ventures, which are accounted for under the equity
method. Loral sold its interest in K&F Industries, Inc. in 1997.
(4) Convertible preferred equivalent obligations were exchanged for 6% Series C
Preferred Stock and were reclassified to shareholders' equity in 1997 upon
approval by the Company's shareholders.
28
<PAGE> 30
SPACE SYSTEMS/LORAL, INC.
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $1,017,653 $1,121,619
Gross profit................................................ 64,157 34,406
Net income.................................................. 31,025 12,367
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 19,181 $ 126,863
Total assets................................................ 1,059,064 908,677
Long-term debt.............................................. 127,586 65,052
Shareholders' equity........................................ 478,893 447,868
</TABLE>
GLOBALSTAR, L.P.
(in thousands, except per partnership interest data)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT
OF OPERATIONS) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------------------
1999 1999(2) 1998(2) 1997 1996 1995
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ -- $ -- $ -- $ -- $ -- $ --
Operating loss......................................... 590,538 186,505 146,684 88,071 61,025 80,226
Net loss applicable to ordinary partnership
interests............................................ 639,562 232,584 151,740 88,788 71,969 68,237
Net loss per weighted average ordinary partnership
interest outstanding -- basic and diluted............ 3.99 2.69 1.74 1.53 1.50
Cash distributions per ordinary partnership interest...
OTHER DATA:
Deficiency of earnings to cover fixed charges(1)....... 466,369 330,475 184,683 81,869 N/A
CASH FLOW DATA:
Used in operating activities........................... 265,657 56,576 24,958 68,615 51,756 38,368
Used in investing activities........................... 2,734,313 721,733 682,884 622,004 379,130 280,345
Provided by partners' capital transactions............. 1,361,649 463,329 14,825 132,990 284,714 318,630
Provided by (used in) other financing activities....... 1,765,996 386,432 287,552 998,137 95,750 (1,875)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(3)................................ $ 173,921 $ 56,739 $ 464,154 $ 21,180 $ 71,602
Globalstar System under construction........................ 3,181,189 2,302,333 1,626,913 891,033 400,257
Total assets................................................ 3,781,459 2,670,025 2,149,053 942,913 505,391
Vendor financing liability, including current portion....... 393,795 371,170 197,723 130,694 42,219
Debt........................................................ 1,799,111 1,396,175 1,099,531 96,000
Redeemable preferred partnership interests.................. 303,089 302,037
Partners' capital........................................... 1,028,329 602,401 380,828 315,186 386,838
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is not meaningful as Globalstar was
in the development stage until the first quarter of 2000 and, accordingly,
has incurred operating losses.
(2) The results of operations for 1999 and 1998, include launch related costs of
$30 million and $17 million, respectively.
(3) Includes restricted cash of $46 million and $0.5 million for 1999 and 1998,
respectively, received from service providers for the purchase of gateways.
29
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations of Loral Space & Communications Ltd. and its
subsidiaries ("Loral" or the "Company") are not historical facts, but are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, the Company or its representatives
have made and may continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the Securities and
Exchange Commission (the "SEC"), press releases or statements made with the
approval of an authorized executive officer of the Company. These
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "plans," "may," "will," "would,"
"could," "should," "anticipates," "estimates," "project," "intend," or "outlook"
or the negative of these words or other variations of these words or other
comparable words, or by discussion of strategy that involve risks and
uncertainties. These forward-looking statements are only predictions, and actual
events or results may differ materially as a result of a wide variety of factors
and conditions, many of which are beyond the Company's control. Some of these
factors and conditions include: (i) the Company and its subsidiaries and
affiliates owe significant amounts of money; (ii) the Company's consumer
broadband and streaming media strategies are subject to substantial financing
and execution risks; (iii) Globalstar was a development-stage company through
December 31, 1999, that may continue to lose money, have negative cash flow,
require additional money and suffer delays in meeting its targets; (iv) launch
failures may delay operations; (v) satellites may fail prematurely; (vi)
dependence on operating subsidiaries, especially Space Systems/Loral, Inc.
("SS/L"), for operating income; (vii) severe competition in the Company's
industries; and (viii) governmental or regulatory changes. For a detailed
discussion of these factors and conditions, please refer to the periodic reports
filed with the SEC by Loral, Globalstar, L.P. ("Globalstar"), Globalstar
Telecommunications Limited ("GTL"), Loral CyberStar, Inc. ("Loral CyberStar"),
formerly known as Loral Orion, Inc., and Satelites Mexicanos, S.A. de C.V.
("Satmex"). In addition, the Company operates in an industry sector where
securities values may be volatile and may be influenced by economic and other
factors beyond the Company's control.
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 ("FSS"). Through the Loral Global Alliance,
which currently consists of Loral Skynet, Loral CyberStar, its 49% owned
affiliate Satmex, and its 47% owned affiliate Europe*Star Limited
("Europe*Star"), Loral has become one of the world's leading providers of
satellite services using geostationary communications satellites. The
Company leases transponder capacity on its satellites to its customers who
use the capacity for various applications, including broadcasting, news
gathering, Internet access and transmission, private voice and data
networks, business television, distance learning and direct-to-home
television. The Loral Global Alliance currently has ten high-powered
geosynchronous satellites in orbit: the seven satellite Telstar fleet and
three Satmex satellites, with footprints covering almost all of the world's
population.
Broadband Data Services. Through Loral CyberStar and its 82% owned
subsidiary CyberStar, L.P. ("CyberStar LP"), Loral currently (i) delivers
U.S.-based Internet content via satellite to more than 130 Internet Service
Providers ("ISPs") in more than 32 foreign countries, which reach
approximately seven million residential customers around the world, (ii)
distributes high-speed data over private corporate very small aperture
terminal ("VSAT") networks, which reach approximately 2.5 million corporate
desktops around the world, and (iii) offers business television ("BTV")
services by satellite to corporations. Loral's broadband strategy will
build on these existing resources and will initially focus on two
attractive opportunities for early market entry: consumer broadband
services and streaming media services.
Satellite Manufacturing and Technology. SS/L is one of the world's
leading manufacturers of satellites and space systems, providing its
customers with a full suite of services, including: developing
30
<PAGE> 32
custom designs to meet their requirements, manufacturing and testing, and
arranging for launch services and insurance.
Global Mobile Telephone Service. Globalstar owns and operates a
52-satellite constellation, including four in-orbit spares, that forms the
backbone of a global telecommunications network designed to serve virtually
every populated area of the world. The Globalstar system commenced
operations in the first quarter of 2000, and as of February 29, 2000, there
were 14 gateways available for service covering 78 countries. Billable
service has commenced in 20 countries, including Austria, Argentina,
Brazil, Canada, Greece, Italy, South Korea, Switzerland and the United
States. Loral is the managing general partner and owned 41%, 43% and 40% of
Globalstar as of December 31, 1999, 1998 and 1997, respectively. In
February 2000, Loral's ownership in Globalstar was reduced to 40% as a
result of Globalstar issuing equity interests in connection with GTL's
public offering of 8.1 million shares of common stock.
CONSOLIDATED OPERATING RESULTS
In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discussion of revenues and EBITDA
reflects the results of Loral's operating segments for the years ended December
31, 1999, 1998 and 1997. See Note 16 to Loral's consolidated financial
statements for additional information on segment results. The remainder of the
discussion relates to the consolidated results of Loral, unless otherwise noted.
Operating Revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed satellite services(1)................................. $ 341.8 $ 254.2 $ 83.0
Broadband data services(2).................................. 84.6 39.8
Satellite manufacturing and technology(3)................... 1,433.3 1,390.2 1,442.6
-------- -------- --------
Operating segment revenues.................................. 1,859.7 1,684.2 1,525.6
Affiliate eliminations(4)................................... (135.5) (104.8) (12.9)
Intercompany eliminations(5)................................ (266.5) (277.7) (200.1)
-------- -------- --------
Operating revenues as reported.............................. $1,457.7 $1,301.7 $1,312.6
======== ======== ========
</TABLE>
EBITDA(6):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed satellite services(1)................................. $ 193.1 $ 171.2 $ 51.8
Broadband data services(2).................................. (8.4) (13.3)
Satellite manufacturing and technology(3)(7)................ 102.3 117.9 110.9
Corporate expenses(8)....................................... (39.3) (42.8) (26.9)
------- ------- -------
Segment EBITDA before development and start-up costs and
eliminations(7)........................................... 247.7 233.0 135.8
Development and start-up costs(9):
Broadband data services(2)................................ (27.2) (33.3) (32.6)
Global mobile telephone service(10)....................... (184.2) (145.0) (87.1)
------- ------- -------
Total development and start-up costs........................ (211.4) (178.3) (119.7)
------- ------- -------
Segment EBITDA before eliminations(7)....................... 36.3 54.7 16.1
Affiliate eliminations(4)................................... 106.7 70.2 77.2
Intercompany eliminations(5)................................ (30.4) (23.7) (17.0)
------- ------- -------
EBITDA as reported(7)....................................... $ 112.6 $ 101.2 $ 76.3
======= ======= =======
</TABLE>
- ---------------
(1) Fixed Satellite Services consists of 100% of the following companies since
their respective dates of acquisition: Loral Skynet acquired on March 14,
1997; Loral CyberStar's transponder leasing business acquired on March 20,
1998; Satmex, a 49% equity investee,
31
<PAGE> 33
acquired on November 17, 1997; and Europe*Star, a 47% equity investee,
since December 1998. For the year ended December 31, 1999, Satmex's results
include $25.5 million in revenues and $11.2 million of EBITDA from the sale
of transponders to Loral Skynet.
(2) Broadband Data Services consists of 100% of CyberStar LP (in which Loral
owns an 82% equity interest) and 100% of Loral CyberStar's broadband data
services business since its acquisition on March 20, 1998.
(3) Satellite Manufacturing and Technology consists of 100% of SS/L's results.
In February 1997, Loral agreed to acquire the remaining 49% of SS/L.
(4) Represents amounts related to unconsolidated affiliates (Satmex,
Europe*Star and Globalstar). These amounts are eliminated in order to
arrive at Loral's consolidated results. Loral's proportionate share of
these affiliates is included in equity in net loss from affiliates in
Loral's consolidated statements of operations.
(5) Represents the elimination of intercompany sales and EBITDA primarily for
satellites under construction by SS/L for wholly owned subsidiaries, as
well as eliminating sales for the lease of transponder capacity by
Broadband Data Services from Fixed Satellite Services.
(6) EBITDA (which is equivalent to operating income [loss] before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral's operating results. EBITDA is not an alternative to net income as an
indicator of a company's operating performance, or cash flow from
operations as a measure of a company's liquidity. EBITDA may be calculated
differently and, therefore, may not be comparable to similarly titled
measures reported by other companies.
(7) Segment EBITDA before development and start-up costs and eliminations
includes a charge of $44 million for Satellite Manufacturing and Technology
relating to an agreement with ChinaSat to extend the delivery date of a
satellite and other modifications to the contract in return for providing
transponders on another Loral satellite for their remaining lives. The net
charge to Loral after intercompany eliminations was $35 million.
(8) Represents corporate expenses incurred in support of the Company's
operations.
(9) Represents EBITDA for CyberStar LP and Globalstar.
(10) Includes 100% of Globalstar. EBITDA for 1999 and 1998 includes launch
related costs of $30 million and $17 million, respectively. Loral owned
41%, 43% and 40% of Globalstar as of December 31, 1999, 1998 and 1997,
respectively.
1999 COMPARED WITH 1998
Operating segment revenues for Loral were $1.9 billion for 1999 versus $1.7
billion in 1998, before intercompany and affiliate eliminations of $402 million
in 1999 and $383 million in 1998. The increase in revenues was due primarily to
growth in fixed satellite services as a result of the service start-up of Satmex
5 in January 1999, Loral Skynet's Telstar 6 satellite in March 1999 and the
acquisition of Telstar 10/Apstar IIR in September 1999, increased growth in
broadband data services, partially due to the acquisition of Global Access
Services in July 1999, and increases in satellite manufacturing and technology.
Also contributing to increased revenues was the inclusion of Loral CyberStar's
leasing and data businesses for the full year in 1999 versus nine months in 1998
and other increased revenues at Satmex, primarily from the sale of three
transponders to Loral Skynet. The increase in affiliate eliminations in 1999
reflects higher revenues for Satmex.
EBITDA for operating segments before development and start-up costs and
affiliate and intercompany eliminations, increased in 1999 to $248 million from
$233 million in 1998. This increase arose primarily from growth in fixed
satellite services due to the initiation of service on satellites added to our
FSS fleet in 1999, increased margins in broadband data services, and increases
at Satmex, primarily from the sale of three transponders to Loral Skynet. In
addition, satellite manufacturing and technology's EBITDA grew $28 million to
$146 million in 1999, before a $44 million charge relating to an agreement
reached with ChinaSat to extend the delivery date of a satellite and other
modifications to the contract in return for satellite capacity on another
Company-owned satellite. After considering the charge, satellite manufacturing
and technology's EBITDA was $102 million in 1999 versus $118 million in 1998.
The net charge to Loral was $35 million, after considering the cost of the owned
transponders and, as a result, intercompany eliminations were reduced by $9
million. Total investment in development and start-up costs increased in 1999 to
$211 million, from 1998 costs of $178 million. While the investment required for
CyberStar LP decreased to $27 million in 1999 from $33 million in 1998, costs
related to the further development of Globalstar rose to $184 million in 1999
from $145 million in 1998, resulting from increased costs for the development of
user terminals and in-house engineering, marketing, general and administrative
costs in anticipation of the start of service and launch related costs.
Affiliate eliminations increased in 1999, primarily as a result of Globalstar's
increased development and start-up costs. As a result of the above, EBITDA as
reported increased to $113 million in 1999 from $101 million in 1998.
32
<PAGE> 34
Depreciation and amortization rose to $175 million in 1999 from $135
million in 1998, and excludes depreciation and amortization of unconsolidated
affiliates of $65 million and $50 million for 1999 and 1998, respectively,
primarily for Satmex. The increase primarily results from the depreciation of
satellites placed in service in 1999, including Telstar 6, Telstar 7, Telstar
12, and Telstar 10/Apstar IIR and the inclusion of Loral CyberStar's
depreciation and the amortization of cost in excess of Loral CyberStar's net
assets acquired for the full year in 1999.
Interest and investment income increased to $89 million in 1999 from $54
million in 1998, principally due to $16 million of non-cash income related to
warrants received in connection with Globalstar's 1999 credit agreement (see
Acquisitions and Investments in Affiliates) and $11 million of dividend income
from Loral's investment in GTL preferred stock in January 1999.
Interest expense was $89 million in 1999, net of capitalized interest of
$84 million, versus $51 million in 1998, net of capitalized interest of $60
million. The increase in interest expense in 1999 was primarily due to including
interest expense for Loral CyberStar for a full year in 1999, interest expense
on the Company's 9.5% senior notes issued in January 1999 and increased interest
expense on Loral SpaceCom Corporation's credit facility, due to higher rates and
amounts outstanding in 1999, partially offset by increased capitalized interest
in 1999. Capitalized interest is expected to be lower in 2000, due to the start
of Globalstar telephone service in the first quarter of 2000 and the successful
launches in 1999 of Telstar 6, Telstar 7 and Telstar 12.
In 1998, the Company realized a $35 million gain on the sale of GTL common
stock, which was mostly offset by the write-off of non-strategic investments in
Asia Broadcasting and Communications Network, Ltd. and Continental Satellite
Corporation of $30 million, which were determined to have no future value to
Loral. These items resulted in a net gain on investments of $5 million in 1998.
For 1999, the income tax benefit of $33 million included a non-recurring
tax benefit of $34 million relating to a tax law change affecting the future
utilization of Loral CyberStar's pre-acquisition loss carryforwards. Excluding
this non-recurring benefit, the Company recorded an income tax provision of $1
million on a loss before income taxes of $62 million. For 1998, the Company
recorded an income tax benefit of $4 million on a loss of $26 million before
income taxes. In comparing 1999 to 1998, the change is primarily attributable to
a decrease in net income from non-taxable jurisdictions in 1999.
The minority interest benefit primarily reflects the reduction of CyberStar
LP's loss attributed to CyberStar LP's other investor, who owned 17.6% as of
December 31, 1999.
The equity in net loss of affiliates was $178 million in 1999 compared to
$120 million in 1998. Loral's share of Globalstar's losses, net of the related
tax benefits, was $99 million in 1999 compared to $67 million in 1998. This
increase is primarily due to Globalstar's increased development costs and
marketing, general and administrative costs in 1999 and launch related costs of
$30 million in 1999 related to excess launch capacity. As a result of its
successful launch campaign during 1999, Globalstar does not anticipate using all
the excess launch vehicle capacity it had contracted for and, accordingly,
recorded a charge of $30 million. Globalstar has a remaining deposit balance of
$45 million relating to backup launch capacity for three additional launches. In
1998, Globalstar incurred a $17 million charge related to the loss of satellites
on launch failure. Loral's share of Satmex's loss was $33 million for 1999,
after eliminating the profit on its sale of three transponders to Loral Skynet,
and $16 million for 1998. Also included as equity in net loss of affiliates is
Loral's share of Europe*Star's losses, SkyBridge Limited Partnership's losses,
and losses from other affiliates, including $15 million, net of related tax
benefits, principally related to Loral's proportionate share of the reduction in
the carrying value of the transponders of the Mabuhay Space Holdings Limited
joint venture (see Note 7 to Loral's consolidated financial statements).
Preferred distributions of $45 million for 1999 and $46 million for 1998
relate to Loral's 6% Series C convertible redeemable preferred stock (the
"Series C Preferred Stock").
As a result of the above, the net loss applicable to common stockholders
for 1999 was $247 million or $0.85 per basic and diluted share, compared to a
net loss applicable to common stockholders of $185 million or $0.68 per basic
and diluted share for 1998. Basic and diluted weighted average shares were 290.2
million for 1999 and 273.4 million for 1998 (see Note 15 to Loral's consolidated
financial statements). This increase is
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primarily due to the 23 million shares issued to the public in June 1998 and the
18 million shares issued to acquire Loral CyberStar in March 1998.
1998 COMPARED WITH 1997
Total revenues for Loral's operating segments were $1.7 billion for 1998
versus $1.5 billion in 1997, before intercompany and affiliate eliminations of
$383 million in 1998 and $213 million in 1997. The increase in revenues was due
primarily to growth in fixed satellite services as a result of including Satmex
for the full year, Loral CyberStar's leasing business for nine months, Loral
Skynet's results for a full year in 1998 versus nine and a half months in 1997
and increased utilization of Loral Skynet's Telstar satellites. The growth in
fixed satellite services was partially offset by a modest decline in satellite
manufacturing revenues which primarily resulted from the debooking of three
satellites for Asian customers at the end of 1997. The increase in affiliate
eliminations in 1998 reflects the elimination of a full year of Satmex sales.
The increase in intercompany eliminations in 1998 primarily reflects increased
investment in satellite construction by SS/L for Loral's FSS segment.
EBITDA for operating segments before development and start-up costs, and
intercompany and affiliate eliminations, increased in 1998 to $233 million from
$136 million in 1997, a year-over-year increase of 72%. This increase arose
primarily from the growth in fixed satellite services due to increased
utilization of Loral Skynet's Telstar satellites, the inclusion of Loral
Skynet's results for a full year in 1998 versus nine and a half months in 1997,
including the results of Loral CyberStar's leasing business subsequent to its
acquisition, and including Satmex's results for a full year in 1998 and growth
in satellite manufacturing and technology from increased margins. These
increases were partially offset by including the results of Loral CyberStar's
broadband data services business in 1998 and increased corporate expenses, which
resulted primarily from costs incurred for the additional resources required to
manage the substantial growth in Loral's businesses, along with increased legal
and other costs in support of the Company's operations. Total development and
start-up costs rose substantially in 1998 to $178 million, a 49% increase over
1997 spending of $120 million. While the investment required for CyberStar LP
remained constant year-over-year at approximately $33 million, costs related to
the further development of Globalstar rose to $145 million in 1998 from $87
million in 1997, due to increased activities in anticipation of the commencement
of commercial service. Affiliate eliminations decreased in 1998 primarily as a
result of eliminating a full year of Satmex's results for 1998 versus one and a
half months in 1997, partially offset by the elimination of increased Globalstar
costs and Europe*Star costs in 1998. Intercompany eliminations increased in 1998
primarily from increased investment in satellite construction by SS/L for
Loral's FSS segment. As a result of the above, EBITDA as reported increased 33%
to $101 million in 1998 from $76 million in 1997.
Depreciation and amortization rose to $135 million in 1998 from $63 million
in 1997, and excludes depreciation and amortization of unconsolidated affiliates
of $50 million and $7 million for 1998 and 1997, respectively, primarily for
Satmex. The increase primarily results from the inclusion of Loral CyberStar's
depreciation and the amortization of cost in excess of its net assets acquired
and from the inclusion of Loral Skynet's depreciation and amortization for a
full year in 1998, which includes the depreciation of Loral Skynet's Telstar 5
satellite which was placed in service on July 1, 1997.
Interest and investment income increased to $54 million in 1998 from $49
million in 1997. This increase is principally due to including Loral CyberStar's
interest income in 1998, partially offset by lower cash balances available for
investment in 1998.
Interest expense of $51 million in 1998, net of capitalized interest of $60
million, reflects interest on borrowings under Loral SpaceCom Corporation's
credit facility, other Loral debt and interest on Loral CyberStar's debt
subsequent to its acquisition. Interest expense of $15 million in 1997, net of
capitalized interest of $23 million, reflects interest on SS/L's debt assumed
and interest on Loral's outstanding Convertible Preferred Equivalent Obligations
("CPEOs"). On June 5, 1997, the CPEOs were exchanged for the 6% Series C
Preferred Stock.
Loral realized a $35 million gain on the sale of GTL common stock, which
was mostly offset by the write-off of non-strategic investments in Asia
Broadcasting and Communications Network, Ltd. and in Continental
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Satellite Corporation of $30 million, which were determined to have no future
value to Loral. These items resulted in a net gain on investments of $5 million
in 1998. In 1997, the Company realized a gain on investment of $80 million
resulting from the sale of the stock of K&F Industries, Inc. ("K&F"), net of
expenses.
For 1998, the Company recorded an income tax benefit of 15.1% on its loss
before income taxes, while for 1997, the Company recorded an income tax
provision of 27.5% on income before income taxes. The benefit rate for 1998 is
lower than the provision rate for 1997 primarily because of the Loral CyberStar
non-deductible amortization of costs in excess of net assets acquired in the
current year.
The minority interest benefit in 1998 primarily reflects the reduction of
CyberStar LP's loss attributed to CyberStar LP's other investor, who owned 17.6%
as of December 31, 1998. The minority interest expense in 1997 also reflects the
reduction of SS/L's income attributed to other partners' partial ownership in
SS/L until Loral acquired the remaining 49% in February 1997, as compared to
Loral's full ownership of SS/L in 1998 for the entire year.
The equity in net loss of affiliates was $120 million in 1998 compared to
$49 million in 1997. Loral's share of Globalstar's losses was $67 million in
1998 compared to $41 million in 1997. This increase was primarily due to
Globalstar's increased development and start-up costs and Loral's increased
ownership percentage in Globalstar in 1998 (42.6% as of December 31, 1998 versus
40.1% as of December 31, 1997) and Loral's proportionate share of a charge taken
by Globalstar in 1998 as a result of a Zenit launch failure. Loral's share of
Satmex's loss was $16 million and $6 million for the year ended December 31,
1998 and the period November 17, 1997 through December 31, 1997, respectively.
Also included as equity in net loss of affiliates for 1998 is Loral's share of
Europe*Star's losses, SkyBridge Limited Partnership's loss, net of the related
tax benefit, and losses from other affiliates (see Note 7 to Loral's
consolidated financial statements).
Preferred distributions of $46 million and $26 million for the years ended
December 31, 1998 and 1997, relate to the Series C Preferred Stock. The increase
in 1998 reflects a full year of preferred distributions versus a partial year in
1997. The Series C Preferred Stock was issued in June 1997.
As a result of the above, net loss applicable to common stockholders for
1998 was $185 million or $0.68 per basic and diluted share, compared to net
income of $14 million or $0.06 per basic and diluted share, for 1997. Diluted
weighted average shares were 273.4 million for 1998 and 243.6 million for 1997.
This increase was primarily due to the 23 million shares issued to the public
and the 18 million shares issued to acquire Loral CyberStar in 1998.
RESULTS BY OPERATING SEGMENT
Fixed Satellite Services
FSS revenue (consisting of Loral Skynet, 100% of Satmex, and Loral
CyberStar's revenues from leasing) increased to $342 million in 1999, from $254
million and $83 million in 1998 and 1997, respectively. EBITDA on the same basis
increased to $193 million in 1999, from $171 million in 1998 and $52 million in
1997, respectively. In 1999, our FSS fleet increased to 10 operational
satellites in-orbit, from five at the end of 1998. EBITDA margins are expected
to increase in 2000, as utilization grows on the new satellites added to our
fleet, without a proportionate growth in costs. Funded backlog for the fixed
satellite services segment totaled $1.5 billion at the end of 1999, almost
double the $746 million in backlog at year-end 1998, including intercompany
backlog of $3 million and $6 million in 1999 and 1998, respectively, and
affiliate backlog of $364 million and $133 million for Satmex in 1999 and 1998,
respectively. The average contract length of funded backlog has grown from
approximately 3.5 years at December 31, 1998, to approximately 4.5 years at
December 31, 1999. Approximately $340 million of the 1999 funded backlog is
expected to be realized in 2000. Capital expenditures for 1999 were
approximately $575 million, which included $6 million and $150 million for
Satmex and Europe*Star, respectively. In 2000, capital expenditures are expected
to decrease, due to lower satellite spending.
During the fourth quarter of 1998, Loral completed its integration plan for
Loral CyberStar and transferred management of Loral CyberStar's satellite
capacity leasing and satellite operations to Loral
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Skynet, effective January 1, 1999. In addition to increasing the operational
efficiency, capacity, flexibility and marketing reach of Loral's FSS services,
the realignment permits Loral CyberStar to focus on and leverage its experience
in the global broadband data services market.
Broadband Data Services
In order to align all of Loral's resources and activities in the developing
broadband data services area, CyberStar LP's broadband business and Loral
CyberStar's Internet and corporate data networking businesses have been
reorganized and in 1999 began reporting to a group vice president. This
alignment allows the business units to take advantage of the synergies they
share. The reported results for the broadband data services segment include
Loral CyberStar's operations relating to the provisioning of broadband data
services, exclusive of transponder leasing, along with the results of CyberStar
LP.
Revenues for the broadband data services segment increased to $85 million
in 1999 from $40 million in 1998, primarily from Loral CyberStar's corporate
data networking and Internet and intranet services businesses and from its
acquisition of Global Access Services ("Global Access") in July 1999. EBITDA
before development and start-up costs in 1999 was a loss of approximately $8
million versus a loss of $13 million in 1998. Total development and start-up
costs for CyberStar LP were $27 million (including $11 million of asset
disposals resulting from changes in technology supporting its business
strategy), $33 million and $33 million for 1999, 1998 and 1997, respectively. As
of December 31, 1999 and 1998, funded backlog for the segment was $236 million
and $147 million, respectively, which was all from external sources.
Approximately $85 million of 1999 external funded backlog is expected to be
realized in 2000. Capital expenditures in 1999 were approximately $19 million
and are estimated to increase in 2000 (see Liquidity and Capital Resources).
Satellite Manufacturing and Technology
Revenues at SS/L, the Company's satellite manufacturing and technology
subsidiary, before intercompany eliminations, were approximately $1.4 billion in
1999, 1998 and 1997, respectively. EBITDA in 1999, before intercompany
eliminations and a $44 million charge, grew to $146 million from $118 million in
1998. The $44 million charge pertains to an agreement reached with ChinaSat to
extend the delivery date of a satellite and other modifications to the contract
in return for two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR
(see Liquidity and Capital Resources). After the charge, EBITDA for 1999 was
$102 million. EBITDA in 1998 rose to $118 million from $111 million in 1997.
Funded backlog for SS/L as of December 31, 1999 and 1998 was $1.3 billion and
$1.5 billion, respectively, including intercompany backlog of $256 million in
1999 and $111 million in 1998. Approximately $800 million of the 1999 funded
backlog is expected to be realized in 2000. Revenues recorded under contracts
with Globalstar for the years ended December 31, 1999, 1998 and 1997 were $360
million, $599 million and $408 million, respectively. Capital expenditures for
1999 were approximately $30 million and are estimated to increase moderately in
2000.
Global Mobile Telephone Service
Loral manages and is the largest equity owner of Globalstar, Loral's global
mobile telephone service segment. Through December 31, 1999, Globalstar was a
development stage partnership. Globalstar's development and start-up costs were
$184 million in 1999 as compared to $145 million in 1998 and $87 million in
1997. The rise in costs in 1999 is due to increased development costs,
marketing, general and administrative costs and launch related costs. Globalstar
has expended significant funds for the construction, testing and deployment of
the Globalstar system and expects deployment and system enhancement costs to
continue throughout 2000. As a result of commencing commercial operations in the
first quarter of 2000, Globalstar will start recognizing depreciation expense on
the Globalstar system and will stop capitalizing interest on the Globalstar
system under construction.
ACQUISITIONS AND INVESTMENTS IN AFFILIATES
The Company commenced operations in 1996 with equity holdings in SS/L,
Globalstar and K&F. From 1997 through 1999, Loral accelerated its transformation
from a company with extensive equity investments, to
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a major satellite manufacturer and provider of satellite services by making a
number of acquisitions and investments that significantly affected its results
of operations and financial condition.
Fixed Satellite Services
Loral Skynet
On March 14, 1997, Loral acquired Loral Skynet for $462.1 million in cash.
The acquisition was accounted for as a purchase and the results of Loral Skynet
have been consolidated by Loral from March 14, 1997.
Loral CyberStar
On March 20, 1998, Loral acquired all of the outstanding stock of Orion
Network Systems, Inc. in exchange for Loral common stock. Loral issued 18
million shares of its common stock and assumed existing exercisable Orion
options and warrants to purchase an aggregate of 1.4 million shares of Loral
common stock. The resulting purchase price was $472.5 million. In November 1999,
Orion changed its name to Loral CyberStar, Inc. Loral accounted for the
acquisition as a purchase and its consolidated financial statements reflect the
results of operations of Loral CyberStar from April 1, 1998.
Satmex
In connection with the privatization by the Mexican Government of its fixed
satellite services business, Loral and Principia, S.A. de C.V. ("Principia"),
formerly known as Telefonica Autrey, S.A. de C.V., formed a joint venture,
Firmamento Mexicano, S.A. de R.L. de C.V. ("Holdings"). On November 17, 1997,
Holdings acquired 75% of the outstanding capital stock of Satmex for $646.8
million. The purchase price was financed by a Loral equity contribution of $94.6
million, a Principia equity contribution of $50.9 million and debt originally
issued by Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings. As part of the acquisition Servicios also
agreed to issue a seven-year Government Obligation ("Government Obligation") to
the Mexican Government in consideration for the assumption by Satmex of the debt
incurred by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million, which accretes at 6.03%
and expires in December 2004. The debt of Satmex and Holdings is non-recourse to
Loral and Principia. However, Loral and Principia have agreed to maintain assets
in a collateral trust in an amount equal to the value of the Government
Obligation through December 30, 2000 and, thereafter, in an amount equal to 1.2
times the value of the Government Obligation until maturity. As of December 31,
1999, Loral and Principia have pledged their respective shares in Holdings in
such trust. Loral has a 65% economic interest in Holdings and a 49% indirect
economic interest in Satmex. Loral has accounted for Satmex using the equity
method since November 17, 1997.
On March 30, 1999, Loral acquired 577,554 shares of preferred stock of
Satmex at a purchase price of $30.3 million. The preferred stock has limited
voting rights, pays a dividend in limited voting common stock of Satmex and is
exchangeable, at Satmex's option, into limited voting common stock of Satmex
based upon a predetermined exchange ratio.
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system designed to provide broadcast and telecommunications services
to Europe, the Middle East, Southeast Asia, India, and South Africa. Alcatel
serves as the primary contractor of the Europe*Star turnkey system, while SS/L
is providing the satellite bus and will test and integrate the satellites.
Europe*Star is a member of the Loral Global Alliance of FSS providers, which is
led by Loral Skynet. Through December 31, 1999, Loral has invested $66 million
in Europe*Star.
Broadband Data Services
Loral CyberStar -- see Loral CyberStar above.
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On July 31, 1999, CyberStar LP acquired Global Access, a business
television unit of Williams Communications, Inc., for approximately $11 million
in cash. Loral has accounted for the acquisition as a purchase and its
consolidated financial statements include the results of Global Access from
August 1, 1999. Global Access provides business television, video conferencing
and other communication services to companies in various parts of the world,
including Europe, South Africa, Australia, Asia and the Americas, through
networks operated in Singapore, Dallas, London and Johannesburg.
Satellite Manufacturing and Technology
SS/L
In February 1997, Loral agreed to increase its ownership in SS/L to 100% by
acquiring the remaining 49% of the common stock of SS/L held by four
international aerospace and communications companies for $374 million in cash
and Loral securities. The acquisition of the remaining equity interest in SS/L
was accounted for as a purchase. Loral's consolidated financial statements for
the year ended December 31, 1997 reflect the results of operations of SS/L from
January 1, 1997 and the elimination of the minority interest of the SS/L equity
not owned by Loral during the period. Prior to January 1, 1997, SS/L was
accounted for using the equity method of accounting.
Global Mobile Telephone Service
Globalstar and GTL
In each of 1998 and 1997, GTL effected a two-for-one stock split to
shareholders in the form of a 100% stock dividend. As a result, all GTL share
amounts are represented by equivalent partnership interests on an approximate
four-for-one basis.
Loral's original investment in Globalstar was made in 1994 in connection
with its formation. Loral has continued to make investments in Globalstar since
its inception, including the following transactions during the three years ended
December 31, 1999:
- In 1996, Loral purchased $102.5 million principal amount of GTL's 6 1/2%
Convertible Preferred Equivalent Obligations for $99.4 million. On April
30, 1998, these securities were converted into 6,832,030 shares of GTL
common stock, including shares issued in satisfaction of a required
interest make-whole payment.
- In March 1997, Loral exercised warrants to purchase 4,550,088 shares of
GTL common stock at $6.63 per share, which were received in connection
with Loral's partial guarantee of a $250 million Globalstar Credit
Agreement. In April 1997, Loral exercised rights to purchase an
additional 700,696 shares of GTL common stock at $6.63 per share
distributed to the existing shareholders of GTL. The aggregate purchase
price paid was $34.8 million.
- During 1997, Loral acquired 2,748,372 Globalstar ordinary partnership
interests from other Globalstar partners for $122.3 million in cash and
1,255,684 shares of Loral common stock.
- In July 1998, Loral purchased 4.2 million Globalstar ordinary partnership
interests from certain founding service providers for $420 million in
cash. Concurrently, Loral sold 8.4 million shares of GTL common stock to
persons or entities advised by or associated with Soros Fund Management
LLC for $245 million in cash. As a result of this sale, Loral recognized
a gain of approximately $35 million, which is included in gain on
investments, net in the consolidated statement of operations.
- In November 1998, Loral acquired 276,000 Globalstar ordinary partnership
interests from other Globalstar partners in exchange for 717,600 shares
of GTL common stock.
- In January 1999, Loral purchased $150 million principal amount of GTL's
8% Series A convertible preferred stock, which is convertible into
6,449,865 shares of GTL's common stock.
- In November 1999, Loral purchased 103,187 shares of GTL common stock for
$2.7 million.
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TAXATION
Loral, as a Bermuda company, may be subject to U.S. federal, state and
local income taxation at regular corporate rates on any income that is
effectively connected with the conduct of a U.S. trade or business. When such
income is deemed removed from the U.S. business, it is subject to an additional
30% "branch profits" tax. Loral expects that a significant portion of its
worldwide income will be from non-U.S. sources and will not be effectively
connected with a U.S. trade or business. The United States Treasury Department
is, however, engaged in a project to draft and propose regulations that may
recharacterize a substantial portion of Loral's 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. The Company cannot predict the outcome of that regulatory project.
Any portion of the Company's 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 the Company to pay
tax or to make payments in lieu of tax cannot be determined in advance. However,
based upon the Company's review of current tax laws, including applicable
international tax treaties of certain countries that the Company believes to be
among our key potential markets, the Company expects that a significant portion
of the Company's worldwide income will not be subject to tax by Bermuda or by
the other foreign countries from which the Company derives income.
The Company's U.S. subsidiaries are subject to U.S. taxes on their
worldwide income. In addition, a 30% U.S. withholding tax will be imposed on
dividends and interest paid by such subsidiaries to Loral Space & Communications
Ltd.
LIQUIDITY AND CAPITAL RESOURCES
Loral intends to capitalize on its innovative capabilities, market position
and advanced technologies to offer value-added satellite-based services as part
of the evolving worldwide communications networks and, where appropriate, to
form strategic alliances with major telecommunications service providers and
equipment manufacturers to enhance and expand its satellite-based communications
service opportunities. In order to pursue such opportunities, Loral may seek
funds from strategic partners and other investors, and through incurrence of
debt or the issuance of additional equity.
Debt
In January 1999, Loral completed a private offering of senior notes,
raising approximately $350 million from selling 9.5% senior notes due 2006, of
which a portion was used to invest in $150 million face amount of GTL's $350
million offering of GTL Series A Preferred Stock, thereby maintaining Loral's
prior proportionate ownership position in Globalstar.
The Amended and Restated Credit Agreement, dated as of November 10, 1999,
among Loral SpaceCom Corporation ("Loral SpaceCom"), SS/L and the banks party
thereto (the "Credit Agreement"), provides for a $275 million term loan
facility, a $500 million revolving credit facility, of which up to $175 million
can be used for letters of credit and a separate $75 million letter of credit
facility. The facility is secured by the stock of Loral SpaceCom Corporation and
SS/L, and contains various covenants, including an interest coverage ratio, debt
to capitalization ratios and restrictions on cash transfers to its parent. As of
December 31, 1999, there was $670 million of borrowings outstanding under this
credit facility.
The Company had outstanding letters of credit of approximately $118 million
and $99 million as of December 31, 1999 and 1998, respectively. The Company also
had a $12.5 million Canadian Dollar letter of credit outstanding at December 31,
1999.
Loral CyberStar's outstanding debt as of December 31, 1999, of $965
million, is non-recourse to Loral, and includes certain restrictions on Loral
CyberStar's ability to pay dividends or make loans to Loral. The accreted
principal value of Loral CyberStar's senior notes and senior discount notes was
$821 million at December 31, 1999.
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Equity
On February 18, 2000, Loral sold $400 million of 6% convertible redeemable
preferred stock due 2007 in an offering exempt from registration. The preferred
stock is convertible into approximately 20.2 million shares of common stock at a
conversion price of $19.83 per share. Loral intends to apply the proceeds from
the sale of the preferred stock for general corporate purposes, including
investment in its broadband strategy and expansion of the Loral Global Alliance
by acquisition of additional satellites and orbital slots.
In February 2000, Loral and Lockheed Martin Corporation ("Lockheed Martin")
filed certain notices under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 in connection with Lockheed Martin's plan to convert its 45,896,977 shares
of Loral's Series A preferred stock into an equal number of shares of Loral
common stock. The waiting period expired on March 5, 2000 and, accordingly,
Lockheed Martin is now free to convert the Series A preferred stock at any time.
In February 2000, Loral and Lockheed Martin also entered into an agreement
pursuant to which Lockheed Martin agreed that it will not sell any of the Series
A preferred stock or the Loral common stock into which it is convertible before
May 19, 2000. Loral has agreed to use its best efforts to cause a registration
statement relating to the common stock issuable upon conversion of the Series A
preferred stock to be effective on or before May 19, 2000 and to maintain its
effectiveness for at least 12 months thereafter. Loral has also agreed that it
will refrain from selling equity securities in the public markets for its own
account until the six month anniversary of the effective date of such
registration statement.
Cash
As of December 31, 1999, Loral had $240 million of cash and cash
equivalents. Loral intends to utilize its existing capital base and access to
the capital markets to construct and operate additional satellites, make
additional investments in Globalstar and Globalstar service provider
opportunities, invest in its other core businesses, expand the Loral Global
Alliance and pursue its broadband strategy.
Restricted and Segregated Cash
As of December 31, 1999, Loral CyberStar had approximately $50 million of
restricted cash for interest payments on its senior notes and $137 million of
segregated cash to be applied towards a portion of the final payment on the
purchase of Telstar 10/Apstar IIR. Segregated cash increased as of December 31,
1999, as a result of receiving the insurance proceeds from the Orion 3 launch
failure.
Fixed Satellite Services
Loral Skynet
Loral Skynet currently has four high-power satellites in orbit, including
Telstar 7, which was launched in September 1999 aboard an Ariane launch vehicle
and started revenue generating service in November 1999. Loral intends to expand
Loral Skynet's business to become a worldwide satellite service provider through
the construction of additional satellites.
Loral CyberStar
Loral CyberStar currently has three satellites in orbit (Telstar 11,
Telstar 12 and Telstar 10/Apstar IIR). Telstar 12, originally intended to
operate at 12 degrees W.L., was launched aboard an Ariane launch vehicle in
October 1999 into the orbital slot located at 15 degrees W.L., and commenced
operations in January 2000. Under an agreement reached with Eutelsat, Loral
CyberStar agreed to operate Telstar 12 at 15 degrees W.L. while Eutelsat
continues to develop its services at 12.5 degrees W.L. Eutelsat has in turn
agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority
rights at such location on Loral CyberStar's behalf. As part of this
coordination effort, Loral CyberStar agreed to provide to Eutelsat four 54 MHz
transponders on Telstar 12 for the life of the satellite. Eutelsat also has the
right to acquire, at cost, four transponders on the next replacement satellite
for Telstar 12. As part of the international coordination process, Loral
continues 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.
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On May 4, 1999, the Orion 3 satellite was placed into a lower-than-expected
orbit after its launch on a 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,
achieved an orbit well below the planned final altitude. As a result, the
satellite cannot be used for its intended purpose.
The satellite and launch were fully insured for approximately $266 million,
which was received in the third quarter of 1999. DACOM Corporation, a Korean
communications company which had purchased eight transponders on Orion 3 for a
total of $89 million, had made prepayments of approximately $34 million to the
Company. Under the agreement with DACOM, the amount prepaid was refunded in July
1999.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") the rights to all transponder capacity and
existing customer leases on the Apstar IIR satellite (except for one C-band
transponder retained by APT), and renamed the satellite the Telstar 10/Apstar
IIR satellite, for approximately $273 million. Telstar 10/Apstar IIR, which was
manufactured by SS/L, was launched in October 1997 and as of September 28, 1999,
had an expected remaining useful life of 13 years. Loral CyberStar has full use
of the transponders for the remaining life of Telstar 10/Apstar IIR. Located at
76.5 degrees E.L., Telstar 10/Apstar IIR covers a region that includes Asia,
Europe, Africa and Australia, which represents over 75% of the world's
population. Under the purchase agreement, Loral CyberStar will also have the
option to lease from APT replacement satellites upon the end of life of Telstar
10/Apstar IIR.
As of December 31, 1999, Loral CyberStar had made payments of approximately
$91 million to APT and paid approximately $182 million in March 2000. Insurance
proceeds from the Orion 3 failure were used to fund the initial payments made
and a significant portion of the final payment.
Based upon its current expectations for growth, Loral CyberStar anticipates
it will have additional funding requirements over the next three years to fund
the purchase of VSATs, senior note interest payments, other capital expenditures
and other operating needs. Interest charges on the senior notes are fully
provided for by restricted cash through July 2000. Loral CyberStar does not have
a revolving credit facility. Accordingly, Loral CyberStar will need to secure
funding from Loral, or raise additional financing. Sources of additional capital
may include public or private debt, equity financings or strategic investments.
To the extent that Loral CyberStar seeks to raise additional debt financing, its
indentures limit the amount of such additional debt and prohibit Loral CyberStar
from using Telstar 11, Telstar 12 and Telstar 10/Apstar IIR as collateral for
indebtedness for money borrowed. If Loral CyberStar requires additional
financing and is unable to obtain such financing from Loral or from outside
sources in the amounts and at the times needed, there would be a material
adverse effect on Loral CyberStar.
Satmex
Satmex currently has three satellites in orbit (Satmex 5, Solidaridad 1 and
Solidaridad 2) and one satellite in inclined orbit (Morelos 2). On April 28,
1999, Solidaridad 1 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, which would be fully covered by insurance.
On March 31, 1999, Satmex redeemed $35 million of its secured floating rate
notes using proceeds from the sale of preferred stock. On September 30, 1999,
Satmex redeemed an additional $50 million of its secured floating rate notes.
The related covenants of such debt restrict the ability of Satmex to pay
dividends to Loral.
On February 16, 2000, Satmex obtained amendments to certain of its debt
agreements which adjust certain financial covenants. As a result, Satmex
believes that its future operating cash flow and the availability of its
revolving credit facility will be sufficient to service its interest and debt
repayment requirements and ensure compliance with its debt agreements.
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<PAGE> 43
Broadband Data Services
Loral's broadband strategy will build on its existing resources to address
both the expanding market for today's broadband services and to become a leading
medium for delivery of even richer Internet content in the future. The Company's
initial focus will be on two attractive opportunities for early market entry:
consumer broadband services and streaming media services.
Consumer Broadband Services. The Company plans to serve the growing
consumer broadband services market, initially in North America, with an
affordable, ubiquitous, two-way, high-speed Internet access service employing a
hybrid satellite/fiber network. When fully deployed, this network will be
capable of serving at least ten million homes and small businesses at downstream
connection speeds of up to 1.5 megabits per second. In addition, the system will
offer streaming multimedia in multicast mode at speeds of up to 30 megabits per
second and at upstream connection speeds of at least 128 kilobits per second.
The Company intends to serve as the "wholesaler" of this connectivity service to
ISPs, cable companies, and telephone companies who will market and sell the
service to their customers as a high-value extra feature in their own portfolio
of services. The Company currently estimates that the required investment for
the consumer broadband services business in North America will be approximately
$3 billion, with the services implemented and the associated investments made in
several phases.
Streaming Media Services. The Company intends to exploit the technical
advantages of satellites to deliver streaming media services more effectively
than terrestrial alternatives. Instead of flooding the Internet with multiple
point-to-point transmissions of these massive files, the Company's system will
move content directly from its source via satellite to multiple servers located
at the "edge of the net," near the end user. This should eliminate bottlenecks,
improve quality, lower cost and expand content choices and applications. The
Company plans to focus its marketing efforts initially on its existing base of
ISP and corporate customers. The Company intends to enter three streaming media
business segments: transport services to the "edge of the net" for content and
applications service providers; content aggregation services for customers
wishing to outsource their streaming media distribution process; and development
of a portal tailored for businesses. The Company currently estimates the
required investment for the streaming media services business at approximately
$500 million.
The Company is seeking strategic partners to enhance the establishment and
prospects of both the planned consumer broadband and streaming media businesses.
The Company expects that such third party strategic partners will bear a
significant portion of the costs of these projects.
Satellite Manufacturing and Technology
SS/L
Due to the long lead times required to produce purchased parts and launch
vehicles, the Company has entered into various purchase commitments with
suppliers. These commitments aggregated approximately $685 million as of
December 31, 1999.
Global Mobile Telephone Service
Globalstar
In January 1999, Globalstar sold to GTL seven million units (face amount of
$50 per unit) of 8% convertible redeemable preferred partnership interests ("8%
RPPIs"), in connection with GTL's offering of seven million shares (face amount
of $50 per share) of GTL 8% Series A convertible redeemable preferred stock (the
"GTL Series A Preferred Stock"). The GTL Series A Preferred Stock is convertible
into shares of GTL common stock at a conversion price of $23.2563 per share.
Loral purchased three million shares or $150 million face amount of the GTL
Series A Preferred Stock offered. Dividends on the 8% RPPIs and the GTL Series A
Preferred Stock accrue at 8% per annum and are payable quarterly.
In July 1999, Globalstar and GTL filed a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering up to $500 million of
securities. Under the Shelf Registration Statement, Globalstar may, from time to
time, offer debt securities, which may be either senior or subordinated or
secured
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<PAGE> 44
or unsecured and GTL may, from time to time, offer shares of common stock,
preferred stock or warrants, all at prices and on terms to be determined at the
time of the offering.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar system, of which $400
million was outstanding at December 31, 1999. The credit facility is guaranteed
by Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned subsidiaries of
Loral. The guarantee is secured by the pledge of certain assets of Loral and its
subsidiaries, including the stock of the guarantors and the Telstar 6 and
Telstar 7 satellites. Based on third party valuations, management believes that
the fair value of Telstar 6 and Telstar 7 is in excess of this $500 million
credit agreement. As of December 31, 1999, the net book value of Telstar 6 and
Telstar 7 was $392 million. The guarantee agreement contains customary financial
covenants of the guarantors, including maintenance of a minimum collateral
coverage ratio and maintenance of a combined minimum net worth and combined
EBITDA. In addition, the guarantee agreement contains customary limitations on
indebtedness, liens, fundamental changes, asset sales, dividends (except that
the guarantors may pay dividends to their parents provided that combined
aggregate cash on hand at the guarantors is at least equal to $50 million and
the guarantors hold an intercompany note due from Loral for at least $100
million), investments, capital expenditures, creating liens other than those
created pursuant to the guarantee and transactions with affiliates.
In consideration for the guarantee, Loral received warrants to purchase
3,450,000 Globalstar partnership interests at an exercise price of $91 per
interest, which were valued at $141 million (based on the guarantee provided).
The exercise price was determined by reference to the fair market value of GTL's
common stock on the closing date of the credit agreement, based on an
approximate one partnership interest for four shares of GTL common stock
exchange ratio. 50% of the warrants vested in February 2000. Assuming the
guarantee remains in effect, an additional 25% will vest in August 2000 with the
remaining 25% vesting in August 2001. The warrants expire in 2006. Globalstar
may call the warrants after August 5, 2001 if GTL's common stock price exceeds
$45.50 for a defined period.
In December 1999, GTL completed a private offering of $150 million of 9%
Series B convertible redeemable preferred stock (the "GTL Series B Preferred
Stock"). GTL used the net proceeds from this offering to purchase 9% Series B
convertible redeemable preferred partnership interests ("9% RPPIs") of
Globalstar, the terms of which are generally similar to the terms of the GTL
Series B Preferred Stock. Globalstar in turn is using such proceeds for the cost
of the continued deployment of the Globalstar system and for general corporate
purposes.
In February 2000, GTL sold 8,050,000 shares of its common stock to the
public under the Shelf Registration Statement. GTL used the net proceeds from
the offering of approximately $268.5 million to purchase 1,987,654 ordinary
partnership interests in Globalstar. Globalstar intends to use the offering
proceeds for general corporate purposes, including: the acceleration of
Globalstar's roll-out through increased support for service provider marketing
activities and the funding of promotional discounts; development of new service
features; and possible repayment of debt.
SS/L has provided $330 million of billings deferred under its construction
contracts with Globalstar; comprised of: $105 million of orbital incentives, of
which $44 million was repaid in 1999 and $61 million is expected to be repaid in
2000; $90 million of vendor financing which bears interest at LIBOR plus 3% and
is repayable over five years commencing in 2001; and $134 million of
non-interest bearing vendor financing, due over five years in equal monthly
installments, commencing in 2000. SS/L's terms with its subcontractors include
$116 million of financing assumed by them, which is to be repaid on
substantially similar terms (of which a portion is non-recourse to SS/L in the
event of non-payment by Globalstar).
In the first quarter of 2000, Globalstar commenced commercial service.
Pursuant to the Globalstar partnership agreement, Loral is entitled to receive a
managing partner's allocation of 2% of Globalstar's annual revenues under $500
million and 2.8% of annual revenues in excess of $500 million. Such allocation
is reduced by 50% to the extent Globalstar has a net loss in any given year.
Globalstar expects to spend $325 million for the enhancement of its system
software, for the eight spare satellites being constructed by SS/L, and for
financing provided to Globalstar's service providers to assist in the purchase
of gateways, fixed access terminals and handsets (of which $231 million is
expected to be received from the service providers as repayment of
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<PAGE> 45
such financing). In addition, cash interest, preferred dividends and operating
costs are expected to be approximately $125 million per quarter in 2000.
Globalstar believes that its cash on hand ($329 million at February 29, 2000),
available credit under its two credit facilities and vendor financing
arrangements (approximately $425 million at February 29, 2000), service revenues
and other anticipated cash inflows will be sufficient to cover its expected cash
outflows provided that its $250 million credit facility is renegotiated. If
Globalstar cannot renegotiate its $250 million credit facility, it believes it
will be able to obtain additional funds. There can be no assurance, however,
that such funds will be available on favorable terms or on a timely basis, if at
all.
Qualcomm Incorporated ("Qualcomm") has agreed to provide Globalstar $500
million of vendor financing (for which the terms of $400 million are still being
finalized). In connection with the agreement, Qualcomm is expected to receive
warrants to purchase Globalstar partnership interests comparable to those
received by Loral pursuant to Loral's guarantee of Globalstar's $500 million
credit facility (see above).
COMMITMENTS AND CONTINGENCIES
In connection with the merger between Loral Corporation and Lockheed
Martin, Lockheed Martin assumed approximately $206 million of the guarantee
under Globalstar's $250 million credit agreement. The balance of $44 million of
the guarantee was assumed by various Globalstar partners, including $11.7
million by SS/L. Loral has agreed to indemnify Lockheed Martin for its
liability, if any, in excess of $150 million under its guarantee of the $250
million Globalstar credit agreement.
Loral had a $115 million secured standby bank credit facility, which was
undrawn as of December 31, 1999, supporting a guarantee of a $115 million term
loan of an unaffiliated third party. The term loan was repaid by the
unaffiliated third party on February 29, 2000, resulting in the expiration of
the standby credit facility.
Prior to its acquisition by Loral, Loral Skynet sold several transponders
under which title to specific transponders was transferred to the customer.
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 is required to
replace any transponders failing to meet operating specifications. All customers
are entitled to a refund equal to the reimbursement value, as defined, in the
event there is no 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. In case of satellite failure, the
reimbursement value may be paid from proceeds received from insurance policies.
In 1997, two satellites built by SS/L experienced solar array circuit
failures. SS/L settled one of the customer's claims in 1999 and the other
customer's claims in 1997. 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.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the direction
or outcome of the investigation. If SS/L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be subject to a fine
of $1 million per violation and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a
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material adverse effect on SS/L's business, and therefore the Company.
Indictment for such violations would subject SS/L to discretionary debarment
from further export licenses. 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 remains
subject to the State Department's general statutory authority to prohibit
exports of satellites and related services if it finds a violation of the Arms
Export Control Act that puts SS/L's reliability in question, and it can suspend
export privileges whenever it determines that grounds for debarment exist and
that such suspension "is reasonably necessary to protect world peace or the
security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with newly
enacted legislation (Section 74 of the Arms Export Control Act) with respect to
the export of missile equipment or technology. SS/L has complied with ODTC's
instructions, and believes that a review of the agreement will show that its
terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. In
December 1999, Loral reached 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, Loral has agreed to provide
to the customer two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR
for the life of those transponders. As a result, the Company recorded a net
charge to earnings of $35 million. 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 such 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 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.
NET CASH PROVIDED BY/USED IN OPERATING ACTIVITIES
Net cash used in operating activities for the year ended December 31, 1999
was $26 million, primarily due to increases in contracts-in-process of $85
million, deposits of $54 million and other assets of $64 million and a decrease
in customer advances of $91 million. This was offset in part by the net loss as
adjusted for non-cash operating items of $165 million, a decrease in inventories
of $67 million and an increase in long-term liabilities of $61 million.
Net cash provided by operating activities for the year ended December 31,
1998 was $87 million, primarily due to the net loss as adjusted for non-cash
operating items of $108 million and increases in
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customer advances of $54 million, long-term liabilities of $52 million and
accrued expenses and other current liabilities of $19 million, offset by
increases in inventories of $91 million and contracts-in-process of $72 million.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities for 1999 was $660 million, primarily
as a result of $470 million of capital expenditures mainly for the construction
of satellites, the $148 million cost of acquiring GTL Series A Preferred Stock,
$44 million of capitalized interest on investments, $36 million of advances to
affiliates and $107 million of other investments in affiliates, offset by a
reduction in restricted and segregated cash of $156 million, used for the
construction of Loral CyberStar satellites and interest payments on its senior
notes.
Net cash used in investing activities for 1998 was $556 million, primarily
as a result of $489 million of capital expenditures mainly for the construction
of satellites, the $175 million net cost of acquiring additional Globalstar
partnership interests, $82 million of advances to affiliates, $25 million of
capitalized interest on investments and $95 million of other investments in
affiliates, offset by a reduction in restricted and segregated cash of $264
million, primarily used for the construction of Loral CyberStar satellites and
interest payments on its senior notes and cash acquired in connection with the
Loral CyberStar acquisition of $54 million.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $379 million in 1999, due
primarily to the net proceeds of $344 million from the Company's issuance of
9.5% senior notes, net borrowings under the Company's revolving credit facility
of $70 million and proceeds from equity transactions of $20 million, offset in
part by debt repayments of $23 million and preferred dividends of $45 million.
During 1998, net cash provided by financing activities was $789 million,
due primarily to net proceeds from equity transactions of $634 million, net
borrowings under the Company's credit facilities of $178 million and
contributions from minority partners of $21 million, partially offset by
preferred dividends of $45 million.
OTHER MATTERS
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Loral has not yet determined the impact that the adoption
of SFAS 133 will have on its earnings or financial position. Loral is required
to adopt SFAS 133 on January 1, 2001.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
The Company has limited involvement with derivative financial instruments
and does not use such instruments for trading purposes. The derivative financial
instruments are used to manage foreign currency exchange risk.
As of December 31, 1999, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $106.3 million. Such contracts
were designated as hedges of certain foreign contracts and subcontracts to be
performed by SS/L through May 2006. The fair value of these contracts, based on
quoted market prices as of December 31, 1999, was $104.6 million. As of December
31, 1999, deferred gains on forward contracts to sell foreign currencies,
primarily yen, were $2.0 million and deferred losses on forward contracts to
purchase foreign currencies, primarily yen, were $0.3 million.
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<PAGE> 48
The Company is exposed to credit-related losses in the event of
nonperformance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held as of December 31,
1999 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments under long-term contracts
and payments to vendors under subcontracts. These foreign exchange contracts
mature as follows (in thousands):
<TABLE>
<CAPTION>
TO PURCHASE TO SELL
AS OF DECEMBER 31, 1999 -------------------- -------------------
AT AT AT AT
YEARS TO CONTRACT MARKET CONTRACT MARKET
MATURITY RATE RATE RATE RATE
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
1................................. $ 62,077 $ 63,044 $16,166 $15,755
2 to 5............................ 7,276 6,575 12,101 11,819
6 to 10........................... 8,699 7,370
-------- -------- ------- -------
$ 69,353 $ 69,619 $36,966 $34,944
======== ======== ======= =======
AS OF DECEMBER 31, 1998 $108,900 $112,837 $88,631 $76,911
======== ======== ======= =======
</TABLE>
The decrease in the value of foreign currency contracts reflects progress
towards completion of the underlying construction contracts.
Interest
As of December 31, 1999 and 1998, the fair value of the Company's long-term
debt was estimated to be $1.55 billion and $1.4 billion, respectively, using
quoted market prices. The long-term debt carrying value exceeded fair value by
$443 million and $173 million as of December 31, 1999 and 1998, respectively.
Market risk on debt is estimated as the potential increase in annual interest
expense resulting from a hypothetical one percent increase in interest rates and
amounts to $18 million and $15 million for 1999 and 1998, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is presented in the Company's 2000
definitive proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers of Loral as of March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard L. Schwartz.......... 74 Chairman of the Board of Directors and Chief Executive
Officer since January 1996. Prior to that, Chairman and
Chief Executive Officer of Old Loral since 1972.
Eric J. Zahler............... 49 President and Chief Operating Officer since February
2000. Prior to that Executive Vice President since
November 1999. Prior to that Senior Vice President,
General Counsel and Secretary since February 1998. Prior
to that, Vice President, General Counsel and Secretary
since March 1996. Prior to that, Vice President and
General Counsel of Old Loral since April 1992.
Michael P. DeBlasio.......... 63 First Senior Vice President since September 1998. Prior
to that, First Senior Vice President and Chief Financial
Officer since February 1998. Prior to that, Senior Vice
President and Chief Financial Officer since March 1996.
Prior to that, Senior Vice President -- Finance of Old
Loral since 1979.
Robert E. Berry.............. 71 Senior Vice President since November 1996 and Chairman of
Space Systems/Loral since September 1999. Prior to that,
President of Space Systems/Loral since 1990.
Nicholas C. Moren............ 53 Senior Vice President and Treasurer since February 1998.
Prior to that, Vice President and Treasurer since March
1996. Prior to that, Vice President and Treasurer of Old
Loral since April 1991.
Richard J. Townsend.......... 49 Senior Vice President and Chief Financial Officer since
October 1998. Prior to that, Corporate Controller and
Director of Strategy for ITT Industries since 1997. Prior
to that, Vice President of Finance Worldwide Industries
for IBM and various other financial management positions
with IBM since 1979.
Laurence D. Atlas............ 42 Vice President, Government
Relations -- Telecommunications since May 1997. Prior to
that, Associate Chief of the Common Carrier Bureau of the
FCC since January 1995. Prior to that, Associate Chief of
the FCC's Wireless Telecommunications Bureau since
November 1994. Prior to that, associate in the law firm
of Willkie Farr & Gallagher since 1982.
W. Neil Bauer................ 53 Vice President since March 1998. Prior to that, Chief
Executive Officer and President of Orion Network Systems,
Inc. since September 1993.
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeanette H. Clonan........... 51 Vice President -- Communications and Investor Relations
since November 1996. Prior to that, Director -- Corporate
Communications from June 1996. Prior to that, Vice
President -- Corporate Relations of Jamaica Water
Securities since September 1992.
Terry J. Hart................ 53 Vice President since February 1998 and President of Loral
Skynet since March 1997. Prior to that, Division Manager
of AT&T Skynet Satellite Services since 1991.
Stephen L. Jackson........... 58 Vice President -- Administration since March 1997. Prior
to that, Vice President -- Administration of Old Loral
since 1978.
Avi Katz..................... 41 Vice President, General Counsel and Secretary since
November 1999. Prior to that Vice President, Deputy
General Counsel and Assistant Secretary since February
1998. Prior to that, Deputy General Counsel and Assistant
Secretary since August 1997. Prior to that, Associate
General Counsel and Assistant Secretary since July 1996.
Prior to that, associate in the law firm of Willkie Farr
& Gallagher since 1987.
John Klineberg............... 61 Vice President of Loral and President of Space
Systems/Loral since September 1999. Prior to that,
Executive Vice President of Satellite Constellation
Establishment of Globalstar since January 1998. Prior to
that, Executive Vice President, Globalstar Program at
Space Systems/Loral from 1995 to January 1998. Prior to
that, a variety of technical and management positions
with NASA, including Director of the Goddard Space Flight
Center and NASA's Lewis Research Center.
Russell R. Mack.............. 45 Vice President -- Business Ventures since February 1998.
Prior to that, Director of Business Planning and
Development since April 1996. Prior to that, Manager of
Project Finance of Old Loral since July 1991.
Anthony J. Navarra........... 52 Vice President of Loral and President of Globalstar since
September 1999 and President of GTL since February 2000.
Prior to that, acting Chief Operating Officer of
Globalstar since March 1999 and Executive Vice President
of GTL since 1999. Prior to that, Vice President of GTL
since 1995 and Executive Vice President, Strategic
Development of Globalstar since March 1994.
Harvey B. Rein............... 46 Vice President and Controller since April 1996. Prior to
that, Assistant Controller of Old Loral since 1985.
Thomas B. Ross............... 70 Vice President -- Government Relations since November
1996. Prior to that, Vice President -- Corporate
Communications from April 1996. Prior to that, Vice
President -- Communications of Globalstar from May 1995
to April 1996. Prior to that, Special Assistant to the
President and Senior Director for Public Affairs of the
National Security Council from April 1994 to May 1995 and
Senior Vice President of Hill & Knowlton.
Janet T. Yeung............... 35 Vice President, Deputy General Counsel and Assistant
Secretary since February 2000. Prior to that, Associate
General Counsel and Assistant Secretary since November
1999. Prior to that, Associate General Counsel since
February 1998. Prior to that, associate in the law firm
of Willkie Farr & Gallagher since September 1991.
</TABLE>
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ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under Items 11, 12 and 13, is presented in the
Company's 2000 definitive proxy statement which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements............................... F-1
Loral Space & Communications Ltd.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7
Globalstar, L.P.
Independent Auditors' Report.............................. *
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... *
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 and cumulative........ *
Consolidated Statements of Partners' Capital and
Subscriptions Receivable for the period March 23, 1994
(commencement of operations) to December 31, 1999...... *
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 and cumulative........ *
Notes to Consolidated Financial Statements................ *
- ---------------
* Incorporated herein by reference from the Annual Report on Form
10-K of Globalstar Telecommunications Limited and Globalstar,
L.P. for the year ended December 31, 1999, pages F-1 through
F-42.
(a) 2. Financial Statement Schedules
Independent Auditors' Report.................. S-1
Schedule I -- Condensed Financial Information
of Registrant............................................. S-2
Financial statement schedules not listed are
either not required or the information
required is reflected in the consolidated
financial statements.
</TABLE>
(a) 3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Third Amended and Restated Bye-laws+
3.4 Schedule IV to the Third Amended and Restated Bye-laws+
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006(14)
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
10.1.1 Amended Shareholders Agreement dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation+
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited(14)
10.4.1 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(15)
10.4.2 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.+
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan(14)++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.9.1 Amendment dated as of March 1, 1997 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario
San Paolo di Torino S.p.A, individually and as Italian
Export Financing and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc. and, the banks
parties thereto(14)
10.16.2 Second Amendment dated as of September 4, 1998 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.+
10.16.3 Third Amendment dated as of July 12, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.+
10.16.4 Fourth Amendment dated as of November 10, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral Satmex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.(14)
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
Satmex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited(14)
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006(14)
10.23 Guarantee and Collateral Agreement dated as of August 5,
1999, made by Loral Satcom Ltd. and Loral Satellite, Inc. in
favor of Bank of America, National Association as Collateral
Agent(16)
10.24 Lease Agreement dated as of August 18, 1999 by and between
Loral Asia Pacific Satellite (HK) Limited and APT Satellite
Company Limited(17)
10.25 Guarantee of Loral Space & Communications Ltd. dated August
18, 1999(17)
10.26 Registration Rights Agreement dated as of February 18, 2000
relating to Registrant's 6% Series D Convertible Redeemable
Preferred Stock due 2007+
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
27 Financial Data Schedule (EDGAR only)+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
53
<PAGE> 55
(15) Incorporated by reference from the Current Report on Form 8-K filed on
December 21, 1999 by Globalstar Telecommunications Limited and Globalstar,
L.P.
(16) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 6, 1999.
(17) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 23, 1999.
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K.
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
-------------- -----------
<S> <C>
September 28, 1999 Item 5 -- Other Events Lease Agreement relating to Apstar II-R
</TABLE>
54
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief March 29, 2000
- --------------------------------------------------- Executive Officer and Director
Bernard L. Schwartz (Principal Executive Officer)
/s/ HOWARD GITTIS Director March 29, 2000
- ---------------------------------------------------
Howard Gittis
/s/ ROBERT B. HODES Director March 29, 2000
- ---------------------------------------------------
Robert B. Hodes
/s/ GERSHON KEKST Director March 29, 2000
- ---------------------------------------------------
Gershon Kekst
/s/ CHARLES LAZARUS Director March 29, 2000
- ---------------------------------------------------
Charles Lazarus
/s/ MALVIN A. RUDERMAN Director March 29, 2000
- ---------------------------------------------------
Malvin A. Ruderman
/s/ E. DONALD SHAPIRO Director March 29, 2000
- ---------------------------------------------------
E. Donald Shapiro
/s/ ARTHUR L. SIMON Director March 29, 2000
- ---------------------------------------------------
Arthur L. Simon
/s/ DANIEL YANKELOVICH Director March 29, 2000
- ---------------------------------------------------
Daniel Yankelovich
/s/ RICHARD J. TOWNSEND Chief Financial Officer and March 29, 2000
- --------------------------------------------------- Senior Vice President
Richard J. Townsend (Principal Financial Officer)
/s/ HARVEY B. REIN Vice President and Controller March 29, 2000
- --------------------------------------------------- (Principal Accounting Officer)
Harvey B. Rein
</TABLE>
55
<PAGE> 57
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Loral Space & Communications Ltd. and Subsidiaries
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF LORAL SPACE & COMMUNICATIONS LTD.
We have audited the accompanying consolidated balance sheets of Loral Space
& Communications Ltd. (a Bermuda company) and its subsidiaries (collectively,
the "Company") as of December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000 (March 5, 2000 as to the second paragraph of Note 18)
F-2
<PAGE> 59
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 239,865 $ 546,772
Restricted and segregated cash............................ 187,315 50,180
Accounts receivable, net.................................. 47,899 23,637
Contracts-in-process...................................... 439,921 355,196
Inventories............................................... 111,060 191,245
Other current assets...................................... 47,261 30,063
---------- ----------
Total current assets.............................. 1,073,321 1,197,093
Property, plant and equipment, net.......................... 1,884,975 1,667,508
Cost in excess of net assets acquired, net.................. 946,781 966,260
Long-term receivables....................................... 167,464 161,977
Restricted and segregated cash.............................. 22,675
Investments in and advances to affiliates................... 1,098,003 938,551
Deposits.................................................... 195,875 140,970
Other assets................................................ 244,002 134,181
---------- ----------
$5,610,421 $5,229,215
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 85,496 $ 22,736
Accounts payable.......................................... 207,362 213,507
Satellite purchase price payable.......................... 181,928
Accrued employment costs.................................. 44,797 44,256
Customer advances......................................... 67,725 158,192
Accrued interest and preferred dividends.................. 49,093 37,860
Other current liabilities................................. 37,770 34,890
Income taxes payable...................................... 19,708 17,630
---------- ----------
Total current liabilities......................... 693,879 529,071
Deferred income taxes....................................... 38,370
Pension and other postretirement liabilities................ 51,601 50,470
Long-term liabilities....................................... 177,300 113,840
Long-term debt.............................................. 1,913,826 1,533,039
Minority interest........................................... 23,151 28,704
Commitments and contingencies (Notes 7, 8, 11 and 13)
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 45,896,977 shares
issued................................................. 459 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued................................
6% Series C convertible redeemable preferred stock
($745,472 redemption value), $.01 par value; 20,000,000
shares authorized, 14,909,437 shares issued............ 735,437 735,437
Common stock, $.01 par value; 750,000,000 shares
authorized, 245,204,432 and 243,861,719 shares
issued................................................. 2,452 2,439
Paid-in capital........................................... 2,347,323 2,330,755
Treasury stock, at cost; 174,195 shares................... (3,360) (3,360)
Unearned compensation..................................... (1,253) (8,231)
Retained deficit.......................................... (409,301) (162,657)
Accumulated other comprehensive income.................... 78,907 40,879
---------- ----------
Total shareholders' equity........................ 2,750,664 2,935,721
---------- ----------
$5,610,421 $5,229,215
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 60
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from satellite sales......................... $1,178,193 $1,117,721 $1,243,255
Revenues from satellite services...................... 279,527 183,981 69,336
---------- ---------- ----------
Total revenues...................................... 1,457,720 1,301,702 1,312,591
Costs of satellite sales.............................. 1,071,063 995,401 1,127,863
Costs of satellite services........................... 225,874 134,473 44,077
Selling, general and administrative expenses.......... 223,046 205,608 127,099
---------- ---------- ----------
Operating income (loss)............................... (62,263) (33,780) 13,552
Interest and investment income........................ 89,422 53,867 49,069
Interest expense...................................... (89,297) (51,209) (15,230)
Gain on investments, net.............................. 5,494 79,591
---------- ---------- ----------
Income (loss) before income taxes, equity in net loss
of affiliates and minority interest................. (62,138) (25,628) 126,982
Income tax expense (benefit).......................... (32,516) (3,871) 34,871
---------- ---------- ----------
Income (loss) before equity in net loss of affiliates
and minority interest............................... (29,622) (21,757) 92,111
Equity in net loss of affiliates...................... (177,819) (120,417) (49,037)
Minority interest..................................... 5,525 3,376 (3,070)
---------- ---------- ----------
Net income (loss)..................................... (201,916) (138,798) 40,004
Preferred dividends and accretion..................... (44,728) (46,425) (26,315)
---------- ---------- ----------
Net income (loss) applicable to common stockholders... $ (246,644) $ (185,223) $ 13,689
========== ========== ==========
Earnings (loss) per share -- basic and diluted........ $ (0.85) $ (0.68) $ 0.06
========== ========== ==========
Weighted average shares outstanding:
Basic............................................... 290,232 273,402 242,070
========== ========== ==========
Diluted............................................. 290,232 273,402 243,591
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 61
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
6% SERIES C
SERIES A CONVERTIBLE
CONVERTIBLE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- ----------------- ----------------
SHARES SHARES SHARES PAID-IN TREASURY UNEARNED
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL STOCK COMPENSATION
------ ------ ------ -------- ------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997........... 45,897 $459 191,092 $1,911 $1,058,822
Shares issued:
Exercise of stock options and
related tax benefits, net of
shares tendered................ 208 2 2,015 $(1,680)
Employee savings plan............ 352 4 6,997
Acquisition of equity interest in
SS/L........................... 2,909 $149,600 8,043 80 130,820
Acquisition of Globalstar
partnership interests.......... 1,256 13 17,474
Mandatory exchange of Convertible
Preferred Equivalent
Obligations, net of unamortized
issue costs.................... 12,000 583,282
Unearned compensation............. 249 $ (249)
Preferred dividends $3.00 per
share............................
Accretion to redemption value..... 880
Net income........................
Other comprehensive income........
Comprehensive income..............
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1997......... 45,897 459 14,909 733,762 200,951 2,010 1,216,377 (1,680) (249)
Shares issued:
Common stock and vested options
issued to acquire Loral
CyberStar...................... 17,969 179 468,846
Unvested options issued to
acquire Loral CyberStar........ 4,512 (4,512)
Loral CyberStar note conversion
and fractional shares.......... 32 (5)
Common stock sold to public,
net............................ 23,000 230 601,586
Exercise of stock options and
related tax benefits, net of
shares tendered................ 739 8 8,112 (1,680)
Employee savings plan............ 1,171 12 25,669
Unearned compensation............. 5,658 (5,658)
Amortization of unearned
compensation..................... 2,188
Preferred dividends $3.00 per
share............................
Accretion to redemption value..... 1,675
Net loss..........................
Other comprehensive income........
Comprehensive loss................
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1998......... 45,897 459 14,909 735,437 243,862 2,439 2,330,755 (3,360) (8,231)
Shares issued:
Exercise of stock options and
related tax benefits........... 288 3 3,442
Employee savings plan............ 944 9 16,640
Forfeited unearned compensation... (3,755) 3,755
Unearned compensation............. 240 (240)
Amortization of unearned
compensation..................... 3,463
Preferred dividends $3.00 per
share............................
Exercise of warrants for common
stock............................ 110 1 1
Net loss..........................
Other comprehensive income........
Comprehensive loss................
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1999......... 45,897 $459 14,909 $735,437 245,204 $2,452 $2,347,323 $(3,360) $(1,253)
====== ==== ====== ======== ======= ====== ========== ======= =======
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
EARNINGS COMPREHENSIVE SHAREHOLDERS'
(DEFICIT) INCOME EQUITY
--------- ------------- -------------
<S> <C> <C> <C>
Balance January 1, 1997........... $ 8,877 $1,070,069
Shares issued:
Exercise of stock options and
related tax benefits, net of
shares tendered................ 337
Employee savings plan............ 7,001
Acquisition of equity interest in
SS/L........................... 280,500
Acquisition of Globalstar
partnership interests.......... 17,487
Mandatory exchange of Convertible
Preferred Equivalent
Obligations, net of unamortized
issue costs.................... 583,282
Unearned compensation.............
Preferred dividends $3.00 per
share............................ (25,435) (25,435)
Accretion to redemption value..... (880)
Net income........................ 40,004
Other comprehensive income........ $ 7,275
Comprehensive income.............. 47,279
--------- ------- ----------
Balance December 31, 1997......... 22,566 7,275 1,980,520
Shares issued:
Common stock and vested options
issued to acquire Loral
CyberStar...................... 469,025
Unvested options issued to
acquire Loral CyberStar........
Loral CyberStar note conversion
and fractional shares.......... (5)
Common stock sold to public,
net............................ 601,816
Exercise of stock options and
related tax benefits, net of
shares tendered................ 6.440
Employee savings plan............ 25,681
Unearned compensation.............
Amortization of unearned
compensation..................... 2,188
Preferred dividends $3.00 per
share............................ (44,750) (44,750)
Accretion to redemption value..... (1,675)
Net loss.......................... (138,798)
Other comprehensive income........ 33,604
Comprehensive loss................ (105,194)
--------- ------- ----------
Balance December 31, 1998......... (162,657) 40,879 2,935,721
Shares issued:
Exercise of stock options and
related tax benefits........... 3,445
Employee savings plan............ 16,649
Forfeited unearned compensation...
Unearned compensation.............
Amortization of unearned
compensation..................... 3,463
Preferred dividends $3.00 per
share............................ (44,728) (44,728)
Exercise of warrants for common
stock............................ 2
Net loss.......................... (201,916)
Other comprehensive income........ 38,028
Comprehensive loss................ (163,888)
--------- ------- ----------
Balance December 31, 1999......... $(409,301) $78,907 $2,750,664
========= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 62
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss).......................................... $(201,916) $ (138,798) $ 40,004
Non-cash items:
Gain on investments, net................................. (5,494) (79,591)
Equity in net loss of affiliates......................... 177,819 120,417 49,037
Minority interest........................................ (5,525) (3,376) 3,070
Deferred taxes........................................... (39,864) (5,940) 419
Non-cash interest and investment income.................. (22,877) (14,249) (1,739)
Non-cash interest expense................................ 33,758 20,474
Depreciation and amortization............................ 174,906 135,029 62,764
Loss on ChinaSat agreement (Note 13)..................... 35,492
Loss on disposal of property, plant and equipment........ 12,696
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net................................... (19,360) (4,086) (5,351)
Contracts-in-process....................................... (84,725) (72,413) (15,690)
Inventories................................................ 67,117 (90,897) (23,753)
Other current assets....................................... (13,098) 14,450 (8,958)
Deposits................................................... (54,350) 14,000 (107,670)
Long-term receivables...................................... (5,486) 6,662 (78,634)
Other assets............................................... (63,739) (16,056) 9,616
Accounts payable........................................... (7,517) 9,048 27,845
Accrued expenses and other current liabilities............. 8,128 19,432 (36,602)
Income taxes payable....................................... 6,914 (8,322) 24,873
Customer advances.......................................... (90,547) 54,090 (57,778)
Long-term liabilities...................................... 61,000 51,844 24,529
Other...................................................... 4,769 980
--------- ---------- -----------
Cash (used in) provided by operating activities............. (26,405) 86,795 (173,609)
--------- ---------- -----------
Investing activities:
Cash acquired in connection with Loral CyberStar
acquisition.............................................. 53,801
Acquisition of businesses, net of cash acquired............ (10,790) (6,877) (545,642)
Proceeds from the sale of investment in affiliates, net.... 246,867 79,591
Investments in and advances to affiliates.................. (335,377) (624,079) (312,305)
Other assets............................................... (45,715)
Use and transfer of restricted and segregated cash......... 156,381 264,123
Capital expenditures....................................... (469,747) (489,448) (255,340)
--------- ---------- -----------
Cash used in investing activities........................... (659,533) (555,613) (1,079,411)
--------- ---------- -----------
Financing activities:
Proceeds from the issuance of 9.5% senior notes, net....... 343,875
Proceeds from sale of common stock, net.................... 601,816
Proceeds from other stock issuances........................ 20,095 32,121 7,338
Borrowings (repayments) under revolving credit facility,
net...................................................... 70,000 150,000 (4,000)
Borrowings under note purchase facility.................... 12,581 38,423 38,958
Proceeds from issuance of term loan........................ 275,000
Repayments under term loan................................. (18,750)
Repayments under Export-Import facility.................... (2,146) (2,146) (2,146)
Repayments of other long-term obligations.................. (1,896) (7,819)
Contributions from minority partners....................... 21,398 9,100
Preferred dividends........................................ (44,728) (44,750) (25,435)
--------- ---------- -----------
Cash provided by financing activities....................... 379,031 789,043 298,815
--------- ---------- -----------
Decrease (increase) in cash and cash equivalents............ (306,907) 320,225 (954,205)
Cash and cash equivalents -- beginning of period............ 546,772 226,547 1,180,752
--------- ---------- -----------
Cash and cash equivalents -- end of period.................. $ 239,865 $ 546,772 $ 226,547
========= ========== ===========
Non-cash activities:
Common stock issued to acquire Loral CyberStar............. $ 469,025
==========
Unrealized gain on available-for-sale securities........... $ 38,909 $ 32,988 $ 7,275
========= ========== ===========
Mandatory exchange of Convertible Preferred Equivalent
Obligations.............................................. $ 583,282
===========
Issuance of Series C Preferred Stock to acquire equity
interest in SS/L......................................... $ 149,600
===========
Issuance of Loral common stock to acquire equity interest
in SS/L and Globalstar partnership interests............. $ 148,387
===========
Deferred purchase price to acquire Globalstar partnership
interests................................................ $ 24,787
===========
Supplemental information:
Interest paid.............................................. $ 113,990 $ 68,485 $ 40,866
========= ========== ===========
Taxes paid................................................. $ 1,480 $ 9,789 $ 8,901
========= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 63
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL BUSINESS
Loral Space & Communications Ltd. together with its subsidiaries ("Loral"
or the "Company") is one of the world's leading satellite communications
companies with substantial activities in satellite manufacturing and
satellite-based communications services. Loral has assembled the building blocks
necessary to provide a seamless, global networking capability for the
information age. Loral is organized into four distinct operating segments (see
Note 16):
Fixed Satellite Services ("FSS"): Leasing transponder capacity to
customers for various applications, including broadcasting, news gathering,
Internet access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television ("DTH"),
through the activities of Loral Skynet, Loral CyberStar, Inc. ("Loral
CyberStar"), formerly Loral Orion, Inc., Satelites Mexicanos, S.A. de C.V.
("Satmex") and Europe*Star Limited ("Europe*Star"),
Broadband Data Services: Business in development, providing managed
communications networks and Internet and intranet services through Loral
CyberStar and delivering high-speed broadband data communications and
business television services through CyberStar, L.P. ("CyberStar LP"),
Satellite Manufacturing and Technology: Designing and manufacturing
satellites and space systems and developing satellite technology for a
broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L"), and
Global Mobile Telephone Service: Operating a 52-satellite constellation,
including four in-orbit spares, that forms the backbone of a global
telecommunications network designed to serve virtually every populated area
of the world (the "Globalstar System") owned by Globalstar, L.P.
("Globalstar").
Loral was formed to effectuate the distribution on April 23, 1996 of Loral
Corporation's ("Old Loral") space and communications businesses (the
"Distribution") to shareholders of Old Loral and holders of options to purchase
Old Loral common stock pursuant to a merger agreement between Old Loral and
Lockheed Martin Corporation ("Lockheed Martin").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Loral, a Bermuda company, has a December 31 year-end. The consolidated
financial statements for the years ended December 31, 1999, 1998 and 1997,
include Loral and the consolidated results of SS/L, Loral Skynet from March 14,
1997 and Loral CyberStar from April 1, 1998 (see Note 4) and have been prepared
in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
All intercompany transactions have been eliminated.
Investments in Satmex, Europe*Star and Globalstar as well as other
affiliates are accounted for using the equity method. Income and losses of
affiliates are recorded based on Loral's beneficial interest. Intercompany
profit arising from transactions between affiliates is eliminated to the extent
of the Company's beneficial interest. The excess carrying value of these
investments over Loral's interest in the underlying net assets is being
amortized in accordance with Loral's policy for costs in excess of net assets
acquired and, if applicable, begins upon the commencement of commercial service
of the affiliate. Advances to affiliates consist of amounts due under extended
payment terms (prior year amounts have been reclassified to present information
on a comparable basis). Equity in losses of affiliates is not recognized after
the carrying value of the investment has been reduced to zero, unless guarantees
or other obligations exist. In connection with Loral's investment in Globalstar
and Europe*Star, Loral capitalizes interest cost on its investment, until such
entities commence commercial operations. Certain of the Company's affiliates are
in the development stage or will start commercial operations in the near future
and are subject to the risks associated with new businesses.
F-7
<PAGE> 64
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of expenses
reported for the period. Actual results could differ from estimates.
A significant portion of Loral's satellite manufacturing and technology
revenue is associated with long-term contracts which require significant
estimates. These estimates include forecasts of costs and schedules, estimating
contract revenue related to contract performance (including orbital incentives)
and the potential for component obsolescence in connection with long-term
procurements. Significant estimates also include the estimated useful lives of
the Company's satellites and the amortization period of cost in excess of net
assets acquired.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Restricted and Segregated Cash
In connection with the acquisition of Loral CyberStar, Loral acquired cash
and cash equivalents which are restricted in use to the payment of interest on
Loral CyberStar's senior notes and payments for satellite construction. At
December 31, 1999 and 1998, Loral CyberStar held $50.0 million and $72.9
million, respectively, of restricted cash for interest payments on its senior
notes and $137.3 million of segregated cash at December 31, 1999 to be used
towards the final payment on the purchase of Telstar 10/Apstar IIR (see Note 6).
Concentration of Credit Risk
Financial instruments which potentially subject Loral to concentrations of
credit risk consist principally of cash and cash equivalents, foreign exchange
contracts and contracts-in-process and long-term receivables. Loral's cash and
cash equivalents are maintained with high-credit-quality financial institutions.
Historically, Loral's customers have been primarily large multinational
corporations and U.S. and foreign governments for which the creditworthiness was
generally substantial. In recent years, the Company has added commercial
customers which include companies in emerging markets or the development stage,
some of which are highly leveraged or partially funded. Management believes that
its credit evaluation, approval and monitoring processes combined with
negotiated billing arrangements mitigate potential credit risks with regard to
the Company's current customer base.
Accounts Receivable
As of December 31, 1999 and 1998, accounts receivable was reduced by an
allowance for doubtful accounts of $4.6 million and $2.5 million, respectively.
Inventories
Inventories consist principally of parts and subassemblies used in the
manufacture of satellites which have not been specifically identified to
contracts-in-process, and are valued at the lower of cost or market. Cost is
determined using the first-in-first-out (FIFO) or average cost method.
F-8
<PAGE> 65
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method for satellites, and related equipment, over the
estimated useful lives of the related assets. Depreciation is provided primarily
on an accelerated method for other owned assets over the estimated useful life
of the related assets. Leasehold improvements are amortized over the shorter of
the lease term or the estimated useful life of the improvements.
Costs incurred in connection with the construction and successful
deployment of the Company's satellites and related equipment are capitalized.
Such costs include direct contract costs, allocated indirect costs, launch
costs, launch insurance and construction period interest. Capitalized interest
related to the construction of satellites for the years ended December 31, 1999,
1998 and 1997 was $40.8 million, $34.7 million and $9.4 million, respectively.
All capitalized satellite costs are amortized over the estimated useful life of
the related satellite. The estimated useful life of the satellites, ranging from
12 to 18 years, was determined by engineering analyses performed at the
in-service date. Satellite lives are reevaluated periodically. Losses from
unsuccessful launches and in-orbit failures of the Company's satellites, net of
insurance proceeds, are recorded in the period a loss occurs.
Cost in Excess of Net Assets Acquired
The excess of the cost of purchased businesses over the fair value of net
assets acquired is primarily being amortized over 40 years using the
straight-line method. Accumulated amortization was $58.9 million and $32.2
million as of December 31, 1999 and 1998, respectively.
Valuation of Long-Lived Assets and Cost in Excess of Net Assets Acquired
The carrying value of Loral's long-lived assets, and cost in excess of net
assets acquired is reviewed for impairment whenever events or changes in
circumstances indicate that an asset may not be recoverable. The Company looks
to current and future profitability, as well as current and future undiscounted
cash flows, excluding financing costs, as primary indicators of recoverability.
If an impairment is determined to exist, any related impairment loss is
calculated based on fair value.
Deposits
Deposits primarily represent prepaid amounts on satellite launch vehicles
which are expected to be utilized for the launch of customer or Company-owned
satellites.
Investments in Available-For-Sale Securities and Other Securities
The Company's investment in Sirius Satellite Radio Inc. ("Sirius")
(formerly known as CD Radio Inc.) and The Fantastic Corporation ("Fantastic")
common stock are classified as available-for-sale, and are recorded at fair
value, with the resulting unrealized gain or loss excluded from net income
(loss) and reported as a component of other comprehensive income (see Notes 3
and 12). As of December 31, 1999 and 1998, the Company owned approximately 1.9
million shares of Sirius, acquired at an average cost of $13.16 per share. As of
December 31, 1999, the Company owned approximately 11,500 shares of Fantastic,
acquired at an average cost of $218.53 per share. These investments are included
in other long-term assets.
The Company has made certain other investments in non-marketable equity
securities which are included in other long-term assets. In the fourth quarter
of 1998, the Company wrote-off certain non-strategic investments totaling $29.5
million, which were determined to have no future value to Loral.
F-9
<PAGE> 66
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition
Revenue from satellite sales under long-term fixed-price contracts is
recognized using the cost-to-cost percentage-of-completion method. Revenue
includes estimated orbital incentives discounted to their present value at
launch date. Costs include the development effort required for the production of
high-technology satellites, non-recurring engineering and design efforts in
early periods of contract performance, as well as the cost of qualification
testing requirements.
Revenue under cost-reimbursable type contracts is recognized as costs are
incurred; incentive fees are estimated and recognized over the contract term.
Contracts with the U.S. government are subject to termination by the U.S.
government for convenience or for default. Other government contract risks
include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government
contracts are subject to audit. Management believes the results of such audits
will not have a material effect on Loral's financial position or its results of
operations.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period in which the conditions that require the
revision become known and are estimable.
In accordance with industry practice, contracts-in-process include unbilled
amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
Loral Skynet and Loral CyberStar provide satellite capacity under lease
agreements that generally provide for the use of satellite transponders and, in
certain cases, earth stations for periods generally ranging from one year to the
life of the satellite. Some of these agreements have certain obligations,
including providing spare or substitute capacity, if available, in the event of
satellite failure. If no spare or substitute capacity is available, the
agreement may be terminated. Revenue under transponder lease and broadband data
services agreements is recognized as services are performed.
Research and Development
Independent research and development costs, which are expensed as incurred,
were $64.7 million, $68.5 million and $56.8 million, respectively, for the years
ended December 31, 1999, 1998 and 1997 and are included in selling, general and
administrative expenses.
Foreign Exchange Contracts
Loral enters into foreign exchange contracts as hedges against exchange
rate fluctuations of future accounts receivable and accounts payable under
contracts-in-process which are denominated in foreign currencies. Realized and
unrealized gains and losses on foreign exchange contracts designated as hedges
are deferred and recognized over the lives of the related contracts-in-process.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), Loral accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25").
Income Taxes
Loral Space & Communications Ltd. is subject to U.S. federal, state and
local income taxation at regular corporate rates plus an additional 30% "branch
profits" tax on any income that is effectively connected with
F-10
<PAGE> 67
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the conduct of a U.S. trade or business. U.S. subsidiaries are subject to
regular corporate tax on their worldwide income.
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial and income
tax reporting and are measured by applying tax rates in effect at the end of
each year.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. The
Company is required to adopt SFAS 133 on January 1, 2001.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year's presentation.
3. OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
AS OF DECEMBER 31, DECEMBER 31,
------------------- ----------------------------
1999 1998 1999 1998 1997
-------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Cumulative translation adjustment... $ (265) $ 616 $ (881) $ 616
Unrealized gains on
available-for-sale securities..... 79,172 40,263 38,909 32,988 $7,275
------- ------- ------- ------- ------
Accumulated other comprehensive
income............................ $78,907 $40,879 $38,028 $33,604 $7,275
======= ======= ======= ======= ======
</TABLE>
4. ACQUISITIONS
Fixed Satellite Services
Loral Skynet
On March 14, 1997, Loral acquired Loral Skynet from AT&T for $462.1 million
in cash. The fair value of assets and liabilities recorded in connection with
the purchase price allocation were $569.8 million and $107.7 million,
respectively, including cost in excess of net assets acquired of $39 million.
Loral's consolidated financial statements include the results of operations of
Loral Skynet from the date of acquisition.
Loral CyberStar
On March 20, 1998, Loral acquired all of the outstanding stock of Loral
CyberStar in exchange for Loral common stock. Loral issued 18 million shares of
its common stock and assumed existing Loral CyberStar vested options and
warrants to purchase 1.4 million shares of Loral common stock representing an
aggregate
F-11
<PAGE> 68
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS -- (CONTINUED)
purchase price of $472.5 million. The purchase price represented $447.7 million
in excess of Loral CyberStar's net book value, which was primarily allocated to
cost in excess of net assets acquired of $619.7 million, and a fair value
adjustment of $153.4 million to increase the carrying value of Loral CyberStar's
senior notes and senior discount notes. In addition, Loral agreed to assume
Loral CyberStar's unvested employee stock options, which resulted in a new
measurement date and an unearned compensation charge of $4.5 million, which is
being amortized over the vesting periods of the options. Loral's consolidated
financial statements include Loral CyberStar's results of operations from April
1, 1998.
Broadband Data Services
Loral CyberStar -- see Loral CyberStar above.
On July 31, 1999, Loral's subsidiary, CyberStar LP, acquired Global Access,
a business television unit of Williams Communications, Inc., for approximately
$11 million in cash. Global Access provides business television, video
conferencing and other communication services to companies in various parts of
the world through networks operated in Singapore, Dallas, London and
Johannesburg. Approximately $8.2 million of the purchase price was allocated to
cost in excess of net assets acquired, which is being amortized over 10 years.
Loral's consolidated financial statements include Global Access's results of
operations from August 1, 1999.
Satellite Manufacturing and Technology
SS/L
On April 1, 1996, Loral had an effective 32.7% interest in SS/L. In 1996,
Loral made a strategic decision to increase its ownership in SS/L to 100%. The
first step in implementing this decision was the acquisition by Loral in August
1996 of the 18.3% interest in SS/L owned by certain partnerships affiliated with
Lehman Brothers (the "Lehman Partnerships"). In February 1997, Loral agreed to
acquire the remaining 49% of the common stock of SS/L held by four international
aerospace and communications companies (the "Alliance Partners") for $374
million. In March 1997, Loral acquired 24.5% of SS/L's common stock for $93.5
million in cash and $93.5 million of Loral's Convertible Preferred Equivalent
Obligations ("CPEOs"). In June 1997, the Company acquired the remaining 24.5% of
SS/L's common stock for $187 million in the form of 8,042,922 shares of Loral
common stock and 1,063,663 shares of Series C Convertible Redeemable Preferred
Stock ("Series C Preferred Stock"). The aggregate purchase price of the 67.3%
interest in SS/L acquired by Loral in 1996 and 1997 was $493.2 million. The
purchase price represented $174.4 million in excess of SS/L's proportionate net
book value which was allocated primarily to the incremental value of SS/L's
investment in Globalstar of $62.2 million and cost in excess of net assets
acquired of $105.9 million. The consolidated financial statements include the
results of operations of SS/L since January 1, 1997, with a reduction for the
earnings attributed to the minority shareholders. Prior to this date, the
Company accounted for its investment in SS/L using the equity method.
The three former Alliance Partners who accepted Loral securities in
exchange for their SS/L shares continue to have certain rights as strategic
partners of SS/L for as long as they continue to hold at least 81.6% of their
Loral securities; in return, the parties have agreed generally to operate as a
team on satellite programs worldwide. Each strategic partner is permitted one
representative on SS/L's seven member Board of Directors; certain corporate
actions require the vote of at least five members of the Board. In 1998, two of
the strategic partners merged to form one company; the resulting entity,
however, continued to have the right to designate two representatives to SS/L's
Board of Directors. In the event certain actions are approved by the Board over
the objection of one of the strategic partners, the strategic partner can elect
to sell its Loral securities in the open market within 30 days and be reimbursed
for the amount, if any, such proceeds are less than the original value of the
securities received. In addition, the strategic partners have a right of first
offer at
F-12
<PAGE> 69
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS -- (CONTINUED)
fair market value on SS/L shares in the event of a change of control (as
defined) of either Loral or SS/L, including the right to use their Loral
holdings as part of the SS/L purchase price.
The above acquisitions were accounted for using the purchase method. The
results of operations of Global Access are not considered material to the
Company, accordingly, pro forma results have not been presented. Had the
acquisition of Loral CyberStar occurred on January 1, 1998, the unaudited pro
forma revenue, net loss applicable to common stockholders and related basic and
diluted loss per share for the year ended December 31, 1998 would have been:
$1.3 billion, $205 million and $0.74, respectively. These results, which are
based on various assumptions, are not necessarily indicative of what would have
occurred had the acquisition been consummated on January 1, 1998.
5. CONTRACTS-IN-PROCESS AND LONG-TERM RECEIVABLES
Contracts-in-Process
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. government contracts:
Amounts billed....................................... $ 9,003 $ 9,099
Unbilled receivables................................. 6,965 11,543
-------- --------
15,968 20,642
-------- --------
Commercial contracts:
Amounts billed....................................... 226,609 171,901
Unbilled receivables................................. 197,344 162,653
-------- --------
423,953 334,554
-------- --------
$439,921 $355,196
======== ========
</TABLE>
Unbilled amounts include recoverable costs and accrued profit on progress
completed which has not been billed. Such amounts are billed upon shipment of
the product, achievement of contractual milestones, or completion of the
contract and are reclassified to billed receivables.
Long-Term Receivables
Billed receivables relating to long-term contracts are expected to be
collected within one year. Loral classifies billings deferred and the orbital
component of unbilled receivables expected to be collected beyond one year as
long-term. Receivable balances related to satellite orbital incentive payments
and billings deferred as of December 31, 1999 are scheduled to be received as
follows (in thousands):
<TABLE>
<S> <C>
2000............................................. $ 136,399
2001............................................. 13,079
2002............................................. 48,331
2003............................................. 36,619
2004............................................. 14,678
Thereafter....................................... 54,757
---------
303,863
Less current portion included in
contracts-in-process........................... (136,399)
---------
Long-term receivables $ 167,464
=========
</TABLE>
F-13
<PAGE> 70
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements.......................... $ 25,073 $ 25,073
Buildings........................................... 72,216 61,539
Leasehold improvements.............................. 19,289 16,906
Satellites in-orbit................................. 1,652,213 745,649
Satellites under construction....................... 77,370 690,661
Earth stations...................................... 53,309 52,914
Equipment, furniture and fixtures................... 259,640 216,294
Other construction in progress...................... 48,417 50,430
---------- ----------
2,207,527 1,859,466
Accumulated depreciation and amortization........... (322,552) (191,958)
---------- ----------
$1,884,975 $1,667,508
========== ==========
</TABLE>
On May 4, 1999, the Company's Orion 3 broadcast video and data
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, achieved
an orbit well below the planned final altitude. As a result, the satellite
cannot be used for its intended purpose.
The satellite and launch were fully insured for approximately $266 million,
which was received in the third quarter of 1999. DACOM Corporation, a Korean
communications company which had purchased eight transponders on Orion 3 for a
total of $89 million, had made prepayments of approximately $34 million to the
Company. Under the agreement with DACOM, the amount prepaid was refunded in July
1999.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") the rights to all transponder capacity and
existing customer leases (except for one C-band transponder retained by APT) on
the Telstar 10/Apstar IIR satellite, for $272.9 million. As of September 28,
1999, Telstar 10/Apstar IIR had an estimated remaining useful life of 13 years.
Loral CyberStar has full use of the transponders for the remaining life of
Telstar 10/Apstar IIR. Under the purchase agreement, Loral CyberStar will also
have the option to lease from APT replacement satellites upon the end of life of
Telstar 10/Apstar IIR.
As of December 31, 1999, Loral CyberStar has made payments of approximately
$91 million to APT and will pay approximately $182 million on March 27, 2000.
Insurance proceeds from the Orion 3 failure were used to fund the initial
payments made and will be used to fund a significant portion of the final
payment. Loral has guaranteed Loral CyberStar's obligations to APT under the
purchase agreement.
Depreciation and amortization expense for property, plant and equipment was
$139.9 million, $106.2 million and $52.0 million for the years ended December
31, 1999, 1998 and 1997, respectively. Included in satellites in-orbit is the
cost of satellite transponders where Loral has the rights to transponders for
the remaining life of the related satellite, which amounted to $298.4 million at
December 31, 1999. Accumulated depreciation and amortization as of December 31,
1999 includes $6.2 million, related to such transponder rights.
F-14
<PAGE> 71
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in and Advances to Affiliates consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
Globalstar, including advances of $219,823 and
$184,311 at December 31, 1999 and 1998,
respectively....................................... $ 878,140 $740,217
Satmex............................................... 70,747 74,159
Europe*Star.......................................... 62,300 45,413
SkyBridge............................................ 14,053
Other affiliates..................................... 86,816 64,709
---------- --------
$1,098,003 $938,551
========== ========
</TABLE>
Equity in net loss of affiliates consists of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Globalstar, net of tax benefit........... $ (98,980) $ (67,016) $(40,877)
Satmex................................... (33,403) (16,317) (6,396)
Europe*Star.............................. (4,833) (3,624)
SkyBridge, net of tax benefit............ (13,211) (25,465) (1,764)
Other affiliates, net of tax benefit..... (27,392) (7,995)
--------- --------- --------
$(177,819) $(120,417) $(49,037)
========= ========= ========
</TABLE>
The consolidated statements of operations reflect the effects of the
following amounts related to transactions with or investments in affiliates (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from satellite sales.............. $409,431 $623,668 $420,370
Interest and investment income............. 30,052 8,464 8,390
Interest expense capitalized on development
stage entities........................... 43,548 25,417 13,187
Elimination of Loral's proportionate share
of intercompany profits.................. 4,541 7,225 6,876
</TABLE>
Globalstar
Loral is a founder and the managing general partner of Globalstar. Loral's
investment in Globalstar consists of ordinary partnership interests in
Globalstar, as well as common stock and convertible preferred stock interests in
Globalstar Telecommunications Limited ("GTL"). GTL's sole business is acting as
a general partner of Globalstar, and all funds raised by GTL to date have been
used to purchase Globalstar securities. Partners in Globalstar have the right to
convert their ordinary partnership interests into GTL common stock on an
approximate one interest for four shares basis, under certain defined
circumstances.
As of December 31, 1999, Loral owned directly and indirectly approximately
24.8 million Globalstar ordinary partnership interests (corresponding to
approximately 100.4 million equivalent shares of GTL common stock), or 41% of
the total 59.8 million Globalstar ordinary partnership interests (corresponding
to approximately 242.4 million equivalent shares of GTL common stock)
outstanding. As of December 31, 1999, the market value of the 8.4 million shares
of GTL stock owned by Loral, based on the last reported sale was
F-15
<PAGE> 72
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
$368 million. On February 1, 2000, Loral's ownership in Globalstar was reduced
to 40% as a result of GTL's sale of 8,050,000 common shares to the public and
the accompanying issue of partnership interests by Globalstar. The excess
carrying value of Loral's investment in Globalstar over its interest in the
underlying net assets of Globalstar totalled $478 million at December 31, 1999
and will be amortized on a straight-line basis over a period of 20 years
commencing in 2000.
Loral's original investment in Globalstar was made in 1994 in connection
with its formation. Loral has continued to make investments in Globalstar since
its inception, including the following transactions during the three years ended
December 31, 1999:
- In 1996, Loral purchased $102.5 million principal amount of GTL's 6 1/2%
Convertible Preferred Equivalent Obligations for $99.4 million. On April
30, 1998, these securities were converted into 6,832,030 shares of GTL
common stock, including shares issued in satisfaction of a required
interest make-whole payment.
- In March 1997, Loral exercised warrants to purchase 4,550,088 shares of
GTL common stock at $6.63 per share, which were received in connection
with Loral's partial guarantee of a $250 million Globalstar Credit
Agreement (see Note 13). In April 1997, Loral exercised rights to
purchase an additional 700,696 shares of GTL common stock at $6.63 per
share distributed to the existing shareholders of GTL. The aggregate
purchase price paid was $34.8 million.
- During 1997, Loral acquired 2,748,372 Globalstar ordinary partnership
interests from other Globalstar partners for $122.3 million in cash and
1,255,684 shares of Loral common stock.
- In July 1998, Loral purchased 4.2 million Globalstar ordinary partnership
interests from certain founding service providers for $420 million in
cash. Concurrently, Loral sold 8.4 million shares of GTL common stock to
persons or entities advised by or associated with Soros Fund Management
LLC for $245 million in cash. As a result of this sale, Loral recognized
a gain of approximately $35 million, which is included in gain on
investments, net in the consolidated statements of operations.
- In November 1998, Loral acquired 276,000 Globalstar ordinary partnership
interests from other Globalstar partners in exchange for 717,600 shares
of GTL common stock.
- In January 1999, Loral purchased $150 million principal amount of GTL's
8% Series A convertible redeemable preferred stock, which is convertible
into 6,449,865 shares of GTL's common stock.
- In November 1999, Loral purchased 103,187 shares of GTL common stock for
$2.7 million.
Also in 1999, Loral received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $91 per interest in consideration
for the guarantee of Globalstar's $500 million credit agreement by certain of
its subsidiaries and the pledge of certain assets, including the Telstar 6 and
Telstar 7 satellites (see Note 13). The warrants were valued at $141 million,
which was based on the guarantee provided. The exercise price was determined by
reference to the fair market value of GTL's common stock on the closing date of
the Credit Agreement, based on the approximate one partnership interest for four
shares of GTL common stock exchange ratio. Assuming the guarantee remains in
effect, the warrants vest 50% in February 2000, 25% in August 2000 and 25% in
August 2001, and expire in 2006. Globalstar may call the warrants any time after
August 2001 if GTL's common stock price exceeds $45.50 for a defined period.
Loral has granted to certain of its officers and directors options to
purchase 1,988,000 of its shares of GTL common stock. During 1999 and 1998,
options were exercised to purchase 40,000 and 320,000 shares at a weighted
average exercise price of $6.25 and $5.84 per share, respectively. At December
31, 1999, options to purchase 1,628,000 shares of common stock at a weighted
average exercise price of $7.01 per share were outstanding. These options expire
beginning in 2006.
SS/L is the prime contractor for the construction and launch of
Globalstar's satellites. SS/L has awarded subcontracts to third parties,
including other investors in Globalstar, for substantial portions of the work
under
F-16
<PAGE> 73
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
these contracts. As of December 31, 1999, Loral had delivered and launched 48 of
the 52 satellites required under the space segment contract (the final four
satellites were successfully launched on February 8, 2000), and is constructing
an additional eight spares under a separate contract. Billed and unbilled
receivables and orbital incentives (described below) due within one year under
these contracts were $59.4 million and $187.8 million, as of December 31, 1999
and 1998, respectively, and are included in contracts-in-process on the
consolidated balance sheets.
SS/L has provided $330 million of billings deferred under these
construction contracts comprised of: $105 million of orbital incentives, of
which $44 million was repaid in 1999 and $61 million is expected to be repaid in
2000; $90 million of vendor financing, which bears interest at LIBOR plus 3% and
is repayable over five years commencing in 2001; and $134 million of
non-interest bearing vendor financing, due over five years in equal monthly
installments, commencing in 2000. SS/L's terms with its subcontractors include
$116 million of financing assumed by them, which is to be repaid on
substantially similar terms (of which a portion is non-recourse to SS/L in the
event of non-payment by Globalstar) and is included in long-term liabilities on
the consolidated balance sheets.
In the first quarter of 2000, Globalstar commenced commercial service.
Pursuant to the Globalstar partnership agreement, Loral is entitled to receive a
managing partner's allocation of 2% of Globalstar's annual revenues under $500
million and 2.8% of annual revenues in excess of $500 million. Such allocation
is reduced by 50% to the extent Globalstar has a net loss in any given year.
Globalstar expects to spend $325 million for the enhancement of its system
software, for the eight spare satellites being constructed by SS/L, and for
financing provided to Globalstar's service providers to assist in the purchase
of gateways, fixed access terminals and handsets (of which $231 million is
expected to be received from the service providers as repayment of such
financing). In addition, cash interest, preferred dividends and operating costs
are expected to be approximately $125 million per quarter in 2000. Globalstar
raised $268.5 million through the sale of equity interests on February 1, 2000.
Globalstar believes that its cash on hand, available credit under its two bank
facilities and vendor financing arrangements, service revenues and other
anticipated cash inflows will be sufficient to cover its expected cash outflows
provided that its $250 million credit facility is renegotiated. If Globalstar
cannot renegotiate its $250 million credit facility, it believes it will be able
to obtain additional funds. There can be no assurance, however, that such funds
will be available on favorable terms or on a timely basis, if at all.
Qualcomm Incorporated ("Qualcomm") has agreed to provide Globalstar $500
million of vendor financing (for which the terms of $400 million are still being
finalized). In connection with the agreement, Qualcomm is expected to receive a
number of warrants to purchase Globalstar partnership interests comparable to
those received by Loral pursuant to Loral's guarantee of Globalstar's $500
million credit facility (see above).
F-17
<PAGE> 74
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
The following table presents summary financial data for Globalstar as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 and cumulative (in thousands):
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT
OF OPERATIONS) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, -----------------------------
1999 1999 1998 1997
--------------- -------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ -- $ -- $ --
Operating loss............................ 590,538 186,505 146,684 88,071
Net loss.................................. 526,620 180,364 129,543 67,586
Preferred distributions................... 112,942 52,220 22,197 21,202
Net loss applicable to ordinary
partnership interests................... 639,562 232,584 151,740 88,788
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $ 292,902 $ 236,288
Globalstar System under construction........................ 3,181,189 2,302,333
Total assets................................................ 3,781,459 2,670,025
Current liabilities......................................... 671,302 401,190
Long-term debt.............................................. 1,799,111 1,396,175
Long-term liabilities, including vendor financing........... 282,717 270,259
Partners' capital........................................... 1,028,329 602,401
</TABLE>
Satmex
In connection with the privatization by the Federal Government of Mexico
(the "Mexican Government") of its fixed satellite services business, Loral and
Principia, S.A. de C.V. ("Principia"), formerly known as Telefonica Autrey, S.A.
de C.V., formed a joint venture, Firmamento Mexicano, S.A. de R.L. de C.V.
("Holdings"). On November 17, 1997, Holdings acquired 75% of the outstanding
capital stock of Satmex for $646.8 million. The purchase price was financed by a
Loral equity contribution of $94.6 million, a Principia equity contribution of
$50.9 million and debt issued by a subsidiary of Holdings. As part of the
acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings, agreed to issue a seven-year obligation to
the Mexican Government (the "Government Obligation") in consideration for the
assumption by Satmex of the debt incurred by Servicios in connection with the
acquisition. The Government Obligation had an initial face amount of $125
million, which accretes at 6.03% and expires 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. As of December 31, 1999, Loral and Principia have
pledged their respective shares in Holdings in such trust. Loral has a 65%
economic interest in Holdings and a 49% indirect economic interest in Satmex.
Loral and Principia are responsible for managing Satmex. They are entitled
to receive an aggregate management fee, based on a sliding scale, applied to
Satmex's quarterly gross revenues up to a maximum of 3.75% of each year's
cumulative gross revenues. Loral and Principia agreed to waive such fee for 1999
and
F-18
<PAGE> 75
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
1998. Beginning in 1999, Loral licensed certain intellectual property to Satmex
for a fee of up to 1.5% of Satmex's gross revenues, as defined, resulting in
$1.3 million of fees.
On March 30, 1999, Loral acquired 577,554 shares of preferred stock of
Satmex at a purchase price of $30.3 million. The preferred stock has limited
voting rights, pays a dividend in common stock of Satmex and is exchangeable, at
Satmex's option, into common stock of Satmex based upon a predetermined exchange
ratio.
The following table presents summary financial data for Satmex as of
December 31, 1999 and 1998 and for the years ended December 31, 1999 and 1998
and the period November 17, 1997 (date of investment) through December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NOVEMBER 17, 1997
------------------------ TO
1999(1) 1998 DECEMBER 31, 1997
---------- ---------- ------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $135,520 $104,779 $12,893
Operating income..................... 24,988 32,841 4,015
Net loss............................. 46,663 23,650 4,440
Net loss applicable to common
stockholders....................... 47,793 23,650 4,440
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets...................................... $ 36,461 $ 57,337
Total assets........................................ 1,038,594 1,137,964
Current liabilities................................. 23,845 93,116
Long-term liabilities............................... 121,213 85,535
Long-term debt...................................... 557,000 608,000
Shareholders' equity................................ 336,536 351,313
</TABLE>
- ---------------
(1) During 1999, Satmex sold three Ku-band transponders on Satmex 5 to Loral
Skynet for $25.5 million, resulting in a gain of $11.2 million. Loral's
proportionate share of the profit on these transponders of $3.6 million has
been eliminated in Loral's consolidated results.
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system anticipated to provide broadcast and telecommunications
services to Europe, the Middle East, Southeast Asia, India and South Africa.
Alcatel serves as the primary contractor of the Europe*Star turnkey system. SS/L
is providing the satellite bus and will test and integrate the satellites.
During 1999 and 1998, Loral invested $17 million and $49 million in Europe*Star,
respectively, and at December 31, 1999 has a 47% ownership interest therein.
SS/L is a subcontractor for the construction of Europe*Star's satellites. Billed
and unbilled receivables from Europe*Star was $19.5 million as of December 31,
1999. There were no outstanding receivables at December 31, 1998.
SkyBridge
In June 1997, Loral and Alcatel formed a strategic partnership to jointly
develop, deploy and operate high-speed global multimedia satellite networks that
will bring high-bandwidth services to businesses and to
F-19
<PAGE> 76
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
consumers. The agreement includes cross investments in Loral's geostationary
(GEO) satellite-based CyberStar LP project and Alcatel's LEO satellite-based
SkyBridge project. Each company participates in the development of the two
projects. The SkyBridge project is currently in the development stage. As of
December 31, 1999, Loral had contributed to SkyBridge and Alcatel had
contributed to CyberStar LP approximately $46 million and $30 million,
respectively. As of December 31, 1999, Loral owned approximately 15% of the
outstanding partnership interests in SkyBridge. SS/L is a contractor for the
construction of the SkyBridge satellites. There were no outstanding receivables
related to this contract as of December 31, 1999.
The following table presents summary financial data for SkyBridge as of
December 31, 1999 and 1998 and for the years ended December 31, 1999 and 1998,
for the period from February 26, 1997 to December 31, 1997, and cumulative (in
thousands):
<TABLE>
<CAPTION>
CUMULATIVE
FEBRUARY 26, 1997 YEARS ENDED
(INCEPTION) TO DECEMBER 31, FEBRUARY 26, 1997
DECEMBER 31, ------------------- TO
1999 1999 1998 DECEMBER 31, 1997
----------------- -------- -------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ -- $ -- $ -- $ --
Operating loss.................... 321,537 129,639 144,624 47,274
Net loss.......................... 314,988 126,749 141,714 46,525
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $46,572 $74,186
Total assets................................................ 46,811 74,585
Current liabilities......................................... 24,117 35,132
Net partners' capital....................................... 22,694 39,453
</TABLE>
Other Affiliates
Other affiliates include investments in partnerships where Loral and its
partners are the exclusive service providers of Globalstar service and in
Mabuhay Space Holdings Limited ("Mabuhay"), which owns and operates certain
satellite transponders. Loral's proportionate share of losses from Mabuhay for
1999 was $15 million, net of related tax benefits, which primarily relates to a
reduction in the carrying value of its satellite transponders in the fourth
quarter.
In December 1997, Loral sold its 22.5% equity interest in K&F for $80.6
million and recorded a $79.6 million gain on the sale. Prior to that date, Loral
used the equity method to account for its investment in K&F; however, no income
or loss was recognized due to K&F's financial position.
F-20
<PAGE> 77
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Term loan, 7.1% and 6.7% at December 31, 1999 and 1998,
respectively.............................................. $ 256,250 $ 275,000
Revolving credit facility, 7.1% and 6.7% at December 31,
1999 and 1998, respectively............................... 275,000 205,000
Note purchase facility...................................... 139,238 126,657
9.5% Senior notes due 2006.................................. 350,000
Export-Import credit facility............................... 12,872 15,018
Other....................................................... 591 605
Non-recourse debt of Loral CyberStar:
11.25% Senior notes due 2007 (principal amount $443
million)............................................... 501,734 507,573
12.5% Senior discount notes due 2007 (principal amount at
maturity $484 million and accreted principal amount
$378 million and $334 million at December 31, 1999 and
1998, respectively).................................... 448,409 408,812
Other..................................................... 15,228 17,110
---------- ----------
Total debt.................................................. 1,999,322 1,555,775
Less, current maturities.................................... 85,496 22,736
---------- ----------
$1,913,826 $1,533,039
========== ==========
</TABLE>
The Amended and Restated Credit Agreement, dated as of November 10, 1999,
among Loral SpaceCom Corporation ("Loral SpaceCom"), a wholly owned subsidiary
of Loral, SS/L and the banks party thereto (the "Credit Agreement") provides for
a $275 million term loan facility, a $500 million revolving credit facility, of
which up to $175 million can be used for letters of credit, and a separate $75
million letter of credit facility. Both the term loan facility and revolving
credit facility are for a period of five years. The separate letter of credit
facility was extended to mature on December 31, 2000. The term loan facility
requires repayment in 12 consecutive quarterly installments beginning December
31, 1999. The first four installments are $18.75 million each with the final
eight installments being $25 million each. Borrowings under the facilities are
secured by the stock of Loral SpaceCom and SS/L and bear interest, at Loral
SpaceCom's option, at various rates based on margins over the lead bank's base
rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six
months. Loral SpaceCom pays a commitment fee on the unused portion of the
facilities. The Credit Agreement contains customary covenants, including an
interest coverage ratio and debt-to-capitalization ratios. In addition, the
Credit Agreement contains limitations on indebtedness, liens, guarantee
obligations, asset sales, dividends, investments and transactions with
affiliates. Under the terms of the Credit Agreement, Loral SpaceCom may pay
dividends to its parent if the cumulative dividend payments do not exceed 50% of
cumulative net income, as defined, and the ratio of funded debt to EBITDA, as
defined, is less than three to one. Notwithstanding this dividend payment
limitation, as of December 31, 1999 Loral SpaceCom could pay a dividend to its
parent of up to $70 million. As of December 31, 1999, and including the effect
of borrowings expected to fund the roll-over of the note purchase facility
discussed below, Loral SpaceCom could borrow an additional $56.9 million under
the Credit Agreement.
In 1994, SS/L entered into a $139.3 million note purchase facility with an
Italian bank. Borrowings were determined by formula and were made in accordance
with a specified schedule. The drawdown period expired on December 31, 1999. The
outstanding principal is to be repaid on August 21, 2000. Interest is charged at
a weighted average annual rate of 4.26% and is payable semi-annually. Interest,
however, on any borrowings that occur after January 13, 1999 ($12.6 million at
December 31, 1999) and until delivery of the satellites related
F-21
<PAGE> 78
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
to the specific borrowings that have taken place will be at market rates for
this period and not at the 4.26% rate. All borrowings under this facility reduce
the amount available under the Credit Agreement. Upon maturity of this note, it
will be rolled into the revolving credit facility under the Credit Agreement.
On January 21, 1999, Loral sold $350 million principal amount of 9.5%
Senior Notes due 2006 ("Senior Notes"). The Senior Notes are general unsecured
obligations of Loral that: (1) are structurally junior in right of payment to
all existing and future indebtedness of Loral's subsidiaries; (2) are equal in
right of payment with all existing and future senior indebtedness of Loral
(except as to assets pledged to secure such indebtedness); and (3) are senior in
right of payment to any future indebtedness which is by its terms junior in
right of payment to any senior indebtedness of Loral. Interest on the Senior
Notes accrues at the rate of 9.5% per annum and is payable semi-annually. The
Senior Notes will mature on January 15, 2006. Loral may redeem all or part of
the Senior Notes on or after January 15, 2003. Prior to January 15, 2002, Loral
may redeem up to 35% of the Senior Notes from the proceeds of certain equity
offerings. Upon a change of control (as defined), each holder of Senior Notes
will have the right to require Loral to repurchase such holder's Senior Notes at
a price equal to 101% of the principal amount thereof plus accrued interest to
the date of repurchase.
SS/L borrowed a total of $42.9 million under an export-import credit
facility (the "EX-IM Facility") with a Japanese bank. The EX-IM Facility is
fully secured by a letter of credit arrangement with another bank. As of
December 31, 1999, no amounts remained available for borrowing under this
facility. The outstanding principal is to be repaid in semi-annual installments
through November 1, 2005. Interest is charged at LIBOR less 1/4% and is payable
semi-annually on May 1 and November 1.
In connection with the Loral CyberStar acquisition, Loral did not assume
Loral CyberStar's senior notes, senior discount notes or other debt instruments.
Such debt is non-recourse to Loral and includes certain restrictions on Loral
CyberStar's ability to pay dividends or make loans to Loral. The carrying value
of the senior notes and senior discount notes was increased to reflect a fair
value adjustment of $153.4 million based on quoted market prices at the date of
acquisition. Such adjustment resulted in effective interest rates of 8.69% and
9.69% on the senior notes and senior discount notes, respectively, through
maturity.
The Loral CyberStar senior notes are due in 2007, bear interest of 11.25%
and pay interest semi-annually. As of December 31, 1999 and 1998, Loral
CyberStar had $50.0 million and $72.9 million, respectively, in restricted cash
for future interest payments. The senior discount notes are due in 2007, bear
interest of 12.5% and pay interest semi-annually commencing on July 15, 2002.
The accreted principal value of the senior discount notes was $378 million and
$334 million as of December 31, 1999 and 1998, respectively.
Along with the issuance of each senior note and senior discount note, one
warrant was issued to purchase shares of common stock. Upon the acquisition of
Loral CyberStar, each warrant was converted so that it could purchase shares of
Loral common stock. As of December 31, 1999, exercisable warrants for 143,838
shares of Loral common stock at an exercise price of $0.02 per share under the
senior notes and 206,125 shares of Loral common stock at an exercise price of
$0.03 per share under the senior discount notes are yet to be exercised.
The aggregate maturities of total debt for the years 2000 through 2004 are
as follows (in millions): $85.5, $104.7, $494.0, $3.9 and $3.9.
F-22
<PAGE> 79
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The (benefit) provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current:
U.S. federal............................... $ 5,591 $ 2,069 $27,204
State and local............................ 1,758 7,248
-------- ------- -------
7,349 2,069 34,452
Deferred:
U.S. federal............................... (44,766) (9,219) 1,762
State and local............................ 4,901 3,279 (1,343)
-------- ------- -------
(39,865) (5,940) 419
-------- ------- -------
Total (benefit) provision for income taxes... $(32,516) $(3,871) $34,871
======== ======= =======
</TABLE>
The (benefit) provision for income taxes excludes: (i) current tax benefits
related to the exercise of stock options, credited directly to shareholders'
equity, of $0.4 million for the year ended December 31, 1998; (ii) a current tax
benefit of $4.8 million and $0.3 million, and a deferred tax liability of $1.4
million and a deferred tax benefit of $2.1 million for the years ended December
31, 1999 and 1998, respectively, related to the Globalstar partnership loss, a
deferred tax benefit of $1.8 million and $3.9 million for the years ended
December 31, 1999 and 1998, respectively, related to the SkyBridge partnership
loss, and a deferred tax benefit of $10.3 million for the year ended December
31, 1999, related to other affiliates which are included in equity in net loss
of affiliates; and (iii) a current tax liability of $0.7 million for the year
ended December 31, 1999 and a deferred tax benefit of $0.1 million and a
deferred tax liability of $0.6 million for the years ended December 31, 1999 and
1998, respectively, related to the minority interest for CyberStar LP.
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate.......... 35.0% 35.0% 35.0%
State and local income taxes, net of federal
income tax.................................... (7.0) (8.3) 3.0
Non-U.S. income and losses taxed at lower
rates......................................... (10.4) 20.3 (15.0)
Non-deductible amortization of cost in excess of
net assets acquired........................... (14.0) (28.8) 2.6
Reverse valuation allowance for Loral CyberStar
pre-acquisition loss.......................... 54.0
Other, net...................................... (5.3) (3.1) 1.9
----- ----- -----
Effective income tax rate............. 52.3% 15.1% 27.5%
===== ===== =====
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $382.2 million, which includes $136.4 million related to Loral
CyberStar for its pre-acquisition tax years and $64.6 million related to foreign
partner interests in Globalstar and CyberStar LP, as well as tax credit
carryforwards of approximately $1.8 million, which expire at varying dates from
2003 through 2019. As a result of a tax law change during 1999, the Company
reversed a portion of its valuation allowance relating to the Loral CyberStar
pre-acquisition loss carryforwards. Due to uncertainties regarding its ability
to realize the benefits from the balance of these pre-acquisition net operating
loss carryforwards and certain other net deferred tax assets related to Loral
CyberStar and the loss carryforwards related to the foreign partner interests in
Globalstar and CyberStar LP, the Company has established a valuation allowance
of $52.1 million against these net deferred tax assets. For the years ended
December 31, 1999, 1998 and 1997, income (loss)
F-23
<PAGE> 80
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
before income taxes includes approximately $(20) million, $15 million and $72
million, respectively, of non-U.S. source income (loss).
The significant components of the net deferred income tax asset (liability)
are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Postretirement benefits other than pensions.......... $ 13,520 $ 15,547
Inventoried costs.................................... 55,158 44,288
Net operating loss and tax credit carryovers......... 138,724 124,270
Compensation and benefits............................ 12,548 11,655
Premium on senior notes.............................. 98,086 69,203
Investment in affiliates............................. 17,295 (6,051)
Other, net........................................... (3,734) 271
Pension costs........................................ (3,436) (4,335)
Property, plant and equipment........................ (129,530) (92,875)
Income recognition on long-term contracts............ (130,780) (125,967)
--------- ---------
subtotal........................................... 67,851 36,006
Less valuation allowance............................. (52,095) (70,894)
--------- ---------
Net deferred income tax asset (liability).......... $ 15,756 $ (34,888)
========= =========
</TABLE>
The net deferred income tax asset (liability) is classified as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------ --------
<S> <C> <C>
Other current assets..................................... $6,743 $ 3,482
====== ========
Other assets............................................. $9,013
======
Long-term deferred income tax liability.................. $(38,370)
========
</TABLE>
10. SHAREHOLDERS' EQUITY
Common Stock
On June 29, 1998, Loral sold 23 million shares of its common stock for $27
per share. The net proceeds were $602 million, of which Loral used $175 million,
net, to fund the purchase of Globalstar ordinary partnership interests (see Note
7).
Series A Preferred Stock
Significant terms of the Company's Series A Preferred Stock include a
liquidation preference of $.01 per share prior to pro rata participation with
the common stock and the ability to convert to common stock upon the receipt of
certain antitrust clearance before selling to an unaffiliated third party. On
March 5, 2000, the Series A Preferred Stock became fully convertible into common
stock (see Note 18). The Series A Preferred Stock has the same voting rights as
the Company's common stock except, it has no right to vote for the election of
directors. Such stock is subject to certain voting limitations, restrictions on
transfer and standstill provisions.
F-24
<PAGE> 81
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
Series B Preferred Stock
The Series B Preferred Stock will, if issued, be junior to any other series
of preferred stock which may be authorized and issued. The Series B Preferred
Stock becomes issuable upon exercise by holders of rights issued under the
Company's Rights Plan. The rights are issued with the Company's common stock and
become detachable, and thus exercisable, only upon the occurrence of certain
events. Each right, when it becomes exercisable, entitles the holder to purchase
from the Company a unit consisting initially of one-thousandth of a share of
Series B Preferred Stock at a purchase price of $50 per unit, subject to
adjustment.
6% Series C Preferred Stock
On November 1, 1996, the Company sold $600 million of 6% Convertible
Preferred Equivalent Obligations, which were mandatorily exchanged on June 5,
1997 into shares of the Company's Series C Preferred Stock, resulting in a
reclassification of these amounts into shareholders' equity. In addition, the
Company issued additional CPEOs and shares of Series C Preferred Stock in
connection with the acquisition of interests in SS/L and Globalstar. The Series
C Preferred Stock has an aggregate liquidation preference equal to its $745
million aggregate redemption value and a mandatory redemption date of November
1, 2006. The Series C Preferred Stock is convertible into shares of common stock
of the Company at a conversion price of $20 per share. As of December 31, 1999,
the outstanding Series C Preferred Stock was convertible into 37,273,593 shares
of Loral common stock.
The Series C Preferred Stock is non-voting and with respect to dividend
rights and rights upon liquidation, winding up and dissolution, ranks pari passu
with Loral's Series A Preferred Stock and senior to or pari passu with all other
existing and future series of preferred stock of Loral and senior to Loral
common stock. The Series C Preferred Stock is redeemable in cash or Loral common
stock at any time, in whole or in part, at the option of the Company (at a
premium which declines over time).
Stock Plans
In April 1996, Loral established the 1996 Stock Option Plan. An aggregate
of 18 million shares of common stock have been reserved for issuance. Under this
plan, options are granted at the discretion of the Company's Board of Directors
to employees of the Company and its affiliates. Such options become exercisable
as determined by the Board, generally over five years, and generally expire no
more than 10 years from the date of the grant.
As discussed in Note 2, the Company continues to account for stock-based
awards to employees using the intrinsic value method in accordance with APB 25,
and its related interpretations. Accordingly, no compensation expense based on
the fair value method has been recognized in the financial statements for
employee stock arrangements.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as though the Company had adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
six to twelve months following vesting; stock volatility, 30% in 1999 and 25%
for 1998 and 1997; risk free interest rate, 4.4% to 6.6% based on date of grant;
and no dividends during the expected term. The Company's calculations are based
on a multiple option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the 1999, 1998 and 1997 awards, including
stock-
F-25
<PAGE> 82
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
based compensation awards to employees of the Company's affiliates, had been
amortized to expense over the vesting period of the awards, pro forma net (loss)
income applicable to common stockholders and related earnings (loss) per share
would have been $(254.7) million or $(.88) per diluted share, $(192.7) million
or $(.70) per diluted share and $9.3 million or $.04 per diluted share for 1999,
1998 and 1997, respectively.
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997 and changes during the periods then ended is presented
below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 6,411,500 $10.60
Granted at fair market value (weighted average fair value
$3.98 per share).......................................... 642,500 14.41
Granted below fair market value (weighted average fair value
$5.68 per share).......................................... 90,000 10.50
Exercised................................................... (207,750) 10.50
Forfeited................................................... (175,800) 12.98
---------- ------
Outstanding at December 31, 1997............................ 6,760,450 10.90
Granted at fair market value (weighted average fair value
$5.63 per share).......................................... 3,737,400 21.73
Granted below fair market value (weighted average fair value
$12.11 per share)......................................... 600,000 11.72
Loral CyberStar stock options converted in connection with
acquisition (weighted average fair value $11.84 per
share).................................................... 1,443,240 14.78
Exercised................................................... (806,781) 12.15
Forfeited................................................... (857,477) 13.34
---------- ------
Outstanding at December 31, 1998............................ 10,876,832 14.90
Granted at fair market value (weighted average fair value
$5.48 per share).......................................... 3,799,100 16.62
Exercised................................................... (287,635) 13.01
Forfeited................................................... (1,031,433) 17.23
---------- ------
Outstanding at December 31, 1999............................ 13,356,864 $15.25
========== ======
Options exercisable at December 31, 1999.................... 5,667,416 $13.32
========== ======
Options exercisable at December 31, 1998.................... 3,638,305 $12.44
========== ======
Options exercisable at December 31, 1997.................... 2,014,250 $10.53
========== ======
</TABLE>
The following table summarizes information about Loral's outstanding stock
options at December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------
OUTSTANDING
----------------------------------- EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- ---------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$10.50 - $15.99................... 7,331,897 6.84 $11.51 4,444,418 $11.18
$16.00 - $23.99................... 3,789,627 9.35 16.83 575,930 17.09
$24.00 - $27.28................... 2,235,340 8.14 24.82 647,068 24.70
---------- ---------
13,356,864 7.77 $15.25 5,667,416 $13.32
========== =========
</TABLE>
F-26
<PAGE> 83
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
All options granted during the year were non-qualified stock options. As of
December 31, 1999, 4,666,140 shares of common stock were available for future
grant under the Plan.
11. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
The Company maintains a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans and members in certain locations
may contribute to the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans vary and benefits are based on
members' compensation and/or years of service. None of the employees associated
with the acquisition of Loral CyberStar were transferred into these plans. The
Company's funding policy is to fund the pension plan in accordance with the
Internal Revenue Code and regulations thereon and to fund the supplemental
retirement plan on an actuarial basis, including service cost and amortization
amounts. Plan assets are generally invested in U.S. government and agency
obligations and listed stocks and bonds.
Other Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plan.
These benefits are funded primarily on a pay-as-you-go basis, with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1999 and 1998, and a statement of the funded status as of December 31, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------
1999 1998 1999 1998
--------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1................... $ 225,957 $204,166 $ 37,187 $ 36,010
Service cost.............................. 8,821 8,340 1,580 1,460
Interest cost............................. 16,499 15,358 2,576 2,553
Participant contributions................. 1,375 1,228 654 593
Plan amendments........................... (422)
Actuarial (gain) loss..................... (24,152) 7,231 (6,443) (1,406)
Benefit payments.......................... (11,630) (9,944) (1,898) (2,023)
--------- -------- -------- --------
Obligation at December 31................. $ 216,870 $225,957 $ 33,656 $ 37,187
--------- -------- -------- --------
</TABLE>
F-27
<PAGE> 84
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------
1999 1998 1999 1998
--------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of fair value of plan
assets
Fair value of plan assets at January 1.... $ 227,235 $198,013 $ 1,940 $ 2,022
Actual return on plan assets.............. 90,973 36,040 66 124
Employer contributions.................... 2,999 1,898 934 1,134
Participant contributions................. 1,375 1,228 654 683
Benefit payments.......................... (11,630) (9,944) (1,898) (2,023)
--------- -------- -------- --------
Fair value of plan assets at December
31...................................... $ 310,952 $227,235 $ 1,696 $ 1,940
--------- -------- -------- --------
Funded status
Funded (unfunded) status at December 31... $ 94,082 $ 1,278 $(31,960) $(35,247)
Unrecognized prior service cost........... (338) (371) (8,926) (10,198)
Unrecognized (gain) loss.................. (102,016) (8,270) 6,127 12,600
--------- -------- -------- --------
Net amount recognized..................... $ (8,272) $ (7,363) $(34,759) $(32,845)
========= ======== ======== ========
</TABLE>
The following table provides the details of the net pension liability
recognized in the balance sheet as of December 31, 1999 and 1998, respectively
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Prepaid benefit cost........................................ $ 8,570 $ 10,262
Accrued benefit liability................................... (16,842) (17,625)
-------- --------
Net amount recognized....................................... $ (8,272) $ (7,363)
======== ========
</TABLE>
The Company has a supplemental retirement plan, which had an accumulated
benefit obligation in excess of plan assets. The accumulated benefit obligation
was $23.3 million and $25.1 million and the fair value of plan assets was $9.0
million and $8.6 million, as of December 31, 1999 and 1998, respectively.
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 1999, 1998 and 1997, respectively
(in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ ---------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost..................... $ 8,821 $ 8,340 $ 6,539 $ 1,580 $ 1,460 $ 915
Interest cost.................... 16,499 15,358 14,278 2,576 2,553 2,315
Expected return on plan assets... (21,401) (18,531) (16,433) (184) (192) (196)
Amortization of prior service
cost........................... (34) 4 4 (1,272) (1,272) (1,272)
Amortization of net loss......... 18 20 2 238 319 194
-------- -------- -------- ------- ------- -------
Net periodic benefit cost........ $ 3,903 $ 5,191 $ 4,390 $ 2,938 $ 2,868 $ 1,956
======== ======== ======== ======= ======= =======
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate............................................. 8.00% 7.00% 7.25%
Expected return on plan assets............................ 9.50% 9.50% 9.50%
Rate of compensation increase............................. 4.25% 4.25% 4.50%
</TABLE>
F-28
<PAGE> 85
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
Actuarial assumptions used a health care cost trend rate of 8.05%
decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plans. A 1%
change in assumed health care cost trend rates for 1999 would have the following
effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost
components of net periodic postretirement health
care benefit cost................................ $ 696,000 $ (545,000)
Effect on the health care component of the
accumulated postretirement benefit obligation.... 3,785,000 (3,099,000)
</TABLE>
Employee Savings Plan
The Company has an employee savings plan which provides that the Company
match the contributions of participating employees up to a designated level.
Under this plan, the matching contributions in Loral common stock or cash were
$7.0 million, $6.1 million and $5.6 million for the years ended December 31,
1999, 1998 and 1997, respectively.
12. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value:
The carrying amount of cash and cash equivalents and restricted cash
approximates fair value because of the short maturity of those instruments. The
fair value of the investments in available-for-sale securities are based on
market quotations. The fair value of the Company's long-term debt is based on
carrying value for those obligations that have short-term variable interest
rates on the outstanding borrowings and quoted market prices for obligations
with long-term or fixed interest rates.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998
------------------------ ------------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 239,865 $ 239,865 $ 546,772 $ 546,772
Restricted and segregated cash............ 187,315 187,315 72,855 72,855
Investments in available-for-sale
securities.............................. 106,783 106,783 65,273 65,273
Long-term debt, including current
maturities.............................. 1,999,322 1,554,979 1,555,775 1,382,890
</TABLE>
The fair value of the investments in available-for-sale securities includes
unrealized gains of $79 million and $40 million as of December 31, 1999 and
1998, respectively, which is included in accumulated other comprehensive income
(see Note 3).
Foreign Currency Hedges
As of December 31, 1999 and 1998, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $106.3 million and $197.5
million, respectively. Such contracts were designated as hedges of certain
foreign contracts and subcontracts to be performed by SS/L through May 2006. The
fair value of these contracts, based on quoted market prices, was $104.6 million
and $189.7 million as of December 31, 1999 and 1998, respectively. As of
December 31, 1999 and 1998, deferred gains on forward contracts to sell foreign
currencies,
F-29
<PAGE> 86
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS -- (CONTINUED)
primarily yen, were $2.0 million and $11.7 million, respectively, and deferred
losses on forward contracts to purchase foreign currencies, primarily yen, were
$0.3 million and $3.9 million, respectively.
The Company is exposed to credit-related losses in the event of
non-performance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held as of December 31,
1999 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments under long-term contracts
and payments to vendors under subcontracts. As of December 31, 1999, these
foreign exchange contracts mature as follows (in thousands):
<TABLE>
<CAPTION>
TO PURCHASE TO SELL
------------------- -------------------
AT AT AT AT
CONTRACT MARKET CONTRACT MARKET
YEARS TO MATURITY RATE RATE RATE RATE
- ----------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
1................................................... $62,077 $63,044 $16,166 $15,755
2 to 5.............................................. 7,276 6,575 12,101 11,819
6 to 10............................................. 8,699 7,370
------- ------- ------- -------
$69,353 $69,619 $36,966 $34,944
======= ======= ======= =======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin, SS/L and certain other Globalstar partners have guaranteed $206.3
million, $11.7 million and $32.0 million of the Globalstar Credit Agreement,
respectively. In addition, Loral agreed to indemnify Lockheed Martin for any
liability in excess of $150 million.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar System of which $400
million was outstanding as of December 31, 1999. The credit facility is
guaranteed by Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned
subsidiaries of Loral, for which Loral received warrants to purchase Globalstar
partnership interests (see Note 7). The guarantee is secured by the pledge of
certain assets of Loral and its subsidiaries, including the stock of the
guarantors and the Telstar 6 and Telstar 7 satellites. Based on third party
valuations, management believes that the fair value of Telstar 6 and Telstar 7
is in excess of this $500 million credit agreement. As of December 31, 1999, the
net book value of Telstar 6 and Telstar 7 was $392 million. The guarantee
agreement contains customary financial covenants of the guarantors, including
maintenance of a minimum collateral coverage ratio and maintenance of a combined
minimum net worth and combined earnings before interest, taxes, depreciation and
amortization ("EBITDA"). In addition, the guarantee agreement contains customary
limitations on indebtedness, liens, fundamental changes, asset sales, dividends
(except that the guarantors may pay dividends to their parents provided that
combined aggregate cash on hand at the guarantors is at least equal to $50
million and the guarantors hold an intercompany note due from Loral for at least
$100 million), investments, capital expenditures, creating liens other than
those created pursuant to the guarantee and transactions with affiliates.
The Company had outstanding letters of credit of approximately $118 million
and $99 million as of December 31, 1999 and 1998, respectively. The Company also
had a $12.5 million Canadian Dollar letter of credit outstanding at December 31,
1999.
F-30
<PAGE> 87
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Loral had a $115 million secured standby bank credit facility, which was
undrawn as of December 31, 1999, supporting a guarantee of a $115 million term
loan of an unaffiliated third party. The term loan was repaid by the
unaffiliated third party in February 2000, resulting in the expiration of the
standby credit facility.
Due to the long lead times required to produce purchased parts and launch
vehicles, the Company has entered into various purchase commitments with
suppliers. These commitments aggregated approximately $685 million as of
December 31, 1999.
Prior to its acquisition by Loral, Loral Skynet sold several transponders
under which title to specific transponders was transferred to the customer.
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 is required to
replace any transponders failing to meet operating specifications. All customers
are entitled to a refund equal to the reimbursement value, as defined, in the
event there is no 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. In case of satellite failure, the
reimbursement value may be paid from proceeds received from insurance policies.
In 1997, two satellites built by SS/L experienced solar array circuit
failures. SS/L settled one of the customer's claims in 1999 and the other
customer's claims in 1997. 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.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the direction
or outcome of the investigation. If SS/L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be subject to a fine
of $1 million per violation and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a material adverse effect on SS/L's business and,
therefore, the Company. Indictment for such violations would subject SS/L to
discretionary debarment from further export licenses. 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 remains subject to the State Department's general statutory
authority to prohibit exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts SS/L's reliability in
question, and it can suspend export privileges whenever it determines that
grounds for debarment exist and that such suspension "is reasonably necessary to
protect world peace or the security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees
F-31
<PAGE> 88
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
acted openly and in good faith and that none engaged in intentional misconduct.
Accordingly, the Company does not believe that SS/L has committed a criminal
violation of the export control laws. The Company does not expect the grand jury
investigation or its outcome to result in a material adverse effect upon its
business. However, there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment or technology. SS/L has complied with
ODTC's instructions, and believes that a review of the agreement will show that
its terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. In
December 1999, Loral reached 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, Loral has agreed to provide
to the customer two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR
for the customer's use for the life of those transponders. As a result, the
Company recorded a charge to earnings of $35 million. 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 that SS/L will be able to find such 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 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.
Telstar 12, originally intended to operate at 12 degrees W.L., was launched
aboard an Ariane launch vehicle in October 1999 into the orbital slot located at
15 degrees W.L. and commenced commercial operations in December 1999. Under an
agreement reached with Eutelsat, Loral CyberStar agreed to operate Telstar 12 at
15 degrees W.L. while Eutelsat will continue to develop its services at 12.5
degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L.
orbital slot and will assert its priority rights over such location on Loral
CyberStar's behalf. As part of this coordination effort, Loral CyberStar agreed
to provide to Eutelsat four 54 MHz transponders on Telstar 12 for the life of
the satellite. Eutelsat also has the right to acquire, at cost, four
transponders on the next replacement satellite for Telstar 12. As part of the
international coordination process, Loral continues 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.
Lease Arrangements
The Company leases certain facilities, equipment and transponder capacity
under agreements expiring at various dates. Certain leases covering facilities
contain renewal and or purchase options which may be exercised by the Company.
Rent expense, net of sublease income of $4.5 million, $2.6 million and
F-32
<PAGE> 89
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
$2.1 million, was $39.8 million, $26.4 million and $17.7 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year or more consisted
of the following as of December 31, 1999 (in thousands):
<TABLE>
<S> <C>
2000.............................................. $ 23,992
2001.............................................. 21,735
2002.............................................. 20,779
2003.............................................. 16,687
2004.............................................. 8,796
Thereafter........................................ 41,313
--------
$133,302
========
</TABLE>
Future minimum payments have been reduced by minimum sublease rentals of
$20.2 million due in the future under non-cancellable subleases.
Future minimum lease receipts due from customers under non-cancelable
operating leases for transponder capacity on satellites in-orbit and for service
agreements as of December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................. $ 320,677
2001............................................. 223,870
2002............................................. 177,214
2003............................................. 116,347
2004............................................. 95,474
Thereafter....................................... 420,028
----------
$1,353,610
==========
</TABLE>
14. RELATED PARTY TRANSACTIONS
In connection with contract performance, Loral provided services to and
acquired services from Lockheed Martin. A summary of such transactions and
balances as of December 31, 1999 and 1998, and for the three years ended
December 31, 1999, respectively, is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Revenue from services sold.................................. $ 399 $ 1,301 $ 3,550
Cost of purchased goods and services........................ 151,053 70,569 78,160
Balance at year end:
Receivable................................................ $ 916 $ 2,159
Payable................................................... 60,496 4,317
-------- -------
Net payable................................................. $ 59,580 $ 2,158
======== =======
</TABLE>
F-33
<PAGE> 90
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
Loral's sales to, purchase from, and balances with the Alliance Partners
(see Note 4), including the effect of the related party transactions in Note 7,
as of the years ended December 31, 1999 and 1998, and for the three years ended
December 31, 1999, respectively, were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Revenue from goods and services sold........................ $13,360 $ 40,791 $ 39,303
Cost of purchased goods and services........................ 80,130 190,070 147,777
Balance at year end:
Receivable................................................ $ 1,524 $ 6,579
Payable................................................... 17,190 72,807
------- --------
Net payable................................................. $15,666 $ 66,228
======= ========
</TABLE>
15. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed based upon the weighted average
number of shares of common stock and the Series A Preferred Stock outstanding.
Diluted earnings (loss) per share excludes the assumed conversion of the Series
C Preferred Stock as the effect would have been antidilutive for the years ended
December 31, 1999, 1998 and 1997, respectively. For the years ended December 31,
1999 and 1998, weighted options equating to approximately 1.2 million and 1.8
million shares, respectively, as calculated using the treasury stock method,
were excluded from the calculation of diluted loss per share, as the effect
would have been antidilutive.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)...................................... $(201,916) $(138,798) $ 40,004
Preferred dividends and accretion...................... (44,728) (46,425) (26,315)
--------- --------- --------
Numerator for basic and diluted earnings per
share -- net income (loss) applicable to common
stockholders........................................ $(246,644) $(185,223) $ 13,689
========= ========= ========
Denominator:
Weighted average shares:
Common stock........................................ 244,335 227,505 196,173
Series A Preferred Stock............................ 45,897 45,897 45,897
--------- --------- --------
Denominator for basic earnings per share............... 290,232 273,402 242,070
Effect of dilutive securities:
Employee stock options.............................. 1,521
--------- --------- --------
Denominator for diluted earnings per share............. 290,232 273,402 243,591
========= ========= ========
Basic and diluted earnings (loss) per share.............. $ (0.85) $ (0.68) $ 0.06
========= ========= ========
</TABLE>
F-34
<PAGE> 91
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS
Loral has four reportable business segments: Fixed Satellite Services,
Broadband Data Services, Satellite Manufacturing and Technology and Global
Mobile Telephone Service (see Note 1).
In evaluating financial performance, management uses revenues and earnings
before interest, taxes and depreciation and amortization ("EBITDA") as the
measure of a segment's profit or loss. Segment results include the results of
its subsidiaries and its affiliates, Satmex, Europe*Star and Globalstar, which
are accounted for using the equity method in these consolidated financial
statements. Intersegment revenues primarily consists of satellites under
construction by Satellite Manufacturing and Technology for Fixed Satellite
Services and Global Mobile Telephone Service and sales by Fixed Satellite
Services to Broadband Data Services for the lease of transponder capacity. The
accounting policies of the reportable segments are the same as those described
in Note 2.
F-35
<PAGE> 92
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
Summarized financial information concerning the reportable segments is as
follows (in thousands):
1999 SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE GLOBAL
FIXED BROADBAND MANUFACTURING MOBILE
SATELLITE DATA AND TELEPHONE
SERVICES(1) SERVICES(2) TECHNOLOGY(3) SERVICE(4) CORPORATE(5) TOTAL
----------- ----------- ------------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EBITDA:
Revenues from external customers.......... $ 302,879 $ 84,658 $ 776,557 $ 1,164,094
Intersegment revenues..................... 38,946 656,714 695,660
---------- -------- ---------- -----------
Gross revenues............................ $ 341,825 $ 84,658 $1,433,271 1,859,754
========== ======== ==========
Revenues of unconsolidated
affiliates(6)........................... (135,520)
Intercompany revenues(7).................. (266,514)
-----------
Consolidated revenues..................... $ 1,457,720
===========
EBITDA before development and start-up
costs and eliminations.................. $ 193,099 $ (8,376) $ 102,307 $ (39,283) $ 247,747
Development and start-up costs(8)......... (27,248) $ (184,194) (211,442)
---------- -------- ---------- ---------- ---------- -----------
EBITDA before eliminations................ $ 193,099 $(35,624) $ 102,307 $ (184,194) $ (39,283) 36,305
========== ======== ========== ========== ==========
EBITDA of unconsolidated affiliates(6).... 106,709
Intercompany EBITDA(7).................... (30,371)
-----------
EBITDA(9)................................. 112,643
Depreciation and amortization(10)......... 174,906
-----------
Operating loss............................ $ (62,263)
===========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations(10).............. $ 171,317 $ 20,080 $ 40,747 $ 6,344 $ 4,169 $ 242,657
========== ======== ========== ========== ==========
Depreciation and amortization of
unconsolidated affiliates(6)(10)........ (67,751)
-----------
Depreciation and amortization(10)......... $ 174,906
===========
Capital expenditures before affiliate
eliminations............................ $ 575,447 $ 19,051 $ 30,240 $ 695,395 $ 854 $ 1,320,987
========== ======== ========== ========== ==========
Capital expenditures of unconsolidated
affiliates(6)........................... (851,240)
-----------
Capital expenditures...................... $ 469,747
===========
Total assets before affiliate
eliminations............................ $3,901,262 $114,120 $1,641,233 $3,781,459 $1,212,029 $10,650,103
========== ======== ========== ========== ==========
Total assets of unconsolidated
affiliates(6)........................... (5,039,682)
-----------
Total assets.............................. $ 5,610,421
===========
</TABLE>
- ---------------
(1) Fixed Satellite Services consists of 100% of the following companies since
their respective dates of acquisition. Loral Skynet acquired on March 14,
1997; Loral CyberStar's transponder leasing business acquired on March 20,
1998; Satmex, a 49% equity investee, acquired on November 17, 1997;
Europe*Star, a 47% equity investee, since December 1998. For the year ended
December 31, 1999, Satmex's results includes $25.5 million in revenues and
$11.2 million in EBITDA, respectively, from the sale of transponders to
Loral Skynet.
(2) Broadband Data Services consists of 100% of CyberStar LP and 100% of Loral
CyberStar's broadband data services business since its acquisition on March
20, 1998.
(3) Satellite Manufacturing and Technology consists of 100% of SS/L's results.
In February 1997, Loral agreed to acquire the remaining 49% of SS/L.
(4) Consists of 100% of Globalstar. Loral owned 41%, 43% and 40% at December
31, 1999, 1998 and 1997, respectively.
(5) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(6) Represents amounts related to unconsolidated affiliates (Satmex,
Europe*Star and Globalstar). These amounts are eliminated in order to
arrive at Loral's consolidated results. Loral's proportionate share of
these affiliates is included in equity in net loss from affiliates in
Loral's consolidated statements of operations.
(7) Represents the elimination of intercompany sales and EBITDA, primarily for
satellites under construction by SS/L for wholly-owned subsidiaries; as
well as eliminating sales for the lease of transponder capacity by
Broadband Data Services from Fixed Satellite Services.
(8) Represents EBITDA for CyberStar LP and Globalstar.
(9) EBITDA (which is equivalent to operating income/loss before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral's operating results. EBITDA is not an alternative to net income as an
indicator of a company's operating performance, or cash flow from
operations as a measure of a company's liquidity. EBITDA may be calculated
differently and, therefore, may not be comparable to similarly titled
measures reported by other companies.
(10) Includes amortization of unearned stock compensation charges.
F-36
<PAGE> 93
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
1998 SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE GLOBAL
FIXED BROADBAND MANUFACTURING MOBILE
SATELLITE DATA AND TELEPHONE
SERVICES(1) SERVICES(2) TECHNOLOGY(3) SERVICE(4) CORPORATE(5) TOTAL
----------- ----------- ------------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EBITDA:
Revenues from external customers....... $ 248,904 $ 39,856 $ 500,918 $ 789,678
Intersegment revenues.................. 5,301 889,253 894,554
---------- -------- ---------- ----------
Gross revenues......................... $ 254,205 $ 39,856 $1,390,171 1,684,232
========== ======== ==========
Revenues of unconsolidated
affiliates(6)........................ (104,779)
Intercompany revenues(7)............... (277,751)
----------
Consolidated revenues.................. $1,301,702
==========
EBITDA before development and start-up
costs and eliminations............... $ 171,239 $(13,306) $ 117,920 $ (42,826) $ 233,027
Development and start-up costs(8)...... (33,354) $ (144,953) (178,307)
---------- -------- ---------- ---------- ---------- ----------
EBITDA before eliminations............. $ 171,239 $(46,660) $ 117,920 $ (144,953) $ (42,826) 54,720
========== ======== ========== ========== ==========
EBITDA of unconsolidated
affiliates(6)........................ 70,184
Intercompany EBITDA(7)................. (23,655)
----------
EBITDA(9).............................. 101,249
Depreciation and amortization(10)...... 135,029
----------
Operating loss......................... $ (33,780)
==========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations(10)........... $ 130,793 $ 10,193 $ 39,696 $ 1,731 $ 2,981 $ 185,394
========== ======== ========== ========== ==========
Depreciation and amortization of
unconsolidated affiliates(6)(10)..... (50,365)
----------
Depreciation and amortization(10)...... $ 135,029
==========
Capital expenditures before affiliate
eliminations......................... $ 638,924 $ 27,287 $ 39,650 $ 564,629 $ 2,387 $1,272,877
========== ======== ========== ========== ==========
Capital expenditures of unconsolidated
affiliates(6)........................ (783,429)
----------
Capital expenditures................... $ 489,448
==========
Total assets before affiliate
eliminations......................... $3,371,073 $152,667 $1,673,030 $2,670,025 $1,238,434 $9,105,229
========== ======== ========== ========== ==========
Total assets of unconsolidated
affiliates(6)........................ (3,876,014)
----------
Total assets........................... $5,229,215
==========
</TABLE>
F-37
<PAGE> 94
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
1997 SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE GLOBAL
FIXED BROADBAND MANUFACTURING MOBILE
SATELLITE DATA AND TELEPHONE
SERVICES(1) SERVICES(2) TECHNOLOGY(3) SERVICE(4) CORPORATE(5) TOTAL
----------- ----------- ------------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EBITDA:
Revenue from external customers...... $ 82,229 $ 822,885 $ 905,114
Intersegment revenue................. 800 619,715 620,515
---------- ---------- -----------
Gross revenue........................ $ 83,029 $1,442,600 1,525,629
========== ==========
Revenue of unconsolidated
affiliates(6)...................... (12,893)
Intercompany revenue(7).............. (200,145)
-----------
Consolidated revenue................. $ 1,312,591
===========
EBITDA before development and
start-up costs and eliminations.... $ 51,821 $ 110,936 $(26,932) $ 135,825
Development and start-up costs(8).... $(32,612) $ (87,055) (119,667)
---------- -------- ---------- ---------- -------- -----------
EBITDA before eliminations........... $ 51,821 $(32,612) $ 110,936 $ (87,055) $(26,932) 16,158
========== ======== ========== ========== ========
EBITDA of unconsolidated
affiliates(6)...................... 77,197
Intercompany EBITDA(7)............... (17,039)
-----------
EBITDA(9)............................ 76,316
Depreciation and amortization(10).... 62,764
-----------
Operating income..................... $ 13,552
===========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations(10)......... $ 31,825 $ 78 $ 35,308 $ 1,016 $ 1,387 $ 69,614
========== ======== ========== ========== ========
Depreciation and amortization of
unconsolidated affiliates(6)(10)... (6,850)
-----------
Depreciation and amortization(10).... $ 62,764
===========
Capital expenditures before affiliate
eliminations....................... $ 212,183 $ 2,623 $ 39,416 $ 589,373 $ 4,149 $ 847,744
========== ======== ========== ========== ========
Capital expenditures of
unconsolidated affiliates(6)....... (592,404)
-----------
Capital expenditures................. $ 255,340
===========
Total assets before affiliate
eliminations....................... $1,825,845 $ 24,921 $1,483,759 $2,149,053 $711,017 $ 6,194,595
========== ======== ========== ========== ========
Total assets of unconsolidated
affiliates(6)...................... (3,184,148)
-----------
Total assets......................... $ 3,010,447
===========
</TABLE>
F-38
<PAGE> 95
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
Revenue by Customer Location
The following table presents revenues by country based on customer location
for the years ended December 31, 1999, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States.......................................... $1,248,990 $1,096,497 $ 924,468
People's Republic of China............................. 12,460 48,985 102,147
Japan.................................................. 56,322 53,567 45,179
France................................................. 65,115 43,702 40,719
Philippines............................................ 1,301 8,877 34,629
Thailand............................................... 850 9 77,422
Indonesia.............................................. 1,947 71,880
Other.................................................. 70,735 50,065 16,147
---------- ---------- ----------
$1,457,720 $1,301,702 $1,312,591
========== ========== ==========
</TABLE>
During 1999, three customers of the Satellite Manufacturing and Technology
segment accounted for 25%, 18% and 13% of consolidated revenues. During 1998,
three commercial customers of the Satellite Manufacturing and Technology segment
accounted for approximately 46%, 20% and 11%, respectively, of consolidated
revenues. During 1997, one customer of the Satellite Manufacturing and
Technology segment accounted for approximately 31% of consolidated revenues (see
Note 7).
With the exception of the Company's satellites in-orbit (see Note 6), the
Company's long-lived assets are primarily located in the United States.
17. QUARTERLY FINANCIAL INFORMATION (Unaudited, in thousands, except per share
amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,(1) DECEMBER 31,(1)
--------- -------- ---------------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenues....................... $305,926 $378,437 $347,152 $426,204
EBITDA (see Note 16)........... 36,627 43,542 35,939 (3,465)
Operating income (loss)........ (1,166) 2,059 (8,585) (54,571)
Loss before income taxes,
equity in net loss of
affiliates and minority
interest..................... 4,201 3,147 8,303 46,487
Net loss....................... 38,501 38,068 12,464 112,883
Preferred dividends and
accretion.................... 11,607 11,606 11,606 9,909
Net loss applicable to common
shareholders................. 50,108 49,674 24,070 122,792
Loss per share -- basic and
diluted(2)................... 0.17 0.17 0.08 0.42
Market price per share
High......................... 22 7/16 20 3/4 22 7/8 24 3/4
Low.......................... 14 7/16 14 3/8 16 1/4 13 1/2
</TABLE>
F-39
<PAGE> 96
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,(3) DECEMBER 31,(3)
--------- -------- ---------------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues........................ $295,213 $248,260 $289,588 $468,641
EBITDA (see Note 16)............ 18,410 12,175 19,936 50,728
Operating income (loss)......... 982 (26,266) (19,519) 11,023
Income (loss) before income
taxes, equity in net loss of
affiliates and minority
interest...................... 7,928 (31,299) 16,088 (18,345)
Net loss........................ 15,443 58,973 10,699 53,683
Preferred dividends and
accretion..................... 11,606 11,607 11,606 11,606
Net loss applicable to common
shareholders.................. 27,049 70,580 22,305 65,289
Loss per share -- basic and
diluted(2).................... 0.11 0.27 0.08 0.23
Market price per share
High.......................... 30 1/2 33 15/16 31 7/8 20 1/2
Low........................... 19 24 1/2 12 1/8 10 3/4
</TABLE>
- ---------------
(1) The quarter ended September 30, 1999 includes a non-recurring benefit of $34
million relating to a tax law change affecting the utilization of Loral
CyberStar's pre-acquisition loss carryforwards. The results of operations
for the quarter ended December 31, 1999 includes a pre-tax charge of $35
million ($21 million after taxes) relating to an agreement reached with a
customer to extend the delivery date of a satellite and other modifications
to the contract in return for satellite capacity.
(2) The quarterly earnings per share information is computed separately for each
period. Therefore, the sum of such quarterly per share amounts may differ
from the total for the year.
(3) The results of operations for the quarter ended September 30, 1998, includes
a $35 million pre-tax gain on the sale of stock in an affiliate. The results
of operations for the quarter ended December 31, 1998 includes a pre-tax
loss recorded on the write-off of non-strategic investments of $29.5
million.
18. SUBSEQUENT EVENTS
In February 2000, Loral sold $400 million of 6% Series D convertible
redeemable preferred stock due 2007 in an offering exempt from registration. The
preferred stock is convertible into approximately 20.2 million shares of common
stock at a conversion price of $19.83 per share. Loral intends to apply the
proceeds from the sale of the preferred stock for general corporate purposes,
including investment in its broadband strategy and expansion of the Loral Global
Alliance by acquisition of additional satellites and orbital slots.
In February 2000, Loral and Lockheed Martin filed certain notices under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with Lockheed
Martin's plan to convert its 45,896,977 shares of Loral's Series A preferred
stock into an equal number of shares of Loral common stock. The waiting period
expired on March 5, 2000 and accordingly, Lockheed Martin is now free to convert
the Series A preferred stock at any time. In February 2000, Loral and Lockheed
Martin also entered into an agreement pursuant to which Lockheed Martin agreed
that it will not sell any of the Series A preferred stock or the Loral common
stock into which it is convertible before May 19, 2000. Loral has agreed to use
its best efforts to cause a registration statement relating to the common stock
issuable upon conversion of the Series A preferred stock to be effective on or
before May 19, 2000 and to maintain its effectiveness for at least 12 months
thereafter. Loral has also agreed that it will refrain from selling equity
securities in the public markets for its own account until the six month
anniversary of the effective date of such registration statement.
F-40
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated financial statements of Loral Space &
Communications Ltd. (a Bermuda company) as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, and have
issued our report thereon dated February 22, 2000 (March 5, 2000 as to the
second paragraph of Note 18), included elsewhere in this Annual Report on Form
10-K. Our audits also included the financial statement schedule listed in Item
14(a)2 of this Annual Report on Form 10-K. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000
S-1
<PAGE> 98
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LORAL SPACE & COMMUNICATIONS LTD.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 99,211 $ 401,269
Other current assets...................................... 3,275 1,147
---------- ----------
Total current assets........................................ 102,486 402,416
Note receivable from unconsolidated subsidiary.............. 200,000 346,600
Investments in affiliates................................... 729,900 620,202
Investment in unconsolidated subsidiaries................... 1,985,619 1,257,827
Due from unconsolidated subsidiaries........................ 20,506 289,609
Other assets................................................ 115,256 72,277
---------- ----------
$3,153,767 $2,988,931
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities............ $ 1,958 $ 31,041
Accrued interest and preferred dividends.................. 22,787 8,928
Income taxes payable...................................... 5,019 2,844
Deferred income taxes..................................... 9,390 1,796
---------- ----------
Total current liabilities................................... 39,154 44,609
Deferred income taxes....................................... 13,949 6,819
Long-term liabilities....................................... 1,782
Long-term debt.............................................. 350,000
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 45,896,977 shares
issued................................................. 459 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued................................
6% Series C convertible redeemable preferred stock
($745,472 redemption value), $.01 par value; 20,000,000
shares authorized, 14,909,437 shares issued............ 735,437 735,437
Common stock, $.01 par value; 750,000,000 shares
authorized, 245,204,432 and 243,861,719
shares issued.......................................... 2,452 2,439
Paid-in capital........................................... 2,347,323 2,330,755
Treasury stock, at cost; 174,195 shares................... (3,360) (3,360)
Unearned compensation..................................... (1,253) (8,231)
Retained deficit.......................................... (409,301) (162,657)
Accumulated other comprehensive income.................... 78,907 40,879
---------- ----------
Total shareholders' equity.................................. 2,750,664 2,935,721
---------- ----------
$3,153,767 $2,988,931
========== ==========
</TABLE>
See note to financial statements.
S-2
<PAGE> 99
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Costs and expenses....................................... $ 45,716 $ 34,112 $ 14,123
--------- --------- --------
Operating loss........................................... (45,716) (34,112) (14,123)
Interest and investment income........................... 67,037 53,217 60,915
Interest expense......................................... 695
Gain on sale of investments, net......................... 15,494 79,591
--------- --------- --------
Income before income taxes and equity in net loss of
unconsolidated subsidiaries and affiliates............. 21,321 34,599 125,688
Income taxes............................................. 13,150 9,872 19,644
--------- --------- --------
Income before equity in net loss of unconsolidated
subsidiaries and affiliates............................ 8,171 24,727 106,044
Equity in net loss of unconsolidated subsidiaries........ (58,452) (47,041) (19,243)
Equity in net loss of affiliates......................... (151,635) (116,484) (46,797)
--------- --------- --------
Net income (loss)........................................ (201,916) (138,798) 40,004
Preferred dividends and accretion........................ (44,728) (46,425) (26,315)
--------- --------- --------
Net income (loss) applicable to common stockholders...... $(246,644) $(185,223) $ 13,689
========= ========= ========
Earnings (loss) per share:
Basic and diluted...................................... $ (0.85) $ (0.68) $ 0.06
========= ========= ========
Weighted average shares outstanding:
Basic.................................................. 290,232 273,402 242,070
========= ========= ========
Diluted................................................ 290,232 273,402 243,591
========= ========= ========
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Net income (loss)......................................... $(201,916) $(138,798) $40,004
Other comprehensive income - unrealized gains on
available-for-sale securities and accumulated
translation adjustment of subsidiaries.................. 38,028 33,604 7,275
--------- --------- -------
Comprehensive income (loss)............................... $(163,888) $(105,194) $47,279
========= ========= =======
</TABLE>
See notes to financial statements.
S-3
<PAGE> 100
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $(201,916) $(138,798) $ 40,004
Non-cash items:
Gain on investments....................................... (15,494) (79,591)
Equity in net loss of affiliates.......................... 151,635 116,484 46,797
Equity in net loss of unconsolidated subsidiaries......... 58,452 47,041 19,243
Deferred income taxes..................................... 15,636 10,359 (2,158)
Non-cash interest and investment income................... (11,451) (6,012) (1,739)
Depreciation and amortization............................. 78
Changes in operating assets and liabilities, net of
acquisitions:
Due from unconsolidated subsidiaries...................... (15,351) (44,520) (244,898)
Accounts payable and other current liabilities............ (29,083) 1,854 4,218
Accrued interest and preferred dividends.................. 13,859 (773) 3,283
Income taxes payable...................................... 2,175 (9,160) 10,741
Other..................................................... 728 (8,951) (64,630)
--------- --------- -----------
Cash used in operating activities........................... (15,316) (47,970) (268,652)
--------- --------- -----------
Investing activities:
Proceeds from the sale of investments, net of expenses.... 246,868 79,591
Investment in affiliates.................................. (250,794) (510,497) (250,496)
Investments in unconsolidated subsidiaries................ (340,979) (50,569) (144,060)
Other assets.............................................. (52,454)
--------- --------- -----------
Cash used in investing activities........................... (591,773) (314,198) (367,419)
--------- --------- -----------
Financing activities:
Proceeds from sale of common stock, net................... 601,816
(Issuance) repayment of note to unconsolidated
subsidiary.............................................. (14,211) 2,400 (349,000)
Proceeds from the issuance of 9.5% senior notes, net...... 343,875
Proceeds from other stock issuances....................... 20,095 32,121 7,338
Preferred dividends....................................... (44,728) (44,750) (25,435)
--------- --------- -----------
Cash provided by (used in) financing activities............. 305,031 591,587 (367,097)
--------- --------- -----------
(Decrease) increase in cash and cash equivalents............ (302,058) 229,419 (1,003,168)
Cash and cash equivalents -- beginning of period............ 401,269 171,850 1,175,018
--------- --------- -----------
Cash and cash equivalents -- end of period.................. $ 99,211 $ 401,269 $ 171,850
========= ========= ===========
Non-cash transactions:
Common stock issued to acquire Loral CyberStar............ $ 469,025
=========
Unrealized gain on available-for-sale securities.......... $ 38,909 $ 32,988 $ 7,275
========= ========= ===========
Contributions to capital of receivables from
unconsolidated subsidiaries............................. $ 445,265
=========
Mandatory exchange of Convertible Preferred Equivalent
Obligations............................................. $ 583,282
===========
Issuance of Series C Preferred Stock to acquire equity
interest in SS/L........................................ $ 149,600
===========
Issuance of Loral common stock to acquire equity interest
in SS/L and Globalstar partnership interests............ $ 148,387
===========
Deferred purchase price to acquire Globalstar partnership
interests............................................... $ 24,787
===========
Supplemental information:
Interest paid............................................. $ 16,071 $ 2,023 $ 22,823
========= ========= ===========
Taxes paid................................................ $ -- $ 8,586 $ 6,205
========= ========= ===========
</TABLE>
See notes to financial statements.
S-4
<PAGE> 101
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO FINANCIAL STATEMENTS
1. Loral Space & Communications Ltd. ("Loral"), a Bermuda company, is a
holding company which is the ultimate parent of all Loral subsidiaries and is
the registrant of all Loral securities. The accompanying financial statements
reflect the financial position, results of operations and cash flows of Loral on
a separate company basis. All subsidiaries of Loral are reflected as investments
accounted for under the equity method of accounting. Accordingly intercompany
payables and receivables have not been eliminated. This condensed financial
information should be read in conjunction with the consolidated financial
statements of Loral, included in Loral's Annual Report on Form 10-K for the year
ended December 31, 1999.
Loral's significant transactions with its subsidiaries other than the
investment account and related equity in net loss of unconsolidated subsidiaries
are the management fee charged by Loral SpaceCom Corporation ("SpaceCom") to
Loral and intercompany payables and receivables resulting primarily from the
funding of the construction of satellites for the Fixed Satellite Services
segment. The note receivable, which was originally due from SpaceCom relating to
the Loral Skynet acquisition, has been assumed by Loral Space & Communications
Corporation ("LSC"). The note bears interest at 8.2% per annum with the final
due date being October 1, 2008. Interest payments are deferred until October 1,
2001, when LSC will begin to make semi-annual installments of $30 million on the
last day of April and October of each year until the note is paid in full.
No cash dividends were paid to Loral by its subsidiaries or its affiliates
during the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Third Amended and Restated Bye-laws+
3.4 Schedule IV to the Third Amended and Restated Bye-laws+
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006(14)
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
</TABLE>
S-5
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1.1 Amended Shareholders Agreement dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation+
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited(14)
10.4.1 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(15)
10.4.2 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.+
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan(14)++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1997 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario
San Paolo di Torino S.p.A, individually and as Italian
Export Financing and Arranger and as Selling Bank(11)
</TABLE>
S-6
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc. and, the banks
parties thereto(14)
10.16.2 Second Amendment dated as of September 4, 1998 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.+
10.16.3 Third Amendment dated as of July 12, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.+
10.16.4 Fourth Amendment dated as of November 10, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral Satmex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.(14)
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
Satmex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited(14)
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006(14)
10.23 Guarantee and Collateral Agreement dated as of August 5,
1999, made by Loral Satcom Ltd. and Loral Satellite, Inc. in
favor of Bank of America, National Association as Collateral
Agent(16)
10.24 Lease Agreement dated as of August 18, 1999 by and between
Loral Asia Pacific Satellite (HK) Limited and APT Satellite
Company Limited(17)
10.25 Guarantee of Loral Space & Communications Ltd. dated August
18, 1999(17)
10.26 Registration Rights Agreement dated as of February 18, 2000
relating to Registrant's 6% Series D Convertible Redeemable
Preferred Stock due 2007+
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
27 Financial Data Schedule (EDGAR only)+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
S-7
<PAGE> 104
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
(15) Incorporated by reference from the Current Report on Form 8-K filed on
December 21, 1999 by Globalstar Telecommunications Limited and Globalstar,
L.P.
(16) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 6, 1999.
(17) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 23, 1999.
+ Filed herewith.
++ Management compensation plan.
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
-------------- -----------
<S> <C>
September 28, 1999 Item 5 -- Other Events Lease Agreement relating to Apstar II-R
</TABLE>
S-8
<PAGE> 1
EXHIBIT 3.3
THIRD AMENDED AND RESTATED BYE-LAWS
OF
LORAL SPACE & COMMUNICATIONS LTD.
<PAGE> 2
3.3 Third Amended and Restated Bye-Laws
Page
As adopted at the Annual
Meeting of Shareholders of the
above Company on May 18, 1999.
(ii)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTERPRETATION............................................................................................1
REGISTERED OFFICE.........................................................................................4
SHARE CAPITAL AND VARIATION OF RIGHTS.....................................................................5
SHARES....................................................................................................8
CERTIFICATES.............................................................................................10
LIEN.....................................................................................................11
CALLS ON SHARES..........................................................................................13
FORFEITURE OF SHARES.....................................................................................15
REGISTER OF SHAREHOLDERS.................................................................................18
REGISTER OF DIRECTORS AND OFFICERS.......................................................................18
TRANSFER OF SHARES.......................................................................................19
TRANSMISSION OF SHARES...................................................................................20
INCREASE OF CAPITAL......................................................................................23
ALTERATION OF CAPITAL....................................................................................23
REDUCTION OF CAPITAL.....................................................................................25
GENERAL MEETINGS.........................................................................................25
NOTICE OF GENERAL MEETINGS...............................................................................27
PROCEEDINGS AT GENERAL MEETINGS..........................................................................29
VOTING...................................................................................................35
PROXIES AND CORPORATE REPRESENTATIVES....................................................................37
</TABLE>
(i)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPOINTMENT AND REMOVAL OF DIRECTORS.....................................................................40
RESIGNATION AND DISQUALIFICATION OF DIRECTORS............................................................43
ALTERNATE DIRECTORS......................................................................................43
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES.................................................45
DIRECTORS' INTERESTS.....................................................................................46
POWERS AND DUTIES OF THE BOARD...........................................................................48
DELEGATION OF THE BOARD'S POWERS.........................................................................50
PROCEEDINGS OF THE BOARD.................................................................................52
OFFICERS.................................................................................................55
MINUTES..................................................................................................57
SECRETARY................................................................................................57
THE SEAL.................................................................................................58
DIVIDENDS AND OTHER PAYMENTS.............................................................................59
RESERVES.................................................................................................62
CAPITALIZATION OF PROFITS................................................................................62
RECORD DATES.............................................................................................64
ACCOUNTING RECORDS.......................................................................................64
AUDIT....................................................................................................65
SERVICE OF NOTICES AND OTHER DOCUMENTS...................................................................66
WINDING UP...............................................................................................67
INDEMNITY................................................................................................68
ALTERATION OF BYE-LAWS...................................................................................69
</TABLE>
(ii)
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SCHEDULE I SERIES A PREFERRED SHARES
SCHEDULE II SERIES B PREFERRED SHARES
SCHEDULE III 6% SERIES C CONVERTIBLE REDEEMABLE PREFERRED SHARES
(iii)
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THIRD AMENDED AND RESTATED
BYE-LAWS
OF
LORAL SPACE & COMMUNICATIONS LTD.
INTERPRETATION
1. In these Bye-Laws unless the context otherwise requires:
(a) "Bermuda" means the Islands of Bermuda;
(b) "Board" means the Board of Directors of the Company or the
Directors present at a meeting of Directors at which there is a quorum;
(c) "Bye-Laws" means these Second Amended and Restated Bye-Laws
in their present form or as from time to time amended;
(d) "Common Shares" means the Common Shares of par value $0.01
per share;
(e) "the Companies Acts" means every Bermuda statute from time
to time in force concerning companies insofar as the same applies to the
Company;
(f) "Company" means the company incorporated in Bermuda under
the name of LORAL SPACE & COMMUNICATIONS LTD. on the 12th day of January, 1996;
(g) "paid up" means paid up or credited as paid up;
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(h) "Preferred Shares" means the Series A Preferred Shares, the
Series B Preferred Shares and any other series of preferred shares of the
Company designated as such by Resolution adopted from time to time.
(i) "Register" means the Register of Shareholders of the
Company;
(j) "Registered Office" means the registered office for the
time being of the Company;
(k) "Resolution" means a resolution of the Shareholders or,
where required, of a separate class or separate classes of Shareholders, adopted
in general meeting in accordance with the provisions of these Bye-Laws;
(l) "Seal" means the common seal of the Company and includes
any duplicate thereof;
(m) "Secretary" includes a temporary or assistant Secretary and
any person appointed by the Board to perform any of the duties of the Secretary;
(n) "Series A Preferred Shares" means the Series A Convertible
Non-Voting Preferred Shares of par value $0.01 per share;
(o) "Series B Preferred Shares" means the Series B Preferred
Shares of par value $0.01 per share issued in
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accordance with the shareholders right plan referred to in Bye-Law 4;
(p) "Shareholder" means a shareholder or member of the Company;
(q) "shares" means Common Shares or Preferred Shares, or both,
as the case may be.
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2. For the purposes of these Bye-Laws:
(a) A corporation shall be deemed to be present in person if
its representative duly authorized pursuant to the Companies Acts is present;
(b) Words importing only the singular number include the plural
number and vice versa;
(c) Words importing only the masculine gender include the
feminine and neuter genders respectively;
(d) Words importing persons include companies or associations
or bodies of persons, whether corporate or un-incorporate;
(e) Reference to writing shall include typewriting, printing,
lithography, photography and other modes of representing or reproducing words in
a legible and non-transitory form;
(f) Any words or expressions defined in the Companies Acts in
force at the date when these Bye-Laws or any part thereof are adopted shall bear
the same meaning in these Bye-Laws or such part (as the case may be).
REGISTERED OFFICE
3. The Registered Office shall be at such place in Bermuda as the
Board shall from time to time appoint.
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SHARE CAPITAL AND VARIATION OF RIGHTS
4. (a) The respective rights and restrictions attached to the
Series A Preferred Shares, the Series B Preferred Shares and the Series C
Preferred Shares are set forth in Schedules I, II and III (as the same may be
amended from time to time) to these Bye-Laws, which Schedules shall be deemed to
be incorporated in and from part of this Bye-Law 4.
(b) In addition to the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares, the Board shall be authorized to
issue other preference shares and such shares may be issued from time to time,
in one or more series with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as may be designated by the Board prior to the issuance
of such series, and the Board is hereby expressly authorized to fix by
resolution or resolutions prior to such issuance such designations, preferences
and relative, participating, optional or other special rights, or
qualifications, limitations or restrictions, including without limiting the
generality of the foregoing, the following:
(i) the designation of such series or class;
(ii) the dividend rate of such series or class, the conditions and dates upon
which such dividends will be payable, the
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relation which such dividends will bear to the dividends payable on any
other class or classes of shares or any other series of any class of
shares of the Company, and whether such dividends will be cumulative or
non-voting;
(iii) the redemption provisions and times, prices and other terms and
conditions of such redemption, if any, for such series or class, which
may include provisions that they are to be redeemed on the happening of a
specified event or on a given date, that they are liable to be redeemed
at the option of the Company or that if authorized by the Memorandum of
Association of the Company, that they are liable to be redeemed at the
option of the holder;
(iv) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series or class;
(v) the terms and conditions, if any, on which shares of such series or class
shall be convertible into, or exchangeable for, shares of the Company or
any other securities, including the price or prices, or the rates of
exchange thereof;
(vi) the voting rights, if any;
(vii) the restrictions, if any, on the issue or reissue of any additional
preference shares; and
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(viii) the rights of the holders of such series or class upon the liquidation,
dissolution or distribution of assets of the Company.
The designations, preferences and relative, participating, optional or other
special rights or qualifications, limitations or restrictions thereof, of each
additional series, if any, may differ from those of any or all other series
outstanding.
5. The Company may adopt a scheme or arrangement (hereinafter called
a "shareholder rights plan") providing for the creation and issuance of rights
entitling the Shareholders of the Company or certain of them, to purchase from
the Company shares of any class or assets of the Company or a subsidiary of the
Company or otherwise, and the terms and conditions of such shareholder rights
plan and the rights may be amended or modified as the Directors or any committee
thereof may determine.
6. Subject to the Companies Acts, all or any of the special rights
for the time being attached to any class of shares for the time being issued
may, unless otherwise provided in the rights attaching to or by the term of
issue of the shares of that class, from time to time (whether or not the Company
is being wound up), be altered or abrogated with the sanction of a Resolution
passed at a separate general meeting of the holders of shares of that class by a
majority of the votes cast. To any
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such separate general meeting, all the provisions of these Bye-Laws as to
general meetings of the Company shall mutatis mutandis apply, but so that the
necessary quorum shall be two or more persons holding or representing by proxy
thirty-three per cent of the shares of the relevant class; provided, however,
that if the Company or a class of Shareholders shall have only one Shareholder
present in person or by proxy, one Shareholder shall constitute the necessary
quorum.
7. The special rights conferred upon the holders of any shares or
class of shares shall not, unless otherwise expressly provided in the rights
attaching to or the terms of issue of such shares, be deemed to be altered by
the creation or issue of further shares ranking pari passu therewith.
SHARES
8. (a) Subject to the provisions of these Bye-Laws, the unissued
shares of the Company (whether forming part of the original capital or any
increased capital) shall be at the disposal of the Board, which may offer,
allot, grant options over or otherwise dispose of them to such persons, at such
times and for such consideration and upon such terms and conditions as the Board
may determine.
(b) The Board may issue its shares in fractional denominations
and deal with such fractions to the same extent as
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its whole shares and shares in fractional denominations shall have in proportion
to the respective fractions represented thereby all the rights of the whole
shares including (but without limiting the generality of the foregoing) the
right to vote, to receive dividends and distributions and to participate in a
winding up.
9. The Board may in connection with the issue of any shares exercise
all powers of paying commission and brokerage conferred or permitted by law.
10. The Company shall be entitled to treat the holder of record of any
share or shares of capital stock as the holder in fact thereof. Accordingly,
except as ordered by a court of competent jurisdiction or as required by law, no
person shall be recognized by the Company as holding any share upon trust and
the Company shall not be bound by or required in any way to recognize (even when
having notice thereof) any equitable, contingent, future or partial interest in
any share or any interest in any fractional part of a share or (except only as
otherwise provided in these Bye-Laws or by law) any other right in respect of
any share except an absolute right to the entirety thereof in the registered
holder.
CERTIFICATES
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11. The shares shall be issued in registered form and shall be
evidenced by share certificates in such form as the Directors may from time to
time prescribe. The preparation, issue and delivery of share certificates shall
be governed by the Companies Acts. In the case of a share held jointly by
several persons, delivery of a certificate to one of several joint holders shall
be sufficient delivery to all.
12. If a share certificate is defaced, lost or destroyed, it may be
replaced without fee but on such terms (if any) as to evidence and indemnity and
to payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board or the
Company's transfer agent may think fit and, in case of defacement, on delivery
of the old certificate to the Company.
13. All certificates for shares (other than letters of allotment,
scrip certificates and other like documents) shall, except to the extent that
the terms and conditions for the time being relating thereto otherwise provide,
be issued under the Seal. Each certificate shall be signed by the Chairman of
the Board, President or a Vice-President and also by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be
sealed with the seal of the Company, which may be facsimile. If the certificate
is signed by either a
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transfer agent or a transfer clerk acting on behalf of the Company and a
registrar, the signature or any such officer of the Company and the signature of
a transfer agent acting on behalf of the Company may be facsimile. In the case
of any officer or officers who shall have signed, or whose facsimile signature
or signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Company, whether because of
death, resignation or otherwise, such certificate or certificates may
nevertheless be adopted by the Company and be used and delivered as though the
officer or officers who signed the said certificate or certificates or whose
facsimile signature or signature shall have been used thereon had not ceased to
be such officer or officers of the Company. The Board may by resolution
determine, either generally or in any particular case, that any signatures on
any such certificates need not be autographic but may be affixed to such
certificates by some mechanical means or may be printed thereon or that such
certificates need not be signed by any persons.
LIEN
14. The Company shall have a first and paramount lien on every share
(not being a fully paid share) for all moneys, whether presently payable or not,
called or payable, at a date fixed by or in accordance with the terms of issue
of such share
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in respect of such share, and the Company shall also have a first and paramount
lien on every share (other than a fully paid share) standing registered in the
name of a Shareholder, whether singly or jointly with any other person, for all
the debts and liabilities of such Shareholder or his estate to the Company,
whether the same shall have been incurred before or after notice to the Company
of any interest of any person other than such Shareholder, and whether the time
for the payment or discharge of the same shall have actually arrived or not, and
notwithstanding that the same are joint debts or liabilities of such Shareholder
or his estate and any other person, whether a Shareholder or not. The Company's
lien on a share shall extend to all dividends payable thereon. The Board may at
any time, either generally or in any particular case, waive any lien that has
arisen or declare any share to be wholly or in part exempt from the provisions
of this Bye-Law.
15. The Company may sell, in such manner as the Board may think fit,
any share on which the Company has a lien but no sale shall be made unless some
sum in respect of which the lien exists is presently payable nor until the
expiration of fourteen days after a notice in writing, stating and demanding
payment of the sum presently payable and giving notice of the intention to sell
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in default of such payment, has been served on the holder for the time being of
the share.
16. The net proceeds of sale by the Company of any shares on which it
has a lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is presently
payable, and any residue shall (subject to a like lien for debts or liabilities
not presently payable as existed upon the share prior to the sale) be paid to
the holder of the share immediately before such sale. For giving effect to any
such sale the Board may authorize some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of the share
and he shall not be bound to see to the application of the purchase money, nor
shall his title to the share be affected by any irregularity or invalidity in
the proceedings relating to the sale.
CALLS ON SHARES
17. The Board may from time to time make calls upon the Shareholders
in respect of any moneys unpaid on their shares (whether on account of the par
value of the shares or by way of premium) and not by the terms of issue thereof
made payable at a date fixed by or in accordance with such terms of issue, and
each Shareholder shall (subject to the Company serving upon him at
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least fourteen days' notice specifying the time or times and place of payment)
pay to the Company at the time or times and place so specified the amount called
on his shares. A call may be revoked or postponed as the Board may determine.
18. A call may be made payable by installments and shall be deemed to
have been made at the time when the resolution of the Board authorizing the call
was passed.
19. The joint holders of a share shall be jointly and severally liable
to pay all calls in respect thereof.
20. If a sum called in respect of the share shall not be paid before
or on the day appointed for payment thereof the person from whom the sum is due
shall pay interest on the sum from the day appointed for the payment thereof to
the time of actual payment at such rate as the Board may determine, but the
Board shall be at liberty to waive payment of such interest wholly or in part.
21. Any sum which, by the terms of issue of a share, becomes payable
on allotment or at any date fixed by or in accordance with such terms of issue,
whether on account of the nominal amount of the share or by way of premium,
shall for all the purposes of these Bye-Laws be deemed to be a call duly made,
notified and payable on the date on which, by the terms of issue, the same
becomes payable and, in case of non-payment, all the
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relevant provisions of these Bye-Laws as to payment of interest, forfeiture or
otherwise shall apply as if such sum had become payable by virtue of a call duly
made and notified.
22. The Board may on the issue of shares differentiate between the
allottees or holders as to the amount of calls to be paid and the times of
payment.
FORFEITURE OF SHARES
23. If a Shareholder fails to pay any call or installment of a call on
the day appointed for payment thereof, the Board may at any time thereafter
during such time as any part of such call or installment remains unpaid serve a
notice on him requiring payment of so much of the call or installment as is
unpaid, together with any interest which may have accrued.
24. The notice shall name a further day (not being less than 14 days
from the date of the notice) on or before which, and the place where, the
payment required by the notice is to be made and shall state that, in the event
of nonpayment on or before the day and at the place appointed, the shares in
respect of which such call is made or installment is payable will be liable to
be forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
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25. If the requirements of any such notice as aforesaid are not
complied with, any share in respect of which such notice has been given may at
any time thereafter, before payment of all calls or installments and interest
due in respect thereof has been made, be forfeited by a resolution of the Board
to that effect. Such forfeiture shall include all dividends declared in respect
of the forfeited shares and not actually paid before the forfeiture.
26. When any share has been forfeited, notice of the forfeiture shall
be served upon the person who was before forfeiture the holder of the share; but
no forfeiture shall be in any manner invalidated by any omission or neglect to
give such notice as aforesaid.
27. A forfeited share shall be deemed to be the property of the
Company and may be sold, re-offered or otherwise disposed of either to the
person who was, before forfeiture, the holder thereof or entitled thereto or to
any other person upon such terms and in such manner as the Board shall think
fit, and at any time before a sale, re-allotment or disposition the forfeiture
may be canceled on such terms as the Board may think fit.
28. A person whose shares have been forfeited shall thereupon cease to
be a Shareholder in respect of the forfeited shares but shall, notwithstanding
the forfeiture, remain liable
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to pay to the Company all moneys which at the date of forfeiture were presently
payable by him to the Company in respect of the shares with interest thereon at
such rate as the Board may determine from the date of forfeiture until payment,
and the Company may enforce payment without being under any obligation to make
any allowance for the value of the shares forfeited.
29. An affidavit in writing that the deponent is a Director or the
Secretary and that a share has been duly forfeited on the date stated in the
affidavit shall be conclusive evidence of the facts therein stated as against
all persons claiming to be entitled to the share. The Company may receive the
consideration (if any) given for the share on the sale, re-allotment or
disposition thereof and the Board may authorize some person to transfer the
share to the person to whom the same is sold, re-allotted or disposed of, and he
shall thereupon be registered as the holder of the share and shall not be bound
to see to the application of the purchase money (if any) nor shall his title to
the share be affected by any irregularity or invalidity in the proceedings
relating to the forfeiture, sale, re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
30. The Register of Shareholders of the Company containing the names
and addresses of the Shareholders and the number of
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shares held by them respectively, shall be kept in the manner prescribed by the
Companies Acts at the Registered Office by the Secretary or at the offices of
the transfer agent of the Company or at such other location as may be authorized
by the Board from time to time. Unless the Board otherwise determines, the
Register of Shareholders shall be open to inspection at the Registered Office of
the Company in the manner prescribed by the Companies Acts between 10:00 a.m.
and 12:00 noon on every working day. Unless the Board so determines, no
Shareholder or intending Shareholder shall be entitled to have entered in the
Register any indication of any trust or any equitable, contingent, future or
partial interest in any share or any interest in any fractional part of a share
and if any such entry exists or is permitted by the Board it shall not be deemed
to abrogate any provisions of Bye-Law 10.
REGISTER OF DIRECTORS AND OFFICERS
31. The Secretary shall establish and maintain a register of the
Directors and Officers of the Company as required by the Companies Acts. The
register of Directors and Officers shall be open to inspection in the manner
prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon on every
working day.
TRANSFER OF SHARES
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32. Subject to the Companies Acts and to such of the restrictions
contained in these Bye-Laws as may be applicable, any Shareholder may transfer
all or any of his shares by an instrument of transfer in the usual common form
or in any other form which the Board may approve or in accordance with the
general rules and standard practices of any exchange on which such shares are
then listed.
33. The instrument of transfer of a share shall be signed by or on
behalf of the transferor and where any share is not fully paid the transferee,
and the transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company. The
Board may, in its absolute discretion and without assigning any reason therefor,
decline to register any transfer of any share which is not a fully-paid share.
The Board may also decline to register any transfer unless:
(a) the instrument of transfer is duly stamped, if required,
and lodged with the Company, accompanied by the certificate for the shares to
which it relates, and such other evidence as the Board may reasonably require to
show the right of the transferor to make the transfer,
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(b) the instrument of transfer is in respect of only one class
of share,
(c) where applicable, the permission of the Bermuda Monetary
Authority with respect thereto has been obtained. Subject to any directions of
the Board from time to time in force, the Secretary may exercise the powers and
discretions of the Board under this Bye-Law and Bye-Laws 32 and 34.
34. If the Board declines to register a transfer it shall, within
three months after the date on which the instrument of transfer was lodged, send
to the transferee notice of such refusal.
35. No fee shall be charged by the Company for registering any
transfer, probate, letters of administration, certificate of death or marriage,
power of attorney, distringas or stop notice, order of court or other instrument
relating to or affecting the title to any share, or otherwise making an entry in
the Register relating to any share.
TRANSMISSION OF SHARES
36. In the case of the death of a Shareholder, the survivor or
survivors, where the deceased was a joint holder, and the estate representative,
where he was sole holder, shall be the only person recognized by the Company as
having any title to his shares; but nothing herein contained shall release the
estate of
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a deceased holder (whether the sole or joint) from any liability in respect of
any share held by him solely or jointly with other persons. For the purpose of
this Bye-Law, estate representative means the person to whom probate or letters
of administration has or have been granted in Bermuda or, failing any such
person, such other person as the Board may in its absolute discretion determine
to be the person recognized by the Company for the purpose of this Bye-Law.
37. Any person becoming entitled to a share in consequence of the
death of a Shareholder or otherwise by operation of applicable law may, subject
as hereafter provided and upon such evidence being produced as may from time to
time be required by the Board as to his entitlement, either be registered
himself as the holder of the share or elect to have some person nominated by him
registered as the transferee thereof. If the person so becoming entitled elects
to be registered himself, he shall deliver or send to the Company a notice in
writing signed by him stating that he so elects. If he shall elect to have his
nominee registered, he shall signify his election by signing an instrument of
transfer of such share in favor of his nominee. All the limitations,
restrictions and provisions of these Bye-Laws relating to the right to transfer
and the registration of transfer of shares shall be applicable to any such
notice or
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instrument of transfer as aforesaid as if the death of the Shareholder or other
event giving rise to the transmission had not occurred and the notice or
instrument of transfer was an instrument of transfer signed by such Shareholder.
38. A person becoming entitled to a share in consequence of the death
of a Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board as to
his entitlement) be entitled to receive and may give a discharge for any
dividends or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or vote at
general meetings of the Company or, save as aforesaid, to exercise in respect of
the share any of the rights or privileges of a Shareholder until he shall have
become registered as the holder thereof. The Board may at any time give notice
requiring such person to elect either to be registered himself or to transfer
the share and if the notice is not complied with within sixty days the Board may
thereafter withhold payment of all dividends and other moneys payable in respect
of the shares until the requirements of the notice have been complied with.
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39. Subject to any directions of the Board from time to time in force,
the Secretary may exercise the powers and discretions of the Board under
Bye-Laws 36, 37 and 38.
INCREASE OF CAPITAL
40. The Company may from time to time increase its capital by such sum
to be divided into shares of such par value as the Company by Resolution shall
prescribe.
41. The Company may, by the Resolution increasing the capital, direct
that the new shares or any of them shall be offered in the first instance either
at par or at a premium or (subject to the provisions of the Companies Acts) at a
discount to all the holders for the time being of shares of any class or classes
in proportion to the number of such shares held by them respectively or make any
other provision as to the issue of the new shares.
42. The new shares shall be subject to all the provisions of these
Bye-Laws with reference to lien, the payment of calls, forfeiture, transfer,
transmission and otherwise.
ALTERATION OF CAPITAL
43. The Company may from time to time by Resolution:
(a) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special rights, privileges
or conditions;
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(b) consolidate and divide all or any of its share capital into
shares of larger par value than its existing shares;
(c) sub-divide its shares or any of them into shares of smaller
par value than is fixed by its memorandum, so, however, that in the sub-division
the proportion between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived;
(d) make provision for the issue and allotment of shares which
do not carry any voting rights;
(e) cancel shares which, at the date of the passing of the
Resolution in that behalf, have not been taken or agreed to be taken by any
person, and diminish the amount of its share capital by the amount of the shares
so canceled; and
(f) change the denomination of its share capital. Where any
difficulty arises in regard to any division, consolidation, or sub-division
under this Bye-Law, the Board may settle the same as it thinks expedient and, in
particular, may arrange for the sale of the shares representing fractions and
the distribution of the net proceeds of sale in due proportion amongst the
Shareholders who would have been entitled to the fractions, and for this purpose
the Board may authorize some person to transfer the shares representing
fractions to the
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purchaser thereof, who shall not be bound to see to the application of the
purchase money nor shall his title to the shares be affected by any irregularity
or invalidity in the proceedings relating to the sale.
44. Subject to the Companies Acts and to any confirmation or consent
required by law or these Bye-Laws, the Company may by Resolution from time to
time convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
45. Subject to the Companies Acts, its memorandum and any confirmation
or consent required by law or these Bye-Laws, the Company may from time to time
by Resolution authorize the reduction of its issued share capital or any capital
redemption reserve fund or any share premium or contributed surplus account in
any manner.
46. In relation to any such reduction, the Company may by Resolution
determine the terms upon which such reduction is to be effected including in the
case of a reduction of part only of a class of shares, those shares to be
affected.
GENERAL MEETINGS
47. (a) The Board shall convene and the Company shall hold general
meetings as Annual General Meetings in accordance with the requirements of the
Companies Acts at such times and places
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as the Board shall appoint. The Board may, whenever it thinks fit, and shall, at
the written request of shareholders holding not less than 10% of the paid-up
capital of the Company carrying the right to vote at such proposed meeting,
convene general meetings other than Annual General Meetings which shall be
called Special General Meetings. With respect to Special General Meetings, any
written request by a Shareholder under the Act shall not be valid unless it
states the purpose of the proposed meeting and is delivered to the Chairman of
the Board at the registered office of the Company no less than six weeks nor
more than ten weeks prior to the date proposed for such meeting or the latest
date at which such meeting must be held at the request of such shareholders
pursuant to the provisions of the Companies Act and shall otherwise comply with
the provisions of U.S. securities laws. Any Shareholder's notice relating to the
conduct of business other than the election of Directors must contain certain
information about such business and about the proposing Shareholders including,
without limitation, a brief description of the business such Shareholder
proposed to bring before the meeting, the reasons for conducting such business
at such meeting, the name and address of such shareholder, the class and number
of shares of the Company beneficially owned by the such Shareholder, and any
material interest of such Shareholder in the
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business so proposed. If the Chairman of the Board or other officer presiding at
such meeting determines that any business brought before a meeting was not
brought in accordance with the provisions set forth above, such business will
not be conducted at the meeting.
(b) Until such time as the appointment by the Company of a
resident representative under section 130 (2) of the Companies Act becomes
effective, the Company may act by resolution in writing signed by all the
shareholders who at the date of such resolution would be entitled to attend a
shareholder meeting. Thereafter, the taking of shareholder action by way of
written resolution shall be expressly prohibited.
NOTICE OF GENERAL MEETINGS
48. An Annual General Meeting shall be called by not less than 20
days' notice in writing and a Special General Meeting shall be called by not
less than 30 days' notice in writing. The notice shall be exclusive of the day
on which it is served or deemed to be served and of the day for which it is
given, and shall specify the place, day and time of the meeting, and, in the
case of a Special General Meeting, the general nature of the business to be
considered. Notice of every general meeting shall be given in any manner
permitted by Bye-Laws 124, 125 and 126 to
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all Shareholders other than those which, under the provisions of these Bye-Laws
or the terms of issue of the shares they hold, are not entitled to receive such
notice from the Company. Notwithstanding that a meeting of the Company is called
by shorter notice than that specified in this Bye-Law, it shall be deemed to
have been duly called if it is so agreed:
(i) in the case of a meeting called as an Annual General Meeting, by all the
shareholders entitled to attend and vote thereat;
(ii) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting, being a
majority together holding not less than 95% in nominal value of the
shares giving that right.
49. The accidental omission to give notice of a meeting or (in cases
where instruments of proxy are sent out with the notice) the accidental omission
to send such instrument of proxy to, or the non-receipt of notice of a meeting
or such instrument of proxy by, any person entitled to receive such notice shall
not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
50. (a) No business shall be transacted at any Annual General
Meeting of the Shareholders unless such business has been brought before the
meeting by, or at the direction of the
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Chairman of the Board or by Shareholders who have given written notice of their
intent to bring such business before the meeting not less than 6 weeks nor more
than 10 weeks prior to the first anniversary of the previous year's Annual
General Meeting. No business shall be transacted at any special general meeting
of the Shareholders unless such business has been stated in the notice of such
meeting sent to the Shareholders prior to the meeting.
(b) No business shall be transacted at any general meeting
unless a quorum is present when the meeting proceeds to business, but the
absence of a quorum shall not preclude the appointment, choice or election of a
chairman which shall not be treated as part of the business of the meeting. Save
as otherwise provided by these Bye-Laws, Shareholders together representing in
person or by proxy and entitled to vote more than 50% of the voting capital of
the Company shall be a quorum for all purposes; provided, however, that if the
Company shall have only one Shareholder, one Shareholder present in person or by
proxy shall constitute the necessary quorum.
51. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the meeting, a
quorum is not present, the meeting, if convened on the requisition of
Shareholders, shall be
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dissolved. In any other case, it shall stand adjourned to such other day and
such other time and place as the chairman of the meeting may determine, without
notice other than announcement at the meeting, until a quorum shall be present.
At such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
called.
52. Except as otherwise provided in these Bye-Laws and subject to the
provisions of the Companies Act, any question proposed for the consideration by
the Shareholders shall be decided on by a simple majority of the votes cast by
Shareholders entitled to vote at such meeting.
53. (a) Notwithstanding the provisions of these Bye-laws, the
affirmative vote of Shareholders holding at least 80% of the shares of the
Company carrying voting rights then outstanding shall be necessary to approve
any Business Combination proposed by an Interested Shareholder, as these terms
are defined below, provided that such additional voting requirement shall not
apply if: (i) the Business Combination was approved by not less than a majority
of the Continuing Directors (as defined below) or (ii) a series of conditions
are satisfied requiring (1) that the consideration to be paid to the Company's
Shareholders in the Business Combination must be at least equal to the higher of
(x)
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the highest per-share price paid by the Interested Shareholder in acquiring any
Common Shares during the two years prior to the announcement date of the
Business Combination or in the transaction in which it became an Interested
Shareholder (the "Determination Date"), whichever is higher or (y) the fair
market value per Common Shares on the announcement date or Determination Date,
whichever is higher, in either case appropriately adjusted for any shares
dividend, stock split, combination of shares or similar event (any non-cash
consideration is treated similarly) and (2) certain "procedural" requirements
are complied with, such as the solicitation of proxies pursuant to the rules of
the Securities and Exchange Commission and no decrease in regular dividends (if
any) after the Interested Shareholder became an Interested Shareholder (except
as approved by a majority of the Continuing Directors).
(b) An "Interested Shareholder" is defined as anyone who is the
beneficial owner of more than 15% shares carrying voting rights, other than the
Company and any employee stock plans sponsored by the Company, and includes any
person who is an assignee of, or has succeeded to any voting shares in a
transaction not involving a public offering that were at any time within the
prior two-year period beneficially owned by, an Interested Shareholder. The term
"beneficial owner" includes
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persons directly and indirectly owning or having the right to acquire or vote
the shares. Interested Shareholders participate fully in all shareholder voting.
(c) A "Business Combination" includes the following
transactions: (i) merger or consolidation of the Company or subsidiary with an
Interested Shareholder or with any other corporation or entity which is, or
after such merger or consolidation would be, an affiliate of an Interested
Shareholder; (ii) the sale or other disposition by the Company or subsidiary of
assets having a fair market value of $5,000,000 or more if an Interested
Shareholder (or an affiliate thereof) is a party to the transaction; (iii) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company proposed by or on behalf of an Interested Shareholder (or an affiliate
thereof); or (iv) any reclassification of securities, recapitalization, merger
with a subsidiary, or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of any class of the
outstanding shares (or securities convertible into shares) of the Company or a
subsidiary owned by an Interested Shareholder (or an affiliate thereof).
Determinations of the fair market value of any non-cash consideration are made
by a majority of the Continuing Directors.
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(d) As used in these Bye-Laws, the term "Continuing Directors",
means any member of the Board of Directors of the Company, while such person is
a member of the Board, who is not an affiliate or associate or representative of
the Interested Shareholder and was a member of the Board prior to the time that
the Interested Shareholder became an Interested Shareholder, and any successor
of a Continuing Director while such successor is a member of the Board, who is
not an affiliate or associate or representative of the Interested Shareholder
and is recommended or elected to succeed the Continuing Director by a majority
of Shareholder Continuing Directors.
54. A meeting of the Shareholders or any class thereof may be held by
means of such telephone, electronic or other communication facilities as permit
all persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
55. Each Director shall be entitled to attend and speak at any general
meeting of the Company.
56. The Chairman (if any) of the Board or, in his absence, the
President shall preside as chairman at every general meeting. If there is no
such Chairman or President, or if at any meeting neither the Chairman nor the
President is present within five
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minutes after the time appointed for holding the meeting, or if neither of them
is willing to act as chairman, the Directors present shall choose one of their
number to act or if one Director only is present he shall preside as chairman if
willing to act. If no Director is present or if each of the Directors present
declines to take the chair, the persons present and entitled to vote on a poll
shall elect one of their number to be chairman.
57. The chairman of the meeting may, with the consent of any meeting
at which a quorum is present (and shall if so directed by the meeting), adjourn
the meeting from time to time and from place to place but no business shall be
transacted at any adjourned meeting except business which might lawfully have
been transacted at the meeting from which the adjournment took place. When a
meeting is adjourned for three months or more, notice of the adjourned meeting
shall be given as in the case of an original meeting.
58. Save as expressly provided by these Bye-Laws, it shall not be
necessary to give any notice of an adjournment or of the business to be
transacted at an adjourned meeting.
VOTING
59. Save where a greater majority is required by the Companies Acts or
these Bye-Laws, any question proposed for
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consideration at any general meeting shall be decided as set forth in Bye-Law 52
above.
60. At any general meeting, a Resolution put to the vote of the
meeting shall be decided on a poll in accordance with the provisions of the
Companies Act.
61. Each Shareholder present in person or by proxy shall have one vote
for each share held. The result of the poll shall be deemed to be the Resolution
of the meeting at which the poll demanded.
62. Votes may be cast either personally or by proxy.
63. A person entitled to more than one vote need not use all his
votes or cast all the votes he uses in the same way.
64. In the case of an equality of votes at a general meeting, the
chairman of such meeting shall not be entitled to a second or casting vote.
65. In the case of joint holders of a share, the vote of the senior
who tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the
Register in respect of the joint holdings.
66. A Shareholder who is a patient for any purpose of any statute or
applicable law relating to mental health or in respect
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of whom an order has been made by any Court having jurisdiction for the
protection or management of the affairs of persons incapable of managing their
own affairs may vote, whether on a show of hands or on a poll, by his receiver,
committee, curator bonis or other person in the nature of a receiver, committee
or curator bonis appointed by such Court and such receiver, committee, curator
bonis or other person may vote on a poll by proxy, and may otherwise act and be
treated as such Shareholder for the purpose of general meetings.
67. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums presently
payable by him in respect of shares in the Company have been paid.
68. If (i) any objection shall be raised to the qualification of any
voter or (ii) any votes have been counted which ought not to have been counted
or which might have been rejected or (iii) any votes are not counted which ought
to have been counted, the objection or error shall not vitiate the decision of
the meeting or adjourned meeting on any Resolution unless the same is raised or
pointed out at the meeting or, as the case may be, the adjourned meeting at
which the vote objected to is given or tendered or at which the error occurs.
Any objection or error shall be referred to the chairman of the
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meeting and shall only vitiate the decision of the meeting on any Resolution if
the chairman decides that the same may have affected the decision of the
meeting. The decision of the chairman on such matters shall be final and
conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
69. The instrument appointing a proxy shall be in writing under the
hand of the appointor or of his attorney authorized by him in writing or, if the
appointor is a corporation, either under its seal or under the hand of an
officer, attorney or other person authorized to sign the same.
70. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office a proxy or (if a
corporation) an authorization and such proxy or authorization shall be valid for
all general meetings and adjournments thereof as the case may be, until notice
of revocation is received at the Registered Office. Where a standing proxy or
authorization exists, its operation shall be deemed to have been suspended at
any general meeting or adjournment thereof at which the Shareholder is present
or in respect to which the Shareholder has specially appointed a proxy or
representative. The Board may from time to time require such evidence as it
shall be necessary as to the due execution and continuing validity of any such
standing proxy or authorization
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and the operation of any such standing proxy or authorization shall be deemed to
be suspended until such time as the Board determines that it has received the
requested evidence or other evidence satisfactory to it.
71. Subject to Bye-Law 70, the instrument appointing a proxy together
with such other evidence as to its due execution as the Board may from time to
time require, shall be delivered at the Registered Office (or at such place as
may be specified in the notice convening the meeting or in any notice of any
adjournment or, in either case, in any document sent therewith) prior to the
holding of the relevant meeting or adjourned meeting at which the person named
in the instrument proposes to vote or, in the case of a poll taken subsequently
to the date of a meeting or adjourned meeting, before the time appointed for the
taking of the poll and in default the instrument of proxy shall not be treated
as valid.
72. Instruments of proxy shall be in any common form or in such other
form as the Board may approve and the Board may, if it thinks fit, send out with
the notice of any meeting forms of instruments of proxy for use at that meeting.
The instrument of proxy shall be deemed to confer authority to demand or join in
demanding a poll and to vote on any amendment of a Resolution put to the meeting
for which it is given as the proxy think fit. The
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instrument of proxy shall unless the contrary is stated therein be valid as well
for any adjournment of the meeting as for the meeting to which it relates.
73. A vote given in accordance with the term of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the principal,
or revocation of the instrument of proxy or of the authority under which it was
executed, provided that no instrument in writing of such death, insanity or
revocation shall have been received by the Company at the Registered Office (or
such other place as may be specified for the delivery of instruments of proxy in
the notice convening the meeting or other documents sent therewith) one hour at
least before the commencement of the meeting or adjourned meeting, or the taking
of the poll.
74. Subject to the Companies Acts, the Board may at its discretion
waive any of the provisions of these Bye-Laws related to proxies or
authorizations and, in particular, may accept such verbal or other assurances as
it thinks fit as to the right of any person to attend and vote on behalf of any
Shareholder at general meetings.
APPOINTMENT AND REMOVAL OF DIRECTORS
75. The number of Directors shall be such number not less than two nor
more than 15 as the Company by Resolution may from
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time to time determine and shall serve unless removed until their successors are
appointed in accordance with the provisions of these Bye-Laws.
76. Nominations of persons for election to the Board at an Annual
General Meeting may be made by the Board and any number of Shareholders holding
at least 5% of the total voting rights of all Shareholders or no less than 100
Shareholders who have given written notice to the Secretary of the Company not
less than 6 weeks nor more than 10 weeks prior to the anniversary of the
previous year's Annual General Meeting, provided that no person other than a
Director whose term shall have expired at an Annual General Meeting shall be
eligible for election by the Shareholders unless the person has been recommended
by the Directors in the notice of Annual General Meeting sent to the
Shareholders.
77. Any Shareholder's notice to the Company proposing to nominate a
person for election as a Director must contain the identity and address of the
nominating shareholder, the class and number of shares of the Company which are
owned by such Shareholder and all information regarding the proposed nominee
that would be required to be included in a proxy statement soliciting proxies
for the proposed nominee and such other information as shall be necessary to
enable the Board to evaluate
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the proposed nomination. If the Chairman of the Board or other officer presiding
at a meeting determines that a person was not nominated in accordance with the
provisions set forth above, such person will not be eligible for election as a
Director.
78. The Directors shall be divided into three classes, as nearly equal
to in number as possible. One class of Directors shall be elected for term
expiring at the Annual General Meeting of the Shareholders to be held in 1997,
another class shall be elected for a term expiring at the Annual General Meeting
of the shareholders to be held in 1998, and another class shall be elected for a
term expiring at the Annual General Meeting of the Shareholders to be held in
1999. Members of each class shall hold office unless earlier removed until their
successors are elected or appointed. At each succeeding Annual General Meeting
the successors of the class of Directors whose term expires at the meeting shall
be elected by a majority vote of all votes cast at such meeting to hold office
for a term expiring at the Annual General Meeting of the Shareholders held in
the third year following the year of their election.
79. The Company shall at the Annual General Meeting and may by
Resolution determine the number of Directors and may by Resolution determine
that one or more vacancies in the Board shall be deemed casual vacancies for the
purposes of these Bye-
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Laws. Without prejudice to the power of the Company by Resolution in pursuance
of any of the provisions of these Bye-Laws to appoint any person to be a
Director, any vacancy on the Board may be filled by the Directors, so long as a
quorum of Directors remains in office.
80. Directors may be removed by the vote of the Shareholders at a
Special General Meeting specifically called for that purpose and only for cause.
A Director may not be removed at a Special General Meeting unless notice of any
such meeting shall have been served upon the Director concerned not less than 14
days before the meeting and such Director has been given an opportunity to be
heard at that meeting. Any Resolution contemplating the removal of any Director
must be adopted by Shareholders holding not less than eighty percent (80%) of
the shares of the Company at the time in issue and outstanding and entitled to
vote generally in the election of Directors. 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 such
election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
81. The office of a Director shall be vacated upon the happening of
any of the following events:
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(a) if he resigns his office by notice in writing delivered to
the Registered Office or tendered at a meeting of the Board;
(b) if he becomes of unsound mind or a patient for any purpose
of any statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he ceases to be a Director by virtue of the Companies
Acts or is removed from office pursuant to these Bye-Laws.
ALTERNATE DIRECTORS
82. The Company may by Resolution elect any person or persons
to act as Directors in the alternative to any of the Directors or may authorize
the Board to appoint such Alternate Directors and a Director may appoint and
remove his own Alternate Director. Any appointment or removal of an Alternate
Director by a Director shall be effected by depositing a notice of appointment
or removal with the Secretary at the Registered Office, signed by such Director,
and such appointment or removal shall become effective on the date of receipt by
the Secretary. Any Alternate Director may be removed by Resolution of the
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Company and, if appointed by the Board, may be removed by the Board. Subject as
aforesaid, the office of Alternate Director shall continue until the next annual
election of Directors or, if earlier, the date on which the relevant Director
ceases to be a Director. An Alternate Director may also be a Director in his own
right and may act as alternate to more than one Director.
83. An Alternate Director shall be entitled to receive notices of all
meetings of Directors, to attend, be counted in the quorum and vote at any such
meeting at which any Director to whom he is alternate is not personally present,
and generally to perform all the functions of any Director to whom he is
alternate in his absence.
84. Every person acting as an Alternate Director shall (except as
regards powers to appoint an alternate and remuneration) be subject in all
respects to the provisions of these Bye-Laws relating to Directors and shall
alone be responsible to the Company for his acts and defaults and shall not be
deemed to be the agent of or for any Director for whom he is alternate. An
Alternate Director may be paid expenses and shall be entitled to be indemnified
by the Company to the same extent mutatis mutandis as if he were a Director.
Every person acting as an Alternate Director shall have one vote for each
Director for whom he acts as alternate (in addition to his own
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vote if he is also a Director). The signature of an Alternate Director to any
resolution in writing of the Board or a committee of the Board shall, unless the
terms of his appointment provides to the contrary, be as effective as the
signature of the Director or Directors to whom he is alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
85. The amount, if any, of Directors' fees shall from time to time be
determined by the Board and in the absence of a determination to the contrary,
such fees shall be deemed to accrue from day to day. Each Director may be paid
his reasonable traveling, hotel and incidental expenses in attending and
returning from meetings of the Board or committees constituted pursuant to these
Bye-Laws or general meetings and shall be paid all expenses properly and
reasonably incurred by him in the conduct of the Company's business or in the
discharge of his duties as a Director. Any Director who, by request, goes or
resides abroad for any purposes of the Company or who performs services which in
the opinion of the Board go beyond the ordinary duties of a Director may be paid
such extra remuneration (whether by way of salary, commission, participation in
profits or otherwise) as the Board may determine, and such extra remuneration
shall be in addition to any remuneration provided for by or pursuant to any
other Bye-Law.
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DIRECTORS' INTERESTS
86. (a) A Director may hold any other office or place of profit with
the Company (except that of auditor) in conjunction with his office of Director
for such period and upon such terms as the Board may determine, and may be paid
such extra remuneration therefor (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration provided for by or
pursuant to any other Bye-Law.
(b) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he or his firm shall be
entitled to remuneration for professional services as if he were not a Director.
(c) Subject to the provisions of the Companies Acts, a Director
may notwithstanding his office be a party to, or otherwise interested in, any
transaction or arrangement with the Company or in which the Company is otherwise
interested; and be a Director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested in, any body
corporate promoted by the Company or in which the Company is interested. The
Board may also cause the voting power conferred by the shares in any other
Company held or owned by the Company
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to be exercised in such manner in all respects as it thinks fit, including the
exercise thereof in favor of any resolution appointing the Directors or any of
them to be Directors or officers of such other company, or voting or providing
for the payment of remuneration to the Directors or officers of such other
company.
(d) So long as, where it is necessary, he declares the nature
of his interest at the first opportunity at a meeting of the Board or by writing
to the Directors as required by the Companies Acts, a Director shall not by
reason of his office be accountable to the Company for any benefit which he
derives from any office or employment to which these Bye-Laws allow him to be
appointed or from any transaction or arrangement in which these Bye-Laws allow
him to be interested, and no such transaction or arrangement shall be liable to
be avoided on the ground of any interest or benefit.
(e) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a Director or officer
declaring that he is a Director or officer or has an interest in a person and is
to be regarded as interested in any transaction or arrangement made with that
person, shall be a sufficient declaration of interest in relation to any
transaction or arrangement so made.
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POWERS AND DUTIES OF THE BOARD
87. Subject to the provisions of the Companies Acts and these
Bye-Laws, the Board shall manage the business of the Company and may pay all
expenses incurred in promoting and incorporating the Company and may exercise
all the powers of the Company. No alteration of these Bye-Laws shall invalidate
any prior act of the Board which would have been valid if that alteration had
not been made. The powers given by this Bye-Laws shall not be limited by any
special power given to the Board by these Bye-Laws and a meeting of the Board at
which a quorum is present shall be competent to exercise all the powers,
authorities and discretions for the time being vested in or exercisable by the
Board.
88. The Board may exercise all the powers of the Company to borrow
money and to mortgage or charge all or any part of the undertaking, property and
assets (present and future) and uncalled capital of the Company and to issue
debentures and other securities, whether outright or as collateral security for
any debt, liability or obligation of the Company or of any other persons.
89. All checks, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts for
money paid to the Company shall be signed,
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drawn, accepted, endorsed or otherwise executed, as the case may be, in such
manner as the Board shall from time to time by resolution determine.
90. The Board on behalf of the Company may provide benefits, whether
by the payment of gratuities or pensions or otherwise, for any person including
any Director or former Director who has held any executive office or employment
with the Company or with any body corporate which is or has been a subsidiary or
affiliate of the Company or a predecessor in the business of the Company or of
any such subsidiary or affiliate, and to any member of his family or any person
who is or was dependent on him, and may contribute to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or other benefit, or
for the insurance of any such person.
91. The Board may from time to time appoint one or more of its body to
hold an executive office with the Company for such period and upon such terms as
the Board may determine and may revoke or terminate any such appointments. Any
such revocation or termination as aforesaid shall be without prejudice to any
claim for damages that such Director may have against the Company or the Company
may have against such Director for any breach of any contract of service between
him and the Company which may be involved in such revocation or termination. Any
person so
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appointed shall receive such remuneration (if any) (whether by way of salary,
commission, participation in profits or otherwise) as the Board or any committee
thereof may determine, and either in addition to or in lieu of his remuneration
as a Director.
DELEGATION OF THE BOARD'S POWERS
92. The Board may by power of attorney appoint any company, firm or
person or any fluctuating body of persons, whether nominated directly or
indirectly by the Board, to be the attorney or attorneys of the Company for such
purposes and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the Board under these Bye-Laws) and for such period
and subject to such conditions as it may think fit, and any such power of
attorney may contain such provisions for the protection and convenience of
persons dealing with any such attorney and of such attorney as the Board may
think fit, and may also authorize any such attorney to sub-delegate all or any
of the powers, authorities and discretions vested in him.
93. The Board may entrust to and confer upon any Director or officer
any of the powers exercisable by it upon such terms and conditions with such
restrictions as it thinks fit, and either collaterally with, or to the exclusion
of, its own powers, and may from time to time revoke or vary all or any of such
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powers but no person dealing in good faith and without notice of such revocation
or variation shall be affected thereby.
94. The Board may delegate any of its powers, authorities and
discretions to committees, consisting of such person or persons (whether a
member or members of its body or not) as it thinks fit. Any committee so formed
shall, in the exercise of the powers, authorities and discretions so delegated,
conform to any regulations which may be imposed upon it by the Board.
PROCEEDINGS OF THE BOARD
95. The Board may meet for the dispatch of business, adjourn and
otherwise regulate its meetings as it thinks fit. Questions arising at any
meeting shall be determined by a majority of the votes cast. In the case of an
equality of votes the motions shall be deemed to have been lost. A Director may,
and the Secretary on the requisition of a Director shall, at any time summon a
meeting of the board.
96. Notice of a meeting of the board shall be deemed to be duly given
to a Director if it is given to him personally or by word of mouth or sent to
him by post, cable, telex, telecopier or other mode of representing or
reproducing words in a legible and non-transitory form at his last known address
or any other address given by him to the Company for this purpose. A Director
may waive notice of any meeting either prospectively or
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retroactively or at such meeting to which the notice would have applied.
97. (a) The quorum necessary for the transaction of business at any
meeting of the Board shall be two individuals until such time as the appointment
by the Company of a resident representative under section 130(2) of the
Companies Acts becomes effective. Thereafter, the quorum shall be a majority of
the Board. Any Director who ceases to be a Director at a meeting of the Board
may continue to be present and to act as a Director and be counted in the quorum
until the termination of the meeting if no other Director objects and if
otherwise a quorum of Directors would not be present.
(b) A Director who to his knowledge is in any way, whether
directly or indirectly, interested in a contract or proposed contact,
transaction or arrangement with the Company and has complied with the provisions
of the Companies Acts and these Bye-Laws with regard to disclosure of his
interest shall be entitled to vote in respect of any contract, transaction or
arrangement in which he is so interested and if he shall do so his vote shall be
counted, and he shall be taken into account in ascertaining whether a quorum is
present.
98. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the
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Board but, if no such quorum remains, the continuing Directors or a sole
continuing Director may act only for the purpose of calling a general meeting.
99. The Chairman (if any) of the Board or, in his absence, the
President shall preside as chairman at every meeting of the Board. If there is
no such Chairman or President, or if at any meeting the Chairman or the
President is not present within five minutes after the time appointed for
holding the meeting, or is not willing to act as chairman, the Directors present
may choose one of their number to be chairman of the meeting.
100. The meetings and proceedings of any committee consisting of two or
more members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
applicable and are not superseded by any regulations imposed by the Board.
101. A resolution in writing signed by all the Directors for the time
being entitled to receive notice of a meeting of the Board or by all the members
of a committee for the time being shall be as valid and effectual as a
resolution passed at a meeting of the Board or, as the case may be, of such
committee duly called and constituted. Such resolution may be contained in one
document or in several documents in the like form each signed
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by one or more of the Directors or members of the committee concerned.
102. A meeting of the Board or a committee appointed by the Board may
be held by means of such telephone, electronic or other communication facilities
as permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a meeting
shall constitute presence in person at such meeting.
103. All acts done by the Board or by any committee or by any person
acting as a Director or member of a committee or any person duly authorized by
the Board or any committee, shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of any member of the
Board or such committee or person acting as aforesaid or that they or any of
them were disqualified or had vacated their office, be as valid as if every such
person had been duly appointed and was qualified and had continued to be a
Director, member of such committee or person so authorized.
OFFICERS
104. (a) The officers of the Company shall include a President and a
Vice-President or a Chairman of the Board of Directors and a Deputy Chairman who
shall be Directors and, subject to Bye-Law 104(c) below, who may be elected by
the Board
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as soon as possible after each Annual General Meeting. In addition, the Board
may appoint any person whether or not he is a Director to hold such office as
the Board may from time to time determine. Any person elected or appointed
pursuant to this Bye-Law shall hold office for such period and upon such terms
as the Board may determine and the Board may revoke or terminate any such
election or appointment with or without cause, at any time by the affirmative
vote of a majority of the Directors then in office. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board. Any such
revocation or termination shall be without prejudice to any claim for damages
that such officer may have against the Company or the Company may have against
such officer for any breach of any contract of service between him and the
Company which may be involved in such revocation or termination. Save as
provided in the Companies Acts or these Bye-Laws, the powers and duties of the
officers of the Company shall be such (if any) as are determined from time to
time by the Board.
(b) Any officer may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein and, if
no time be specified at the time of its receipt by the president, vice-president
or secretary, the
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acceptance of which resignation shall not be necessary to make it effective.
(c) Until such time as the appointment by the Company of a
resident representative under section 130 (2) of the Companies Act becomes
effective, the Shareholder of the Company may appoint the officers of the
Company upon such terms and conditions as the Shareholder may determine.
(d) The salaries of the Chairman of the Board, the Chairman of
the Executive Committee, if any, the President, any Vice-President, the
Secretary and the Treasurer shall be fixed by the Board. The salaries of all
other officers and agents of the Company shall be fixed by the Board or by such
officer or officers as the Board may designate.
MINUTES
105. The Directors shall cause minutes to be made and books kept for
the purpose of recording:
(a) all appointments of officers made by the Directors;
(b) the names of the Directors and other persons (if any)
present at each meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the
holders of any class of shares in the Company, and of committees;
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(d) of all proceedings of managers (if any).
SECRETARY
106. The Secretary shall be appointed by the Board at such remuneration
(if any) and upon such terms as it may think fit and any Secretary so appointed
may be removed by the Board. The duties of the Secretary shall be those
prescribed by the Companies Acts together with such other duties as shall from
time to time be prescribed by the Board.
107. A provision of the Companies Acts or these Bye-Laws requiring or
authorizing a thing to be done by or to a Director and the Secretary shall not
be satisfied by its being done by or to the same person acting both as Director
and as, or in the place of, the Secretary.
THE SEAL
108. (a) The Seal shall consist of a circular metal device with the
name of the Company around the outer margin thereof and the country and year of
incorporation across the center thereof. Should the Seal not have been received
at the Registered Office in such form at the date of adoption of this Bye-Law
then, pending such receipt any document requiring to be scaled with the Seal
shall be sealed by affixing a red wafer seal to the document with the name of
the Company, and the country and year of incorporation type written across the
center thereof.
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(b) The Board shall provide for the custody of every Seal. A
Seal shall only be used by authority of the Board or of a committee constituted
by the Board. Subject to Companies Acts, any instrument to which a Seal is
affixed may be signed by a Director or an Officer of the Company, or by any
person who has been authorized by the Board either generally or specifically to
attest to the use of a Seal.
DIVIDENDS AND OTHER PAYMENTS
109. The Board may from time to time declare cash dividends or
distributions out of contributed surplus to be paid to the Shareholders
according to their rights and interests including such interim dividends as
appear to the Board to be justified by the position of the Company. The Board
may also pay any fixed cash dividend which is payable on any shares of the
Company half yearly or on such other dates, whenever the position of the
Company, in the opinion of the Board, justifies such payment.
110. Except insofar as the rights attaching to, or the terms of issue
of, any share otherwise provide:
(a) all dividends or distributions out of contributed surplus
may be declared and paid according to the amounts paid-up on the shares in
respect of which the dividend or distribution is paid, and an amount paid-up on
a share in advance of calls may be treated for the purpose of this Bye-Law as
paid-up on the share;
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(b) dividends or distributions out of contributed surplus may
be apportioned and paid pro rata according to the amounts paid-up on the shares
during any portion or portions of the period in respect of which the dividend or
distribution is paid.
111. The Board may deduct from any dividend, distribution or other
moneys payable to a Shareholder by the Company on or in respect of any shares
all sums of money (if any) presently payable by him to the Company on account of
calls or otherwise in respect of shares of the Company.
112. No dividend, distribution or other moneys payable by the Company
on or in respect of any Common Share shall bear interest against the Company.
113. Any dividend, distribution, interest or other sum payable in cash
to the holder of shares may be paid by check, warrant or other means approved by
the Board, in the case of a check or warrant sent through the post addressed to
the holder at his address in the Register or, in the case of joint holders,
addressed to the holder whose name stands first in the Register in respect of
the shares at his registered address as appearing in the Register or addressed
to such person at such address as the holder or joint holders may in writing
direct. Every such check or warrant shall, unless the holder or joint holders
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otherwise direct, be made payable to the order of the holder or, in the case of
joint holders, to the order of the holder whose name stands first in the
Register in respect of such shares, and shall be sent at his or their risk and
payment of the check or warrant by the bank on which it is drawn shall
constitute a good discharge to the Company. Any one of two or more joint holders
may give effectual receipts for any dividends, distributions or other moneys
payable or property distributable in respect of the shares held by such joint
holders.
114. Any dividend or distribution out of contributed surplus unclaimed
for a period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the payment
by the Board of any unclaimed dividend, distribution, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
115. The Board may direct payment or satisfaction of any dividend or
distribution out of contributed surplus wholly or in part by the distribution of
specific assets, and in particular of paid-up shares or debentures of any other
company, and where any difficulty arises in regard to such distribution or
dividend the Board may settle it as it thinks expedient, and in particular, may
authorize any person to sell and transfer any fractions or
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may ignore fractions altogether, and may fix the value for distribution or
dividend purposes of any such specific assets and may determine that cash
payments shall be made to any Shareholders upon the footing of the values so
fixed in order to secure equality of distribution and may vest any such specific
assets in trustees as may seem expedient to the Board.
RESERVES
116. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks proper
as reserves which shall, at the discretion of the Board, be applicable for any
purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
CAPITALIZATION OF PROFITS
117. The Company may, upon the recommendation of the Board, at any time
and from time to time pass a Resolution to the effect that it is desirable to
capitalize all or any part of any amount for the time being standing to the
credit of any reserve or fund which is available for distribution or to the
credit of any share
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premium account or any capital redemption reserve fund and accordingly that such
amount be set free for distribution amongst the Shareholders or any class of
Shareholders who would be entitled thereto if distributed by way of dividend and
in the same proportions, on the footing that the same be not paid in cash but be
applied either in or towards paying up amounts for the time being unpaid on any
shares in the Company held by such Shareholders respectively or in payment up in
full of unissued shares, debentures or other obligations of the Company, to be
allotted, distributed and credited as fully paid amongst such Shareholders, or
partly in one way and partly in the other, and the Board shall give effect to
such Resolution, provided that for the purpose of this Bye-Law, a share premium
account and a capital redemption reserve fund may be applied only in paying up
of unissued shares to be issued to such Shareholders credited as fully paid and
provided further that any sum standing to the credit of a share premium account
may only be applied in crediting as fully paid shares of the same class as that
from which the relevant share premium was derived.
118. Where any difficulty arises in regard to any distribution under
the last preceding Bye-Law, the Board may settle the same as it thinks expedient
and, in particular, may authorize any person to sell and transfer any fractions
or may
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resolve that the distribution should be as nearly as may be practicable in the
correct proportion but not exactly so or may ignore fractions altogether, and
may determine that cash payments should be made to any Shareholders in order to
adjust the rights of all parties, as may seem expedient to the Board. The Board
may appoint any person to sign on behalf of the persons entitled to participate
in the distribution any contract necessary or desirable for giving effect
thereto and such appointment shall be effective and binding upon the
Shareholders.
RECORD DATES
119. Notwithstanding any other provisions of these Bye-Laws, the
Company may by Resolution or the Board may fix any date as the record date for
any dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of general meetings. Any
such record date may be on or at any time before or after any date on which such
dividend, distribution, allotment or issue is declared, paid or made or such
notice is dispatched.
ACCOUNTING RECORDS
120. The Board shall cause to be kept accounting records sufficient to
give a true and fair view of the state of the Company's affairs and to show and
explain its transactions, in
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accordance with the Companies Acts and the provisions of United States
securities laws.
121. The records of account shall be kept at the Registered Office or
at such other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors: PROVIDED that if the records of account are
kept at some place outside Bermuda, there shall be kept at an office of the
Company in Bermuda such records as will enable the Directors to ascertain with
reasonable accuracy the financial position of the Company at the end of each
three-month period. No Shareholder (other than an officer of the Company) shall
have any right to inspect any accounting record or book or document of the
Company except as conferred by law or authorized by the Board or by Resolution.
122. A copy of every balance sheet and statement of income and
expenditure, including every document required by law to be annexed thereto,
which is to be laid before the Company in general meeting, together with a copy
of the auditors' report, shall be sent to each person entitled thereto in
accordance with the requirements of the Companies Acts.
AUDIT
123. Save and to the extent that an audit is waived in the manner
permitted by the Companies Acts, auditors shall be appointed and their duties
regulated in accordance with the
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Companies Acts, any other applicable law and such requirements not inconsistent
with the Companies Acts as the Board may from time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
124. Any notice or other document (including a share certificate) may
be served on or delivered to any Shareholder by the Company either personally or
by sending it through the post (by air mail where applicable) in a pre-paid
letter addressed to such Shareholder at his address as appearing in the Register
or by delivering it to or leaving it at such registered address. In the case of
joint holders of a share, service or delivery of any notice or other document on
or to one of the joint holders shall for all purposes be deemed as sufficient
service on or delivery to all the joint holders. Any notice or other document if
sent by post shall be deemed to have been served or delivered seven days after
it was put in the post, and in proving such service or delivery, it shall be
sufficient to prove that the notice or document was properly addressed, stamped
and put in the post.
125. Any notice of a general meeting of the Company shall be deemed to
be duly given to a Shareholder if it is sent to him by cable, telex, telecopier
or other mode of representing or reproducing words in a legible and
non-transitory form at his address as appearing in the Register or any other
address given
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by him to the Company for this purpose. Any such notice shall be deemed to have
been served twenty-four hours after its dispatch.
126. Any notice or other document delivered, sent or given to a
Shareholder in any manner permitted by these Bye-Laws shall, notwithstanding
that such Shareholder is then dead or bankrupt or that any other event has
occurred, and whether or not the Company has notice of the death or bankruptcy
or other event, be deemed to have been duly served or delivered in respect of
any share registered in the name of such Shareholder as sole or joint holder
unless his name shall, at the time of the service or delivery of the notice or
document, have been removed from the Register as the holder of the share, and
such service or delivery shall for all purposes be deemed as sufficient service
or delivery of such notice or document on all persons interested (whether
jointly with or as claiming through or under him) in the share.
WINDING UP
127. If the Company shall be wound up, the liquidator may, with the
sanction of a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the whole or
any part of the assets of the Company (whether they shall consist of property of
the same kind or not) and may for such purposes set such values
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as he deems fair upon any property to be divided as aforesaid and may determine
how such division shall be carried out as between the Shareholders or different
classes of Shareholders. The liquidator may, with the like sanction, vest the
whole or any part of such assets in trustees upon such trust for the benefit of
the contributories as the liquidator, with the like sanction, shall think fit,
but so that no Shareholder shall be compelled to accept any shares or other
assets upon which there is any liability.
INDEMNITY
128. (a) Subject to the proviso below, every Director, officer of
the Company and member of a committee constituted under Bye-Law 94 shall be
indemnified out of the funds of the Company against all civil liabilities, loss,
damage or expense (including but not limited to liabilities under contract, tort
and statute or any applicable foreign law or regulation and all reasonable legal
and other costs and expenses properly payable) incurred or suffered by him as
such Director, officer or committee member and the indemnity contained in this
Bye-Law shall extend to any person acting as a Director, officer or committee
member in the reasonable belief that he has been so appointed or elected
notwithstanding any defect in such appointment or election PROVIDED ALWAYS that
the indemnity
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contained in this Bye-Law shall not extend to any matter which would render it
void pursuant to the Companies Acts.
(b) The rights to indemnification, reimbursement or advancement
of expenses provided by, or granted pursuant to, this Bye-Law shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or reimbursement or advancement of expenses may have or hereafter be entitled.
129. Every Director, officer and member of a committee duly constituted
under Bye-Law 94 of the Company shall be indemnified out of the funds of the
Company against all liabilities incurred by him as such Director, officer or
committee member in defending any proceedings, whether civil, criminal or
administrative, in which judgment is given in his favor, or in which he is
acquitted, or in connection with any application under the Companies Acts in
which relief from liability is granted to him by the court.
130. To the extent that any Director, officer or member of a committee
duly constituted under Bye-Law 94 is entitled to claim an indemnity pursuant to
these Bye-Laws in respect of amounts paid or discharged by him, the relative
indemnity shall take effect as an obligation of the Company to reimburse the
person making such payment or effecting such discharge.
ALTERATION OF BYE-LAWS
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131. The Directors may from time to time revoke, alter, amend or add to
these Bye-Laws provided that no such revocation, alteration, amendment or
addition with respect to Bye-Laws 47(b), 53 and 75 to 81 (inclusive) and shall
be operative unless and until it is confirmed at subsequent general meeting of
the Company where the amendments have been approved by Shareholders holding not
less than 80% of the shares of the Company issued and outstanding and entitled
to vote generally; and all other Bye-Law amendments shall be approved by
Shareholders holding not less than a majority of the shares issued and
outstanding and entitled to vote.
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SCHEDULE I
SERIES A PREFERRED SHARES
1. Number and Designation. The Company shall have a class of Series A
Preferred Shares with such number of shares authorized as shall be set from time
to time by Resolution adopted at a general meeting of the Shareholders and as
set forth in the Bye-Laws of the Company.
2. Dividends and Distributions. (a) Subject to sections (2)(b) and
(4) below, the Company shall pay, and the holders of the Series A Preferred
Shares shall be entitled to receive, and to share equally and ratably, share for
share with the Common Shares, in such dividends and distributions on the Common
Shares or the Series A Preferred Shares as may be declared from time to time by
the Board of Directors, whether payable in cash, property or securities of the
Company. The record date for determining the holders of Series A Preferred
Shares entitled to receive dividends and distributions shall be the same as the
record date for determining the holders of Common Shares entitled to receive
dividends and distributions. Dividends and distributions shall be paid to the
holders of Series A Preferred Shares entitled to receive such dividends and
distributions at the close of business
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on the date on which such dividends and distributions are paid or made by the
Company in respect of the Common Shares.
(b) In the event that the Company declares and pays a dividend
or makes any distribution on its Common Shares in the form of (x) additional
Common Shares, (y) options, warrants or rights to acquire Common Shares or (z)
other securities of the Company convertible into or exchangeable for Common
Shares, the holders of the Series A Preferred Shares shall receive in lieu of
such securities: (1) an equal number of shares of additional Series A Preferred
Shares, in the case of clause (x) above; (2) options, warrants or rights to
acquire an equal number of additional Series A Preferred Shares on terms
otherwise identical to such options, warrants or rights distributed to the
holders of Common Shares, in the case of clause (y) above; and (3) securities
convertible into or exchangeable for an equal number of Series A Preferred
Shares on terms otherwise identical to the convertible or exchangeable
securities distributed to the holders of Common Shares, in the case of clause
(z) above.
(c) All dividends or distributions paid with respect to the
Series A Preferred Shares shall be paid pro rata to the holders entitled
thereto.
(d) Each fractional Series A Preferred Share outstanding shall
be entitled to a ratable proportionate amount
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of all dividends and other distributions accruing, paid or made with respect to
each outstanding Series A Preferred Share and all such dividends and other
distributions with respect to such outstanding fractional shares shall be
payable in the same manner and at such times as provided for in sections (2)(a),
(2)(b) and (4) hereof with respect to dividends and other distributions on each
outstanding Series A Preferred Share.
3. Voting Rights. (a) Each issued and outstanding Series A Preferred
Share shall be entitled to one vote for each Common Share into which such Series
A Preferred Share is convertible, with respect to any matter presented to the
shareholders of the Company for their action or consideration and shall be
included in determining the number of shares voting or entitled to vote on any
such matter; provided, however, that holders of Series A Preferred Shares shall
not vote with respect to the election of directors of the Company. Except as
otherwise provided herein or by law, the holders of the Series A Preferred
Shares shall vote together with the holders of the Common Shares as a single
class.
(b) In addition to the voting rights set forth above, the consent of
the holders of at least a majority of the Series A Preferred Shares at the time
outstanding voting together as a single class, shall be necessary for any
amendment to the Memorandum of Association or Bye-Laws of the Company, if such
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amendment would adversely affect the rights, powers, privileges or preferences
of the Series A Preferred Shares.
4. Rights on Liquidation. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of the Series A Preferred Shares then outstanding shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Company to the holders of the Common Shares by reason of their ownership
thereof, an amount equal to $.01 per share for each outstanding Series A
Preferred Share. If upon the occurrence of such event the assets thus
distributed among the holders of Series A Preferred Shares shall be insufficient
to permit the payment to such holders of the full preferential amount, the
entire assets of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Shares. After
the payment or distribution to the holders of the Series A Preferred Shares of
such preferential amount and the payment (the "Other Liquidating Preference
Payment") of the lesser of (i) the liquidation preference or (ii) the par value
of any other preferred shares then outstanding (the "Other Preferred Shares"),
if any, then the holders of the Series A Preferred Shares, the holders of the
Other Preferred Shares and the holders of Common Shares shall be entitled to
receive ratably
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(based, in the case of the Series A Preferred Shares and the Other Preferred
Shares, if they are convertible into Common Shares, on the number of Common
Shares into which such Series A Preferred Shares and Other Preferred Shares were
last convertible) all remaining assets of the Company to be distributed;
provided, however, that if any Other Preferred Shares shall have priority
liquidation rights vis-a-vis the Common Shares (other than the Other Liquidating
Preference Payment), then the Series A Preferred Shares shall, in a liquidating
distribution, be treated ratably with the most senior of such Other Preferred
Shares.
5. Conversion. (a) Each Series A Preferred Share may be converted, at
the option of the holder thereof, at any time (i) after the HSR Clearance Date
or (ii) upon the transfer (in accordance with the provisions of the Shareholders
Agreement) of such Series A Preferred Share to a Person other than a Shareholder
or any Affiliate thereof, in the manner hereinafter provided, into one (subject
to any adjustment required below) fully paid and nonassessable Common Shares;
provided however, that on any liquidation of the Company, the right of
conversion shall terminate at the close of business on the business day
immediately preceding the date fixed for the payment of any
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amounts distributable on liquidation to the holders of the Series A Preferred
Shares.
(b) Each conversion of Series A Preferred Shares into Common Shares
shall be effected by the prior written notice thereof by the holder of the
Series A Preferred Shares and the surrender of the certificates representing the
shares to be converted at the principal office of the Company (or such other
office or agency of the Company as the Company may designate by notice in
writing to the holders of the Series A Preferred Shares as shown on the books of
the Company) at any time during normal business hours. Such notice shall state
the name or names (with addresses) and denominations in which the certificate or
certificates for such Common Shares are to be issued and shall include
instructions for reasonable delivery thereof. Each conversion shall be deemed to
have been effected as of the close of business on the date on which such
certificates have been surrendered and such notice has been received. At such
time, the rights of the holders of the surrendered Series A Preferred Shares as
such holder shall cease, and the Person in whose name the certificates for
Common Shares will be issued upon such conversion shall be deemed to have become
the holder of record of the Common Shares represented thereby.
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(c) Promptly after the surrender of the certificates and the
receipt of written notice, the Company shall issue and deliver in accordance
with the surrendering holder's instructions (i) the certificates for the Common
Shares issuable upon such conversion and (ii) certificates representing any
surrendered Series A Preferred Shares which were delivered to the Company in
connection with such conversion but which were not requested to be converted
and, therefore, were not converted.
(d) The issuance of certificates for Common Shares upon
conversion of Series A Preferred Shares shall be made without charge to the
holders of such shares for any cost incurred by the Company in connection with
such conversion and the related issuance of Common Shares.
(e) The Company shall at all times reserve and keep available
out of its authorized but unissued Common Shares, solely for the purpose of
issuance upon the conversion of the Series A Preferred Shares, such number of
Common Shares issuable upon conversion of all outstanding Series A Preferred
Shares. All Common Shares which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such Common Shares may be so issued without violation of any applicable
law
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or governmental regulation or any requirement of any domestic securities
exchange upon which Common Shares may be listed (except for official notice of
issuance which shall be immediately transmitted by the Company upon issuance).
(f) The Company shall not close its books against the transfer
of Series A Preferred Shares in any manner which would interfere with the timely
conversion of any Series A Preferred Shares. The Company shall assist and
cooperate with any holder of Series A Preferred Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Series A Preferred Shares hereunder
(including, without limitation, making any filings required to be made by the
Company).
6. Share Splits; Adjustments. (a) If the Company shall in any manner
subdivide (by share split, share dividend or otherwise) or combine (by reverse
share split or otherwise) the outstanding Common Shares, the outstanding Series
A Preferred Shares shall be proportionately subdivided or combined, as the case
may be, and effective provision shall be made for the protection of all
conversion and voting rights of the Series A Preferred Shares hereunder.
(b) If the Company shall issue any shares of its capital shares
in a reclassification of the Common Shares
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(including any such reclassification in connection with a merger, consolidation
or other business combination involving the Company), or in any other similar
transaction affecting the Company or the number or value of Common Shares
outstanding, effective provision shall be made for the protection of all
conversion and voting rights of the Series A Preferred Shares hereunder.
(c) The terms "HSR Clearance Date" and "HSR Act" as used herein
shall have the meanings set forth in the Shareholders Agreement.
7. General Provisions. (a) The term "Affiliate" as used herein shall
have the meaning set forth in the Shareholders Agreement.
(b) The term "Antitrust Authority" as used herein shall have
the meaning set forth in the Shareholders Agreement.
(c) The term "Person" as used herein means an individual or a
company, partnership, association, trust or any other entity or organization.
(d) The term "outstanding" when used herein with reference to
shares, shall mean issued shares.
(e) The term "Shareholders Agreement" as used herein means that
certain Shareholders Agreement to be entered into between Loral Corporation
("Loral") and the Company substantially
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in the form attached to that certain Distribution Agreement dated as of January
7, 1996 between Loral and the Company.
(f) The term "Shareholders" as used herein shall have the
meaning set forth in the Shareholders Agreement.
(g) Subject to Section 3 hereof, any right, preference,
privilege or power of, or restriction provided for the benefit of, the Series A
Preferred Shares set forth herein may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with the consent of the holders of not less than a majority of
the Series A Preferred Shares then outstanding, and any amendment or waiver so
effected shall be binding upon the Company and all holders of Series A Preferred
Shares.
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SCHEDULE II
SERIES B PREFERRED SHARES
1. Number and Designation. The Company shall have a class of
preferred shares denominated "Series B Preferred Shares" with such number of
shares authorized as shall be set from time to time by Resolution adopted at a
general meeting of the Shareholders of the Company
2. Dividends and Distributions. (a) Subject to the prior and superior
rights of the holders of any shares of any series of preferred shares ranking
prior and superior to the Series B Preferred Shares with respect to dividends,
the holders of Series B Preferred Shares, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the fifteenth day of January,
April, July and October in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series B Preferred Share or a
fraction thereof, in an amount per Share (rounded to the nearest cent), subject
to the provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate
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per Share amount of all cash dividends, and 1,000 times the aggregate per Share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in Common Shares or a subdivision of the outstanding
Common Shares (by
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reclassification or otherwise), declared on the Common Shares since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any Series B
Preferred Share or a fraction thereof. In the event the Company shall at any
time (i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares, or (iii) combine the outstanding Common
Shares into a smaller number of Shares, then in each such case the amount to
which holders of Series B Preferred Shares were entitled immediately prior to
such event pursuant to the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which is the
number of Common Shares that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on the
Series B Preferred Shares as provided in paragraph (a) above immediately after
it declares a dividend or distribution on the Common Shares (other than a
dividend payable in Common Shares).
(c) Dividends shall begin to accrue and be cumulative on the
outstanding Series B Preferred Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such
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Series B Preferred Shares, unless the date of issue of such Shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such Shares shall begin to accrue from the date of issue of such
Shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of Series B
Preferred Shares entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
Series B Preferred Shares in an amount less than the total amount of such
dividends at the time accrued and payable on such Shares shall be allocated pro
rata on a share-by-share basis among all such Shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
Series B Preferred Shares entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of Series B Preferred Shares shall have
the following voting rights:
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(a) Subject to the provision for adjustment hereinafter set
forth, each Series B Preferred Share shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the Shareholders of the Company. In
the event the Company shall at any time (i) declare any dividend on Common
Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares,
or (iii) combine the outstanding Common Shares into a smaller number of Shares,
then in each such case the number of votes per Share to which holders of the
Series B Preferred Shares were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders
of Series B Preferred Shares and the holders of Common Shares shall vote
together as one class on all matters submitted to a vote of Shareholders of the
Company.
(c) (i) If at any time dividends on any Series B Preferred
Shares shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a period
(herein called a "default
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period") which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the current
quarterly dividend period on all Series B Preferred Shares then outstanding
shall have been declared and paid or set apart for payment. During each default
period, holders of the Series B Preferred Shares with dividends in arrears in an
amount equal to six quarterly dividends thereon, together with holders of any
other shares of the Company upon which similar voting rights have been conferred
and are exercisable (collectively, the "Defaulted Shares") voting as a class,
irrespective of series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of the
holders of Series B Preferred Shares may be exercised initially at a special
general meeting called pursuant to subparagraph (iii) of this Section 3(c) or at
any Annual General Meeting of Shareholders, and thereafter at Annual General
Meetings of Shareholders, provided that neither such voting right nor the right
of the holders of any other shares upon which similar voting rights have been
conferred, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of 10% in number of the
Defaulted Shares outstanding shall be present in person or by proxy. The
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absence of a quorum of the holders of Common Shares shall not affect the
exercise by the holders of the Defaulted Shares of such voting right. At any
meeting at which the holders of the Defaulted Shares shall exercise such voting
right initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any, in the
Board as may then exist up to two Directors or, if such right is exercised at
an Annual General Meeting, to elect two Directors. If the number which may be
so elected at any special general meeting does not amount to the required
number, the holders of the Defaulted Shares shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the Defaulted
Shares shall have exercised their right to elect Directors in any default
period and during the continuance of such period, the number of Directors shall
not be increased or decreased except by vote of the holders of the Defaulted
Shares as herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series B Preferred Shares.
(iii) Unless the holders of the Defaulted Shares shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board may order, or
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any Shareholder or Shareholders owning in the aggregate not less than 10% of the
total number of Defaulted Shares outstanding, irrespective of series, may
request, the calling of a special meeting of the holders of the Defaulted
Shares, which meeting shall thereupon be called by the Chairman of the Board of
the Company. Notice of such meeting and of any Annual General Meeting at which
holders of the Defaulted Shares are entitled to vote pursuant to this paragraph
(c)(iii) shall be given to each holder of record of Defaulted Shares by mailing
a copy of such notice to him at his last address as the same appears on the
books of the Company. Such meeting shall be called for a time not earlier than
30 days and not later than 40 days after such order or request or in default of
the calling of such meeting within 40 days after such order or request, such
meeting may be called on similar notice by any Shareholder or Shareholders
owning in the aggregate not less than 10% of the total number of Defaulted
Shares outstanding and at least 50% of the total voting rights held by all such
Shareholders. Notwithstanding the provisions of this paragraph (c)(iii), no such
special general meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next Annual General Meeting of the
Shareholders.
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(iv) In any default period, the holders of Common Shares, and
other classes of shares of the Company if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of the
Defaulted Shares shall have exercised their right to elect two Directors voting
as a class, after the exercise of which right (x) the Directors so elected by
the holders of Defaulted Shares shall continue in office until their successors
shall have been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as provided in
paragraph (c)(ii) of this section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the class of shares
which elected the Director whose office shall have become vacant. References in
this paragraph (c) to Directors elected by the holders of a particular class of
shares shall include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Defaulted Shares as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Defaulted Shares
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the Bye-Laws irrespective of any
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increase made pursuant to the provisions of paragraph (c)(ii) of this section 3
(such number being subject, however, to change thereafter in any manner provided
by law or in the Bye-Laws). Any vacancies in the Board of Directors affected by
the provisions of clauses (y) and (z) in the preceding sentence may be filled by
a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series B Preferred
Shares shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Shares as set forth herein) for taking any corporate action.
4. Certain Restrictions. (a) Whenever quarterly dividends or other
dividends or distributions payable on the Series B Preferred Shares as provided
in section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on the Series B Preferred
Shares outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Shares;
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(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Shares,
except dividends paid ratably on the Series B Preferred Shares and all such
parity shares on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Shares,
provided that the Company may at any time redeem, purchase or otherwise acquire
shares of any such parity shares in exchange for shares of any stock of the
Company ranking junior (either as to dividends or upon dissolution, liquidation
or winding up) to the Series B Preferred Shares;
(iv) purchase or otherwise acquire for consideration any Series
B Preferred Shares, or any shares of stock ranking on a parity with the Series B
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board) to all holders of such shares upon
such terms as the Board, after consideration of the respective annual dividend
rates and other relative rights and preferences of the
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respective series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(b) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of the Company
unless the Company could, under paragraph (a) of this section 4, purchase or
otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any Series B Preferred Share purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof.
6. Liquidation, Dissolution or Winding-up. (a) Upon any liquidation
(voluntary or otherwise), dissolution or winding-up of the Company, no
distribution shall be made to the holders of shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding-up) to the Series B
Preferred Shares unless, prior thereto, the holders of Series B Preferred Shares
shall have received $1.00 per Share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment. Thereafter, the holders of Series B Preferred Shares shall be
entitled to receive an aggregate amount per Share, subject to the
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provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per Share to holders of Common Shares.
Following the payment of the foregoing, holders of Series B Preferred Shares and
holders of Common Shares shall receive their ratable and proportionate share of
the remaining assets to be distributed.
(b) In the event however, that there are not sufficient assets
available to permit payment in full of the Series B Preferred Shares liquidation
preference and the liquidation preferences of all other series of preferred
shares, if any, which rank on a parity with the Series B Preferred Shares, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(c) In the event the Company shall at any time (i) declare any
dividend on Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares (by reclassification or otherwise), or (iii) combine
the outstanding Common Shares into a smaller number of Shares, then in each such
case the aggregate amount to which holders of Series B Preferred Shares were
entitled immediately prior to such event shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of Common Shares
outstanding immediately after such
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event and the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Company shall enter into
any consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other shares or securities, cash and/or
any other property, then in any such case the Series B Preferred Shares shall at
the same time be similarly exchanged or changed in an amount per Share (subject
to the provision for adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of shares, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each Common Share is
changed or exchanged. In the event the Company shall at any time (i) declare any
dividend on Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares (by reclassification or otherwise), or (iii) combine
the outstanding Common Shares into a smaller number of Shares, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of Series B Preferred Shares shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
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Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
8. No Redemption. The Series B Preferred Shares shall not be
redeemable.
9. Ranking. The Series B Preferred Shares shall rank junior to all
other series of the Company's preferred shares as to payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise.
10. Amendment. The Bye-Laws of the Company shall not be amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Shares so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
Series B Preferred Shares voting separately as a class.
11. Fractional Shares. Series B Preferred Shares may be issued in
fractions of a Share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Shares.
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SCHEDULE III
6% SERIES C CONVERTIBLE REDEEMABLE PREFERRED SHARES
1. Number and Designation. The Company shall have a class of 6%
Series C Convertible Redeemable Preferred Shares (the "Series C Preferred
Shares"), par value U.S. $.01 per share, with such number of shares authorized
as shall be set from time to time by Resolution adopted at a general meeting of
the shareholders of the Company and as set forth in the Bye-Laws of the Company.
Unless otherwise specified, references herein to any "Section" refer to the
Section number specified in this Schedule III.
2. Issuance. (a) The Series C Preferred Shares shall be issued, upon
mandatory exchange of the 6% Convertible Preferred Equivalent Obligations due
2006 of the Company (the "CPEOs"), in whole but not in part, in an aggregate
liquidation preference equal to the aggregate principal amount of the CPEOs then
outstanding, on such date as may be determined by the Board of Directors (or any
committee thereof) of the Company. Upon any such exchange, holders of
outstanding CPEOs will be entitled to receive one Series C Preferred Share,
having a liquidation preference of $50.00, for each $50.00 principal amount of
CPEOs,
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together with a payment in cash of accrued interest due and unpaid on the
CPEOs to the Mandatory Exchange Date (as defined below).
(b) The Company may issue Series C Preferred Shares in addition to those
issued pursuant to Section 2(a) and (b) above as may be determined from time to
time by the Board of Directors (or any committee thereof) of the Company.
3. Liquidation Preference. (a) Certificate for Series C Preferred
Shares shall be issuable only in registered form without coupons and only with a
liquidation preference of $50.00 per share and any integral multiple thereof.
The Company hereby appoints The Bank of New York as its initial Registrar for
the Series C Preferred Shares.
4. Registration; Transfer. (a) The Series C Preferred Shares have not
been registered under the United States Securities Act of 1933 (the "Securities
Act") and may not be resold, pledged or otherwise transferred prior to the date
when they no longer constitute "restricted" shares under Rule 144(k) under the
Securities Act other than (1) to the Company, (2) to "qualified institutional
buyers" pursuant to and in compliance with Rule 144A under the Securities, (3)
pursuant to and in compliance with Regulation S under the Securities Act, (4) to
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"accredited investors" as defined in Rule 501(A) under the Securities Act, (5)
pursuant to an exemption from registration under the Securities Act, or (6)
pursuant to an effective registration statement under the Securities Act, in
each case in accordance with any applicable securities laws of Bermuda or any
state of the United States.
(b) Series C Preferred Shares issued upon conversion of CPEOs held by
Qualified Institutional Buyers ("QIBs") in reliance on Rule 144A ("Rule 144A")
under the United States Securities Act of 1933, as amended (the "Securities
Act"), as provided in the Purchase Agreement for such CPEOs, shall be issued in
the form of one or more permanent global Series C Preferred Shares in
definitive, fully registered form without interest coupons with the Global
Series C Preferred Shares Legend and the Restricted Series C Preferred Shares
Legend set forth on the form of such Series C Preferred Share (each, a "Global
Series C Preferred Share"), which shall be deposited on behalf of the holders of
the Series C Preferred Shares represented thereby with the Registrar, at its New
York office, as custodian for The Depository Trust Company, New York, New York
("DTC") or its nominees and their respective successors (the "Depositary"), and
registered in the name of the Depositary or a nominee of the Depositary, duly
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executed by the Company and authenticated by the Registrar as hereinafter
provided. The aggregate liquidation preference of the Global Series C Preferred
Share may from time to time be increased or decreased by adjustments made on the
records of the Registrar and the Depositary or its nominee as hereinafter
provided.
(c) This paragraph shall apply only to a Global Series C Preferred Share
deposited with or on behalf of the Depositary. The Company shall execute and the
Registrar shall, in accordance with this Section, authenticate and deliver
initially one or more Global Series C Preferred Shares that (i) shall be
registered in the name of Cede & Co. or other nominee of Cede & Co. and (ii)
shall be delivered by the Registrar to Cede & Co. or pursuant to instructions
received from Cede & Co. or held by the Registrar as custodian for the
Depositary pursuant to a FAST Balance Certificate Agreement between the
Depositary and the Registrar. Members of, or participants in, the Depositary
("Agent Members") shall have no rights under this Schedule with respect to any
Global Series C Preferred Share held on their behalf by the Depositary or by the
Registrar as the custodian of the Depositary or under such Global Series C
Preferred Share, and the Depositary may be treated by the Company, the Registrar
and
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any agent of the Company or the Registrar as the absolute owner of such
Global Series C Preferred Share for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Registrar or any agent
of the Company or the Registrar from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as between
the Depositary and its Agent Members, the operation of customary practices of
such Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Series C Preferred Share. Except as provided in Section
5(b) hereof, owners of beneficial interests in Global Series C Preferred Shares
will not be entitled to receive physical delivery of certificated Series C
Preferred Shares. (d) Purchasers of Series C Preferred Shares who are not QIBs
will receive certificated Series C Preferred Shares bearing the Restricted
Series C Preferred Shares Legend set forth on the form of such Series C
Preferred Shares ("Restricted Series C Preferred Shares"). Restricted Series C
Preferred Shares will bear a Restricted Series C Preferred Shares Legend unless
removed in accordance with Section 5(b) and may not be exchanged for a Global
Series C Preferred Share, or interest therein, at any time, except as set forth
in paragraph (d) of this Section.
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(e) Purchasers of Restricted Series C Preferred Shares in reliance of
Regulation S under the Securities Act ("Regulation S") may exchange such
Restricted Series C Preferred Shares for a beneficial interest in a Global
Series C Preferred Share following the expiration of the "40-day restricted
period" within the meaning of Regulation S by delivering (1) any such Restricted
Series C Preferred Share, duly endorsed as provided herein; (2) instructions
from such holder directing the Registrar to create a beneficial interest in such
Global Series C Preferred Share and the authorized denomination or denominations
of such beneficial interest to be created; and (3) such other certificates,
legal opinions or other information as the Company may reasonably require.
(f) After a transfer of any Series C Preferred Shares during the period of
the effectiveness of a Shelf Registration Statement with respect to such Series
C Preferred Shares, all requirements pertaining to legends on such Series C
Preferred Share will cease to apply, the requirements requiring any such Series
C Preferred Share issued to certain holders be issued in global form will cease
to apply, and a certificated Series C Preferred Share without legends will be
available to the holder of such Series C Preferred Shares.
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5. Paying Agent and Conversion Agent. (a) The Company shall maintain
in the Borough of Manhattan, City of New York, State of New York and in a
European city (i) an office or agency where Series C Preferred Shares may be
presented for payment ("Paying Agent") and (ii) an office or agency where Series
C Preferred Shares may be presented for conversion ("Conversion Agent"). The
Company may appoint the Registrar, the Paying Agent and the Conversion Agent and
may appoint one or more additional paying agents and one or more additional
conversion agents in such other locations as it shall determine. The term
"Paying Agent" includes any additional paying agent and, with respect to
payments hereunder by delivery of Common Shares, may include the Stock Transfer
Agent, and the term "Conversion Agent" includes any additional conversion agent.
The Company may change any Paying Agent or Conversion Agent without prior notice
to any holder. The Company shall notify the Registrar of the name and address of
any Agent appointed by the Company. If the Company fails to appoint or maintain
another entity as Paying Agent or Conversion Agent, the Registrar shall act as
such. The Company or any of its Affiliates may act as Paying Agent, Registrar,
co-registrar or Conversion Agent.
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Neither the Company nor the Registrar shall be required (i) to issue,
authenticate or register the transfer of or exchange any Series C Preferred
Share during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Series C Preferred Shares
selected for redemption under Section 10(b) hereof and ending at the close of
business on the day of such mailing or (ii) to register the transfer of or
exchange any Series C Preferred Share so selected for redemption in whole or in
part, except the unredeemed portion of any Series C Preferred Share being
redeemed in part.
(b) Notwithstanding any provision to the contrary herein, so long as a Global
Series C Preferred Share remains outstanding and is held by or on behalf of the
Depositary, transfers of a Global Series C Preferred Share, in whole or in part,
or of any beneficial interest therein, shall only be made in accordance with
Section 4 hereof and this Section; provided, however, that beneficial interests
in a Global Series C Preferred Share may be transferred to persons who take
delivery thereof in the form of a beneficial interest in the same Global Series
C Preferred Share in accordance with the transfer restrictions set forth in the
Restricted Series C Preferred Shares Legend and under the heading "Notice to
Investors" in the Offering Memorandum.
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(i) Except for transfers or exchanges made in accordance with
any of clauses (b)(ii) through (iv) of this Section, transfers of a
Global Series C Preferred Share shall be limited to transfers of such
Global Series C Preferred Share in whole, but not in part, to nominees of
the Depositary or to a successor of the Depositary or such successor's
nominee.
(ii) If an owner of a beneficial interest in a Global Series C
Preferred Share deposited with the Depositary or with the Registrar as
custodian for the Depositary wishes at any time to transfer its interest
in such Global Series C Preferred Share to a person who is required to
take delivery thereof in the form of a Restricted Series C Preferred
Share, such owner may, subject to the rules and procedures of the
Depositary, cause the exchange of such interest for one or more
certificates evidencing such Restricted Series C Preferred Share. Upon
receipt by the Registrar, at its office in The City of New York of (1)
instructions from the Depositary directing the Registrar to authenticate
and deliver one or more Restricted Series C Preferred Shares of the same
aggregate liquidation preference as the beneficial interest in the Global
Series C Preferred Share to be
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exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Restricted Series C Preferred Shares to be so issued
and appropriate delivery instructions, (2) a certificate in the form of
Exhibit A attached hereto given by the owner of such beneficial interest
and stating that the person transferring such interest in such Global
Series C Preferred Share reasonably believes that the person acquiring
the Restricted Series C Preferred Shares for which such interest is being
exchanged is an "accredited investor" (as defined in Rule 501(a) of
Regulation D under the Securities Act) and is acquiring such Restricted
Series C Preferred Shares having an aggregate liquidation preference of
not less than $250,000 for its own account or for one or more accounts as
to which the transferee exercises sole investment discretion, (3) a
certificate in the form of Exhibit B attached hereto given by the person
acquiring the Restricted Series C Preferred Shares for which such
interest is being exchanged, to the effect set forth therein, and (4)
such other certifications, legal opinions or other information as the
Company may reasonably require to confirm that such transfer is being
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made pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act, then the
Registrar will instruct the Depositary to reduce or cause to be reduced
such Global Series C Preferred Share by the aggregate liquidation
preference of the beneficial interest therein to be exchanged and to
debit or cause to be debited from the account of the person making such
transfer the beneficial interest in the Global Series C Preferred Share
that is being transferred, and concurrently with such reduction and
debit, the Company shall execute, and the Registrar shall authenticate
and deliver, one or more Restricted Series C Preferred Shares of the same
aggregate liquidation preference in accordance with the instructions
referred to above.
(iii) If a holder of a Restricted Series C Preferred Share wishes
at any time to transfer such Restricted Series C Preferred Share to a
person who is required to take delivery thereof in the form of a
Restricted Series C Preferred Share, such holder may, subject to the
restrictions on transfer set forth herein and in such Restricted Series C
Preferred Share, cause the exchange of such Restricted Series C Preferred
Share for one or more
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certificates evidencing such Restricted Series C Preferred Shares. Upon
receipt by the Registrar, at its office in The City of New York of (1)
such Restricted Series C Preferred Share, duly endorsed as provided
herein, (2) instructions from such holder directing the Registrar to
authenticate and deliver one or more certificates evidencing Restricted
Series C Preferred Shares, such instructions to contain the name of the
transferee and the authorized denomination or denominations of the
Restricted Series C Preferred Shares to be so issued and appropriate
delivery instructions, (3) a certificate from the holder of the
Restricted Series C Preferred Share to be exchanged in the form of
Exhibit A attached hereto, (4) a certificate in the form of Exhibit B
attached hereto given by the person acquiring the Restricted Series C
Preferred Shares for which such interest is being exchanged, to the
effect set forth therein, and (5) such other certifications, legal
opinions or other information as the Company may reasonably require to
confirm that such transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act, then the Registrar shall cancel or cause to be cancelled
such Restricted Series C Preferred
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Share and concurrently therewith, the Company shall execute, and the
Registrar shall authenticate and deliver, one or more Restricted Series C
Preferred Shares of the same aggregate liquidation preference, in
accordance with the instructions referred to above.
(iv) In the event that a Global Series C Preferred Share is
exchanged for Series C Preferred Shares in definitive registered form
pursuant to this Section, prior to the effectiveness of a Shelf
Registration Statement with respect to such Series C Preferred Shares,
such Series C Preferred Shares may be exchanged only in accordance with
such procedures as are substantially consistent with the provisions of
clauses (ii) and (iii) above (including the certification requirements
intended to ensure that such transfers comply with Rule 144A or
Regulation S under the Securities Act, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
(c) Except in connection with a Shelf Registration Statement contemplated by
and in accordance with the terms of a Registration Rights Agreement dated
November 6, 1996, relating to the CPEOs and the Series C Preferred Shares,
between the Company
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and the initial purchasers of the CPEOs (the "Registration Rights Agreement"),
if Series C Preferred Shares are issued upon the transfer, exchange or
replacement of Series C Preferred Shares bearing the Restricted Series C
Preferred Shares Legend set forth on the form of such Series C Preferred Shares,
or if a request is made to remove such Restricted Series C Preferred Shares
Legend on Series C Preferred Shares, the Series C Preferred Shares so issued
shall bear the Restricted Series C Preferred Shares Legend, or the Restricted
Series C Preferred Shares Legend shall not be removed, as the case may be,
unless there is delivered to the Company such satisfactory evidence, which may
include an opinion of counsel licensed to practice law in the State of New York,
as may be reasonably required by the Company, that neither the legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
thereof comply with the provisions of Rule 144A, Rule 144 or Regulation S under
the Securities Act or, with respect to Restricted Series C Preferred Shares,
that such Series C Preferred Shares are not "restricted" within the meaning of
Rule 144 under the Securities Act. Upon provision of such satisfactory evidence,
the Registrar, at the direction of the Company, shall authenticate and deliver
Series C Preferred Shares that do not bear the legend.
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(d) The Registrar shall have no responsibility for any actions taken or not
taken by the Depositary.
(e) Each holder of a Series C Preferred Share agrees to indemnify the Company
and the Registrar against any liability that may result from the transfer,
exchange or assignment of such holder's Series C Preferred Share in violation of
any provision of this Schedule and/or applicable U.S. Federal or State
securities law; provided, however, that such indemnity shall not apply to acts
of willful misconduct or gross negligence on the part of the Company or the
Registrar, as the case may be. (f) Payments (whether in cash or, as permitted by
Sections 10(a) hereof, in Common Shares) due on the Series C Preferred Shares
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York and at any other office or agency maintained by
the Company for such purpose. If any such payment is in cash, it shall be
payable by United States dollar check drawn on, or wire transfer (provided that
appropriate wire instructions have been received by the Registrar at least 15
days prior to the applicable date of payment) to a United Stated dollar account
maintained by the holder with, a bank located in New York City; provided, that
at the option of the Company payment of dividends in cash may be
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made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Series C Preferred Share Register.
6. Dividend Rights. (a) The Company shall pay, and the holders of the
Series C Preferred Shares shall be entitled to receive, dividends from the date
of initial issuance of such Series C Preferred Shares at a rate of 6% per annum
on the amount of the liquidation preference of the Series C Preferred Shares.
Dividends will be computed on the basis of a 360-day year of twelve 30-day
months and will be payable quarterly in cash in arrears on February 1, May 1,
August 1 and November 1 of each year (each a "Dividend Payment Date"),
commencing on the first Dividend Payment Date following the initial issuance
date of the Series C Preferred Shares, until the liquidation preference thereof
is paid or made available for payment. The Company may elect to defer dividend
payments on any Dividend Payment Date. (b) If (i) on or prior to May 5, 1997, a
shelf registration statement with respect to resales of the Series C Preferred
Shares and the Common Shares issuable upon conversion thereof has not been filed
with the Securities and Exchange Commission or (ii) on or prior to July 4, 1997,
such shelf registration statement is not declared effective (each, a
"Registration
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<PAGE> 116
Default"), additional dividends will accrue on the Series C Preferred Shares,
from and including the day following such Registration Default to but excluding
the day on which such Registration Default has been cured. Additional dividends
will be paid quarterly in arrears in cash, with the first quarterly payment due
on the first Dividend Payment Date following the date on which such additional
dividends begin to accrue, and will accrue at a rate per annum of 0.25% of the
liquidation preference of this Series C Preferred Share, to and including the
90th day following such Registration Default and thereafter at a rate per annum
of 0.50% until such Registration Default has been cured.
7. Payment of Dividend; Mechanics of Payment; Dividend Rights
Preserved. (a) Dividends on any Series C Preferred Share which are payable, and
are punctually paid or duly provided for, on any Dividend Payment Date (February
1, May 1, August 1, and November 1 of each year) shall be paid in cash in
arrears to the Person in whose name that Series C Preferred Share (or one or
more predecessor Series C Preferred Shares) is registered at the close of
business on the Regular Record Date for such dividend, provided, however, that
the Company may make a Deferral Election on any Dividend Payment Date.
Arrearages of deferred but unpaid dividends accruals ("Dividend Arrearages")
will not themselves
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bear interest, but so long as any Dividend Arrearage remains outstanding, the
Company will be prohibited from paying (i) dividends on its Common Shares and
(ii) dividends on any other Series of Preferred Shares (other than pro rata
dividends on the Series A Preferred Shares and any other series of preferred
shares ranking pari passu with the Preferred Shares). In the event that the
Company fails to pay the dividends due for an aggregate of six quarterly
payments, the holders will have the rights and remedies described below in
Section 8.
(b) In the event the Board of Directors makes a Deferral Election in respect
of any Dividend Payment Date, the Company shall deliver to holders the Dividend
Payment Notice not later than 5 Business Days prior to the Dividend Payment
Date.
(c) Any Dividend Arrearage on any Series C Preferred Share may be paid by the
Company in any lawful manner not inconsistent with the requirements of any
securities exchange on which the Series C Preferred Shares may be listed, and
upon such notice as may be required by such exchange, if, after notice given by
the Company to the Registrar of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Registrar.
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(d) Subject to the foregoing provisions of this Section, each Series C
Preferred Share delivered under this Schedule upon registration of transfer of
or in exchange for or in lieu of any other Series C Preferred Share shall carry
the rights to dividends accrued and unpaid, and to accrue, which were carried by
such other Series C Preferred Share.
(e) Series C Preferred Shares surrendered for conversion during the period from
the close of business on any Regular Record Date next preceding any Dividend
Payment Date to the opening of business on such Dividend Payment Date (except
Series C Preferred Shares called for redemption on a Redemption Date within such
period) must be accompanied by payment in cash of an amount equal to the accrued
but unpaid dividends thereon which the registered holder is to receive on such
Dividend Payment Date in respect of the Series C Preferred Shares so
surrendered; provided, that no payment shall be owed or payable to any
converting holder if the Board of Directors of the Company shall have elected to
defer the dividends payment to be made on such Dividend Payment Date pursuant to
paragraph (a) of this Section. No other adjustment for dividends, including for
any Dividend Arrearages, is to be made upon conversion. Fractional Common Shares
will not be
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issued upon conversion, but in lieu thereof the Company will pay a cash
adjustment in the manner set forth in Section 11(c). (f) The Company shall make
all dividend payments (including Dividend Arrearages) in respect of the Series C
Preferred Shares in cash.
8. Voting Rights. (a) Holders of Series C Preferred Shares will not
be entitled to any voting rights unless the Company has not paid scheduled
dividend payments for an aggregate of six quarterly payments (a "Deferral
Trigger Event"). If a Deferral Trigger Event occurs while any Series C Preferred
Shares are outstanding, the number of Directors constituting the Board of
Directors of the Company will be adjusted to permit the holders of a majority of
the then Outstanding Series C Preferred Shares, voting separately and as a
class, to elect two Directors (the "Series C Preferred Shares Directors") to the
Board of Directors. The voting rights set forth in the preceding sentence will
continue until such time as all dividends in arrears on the Series C Preferred
Shares are paid in full in cash, at which time the term of any Director elected
pursuant to the provisions of the preceding sentence shall terminate. At any
time after voting power to elect Directors shall have become vested and be
continuing in the holders of the Series C Preferred Shares
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pursuant to the second preceding sentence, or if a vacancy shall exist in the
offices of Directors elected by the holders of the Series C Preferred Shares,
the Board of Directors may, and upon written request of the holders of record of
at least 25% of the Outstanding Series C Preferred Shares addressed to the
Chairman of the Board of the Company, shall, call a special meeting of the
holders of the Series C Preferred Shares for the purpose of electing the
Directors which such holders are entitled to elect. At any meeting held for the
purpose of electing Directors at which the holders of Series C Preferred Shares
shall have the right, voting together as a separate class, to elect Directors as
aforesaid, the presence in person or by proxy of the holders of at least a
majority of the Outstanding Series C Preferred Shares shall be required to
constitute a quorum of such Series C Preferred Shares. Any vacancy occurring in
the office of a Director elected by the holders of the Series C Preferred Shares
may be filled by the remaining Director elected by the holders of the Series C
Preferred Shares unless and until such vacancy shall be filled by the holders of
the Series C Preferred Shares. The Directors to be elected by the holders of the
Series C Preferred Shares shall agree, prior to their election to office, to
resign upon any termination of the right of the holders of Series C
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Preferred Shares to vote as a class for Directors as herein provided, and upon
such termination the Directors then in office elected by the holders of the
Series C Preferred Shares shall forthwith resign.
(b) In addition to the voting rights set forth above, with the consent of the
holders of not less than two-thirds of the Outstanding Series C Preferred
Shares, by act of said holders delivered to the Company and the Registrar, the
Company, when authorized by a resolution of the Board of Directors, may enter
into amendment hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Schedule or of modifying
in any manner the rights of the holders of Series C Preferred Shares under this
Schedule; provided, however, that no such modification or amendment may, without
the consent of the holders of each Outstanding Series C Preferred Share affected
thereby, (i) change the Mandatory Redemption Date of any Series C Preferred
Share, or the due date of any dividend on, any Series C Preferred Shares, or
reduce the liquidation preference or Redemption Price thereof or the rate of
dividends thereon, or change the place of payment where, or the coin or currency
in which, any Series C Preferred Share or any payment thereon is payable, or
impair the right to institute suit
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for the enforcement of any such payment on or after the Mandatory Redemption
Date (or on or after other Redemption Dates), or adversely affect the rights to
convert any Series C Preferred Share as provided in Section 11 hereof, or
adversely affect the right to require the Company to redeem the Series C
Preferred Shares as provided in Section 10 hereof, or modify the provisions of
this Schedule with respect to the ranking of the Series C Preferred Shares in a
manner adverse to the holders, or (ii) reduce the percentage of the Outstanding
Series C Preferred Shares the consent of whose holders is required for any such
modification, or the consent of whose holders is required for any waiver (of
compliance with certain provisions of this Schedule) provided for in this
Schedule, or (iii) modify any of the provisions of this Section except to
increase any such percentage or to provide that certain other provisions of this
Schedule cannot be modified or waived without the consent of the holder of each
Outstanding Series C Preferred Share affected thereby. In addition, but subject
to the foregoing, the Consent of the holders of at least a majority of the
Series C Preferred Shares at the time Outstanding voting together as a single
class, shall be necessary for any amendment to the Bye-Laws of the Company, if
such amendment would have the effect of amending any provision of
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this Schedule in a manner that is adverse to the interests of the holders of the
Series C Preferred Shares.
(c) Neither (i) the creation, authorization or issuance of any Junior Shares
or Parity Shares including additional Series C Preferred Shares, nor (ii) the
increase or decrease in the amount of authorized capital stock of any class,
including Series C Preferred Shares, shall (A) require the consent of holders of
Series C Preferred Shares or (B) be deemed to affect adversely the rights,
preferences, privileges or voting rights of Series C Preferred Shares.
9. Ranking. (a) The Series C Preferred Shares will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
senior to all classes of Common Shares and to each other class of capital stock
or series of preferred shares created hereafter by the Company, the terms of
which do not expressly provide that it ranks on a parity with the Series C
Preferred Shares as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of Common Shares of the Company, as "Junior Shares"); or (ii) on a parity with
the Company's Series A Preferred Shares and each other class of capital stock or
series of preferred shares created hereafter by the Company, the terms
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of which expressly provide that such class or series will rank on a parity with
the Series C Preferred Shares as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Parity Shares"). The
Company may not authorize any new class of capital stock or series of preferred
shares the terms of which expressly provide that such class or series will rank
senior to the Series C Preferred Shares as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company without the approval of
each holder of the Outstanding Series C Preferred Shares.
(b) No cash payments of liquidation preference or dividends on the Series C
Preferred Shares may be made and no Series C Preferred Shares may be redeemed,
retired or purchased for cash (excepting payment for fractional shares) if the
Company is then in default in the payment of any Debt Obligations or if at the
time any other Event of Default under the terms of any Debt Obligations exists
permitting acceleration thereof. Upon any payment or distribution of assets of
the Company in the event of any insolvency, reorganization, liquidation or
similar proceeding, all Debt Obligations must be repaid in full (including any
dividend thereon accruing after the commencement of any proceeding) before the
holders will be entitled to receive
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or retain any payment. Payments on the Series C Preferred Shares may not be
declared due and payable prior to the Mandatory Redemption Date because of the
failure to make dividend payments when due or to make payments with respect to
any applicable redemption or under the terms of any Debt Obligations.
(c) No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Shares for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid (or are
deemed declared and paid) in full or declared and a sum in cash sufficient for
such payment is set apart for such payment of the Series C Preferred Shares. If
full dividends are not so paid, the Series C Preferred Shares will share
dividends pro rata with any Parity Shares. No dividends may be paid or set apart
for such payment on other series of Junior Shares (except dividends on Junior
Shares payable in additional Junior Shares) and no Junior Shares or Parity
Shares may be repurchased, redeemed or otherwise retired nor may funds be set
apart for payment with respect thereto, if full cumulative dividends have not
been paid in full on the Series C Preferred Shares. Payments of Dividend
Arrearages and dividends in connection with any optional redemption may be
declared and paid at any time, without
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reference to any regular Dividend Payment Date, to holders of record on such
date, not more than 45 days prior to the payment thereof, as may be fixed by the
Board of Directors of the Company. So long as any Series C Preferred Shares are
outstanding, the Company shall not make any payment on account of, or set apart
for payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any Parity Share or Junior Share or any
warrants, rights, calls or options exercisable for or convertible into any
Parity Share or Junior Share, and shall not permit any company or other entity
directly or indirectly controlled by the Company to purchase or redeem any
Parity Share or Junior Share or any such warrants, rights, calls or options
unless full cumulative dividends determined in accordance herewith on the Series
C Preferred Shares have been paid in full.
(d) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of the Series C Preferred
Shares then Outstanding shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Company to the holders of the
Common Shares or Junior Shares by reason of their ownership thereof, an amount
equal to $50.00 per share for each outstanding Series C Preferred
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Share, plus, without duplication, an amount in cash equal to all accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up (including an amount equal to a pro rata dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up). If upon the occurrence of such event the assets thus distributed
among the holders of Series C Preferred Shares shall be insufficient to permit
the payment to such holders of the full preferential amount, the entire assets
of the Company legally available for distribution shall be distributed ratably
based upon their respective liquidation preference, among the holders of the
Series C Preferred Shares pari passu with the holders of all Parity Shares.
After payment of the full preferential amount (and, if applicable, an amount
equal to a pro rata dividend to the holders of Outstanding Series C Preferred
Shares), such holders shall not be entitled to any further participation in any
distribution of assets of the Company.
10. Optional and Mandatory Redemption. (a) The Series C Preferred
Shares (i) may be redeemed at any time commencing November 5, 1999, in cash, in
whole or in part, at the election of the Company (the "Optional Redemption"), at
a redemption price equal to the percentage of the liquidation preference set
forth
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below plus accrued and unpaid dividends, if any, to the date of redemption (the
"Optional Redemption Date") if redeemed in the 12-month period ending on
November 1st of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C> <C>
2000 102%
2001 101%
</TABLE>
and thereafter at a redemption price equal to 100% of the liquidation preference
to be redeemed plus accrued and unpaid dividends, if any, to the Optional
Redemption Date and (ii) (if not earlier redeemed or converted) shall be
mandatorily redeemed by the Company on November 1, 2006 (the "Mandatory
Redemption Date") at a redemption price of 100% of the liquidation preference
per Share plus accrued and unpaid dividends, if any (including all Dividend
Arrearages), to the Mandatory Redemption Date. The Company may make any payments
in respect of the liquidation preference due on the Series C Preferred Shares on
the Mandatory Redemption Date, (i) in cash, (ii) by delivery of Common Shares
(in the manner described below); or (iii) through any combination of the
foregoing. If the Company elects to deliver any Common Shares in payment of the
liquidation preference on the Mandatory Redemption Date, the Company shall
deliver, in the aggregate, the number of Common Shares equal to
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(I) the aggregate liquidation preference that is not paid in cash divided
(II) by the Average Market Value of the Common Shares. No fractional Common
Shares will be delivered to a holder, but the Company shall instead pay a cash
adjustment determined as set forth in Section 11(c) hereof. Any portion of
liquidation preference that is not paid through the delivery of Common Shares
shall be paid in cash.
(b) In the event of a redemption of less than all of the Series C Preferred
Shares, the Series C Preferred Shares will be chosen for redemption by the
Registrar from the outstanding Series C Preferred Shares not previously called
for redemption, pro rata or by lot or by such other method as the Registrar
shall deem fair and appropriate. If fewer than all of the Series C Preferred
Shares represented by any share certificate are so to be redeemed, (1) the
Company shall issue a new certificate for the shares not redeemed and (2) if any
Shares represented thereby are converted before termination of the conversion
right with respect to such Shares, such converted Shares shall be deemed (so far
as may be) to be the Shares selected for redemption. Series C Preferred Shares
which have been converted during a selection of Series C Preferred Shares to be
redeemed shall be treated by
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the Registrar as outstanding for the purpose of such selection but not for the
purpose of the payment of the Redemption Price.
(c) In the event the Company elects to effect an Optional Redemption, the
Company shall deliver the Redemption Notice to the holders no later than 10
Business Days before the Redemption Date. Whenever a Redemption Notice is
required to be delivered to the holders, such Notice shall provide the
information set forth in the definition thereof and be given by first class
mail, postage prepaid to each holder of Series C Preferred Shares to be
redeemed, at his address appearing in the Series C Preferred Share Register. In
addition, all Redemption Notices shall identify the Series C Preferred Shares to
be redeemed (including CUSIP number) and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the outstanding Series C Preferred Shares are to
be redeemed, the identification (and, in the case of partial
redemption, the certificate number, the total number of shares
represented thereby and the number of such shares being redeemed
on the Redemption Date) of the particular Series C Preferred
Shares to be redeemed;
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(4) that on the Redemption Date the Redemption Price, together with
(unless the Redemption Date shall be a Dividend Payment Date)
dividends accrued and unpaid to the Redemption Date, will become
due and payable upon each such Series C Preferred Share to be
redeemed and that dividends thereon will cease to accrue on and
after said date;
(5) the conversion price, the date on which the right to convert
Series C Preferred Shares to be redeemed will terminate and the
place or places where such Series C Preferred Shares may be
surrendered for conversion; and
(6) the place or places where such Series C Preferred Shares are to be
surrendered for payment of the Redemption Price.
The Redemption Notice shall be given by the Company or, at the Company's
request, by the Registrar in the name and at the expense of the Company;
provided, that if the Company so requests, it shall provide the Registrar
adequate time, as reasonably determined by the Registrar, to deliver such
notices in a timely fashion.
(d) Prior to any Redemption Date in connection with an Optional Redemption,
the Company shall deposit with the Registrar or with
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a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust) an amount of consideration sufficient to pay the Redemption
Price of and (except if the Redemption Date shall be a Dividend Payment Date)
accrued but unpaid dividends on all the Series C Preferred Shares which are to
be redeemed on that date other than any Series C Preferred Shares called for
redemption on that date which have been converted in Common Shares prior to the
date of such deposit. If any Series C Preferred Share called for redemption is
converted, any cash deposited with the Registrar or with any Paying Agent or so
segregated and held in trust for the redemption of such Series C Preferred Share
shall (subject to any right of the holder of such Series C Preferred Share or
any predecessor Series C Preferred Share to receive accrued but unpaid dividends
thereon as provided in Section 7(e)) be paid or delivered to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
(e) Notice of redemption having been given as aforesaid, the Series C
Preferred Shares so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
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accrued but unpaid dividends) dividends on such Series C Preferred Shares shall
cease to accrue. Upon surrender of any such Series C Preferred Share for
redemption in accordance with said notice, such Series C Preferred Share shall
be paid, subject to Section 7(e), by the Company at the Redemption Price,
together with accrued but unpaid dividends to the Redemption Date. If any Series
C Preferred Share called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price thereof, exclusive of accrued but
unpaid dividends, shall, until paid, bear interest from the Redemption Date at
the rate borne by the Series C Preferred Shares.
(f) Any certificate that represents more than one Series C Preferred Share
and is to be redeemed only in part shall be surrendered at any office or agency
of the Company designated for that purpose (with, if the Company or the
Registrar so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Registrar shall authenticate and deliver to the holder of
such Series C Preferred Share without service charge, a new Series C
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Preferred Share certificate or certificates, representing any number of Series C
Preferred Shares as requested by such holder, in aggregate amount equal to and
in exchange for the number of shares not redeemed and represented by the Series
C Preferred Share certificate so surrendered.
(g) Unless the Company defaults in making a redemption payment, or the Paying
Agent is prohibited from making such payment pursuant to this Schedule,
dividends shall cease to accrue on the Series C Preferred Shares or portions of
them called for redemption on or after the Redemption Date. If a Series C
Preferred Share is redeemed subsequent to a Record Date with respect to any
Dividend Payment Date specified above and on or prior to such Dividend Payment
Date, then any accrued but unpaid dividends will be paid to the person in whose
name such Series C Preferred Share is registered at the close of business on
such Record Date.
11. Conversion. (a) Subject to and upon compliance with the provisions
of this Schedule, at the option of the holder thereof, any Series C Preferred
Share may be converted at the liquidation preference thereof into fully paid and
nonassessable Common Shares (calculated as to each conversion to the nearest
1/100 of a share), at the Conversion Price, determined as hereinafter provided,
in effect at the time of conversion. Such
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conversion right shall expire at the close of business on the Business Day
preceding the Mandatory Redemption Date. In case a Series C Preferred Share is
called for redemption, such conversion right in respect of the Series C
Preferred Share so called shall expire at the close of business on the Business
Day preceding the Redemption Date, unless the Company defaults in making the
payment due upon redemption. The price at which Common Shares shall be delivered
upon conversion (herein called the "Conversion Price") shall be initially $20.00
per Common Share. The Conversion Price shall be adjusted in certain instances as
provided in Section 11(d) and Section 11(e).
(b) In order to exercise the conversion privilege, the holder of any Series C
Preferred Share to be converted shall surrender the certificate for such Share,
duly endorsed or assigned to the Company or in blank, at any office or agency of
the Company maintained for that purpose, accompanied by written notice to the
Company at such office or agency that the holder elects to convert such Share
or, if fewer than all of the Series C Preferred Shares represented by a single
share certificate are to be converted, the number of shares represented thereby
to be converted. Except as provided in Section 7(e), no payment or
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adjustment shall be made upon any conversion on account of any dividends accrued
on the Series C Preferred Shares surrendered for conversion or on account of any
dividends on the Common Shares issued upon conversion. In no event shall the
Company be obligated to pay any converting holder any unpaid Dividend Arrearages
upon conversion.
Series C Preferred Shares shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Shares for
conversion in accordance with the foregoing provisions, and at such time the
rights of the holders of such Shares as holders shall cease, and the person or
persons entitled to receive the Common Shares issuable upon conversion shall be
treated for all purposes as the record holder or holders of such Common Shares
at such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full Common Shares issuable upon conversion,
together with payment in lieu of any fraction of a share, as provided in Section
11(c) hereof.
In the case of any conversion of fewer than all the Series C Preferred Shares
evidenced by a certificate, upon such conversion the Company shall execute and
the Registrar shall authenticate
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and deliver to the holder thereof, at the expense of the Company, a new
certificate or certificates representing the number of unconverted Series C
Preferred Shares.
(c) No fractional Common Shares shall be issued upon the conversion of a
Series C Preferred Share. If more than one Series C Preferred Share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares which shall be issuable upon conversion thereof shall be computed
on the basis of the aggregate Series C Preferred Shares so surrendered. Instead
of any fractional Common Share which would otherwise be issuable upon
conversion of any Series C Preferred Share, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the closing price (as defined in Section 11(d)(vii) per Common Share at the
close of business on the Business Day prior to the day of conversion.
(d) The Conversion Price shall be adjusted from time to time by the Company
as follows:
(i) If the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Shares in Common
Shares, the Conversion Price in effect at the opening of business on the
date following the date fixed
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for the determination of shareholders entitled to receive such dividend
or other distribution shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of Common
Shares outstanding at the close of business on the Record Date (as
defined in Section 11(d)(vii)) fixed for such determination and the
denominator shall be the sum of such number of Shares and the total
number of Shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business
on the day following the Record Date. If any dividend or distribution of
the type described in this Section 11(d)(i) is declared but not so paid
or made, the Conversion Price shall again be adjusted to the Conversion
Price which would then be in effect if such dividend or distribution had
not been declared.
(ii) If the Company shall offer or issue rights or warrants to
all holders of its outstanding Common Shares entitling them to subscribe
for or purchase Common Shares at a price per share less than the Current
Market Price (as defined in Section 11(d)(vii)) on the Record Date fixed
for the determination of shareholders entitled to receive such
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rights or warrants, the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the Conversion Price
in effect at the opening of business on the date after such Record Date
by a fraction of which the numerator shall be the number of Common Shares
outstanding at the close of business on the Record Date plus the number
of Common Shares which the aggregate offering price of the total number
of Common Shares subject to such rights or warrants would purchase at
such Current Market Price and of which the denominator shall be the
number of Common Shares outstanding at the close of business on the
Record Date plus the total number of additional Common Shares subject to
such rights or warrants for subscription or purchase. Such adjustment
shall become effective immediately after the opening of business on the
day following the Record Date fixed for determination of shareholders
entitled to purchase receive such rights or warrants. To the extent that
Common Shares are not delivered pursuant to such rights or warrants, upon
the expiration or termination of such rights or warrants the Conversion
Price shall again be adjusted to be the Conversion Price which would then
be in effect had the
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adjustments made upon the issuance of such rights or warrants been made
on the basis of delivery of only the number of Common Shares actually
delivered. If such rights or warrants are not so issued, the Conversion
Price shall again be adjusted to be the Conversion Price which would then
be in effect if such date fixed for the determination of shareholders
entitled to receive such rights or warrants had not been fixed. In
determining whether any rights or warrants entitle the holders to
subscribe for or purchase Common Shares at less than such Current Market
Price, and in determining the aggregate offering price of such Common
Shares, there shall be taken into account any consideration received for
such rights or warrants, with the value of such consideration, if other
than cash, to be determined by the Board of Directors.
(iii) If the outstanding Common Shares shall be subdivided into a
greater number of Common Shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding Common Shares shall be combined into a
smaller number of Common Shares, the Conversion Price in
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effect at the opening of business on the day following the day upon which
such combination becomes effective shall be proportionately increased,
such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iv) If the Company shall, by dividend or otherwise, distribute
to all holders of its Common Shares shares of any class of capital stock
of the Company (other than any dividends or distributions to which
Section 11(d)(i) applies) or evidences of its indebtedness, cash or other
assets (including securities, but excluding any rights or warrants of a
type referred to in Section 11(d)(ii) and dividends and distributions
paid exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation
to which Section 11(e) applies) (the foregoing hereinafter in this
Section 11(d)(iv) called the "Distributed Securities"), then, in each
such case, the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Record
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Date (as defined in Section 11(d)(vii)) with respect to such distribution
by a fraction of which the numerator shall be the Current Market Price
(determined as provided in Section 11(d)(vii)) on such date less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) on such date of the portion of the Distributed
Securities so distributed applicable to one Common Share and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day
following the Record Date; provided, however, that, in the event the then
fair market value (as so determined) of the portion of the Distributed
Securities so distributed applicable to one Common Share is equal to or
greater than the Current Market Price on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each
holder of Series C Preferred Shares shall have the right to receive upon
conversion of a Series C Preferred Share (or any portion thereof) the
amount of Distributed Securities such holder would have received had such
holder converted such Series C Preferred Share (or portion thereof)
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immediately prior to such Record Date. If such dividend or distribution
is not so paid or made, the Conversion Price shall again be adjusted to
be the Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines
the fair market value of any distribution for purposes of this Section
11(d)(iv) by reference to the actual or when issued trading market for
any securities comprising all or part of such distribution, it must in
doing so consider the prices in such market over the same period used in
computing the Current Market Price pursuant to Section 11(d)(vii) to the
extent possible.
Rights or warrants distributed by the Company to all holders of Common
Shares entitling the holders thereof to subscribe for or purchase shares
of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Dilution Trigger Event"): (i) are deemed to
be transferred with such Common Shares; (ii) are not exercisable; and
(iii) are also issued in respect of future issuances of Common Shares,
shall be deemed not to have been distributed for purposes of this Section
11(d)(iv) (and no
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adjustment to the Conversion Price under this Section 11(d)(iv) shall be
required) until the occurrence of the earliest Dilution Trigger Event,
whereupon such rights and warrants shall be deemed to have been
distributed and an appropriate adjustment to the Conversion Price under
this Section 11(d)(iv) shall be made. If any such rights or warrants,
including any such existing rights or warrants distributed prior to the
date of this Indenture, are subject to subsequent events, upon the
occurrence of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness
or other assets, then the occurrence of each such event shall be deemed
to be such date of issuance and record date with respect to new rights or
warrants (and a termination or expiration of the existing rights or
warrants without exercise by the holder thereof). In addition, in the
event of any distribution (or deemed distribution) of rights or warrants,
or any Dilution Trigger Event with respect thereto, that was counted for
purposes of calculating a distribution amount for which an adjustment to
the Conversion Price under this Section 11(d) was made, (1) in the case
of any such rights or warrants which shall all have
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been redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Dilution Trigger Event,
as the case may be, as though it were a cash distribution, equal to the
per share redemption or repurchase price received by a holder or holders
of Common Shares with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of
Common Shares as of the date of such redemption or repurchase, and (2) in
the case of such rights or warrants which shall have expired or been
terminated without exercise by any holders thereof, the Conversion Price
shall be readjusted as if such rights and warrants had not been issued.
Notwithstanding any other provision of this Section 11(d)(iv) to the
contrary, rights, warrants, evidences of indebtedness, other securities,
cash or other assets (including, without limitation, any rights
distributed pursuant to any shareholder rights plan) shall be deemed not
to have been distributed for purposes of this Section 11(d)(iv) if the
Company makes proper provision so that each holder of Series C Preferred
Shares who converts a
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Series C Preferred Share (or any portion thereof) after the date fixed
for determination of shareholders entitled to receive such distribution
shall be entitled to receive upon such conversion, in addition to the
Common Shares issuable upon such conversion, the amount and kind of such
distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date, converted
such Series C Preferred Share into a Common Share.
For purposes of this Section 11(d)(iv) and Sections 11(d)(i) and (ii),
any dividend or distribution to which this Section 11(d)(iv) is
applicable that also includes Common Shares, or rights or warrants to
subscribe for or purchase Common Shares to which Section 11(d)(ii)
applies (or both), shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, assets, shares of capital
stock, rights or warrants other than such shares of Common Stock or
rights or warrants to which Section 11(d)(ii) applies (and any Conversion
Price reduction required by this Section 11(d)(iv) with respect to such
dividend or distribution shall then be made) immediately followed by (2)
a dividend or distribution of such Common Shares or such
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rights or warrants (and any further Conversion Price reduction required
by Sections 11(d)(i) and 11(d)(ii) with respect to such dividend or
distribution shall then be made), except that (1) the Record Date of such
dividend or distribution shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution", "Record Date fixed for such determination" and "Record
Date" within the meaning of Section 11(d)(i) and as "the date fixed for
the determination of shareholders entitled to receive such rights or
warrants", "the Record Date fixed for the determination of the
shareholders entitled to receive such rights or warrants" and "such
Record Date" within the meaning of Section 11(d)(ii), and (2) any Common
Shares included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 11(d)(i).
(v) If the Company shall, by dividend or otherwise, distribute
to all holders of its Common Shares cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 11(e) applies
or as part of a
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distribution referred to in Section 11(d)(iv)) in an aggregate amount
that, combined together with (1) the aggregate amount of any other such
distributions to all holders of its Common Shares made exclusively in
cash within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this
Section 11(d)(v) has been made, and (2) the aggregate of any cash plus
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) of consideration payable in respect of any tender
offer by the Company for all or any portion of the Common Shares
concluded within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to Section
11(d)(vi) has been made, exceeds 10% of the product of the Current Market
Price (determined as provided in Section 11(d)(vii)) on the Record Date
with respect to such distribution times the number of Common Shares
outstanding on such date, then, and in each such case, immediately after
the close of business on such date, the Conversion Price shall be reduced
so that the same shall equal the price determined by multiplying the
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Conversion Price in effect immediately prior to the close of business on
such Record Date by a fraction (i) the numerator of which shall be equal
to the Current Market Price on the Record Date less an amount equal to
the quotient of (x) the excess of such combined amount over such 10% and
(y) the number of Common Shares outstanding on the Record Date and (ii)
the denominator of which shall be equal to the Current Market Price on
such Record Date; provided, however, that, if the portion of the cash so
distributed applicable to one Common Share is equal to or greater than
the Current Market Price of the Common Shares on the Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so that
each holder of Series C Preferred Shares shall have the right to receive
upon conversion of a Series C Preferred Share (or any portion thereof)
the amount of cash such holder would have received had such holder
converted such Series C Preferred Share (or portion thereof) immediately
prior to such Record Date. If such dividend or distribution is not so
paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. Any cash distribution to all holders
of Common
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Shares as to which the Company makes the election permitted by Section
11(d)(xii) and as to which the Company has complied with the requirements
of such Section shall be treated as not having been made for all purposes
of this Section 11(d)(v).
(vi) If a tender offer made by the Company or any of its
subsidiaries for all or any portion of the Common Shares expires and such
tender offer (as amended upon the expiration thereof) requires the
payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as
defined below)) of an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) that,
combined together with (1) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Board of Directors),
as of the expiration of such tender offer, of consideration payable in
respect of any other tender offers, by the Company or any of its
subsidiaries for all or any portion of the Common Shares
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expiring within the 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this Section
11(d)(vi) has been made and (2) the aggregate amount of any distributions
to all holders of the Common Shares made exclusively in cash within 12
months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to Section 11(d)(v) has been made, exceeds
10% of the product of the Current Market Price (determined as provided in
Section 11(d)(vii)) as of the last time (the "Expiration Time") tenders
could have been made pursuant to such tender offer (as it may be amended)
times the number of Common Shares outstanding (including any tendered
shares) at the Expiration Time, then, and in each such case, immediately
prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the date of the
Expiration Time by a fraction of which the numerator shall be the number
of Common Shares outstanding (including any tendered shares) at the
Expiration Time multiplied by the Current Market Price of
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the Common Shares on the Trading Day next succeeding the Expiration Time
and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
shareholders based on the acceptance (up to any maximum specified in the
terms of the tender offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y)
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price of
the Common Shares on the Trading Day next succeeding the Expiration Time,
such reduction (if any) to become effective immediately prior to the
opening of business on the day following the Expiration Time. If the
Company is obligated to purchase shares pursuant to any such tender
offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such tender offer had not been made. If the
application of this Section 11(d)(vi) to any tender offer would result in
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an increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 11(d)(vi).
(vii) For purposes of this Section 11(d), the following terms
shall have the meaning indicated: "closing price" with respect to any
securities on any day means the closing price on such day or, if no such
sale takes place on such day, the average of the reported high and low
prices on such day, in each case on The Nasdaq National Market or the New
York Stock Exchange, as applicable, or, if such security is not listed or
admitted to trading on such national market or exchange, on the principal
national securities exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation
system, the average of the high and low prices of such security on the
over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated or a similar generally accepted
reporting service, or, if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time to time by
the Board of Directors for that purpose, or a price determined in good
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faith by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors.
"Current Market Price" means the average of the daily closing prices per
Common Share for the 10 consecutive trading days immediately prior to the
date in question; provided, however, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to
the Conversion Price pursuant to Section 11(d)(i), (ii), (iii), (iv),
(v), or (vi) occurs during such 10 consecutive trading days, the closing
price for each trading day prior to the "ex" date for such other event
shall be adjusted by multiplying such closing price by the same fraction
by which the Conversion Price is so required to be adjusted as a result
of such other event, (B) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 11(d)(i), (ii),
(iii), (iv), (v) or (vi) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and prior to the day
in question, the
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closing price for each trading day on and after the "ex" date for such
other event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event and (C) if the "ex" date
for the issuance or distribution requiring such computation is prior to
the day in question, after taking into account any adjustment required
pursuant to clause (A) or (B) of this proviso, the closing price for each
trading day on or after such "ex" date shall be adjusted by adding
thereto the amount of any cash and the fair market value (as determined
by the Board of Directors in a manner consistent with any determination
of such value for purposes of Section 11(d)(iv) or (v), whose
determination shall be conclusive and described in a resolution of the
Board of Directors) of the evidences of indebtedness, shares of capital
stock or assets being distributed applicable to one Common Share as of
the close of business on the day before such "ex" date. For purposes of
any computation under Section 11(d)(vi), the Current Market Price on any
date shall be deemed to be the average of the daily closing prices per
Common Share for such day and the next two succeeding trading days;
provided,
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however, that, if the "ex" date for any event (other than the tender
offer requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 11(d)(i), (ii), (iii), (iv), (v), or
(vi) occurs on or after the Expiration Time for the tender or exchange
offer requiring such computation and prior to the day in question, the
closing price for each trading day on and after the "ex" date for such
other event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event. For purposes of this
paragraph, the term "ex" date (I) when used with respect to any issuance
or distribution, means the first date
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on which the Common Shares trade regular way on the relevant exchange or
in the relevant market from which the closing price was obtained without
the right to receive such issuance or distribution, (II) when used with
respect to any subdivision or combination of Common Shares, means the
first date on which the Common Shares trade regular way on such exchange
or in such market after the time at which such subdivision or combination
becomes effective and (III) when used with respect to any tender or
exchange offer means the first date on which the Common Shares trade
regular way on such exchange or in such market after the Expiration Time
of such offer. Notwithstanding the foregoing, whenever successive
adjustments to the Conversion Price are called for pursuant to this
Section 11(d), such adjustments shall be made to the Current Market Price
as may be necessary or appropriate to effectuate the intent of this
Section 11(d) and to avoid unjust or inequitable results, as determined
in good faith by the Board of Directors.
"fair market value" shall mean the amount which a willing buyer would
pay a willing seller in an arm's-length transaction.
"Record Date" shall mean, with respect to any dividend, distribution or
other transaction or event in which the holders of Common Shares have the
right to receive any cash, securities or other property or in which the
Common Shares (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the
date fixed for determination of shareholders entitled to receive such
cash, securities or other property (whether such date is fixed by the
Board of Directors or by statute, contract or otherwise).
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(viii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
1% in such price; provided, however, that any adjustments which by reason
of this Section 11(d)(viii) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made by the Company and shall
be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be. No adjustment need be made for a change in the par
value or no par value of the Common Shares.
(ix) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Registrar an Officers'
Certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare a
notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion
Price to each holder of Series C Preferred Shares at such holder's
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last address appearing on the register of holders maintained for that
purpose within 20 days of the effective date of such adjustment. Failure
to deliver such notice shall not affect the legality or validity of any
such adjustment.
(x) In any case in which this Section 11(d) provides that an
adjustment shall become effective immediately after a Record Date for an
event, the Company may defer until the occurrence of such event issuing
to the holder of any Series C Preferred Share converted after such Record
Date and before the occurrence of such event the additional Common Shares
issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Shares issuable upon such conversion
before giving effect to such adjustment.
(xi) For purposes of this Section 11(d), the number of Common
Shares at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of Common Shares. The
Company shall not pay any dividend or make any distribution on Common
Shares held in the treasury of the Company.
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(xii) In lieu of making any adjustment to the Conversion Price
pursuant to Section 11(d)(v), the Company may elect to reserve an amount
of cash for distribution to the holders of Series C Preferred Shares upon
the conversion of the Series C Preferred Shares so that any such holder
converting Series C Preferred Shares will receive upon such conversion,
in addition to the Common Shares and other items to which such holder is
entitled, the full amount of cash which such holder would have received
if such holder had, immediately prior to the Record Date for such
distribution of cash, converted its Series C Preferred Shares into Common
Shares, together with any interest accrued with respect to such amount,
in accordance with this Section 11(d)(xii) The Company may make such
election by providing an Officers' Certificate to the Registrar to such
effect on or prior to the payment date for any such distribution and
depositing with the Registrar on or prior to such date an amount of cash
equal to the aggregate amount that the holders of Series C Preferred
Shares would have received if such holders had, immediately prior to the
Record Date for such distribution, converted all the Series C Preferred
Shares into Common Shares. Any such funds so deposited by the
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Company with the Registrar shall be invested by the Registrar in U.S.
Government Obligations with a maturity not more than three months from
the date of issuance. Upon conversion of Series C Preferred Shares by a
holder thereof, such holder shall be entitled to receive, in addition to
the Common Shares issuable upon conversion, an amount of cash equal to
the amount such holder would have received if such holder had,
immediately prior to the Record Date for such distribution, converted its
Series C Preferred Shares into Common Shares, along with such holder's
pro rata share of any accrued interest earned as a consequence of the
investment of such funds. Promptly after making an election pursuant to
this Section 11(d)(xii), the Company shall give or shall cause to be
given notice to all holders of Series C Preferred Shares of such
election, which notice shall state the amount of cash per $50 of
liquidation preference of Series C Preferred Shares such holders shall be
entitled to receive (excluding interest) upon conversion of the Series C
Preferred Shares as a consequence of the Company having made such
election.
(xiii) Whenever the conversion price is adjusted as provided in
Section 11(d), the Company shall compute the
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adjusted conversion price in accordance with Section 11(d) and shall
prepare a certificate signed by any Vice President or the Treasurer of
the Company setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based and the
effective date of such adjustment, and such certificate shall forthwith
be filed at each office or agency maintained for the purpose of
conversion of Series C Preferred Shares.
(e) In case of any consolidation of the Company with, or merger of the
Company into, any other corporation, or in case of any merger of another
corporation into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Shares of
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the Company), or in case of any conveyance or transfer of the properties and
assets of the Company substantially as an entirety, the holder of each Series C
Preferred Share then outstanding shall have the right thereafter, during the
period such Series C Preferred Share shall be convertible as specified in
Section 11(a), to convert such Series C Preferred Share only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Shares of the Company into which such Series C Preferred Share
might have been converted immediately prior to such consolidation, merger,
conveyance or transfer, assuming such holder of Common Shares of the Company
failed to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance or transfer (provided that, if the kind or amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance or
transfer is not the same for each Common Share of the Company in respect of
which such rights of election shall not have been exercised ("nonelecting
share"), then for the purpose of this Section the kind and amount of securities,
cash and other property receivable upon such consolidation, merger, conveyance
or transfer by each nonelecting share shall be deemed to be the kind and amount
so receivable per share by a plurality of the nonelecting shares). Such
securities shall provide for adjustments which, for events subsequent to the
effective date of the triggering event, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, conveyances or transfers.
(f) In case:
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(1) the Company shall declare a dividend (or any other distribution) on its
Common Shares payable otherwise than in cash out of its earned surplus; or
(2) the Company shall authorize the granting to all holders of its Common
Shares of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(3) of any reclassification of the Common Shares of the Company (other than a
subdivision or combination of its outstanding Common Shares), or of any
consolidation or merger to which the Company is a party and for which approval
of any shareholders of the Company is required, or the sale or transfer of all
or substantially all the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or winding up of
the Company;
then the Company shall cause to be filed with the Registrar and at each office
or agency maintained for the purpose of conversion of Series C Preferred Shares,
and shall cause to be mailed to all holders at their last addresses as they
shall appear in the Series C Preferred Shares Register, at least 20 days (or 10
days in any case specified in clause (1) or (2) above) prior to the applicable
date hereinafter specified, a notice stating (x) the
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date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. Failure to give the notice requested by
this Section or any defect therein shall not affect the legality or validity of
any dividend, distribution, right, warrant, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up, or the vote upon
any such action.
(h) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Shares, for the
purpose of effecting the conversion of Series C Preferred Shares, the full
number of Common Shares then
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issuable upon the conversion of all outstanding Series C Preferred Shares.
(i) The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of Common Shares on conversion of Series C Preferred
Shares pursuant hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of Common Shares in a name other than that of the holder of the Series
C Preferred Share or Series C Preferred Shares to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company that such tax has been paid.
12. Consolidation, Merger, Conveyance or Transfer. (a) The Company
shall not consolidate with or merge into any other company or convey or transfer
its properties and assets substantially as an entirety to any person, unless (i)
the Series C Preferred Shares shall have converted into or exchanged for and
shall become shares of such resulting, surviving or transferee person, having in
respect of such resulting, surviving or transferee person the same powers,
preference and relative participating, optional or other special rights and the
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qualifications, limitations or restrictions thereon, that the Series C Preferred
Shares had immediately prior to such transaction and (ii) the Company shall have
delivered to the Registrar an Officer's Certificate and an opinion of counsel,
each stating that such consolidation, merger, conveyance or transfer complies
with this Section 12 and that all conditions precedent herein provided for
relating to such transaction have been complied with.
(b) Upon any consolidation or merger or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section 12(b), the successor company formed by such consolidation or into
which such conveyance or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Schedule
with the same effect as if such successor company had been named as the Company
herein, and thereafter the predecessor company shall be relieved of all
obligations and covenants under this Schedule and the Series C Preferred Shares.
13. Registration Rights. Pursuant to a Registration Rights Agreement,
dated November 6, 1996 (the "Closing Date"), between the Company and the Initial
Purchasers (the "Registration Rights
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Agreement"), the Company has agreed for the benefit of the holders, that it will
within 180 days after the Closing Date, file a shelf registration statement (the
"Shelf Registration Statement") with the Securities and Exchange Commission (the
"Commission") with respect to resales of the Series C Preferred Shares and
Common Shares issuable upon conversion thereof; (ii) will use its best efforts
to cause, within 240 days after the Closing Date, such Shelf Registration
Statement to be declared effective by the Commission; and (iii) subject to
certain exceptions, the Company will maintain such Shelf Registration Statement
continuously effective under the Securities Act until such date as of which
neither the Series C Preferred Shares nor the Common Shares issuable upon
conversion thereof shall constitute restricted securities pursuant to Rule
144(k) under the Securities Act or all the Series C Preferred Shares and the
Common Shares issuable upon conversion thereof have been sold pursuant to such
Shelf Registration Statement.
14. SEC Reports; Reports by Company. Whether or not required by the
rules and regulations of the SEC, so long as any Series C Preferred Shares are
outstanding, the Company shall file with the Commission and, if requested,
furnish to the holders of Series C Preferred Shares all quarterly and annual
financial
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information required to be contained in a filing with the Commission on Forms
10-Q and 10-K, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to annual information
only, a report thereon by the Company's certified independent accountants;
15. Definitions. For purposes of this Schedule, the following terms
shall have the meaning set forth below: Business Day: each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in The City of New York are authorized or obligated by law or executive
order to be closed.
Closing Date: November 6, 1996
Common Shares: Common shares of the Company, par value $.01 per share.
CPEOs: Convertible Preferred Equivalent Obligations due 2006 of the Company.
Commission: the Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or, if at any
time after the adoption of this Schedule such Commission is not existing and
performing the duties now assigned to it, then the body performing such duties
at such time.
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Company: Loral Space & Communications Ltd.
Company Order: a written request or order signed in the name of the Company by
its Chairman of the Board, its President or a Vice President and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
provided, however, that any person duly designated by the Chairman of the Board,
the President, a Vice President or any other officer of the Company may sign or
execute on behalf of any or all such persons listed above.
Debt Obligations: the principal of, premium, if any, interest and other amounts
due on any indebtedness, whether now outstanding or hereafter created, incurred,
assumed or guaranteed by the Company, for money borrowed from others (including
obligations under capitalized leases, purchase money indebtedness or any trade
credit), liabilities incurred in the ordinary course of business, commitment,
standby and other fees due and payable to financial institutions with respect to
credit facilities that may be maintained by the Company or in connection with
the acquisition by the Company of any other business or entity, or in respect of
letters of credit or bid, performance or surety bonds issued for the account or
on the credit of the Company, and, in each case, all renewals, extensions and
refundings thereof.
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Deferral Trigger Event: the Company has deferred the payment of dividends due
under the Series C Preferred Shares in an aggregate equal to six quarterly
dividend payments
Dividend Arrearage: the amount of dividend payments that the Company has elected
to defer pursuant to a Deferral Election that remains unpaid.
Dividend Payment Date: the dates specified in a Series C Preferred Share as the
fixed dates on which a dividend is due and payable; provided, however, that if
such date shall not be a Business Day, then such date shall be the next Business
Day. Junior Shares: all classes of Common Shares and each other class of capital
stock or series of preferred shares created hereafter by the Company, the terms
of which do not expressly provide that it ranks on a parity with the Series C
Preferred Shares as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company;
Mandatory Redemption Date: November 1, 2006.
Oustanding: when used with respect to Series C Preferred Shares means, as of the
date of termination, all Series C Preferred Shares theretofore authenticated and
delivered under this Schedule, except (i) Series C Preferred Shares theretofore
converted into Common Shares in accordance with Section 11 hereof
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and Series C Preferred Shares theretofore canceled by the Registrar or delivered
to the Registrar for cancellation; (ii) Series C Preferred Shares for whose
payment or redemption money in the necessary amount has been theretofore
deposited with the Registrar or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent) for the holders of such Series C Preferred Shares;
provided, that, if such Series C Preferred Shares are to be redeemed, notice of
such redemption has been duly given pursuant to this Schedule or provision
therefor satisfactory to the Registrar has been made; and (iii) Series C
Preferred Shares (x) that are mutilated, destroyed, lost or stolen which the
Company has decided to pay or (y) in exchange for or in lieu of which other
Series C Preferred Shares have been authenticated and delivered pursuant to this
Schedule, provided, however, that, in determining whether the holders of the
Series C Preferred Shares have given any request, demand, authorization,
direction, notice, consent or waiver or taken any other action hereunder, Series
C Preferred Shares owned by the Company or any other obligor upon the Series C
Preferred Shares or any affiliate of the Company or of such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in determining
whether
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the Registrar shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only Series C
Preferred Shares which the Registrar has actual knowledge of being so owned
shall be so disregarded. Series C Preferred Shares so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Registrar the pledgee's right so to act with respect
to such Series C Preferred Shares and that the pledgee is not the Company or any
other obligor upon the Series C Preferred Shares or any affiliate of the Company
or of such other obligor.
Parity Shares: the Series A Preferred Shares and each other class of capital
stock or series of preferred shares created hereafter by the Company, the terms
of which expressly provide that such class or series will rank on a parity with
the Series C Preferred Shares as to dividend rights and rights on liquidation,
winding-up and dissolution.
Registrar: The Bank of New York.
Series C Preferred Shares Directors: the Directors who may be elected to the
Company's Board of Directors by the holders of the Series C Preferred Shares in
the case of a Deferral Trigger Event in respect of the Series C Preferred
Shares.
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<PAGE> 174
EXHIBIT A
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL SERIES C PREFERRED SHARE OR RESTRICTED
SERIES C PREFERRED SHARE TO RESTRICTED SERIES C PREFERRED SHARE
(Transfers pursuant to Section _______________
or Section ________________ of the Schedule)
The Bank of New York, as Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Trustee
Administration
Re: Loral Space & Communications Ltd. 6% Series C Convertible
Redeemable Preferred
Shares
Reference is hereby made to Schedule III to the Bye-Laws of Loral Space &
Communications Ltd. Capitalized terms used but not
<PAGE> 175
defined herein shall have the meanings given them in the Schedule.
This letter relates to U.S. $__________ aggregate liquidation preference of
Series C Preferred Shares which are held [in the form of the [Restricted]
[Global] Security (CUSIP No. ) with the Depositary] * in the name of
[name of transferor] (the "Transferor") to effect the transfer of the Series C
Preferred Shares.
- --------------------
* Insert, if appropriate.
<PAGE> 176
In connection with such request, and in respect of such Series C Preferred
Shares, the Transferor does hereby certify that such Series C Preferred Shares
are being transferred in accordance with (i) the transfer restrictions set forth
in the Series C Preferred Shares and (ii) to a transferee that the Transferor
reasonably believes is an "accredited investor" (as defined in Rule 501(a) of
Regulation D under the Securities Act of 1933) and is acquiring at least
$250,000 liquidation preference of Series C Preferred Shares for its own account
or for one or more accounts as to which the transferee exercises sole investment
discretion and (iii) in accordance with applicable securities laws of any state
of the United States or any other jurisdiction.
[Name of Transferor]
by:
----------------------------
Name:
Title:
Dated:
<PAGE> 177
cc: Loral Space & Communications Ltd.
600 Third Avenue
New York, New York 10016
Attn: General Counsel
<PAGE> 178
EXHIBIT B
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant to Section _________ and
Section ___________ of the Schedule)
The Bank of New York, as Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Trustee
Trust Administration
Re: Loral Space & Communications Ltd.
6% Series C Convertible Redeemable Preferred Shares Reference is hereby
made to Schedule III to the Bye-Laws of the Company. Capitalized terms used but
not defined herein shall have the meanings given them in the Schedule.
This letter relates to U.S. $__________ aggregate liquidation preference of
Series C Preferred Shares which are held [in the form of the [Restricted]
[Global] Series C Preferred Share (CUSIP No. ___) with the Depositary] in the
name of [name of transferor]
<PAGE> 179
(the "Transferor") to effect the transfer of the Securities to the undersigned.
In connection with such request, and in respect of such Series C Preferred
Shares, we confirm that:
1. We understand that the Securities have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act"), and are being sold to us in a
transaction that is exempt from the registration requirements of the Securities
Act.
2. We are a corporation, partnership or other entity having such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Series C Preferred Shares, and we
are (or any account for which we are purchasing under paragraph 4 below is) an
accredited investor as defined in Rule 501(a) under the Securities Act, able to
bear the economic risk of our proposed investment in the Series C Preferred
Shares.
3. We are acquiring the Series C Preferred Shares for our own account (or
for accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter) and not
with a view to any distribution of the Series C Preferred Shares, subject,
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nevertheless, to the understanding that the disposition of our property shall at
all times be and remain within our control.
4. We are, and each account (if any) for which we are purchasing Securities
is, purchasing Series C Preferred Shares having an aggregate liquidation
preference of not less than $250,000.
5. We understand that (a) the Series C Preferred Shares will be delivered to
us in registered form only and that the certificate delivered to with respect to
the Securities will bear a legend substantially to the following effect:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR
THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED PRIOR TO THE DATE ON WHICH THIS SECURITY NO LONGER
CONSTITUTES A "RESTRICTED" SECURITIES UNDER RULE 144(k) UNDER THE SECURITIES ACT
OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON
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RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS
SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE "40
DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(C)(3) OF REGULATION S
UNDER THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY
OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE,
(4) TO AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A) UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE IN THE FORM
ATTACHED TO THIS SECURITY IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF
THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(C)(3) OF
REGULATION S UNDER THE SECURITIES ACT), (5) PURSUANT TO AN
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EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN ACCREDITED
INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE
TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (0)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT."
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and (b) such certificates will be reissued without the foregoing legend only in
accordance with the terms of the Schedule. 6. We agree that in the event that at
some future time we wish to dispose of any of the Series C Preferred Shares, we
will not do so unless:
(a) the Series C Preferred shares are sold to the Company or any Subsidiary
thereof;
(b) the Series C Preferred Shares are sold to a qualified institutional buyer
in compliance with Rule 144A under the Securities Act;
(c) the Series C Preferred Shares are sold to an accredited investor, as
defined in Rule 501(a) under the Securities Act, acquiring at least $250,000
liquidation preference of the Series C Preferred Shares that, prior to such
transfer, furnishes to the Registrar a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Series C Preferred Shares (the form of which letter can be obtained from such
Registrar);
(d) the Series C Preferred Shares are sold outside the United States in
compliance with Rule 903 or Rule 904 under the Securities Act;
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(e) the Series C Preferred Shares are sold by us pursuant to Rule 144 under
the Securities Act; or
(f) the Series C Preferred Shares are sold pursuant to an effective
registration statement under the Securities Act.
Very truly yours,
[PURCHASER]
by:
--------------------
Name:
Title:
Dated:
cc: Loral Space & Communications Ltd.
600 Third Avenue
New York, New York 10016
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<PAGE> 1
EXHIBIT 3.4
1
EXECUTION COPY
SCHEDULE IV
6% Series D Convertible Redeemable
Preferred Shares due 2007
Loral Space & Communications Ltd., an exempted company organized
under the laws of Bermuda (the "Company"), certifies that pursuant to the
authority contained in its Memorandum of Association (the "Memorandum of
Association") and its Bye-Laws (the "Bye-Laws"), and in accordance with Bermuda
law, the Board of Directors (or a duly authorized committee thereof) of the
Company at meetings duly called and held on February 7, 2000, and February 14,
2000, duly approved and adopted the following resolution, which resolution
remains in full force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Memorandum of Association and Bye-Laws, the Board of Directors
does hereby designate, create, authorize and provide for the issue of a series
of preference stock having the following designation, voting powers, preferences
and relative, participating, optional and other special rights:
Capitalized terms used herein are defined in Section 15.
1. Number and Designation. The Company shall have a class of
preference shares, which shall be designated as its 6% Series D Convertible
Redeemable Preferred Shares due 2007 (the "Series D Preferred Shares"), par
value U.S.$0.01 per share, with 9,600,000 shares initially authorized and,
subject to the limitations set forth herein, such number of additional shares as
are authorized from time to time by resolution of the Board of Directors of the
Company and as set forth in the Bye-Laws of the Company. Unless otherwise
specified, references herein to any "Section" refer to the Section number
specified in this Schedule IV.
<PAGE> 2
2
2. Issuance. The Company may issue Series D Preferred Shares
from time to time as may be determined by the Board of Directors (or any
committee thereof) of the Company.
3. Registered Form; Liquidation Preference; Registrar.
Certificates for Series D Preferred Shares shall be issuable only in registered
form and only with a liquidation preference of U.S.$50 per share. The Company
hereby appoints The Bank of New York as its initial Registrar and Transfer Agent
(the "Registrar") for the Series D Preferred Shares.
4. Registration; Transfer. (a) The Series D Preferred Shares
have not been registered under the United States Securities Act of 1933 (the
"Securities Act") and may not be resold, pledged or otherwise transferred prior
to the date when they no longer constitute "restricted securities" for purposes
of Rule 144(k) under the Securities Act other than (i) to the Company, (ii) to
"qualified institutional buyers" ("QIBs") pursuant to and in compliance with
Rule 144A ("Rule 144A") under the Securities Act, (iii) pursuant to and in
compliance with Rule 904 of Regulation S under the Securities Act ("Regulation
S"), (iv) pursuant to an exemption from registration under the Securities Act,
or (v) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of Bermuda or any
state of the United States. Until such time as determined by the Company and the
Registrar, certificates evidencing the Series D Preferred Shares shall contain a
legend (the "Restricted Shares Legend") evidencing the foregoing restrictions in
substantially the form set forth on the form of Series D Preferred Share
attached hereto as Exhibit A.
(b) Series D Preferred Shares issued to QIBs in reliance on
Rule 144A or sold in reliance on Regulation S, as provided in the Purchase
Agreement, shall be issued in the form of one or more permanent global Series D
Preferred Shares in definitive, fully registered form with the global legend
(the "Global Shares Legend") and the Restricted Shares Legend set forth on the
form of Series D Preferred Share attached hereto as Exhibit A (each, a "Global
Series D Preferred Share"), which shall be deposited on behalf of the
<PAGE> 3
3
holders of the Series D Preferred Shares represented thereby with the Registrar,
at its New York office, as custodian for The Depository Trust Company, New York,
New York ("DTC") or its nominee and their respective successors (the
"Depositary"), and registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Company and countersigned and registered by the
Registrar as hereinafter provided. The aggregate liquidation preference of the
Global Series D Preferred Share may from time to time be increased or decreased
by adjustments made on the records of the Registrar and the Depositary or its
nominee as hereinafter provided.
(c) This paragraph shall apply only to a Global Series D
Preferred Share deposited with or on behalf of the Depositary. The Company shall
execute and the Registrar shall, in accordance with this Section, countersign
and deliver initially one or more Global Series D Preferred Shares that (i)
shall be registered in the name of Cede & Co. or other nominee of the Depositary
and (ii) shall be delivered by the Registrar to Cede & Co. or pursuant to
instructions received from Cede & Co. or held by the Registrar as custodian for
the Depositary pursuant to an agreement between the Depositary and the
Registrar. Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Schedule with respect to any Global Series D
Preferred Share held on their behalf by the Depositary or by the Registrar as
the custodian of the Depositary or under such Global Series D Preferred Share,
and the Depositary may be treated by the Company, the Registrar and any agent of
the Company or the Registrar as the absolute owner of such Global Series D
Preferred Share for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Registrar or any agent of the
Company or the Registrar from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices of the
Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Series D Preferred Share. Except as provided in Section
5(b), owners of beneficial interests in Global Series D Preferred Shares will
not be entitled to receive physical delivery of certificated Series D Preferred
Shares.
<PAGE> 4
4
(d) No certificate evidencing Series D Preferred Shares shall
be valid unless it bears the countersignature of the Registrar.
5. Paying Agent and Conversion Agent. (a) The Company shall
maintain in the Borough of Manhattan, City of New York, State of New York (i) an
office or agency where Series D Preferred Shares may be presented for payment
(the "Paying Agent") and (ii) an office or agency where Series D Preferred
Shares may be presented for conversion (the "Conversion Agent"). The Company may
appoint the Registrar, the Paying Agent and the Conversion Agent and may appoint
one or more additional paying agents and one or more additional conversion
agents in such other locations as it shall determine. The term "Paying Agent"
includes any additional paying agent and, with respect to payments hereunder by
delivery of Common Shares, may include the Common Share Transfer Agent, and the
term "Conversion Agent" includes any additional conversion agent. The Company
may change any Paying Agent or Conversion Agent without prior notice to any
holder. The Company shall notify the Registrar of the name and address of any
Paying Agent or Conversion Agent appointed by the Company. If the Company fails
to appoint or maintain another entity as Paying Agent or Conversion Agent, the
Registrar shall act as such. The Company or any of its Affiliates may act as
Paying Agent, Registrar, coregistrar or Conversion Agent.
<PAGE> 5
5
(b) Notwithstanding any provision to the contrary herein, so
long as a Global Series D Preferred Share remains outstanding and is held by or
on behalf of the Depositary, transfers of a Global Series D Preferred Share, in
whole or in part, or of any beneficial interest therein, shall only be made in
accordance with Section 4 and this Section 5; provided, however, that beneficial
interests in a Global Series D Preferred Share may be transferred to persons who
take delivery thereof in the form of a beneficial interest in the same Global
Series D Preferred Share in accordance with the transfer restrictions set forth
in the Restricted Shares Legend:
(i) Except for transfers or exchanges made in accordance with
any of clauses (b)(ii) through (v) of this Section 5, transfers of a
Global Series D Preferred Share shall be limited to transfers of such
Global Series D Preferred Share in whole, but not in part, to nominees of
the Depositary or to a successor of the Depositary or such successor's
nominee.
(ii) If an owner of a beneficial interest in a Global Series D
Preferred Share deposited with the Depositary or with the Registrar as
custodian for the Depositary wishes at any time to transfer its interest
in such Global Series D Preferred Share to a person who is required to
take delivery thereof in the form of Restricted Series D Preferred
Shares, such owner may, subject to the rules and procedures of the
Depositary, cause the exchange of such interest for one or more
certificates evidencing such Restricted Series D Preferred Shares. Upon
receipt by the Registrar, at its office in The City of New York of (A)
instructions from the Depositary directing the Registrar to countersign
and deliver one or more Restricted Series D Preferred Shares equal in
number of shares to the beneficial interest in the Global Series D
Preferred Share to be exchanged, such instructions to contain the name or
names of the designated transferee or transferees, the number of
Restricted Series D Preferred Shares to be so issued and appropriate
delivery instructions, (B) a certificate in the form of Exhibit B
attached hereto given by the transferor, to the effect set forth therein,
and (C) such other certifications, legal opinions or other information as
<PAGE> 6
6
the Company, the Depositary or the Registrar may reasonably require to
confirm that such transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act, then the Registrar will instruct the Depositary to reduce
or cause to be reduced such Global Series D Preferred Share by the number
of shares of the beneficial interest therein to be exchanged and to debit
or cause to be debited from the account of the person making such
transfer the beneficial interest in the Global Series D Preferred Share
that is being transferred, and concurrently with such reduction and
debit, the Company shall execute, and the Registrar shall countersign and
deliver, one or more Restricted Series D Preferred Shares representing
the same number of shares in accordance with the instructions referred to
above.
(iii) If a holder of Restricted Series D Preferred Shares wishes
at any time to transfer all or part of such Restricted Series D Preferred
Shares to a person who is required to take delivery thereof in the form
of Restricted Series D Preferred Shares, such holder may, subject to the
restrictions on transfer set forth herein and in the certificate
representing such Restricted Series D Preferred Shares, cause the
exchange of such Restricted Series D Preferred Shares for one or more
certificates evidencing such Restricted Series D Preferred Shares. Upon
receipt by the Registrar, at its office in The City of New York of (A)
such Restricted Series D Preferred Shares, duly endorsed as provided
herein, (B) instructions from such holder directing the Registrar to
authenticate and deliver one or more certificates evidencing Restricted
Series D Preferred Shares, such instructions to contain the name of the
transferee and the number of the Restricted Series D Preferred Shares to
be so issued and appropriate delivery instructions, (C) a certificate
from the holder of the Restricted Series D Preferred Shares to be
exchanged in the form of Exhibit B attached hereto given by the
transferor, to the effect set forth therein, and (D) such other
certifications, legal opinions or other information as the Company or the
Registrar may reasonably require to confirm that such transfer is being
made pursuant to an
<PAGE> 7
7
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, then the Registrar shall cancel or
cause to be canceled such Restricted Series D Preferred Share and
concurrently therewith, the Company shall execute, and the Registrar
shall countersign and deliver, one or more Restricted Series D Preferred
Shares representing the number of shares transferred in accordance with
the instructions referred to above.
(iv) If a holder of Restricted Series D Preferred Shares wishes
at any time to transfer all or part of such Restricted Series D Preferred
Shares to a person who is eligible to take delivery thereof in the form
of a beneficial interest in a Global Series D Preferred Share, such
holder may, subject to the restrictions on transfer set forth herein and
in the certificate representing such Restricted Series D Preferred
Shares, cause the exchange of such Restricted Series D Preferred Shares
for beneficial interests in a Global Series D Preferred Share. Upon
receipt by the Registrar, at its office in The City of New York of (A)
such Restricted Series D Preferred Shares, duly endorsed as provided
herein, (B) instructions from such holder directing the Registrar to
increase the Global Series D Preferred Share, such instructions to
contain the name of the transferee and appropriate account information,
(C) a certificate from the holder of the Restricted Series D Preferred
Shares to be exchanged in the form of Exhibit B attached hereto given by
the transferor, to the effect set forth therein, and (D) such other
certifications, legal opinions or other information as the Company, the
Depositary or the Registrar may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act, then
the Registrar shall cancel or cause to be canceled such Restricted Series
D Preferred Shares and concurrently therewith, the Registrar will
instruct the Depositary to increase or cause to be increased the Global
Series D Preferred Share by the aggregate number of shares of the
Restricted Series D Preferred Shares to be exchanged and to credit or
cause to be credited to the account of
<PAGE> 8
8
the transferee the beneficial interest in the Global Series D Preferred
Share that is being transferred.
(v) In the event that a Global Series D Preferred Share is
exchanged for Series D Preferred Shares in definitive registered form
pursuant to this Section, prior to the effectiveness of a Shelf
Registration Statement with respect to such Series D Preferred Shares,
such Series D Preferred Shares may be exchanged only in accordance with
such procedures as are substantially consistent with the provisions of
clauses (ii), (iii) and (iv) above (including the certification
requirements intended to ensure that such transfers comply with Rule 144A
or Regulation S or are otherwise exempt under the Securities Act, as the
case may be) and such other procedures as may from time to time be
adopted by the Company, the Depositary or the Registrar.
(c) Except in connection with a Shelf Registration Statement
contemplated by and in accordance with the terms of the Registration Rights
Agreement relating to the Series D Preferred Shares, Common Shares issuable (A)
as dividends thereon, (B) on conversion thereof or (C) in redemption thereof,
and any securities into which such Series D Preferred Shares or Common Shares
shall be converted or into which they shall be changed by operation of law or
otherwise (collectively, the "Registrable Securities"), if Series D Preferred
Shares are issued upon the transfer, exchange or replacement of Series D
Preferred Shares bearing the Restricted Shares Legend, or if a request is made
to remove such Restricted Shares Legend on Series D Preferred Shares, the Series
D Preferred Shares so issued shall bear the Restricted Shares Legend, or the
Restricted Shares Legend shall not be removed, as the case may be, unless there
is delivered to the Company and the Registrar such satisfactory evidence, which
may include an opinion of counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company or the Registrar, that
neither the legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof comply with the provisions of Rule
144A or Rule 144 or, with respect to Restricted Series D Preferred Shares, that
such Series D Preferred Shares are not "restricted securities" within the
meaning of Rule 144 under
<PAGE> 9
9
the Securities Act. Upon provision of such satisfactory evidence, the Registrar,
at the direction of the Company, shall countersign and deliver Series D
Preferred Shares that do not bear the Restricted Shares Legend.
(d) The Registrar shall have no responsibility for any actions
taken or not taken by the Depositary.
(e) Each holder of a Series D Preferred Share agrees to
indemnify the Company and the Registrar against any liability that may result
from the transfer, exchange or assignment of such holder's Series D Preferred
Share in violation of any provision of this Schedule and/or applicable U.S.
Federal or State securities law; provided, however, that such indemnity shall
not apply to acts of wilful misconduct or gross negligence on the part of the
Company or the Registrar, as the case may be.
(f) Payments (whether in cash or, as permitted by Section 11,
in Common Shares) due on the Series D Preferred Shares shall be payable at the
office or agency of the Company maintained for such purpose in The City of New
York and at any other office or agency maintained by the Company for such
purpose. If any such payment is in cash, it shall be payable by United States
dollar check drawn on, or wire transfer (provided that appropriate wire
instructions have been received by the Registrar at least 15 days prior to the
applicable date of payment) to a United States dollar account maintained by the
holder with, a bank located in New York City; provided that at the option of the
Company payment of dividends in cash may be made by check mailed to the address
of the person entitled thereto as such address shall appear in the Series D
Preferred Share register.
6. Dividend Rights. (a) The Company shall pay, and the holders
of the Series D Preferred Shares shall be entitled to receive, cumulative
dividends from the date of initial issuance of such Series D Preferred Shares at
a rate of 6% per annum on the amount of the liquidation preference of the Series
D Preferred Shares. Dividends will be computed on the basis of a 360-day year of
twelve 30-day months and will be payable quarterly, subject to Section 11, (i)
in cash, (ii) by delivery of Common Shares or (iii) through any combination of
the foregoing in arrears on February 15, May 15, August 15 and November 15 of
each year
<PAGE> 10
10
(each a "Dividend Payment Date"), commencing May 15, 2000 until the liquidation
preference thereof is paid or made available for payment provided, however, that
if such date is not a Business Day, then the Dividend Payment Date shall be the
next Business Day. The Company may elect not to declare dividend payments on any
Dividend Payment Date; provided, however, that dividends on the Series D
Preferred Shares will accrue whether or not the Company has earnings or profits,
whether or not there are funds legally available for the payment of such
dividends and whether or not dividends are declared. Dividends will accumulate
to the extent they are not paid on the Dividend Payment Date for the period to
which they relate. The Company will 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 Shares. Arrearages of unpaid dividends
("Accumulated Dividends") will not themselves bear interest or be added to the
liquidation preference of the Series D Preferred Shares.
(b) Pursuant to the terms of the Registration Rights Agreement,
a "Registration Default" will occur
(i) if the Company fails to file a shelf registration statement
(the "Shelf Registration Statement") with respect to resales of the
Registrable Securities within 90 days after the Closing Date;
(ii) if the Shelf Registration Statement is not declared
effective on or prior to the date that is 180 days after the Closing
Date; and
(iii) if the Shelf Registration Statement has been declared
effective by the SEC and such Shelf Registration Statement ceases to be
effective or to be usable as contemplated by Section 2(b) of the
Registration Rights Agreement at any time during the Shelf Registration
Period (as defined in the Registration Rights Agreement) (without being
succeeded by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself declared effective)
for any period of 10 consecutive Trading Days or for any 20 Trading Days
in any 180-day period in connection with resales of Transfer Restricted
Securities (provided, that the
<PAGE> 11
11
Company will have the option of suspending the effectiveness of the Shelf
Registration Statement, or of notifying holders of Transfer Restricted
Securities that the Shelf Registration Statement shall be deemed not to
be effective (in which case the Shelf Registration Statement shall be
deemed not to be effective for purposes of the Series D Preferred
Shares), without becoming obligated to pay Preferred Shares Liquidated
Damages for periods of up to a total of 60 days in any calendar year if
the Board of Directors of the Company 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 the Company or a pending corporate transaction)
(each of the foregoing clauses (i) through (iii), a "Registration Default") and
additional dividends ("Preferred Shares Liquidated Damages") will accrue on the
Series D Preferred Shares, from and including the date of such Registration
Default to but excluding the day on which such Registration Default has been
cured. In the event of each such Registration Default, the Company shall pay
Preferred Shares Liquidated Damages to each holder of Series D Preferred Shares
that are Transfer Restricted Securities at a rate of 0.25% per annum of the
liquidation preference of such Series D Preferred Shares, which shall 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; provided, however, that such Preferred Shares Liquidated Damages may
not accrue at any time at a rate greater than 1.00% per annum of the liquidation
preference of the Series D Preferred Shares. Following the cure of all
Registration Defaults, the accrual of Preferred Shares Liquidated Damages with
respect to such Series D Preferred Shares shall cease (without in any way
limiting the effect of any subsequent Registration Default).
7. Payment of Dividend; Mechanics of Payment; Dividend Rights
Preserved. (a) Dividends on any Series D Preferred Share which are payable, and
are punctually paid or duly provided for, on any Dividend Payment Date shall be
paid in arrears to the person in whose name such Series D Preferred Share (or
one or more predecessor Series D
<PAGE> 12
12
Preferred Shares) is registered at the close of business on the next preceding
February 1, May 1, August 1 and November 1 (each, together with any record date
established for the payment of Accumulated Dividends, a "Dividend Record Date").
(b) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any outstanding share of
the Series D Preferred Shares 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 Shares. Unless full cumulative dividends on
all outstanding Series D Preferred Shares for all past dividend periods shall
have been declared and paid, or declared and a sufficient sum for the payment
thereof set apart, then:
(i) no dividend (other than (A) with respect to Junior Shares
or Parity Shares, a dividend payable solely in any Junior Shares or
Parity Shares, respectively, or (B) with respect to Parity Shares, a
partial dividend paid pro rata on such Parity Shares and the Series D
Preferred Shares) shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any Junior Shares or Parity Shares,
respectively;
(ii) no other distribution shall be declared or made upon, or
any sum set apart for the payment of any distribution upon, any Junior
Shares or Parity Shares, other than a distribution consisting solely of
Junior Shares or Parity Shares, respectively;
(iii) no Junior Shares or Parity Shares or any warrants, rights,
calls or options exercisable for or convertible into any Parity Share or
Junior Share shall be purchased, redeemed or otherwise acquired (other
than in exchange for other Junior Shares or Parity Shares, respectively)
by the Company or any of its subsidiaries; and
(iv) 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 Junior
<PAGE> 13
13
Shares or Parity Shares or any warrants, rights, calls or options
exercisable for or convertible into any Parity Share or Junior Share by
the Company or any of its subsidiaries.
Holders of the Series D Preferred Shares will not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends as herein described. In the event that the Company fails to
pay the dividends due for six consecutive quarterly payments, the holders will
have the rights and remedies set forth in Section 8.
(c) Dividends (including Accumulated Dividends) may be paid,
subject to Section 11, (i) in cash, (ii) by delivery of Common Shares or (iii)
through any combination of the foregoing. The Company will notify the Registrar
and 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 it will
pay such dividend and, if so, the form of consideration it will use to make such
payment.
(d) Any Accumulated Dividends on any Series D Preferred Share
may be paid, subject to Section 11, by the Company in any lawful manner (which
shall include the establishment of a record date not more then 45 days prior to
the payment thereof) not inconsistent with the requirements of any securities
exchange on which the Series D Preferred Shares may be listed, and upon such
notice (which shall precede the record date by at least ten Business Days) as
may be required by such exchange, if, after notice given by the Company to the
Registrar of the proposed payment pursuant to this clause (d), such manner of
payment shall be deemed practicable by the Registrar.
(e) Subject to the foregoing provisions of this Section 7, each
Series D Preferred Share delivered under this Schedule upon registration of
transfer of or in exchange for or in lieu of any other Series D Preferred Share
shall carry the rights to dividends accumulated and unpaid, and to accrue, which
were carried by such other Series D Preferred Share.
<PAGE> 14
14
(f) The holder of record of a Series D Preferred Share at the
close of business on a Dividend Record Date with respect to the payment of
dividends on the Series D Preferred Shares will be entitled to receive such
dividends with respect to such Series D Preferred Share on the corresponding
Dividend Payment Date, notwithstanding the conversion of such share after such
Dividend Record Date and prior to such Dividend Payment Date. A Series D
Preferred Share surrendered for conversion during the period from the close of
business on any Dividend Record Date to the opening of business of the
corresponding Dividend Payment Date must be accompanied by a payment in cash,
Common Shares or a combination thereof, depending on the method of payment that
the Company has chosen to pay such dividend, in an amount equal to such dividend
payable on such Dividend Payment Date, unless such Series D Preferred Shares has
been called for Mandatory Conversion pursuant to Section 10(b) on a Mandatory
Conversion Date occurring during the period from the close of business on any
Dividend Record Date to the close of business on the Business Day immediately
following the corresponding Dividend Payment Date. The dividend payment with
respect to a Series D Preferred Share called for Mandatory Conversion pursuant
to Section 10(b) on a Mandatory Conversion Date occurring during the period from
the close of business on any Dividend Record Date 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 Dividend Record Date if such share has been converted after such
Dividend Record Date and prior to such Divided Payment Date. Notwithstanding the
immediately preceding three sentences of this Section 7(f), no payment shall be
owed or payable to or by any converting holder if the Board of Directors of the
Company shall have elected to defer the dividend payment to be made on such
Dividend Payment Date pursuant to Section 6(a). Fractional Common Shares will
not be issued upon conversion, but in lieu thereof the Company will pay a cash
adjustment in the manner set forth in Section 11(c).
(g) No payment or adjustment will be made by the Company upon
conversion of Series D Preferred Shares for accumulated and unpaid dividends or
for dividends with respect to the Common Shares issued upon such conversion.
<PAGE> 15
15
8. Voting Rights. (a) Holders of Series D Preferred Shares
will not be entitled to any voting rights unless (i) required by law or (ii) the
Company has not paid scheduled dividend payments for six consecutive quarterly
payments (a "Voting Rights Triggering Event"). If a Voting Rights Triggering
Event occurs while any Series D Preferred Shares are outstanding, the number of
directors constituting the Board of Directors of the Company will be adjusted to
permit the holders of the then Outstanding Series D Preferred Shares, voting
separately and as a class, to elect such number of members to the Board of
Directors of the Company as will constitute at least 20% of the then existing
Board of Directors before such election (rounded to the nearest whole number),
provided, however, that such number shall be no less than one nor greater than
two (the "Series D Preferred Share Directors"), and the number of members of the
Company's Board of Directors will be immediately and automatically increased by
one or two, as the case may be. The voting rights set forth in the preceding
sentence will continue until such time as all dividends in arrears on the Series
D Preferred Shares are paid in full, at which time the term of any Series D
Preferred Share Director shall terminate. At any time after voting power to
elect Directors shall have become vested and be continuing in the holders of the
Series D Preferred Shares pursuant to the second preceding sentence, or if a
vacancy shall exist in the offices of Series D Preferred Share Directors, the
Board of Directors may, and upon written request of the holders of record of at
least 25% of the Outstanding Series D Preferred Shares addressed to the Chairman
of the Board of the Company, shall, call a special meeting of the holders of the
Series D Preferred Shares for the purpose of electing the Series D Preferred
Share Directors that such holders are entitled to elect. At any meeting held for
the purpose of electing Series D Preferred Share Directors, the presence in
person or by proxy of the holders of at least a majority of the Outstanding
Series D Preferred Shares shall be required to constitute a quorum of such
Series D Preferred Shares. Any vacancy occurring in the office of a Series D
Preferred Share Director may be filled by the remaining Series D Preferred Share
Director unless and until such vacancy shall be filled by the holders of the
Series D Preferred Shares. The Series D Preferred Share Directors shall agree,
prior to their election to office, to resign upon any termination of the right
of the holders of Series D Preferred Shares to
<PAGE> 16
16
vote as a class for Directors as herein provided, and upon such termination the
Series D Preferred Share Directors then in office shall forthwith resign.
(b) In addition to the voting rights set forth above, the
approval of the holders of at least two-thirds of the then Outstanding Series D
Preferred Shares voting or consenting, as the case may be, as one class, will be
required for the Company to amend the Memorandum of Association, this Schedule
or the Bye-Laws, so as to affect adversely the rights, preferences, privileges
or voting rights of holders of the Series D Preferred Shares or authorize the
issuance of any additional Series D Preferred Shares (other than Series D
Preferred Shares to be sold pursuant to the Purchase Agreement); provided,
however, that no such modification or amendment may, without the consent of the
holders of each Outstanding Series D Preferred Share affected thereby, (i)
change the Mandatory Redemption Date, or the due date of any dividend on, any
Series D Preferred Shares, or reduce the liquidation preference or redemption
price thereof or the rate of dividends thereon, or change the place of payment
where, or the coin or currency in which, any Series D Preferred Share or any
payment thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Mandatory Redemption Date, or
adversely affect the rights to convert any Series D Preferred Share as provided
in Section 12, or modify the provisions of this Schedule with respect to the
ranking of the Series D Preferred Shares in a manner adverse to the holders,
(ii) alter the voting rights with respect to the Series D Preferred Shares or
reduce the percentage of the Outstanding Series D Preferred Shares the consent
of whose holders is required for any such modification, or the consent of whose
holders is required for any waiver of compliance with provisions of this
Schedule or (iii) modify any of the provisions of this Section 8 except to
increase any such percentage or to provide that certain other provisions of this
Schedule cannot be modified or waived without the consent of the holder of each
Outstanding Series B Preferred Share affected thereby.
(c) The Company will not authorize or issue any new class of
Senior Shares or any obligation or security convertible or exchangeable into or
evidencing a right to purchase shares of any class or series of Senior Shares,
<PAGE> 17
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without the approval of the holders of at least two-thirds of the then
Outstanding Series D Preferred Shares, voting or consenting, as the case may be,
as one class.
(d) Except as set forth in Section 8(c) with respect to Senior
Shares, neither (i) the creation, authorization or issuance of any Junior
Shares, Parity Shares or Senior Shares or (ii) the increase or decrease in the
amount of authorized capital stock of any class, including any preference
shares, shall require the consent of the holders of the Series D Preferred
Shares or shall be deemed to affect adversely the rights, preferences,
privileges, special rights or voting rights of holders of Series D Preferred
Shares. Furthermore, the consent of the holders of Series D Preferred Shares
will not be required for the Company to authorize, create (by way of
reclassification or otherwise) or issue any Parity Shares or any obligation or
security convertible or exchangeable into, or evidencing a right to purchase,
shares of any class or series of Parity Shares.
9. Ranking. (a) The Series D Preferred Shares will, with
respect to dividend rights and rights on liquidation, winding-up and
dissolution, rank (i) senior to all Common Shares (whether issued in one or more
classes) and to each other class of capital stock or series of preference shares
created after February 15, 2000 by the Company, the terms of which do not
expressly provide that it ranks senior to or on a parity with the Series D
Preferred Shares as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all Common
Shares (whether issued in one or more classes) of the Company, as "Junior
Shares"); (ii) on a parity with the shares of Series A Preferred Shares, the
shares of Series C Preferred Shares, additional Series D Preferred Shares issued
by the Company and each other class of capital stock or series of preference
shares created after February 15, 2000 by the Company, the terms of which
expressly provide that such class or series will rank on a parity with the
Series D Preferred Shares as to dividend rights and rights on liquidation,
winding-up and dissolution of the Company (collectively referred to as "Parity
Shares"); and (iii) junior to each class of capital stock or series of
preference shares created after February 15, 2000 in compliance with Section
8(c) by the
<PAGE> 18
18
Company, the terms of which expressly provide that such class or series will
rank senior to the Series D Preferred Shares as to dividend rights and rights
upon liquidation, winding-up and dissolution of the Company (collectively
referred to as "Senior Shares").
(b) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any outstanding share of
the Series D Preferred Shares 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 Senior Shares.
(c) In the event of any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary, the holders of the Series D
Preferred Shares then Outstanding shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of Common Shares or Junior Shares by reason of their ownership thereof,
an amount equal to $50 per share for each outstanding Series D Preferred Share,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including Preferred Shares Liquidated Damages) thereon to the date
fixed for liquidation, dissolution or winding-up (including an amount equal to a
pro rata dividend for the period from the last Dividend Payment Date to the date
fixed for liquidation, dissolution or winding-up). If upon the occurrence of
such event the assets thus distributed among the holders of Series D Preferred
Shares shall be insufficient to permit the payment to such holders of the full
preferential amount, the entire assets of the Company legally available for
distribution shall be distributed ratably based upon their respective
liquidation preference, among the holders of the Series D Preferred Shares pari
passu with the holders of all Parity Shares. After payment of the full
preferential amount (and, if applicable, an amount equal to a pro rata dividend
to the holders of Outstanding Series D Preferred Shares), such holders shall not
be entitled to any further participation in any distribution of assets of the
Company.
10. Mandatory Conversion; Mandatory Redemption. (a) The Series
D Preferred Shares may be converted at any time commencing on or after February
15, 2003, in whole or
<PAGE> 19
19
from time to time in part, at the election of the Company ("Mandatory
Conversion"), into that number of shares of Common Shares per share of Series D
Preferred Share equal to $50.00 (the liquidation preference per share of Series
D Preferred Share) divided by the then prevailing Conversion Price if the
Conversion Condition has been met. The "Conversion Condition" shall have been
met if the Current Market Value of the Common Shares of the Company 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 a Mandatory Conversion referred to in Section 10(b) below.
(b) To exercise a Mandatory Conversion, the Company shall issue
a press release announcing such Mandatory Conversion prior to the opening of
business on the first Trading Day after the Conversion Condition has been met.
The Company shall give notice ("Mandatory Conversion Notice") of a Mandatory
Conversion by mail or by publication (with subsequent prompt notice by mail) to
the holders of the Series D Preferred Shares not more than four Business Days
after the date of the press release announcing the Mandatory Conversion. For
purposes of the immediately preceding sentence, a notice by publication shall
include, without limitation, a press release by the Company to Dow Jones News
Services or Bloomberg News Services. Each conversion date ("Mandatory Conversion
Date") will be a date selected by Company and shall be not less than 30 days and
not more than 60 days after the date of the related press release. In addition
to any information required by applicable law or regulation, each Mandatory
Conversion Notice shall state (i) the Mandatory Conversion Date, (ii) the number
of Common Shares to be issued upon conversion of each Series D Preferred Share,
(iii) the number of Series D Preferred Shares to be converted (and, if fewer
than all the Series D Preferred Shares are to be converted, the number of Series
D Preferred Shares to be converted from such holder), (iv) the place(s) where
the Series D Preferred Shares are to be surrendered for delivery of Common
Shares, and (v) that dividends on the Series D Preferred Shares to be converted
will cease to accumulate on such Mandatory Conversion Date.
<PAGE> 20
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(c) The dividend payment with respect to a Series D Preferred
Share 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, no payment or adjustment will be made upon a
Mandatory Conversion of Series D Preferred Shares for accumulated and unpaid
dividends or for dividends with respect to the Common Shares issued upon such
conversion. On and after the Mandatory Conversion Date, dividends will cease to
accrue on shares of Series D Preferred Shares called for Mandatory Conversion
and all rights of holders of such shares will terminate except for the right to
receive the Common Shares of the Company issuable upon Mandatory Conversion.
(d) No Mandatory Conversion may be authorized or made unless,
prior to giving the applicable Mandatory Conversion Notice, all accumulated and
unpaid dividends for periods ended prior to the date of such redemption notice
shall have been paid in cash or, subject to Section 11, in Common Shares.
(e) In the event of a Mandatory Conversion of fewer than all
the Series D Preferred Shares, the Series D Preferred Shares will be chosen for
Mandatory Conversion by the Registrar from the Outstanding Series D Preferred
Shares not previously called for Mandatory Conversion, pro rata or by lot or by
such other method as the Registrar shall deem fair and appropriate, provided
that the Company may convert (an "Odd-lot Conversion") all shares held by
holders of fewer than 100 Series D Preferred Shares (or by holders that would
hold fewer than 100 Series D Preferred Shares following such conversion) prior
to its conversion of other Series D Preferred Shares. If fewer than all the
Series D Preferred Shares represented by any share certificate are so to be
converted, the Company shall issue a new certificate for the shares not
converted.
<PAGE> 21
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(f) The Series D Preferred Shares (if not earlier converted)
shall be mandatorily redeemed (the "Mandatory Redemption") by the Company on
February 15, 2007 (the "Mandatory Redemption Date" provided, however, that if
such date is not a Business Day, then the Mandatory Redemption Date shall be the
next Business Day), at a redemption price of 100% of the liquidation preference
per share plus accumulated and unpaid dividends and Preferred Shares Liquidated
Damages, if any, to the Mandatory Redemption Date.
(g) The Company may, as provided in Section 11, make any
payments in respect of the liquidation preference due on the Series D Preferred
Shares on the Mandatory Redemption Date, (i) in cash, (ii) by delivery of Common
Shares or (iii) through any combination of the foregoing.
11. Method of Payments. (a) The Company may make any payments
due on the Series D Preferred Shares, including dividend payments and Mandatory
Redemption payments described in Section 11(b), (i) in cash, (ii) by delivery of
Common Shares or (iii) through any combination of the foregoing.
(b) The Company will make each dividend payment and each
Mandatory Redemption payment on the Series D Preferred Shares in cash, except to
the extent it has elected to make all or any portion of such payment in Common
Shares. The Company may not make any such payment, or any portion thereof (other
than a Mandatory Redemption Payment, or portion thereof), in Common Shares
unless, on the date of such payment, the Shelf Registration Statement covers the
resale of such shares and is effective or is no longer required to be effective
in order to effect any resales of such shares. If the Company elects to make any
such payment, or any portion thereof, in Common Shares, such shares shall be
valued for such purpose (i) in the case of any dividend payment, or portion
thereof, at 95% of the Average Market Value and (ii) in the case of any
Mandatory Redemption payment, or portion thereof, at 100% of the Average Market
Value. If, as a matter of law, including Bermuda law, the Company is not able to
issue Common Shares in payment of the Mandatory Redemption price, then the
Company may, at its option, cause the Series D Preferred
<PAGE> 22
22
Shares to be converted on the Mandatory Redemption Date into the same number of
Common Shares as the Company could otherwise have issued in satisfaction of the
Mandatory Redemption price. The Company shall give the holders of Series D
Preferred Shares notice at least 30 days prior to the Mandatory Redemption Date
of (i) the form of consideration the Company will use to make payments due on
the Mandatory Redemption Date and (ii) if any such payments are to be made in
Common Shares of the Company, whether the Company will issue such Common Shares
or convert the Series D Preferred Share into such Common Shares.
(c) No fractional Common Shares will be delivered to the
holders of the Series B Preferred Shares, but the Company will instead pay a
cash adjustment to each holder that would otherwise be entitled to a fraction of
a Common Share. The amount of such cash adjustment will be determined based on
the proceeds received by the Registrar from the sale of that number of Common
Shares, which the Company will deliver to the Registrar for such purpose, equal
to the aggregate of all such fractions (round up to the nearest whole share).
The Registrar is authorized and directed to sell such shares at the best
available prices and distribute the proceeds to the holders in proportion to
their respective interests therein. The Company will pay the expenses of the
Registrar with respect to such sale, including brokerage commissions.
(d) Any portion of any payment on or in respect of the Series D
Preferred Shares that is declared and not paid through the delivery of Common
Shares will be paid in cash.
(e) Prior to the issuance of any Common Shares pursuant to this
Section 11, the Company shall have provided for the listing or quotation of such
Common Shares on the New York Stock Exchange, the Nasdaq National Market or any
other SEC recognized, national securities exchange or automated quotation system
in the United States upon which the Common Shares are then listed or quoted.
12. Conversion. (a) Subject to and upon compliance with the
provisions of this Schedule, at the option of the holder thereof, any Series D
Preferred Share may be converted at any time after February 18, 2000 at the
<PAGE> 23
23
liquidation preference thereof into fully paid and nonassessable Common Shares
(calculated as to each conversion to the nearest 1/100 of a share), at the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. Such conversion right shall expire at the close of business on the
Business Day next preceding the Mandatory Redemption Date.
The price at which Common Shares shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $19.8303
per Common Share. The Conversion Price shall be adjusted in certain instances as
provided in Section 12(d) and Section 12(e).
(b) In order to exercise the conversion privilege, the holder
of any Series D Preferred Share to be converted shall surrender the certificate
for such share, duly endorsed or assigned to the Company or in blank, at any
office or agency of the Company maintained for that purpose, accompanied by
written notice to the Company at such office or agency that the holder elects to
convert such share or, if fewer than all the Series D Preferred Shares
represented by a single share certificate are to be converted, the number of
shares represented thereby to be converted. No payment or adjustment shall be
made by the Company upon any conversion on account of any dividends accrued on
the Series D Preferred Shares surrendered for conversion or on account of any
dividends on the Common Shares issued upon conversion. In no event shall the
Company be obligated to pay any converting holder any unpaid Accumulated
Dividends upon conversion.
Series D Preferred Shares shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
shares for conversion in accordance with the foregoing provisions, and at such
time the rights of the holders of such shares as holders shall cease, and the
person or persons entitled to receive the Common Shares issuable upon conversion
shall be treated for all purposes as the record holder or holders of such Common
Shares at such time. As promptly as practicable on or after the conversion date,
the Company shall issue and shall deliver at such office or agency a certificate
or certificates for the number of full Common Shares issuable
<PAGE> 24
24
upon conversion, together with payment in lieu of any fraction
of a share, as provided in Section 12(c).
In the case of any conversion of fewer than all the Series D
Preferred Shares evidenced by a certificate, upon such conversion the Company
shall execute and the Registrar shall countersign and deliver to the holder
thereof, at the expense of the Company, a new certificate or certificates
representing the number of unconverted Series D Preferred Shares.
(c) No fractional Common Shares shall be issued upon the
conversion of a Series D Preferred Share. If more than one Series D Preferred
Share shall be surrendered for conversion at one time by the same holder, the
number of full Common Shares which shall be issuable upon conversion thereof
shall be computed on the basis of the aggregate number of Series D Preferred
Shares so surrendered. Instead of any fractional Common Share which would
otherwise be issuable upon conversion of any Series D Preferred Share, the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the closing price (as defined in Section
12(d)(vii)) per Common Share at the close of business on the Business Day prior
to the day of conversion.
<PAGE> 25
25
(d) The conversion price shall be adjusted from time to time by
the Company as follows:
(i) if the Company shall hereafter pay a dividend or make a
distribution to holders of the outstanding Common Shares in Common
Shares, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be reduced
by multiplying such Conversion Price by a fraction of which the numerator
shall be the number of Common Shares outstanding at the close of business
on the Common Share Record Date (as defined in Section 12(d)(vii)) fixed
for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the Common
Share Record Date. If any dividend or distribution of the type described
in this Section 12(d)(i) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which
would then be in effect if such dividend or distribution had not been
declared;
(ii) if the Company shall offer or issue rights or warrants to
holders of its outstanding Common Shares entitling them to subscribe for
or purchase Common Shares at a price per share less than the Current
Market Price (as defined in Section 12(d)(vii)) on the Common Share
Record Date fixed for the determination of shareholders entitled to
receive such rights or warrants, the Conversion Price shall be adjusted
so that the same shall equal the price determined by multiplying the
Conversion Price in effect at the opening of business on the date after
such Common Share Record Date by a fraction of which the numerator shall
be the number of Common Shares outstanding at the close of business on
the Common Share Record Date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares subject to
such rights or warrants would purchase at such Current Market Price and
of which the denominator shall be the number of Common Shares outstanding
at the close of
<PAGE> 26
26
business on the Common Share Record Date plus the total number of
additional Common Shares subject to such rights or warrants for
subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the Common
Share Record Date fixed for determination of shareholders entitled to
purchase or receive such rights or warrants. To the extent that Common
Shares are not delivered pursuant to such rights or warrants, upon the
expiration or termination of such rights or warrants the Conversion Price
shall again be adjusted to be the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of Common
Shares actually delivered. If such rights or warrants are not so issued,
the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination of
shareholders entitled to receive such rights or warrants had not been
fixed. In determining whether any rights or warrants entitle the holders
to subscribe for or purchase Common Shares at less than such Current
Market Price, and in determining the aggregate offering price of such
Common Shares, there shall be taken into account any consideration
received for such rights or warrants, with the value of such
consideration, if other than cash, to be determined by the Board of
Directors;
(iii) if the outstanding Common Shares shall be subdivided into a
greater number of Common Shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding Common Shares shall be combined into a
smaller number of Common Shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective;
<PAGE> 27
27
(iv) if the Company shall, by dividend or otherwise, distribute
to holders of its Common Shares any class of capital stock of the Company
(other than any dividends or distributions to which Section 12(d)(i)
applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants of a type
referred to in Section 12(d)(ii) and dividends and distributions paid
exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation
to which Section 12(e) applies) (the foregoing hereinafter in this
Section 12(d)(iv) called the "Distributed Securities"), then, in each
such case, the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Common Share
Record Date (as defined in Section 12(d)(vii)) with respect to such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in Section 12(d)(vii)) on such date
less the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a resolution of
the Board of Directors) on such date of the portion of the Distributed
Securities so distributed applicable to one Common Share and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day
following the Common Share Record Date; provided, however, that, in the
event the then fair market value (as so determined) of the portion of the
Distributed Securities so distributed applicable to one Common Share is
equal to or greater than the Current Market Price on the Common Share
Record Date, in lieu of the foregoing adjustment, adequate provision
shall be made so that each holder of Series D Preferred Shares shall have
the right to receive upon conversion of a Series D Preferred Share (or
any portion thereof) the amount of Distributed Securities such holder
would have received had such holder converted such Series D Preferred
Share (or portion thereof) immediately prior to such Common Share Record
Date. If such dividend or distribution is not
<PAGE> 28
28
so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines
the fair market value of any distribution for purposes of this Section
12(d)(iv) by reference to the actual or when issued trading market for
any securities constituting all or part of such distribution, it must in
doing so consider the prices in such market over the same period used in
computing the Current Market Price pursuant to Section 12(d)(vii) to the
extent possible.
Rights or warrants distributed by the Company to holders of Common
Shares entitling the holders thereof to subscribe for or purchase shares
of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Dilution Trigger Event"): (A) are deemed to
be transferred with such Common Shares; (B) are not exercisable; and (C)
are also issued in respect of future issuances of Common Shares, shall be
deemed not to have been distributed for purposes of this Section
12(d)(iv) (and no adjustment to the Conversion Price under this Section
12(d)(iv) shall be required) until the occurrence of the earliest
Dilution Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment to the
Conversion Price under this Section 12(d)(iv) shall be made. If any such
rights or warrants, including any such existing rights or warrants
distributed prior to the first issuance of Series D Preferred Shares, are
subject to subsequent events, upon the occurrence of each of which such
rights or warrants shall become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the
occurrence of each such event shall be deemed to be such date of issuance
and record date with respect to new rights or warrants (and a termination
or expiration of the existing rights or warrants, without exercise by the
holder thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Dilution Trigger Event with
respect thereto, that was counted for purposes of calculating a
distribution amount for which an adjustment to the
<PAGE> 29
29
Conversion Price under this Section 12(d) was made, (1) in the case of
any such rights or warrants which shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Price
shall be readjusted upon such final redemption or repurchase to give
effect to such distribution or Dilution Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per share
redemption or repurchase price received by a holder or holders of Common
Shares with respect to such rights or warrants (assuming such holder had
retained such rights or warrants), made to all holders of Common Shares
as of the date of such redemption or repurchase, and (2) in the case of
such rights or warrants which shall have expired or been terminated
without exercise by any holders thereof, the Conversion Price shall be
readjusted as if such rights and warrants had not been issued.
Notwithstanding any other provision of this Section 12(d)(iv) to
the contrary, rights, warrants, evidences of indebtedness, other
securities, cash or other assets (including, without limitation, any
rights distributed pursuant to any shareholder rights plan) shall be
deemed not to have been distributed for purposes of this Section
12(d)(iv) if the Company makes proper provision so that each holder of
Series D Preferred Shares who converts a Series D Preferred Share (or any
portion thereof) after the date fixed for determination of shareholders
entitled to receive such distribution shall be entitled to receive upon
such conversion, in addition to the Common Shares issuable upon such
conversion, the amount and kind of such distributions that such holder
would have been entitled to receive if such holder had, immediately prior
to such determination date, converted such Series D Preferred Share into
a Common Share.
For purposes of this Section 12(d)(iv) and Sections 12(d)(i) and
(ii), any dividend or distribution to which this Section 12(d)(iv) is
applicable that also includes Common Shares, or rights or warrants to
subscribe for or purchase Common Shares to which Section 12(d)(ii)
applies (or both), shall be deemed instead to be (A) a dividend or
distribution of
<PAGE> 30
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the evidences of indebtedness, assets, shares of capital stock, rights or
warrants other than such Common Shares or rights or warrants to which
Section 12(d)(ii) applies (and any Conversion Price reduction required by
this Section 12(d)(iv) with respect to such dividend or distribution
shall then be made) immediately followed by (B) a dividend or
distribution of such Common Shares or such rights or warrants (and any
further Conversion Price reduction required by Sections 12(d)(i) or
12(d)(ii) with respect to such dividend or distribution shall then be
made), except that (1) the Common Share Record Date of such dividend or
distribution shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution", "the Common Share Record Date fixed for such
determination" and "the Common Share Record Date" within the meaning of
Section 12(d)(i) and as "the date fixed for the determination of
shareholders entitled to receive such rights or warrants", "the Common
Share Record Date fixed for the determination of the shareholders
entitled to receive such rights or warrants" and "such Common Share
Record Date" for purposes of Section 12(d)(ii), and (2) any Common Shares
included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" for the purposes of Section 12(d)(i).
(v) If the Company shall, by dividend or otherwise, distribute
to holders of its Common Shares cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 12(e) applies
or as part of a distribution referred to in Section 12(d)(iv)) in an
aggregate amount that, combined together with (A) the aggregate amount of
any other such distributions to holders of its Common Shares made
exclusively in cash within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to this
Section 12(d)(v) has been made, and (B) the aggregate of any cash plus
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) of consideration payable in respect of
<PAGE> 31
31
any tender offer by the Company for all or any portion of the Common
Shares concluded within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to
Section 12(d)(vi) has been made, exceeds 10% of the product of the
Current Market Price (determined as provided in Section 12(d)(vii)) on
the Common Share Record Date with respect to such distribution times the
number of Common Shares outstanding on such date, then, and in each such
case, immediately after the close of business on such date, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the close of business on such Common Share Record Date by a
fraction (1) the numerator of which shall be equal to the Current Market
Price on the Common Share Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 10% and (y)
the number of Common Shares outstanding on the Common Share Record Date
and (2) the denominator of which shall be equal to the Current Market
Price on such Common Share Record Date; provided, however, that, if the
portion of the cash so distributed applicable to one Common Share is
equal to or greater than the Current Market Price of the Common Shares on
the Common Share Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of Series D
Preferred Shares shall have the right to receive upon conversion of a
Series D Preferred Share (or any portion thereof) the amount of cash such
holder would have received had such holder converted such Series D
Preferred Share (or portion thereof) immediately prior to such Common
Share Record Date. If such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such dividend or distribution had
not been declared. Any cash distribution to holders of Common Shares as
to which the Company makes the election permitted by Section 12(d)(xii)
and as to which the Company has complied with the requirements of such
Section 12(d)(xii) shall be treated as not having been made for all
purposes of this Section 12(d)(v).
<PAGE> 32
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(vi) if a tender offer made by the Company or any of its
subsidiaries for all or any portion of the Common Shares expires and such
tender offer (as amended upon the expiration thereof) requires the
payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares) of an
aggregate consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors) that, combined together with
(A) the aggregate of the cash plus the fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Board of Directors), as of the
expiration of such tender offer, of consideration payable in respect of
any other tender offers, by the Company or any of its subsidiaries for
all or any portion of the Common Shares expiring within the 12 months
preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to this Section 12(d)(vi) has been made and (B) the
aggregate amount of any distributions to all holders of the Common Shares
made exclusively in cash within 12 months preceding the expiration of
such tender offer and in respect of which no adjustment pursuant to
Section 12(d)(v) has been made, exceeds 10% of the product of the Current
Market Price (determined as provided in Section 12(d)(vii)) as of the
last time (the "Expiration Time") tenders could have been made pursuant
to such tender offer (as it may be amended) times the number of Common
Shares outstanding (including any tendered shares) at the Expiration
Time, then, and in each such case, immediately prior to the opening of
business on the day after the date of the Expiration Time, the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the
close of business on the date of the Expiration Time by a fraction of
which the numerator shall be the number of Common Shares outstanding
(including any tendered shares) at the Expiration Time multiplied by the
Current Market Price of the Common Shares on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market
<PAGE> 33
33
value (determined as aforesaid) of the aggregate consideration payable to
shareholders based on the acceptance (up to any maximum specified in the
terms of the tender offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y)
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price of
the Common Shares on the Trading Day next succeeding the Expiration Time,
such reduction (if any) to become effective immediately prior to the
opening of business on the day following the Expiration Time. If the
Company is obligated to purchase shares pursuant to any such tender
offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such tender offer had not been made. If the
application of this Section 12(d)(vi) to any tender offer would result in
an increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 12(d)(vi).
(vii) For purposes of this Section 12(d), the following terms
shall have the meaning indicated:
"Beneficial Ownership" means a beneficial owner as
determined in accordance with Rule 13d-3 promulgated by the SEC
under the Exchange Act.
"Change of Control" means the occurrence of any of the
following transactions or series of transactions in which less
than 50% of the consideration to be received by holders of the
Common Shares of the Company (excluding amounts payable in respect
of appraisal rights and cash in lieu of fractional shares) in such
transaction or series of transactions consists of shares of common
stock traded or to be traded immediately following such
transaction of series of transactions on a national securities
exchange or the Nasdaq National Market: (i) the acquisition
(directly or indirectly, through a purchase,
<PAGE> 34
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merger or other acquisition transaction or series of transactions,
other than any acquisition by the Company, any of its subsidiaries
or pursuant to an employee benefit plan of the Company) by any
person of Beneficial Ownership of 80% or more of both the total
voting power and value of all shares of capital stock of the
Company entitled to vote generally in elections of the members of
the Board of Directors of the Company, or (ii) any consolidation
or merger of the Company with or into any other entity, any merger
of another entity into the Company, or any conveyance, transfer,
sale, lease or other disposition of all or substantially all of
the properties and assets of the Company to another person or
entity, other than (A) any transaction pursuant to which holders
of the voting stock of the Company immediately prior to such
transaction are entitled to exercise, directly or indirectly, 20%
or more of the total voting power of all shares of the capital
stock of the Company entitled to vote generally in the election of
directors of the continuing or surviving entity immediately after
such transaction, or (B) any merger which is effected solely to
change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of
outstanding shares of Common Shares of the Company solely into
shares of common stock of the surviving entity.
"Change of Control Average" has the meaning set forth in
Section 12(d)(xiii).
"closing price" with respect to any securities on any day
means the closing price on such day or, if no such sale takes
place on such day, the average of the reported high and low prices
on such day, in each case on the Nasdaq National Market or the New
York Stock Exchange, as applicable, or, if such security is not
listed or admitted to trading on such national market or exchange,
on the principal national securities exchange or quotation system
in the United States on which such security is quoted or listed or
<PAGE> 35
35
admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system in
the United States, the average of the high and low prices of such
security on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated or a
similar generally accepted reporting service in the United States,
or, if not so available, in such manner as furnished by any New
York Stock Exchange member firm selected from time to time by the
Board of Directors for that purpose, or a price determined in good
faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of
Directors.
"Common Share Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the
holders of Common Shares have the right to receive any cash,
securities or other property or in which the Common Shares (or
other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed
for determination of shareholders entitled to receive such cash,
securities or other property (whether such date is fixed by the
Board of Directors or by statute, contract or otherwise).
"Current Market Price" means the average of the daily
closing prices per Common Share for the 10 consecutive Trading
Days immediately prior to the date in question; provided,
however, that (A) if the "ex" date (as hereinafter defined) for
any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price
pursuant to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi)
occurs during such 10 consecutive Trading Days, the closing price
for each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such closing price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (B) if the "ex" date
for any event (other
<PAGE> 36
36
than the issuance or distribution requiring such computation)
that requires an adjustment to the Conversion Price pursuant to
Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or
after the "ex" date for the issuance or distribution requiring
such computation and prior to the day in question, the closing
price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such closing price
by the reciprocal of the fraction by which the Conversion Price
is so required to be adjusted as a result of such other event and
(C) if the "ex" date for the issuance or distribution requiring
such computation is prior to the day in question, after taking
into account any adjustment required pursuant to clause (A) or
(B) of this proviso, the closing price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by
the Board of Directors in a manner consistent with any
determination of such value for purposes of Section 12(d)(iv) or
(v), whose determination shall be conclusive and described in a
resolution of the Board of Directors) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one Common Share as of the close of business on the
day before such "ex" date. For purposes of any computation under
Section 12(d)(vi), the Current Market Price on any date shall be
deemed to be the average of the daily closing prices per Common
Share for such day and the next two succeeding Trading Days;
provided, however, that, if the "ex" date for any event (other
than the tender offer requiring such computation) that requires
an adjustment to the Conversion Price pursuant to Section
12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or after the
Expiration Time for the tender or exchange offer requiring such
computation and prior to the day in question, the closing price
for each Trading Day on and after the "ex" date for such other
event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so
required to be
<PAGE> 37
37
adjusted as a result of such other event. For purposes of this
paragraph, the term "ex" date (1) when used with respect to any
issuance or distribution, means the first date on which the
Common Shares trade regular way on the relevant exchange or in
the relevant market from which the closing price was obtained
without the right to receive such issuance or distribution, (2)
when used with respect to any subdivision or combination of
Common Shares, means the first date on which the Common Shares
trade regular way on such exchange or in such market after the
time at which such subdivision or combination becomes effective
and (3) when used with respect to any tender or exchange offer
means the first date on which the Common Shares trade regular way
on such exchange or in such market after the Expiration Time of
such offer. Notwithstanding the foregoing, whenever successive
adjustments to the Conversion Price are called for pursuant to
this Section 12(d), such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate the
intent of this Section 12(d) and to avoid unjust or inequitable
results, as determined in good faith by the Board of Directors.
"fair market value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"Temporary Conversion Price Adjustment Period" has the
meaning set forth in Section 12(d)(xiii).
"Person" includes any syndicate or group which would be
deemed to be a "person" under Section 13d-3 of the Exchange Act.
(viii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
1% in such price; provided, however, that any adjustments which by reason
of this Section 12(d)(viii) are not required to be made shall be carried
forward and taken into account in any
<PAGE> 38
38
subsequent adjustment. All calculations under this Section 12 shall be
made by the Company and shall be made to the nearest cent. No adjustment
need be made for a change in the par value or no par value of the Common
Shares.
(ix) Except in the case of a Change of Control as provided in
Section 12(d)(xiii), whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Registrar an Officers'
Certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare a
notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion
Price to each holder of Series D Preferred Shares at such holder's last
address appearing on the register of holders maintained for that purpose
within 20 days of the effective date of such adjustment. Failure to
deliver such notice shall not affect the legality or validity of any such
adjustment.
(x) In any case in which this Section 12(d) provides that an
adjustment shall become effective immediately after a Common Share Record
Date for an event, the Company may defer until the occurrence of such
event issuing to the holder of any Series D Preferred Share converted
after such Common Share Record Date and before the occurrence of such
event the additional Common Shares issuable upon such conversion by
reason of the adjustment required by such event over and above the Common
Shares issuable upon such conversion before giving effect to such
adjustment.
(xi) For purposes of this Section 12(d), the number of Common
Shares at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not pay any dividend or make
any distribution on Common Shares held in the treasury of the Company.
<PAGE> 39
39
(xii) In lieu of making any adjustment to the Conversion Price
pursuant to Section 12(d)(v), the Company may elect to reserve an amount
of cash for distribution to the holders of Series D Preferred Shares upon
the conversion of the Series D Preferred Shares so that any such holder
converting Series D Preferred Shares will receive upon such conversion,
in addition to the Common Shares and other items to which such holder is
entitled, the full amount of cash which such holder would have received
if such holder had, immediately prior to the Common Share Record Date for
such distribution of cash, converted its Series D Preferred Shares into
Common Shares, together with any interest accrued with respect to such
amount, in accordance with this Section 12(d)(xii). The Company may make
such election by providing an Officers' Certificate to the Registrar to
such effect on or prior to the payment date for any such distribution and
depositing with the Registrar on or prior to such date an amount of cash
equal to the aggregate amount that the holders of Series D Preferred
Shares would have received if such holders had, immediately prior to the
Common Share Record Date for such distribution, converted all the Series
D Preferred Shares into Common Shares. Any such funds so deposited by the
Company with the Registrar shall be invested by the Registrar in
unconditional U.S. Government obligations with a maturity not more than
three months from the date of issuance. Upon conversion of Series D
Preferred Shares by a holder thereof, such holder shall be entitled to
receive, in addition to the Common Shares issuable upon conversion, an
amount of cash equal to the amount such holder would have received if
such holder had, immediately prior to the Common Share Record Date for
such distribution, converted its Series D Preferred Shares into Common
Shares, along with such holder's pro rata share of any accrued interest
earned as a consequence of the investment of such funds. Promptly after
making an election pursuant to this Section 12(d)(xii), the Company shall
give or shall cause to be given notice to all holders of Series D
Preferred Shares of such election, which notice shall state the amount of
cash per Series D Preferred Share such holders shall be entitled to
receive (excluding interest) upon conversion of the Series D Preferred
<PAGE> 40
40
Shares as a consequence of the Company having made such election.
(xiii) if a Change of Control occurs, the Conversion Price shall
be reduced for a period of 30 days (the "Temporary Conversion Price
Adjustment Period") commencing on the day the Company gives notice by
mail (as described below) to the holders of Series D Preferred Shares of
such Change of Control to the arithmetic average of the volume-weighted
average daily trading prices of the Common Shares of the Company (the
"Change of Control Average") during ten Trading Days ending on the fifth
Business Day prior to the date of the closing of the Change of Control;
provided, however, such a reduction of the Conversion Price shall only be
made if the Change of Control Average is less than the Conversion Price
then in effect. After a Temporary Conversion Price Adjustment Period, the
Conversion Price shall be the Conversion Price prevailing immediately
prior to such Temporary Conversion Price Adjustment Period. In the event
that any adjustment to the Conversion Price other than an adjustment
pursuant to this Section 12(d)(xiii) shall occur during a Temporary
Conversion Price Adjustment Period, such other adjustment shall be
reflected (i) in the Conversion Price during a Temporary Conversion Price
Adjustment Period and (ii) in the Conversion Price immediately after the
Temporary Conversion Price Adjustment Period. Within 30 days after the
occurrence of a Change of Control, the Company shall give notice by mail
to the holders of the Series D Preferred Shares of any Change of Control
resulting in an adjustment to the Conversion Price. In addition to any
information required by applicable law or regulation, a notice of a
Change of Control shall state (i) the first and last date of the
Temporary Conversion Price Adjustment Period, (ii) the Conversion Price
in effect immediately prior to the Temporary Conversion Price Adjustment
Period, and (iii) the Conversion Price in effect during the Temporary
Conversion Price Adjustment Period.
(e) Subject to Section 13, in case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any merger of
<PAGE> 41
41
another corporation into the Company (other than a merger which does not result
in any reclassification, conversion, exchange or cancelation of outstanding
shares of Common Shares of the Company), or in case of any sale, conveyance or
transfer of all or substantially all the assets of the Company, the holder of
each Series D Preferred Share then outstanding shall have the right thereafter,
during the period such Series D Preferred Share shall be convertible as
specified in Section 12(a), to convert such Series D Preferred Share only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Shares of the Company into which such Series D Preferred Share
might have been converted immediately prior to such consolidation, merger,
conveyance or transfer, assuming such holder of Common Shares of the Company
failed to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance or transfer (provided that, if the kind or amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance or
transfer is not the same for each Common Share of the Company in respect of
which such rights of election shall not have been exercised ("nonelecting
share"), then for the purpose of this Section 12 the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance or transfer by each nonelecting share shall be deemed to be the kind
and amount so receivable per share by a plurality of the nonelecting shares).
Such securities shall provide for adjustments which, for events subsequent to
the effective date of the triggering event, shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 12. The above
provisions of this Section 12 shall similarly apply to successive
consolidations, mergers, conveyances or transfers.
(f) In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Shares payable otherwise than in cash out of
its earned surplus; or
(ii) the Company shall authorize the granting to all holders of
its Common Shares of rights or warrants
<PAGE> 42
42
to subscribe for or purchase any shares of capital stock of any class or
of any other rights; or
(iii) of any reclassification of the Common Shares of the Company
(other than a subdivision or combination of its outstanding Common
Shares), or of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or the sale, conveyance or transfer of all or substantially all
the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then the Company shall cause to be filed with the Registrar and at each office
or agency maintained for the purpose of conversion of Series D Preferred Shares,
and shall cause to be mailed to all holders at their last addresses as they
shall appear in the Series D Preferred Shares register, at least 20 Business
Days (or 10 Business Days in any case specified in clause (i) or (ii) above)
prior to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up. Failure to give the notice required by
this Section 12(f) or any defect therein shall not affect the legality or
validity of any dividend, distribution, right, warrant, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up,
or the vote upon any such action.
(g) The Company shall at all times reserve and keep available,
free from preemptive rights, out of its
<PAGE> 43
43
authorized but unissued Common Shares, for the purpose of effecting the
conversion of Series D Preferred Shares, the full number of Common Shares then
issuable upon the conversion of all outstanding Series D Preferred Shares.
(h) The Company will pay any and all taxes that may be payable
in respect of the issue or delivery of Common Shares on conversion of Series D
Preferred Shares pursuant hereto. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of Common Shares in a name other than that of the holder of
the Series D Preferred Share or Series D Preferred Shares to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid or is
not payable.
13. Consolidation, Merger, Conveyance or Transfer. Without the
vote or consent of the holders of a majority of the then Outstanding Series D
Preferred Shares, the Company 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 (a) the entity formed by
such consolidation or merger (if other than the Company) 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; (b) if the Company is not the resulting entity, the
Series D Preferred Shares are converted into or exchanged for and become 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 that the Series D Preferred Shares had immediately prior to
such transaction; (c) immediately after giving effect to such transaction, no
Voting Rights Triggering Event has occurred and is continuing and (d) the
Company shall have delivered to the Registrar an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger, conveyance or
transfer complies with this Section 13
<PAGE> 44
44
and that all conditions precedent herein provided for relating to such
transaction have been complied with.
14. SEC Reports; Reports by Company. So long as any Series D
Preferred Shares are outstanding, the Company shall file with the SEC and,
within 15 days after it files them with the SEC, with the Registrar and, if
requested, furnish to the holders of Series D Preferred Shares all annual,
quarterly and current reports and the information, documents, and other reports
that the Company is required to file with the SEC pursuant to Section 13(a) or
15(d) of the Exchange Act ("SEC Reports"). In the event the Company is not
required or shall cease to be required to file SEC Reports pursuant to the
Exchange Act, the Company will nevertheless 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 Series D Preferred
Shares are Outstanding, the Company will furnish or cause to be furnished copies
of the SEC Reports to the holders of Series D Preferred Shares at the time the
Company is required to make such information available to the Registrar and to
prospective investors who request it in writing. In addition, the Company has
agreed that, for so long as any Series D Preferred Shares remain outstanding, it
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 Securities Act.
15. Definitions. For purposes of this Schedule, the following
terms shall have the meaning set forth below:
"Accumulated Dividends" has the meaning set forth in Section 6(a).
"Agent Members" has the meaning set forth in Section 4(c).
"Average Market Value" of the Common Shares means the arithmetic
average of the Current Market Value of the Common Shares for the ten Trading
Days ending on the second Business Day prior to (i) in the case of the payment
of any dividend, the Record Date for such dividend and (ii) in the case of any
other payment, the date of such payment.
<PAGE> 45
45
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to be closed.
"Bye-Laws" has the meaning set forth in the Recitals.
"Closing Date" means any Closing Date under the Purchase
Agreement.
"closing price" has the meaning set forth in Section 12(d)(vii).
"Common Share Record Date" has the meaning set forth in Section
12(d)(vii).
"Common Shares" means common shares of the Company, par value
$0.01 per share.
"Companies Act" has the meaning set forth in Section 6(a).
"Company" has the meaning set forth in the Recitals.
"Company Order" means a written request or order signed in the
name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Conversion Agent" has the meaning set forth in Section 5(a).
"Conversion Condition" has the meaning set forth in Section 10(a).
"Conversion Price" has the meaning set forth in Section 12(a).
"Current Market Price" has the meaning set forth in Section
12(d)(vii).
<PAGE> 46
46
"Current Market Value" of the Common Shares means the average
volume-weighted daily trading price of the Common Shares as reported on the New
York Stock Exchange, the Nasdaq National Market or such other SEC-recognized
national securities exchange or trading system which the Company may from time
to time designate, upon which the greatest number of the Common Shares are then
listed or traded, for the Trading Day in question.
"Depositary" has the meaning set forth in Section 4(b).
"Dilution Trigger Event" has the meaning set forth in Section
12(d)(iv).
"Distributed Securities" has the meaning set forth in Section
12(d)(iv).
"Dividend Payment Date" means each February 15, May 15, August 15
and November 15; provided, however, that if such date shall not be a Business
Day, then such date shall be the next Business Day.
"Dividend Record Date" has the meaning set forth in Section 7(a).
"DTC" has the meaning set forth in Section 4(b).
"Exchange Act" means the Securities Exchange Act of 1934.
"Expiration Time" has the meaning set forth in Section 12(d)(vi).
"fair market value" has the meaning set forth in Section
12(d)(vii).
"Global Series D Preferred Share" has the meaning set forth in
Section 4(b).
"Global Shares Legend" has the meaning set forth in Section 4(b).
"Initial Purchasers" means Lehman Brothers Inc., Banc of America
Securities LLC, Bear, Stearns & Co. Inc.,
<PAGE> 47
47
ING Barings LLC, C.E. Unterberg, Towbin, Credit Lyonnais Securities (USA) Inc.
and SG Cowen Securities Corporation.
"Junior Shares" has the meaning set forth in Section 9(a).
"Mandatory Conversion" has the meaning set forth in Section 10(a).
"Mandatory Conversion Date" has the meaning set forth in Section
10(b).
"Mandatory Conversion Notice" has the meaning set forth in Section
10(b).
"Mandatory Redemption" has the meaning set forth in Section 10(f).
"Mandatory Redemption Date" has the meaning set forth in Section
10(f).
"Memorandum of Association" has the meaning set forth in the
Recitals.
"nonelecting share" has the meaning set forth in Section 12(e).
"Odd-lot Conversion" has the meaning set forth in Section 10(e).
"Officers' Certificate" means a certificate of the Company signed
in the name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Outstanding" means when used with respect to Series D Preferred
Shares means, as of the date of determination, all Series D Preferred Shares
theretofore authenticated and delivered under this Schedule, except (a) Series D
Preferred Shares theretofore converted into Common Shares in accordance with
Sections 10 or 12 and Series D Preferred Shares theretofore canceled by the
Registrar or delivered to the Registrar for cancelation; (b) Series D Preferred
Shares for whose payment or
<PAGE> 48
48
redemption money in the necessary amount has been theretofore deposited with the
Registrar or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the holders of such Series D Preferred Shares; provided that, if such
Series D Preferred Shares are to be redeemed, notice of such redemption has been
duly given pursuant to this Schedule or provision therefor satisfactory to the
Registrar has been made; and (c) Series D Preferred Shares (x) that are
mutilated, destroyed, lost or stolen which the Company has decided to pay or (y)
in exchange for or in lieu of which other Series D Preferred Shares have been
authenticated and delivered pursuant to this Schedule; provided, however, that,
in determining whether the holders of the Series D Preferred Shares have given
any request, demand, authorization, direction, notice, consent or waiver or
taken any other action hereunder, Series D Preferred Shares owned by the Company
or any other obligor upon the Series D Preferred Shares or any affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Registrar shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Series D Preferred Shares which
the Registrar has actual knowledge of being so owned shall be so disregarded.
Series D Preferred Shares so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Registrar the pledgee's right so to act with respect to such Series D Preferred
Shares and that the pledgee is not the Company or any other obligor upon the
Series D Preferred Shares or any affiliate of the Company or of such other
obligor.
"Parity Shares" has the meaning set forth in Section 9(a).
"Paying Agent" has the meaning set forth in Section 5(a).
"Preferred Shares Liquidated Damages" has the meaning set forth in
Section 6(b).
<PAGE> 49
49
"Purchase Agreement" means the Purchase Agreement dated February
14, 2000, among the Company and the Initial Purchasers.
"Purchased Shares" has the meaning set forth in Section 12(d)(vi).
"QIBs" has the meaning set forth in Section 4(a).
"Registrar" has the meaning set forth in Section 3.
"Registrable Securities" has the meaning set forth in Section
5(c).
"Registration Default" has the meaning set forth in Section 6(b).
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of February 18, 2000, among the Company and the Initial
Purchasers.
"Regulation S" has the meaning set forth in Section 4(a).
"Restricted Shares Legend" has the meaning set forth in Section
4(a).
"resulting entity" has the meaning set forth in Section 13.
"Rule 144A" has the meaning set forth in Section 4(a).
"SEC" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the adoption of this Schedule such commission is not existing and performing the
duties now assigned to it, then the body performing such duties at such time.
"SEC Reports" has the meaning set forth in Section 14.
<PAGE> 50
50
"Securities Act" has the meaning set forth in Section 4(a).
"Senior Shares" has the meaning set forth in Section 9(a).
"Series A Preferred Shares" means the Series A Convertible
Preferred Stock, $0.01 par value, of the Company.
"Series C Preferred Shares" means the 6% Series C Convertible
Redeemable Preferred Stock due 2006, $0.01 par value, of the Company.
"Series D Preferred Share Directors" has the meaning set forth in
Section 8(a).
"Series D Preferred Shares" has the meaning set forth in Section
1.
"Shelf Registration Statement" has the meaning set forth in
Section 6(b)(i).
"Trading Day" means any Business Day on which the Common Shares
are traded on a national, SEC-recognized exchange or trading system.
"Transfer Restricted Securities" means each Registrable Security
until the earlier of (A) the second anniversary of the last Closing Date
pursuant to the Purchase Agreement and (B) such time as (1) such Registrable
Security shall no longer constitute a restricted security for purposes of Rule
144(k) of the Securities Act or (2) such Registrable Security has been sold
pursuant to the Shelf Registration Statement.
"Voting Rights Triggering Event" has the meaning set forth in
Section 8(a).
<PAGE> 51
51
IN WITNESS WHEREOF, the Company has caused this Schedule to be
duly executed and attested as of this 18th day of February, 2000.
LORAL SPACE & COMMUNICATIONS LTD.
by: /s/Eric J. Zahler
------------------------------
Name: Eric J. Zahler
Title: President and Chief
Operating Officer
ATTEST:
by: /s/Janet T. Yeung
------------------------------
Name: Janet T. Yeung
Title: Associate General
Counsel and Assistant
Secretary
<PAGE> 52
EXHIBIT A
FACE OF SECURITY
[Restricted Shares Legend (include if Security is not registered under the U.S.
Securities Act of 1933): THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY 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 OR REGULATION S THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS
ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE
ISSUERS THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY, PRIOR TO THE DATE WHEN THIS SECURITY NO LONGER
CONSTITUTES A "RESTRICTED" SECURITY UNDER RULE 144(K) OF THE SECURITIES ACT
EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, 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, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS
SECURITIES OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER, SALE
OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(E) AND (F) IS
SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE TRANSFER AGENT FOR
SUCH SECURITIES TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
OR OTHER INFORMATION ACCEPTABLE TO THEM IN
<PAGE> 53
FORM AND SUBSTANCE. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR
INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY
EXCEPT AS PERMITTED BY THE SECURITIES ACT.]
[Global Shares Legend (include if Security is issued as a global certificate):
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
PREFERRED STOCK SCHEDULE REFERRED TO BELOW.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.]
Number of Shares
Number: ____ ____ Shares
144A CUSIP NO.: 543885 60 2
Regulation S CUSIP NO.: G56462 16 4
6% SERIES D CONVERTIBLE REDEEMABLE PREFERRED STOCK DUE 2007
OF
LORAL SPACE & COMMUNICATIONS LTD.
<PAGE> 54
LORAL SPACE & COMMUNICATIONS LTD., an exempted company organized
under the laws of Bermuda (the "Company"), hereby certifies that [HOLDER] (the
"Holder") is the registered owner of fully paid and non-assessable preference
securities of the Company designated the 6% Series D Convertible Redeemable
Preferred Stock due 2007, par value U.S.$0.01 and liquidation preference
U.S.$50.00 per share (the "Preferred Stock"). The shares of Preferred Stock are
transferable on the books and records of the Registrar, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Stock represented
hereby are issued and shall in all respects be subject to the provisions of the
schedule to the Bye-Laws of the Company dated February 18, 2000, as the same may
be amended from time to time in accordance with its terms (the "Preferred Stock
Schedule"). Capitalized terms used herein but not defined shall have the meaning
given them in the Preferred Stock Schedule. The Company will provide a copy of
the Preferred Stock Schedule to a Holder without charge upon written request to
the Company at its principal place of business.
Reference is hereby made to select provisions of the Preferred
Stock set forth on the reverse hereof, and to the Preferred Stock Schedule,
which select provisions and the Preferred Stock Schedule shall for all purposes
have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Preferred Stock Schedule and is entitled to the benefits thereunder.
Unless the Transfer Agent's valid countersignature appears hereon,
the shares of Preferred Stock evidenced hereby shall not be entitled to any
benefit under the Preferred Stock Schedule or be valid or obligatory for any
purpose.
<PAGE> 55
IN WITNESS WHEREOF, the Company has executed this certificate as
of the date set forth below.
LORAL SPACE & COMMUNICATIONS LTD.,
By:
--------------------------
Name:
Title:
[Seal]
By:
--------------------------
Name:
Title:
Dated:
COUNTERSIGNED AND REGISTERED
THE BANK OF NEW YORK
as Transfer Agent,
By:
----------------------
Authorized Signatory
Dated:
<PAGE> 56
REVERSE OF SECURITY
LORAL SPACE & COMMUNICATIONS LTD.
6% Series B Convertible Redeemable Preferred Stock due 2007
Dividends on each share of Preferred Stock shall be payable at a
rate per annum set forth in the face hereof or as provided in the Preferred
Stock Schedule (including Preferred Stock Liquidated Damages). Dividends may be
paid, at the option of the Company, in cash, or, subject to certain limitations,
in shares of Common Stock of the Company or a combination of cash and shares of
Common Stock of the Company.
The shares of Convertible Preferred Stock shall be convertible
into the Company's Common Stock in the manner and according to the terms set
forth in the Preferred Stock Schedule.
The Company shall furnish to any Holder upon request and without
charge, a full summary statement of the designations, voting rights preferences,
limitations and special rights of the shares of each class or series authorized
to be issued by the Company so far as they have been fixed and determined and
the authority of the Board of Directors to fix and determine the designations,
voting rights, preferences, limitations and special rights of the class and
series of shares of the Company.
<PAGE> 57
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Preferred Stock evidenced hereby to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints:
- --------------------------------------------------------------------------------
agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent and Registrar. The agent may substitute another to act for
him or her.
Date:
------------------------------------
Signature:
-------------------------------
(Sign exactly as your name appears on the other side of this Convertible
Preferred Stock Certificate)
<PAGE> 58
Signature Guarantee:_____________________(1)
- --------
(1) Signature must be guaranteed by an "eligible guarantor institution"
(i.e., a bank, stockbroker, savings and loan association or credit union)
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934.
<PAGE> 59
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert (the "Conversion")
_________ shares of 6% Series D Convertible Redeemable Preferred Stock due 2007
(the "Preferred Stock"), represented by stock certificate No(s). (the "Preferred
Stock Certificates") into shares of common stock, par value U.S.$0.01 per share
("Common Stock"), of Loral Space & Communications Ltd. (the "Company") according
to the conditions of the schedule to the Company's Bye-Laws establishing the
terms of the Preferred Stock (the "Preferred Stock Schedule"), as of the date
written below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged to
the holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).*
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any
exemption from registration under the Act.
Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Preferred Stock Schedule and the Preferred Stock, agrees to be
bound by the terms of the Registration Rights Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Preferred Stock Schedule.
Date of Conversion:
--------------------------
Applicable Conversion Price:
-----------------
Number of shares of
<PAGE> 60
Preferred Stock to be Converted:
-------------
Number of shares of
Common Stock to be Issued:
-------------------
Signature:
-----------------------------------
Name:
----------------------------------------
Address:**
-----------------------------------
Fax No.:
-------------------------------------
*The Company is not required to issue shares of Common Stock until the original
Preferred Stock Certificate(s) (or evidence of loss, theft or destruction
thereof) to be converted are received by the Company or its Transfer Agent. The
Company shall issue and deliver shares of Common Stock to an overnight courier
not later than three business days following receipt of the original Preferred
Stock Certificate(s) to be converted.
**Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.
<PAGE> 61
[Global Share Schedule: (include if Security is issued as a global certificate)]
SCHEDULE OF EXCHANGES FOR GLOBAL SECURITY
The initial number of Series D Preferred Shares represented by
this Global Series D Preferred Share shall be _______. The following exchanges
of a part of this Global Series D Preferred Share have been made:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares
Amount of decrease in Amount of increase in represented by this Global
number of shares number of shares Series D Preferred Share
represented by this Global represented by this Global following such decrease or Signature of authorized
Date of Exchange Series D Preferred Share Series D Preferred Share increase officer of Registrar
---------------- ------------------------ ------------------------ -------- --------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT B
<PAGE> 62
FORM OF TRANSFER CERTIFICATE
(Transfers pursuant to Section 5(b)(ii),
Section 5(b)(iii) or Section 5(b)(iv) of the Schedule)
The Bank of New York, as Transfer Agent
101 Barclay Street, Floor 21 West
New York, New York 10286
At: Stock Transfer
Administration
Re: Loral Space & Communications Ltd.
6% Series D Convertible Redeemable Preferred Shares due
2007 (the "Series D Preferred Shares")
Reference is hereby made to Schedule IV (the "Schedule") to the
Bye-laws of Loral Space & Communications Ltd. Capitalized terms used but not
defined herein shall have the meanings given them in the Schedule.
This letter relates to __________ Series D Preferred Shares (the
"Securities") which are held [in the form of the [Global] Security (CUSIP No.
__) with the Depositary](2) in the name of [name of transferor] (the
"Transferor") to effect the transfer of the Securities.
In connection with such request, and in respect of Securities, the
Transferor does hereby certify the Securities are being transferred (i) in
accordance with applicable securities laws of any state of the United States or
any other jurisdiction and (ii) in accordance with their terms:
- -------------------
(2) Insert, if appropriate.
<PAGE> 63
CHECK ONE BOX BELOW:
(1) [ ] to a transferee that the Transferor reasonably
believes is a qualified institutional buyer within
the meaning of Rule 144A under the Securities Act
purchasing for its own account or for the account of
a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A;
(2) [ ] outside the United States to a Non-U.S. Person in a
transaction complying with Rule 904 of Regulation S
under the Securities Act;
(3) [ ] pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if
available); or
(4) [ ] in accordance with another exemption from the
registration requirements of the Securities Act
(based upon an opinion of counsel if the Company so
requests).
[Name of Transferor]
by:
------------------------
Name:
Title:
Dated:
cc: Loral Space & Communications Ltd.
600 Third Avenue
New York, NY 10016
At.: Corporate Secretary
<PAGE> 1
SHAREHOLDERS AGREEMENT
DATED AS OF MARCH 29, 2000
BY AND BETWEEN
LOCKHEED MARTIN CORPORATION
AND
LORAL SPACE & COMMUNICATIONS LTD.
<PAGE> 2
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT is entered into as of March 29, 2000 (this
"Agreement"), by and between Lockheed Martin Corporation, a Maryland Corporation
("LMC"), and Loral Space & Communications Ltd., a Bermuda Company (the
"Company"). LMC and those of its Affiliates (as defined in Section 1.1(a)
hereof), if any, that are transferees with respect to any of the Equity
Securities (as defined in Section 1.1(e)) are collectively referred to herein as
the "Shareholders."
RECITALS
WHEREAS, LMC owns 45,896,978 shares of Series A Convertible Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company
(together with the shares of common stock of the Company into which the
Preferred Stock is convertible, the "Shares");
WHEREAS, the Company completed an offering of 8,000,000 shares of 6%
Series D Convertible Redeemable Preferred Stock due 2007 (with an underwriters'
overallotment option to purchase an additional 1,600,000 shares of Preferred
Stock) on February 18, 2000, at a price of $50.00 per share (the "Rule 144A
Offering") pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, LMC desires to effect the sale of the Shares but has agreed to
withdraw its demand registration request and has agreed not to effect sales of
the Shares from the date of the Letter Agreement (as defined below) until the
earlier of (i) 90 days (or such shorter period as the Company shall advise is
required, upon the advice of its investment bankers) after the closing of the
Rule 144A Offering or (ii) May 31, 2000 (the "Lock Up Period"), subject to
certain terms and conditions contained in a letter agreement between LMC and the
Company dated February 11, 2000 (the "Letter Agreement");
WHEREAS, LMC, as the successor in interest to Loral Corporation, and
the Company entered into a Shareholders Agreement dated April 23, 1996 (the
"Original Shareholders Agreement"); and
WHEREAS, LMC and the Company wish to terminate the Original
Shareholders Agreement and replace it with this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
<PAGE> 3
I.
STANDSTILL AND VOTING PROVISIONS
1.1. Restrictions on Certain Actions by the Shareholders.
(a) During the Term (as defined in Article III below), each
Shareholder will not, and will cause each of its Affiliates (such term, as used
in this Agreement, as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), not
to, singly or as part of a partnership, limited partnership, syndicate or other
group (as those terms are used in Section 13(d)(3) of the Exchange Act),
directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire,
by purchase, gift or otherwise, any Equity Securities, except pursuant
to a stock split, stock dividend, rights offering, recapitalization,
reclassification, merger, consolidation, corporate reorganization or
similar transaction; provided that at any time in which the
Shareholders hold, in the aggregate, less than twenty percent (20%) of
the Total Voting power, then the Shareholders may acquire Equity
Securities so that the Shareholders hold, in the aggregate, up to
twenty percent (20%) of the Total Voting Power;
(ii) make, or in any way actively participate in, any
"solicitation" of "proxies" to vote (as such terms are defined in Rule
14a-1 under the Exchange Act), solicit any consent or communicate with
or seek to advise or influence any third party with respect to the
voting of any Equity Securities or become a "participant" in any
"election contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act), in each case with respect to the Company;
(iii) form, join or encourage the formation of, any
"person" or "group" within the meaning of Section 13(d) of the Exchange
Act with respect to any Equity Securities; provided that this Section
1.1(a)(iii) shall not prohibit any such arrangement solely among the
Shareholders and any of their respective Affiliates;
(iv) deposit any Equity Securities into a voting
trust or subject any such Equity Securities to any arrangement or
agreement with respect to the voting thereof; provided that this
Section 1.1(a)(iv) shall not prohibit any such arrangement solely among
the Shareholders and any of their respective Affiliates;
(v) initiate, propose or otherwise solicit
Shareholders for the approval of one or more shareholder proposals with
respect to the Company as described in Rule 14a-8 under the Exchange
Act, or induce or attempt to induce any other third party to initiate
any shareholder proposal;
(vi) seek to place a representative on the Board of
Directors of the Company or seek the removal of any member of the Board
of Directors of the Company, except with the approval of the Board of
Directors or management of the Company;
2
<PAGE> 4
(vii) except with the approval of the Board of
Directors or management of the Company, call or seek to have called any
meeting of the shareholders of the Company;
(viii) otherwise act to seek to control the
management or policies of the Company, except with the approval of the
Board of Directors or management of the Company;
(ix) sell or otherwise transfer in any manner any
Equity Securities to any "person" (within the meaning of Section
13(d)(3) of the Exchange Act) who, immediately following such sale or
transfer, would, to the best of the Shareholder's knowledge, own more
than four percent (4%) of any class of Equity Securities or who,
without the approval of the Board of Directors of the Company, (A) has
publicly proposed a business combination or similar transaction with,
or a change of control of, the Company or who has publicly proposed a
tender offer for Equity Securities or (B) who has discussed with the
Company or any of its respective Affiliates the possibility of
proposing a business combination or similar transaction with, or a
change in control of, the Company;
(x) sell or otherwise transfer in any manner to any
person (as defined in clause (ix) above) in any single transaction or
series of related transactions more than 2% of the outstanding Equity
Securities;
(xi) solicit, seek to effect, negotiate with or
provide any information to any other party with respect to, or make any
statement or proposal, whether written or oral, to the Board of
Directors of the Company or any director or officer of the Company or
otherwise make any public announcement or proposal whatsoever with
respect to, any form of business combination transaction involving the
Company, including, without limitation, a merger, exchange offer or
liquidation of the Company's assets, or any corporate reorganization or
similar transaction with respect to the Company, except in each case
with the approval of the Board of Directors or management of the
Company; or
(xii) instigate or encourage any third party to do
any of the foregoing.
Notwithstanding clauses (ix) and (x) of this Section 1.1(a), the
Shareholders (A) may effect any transaction under the Registration Statement (as
defined in Section 2.1 hereof) in a bona fide underwritten offering reasonably
calculated to achieve broad distribution, (B) also may effect any transaction
(other than an underwritten offering) under the Registration Statement so long
as it does not violate the provisions of clause (ix) of this Section 1.1(a), and
(C) also may sell any number of the Shares to an investment banking firm for
resale so long as such investment banking firm agrees that any resales of the
Shares will be made in a manner consistent with the restrictions of clauses (ix)
and (x) of this Section 1.1(a).
3
<PAGE> 5
(b) The parties agree that the provisions of Section 1.1(a)
(except clauses (ix) and (x) thereof) and Section 1.3 may not be amended to
expand the Shareholders' rights thereunder.
(c) In addition to the restrictions set forth in Section
1.1(a) hereof, the Shareholders agree not to sell or transfer or enter into any
agreement to sell or transfer any of the Shares during the Lock Up Period;
provided, however, that the Shareholders may sell or transfer or enter into an
agreement to sell or transfer all or any portion of the Shares during the Lock
Up Period if during the Lock Up Period the Company (i) effects a Conflicting
Sale (as defined in Section 2.1(c) hereof) or (ii) files any registration
statement (other than registration statements relating to the Shares, shares
issued in the Rule 144A Offering and the shares issuable in respect thereof, and
shares issued under registration statements relating solely to stock option,
executive compensation or benefit plans, and no other shares; provided, however,
that in any event, no securities other than the Shares shall be included in the
prospectus that covers the Shares) for the benefit of any party (including
itself) other than the Shareholders.
(d) Notwithstanding the provisions of this Section 1.1,
nothing herein shall apply with respect to any Equity Securities acquired from
any person other than a Shareholder (i) held by any pension, retirement or other
benefit plan managed by any Shareholder or any of its subsidiaries or other
Affiliates or (ii) held in any account managed for the benefit of another
person, by any subsidiary or other Affiliate of any of the Shareholders which is
engaged in the financial services business. In addition, notwithstanding the
provisions of this Section 1.1, nothing herein shall prohibit or restrict any
(i) transfer of Equity Securities to or among any of the subsidiaries or other
Affiliates of any of the Shareholders (provided that such subsidiary or
Affiliate agrees to be bound to the provisions of this Agreement, upon which
such subsidiary or Affiliate shall be entitled to all rights and benefits, and
shall be subject to all obligations, of a Shareholder under this Agreement);
(ii) assignment, pledge, mortgage, hypothecation, or other encumbrance or
transfer of all or any of a Shareholder's Equity Securities in connection with
any bona fide financing arrangement entered into by such person or otherwise in
connection with any indebtedness owed by such Shareholder; provided that in the
event that the Shareholder in question defaults, the creditor's rights and
obligations with respect to the voting and transfer of such Equity Securities
shall be the same as the Shareholder in question had under the provisions of
this Agreement and the creditor in question shall be deemed to be a Shareholder
under this Agreement for such purposes; or (iii) transfer of Equity Securities
pursuant to any merger, consolidation, corporate reorganization, restructuring
or any other similar transaction affecting the Company or pursuant to any
involuntary transfer.
(e) For the purposes of this Agreement, (i) the term "Equity
Securities" shall mean the Preferred Stock and any securities entitled to vote
generally in the election of directors of the Company, or any direct or indirect
rights or options to acquire any such securities or any securities convertible
or exercisable into or exchangeable for such securities; (ii) the term "Voting
Power" shall mean the voting power in the general election of directors of the
Company; (iii) the term "Total Voting Power" shall mean the total combined
Voting Power of all the Equity Securities then outstanding, including, without
limitation, the Preferred Stock, and, insofar as the Preferred Stock is
concerned, it is deemed to have Voting Power equal to that of the Common Stock
into which it is convertible; (iv) the term "Change of Control" shall mean the
occurrence
4
<PAGE> 6
of any of the following events: (A) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner of Equity Securities which represent at least forty percent
(40%) of the Total Voting Power, or (B) during any one-year period, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; and (v) the term "beneficial owner," and terms having similar import,
shall mean any direct or indirect "beneficial owner," as such term is defined in
Rules 13d-3 and 13d-5 under the Exchange Act.
1.2. HSR Clearance.
(a) At any time after the date hereof (but subject to the
provisions of Section 1.2(b) hereof), following a written request by LMC to the
Company (such request, the "HSR Notice"), the Company and the Shareholders will
(i) take promptly all actions necessary to make the filings required of the
Shareholders, the Company or any of their respective Affiliates under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act") with respect to the right to convert
Preferred Stock and continue to own the securities so received, the ownership
and voting of Equity Securities by the Shareholders, any of the transactions
contemplated by this Agreement or any other similar matters (all such exercise,
ownership, voting, transaction and other similar matters, the "Filing Matters"),
(ii) comply at the earliest practicable date with any request for additional
information or documentary material received by the Company or the Shareholders
or any of their Affiliates from any of the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state attorneys general, the
Securities and Exchange Commission ("SEC"), or other governmental or regulatory
authorities (all such authorities, the "Antitrust Authorities"), and (iii)
cooperate with each other in connection with any of the filings referred to in
clause (i) above and in connection with resolving any investigation or other
inquiry commenced by any of the Antitrust Authorities. To the extent reasonably
requested by LMC, the Company shall use all reasonable efforts to resolve such
objections, if any, as may be asserted with respect to the Filing Matters. If
any administrative, judicial or legislative action or proceeding is instituted
(or threatened to be instituted) challenging any aspect of the Filing Matters as
violative of any antitrust law, each of the Shareholders and the Company shall
cooperate with each other to contest and resist any such action or proceeding,
and to have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or permanent) (an
"Action") that is in effect and that restricts, prevents or prohibits the
exercise by the Shareholders of the right to convert Preferred Stock and
continue to own the securities so received, or the exercise by LMC of its rights
with respect to the ownership and voting of Equity Securities or any of the
transactions contemplated by this Agreement (any such decree, judgment,
injunction or other order is hereafter referred to as an "Order"), including,
without limitation, by pursuing all reasonable avenues of administrative and
judicial appeal, provided that nothing contained in this Section 1.2(a) shall be
construed to require any party hereto to hold separate or divest any of their
respective assets or businesses or agree to any substantive
5
<PAGE> 7
restriction thereon or on the conduct thereof. Each of the Company and LMC shall
promptly inform the other party of any material communication received by such
party from any Antitrust Authority regarding any of the Filing Matters or any of
the other transactions contemplated hereby. For the purposes this Agreement, the
term "HSR Clearance Date" shall mean the first date on which (x) any applicable
waiting period under the HSR Act with respect to the Filing Matters shall have
expired or been terminated, (y) there shall not be pending any Action commenced
by any Antitrust Authority relating to any of the Filing Matters or any of the
other transactions contemplated hereby, and (z) there shall not be in effect any
Order.
(b) Notwithstanding the provisions of Section 1.2(a) above, in
the event that LMC delivers the HSR Notice to the Company, the Company shall be
entitled to postpone for a reasonable period of time (but in no event later than
45 days), any filing referred to in Section 1.2(a)(i) above if the Company
determines in its reasonable judgment and in good faith that such filing would
delay the obtaining of any approval from an Antitrust Authority with respect to
any announced or imminent material acquisition or disposition which would
require a filing by the Company under the HSR Act. In the event of such
postponement, the Company shall have the right to withdraw its HSR Notice and
may deliver any such HSR Notice at any time thereafter.
(c) LMC and the Company acknowledge that the waiting period
under the HSR Act expired on March 5, 2000.
1.3 Voting and Related Matters.
(a) General Voting Provisions. Prior to the HSR Clearance
Date, no Shareholder shall have the right to convert Preferred Stock into common
stock or the right to vote any Equity Securities with respect to the election of
directors of the Company. Following the HSR Clearance Date, each Shareholder
shall have the right to vote its Equity Securities to the extent permitted by
the terms thereof on any matters submitted to a vote of the shareholders of the
Company, provided that following the HSR Clearance Date any Shareholder shall
have the right to vote any Equity Securities to the extent permitted by the
terms thereof with respect to the election of directors of the Company without
restriction, provided that in the event of an "election contest" (as such term
is used in Rule 14a-11 under the Exchange Act) each Shareholder shall have the
right to vote in the election contest only (i) as recommended by the Board of
Directors or management of the Company or (ii) in the same proportions as the
holders of Equity Securities (other than Shareholders) vote their Equity
Securities. On each matter with respect to which a Shareholder is entitled to
vote pursuant to this Section 1.3, each such Shareholder shall be present, in
person or represented by proxy, at all such shareholder meetings of the Company
so that all Equity Securities beneficially owned by it shall be counted for the
purpose of determining the presence of a quorum at such meetings. For purposes
of this Section 1.3, all references to the term "vote" shall include the
execution and delivery of any written consent with respect to the taking of any
shareholder action in lieu of a meeting of shareholders.
(b) Special Limitation on Company Actions. The Company will
not propose, and will use its best efforts to prevent, the adoption of any
amendment to the charter documents of the Company that would adversely affect
the rights of the Shareholders under this Agreement.
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1.4 Certain Notices. Promptly, but in any event within 15 days
following any repurchase by the Company of any of its outstanding Equity
Securities, which repurchase has the effect of increasing the Total Voting Power
of all Shareholders to an amount in excess of 20% of the Total Voting Power of
all persons, the Company shall give written notice thereof to each Shareholder.
II.
REGISTRATION RIGHTS; SALES OF EQUITY SECURITIES
2.1 Registration and Blackout Period.
(a) On or before April 15, 2000, the Company shall prepare and
file on Form S-3 if permitted, or otherwise on the appropriate form, a
registration statement (the "Registration Statement") under the Securities Act
(the securities subject to such registration being referred to as the "Subject
Securities") to register the Shares or other securities of the Company held by
LMC or any Shareholder (any such Shareholder being referred to as a "Registering
Shareholder"). Such registration shall be effected in accordance with the
intended method or methods of disposition specified by the Registering
Shareholder (including, but not limited to, Rule 415 (or any successor rule to
similar effect) promulgated under the Securities Act). In connection therewith,
the Company (i) shall use its best efforts to cause such securities to be
registered under the Securities Act as soon as reasonably practicable with the
objective of having the Registration Statement declared effective on or before
the end of the Lock Up Period; (ii) shall prepare and timely file with the SEC
periodic reports required to be filed by the Company under the Exchange Act, and
such amendments and post-effective amendments, supplements and other filings
under the Securities Act, and otherwise use its best efforts to maintain the
effectiveness of the Registration Statement for a period of 12 months following
the end of the Lock Up Period (or any longer period as contemplated in this
Section 2.1(a)) and ensure that the Registration Statement and related
prospectus comply with the requirements of the securities laws; (iii) shall
arrange, in good faith consultation with LMC to accommodate prior commitments
and critical business needs, for senior management of the Company who generally
participate in "road shows" for the Company (including those individuals
participating in the road show for the Rule 144A Offering), to be available to
the Registering Shareholders and prospective investors for road show
presentations to substantially the same extent with respect to at least one
underwritten public offering (it being understood that the Company will in good
faith consider a request for a second road show, provided that the Company shall
not have an obligation for a second road show) consistent with those generally
conducted by the Company when it issues equity securities for its own account,
with all reasonable expenses (expenses customarily borne by the Company in
connection with the offering of securities for its own account being deemed
reasonable) to be borne by the Registering Shareholders; and (iv) covenants and
agrees not to make any Conflicting Sale (as defined in Section 2.1(c) hereof)
during the period commencing on the date of the Letter Agreement and ending on
the later of the six month anniversary of the end of the Lock Up Period or the
date that is six months after the Registration Statement is declared effective
(the "Loral Lock Up Period"). Notwithstanding the foregoing to the contrary, (x)
the Loral Lock Up Period will be extended for a period equal to any Blackout
Period (as defined below) occurring during the Loral Lock Up Period and (y) the
period during which the Company is required to use its best efforts in
maintaining the
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<PAGE> 9
effectiveness of the Registration Statement in clause (ii) of the third sentence
will be extended for a period equal to any Blackout Period occurring during the
time the Registration Statement is to be effective.
Notwithstanding the restrictions in clauses (ii), (iii) and (iv) of
this Section 2.1(a), on the day that the Shareholders no longer beneficially own
at least 3,000,000 shares of the Company's common stock (including all shares
issuable upon conversion of any Preferred Stock that the Shareholders own) (the
"Early Termination Date"), clauses (ii), (iii) and (iv) of this Section 2.1(a)
shall be of no further force or effect, provided that if the Shareholders shall
have completed an underwritten public offering of the Company's common stock
within 90 days of the Early Termination Date and the managing underwriter of
that offering so requests in writing, the provisions of clause (iv) shall
nonetheless survive in accordance with their terms until the earliest of: (A)
the 90th day following the Early Termination Date, (B) the date such clause
would have otherwise expired, (C) if the Shareholders have any Shares remaining
after that offering, the date the lock-up period agreed to by the Shareholders
and their underwriters with respect to their remaining Shares terminates or is
earlier released, and (D) the date the Shareholders' managing underwriter
releases the Company from such lock-up provisions.
Each Registering Shareholder agrees to provide all such information and
materials and to take all such action as may be reasonably required in order to
permit the Company to comply with all applicable requirements of the Securities
Act and the SEC and to obtain any desired acceleration of the effective date of
the Registration Statement. If the offering is to be underwritten, the managing
underwriter or underwriters shall be selected by LMC and shall be reasonably
satisfactory to the Company.
(b) Following the Loral Lock Up Period and for so long as the
Company is required to use its best efforts to maintain the effectiveness of the
Registration Statement in accordance with Section 2.1(a) hereof, each of the
Shareholders and the Company will refrain from selling or transferring or
entering into an agreement to sell or transfer any shares of the Company's
common stock or any securities convertible into or exchangeable for shares of
the Company's common stock (other than sales or transfers pursuant to the terms
of securities outstanding on the date of receipt of the written request
contemplated by this Section 2.1(b) and sales or transfers pursuant to stock
option or other executive compensation or benefit plans) upon one (but not more
than one) written request (such written request to be made in accordance with
Section 4.4 hereof) made by the other party in connection with any offering of
the Company's common stock or securities convertible into or exchangeable for
the Company's common stock in a public offering or Rule 144A transaction until
after the close of business on the 21st day following receipt of such written
request.
(c) For the purposes of this Article II,
(i) the term "Blackout Period" means (A) any period
that the Registration Statement cannot be used by the Registering
Shareholders as a result of a stop order issued by the SEC or
developments in the business or affairs of the Company that the Company
advises LMC in writing must be reflected in an amendment or supplement
to the Registration Statement or the related prospectus and (B) with
respect
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<PAGE> 10
solely to clause (ii) of the third sentence of Section 2.1(a), for any
period during which sales of Shares are prohibited by Section 2.1(b);
and
(ii) the term "Conflicting Sale" means any sale or
transfer, or entering into an agreement to sell or transfer, by the
Company of any shares of the Company's common stock or any securities
convertible into or exchangeable for shares of the Company's common
stock (other than a sale or transfer in the Rule 144A Offering, sales
or transfers pursuant to the terms of securities outstanding on the
date of the Letter Agreement (as such terms exist on the date thereof)
and sales or transfers pursuant to stock option or other executive
compensation or benefit plans) (A) in any offering registered under the
Securities Act of 1933, (B) in any offering pursuant to Rule 144A or
(C) in a private placement, unless the purchaser agrees (I) not to make
any offer or sale of, or to enter into any agreement to offer or sell,
any such shares or securities for at least one year or such longer
period as the Company is required to use its best efforts to maintain
the effectiveness of the Registration Statement, and (II) not to
otherwise sell or transfer or enter into any agreement to sell or
transfer any such shares or securities except to a person who agrees in
writing to the same restrictions. The Company warrants and agrees not
to waive or amend the agreements contemplated by clauses (I) and (II)
of the preceding sentence without LMC's prior written consent, which
may be given or withheld in LMC's sole discretion, (y) to take such
actions (including placing a restrictive legend on any certificates
representing any securities) as may be reasonable and customary in
connection with restrictions of the type set forth in clauses (I) and
(II), and (z) to direct the registrar and transfer agent for its
securities (including the Company itself if it is acting as its own
registrar or transfer agent) not to issue any securities upon transfer
without a written acknowledgement from the Company confirming that the
transfer is not in violation of clause (I) or (II). Notwithstanding the
foregoing, a "Conflicting Sale" shall not include the issuance in one
or more transactions by the Company of shares of its common stock to
holders of its 6% Series C Convertible Redeemable Preferred Stock (the
"Series C Preferred") in connection with the exchange by such holders
of their shares of Series C Preferred for the Company's common stock,
provided that the total number of shares of the Company's common stock
to be issued in such exchanges shall not exceed in the aggregate the
sum of (x) the shares of the Company's common stock issuable upon
conversion of the Series C Preferred and (y) three million shares of
the Company's common stock.
(d) The Company shall not grant to any other holder of its
securities, whether currently outstanding or issued in the future, any
incidental or piggyback registration rights with respect to the Registration
Statement, and without the prior consent of the Registering Shareholders, the
Company will not itself, and will not permit any other holder of its securities
to, participate in any offering made pursuant to the Registration Statement
(except as contemplated by Section 1.1(c)). If the Registering Shareholders
consent to the inclusion of offers and sales of any other securities in the
Registration Statement pursuant to this Section 2.1 and the underwriter(s)
retained in connection with such registration subsequently advise the
Registering Shareholders that such offering would be adversely affected by the
inclusion of such other securities, the Registering Shareholders may in their
sole discretion exclude all or some of such securities from such registration.
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<PAGE> 11
(e) The registration contemplated by this Agreement shall not
be deemed to have been effected (and, therefore, not requested for purposes of
this Section 2.1), (i) unless it has become effective or (ii) if after it has
become effective such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court for any reason other than a misrepresentation or an omission by the
Registering Shareholders and, as a result thereof, the Subject Securities
requested to be registered cannot be completely distributed in accordance with
the plan of distribution set forth in the Registration Statement.
(f) Except for the pending transfer of the Shares by LMC to
its wholly owned subsidiary, Lockheed Martin Investments Inc., LMC represents to
the Company that, on or prior to the date hereof, LMC has not sold, assigned,
pledged, mortgaged, hypothecated or otherwise encumbered or transferred, and has
not entered into any agreements or arrangements with any third party to sell,
assign, pledge, mortgage, hypothecate or otherwise encumber or transfer any of
the Shares.
2.2 Non-Affiliate. The Company agrees to accept an opinion of LMC's
in-house counsel to the effect that neither LMC nor any other Shareholder is an
"affiliate" of the Company within the meaning of Rule 144 under the Securities
Act, and covenants and agrees upon receipt of such opinion to (a) deliver a
letter or certificate to LMC or such other Shareholder for distribution to
potential purchasers confirming the foregoing, (b) direct the registrar and
transfer agent for its Shares to issue certificates without restrictive legends
to purchasers of the Shares, (c) acknowledge the ability under this Agreement of
LMC and such other Shareholders to sell the Shares without volume limitations
other than the limitations contemplated by clauses (ix) and (x) of Section
1.1(a), and (d) otherwise take no actions inconsistent with offers or sales of
Shares by the Shareholders in accordance with this Agreement.
2.3 Registration Mechanics.
(a) In connection with any offering of Subject Securities
registered pursuant to Section 2.1 herein, the Company shall (i) furnish to the
Registering Shareholders such number of copies of any prospectus (including
preliminary and summary prospectuses) and conformed copies of the Registration
Statement (including amendments or supplements thereto and, in each case, all
exhibits) and such other documents as any Registering Shareholder may reasonably
request; (ii) (A) use its best efforts to register or qualify the Subject
Securities covered by the Registration Statement under such blue sky or other
state securities laws for offer and sale as the Registering Shareholders shall
reasonably request and (B) keep such registration or qualification in effect for
so long as the Registration Statement remains in effect; provided that the
Company shall not be obligated to qualify to do business as a foreign
corporation under the laws of any jurisdiction in which it shall not then be
qualified or to file any general consent to service of process in any
jurisdiction in which such a consent has not been previously filed or subject
itself to taxation in any jurisdiction wherein it would not otherwise be subject
to tax but for the requirements of this Section 2.3; (iii) use its best efforts
to cause all Subject Securities covered by the Registration Statement to be
registered with or approved by such other federal or state government agencies
or authorities as may be necessary, in the opinion of counsel to the
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<PAGE> 12
Registering Shareholders, to enable the Registering Shareholders to consummate
the disposition of such Subject Securities; (iv) notify the Registering
Shareholders any time when a prospectus relating thereto is required to be
delivered under the Securities Act upon discovery that, or upon the happening of
any event as a result of which, the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the circumstances
under which they were made, and (subject to the good faith determination of the
Company's Board of Directors as to whether to permit sales under the
Registration Statement), at the request of any Registering Shareholder promptly
prepare and furnish to it a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances under which they were made; (v)
otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC; (vi) use its best efforts to list the Subject Securities
covered by such registration statement on the New York Stock Exchange or on any
other exchange on which the Subject Securities are then listed, if required by
the rules of any such exchange; (vii) use its best efforts to obtain a "cold
comfort" letter from the independent public accountants for the Company in
customary form and covering matters of the type customarily covered by such
letters as may be reasonably requested by the Registering Shareholders in the
event of a registration effected pursuant to Section 2.1 hereof; (viii) execute
and deliver all instruments and documents (including in an underwritten offering
an underwriting agreement in customary form) and take such other actions and
obtain such certificates and opinions as the Registering Shareholders reasonably
request in order to effect an underwritten public offering; and (ix) before
filing the Registration Statement or any amendment or supplement thereto, and as
far in advance as is reasonably practicable, furnish to each Registering
Shareholder and its counsel copies of such documents. In connection with any
offering of Subject Securities registered pursuant to Section 2.1, the Company
shall (x) furnish to the underwriter, if any, unlegended certificates
representing ownership of the Subject Securities being sold in such
denominations as requested and (y) instruct any transfer agent and registrar of
the Subject Securities to release any stop transfer orders with respect to such
Subject Securities.
(b) Before filing with the SEC the Registration Statement or
any amendments or supplements thereto, the Company shall furnish to the
Registering Shareholders or their respective counsel copies of all such
documents proposed to be filed, in order to give the Registering Shareholders or
their respective counsel sufficient time to review such documents, and such
documents may thereafter be filed subject to any timely and reasonable comments
of the Registering Shareholders or their respective counsel. The Company shall
(i) deliver promptly to the Registering Shareholders or their respective counsel
copies of all written communications between the Company and the SEC relating to
such registration statement, and (ii) advise the Registering Shareholders or
their respective counsel promptly of, and provide the Registering Shareholders
or their respective counsel with the opportunity to participate in (to the
extent reasonably practicable), all telephonic and other non-written
communications between the Company and the SEC relating to such registration
statement. The Company shall respond promptly to any comments from the SEC with
respect thereto, after consultation with the Registering Shareholders or their
respective counsel, and shall take such other actions as shall be
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<PAGE> 13
reasonably required in order to have such registration statement declared
effective under the Securities Act as soon as reasonably practicable as set
forth in Section 2.1(a).
(c) Each Registering Shareholder agrees that upon receipt of
any notice from the Company of the happening of any event of the kind described
in clause (iv) of Section 2.3(a), it will forthwith discontinue its disposition
of Subject Securities pursuant to the Registration Statement relating to such
Subject Securities until its receipt of the copies of the supplemented or
amended prospectus contemplated by clause (iv) of Section 2.3(a) and, if so
directed by the Company, will deliver to the Company all copies (other than
permanent file copies) then in its possession of the prospectus relating to such
Subject Securities current at the time of receipt of such notice. If any
Registering Shareholder's disposition of Subject Securities is discontinued
pursuant to the foregoing sentence, unless the Company thereafter extends the
effectiveness of the Registration Statement to permit dispositions of Subject
Securities by the Registering Shareholder for an aggregate of 60 days (or 90
days, if the Company is eligible to use a Form S-3, or successor form), whether
or not consecutive, or, if longer, the period contemplated by Section 2.1(a),
the registration contemplated by this Agreement shall not be deemed to have been
effected.
2.4 Expenses. The Registering Shareholders shall pay all agent fees and
commissions and underwriting discounts and commissions related to Subject
Securities being sold by the Registering Shareholders and the fees and
disbursements of its counsel and accountants and the Company to the extent
permitted by applicable law shall pay all fees and disbursements of its counsel
and accountants in connection with the Registration Statement. All other fees
and expenses in connection with the Registration Statement (including, without
limitation, all registration and filing fees, all printing costs, all fees and
expenses of complying with securities or blue sky laws) shall to the extent
permitted by applicable law be borne equally by the Registering Shareholders and
the Company; provided that the Registering Shareholders shall not be obligated
to pay any expenses relating to work that would otherwise be incurred by the
Company including, but not limited to, the preparation and filing of periodic
reports with the SEC.
2.5 Indemnification and Contribution.
(a) In the case of any offering registered pursuant to this
Article II, the Company agrees to indemnify and hold each Registering
Shareholder, each underwriter, if any, of the Subject Securities under such
registration and each person who controls any of the foregoing within the
meaning of Section 15 of the Securities Act, and any officer, employee or
partner of the foregoing, harmless against any and all losses, claims, damages,
or liabilities (including reasonable legal fees and other reasonable expenses
incurred in the investigation and defense thereof) to which they or any of them
may become subject under the Securities Act or otherwise (collectively
"Losses"), insofar as any such Losses shall arise out of or shall be based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement relating to the sale of such Subject
Securities (as amended if the Company shall have filed with the SEC any
amendment thereof), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a
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<PAGE> 14
material fact contained in the prospectus relating to the sale of such Subject
Securities (as amended or supplemented if the Company shall have filed with the
SEC any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that the indemnification contained in this Section 2.5
shall not apply to such Losses which shall arise primarily out of or shall be
based primarily upon any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, which shall have been made in reliance
upon and in conformity with information furnished in writing to the Company by
the Registering Shareholders or any such underwriter, as the case may be,
specifically for use in connection with the preparation of the Registration
Statement or prospectus contained in the registration statement or any such
amendment thereof or supplement therein.
(b) In the case of each offering registered pursuant to this
Article II, the Registering Shareholders and each underwriter, if any,
participating therein shall agree, substantially in the same manner and to the
same extent as set forth in the preceding paragraph, severally to indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and the directors and
executive officers of the Company, with respect to any statement in or omission
from the Registration Statement or the prospectus contained in the Registration
Statement (as amended or as supplemented, if amended or supplemented as
aforesaid) if such statement or omission shall have been made in reliance upon
or in conformity with information furnished in writing to the Company by the
Registering Shareholders or such underwriter, as the case may be, specifically
for use in connection with the preparation of the Registration Statement or the
prospectus contained in the Registration Statement or any such amendment thereof
or supplement thereto.
(c) Each party indemnified under this Section 2.5 shall,
promptly after receipt of notice of the commencement of any claim ("Claim")
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement thereof.
The failure of any indemnified party to so notify an indemnifying party shall
not relieve the indemnifying party from any liability in respect of such Claim
which it may have to such indemnified party on account of the indemnity
contained in this Section 2.5, unless (and only in the event) the indemnifying
party was materially prejudiced by such failure, and in no event shall such
failure relieve the indemnifying party from any other liability which it may
have to such indemnified party. In case any Claim in respect of which
indemnification may be sought hereunder shall be brought against any indemnified
party and it shall notify an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may desire, jointly with any other indemnifying party similarly notified
to assume the defense thereof through counsel reasonably satisfactory to the
indemnified party by notifying the indemnified party in writing of such election
within 10 days after receipt of the indemnified party's initial notice of the
Claim, and after such notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section 2.5 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation (unless such indemnified party reasonably objects to such
assumption on the grounds that there may be defenses available to it
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<PAGE> 15
which are different from or in addition to those available to such indemnifying
party in which event the indemnified party shall be reimbursed by the
indemnifying party for the reasonable expenses incurred in connection with
retaining separate legal counsel). If the indemnifying party undertakes to
defend against such Claim within such 10-day period, the indemnifying party
shall control the investigation, defense and settlement thereof; provided that
(i) the indemnifying party shall use its reasonable efforts to defend and
protect the interests of the indemnified party with respect to such Claim, (ii)
the indemnified party, prior to or during the period in which the indemnifying
party assumes control of such matter, may take such reasonable actions as the
indemnified party deems necessary to preserve any and all rights with respect to
such matter, without such actions being construed as a waiver of the indemnified
party's rights to defense and indemnification pursuant to this Agreement, and
(iii) the indemnifying party shall not, without the prior written consent of the
indemnified party, consent to any settlement which (A) imposes any Losses on the
indemnified party (other than those Losses which the indemnifying party agrees
to promptly pay or discharge), and (B) with respect to any non-monetary
provision of such settlement, would be likely, in the indemnified party's
reasonable judgment, to have an adverse effect on the business operations,
assets, properties or prospects of any Shareholder (in the event that
Registering Shareholder or any of its Affiliates is the indemnified party), or
the Company (in the event that the Company is an indemnified party) or such
indemnified party. If the indemnifying party does not undertake within such
10-day period to defend against such Claim, then the indemnifying party shall
have the right to participate in any such defense at its sole costs and expense,
but the indemnified party shall control the investigation, defense and
settlement thereof (provided that the indemnified party may not settle any such
Claim without obtaining the prior written consent of the indemnifying party
(which consent shall not be unreasonably withheld by the indemnifying party;
provided that in the event that the indemnifying party is in material breach at
such time of the provisions of this Section 2.5, then the indemnified party
shall not be obligated to obtain such prior written consent of the indemnifying
party) at the reasonable cost and expense of the indemnifying party (which shall
be paid by the indemnifying party promptly upon presentation by the indemnified
party of invoices or other documentation evidencing the amounts to be
indemnified). In addition to the foregoing, no indemnifying party shall, without
the prior written consent of the indemnified party, affect any settlement of any
pending or threatened proceeding in respect of which the indemnified party could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability arising out of such claim or
proceeding.
(d) If the indemnification provided for in this Section 2.5 is
unavailable to an indemnified party or is insufficient to hold such indemnified
party harmless from any Losses in respect of which this Section 2.5 would
otherwise apply by its terms (other than by reason of exceptions provided
herein), then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation to contribute to
the amount paid or payable by such indemnified party as a result of such Losses,
in such proportion as is appropriate to reflect the relative benefits received
by and fault of the indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the offering to which such
contribution relates as well as any other relevant equitable considerations. The
relative benefit shall be determined by reference to, among other things, the
amount of proceeds received by each party from the offering to which such
contribution relates. The relative fault
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<PAGE> 16
shall be determined by reference to, among other things, each party's relative
knowledge and access to information concerning the matter with respect to which
the claim was asserted, and the opportunity to correct and prevent any statement
or omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include any legal or other fees or expenses incurred by such
party in connection with any investigation or proceeding, to the extent such
party would have been indemnified for such expenses if the indemnification
provided for in this Section 2.5 was available to such party.
(e) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 2.5 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. 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.
2.6 Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Shareholder,
make publicly available other information), and it will take such further action
as any Shareholder may reasonably request, all to the extent required from time
to time to enable such Shareholder to sell Subject Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Shareholder, the Company will deliver to such
Shareholder a written statement as to whether it has complied with such
requirements.
III.
TERM
3.1 Term. The term (the "Term") of this Agreement shall commence on the
date hereof and shall continue, unless specifically provided otherwise in this
Agreement, until the earlier of (a) the date on which LMC and its Affiliates, on
a fully diluted basis, beneficially own no Equity Security, (b) April 23, 2006,
or (c) a Change in Control (as defined in Section 1.1(e) hereof). Upon
expiration of the Term, the provisions of this Agreement shall terminate, and be
of no further force or effect, automatically without any further action on the
part of any parties hereto, provided that the provisions of Article II and
Article IV shall continue without regard to the term limitation set forth in
this sentence; provided further that no such termination shall relieve any party
of any liability to the other party hereto, to the extent such liability is
incurred prior to the expiration of the Term.
IV.
MISCELLANEOUS
4.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior negotiations,
15
<PAGE> 17
commitments, agreements and understandings, including the Letter Agreement, both
written and oral, between the parties or any of them with respect to the subject
matter hereof.
4.2 Fees and Expenses. Except as otherwise provided in this Agreement,
all costs and expenses incurred by the Shareholders and the Company in
connection with consummating such party's obligations hereunder or otherwise
shall be paid by the party incurring such cost or expense.
4.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF (EXCEPT IN THOSE
CIRCUMSTANCES WHERE THE CORPORATE LAW OF THE COMPANY'S JURISDICTION OF
ORGANIZATION REQUIRES THE APPLICATION OF THE LAW OF THE COMPANY'S JURISDICTION
OF ORGANIZATION WITH RESPECT TO A PARTICULAR MATTER).
4.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to any of the Shareholders, to:
c/o Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Telephone: (301) 897-6125
Telecopy No.: (301) 897-6333
Attention: General Counsel
with a copy to:
King & Spalding
1730 Pennsylvania Avenue, NW
Washington, DC 20006
Telephone: (202) 737-0500
Telephone: (202) 626-3737
Attention: Glenn C. Campbell
(b) If to the Company, to:
Loral Space & Communications Ltd.
c/o Loral SpaceCom Corporation
600 Third Avenue
16
<PAGE> 18
New York, NY
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: General Counsel
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Telephone: (212) 821-8000
Telecopy No.: (212) 821-8111
Attention: Bruce R. Kraus, Esq.
In addition to providing any notice required to be given by the Company pursuant
to its Certificate of Incorporation in the manner specified therein, the Company
shall send to each Shareholder by telecopy in accordance with this Section 4.4 a
copy of each such notice.
4.5 Successors and Assigns; Reclassifications; No Third Party
Beneficiaries. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties hereto (which consent may not be reasonably withheld), except that any
party shall have the right, without the consent of any other party hereto, to
assign all or a portion of its rights, interests, and obligations hereunder to
one or more direct or indirect subsidiaries, but no such assignment of
obligation shall relieve the assigning party from its responsibility therefor.
In the event of any recapitalization or reclassification of any Equity
Securities, or any merger, consolidation or other transaction with like effect,
the securities issued in replacement or exchange for such Equity Securities
shall be deemed Equity Securities hereunder. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement; provided that the indemnified parties referred to in
Section 2.5 hereof are intended to be third party beneficiaries of the
provisions of Section 2.5 hereof, and shall have the right to enforce such
provisions as if they were parties hereto.
4.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.7 Further Assurances. Each party hereto or person subject hereto
shall do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto or person subject hereto may
reasonably request in order to carry out the intent and
17
<PAGE> 19
accomplish the purpose of this Agreement and the consummation of the
transactions contemplated hereby.
4.8 Interpretation. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. Unless otherwise specified in
this Agreement, all references in this Agreement to "days" shall be deemed to be
references to calendar days.
4.9 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
affecting the validity or enforceability of the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. If any provision
of this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
4.10 Consent to Jurisdiction. Each of the parties hereto irrevocably
and unconditionally (a) agrees that all suits, actions or other legal
proceedings arising out of this Agreement or any of the transactions
contemplated hereby (a "Suit") shall be brought and adjudicated solely in the
United States District Court for the District of Delaware, or, if such court
will not accept jurisdiction, in the Delaware Chancery Court or any court of
competent civil jurisdiction sitting in New Castle County, Delaware, (b) submits
to the non-exclusive jurisdiction of any such court for the purpose of any such
Suit and (c) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claims that it is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper. Each of the parties hereto
also irrevocably and unconditionally consents to the service of any process,
summons, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 4.4 hereof and agrees that any such form of service shall
be effective in connection with any such Suit; provided that nothing contained
in this Section 4.10 shall affect the right of any party to serve process,
pleadings, notices or other papers in any other manner permitted by applicable
law.
4.11 Specific Performance. Each of the parties hereto acknowledges and
agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto (a) will
waive, in any action for specified performance, the defense of adequacy of a
remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in any court referred to in Section
4.10 hereof.
18
<PAGE> 20
IN WITNESS WHEREOF, each of the parties has caused this Shareholders
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
LOCKHEED MARTIN CORPORATION
By: /s/ Janet McGregor
Name:
Title:
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Avi Katz
Name:
Title:
19
<PAGE> 1
EXHIBIT 10.4.2
AMENDMENT
to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
of
GLOBALSTAR, L.P.
AMENDMENT (this "Amendment"), dated as of February 1, 2000 to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of GLOBALSTAR, L.P., a
Delaware limited partnership ("Globalstar" or the "Partnership"), dated as of
January 26, 1999 (the "Partnership Agreement"), by and among LORAL/QUALCOMM
SATELLITE SERVICES, L.P., a Delaware limited partnership ("LQSS"), GLOBALSTAR
TELECOMMUNICATIONS LIMITED, a Bermuda company ("GTL") and the limited partners
signatories thereto as set forth on the signature pages hereto (collectively,
the "Limited Partners" and together with LQSS and GTL, the "Partners"), as
amended on December 8, 1999.
WHEREAS, GTL is making an offering (the "Common Stock Offering")
of 8,050,000 shares of common stock, par value $1.00 per share (the "Common
Stock").
WHEREAS, the Partnership requires additional capital to accomplish
its purposes; and
WHEREAS, it is in the best interest of the Partnership to acquire
such additional capital by contribution from GTL of the proceeds of the Common
Stock Offering and for the Partnership to issue to GTL ordinary partnership
interests in connection therewith.
NOW, THEREFORE, the Partners, in consideration of the premises and
their mutual agreements as hereinafter set forth, do hereby agree to amend the
Partnership Agreement as follows:
1. AMENDMENT TO SECTION 2.1. Section 2.1 of the Partnership Agreement is
hereby amended as follows:
The definition of "Authorized Partnership Interests" set forth in Section
2.1 shall be deleted and replaced in its entirety with the following:
"Authorized Partnership Interests" means the sum of (i) 55,448,837
Partnership Interests, (ii) 4,769,231 Partnership Interests, (iii) the
number of Ordinary Partnership Interests issuable upon exercise of the
warrants issuable to certain Partners or Affiliates thereof and to GTL in
connection with the guarantee of the Partnership's obligations under the
Globalstar Credit Agreement, (iv) the number of Series A Preferred
Partnership Interests issued to GTL in connection with GTL's offering of
the Series A Preferred Stock, including as a result of the exercise by
the purchasers thereof of the option to purchase additional shares
thereof under the purchase agreement relating thereto, (v) the number of
Series B Preferred Partnership Interests issuable to GTL in connection
with GTL's offering of the Series B Preferred Stock Offering, including
as
<PAGE> 2
a result of the exercise by the purchasers thereof of the option to
purchase additional shares thereof under the purchase agreement relating
thereto, (vi) the number of Ordinary Partnership Interests issuable upon
conversion or exchange of the Series A Preferred Partnership Interests or
Series B Preferred Partnership Interests or in satisfaction of any
distribution, make-whole or redemption payment thereon, (vii) the number
of Ordinary Partnership Interests issuable upon exercise of the warrants
issuable to certain Partners of Globalstar, L.P., Loral/Qualcomm
Satellite Services, L.P. or Loral/Qualcomm Partnership, L.P. or
Affiliates thereof in connection with the guarantee of the Partnership's
obligations under the $500 million credit agreement with Bank of America
and the other lenders parties thereto, (viii) the number of Ordinary
Partnership Interests issuable upon exercise of the Warrants issuable to
Qualcomm Incorporated and its Affiliates in connection with up to $500
million of vendor financing provided by Qualcomm Incorporated to the
Partnership, (ix) the number of Ordinary Partnership Interests or PPIs
that may be issued in connection with an offering of common stock,
preferred stock, OPIs, PPIs, or any other equity interests of GTL or the
Partnership, in an aggregate offering amount equal to the difference
between 300 million and the gross proceeds of the Series B Preferred
Stock Offering including Ordinary Partnership Interests issuable upon
conversion or exchange of any PPIs issued in connection with such
offering, or in satisfaction of any distribution, distribution make-whole
payment, or redemption payment thereon and (x) the number of Ordinary
Partnership Interests issuable to GTL in connection with the Common Stock
Offering; provided, however, that any greater number of Authorized
Partnership Interests may be authorized from time to time with the
Consent of the Partners.
2. DEFINED TERMS. Capitalized terms used herein not otherwise defined
shall have the meanings set forth in the Partnership Agreement, as amended.
3. AMENDMENT TO SCHEDULE A. Schedule A to the Partnership Agreement
is hereby amended, as of the date hereof, as revised by the Managing General
Partner to reflect the issue of OPIs to GTL in connection with the Common Stock
Offering.
4. EFFECTIVENESS. This Amendment shall become effective as of the
date set forth above and when GTL shall have contributed the proceeds of the
Common Stock Offering to the Partnership and the Partnership shall have issued
the Ordinary Partnership Interests to GTL.
5. COUNTERPARTS. This Amendment may be executed in counterparts, all
of which together shall constitute one agreement binding on all the parties
hereto.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Amendment to
be duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By: /s/Eric J. Zahler
------------------------------------
Name: Eric J. Zahler
Title: Executive Vice President
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By: /s/Eric J. Zahler
------------------------------------
Name: Eric J. Zahler
Title: Executive Vice President
Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
DACOM CORPORATION
DACOM INTERNATIONAL, INC.
HYUNDAI CORPORATION
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
LORAL/DASA GLOBALSTAR, L.P.
LORAL SPACE & COMMUNICATIONS LTD.
SAN GIORGIO S.p.A.
TELESAT LIMITED
TE. SA. M.
VODASTAR CELLULAR LIMITED
VODAFONE SATELLITE SERVICES LIMITED
BY : LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By: /s/Eric J. Zahler
-----------------------------------------
Name: Eric J. Zahler as Attorney-in-Fact
<PAGE> 1
EXHIBIT 10.16.2
1
SECOND AMENDMENT
SECOND AMENDMENT, dated as of September 4, 1998 (this
"Amendment"), to and of the Amended and Restated Credit and Participation
Agreement, dated as of November 14, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among LORAL SPACECOM
CORPORATION (the "Borrower"), SPACE SYSTEMS/LORAL, INC. ("SS/L"), the Banks from
time to time parties thereto (the "Banks"), ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A. ("San Paolo"), individually and as selling bank (in such capacity,
the "Selling Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
("Bank of America"), as administrative agent (in such capacity, the
"Administrative Agent") and as issuing bank, THE CHASE MANHATTAN BANK, as
syndication agent and NATIONSBANK OF TEXAS, N.A., as documentation agent.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Credit Agreement be
amended as more fully set forth below; and
WHEREAS, the Required Banks are willing to agree to such
amendment;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined.
Section 2. Amendment of Subsection 1.1 (Definitions). Subsection
1.1 of the Credit Agreement is hereby amended by deleting the defined terms
"Export Maturity Date" and "Export Termination Date" and substituting in lieu
thereof the following new defined terms in proper alphabetical order:
"`Export Maturity Date': June 30, 1999."
<PAGE> 2
2
"`Export Termination Date': 23 months from the earlier of the
average date of the final acceptance of satellite deliveries under the contract
with Alenia to which the Export Loan Agreement relates and December 31, 1998,
but in no event later than November 30, 2000."
Section 3. Conditions Precedent. This Amendment shall become
effective as of the date (the "Amendment Effective Date") that the
Administrative Agent shall have received counterparts of this Amendment, duly
executed by the Borrower, SS/L, the Selling Bank and the Required Banks.
Section 4. Legal Obligation. The Company represents and warrants
to each Bank that this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyances,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
Section 5. Continuing Effect. Except for the amendments expressly
provided herein, the Credit Agreement shall continue to be, and shall remain, in
full force and effect in accordance with its terms. The amendments provided
herein shall be limited precisely as drafted and shall not be construed to be an
amendment or waiver of any other provision of the Credit Agreement other than as
specifically provided herein.
Section 6. Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Amendment and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent.
SECTION 7. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized officers
as of the date first above written.
LORAL SPACECOM CORPORATION
By:/s/Nicholas C. Moren
------------------------------------
Title: Senior Vice President and Treasurer
SPACE SYSTEMS/LORAL, INC.
By:/s/Nicholas C. Moren
------------------------------------
Title: Senior Vice President and Treasurer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent and as a Bank
By:/s/Steve A. Aronowitz
------------------------------------
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
By:/s/Steve A. Aronowitz
------------------------------------
Title: Managing Director
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A.,
as Selling Bank and in its individual capacity
By:/s/Instituto Bancario San Paolo Di Torino S.P.A.,
-------------------------------------------------
Title:
By:/s/Instituto Bancario San Paolo Di Torino S.P.A.,
-------------------------------------------------
Title:
<PAGE> 4
4
THE CHASE MANHATTAN BANK
By:/s/Richard C. Smith
------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By:
------------------------------------
Title:
THE BANK OF NEW YORK
By:/s/Ken Sneider
------------------------------------
Title: Vice President
BARCLAYS BANK PLC
By:
------------------------------------
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By:
------------------------------------
Title:
<PAGE> 5
5
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:/s/Andreas Neumeier
------------------------------------
Title: Vice President
By:/s/Joel Makowsky
------------------------------------
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/J. Kenneth Biegen
------------------------------------
Title: Senior Vice President and Treasurer
MELLON BANK N.A.
By:
------------------------------------
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:/s/The Sanwa Bank, Limited, New York Branch
--------------------------------------------
Title:
SOCIETE GENERALE
By:
------------------------------------
Title:
<PAGE> 6
6
THE SUMITOMO BANK LIMITED
By:
------------------------------------
Title:
BANK OF MONTREAL
By:
------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:/s/The Bank of Nova Scotia
------------------------------------
Title:
BANQUE NATIONALE DE PARIS
By:/s/Richard L. Sted
------------------------------------
Title: Senior Vice President
By:/s/Sophie Revillard Kaufman
------------------------------------
Title: Vice President
PARIBAS
By:/s/John W. Kopcha
------------------------------------
Title: Vice President
By:/s/Matthew C. Bishop
------------------------------------
Title: Assistant Vice President
<PAGE> 7
7
BAYERISCHE LANDESBANK
GIROZENTRALE CAYMAN
ISLANDS BRANCH
By:/s/Alexander Kohnert
------------------------------------
Title: Vice President
By:/s/James H. Boyle
------------------------------------
Title: Second Vice President
CIBC INC.
By:/s/William J. Damm
------------------------------------
Title: Executive Director
CITICORP USA, INC.
By:/s/Citicorp USA, INC
------------------------------------
Title:
FUJI BANK, LIMITED
By:
------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By:/s/The Long-Term Credit Bank of Japan Limited
---------------------------------------------
Title:
<PAGE> 8
8
THE MITSUBISHI TRUST AND BANKING CORPORATION
By:/s/Scott J. Paige
------------------------------------
Title: Senior Vice President
NATIONAL CITY BANK
By:
------------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
------------------------------------
Title: Vice President
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:/s/The Tokai Bank, Limited New York Branch
------------------------------------
Title:
THE TOYO TRUST & BANKING CO., LTD.
By:/s/The Toyo Trust & Banking Co., Ltd.
------------------------------------
Title:
YASUDA TRUST AND BANKING COMPANY, LIMITED
By:
------------------------------------
Title:
<PAGE> 9
9
CREDITO ITALIANO
By:/s/Credito Italiano
------------------------------------
Title:
By:/s/Credito Italiano
------------------------------------
Title:
<PAGE> 1
EXHIBIT 10.16.3
1
EXECUTION COPY
THIRD AMENDMENT
THIRD AMENDMENT, dated as of July 12, 1999 (this "Amendment"), to
and of the Amended and Restated Credit and Participation Agreement, dated as of
November 14, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among LORAL SPACECOM CORPORATION (the
"Borrower"), SPACE SYSTEMS/LORAL, INC. ("SS/L"), the Banks from time to time
parties thereto (the "Banks"), ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
("San Paolo"), individually and as selling bank (in such capacity, the "Selling
Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank of
America"), as administrative agent (in such capacity, the "Administrative
Agent") and as issuing bank, THE CHASE MANHATTAN BANK, as syndication agent and
NATIONSBANK OF TEXAS, N.A., as documentation agent.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Borrower was
permitted to use the proceeds of the Term Loans and a portion of the Revolving
Credit Facility to refinance and retire Intercompany Debt ("Intercompany Debt")
owed by the Borrower to Loral Space and Communications Ltd. ("Loral-Bermuda") on
the Closing Date so long as at least $200,000,000 of such Intercompany Debt
remained outstanding as of the Closing Date;
<PAGE> 2
2
WHEREAS, a portion of the Intercompany Debt is evidenced by a
Promissory Note between the Borrower and Loral-Bermuda dated March 14, 1997 in
an outstanding principal amount of $361,000,000 (the "Intercompany Note");
WHEREAS, the Borrower wishes to amend the Credit Agreement to
permit the Borrower to make a prepayment of the Intercompany Note in cash or
certain assets to the extent the principal amount thereof exceeds $200,000,000,
which prepayment would have been permitted if made on the Closing Date;
WHEREAS, in connection with the foregoing, the Borrower has
requested that the Credit Agreement be amended as more fully set forth below;
and
WHEREAS, the Required Banks are willing to agree to such amendment
upon terms and subject to the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein (including the recitals hereto)
as therein defined.
Section 2. Amendment of Subsection 9.2(c) (Limitation on
Indebtedness). Subsection 9.2(c) is hereby amended by adding after the word
"refinancing" appearing in the parenthetical contained therein the following:
"and by any amount representing accrued or deferred interest
accrued prior to or during the period of any extensions or renewals".
Section 3. Amendment of Subsection 9.6 (Limitation on Sale of
Assets). Subsection 9.6 is hereby amended by (a) deleting the word "or"
appearing at the end of paragraph (g) thereof and (b) adding after paragraph (h)
thereof the following:
"; or
(i) upon any termination of the lease agreement described in Item
2 on Schedule 9.9, the Borrower may take any actions required in
connection with such termination to effectuate such termination,
including transferring any of its rights under transponder capacity
contracts in connection with any such termination."
<PAGE> 3
3
Section 4. Amendment of Subsection 9.9 (Transactions with
Affiliates). Subsection 9.9 of the Credit Agreement is hereby amended by
deleting the words "in effect on the Closing Date" appearing in such subsection
and by correcting the heading on Schedule 9.9 to the Credit Agreement (Certain
Agreements) so that it reads "Schedule 9.9."
Section 5. Amendment of Subsection 9.10 (Limitation on
Intercompany Debt). Subsection 9.10 of the Credit Agreement is hereby amended to
permit the Borrower to prepay the outstanding principal amount of the
Intercompany Note from time to time to the extent the aggregate principal amount
thereof exceeds $200,000,000 at such time (it being understood that the
principal amount of the Intercompany Note may be increased to the extent the
interest payable thereon is capitalized and such increase in the principal of
the Intercompany Note shall not be subject to subsection 9.11), such prepayment
to be made in cash or in assets of the Borrower consisting of the Borrower's
ownership interests (valued at book value) in Telstar 6 and Telstar 7 and the
FCC licenses relating thereto (any such prepayment with such assets shall be
permitted under subsection 9.6 and shall not be included for purposes of
determining compliance with any Dollar limitation contained therein).
Section 6. Conditions Precedent. This Amendment shall become
effective as of the date (the "Amendment Effective Date") that the
Administrative Agent shall have received counterparts of this Amendment, duly
executed by the Borrower, SS/L, and the Required Banks.
Section 7. Legal Obligation. The Borrower represents and warrants
to each Bank that the Credit Agreement and this Amendment constitute legal,
valid and binding obligations of the Borrower, enforceable against it in
accordance with their respective terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyances, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
Section 8. Continuing Effect. Except for the amendments expressly
provided herein, the Credit Agreement shall continue to be, and shall remain, in
full force and effect in accordance with its terms. The amendments provided
herein shall be limited precisely as drafted and shall not be construed to be an
amendment or waiver of any other provision of the Credit Agreement other than as
specifically provided herein.
Section 9. Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Amendment and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent.
SECTION 10. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
<PAGE> 4
4
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK.
<PAGE> 5
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized officers
as of the date first above written.
LORAL SPACECOM CORPORATION
By:/s/Eric Zahler
---------------------------------
Title: Vice President
SPACE SYSTEMS/LORAL, INC.
By:/s/Eric Zahler
---------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent, Issuing Bank
and a Bank
By:/s/Steve A. Arnoowitz
---------------------------------
Title: Managing Director
SAN PAOLO IMI S.p.A.,
as Selling Bank and in its individual
capacity
By:/s/San Paolo IMI S.p.A.
---------------------------------
Title:
By:/s/San Paolo IMI S.p.A.
---------------------------------
Title:
THE CHASE MANHATTAN BANK
By:
---------------------------------
Title:
<PAGE> 6
6
THE BANK OF NEW YORK
By:/s/The Bank of New York
---------------------------------
Title:
BARCLAYS BANK PLC
By:
---------------------------------
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By:/s/John P. Judge
---------------------------------
Title: Vice President
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:/s/Joel Makowsky
---------------------------------
Title: Vice President
By:/s/Andreas Neumeier
---------------------------------
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/J. Kenneth Biegen
---------------------------------
Title: Senior Vice President
<PAGE> 7
7
MELLON BANK N.A.
By:
---------------------------------
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:
---------------------------------
Title:
SOCIETE GENERALE
By:/s/Jose A. Moreno
---------------------------------
Title: Director
THE SUMITOMO BANK LIMITED
By:/s/The Sumitomo Bank Limited
---------------------------------
Title:
BANK OF MONTREAL
By:
---------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:/s/J. Alan Edwards
---------------------------------
Title:Authorized Signatory
<PAGE> 8
8
BANQUE NATIONALE DE PARIS
By:/s/Richard L. Sted
---------------------------------
Title: Senior Vice President
By:/s/Sophie Revillard Kaufman
---------------------------------
Title: Vice President
PARIBAS
By:
---------------------------------
Title:
By:
---------------------------------
Title:
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:/s/Alexander Kohnert
---------------------------------
Title: First Vice President
By:/s/James H. Boyle
---------------------------------
Title: Vice President
CIBC INC.
By:/s/Harold Birk
---------------------------------
Title: Executive Director
CIBC World Markets Corp. As
Agent
<PAGE> 9
9
CITIBANK, N.A.
By:
---------------------------------
Title:
FUJI BANK, LIMITED
By:/s/Teiji Teramoto
---------------------------------
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By:/s/Nozomi Moue
---------------------------------
Title: Deputy General Manager
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
---------------------------------
Title:
NATIONAL CITY BANK
By:
---------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
---------------------------------
Title: Vice President
<PAGE> 10
10
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:
---------------------------------
Title:
THE TOYO TRUST & BANKING CO., LTD.
By:
---------------------------------
Title:
UNICREDITO ITALIANO
By:/s/Unicredito Italiano
---------------------------------
Title:
By:/s/Unicredito Italiano
---------------------------------
Title:
BANKERS TRUST COMPANY
By:/s/Bankers Trust Company
---------------------------------
Title:
<PAGE> 1
EXHIBIT 10.16.4
1
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of November 10, 1999 (this
"Amendment"), to and of the Amended and Restated Credit and Participation
Agreement, dated as of November 14, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among LORAL SPACECOM
CORPORATION (the "Borrower"), SPACE SYSTEMS/LORAL, INC. ("SS/L"), the Banks from
time to time parties thereto (the "Banks"), ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A. ("San Paolo"), individually and as selling bank (in such capacity,
the "Selling Bank"), BANK OF AMERICA, N.A. ("Bank of America"), as
administrative agent (in such capacity, the "Administrative Agent") and as
issuing bank, THE CHASE MANHATTAN BANK, as syndication agent and NATIONSBANK OF
TEXAS, N.A., as documentation agent.
W I T N E S S E T H :
WHEREAS, the Credit Agreement provides for the issuance of
Additional Letters of Credit from time to time during the period ending November
14, 1999 (the "Additional Letters of Credit Termination Date") on terms and
conditions set forth in the Credit Agreement; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended to extend the Additional Letters of Credit Termination Date on the terms
set forth herein; and
WHEREAS, the Additional Letters of Credit Banks and the Required
Banks are willing to agree to such amendment upon terms and subject to the
conditions set forth below; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended to extend the Export Maturity Date on the terms set forth herein; and
WHEREAS, the Selling Bank and the Required Banks are willing to
agree to such amendment upon terms and subject to conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein (including the recitals hereto)
as therein defined.
<PAGE> 2
2
Section 2. Amendment of Subsection 1.1(Definitions). Subsection
1.1 of the Credit Agreement is hereby amended as follows:
(a) by adding the following new defined terms in proper
alphabetical order:
"'Additional Letters of Credit Commitment Period': the
period from and including the Closing Date to but not including the
Additional Letters of Credit Termination Date or such earlier date on
which the Additional Letters of Credit Commitments shall terminate as
provided herein."
"'Additional Letters of Credit Termination Date':
December 31, 2000, or such earlier date as the Additional Letters of
Credit Commitments shall terminate as provided herein."
(b) by deleting the defined term "Export Maturity Date" and
substituting in lieu thereof the following new defined term in proper
alphabetical order:
"'Export Maturity Date': December 31, 1999."
Section 3. Amendment of Subsection 2.1(d) (Commitments) .
Subsection 2.1(d) of the Credit Agreement is hereby amended by deleting the
phrase "period ending November 14, 1999" from the third line thereof and
substituting in lieu thereof the phrase "Additional Letters of Credit Commitment
Period".
Section 4. Amendment of Subsection 4.1(b) (Issuance of
Syndicated Letters of Credit) . Subsection 4.1(b) of the Credit Agreement is
hereby amended by deleting such subsection 4.1(b) in its entirety and
substituting in lieu thereof the following:
"(b) Each Standby L/C, Performance Letter of Credit and
Commercial L/C issued hereunder shall, among other things, (i) be in
such form requested by the Borrower from the Issuing Bank as shall be
acceptable to the Issuing Bank in its sole discretion and (ii) have an
expiry date occurring not later than the fifth Business Day preceding
the Revolving Credit Termination Date or the Additional Letters of
Credit Termination Date, in the case of Additional Letters of Credit"
Section 5. Amendment of Subsection 4.5(a) (Syndicated Letter of
Credit Fees). Subsection 4.5(a) of the Credit Agreement is hereby amended by
deleting "50%" in clause (i)(y) thereof and substituting in lieu thereof "75%".
Section 6. Assignment and Acceptance. Effective immediately upon
the execution of this Amendment by the Borrower, SS/L and the Required Banks
(prior to giving effect to this Amendment), each Additional Letters of Credit
Bank (prior to giving effect to this Amendment) hereby irrevocably sells and
assigns to the Persons listed on Schedule I hereto without recourse to such
Additional Letters of Credit Banks, and each such Person hereby
<PAGE> 3
3
irrevocably purchases and assumes from such Additional Letters of Credit Banks
without recourse to such Additional Letters of Credit Banks, the Additional
Letters of Credit Commitments such that, after giving effect thereto, the
Additional Letters of Credit Commitments of the Banks shall be as set forth on
such Schedule I. The provisions of Sections 6, 7, 8 and 9 of Exhibit B to the
Credit Agreement are hereby incorporated herein matatis mutandis with respect to
the assignment provided for in this Section 6.
Section 7. Conditions Precedent. This Amendment (other than
Section 2(b) and Section 5 hereof) shall become effective as of the date (the
"Amendment Effective Date") that the Administrative Agent shall have received
counterparts of this Amendment, duly executed by the Borrower, SS/L, the
Additional Letters of Credit Banks (after giving effect to Section 6) and the
Required Banks. Section 2(b) of this Amendment shall become effective as of the
date that the Administrative Agent shall have received counterparts of this
Amendment, duly executed by the Borrower, SS/L, the Selling Bank and the
Required Banks. Section 5 of this Amendment shall become effective as of the
date that the Administrative Agent shall have received counterparts of this
Amendment, duly executed by the Borrower, SS/L and the Required Banks.
Section 8. Legal Obligation. The Borrower represents and
warrants to each Bank that the Credit Agreement and this Amendment constitute
legal, valid and binding obligations of the Borrower, enforceable against it in
accordance with their respective terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyances, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
Section 9. Continuing Effect. Except for the amendments
expressly provided herein, the Credit Agreement shall continue to be, and shall
remain, in full force and effect in accordance with its terms. The amendments
provided herein shall be limited precisely as drafted and shall not be construed
to be an amendment or waiver of any other provision of the Credit Agreement
other than as specifically provided herein.
Section 10. Expenses. The Borrower agrees to pay or reimburse
the Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Amendment and any
other documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent.
SECTION 11. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 4
4
Section 12. Counterparts. This Amendment may be executed in any
number of counterparts, each of which when executed and delivered, shall be
deemed an original, and all such counterparts, taken together, shall constitute
but one and the same instrument.
[SIGNATURES FOLLOW]
<PAGE> 5
5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
As to Amendment (other than Section
2(b) and Section 5):
LORAL SPACECOM CORPORATION
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
SPACE SYSTEMS/LORAL, INC.
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
As to Section 2(b) of Amendment:
LORAL SPACECOM CORPORATION
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
SPACE SYSTEMS/LORAL, INC.
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
<PAGE> 6
6
As to Section 5 of Amendment:
LORAL SPACECOM CORPORATION
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
SPACE SYSTEMS/LORAL, INC.
By:/s/Nicholas C. Moren
----------------------------------
Title: Senior Vice President
As to Amendment (other than Section
2(b) and Section 5):
BANK OF AMERICA, N.A.,
as Administrative Agent, Issuing Bank
and a Bank
By:/s/Steve A. Aronowitz
----------------------------------
Title: Managing Director
As to Section 2(b) of Amendment:
BANK OF AMERICA, N.A.,
as Administrative Agent, Issuing
Bank and a Bank
By:/s/Steve A. Aronowitz
----------------------------------
Title: Managing Director
As to Section 5 of Amendment:
BANK OF AMERICA N.A.,
as Administrative Agent, Issuing
Bank and a Bank
By:/s/Steve A. Aronowitz
----------------------------------
Title: Managing Director
<PAGE> 7
7
As to Amendment (other than Section
2(b) and Section 5):
SAN PAOLO IMI S.p.A.,
as Selling Bank and in its
individual capacity
By:
----------------------------------
Title:
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
SAN PAOLO IMI S.p.A.,
as Selling Bank and in its
individual capacity
By:/s/Luca Sacchi
----------------------------------
Title:Vice President
By:/s/Carlo Tersico
----------------------------------
Title: DGM
As to Section 5 of Amendment:
SAN PAOLO IMI S.p.A.,
as Selling Bank and in its
individual capacity
By:/s/Luca Sacchi
----------------------------------
Title:Vice President
By:/s/Carlo Tersico
----------------------------------
Title: DGM
<PAGE> 8
8
As to Amendment (other than Section
2(b) and Section 5):
THE CHASE MANHATTAN BANK
By:/s/The Chase Manhattan Bank
----------------------------------
Title:
As to Section 2(b) of Amendment:
THE CHASE MANHATTAN BANK
By:/s/The Chase Manhattan Bank
----------------------------------
Title:
As to Section 5 of Amendment:
THE CHASE MANHATTAN BANK
By:/s/The Chase Manhattan Bank
----------------------------------
Title:
As to Amendment (other than Section
2(b) ans Section 5):
THE BANK OF NEW YORK
By:/s/The Bank of New York
----------------------------------
Title:
As to Section 2(b) of Amendment:
THE BANK OF NEW YORK
By:/s/The Bank of New York
----------------------------------
Title:
<PAGE> 9
9
As to Section 5 of Amendment:
THE BANK OF NEW YORK
By:/s/The Bank of New York
----------------------------------
Title:
As to Amendment (other than Section
2(b) and Section 5):
BARCLAYS BANK PLC
By:/s/L. Peter Yetman
----------------------------------
Title: Director
As to Section 2(b) of Amendment:
BARCLAYS BANK PLC
By:/s/L. Peter Yetman
----------------------------------
Title: Director
As to Section 5 of Amendment:
BARCLAYS BANK PLC
By:/s/L. Peter Yetman
----------------------------------
Title: Director
As to Amendment (other than Section
2(b) and Section 5):
CREDIT LYONNAIS, NEW YORK BRANCH
By:/s/John P. Judge
----------------------------------
Title: Vice President
<PAGE> 10
10
As to Section 2(b) of Amendment:
CREDIT LYONNAIS, NEW YORK BRANCH
By:/s/L. Peter Yetman
----------------------------------
Title: Vice President
As to Section 5 of Amendment:
CREDIT LYONNAIS, NEW YORK BRANCH
By:/s/L. Peter Yetman
----------------------------------
Title: Vice President
As to Amendment (other than Section
2(b) and Section 5):
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:/s/Virginia Mahler Cosenza
----------------------------------
Title: Vice President
By:/s/Joel Makowsky
----------------------------------
Title: Vice President
As to Section 2(b) of Amendment:
<PAGE> 11
11
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:/s/Virginia Mahler Cosenza
----------------------------------
Title: Vice President
By:/s/Joel Makowsky
----------------------------------
Title: Vice President
As to Section 5 of Amendment:
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:/s/Virginia Mahler Cosenza
----------------------------------
Title: Vice President
By:/s/Joel Makowsky
----------------------------------
Title: Vice President
As to Amendment (other than Section
2(b) and Section 5):
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/Takuya Honjo
----------------------------------
Title: Senior Vice President
As to Section 2(b) of Amendment:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/Takuya Honjo
----------------------------------
Title: Senior Vice President
<PAGE> 12
12
As to Section 5 of Amendment:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/Takuya Honjo
----------------------------------
Title: Senior Vice President
As to Amendment (other than Section
2(b) and Section 5):
MELLON BANK N.A.
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
MELLON BANK N.A.
By:
----------------------------------
Title:
As to Section 5 of Amendment:
MELLON BANK N.A.
By:
----------------------------------
Title:
As to Amendment (other than Section
2(b) and Section 5):
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:
----------------------------------
Title:
<PAGE> 13
13
As to Section 2(b) of Amendment:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:/s/Stephen C. Small
----------------------------------
Title:
As to Section 5 of Amendment:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:/s/Stephen C. Small
----------------------------------
Title: Vice President
As to Amendment (other than Section
2(b) and Section 5):
SOCIETE GENERALE
By:/s/Jose A. Moreno
----------------------------------
Title:Director
As to Section 2(b) of Amendment:
SOCIETE GENERALE
By:/s/Jose A. Moreno
----------------------------------
Title:Director
As to Section 5 of Amendment:
SOCIETE GENERALE
By:/s/Jose A. Moreno
----------------------------------
Title:Director
<PAGE> 14
14
As to Amendment (other than Section
2(b) and Section 5):
THE SUMITOMO BANK LIMITED
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
THE SUMITOMO BANK LIMITED
By:
----------------------------------
Title:
As to Section 5 of Amendment:
THE SUMITOMO BANK LIMITED
By:
----------------------------------
Title:
<PAGE> 15
15
As to Amendment (other than Section
2(b) and Section 5):
BANK OF MONTREAL
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
BANK OF MONTREAL
By:
----------------------------------
Title:
As to Section 5 of Amendment:
BANK OF MONTREAL
By:
----------------------------------
As to Amendment (other than Section 2
(b) and Section 5):
THE BANK OF NOVA SCOTIA
By:/s/J. Alan Edwards
----------------------------------
Title: Authorized Signatory
As to Section 2(b) of Amendment:
THE BANK OF NOVA SCOTIA
By:/s/J. Alan Edwards
----------------------------------
Title: Authorized Signatory
<PAGE> 16
16
As to Section 5 of Amendment:
THE BANK OF NOVA SCOTIA
By:/s/J. Alan Edwards
----------------------------------
Title: Authorized Signatory
As to Amendment (other than Section
2(b) and Section 5):
BANQUE NATIONALE DE PARIS
By:/s/Sophie Revillard Kaufman
----------------------------------
Title: Vice President
By:/s/Gwen Abbott
----------------------------------
Title: Assistant Vice President
As to Section 2(b) of Amendment:
BANQUE NATIONALE DE PARIS
By:/s/Sophie Revillard Kaufman
----------------------------------
Title: Vice President
By:/s/Gwen Abbott
----------------------------------
Title: Assistant Vice President
As to Section 5 of Amendment:
BANQUE NATIONALE DE PARIS
By:/s/Sophie Revillard Kaufman
----------------------------------
Title: Vice President
By:/s/Gwen Abbott
----------------------------------
Title: Assistant Vice President
<PAGE> 17
17
As to Amendment (other than Section
2(b) and Section 5):
PARIBAS
By:
----------------------------------
Title: Vice President
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
PARIBAS
By:
----------------------------------
Title:
By:
----------------------------------
Title:
As to Section 5 of Amendment:
PARIBAS
By:
----------------------------------
Title:
By:
----------------------------------
Title:
<PAGE> 18
18
As to Amendment (other than Section
2(b) and Section 5):
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:/s/Hereward Drummond
----------------------------------
Title: Senior Vice President
By:/s/Hereward Drummond
----------------------------------
Title: Vice President
As to Section 2(b) of Amendment:
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:/s/Hereward Drummond
----------------------------------
Title: Senior Vice President
By:/s/Hereward Drummond
----------------------------------
Title: Vice President
As to Section 5 of Amendment:
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:/s/Hereward Drummond
----------------------------------
Title: Senior Vice President
By:/s/Hereward Drummond
----------------------------------
Title: Vice President
<PAGE> 19
19
As to Amendment (other than Section
2(b) and Section 5):
CIBC INC.
By:/s/Harold Birk
----------------------------------
Title: Executive Director
CIBC Work Markets Corp. As Agent
As to Section 2(b) of Amendment:
CIBC INC.
By:/s/Harold Birk
----------------------------------
Title: Executive Director
CIBC Work Markets Corp. As Agent
As to Section 5 of Amendment:
CIBC INC.
By:/s/Harold Birk
----------------------------------
Title: Executive Director
CIBC Work Markets Corp. As Agent
As to Amendment (other than Section
2(b) and Section 5):
CITICORP USA, INC.
By:/s/Walter L. Larsen
----------------------------------
Title: Managing Director
As to Section 2(b) of Amendment:
CITICORP USA, INC.
By:/s/Walter L. Larsen
----------------------------------
Title: Managing Director
<PAGE> 20
20
As to Section 5 of Amendment:
CITICORP USA, INC.
By:/s/Walter L. Larsen
----------------------------------
Title: Managing Director
As to Amendment (other than Section
2(b) and Section 5):
FUJI BANK, LIMITED
By:/s/Fuji Bank, Limited
----------------------------------
Title:
As to Section 2(b) of Amendment:
FUJI BANK, LIMITED
By:/s/Fuji Bank, Limited
----------------------------------
Title:
As to Section 5 of Amendment:
FUJI BANK, LIMITED
By:/s/Fuji Bank, Limited
----------------------------------
Title:
As to Amendment (other than Section
2(b) and Section 5):
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/Karl Kieffer
----------------------------------
Title: Duly Authorized Signatory
<PAGE> 21
21
As to Section 2(b) of Amendment:
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/Karl Kieffer
----------------------------------
Title: Duly Authorized Signatory
As to Section 5 of Amendment:
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/Karl Kieffer
----------------------------------
Title: Duly Authorized Signatory
As to Amendment (other than Section
2(b) and Section 5):
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:/s/Scott J. Paige
----------------------------------
Title: Senior Vice President
As to Section 2(b) of Amendment:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:/s/Scott J. Paige
----------------------------------
Title: Senior Vice President
As to Section 5 of Amendment:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:/s/Scott J. Paige
----------------------------------
Title:
<PAGE> 22
22
As to Amendment (other than Section
2(b) and Section 5):
NATIONAL CITY BANK
By:/s/Joseph D. Robison
----------------------------------
Title: Vice President
As to Section 2(b) of Amendment:
NATIONAL CITY BANK
By:/s/Joseph D. Robison
----------------------------------
Title: Vice President
As to Section 5 of Amendment:
NATIONAL CITY BANK
By:/s/Joseph D. Robison
----------------------------------
Title: Vice President
As to Amendment (other than Section
2(b) and Section 5):
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
----------------------------------
Title:Vice President
As to Section 2(b) of Amendment:
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
----------------------------------
Title:Vice President
<PAGE> 23
23
As to Section 5 of Amendment:
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
----------------------------------
Title:Vice President
As to Amendment (other than Section
2(b) and Section 5):
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:
----------------------------------
Title:
As to Section 2(b) of Amendment:
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:/s/Shinichi Nakatani
----------------------------------
Title: Assistant General Manager
As to Section 5 of Amendment:
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:
----------------------------------
Title:
As to Amendment (other than Section
2(b) and Section 5):
THE TOYO TRUST & BANKING CO., LTD.
By:
----------------------------------
Title:
<PAGE> 24
24
As to Section 2(b) of Amendment:
THE TOYO TRUST & BANKING CO., LTD.
By:/s/Takeo Nagatani
----------------------------------
Title: Asistant General Manager
International Department
As to Section 5 of Amendment:
THE TOYO TRUST & BANKING CO., LTD.
By:/s/Takeo Nagatani
----------------------------------
Title: Asistant General Manager
International Department
As to Amendment (other than Section
2(b) and Section 5):
UNICREDITO ITALIANO
By:/s/Unicredito Italiano
----------------------------------
Title:
By:/s/Unicredito Italiano
----------------------------------
Title:
As to Section 2(b) of Amendment:
UNICREDITO ITALIANO
By:/s/Unicredito Italiano
----------------------------------
Title:
By:/s/Unicredito Italiano
----------------------------------
Title:
<PAGE> 25
25
As to Section 5 of Amendment:
UNICREDITO ITALIANO
By:/s/Unicredito Italiano
----------------------------------
Title:
By:/s/Unicredito Italiano
----------------------------------
Title:
As to Amendment (other than Section
2(b) and Section 5):
BANKERS TRUST COMPANY
By:/s/Bankers Trust Company
----------------------------------
Title:
As to Section 2(b) of Amendment:
BANKERS TRUST COMPANY
By:/s/Bankers Trust Company
----------------------------------
Title:
As to Section 5 of Amendment:
BANKERS TRUST COMPANY
By:/s/Bankers Trust Company
----------------------------------
Title:
<PAGE> 1
EXHIBIT 10.26
1
EXECUTION COPY
LORAL SPACE & COMMUNICATIONS LTD.
8,000,000 Shares of
6% Series D Convertible Redeemable Preferred Stock
due 2007 (Liquidation Preference of $50 Per Share)
REGISTRATION RIGHTS AGREEMENT
New York, New York
February 18, 2000
Lehman Brothers Inc.
as Representative of the
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:
<PAGE> 2
2
Loral Space & Communications Ltd., a Bermuda company (the
"Company"), proposes to issue and sell to you (the "Purchasers"), upon the terms
set forth in the Purchase Agreement dated February 14, 2000 (the "Purchase
Agreement"), among the Company and the Purchasers named in Schedule I hereto,
9,600,000 shares (including up to 1,600,000 shares that the Company has granted
the Purchasers an option to purchase pursuant to the Purchase Agreement) of its
6% Series D Convertible Redeemable Preferred Stock due 2007, par value $0.01 per
share, liquidation preference of $50 per share (the "Preferred Stock") (such
issuance and sale, the "Initial Placement"). The Preferred Stock will be
convertible into shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock") at the conversion price set forth in the Final
Memorandum (as defined below). For purposes of this Agreement, the term
"Securities" shall refer to the Preferred Stock, all shares of Common Stock
issued (i) as dividends thereon, (ii) on conversion thereof or (iii) in
redemption thereof, and any securities into which such shares of Preferred Stock
or Common Stock shall be converted or into which they shall be changed by
operation of law or otherwise. In satisfaction of a condition to your
obligations under the Purchase Agreement, the Company agrees with you (i) for
your benefit and (ii) for the benefit of the holders of the Securities
(including you) from time to time until the earlier of (i) the second
anniversary of the last Closing Date (as defined below) and (ii) such time as
(A) such Securities shall no longer constitute restricted securities for
purposes of Rule 144(k) of the Act (as defined below) or (B) all such Securities
have been sold pursuant to the Shelf Registration Statement (as defined below)
(each of the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933 and the rules and
regulations of the Commission promulgated thereunder.
<PAGE> 3
3
"Affiliate" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Damages Payment Date" means each of the quarterly dividend
payment dates set forth in the schedule to the Bye-Laws of the Company setting
forth the terms of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations of the Commission promulgated thereunder.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"First Closing Date" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Incorporated Documents" means filings made by the Company with
the Commission pursuant to Section 13, 14 or 15 of the Exchange Act and
incorporated by reference in the Shelf Registration Statement.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Majority Holders" means the Holders of a majority of the shares
of the Preferred Stock entitled to be registered under a Shelf Registration
Statement; provided,
<PAGE> 4
4
however, that Holders of Common Stock issued in respect of the Preferred Stock
shall be deemed to be Holders of the number of shares of Preferred Stock which,
when converted, would have resulted in such number of shares of Common Stock.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering of the securities covered by the Shelf Registration Statement.
"Preferred Stock" has the meaning set forth in the preamble
hereto.
"Prospectus" means the prospectus included in any Shelf
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Securities or
Common Stock issuable upon conversion thereof covered by such Shelf Registration
Statement, and all amendments and supplements to the Prospectus, including
post-effective amendments.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration Period" has the meaning set forth in Section
2(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2 hereof which
covers some of or all the Securities, on an appropriate form under Rule 415
under the Act or any similar rule that may be adopted by the Commission, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Transfer Agent" means The Bank of New York.
"Transfer Restricted Securities" means each Security until the
earlier of (i) the second anniversary of the last Closing Date and (ii) such
time as (A) such Security shall no longer constitute a restricted security
<PAGE> 5
5
for purposes of Rule 144(k) of the Act or (B) such Security has been sold
pursuant to the Shelf Registration Statement.
"underwriter" means any underwriter of Securities in connection
with an offering thereof under a Shelf Registration Statement.
2. Shelf Registration; Suspension of Use of Prospectus.
(a) The Company shall prepare and not later than 90 days
following the First Closing Date, file with the Commission and thereafter use
its reasonable efforts to cause to be declared effective under the Act, as
promptly as practicable but no later than 180 days following the First Closing
Date (the "Effectiveness Target Date"), a registration statement (a "Shelf
Registration Statement"), relating to the offer and sale of the Transfer
Restricted Securities by the Holders from time to time in accordance with the
methods of distribution set forth in such Shelf Registration Statement and Rule
415 under the Securities Act. The sole and exclusive remedy available to the
Holders in the event that a Shelf Registration Statement is not filed or, if
relevant, declared effective within the time periods specified in this Section
2(a) is the collection of additional dividends in accordance with Section 6 and
the terms of the Preferred Stock.
(b) The Company shall use its reasonable efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders until the earlier of (i)
the second anniversary of the last Closing Date and (ii) such time as (A) the
Securities shall no longer constitute restricted securities for purposes of Rule
144(k) of the Act or (B) all Securities have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company shall be deemed not to have used its
reasonable efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in Holders
of Securities covered thereby not to be able to offer and sell such Securities
during that period, unless such action is (i) required by applicable law or (ii)
taken pursuant to Section 2(c) hereof, and, in
<PAGE> 6
6
either case, so long as the Company promptly thereafter complies with the
requirements of Section 3(i) hereof, if applicable.
(c) The Company may suspend the use of the Prospectus for a
period not to exceed 60 days (or such longer period as is reasonably necessary
under the circumstances) in any calendar year for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, public filings with the Commission,
pending corporate developments and similar events.
(d) Notwithstanding any other provisions of this Agreement
to the contrary, the Company shall cause any Shelf Registration Statement and
the related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or supplement, (i)
to comply in all material respects with the applicable requirements of the Act
and (ii) not to contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement,
and each amendment thereof and each amendment or supplement, if any, to
the Prospectus included therein and shall use its best efforts to
reflect in each such document, when so filed with the Commission, such
comments as you reasonably may propose; provided, however, that the
Company shall be required only to furnish an Incorporated Document to
you as promptly as practicable following its filing with the Commission.
(b) The Company shall ensure that (i) any Shelf Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all material
respects
<PAGE> 7
7
with the Act, (ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any
amendment thereto has been filed with the Commission and when
the Shelf Registration Statement or any post-effective amendment
thereto has become effective; and
(ii) of any request by the Commission for amendments
or supplements to the Shelf Registration Statement or the
Prospectus included therein or for additional information.
(2) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) of the issuance by the Commission of any stop
order suspending the effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any
notification with respect to the suspension of the qualification
of the Securities included in any Shelf Registration Statement
for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
<PAGE> 8
8
(iii) of the suspension of the use of the Prospectus
pursuant to Section 2(c) hereof or of the happening of any event
that requires the making of any changes in the Shelf
Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the
requisite changes have been made); provided that such notice
shall not be required to specify the nature of the event giving
rise to the notice requirement hereunder.
(d) The Company shall use its reasonable best efforts to
obtain the withdrawal of any order suspending the effectiveness of any
Shelf Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of Securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including documents
incorporated by reference therein, financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of any
Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Securities in connection with the offering and sale
of the Securities covered by the Prospectus or any amendment or
supplement thereto.
<PAGE> 9
9
(g) Prior to any offering of Securities pursuant to any
Shelf Registration Statement, the Company shall register or qualify or
cooperate with the Holders of Securities included therein and their
respective counsel in connection with the registration or qualification
of such Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holders reasonably request in
writing and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the
Securities covered by such Shelf Registration Statement; provided,
however, that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or
to taxation in any such jurisdiction where it is not then so subject.
(h) The Company shall cooperate with the Holders of
Securities to facilitate the timely preparation and delivery of
certificates representing Securities to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior
to sales of Securities pursuant to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by
paragraph (c)(2)(iii) above, the Company shall, if required pursuant to
the Act or paragraph (c)(2)(iii) above, as promptly as practicable
prepare a post-effective amendment to any Shelf Registration Statement
or an amendment or supplement to the related Prospectus or file any
other required document so that, as thereafter delivered to purchasers
of the Securities included therein, the Prospectus will not include an
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.
(j) Not later than the effective date of any Shelf
Registration Statement hereunder, the Company
<PAGE> 10
10
shall provide a CUSIP number for each class of Securities registered
under such Shelf Registration Statement, and provide the Transfer Agent
with printed certificates for such Securities, in a form eligible for
deposit with The Depository Trust Company.
(k) The Company shall use its best efforts to comply with
all applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable after
the effective date of the applicable Shelf Registration Statement an
earnings statement satisfying the provisions of Section 11(a) of the
Act.
(l) The Company may require each Holder of Securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
such Securities as the Company may from time to time reasonably require
for inclusion in such Shelf Registration Statement. Any Holder who fails
to provide such information shall not be entitled to use the Prospectus.
(m) The Company shall, if requested, promptly incorporate in
a prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment.
(n) The Company shall enter into such agreements (including
underwriting agreements) and take all other appropriate actions in order
to expedite or facilitate the registration or the disposition of any
Securities, and in connection therewith, if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 5 (or such
other provisions and procedures acceptable to the Majority Holders and
the Managing Underwriters, if any), with respect to all parties to be
indemnified
<PAGE> 11
11
pursuant to Section 5, it being understood that all underwriting
discounts and commissions, and all other underwriting fees, associated
with such agreement in connection with such offering of the Securities
shall, except as otherwise expressly agreed herein (including those
expenses covered by Section 4), be for the account of the Holders or the
underwriters.
(o) The Company shall (i) make reasonably available for
inspection by Holders of Securities to be registered thereunder and any
Managing Underwriter participating in any disposition pursuant to such
Shelf Registration Statement, and any attorney, accountant or other
agent retained by the Majority Holders of Securities to be registered
thereunder or by any such Managing Underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Company; (ii) cause the officers, directors and employees of the Company
to supply all relevant information reasonably requested by any such
Holders or Managing Underwriter, attorney, accountant or agent in
connection with such Shelf Registration Statement as is customary for
similar due diligence examinations; provided, however, that any
information that is designated in writing by the Company in good faith,
as confidential at the time of delivery of such information shall be
kept confidential by any such Holders and Managing Underwriter,
attorney, accountant or agent, unless disclosure thereof is made in
connection with a court proceeding or required by law, or such
information has become available (not in violation of this Agreement) to
the public generally or through a third party without an accompanying
obligation of confidentiality; (iii) make such representations and
warranties to the Holders of Securities registered thereunder and the
underwriters, if any, in form, substance and scope as are customarily
made by issuers to underwriters in primary underwritten offerings and
covering matters including those set forth in the Purchase Agreement;
(iv) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Holders and Managing Underwriter, if any)
addressed to each selling Holder and the underwriters, if any, covering
such
<PAGE> 12
12
matters as are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by the
Majority Holders of the Securities covered by such Shelf Registration
Statement and by such Managing Underwriter; (v) obtain "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, use its reasonable best
efforts to retain any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included in the Shelf Registration Statement), addressed to each
selling Holder of Securities registered thereunder and the underwriters,
if any, in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates
as may be reasonably requested by the Majority Holders and the Managing
Underwriters, if any, including those to evidence compliance with
Section 3(i) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 3(o) shall be performed at (A) the effectiveness of such
Shelf Registration Statement and each post-effective amendment thereto
and (B) each closing under any underwriting or similar agreement as and
to the extent required thereunder.
4. Registration Expenses. The Company shall bear all
expenses incurred in connection with the performance of the Company's
obligations under Sections 2 and 3 hereof and shall reimburse the Holders for
the reasonable and duly documented fees and disbursements of (i) counsel
designated by the Majority Holders to act as counsel for the Holders in
connection therewith or (ii) in the absence of such selection of counsel by the
Majority Holders, one firm designated by the underwriters to act as counsel for
the Holders in connection therewith. It is understood, however, that as except
provided in this Section 4, the Holders shall pay all their own costs and
expenses, including stock transfer taxes due upon resale by them of any of the
<PAGE> 13
13
Securities covered by a Shelf Registration Statement and any advertising
expenses incurred in connection with any offers and sales they make.
5. Indemnification and Contribution. (a) In connection with
any Shelf Registration Statement, the Company agrees to indemnify and hold
harmless each Holder of the securities covered thereby (including the
Purchasers), the directors, officers, employees and agents of each such Holder
and each person who controls any such Holder within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Shelf Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such Holder specifically for inclusion
therein, (ii) the Company shall not be liable to any indemnified party under
this indemnity agreement with respect to any Shelf Registration Statement or
Prospectus to the extent that any such loss, claim, damage or liability of such
indemnified party results solely from an untrue statement of a material fact
contained in, or the omission of a material fact from, the Shelf Registration
Statement or Prospectus which untrue statement or omission was corrected in an
amended or supplemented Shelf Registration Statement or Prospectus, if (A) the
person
<PAGE> 14
14
alleging such loss, claim, damage or liability was not sent or given, at or
prior to the written confirmation of such sale, a copy of the amended or
supplemented Shelf Registration Statement or Prospectus, (B) the Company had
previously furnished copies thereof to such indemnified party and (C) such
delivery of a prospectus is finally judicially determined to be required by the
Act and was not so made and (iii) the Company will not be liable to any
indemnified party under this indemnity agreement with respect to any Shelf
Registration Statement or Prospectus to the extent that any such loss, claim,
damage or liability of such indemnified party results (a) from the use of a
Shelf Registration Statement during a period when a stop order has been issued
in respect thereof or any proceedings for that purpose have been initiated or
(b) from the use of the Prospectus during a period when the use of the
Prospectus has been suspended in accordance with Section 3(c)(2)(iii) hereof,
provided, in each case, that Holders received prior notice of such stop order,
initiation of proceedings or suspension. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses, as
provided in Section 5(d), of any underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Holders provided in this Section 5(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 3(n) hereof.
(b) Each Holder of Securities covered by a Shelf
Registration Statement (including the Purchasers) severally agrees to indemnify
and hold harmless (i) the Company, (ii) each of its directors, (iii) each of its
officers who signs such Shelf Registration Statement and (iv) each person who
controls the Company within the meaning of either the Act or the Exchange Act to
the same extent as the foregoing indemnity from the Company to each such Holder,
but only with reference to written information relating to such Holder furnished
to the Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
<PAGE> 15
15
will be in addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 5, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or in addition to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the
<PAGE> 16
16
indemnified party to employ separate counsel at the expense of the indemnifying
party. An indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph
(a) or (b) of this Section 5 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively, "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Shelf Registration Statement which resulted in such Losses; provided, however,
that in no case shall the Purchasers be responsible, in the aggregate, for any
amount in excess of the purchase discount or commission applicable to such
Security, nor shall any underwriter be responsible for any amount in excess of
the underwriting discount or commission applicable to the securities purchased
by such underwriter under the Shelf Registration Statement which resulted in
such Losses. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified party
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such indemnifying party, on the
one hand, and such indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the total net
<PAGE> 17
17
proceeds from the Initial Placement (before deducting expenses). Benefits
received by the Purchasers shall be deemed to be equal to the total purchase
discounts and commissions, and benefits received by any other Holders shall be
deemed to be equal to the value such Holders realize by receiving Securities
registered under the Act. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Shelf Registration
Statement which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the indemnifying party, on the one hand, or by the
indemnified party, on the other hand. The parties agree that it would not be
just and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 5, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Shelf
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Holder or the Company or any of the officers, directors or controlling persons
referred to in Section 5 hereof, and will survive the sale by a Holder of
Securities covered by a Shelf Registration Statement.
<PAGE> 18
18
6. Liquidated Damages.
(a) The Company and the Purchasers agree that the
Holders of Transfer Restricted Securities shall suffer damages if the Company
fails to fulfill its obligations pursuant to Section 2 hereof and that it would
not be possible to ascertain the extent of such damages. Accordingly, the
Company hereby agrees to pay liquidated damages ("Preferred Stock Liquidated
Damages") to each Holder of Transfer Restricted Securities under the
circumstances and to the extent set forth below:
(i) from 90 days following the First Closing Date,
if the Shelf Registration Statement is not filed with the
Commission within 90 days following the First Closing Date; and
(ii) from the Effectiveness Target Date if the Shelf
Registration Statement is not effective on or prior to the
Effectiveness Target Date; and
(iii) if the Shelf Registration Statement has been
declared effective by the Commission and such Shelf Registration
Statement ceases to be effective or to be usable as contemplated
by Section 2(b) at any time during the Shelf Registration Period
(without being succeeded by a post-effective amendment to such
Shelf Registration Statement that cures such failure and that is
itself immediately declared effective) for any period of ten
consecutive trading days that are also business days or for any
20 trading days that are also business days in any 180-day
period in connection with resales of Transfer Restricted
Securities (provided, that the Company will have the option of
suspending the effectiveness of the Shelf Registration
Statement, without becoming obligated to pay Preferred Stock
Liquidated Damages, for periods of up to a total of 60 days in
any calendar year if the Board of Directors of the Company
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 the Company or a pending corporate
transaction)
<PAGE> 19
19
(each of the foregoing clauses (i) through (iii), a "Registration Default").
(b) In the event of each such Registration Default, the
Company shall pay Preferred Stock Liquidated Damages to each Holder of shares of
Preferred Stock that are Transfer Restricted Securities at a rate of 0.25% of
the liquidation preference of the shares of Preferred Stock constituting
Transfer Restricted Securities, which shall 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; provided,
however, that the rate of such Preferred Stock Liquidated Damages may not exceed
1.00% of the Liquidation Preference of the Preferred Stock at any time.
Following the cure of all Registration Defaults relating to any shares of
Preferred Stock that are Transfer Restricted Securities, the accrual of
Preferred Stock Liquidated Damages with respect to such shares of Preferred
Stock that are Transfer Restricted Securities shall cease (without in any way
limiting the effect of any subsequent Registration Default). A Registration
Default under clause 6(a)(i) above shall be cured on the date that the Shelf
Registration Statement is filed with the Commission. A Registration Default
under clause 6(a)(ii) above shall be cured on the date that the Shelf
Registration Statement is declared effective by the Commission. A Registration
Default under clause 6(a)(iii) above shall be cured on the date the Shelf
Registration Statement is declared effective or becomes usable.
(c) The Company shall notify the Transfer Agent within one
business day after (i) each and every date on which a Registration Default
occurs and (ii) in the event of a Registration Default under Section 6(a)(i),
the Effectiveness Target Date. Preferred Stock Liquidated Damages shall be paid
by the Company to the record Holders of shares of Preferred Stock that are
Transfer Restricted Securities on each Damages Payment Date by mailing checks to
their registered addresses as they appear in the Preferred Stock register if no
such accounts have been specified on or before the Damages Payment Date;
provided that any Preferred Stock Liquidated Damages accrued with respect to any
Preferred Stock or portion thereof called for redemption on a redemption date or
converted into Common Stock on a conversion date prior to the Damages Payment
Date, shall, in
<PAGE> 20
20
any such event, be paid instead to the Holder that submitted such Preferred
Stock for redemption or conversion on the applicable redemption date or
conversion date, as the case may be, on such date (promptly following the
conversion date, in the case of conversion of Preferred Stock). Each obligation
to pay Preferred Stock Liquidated Damages shall be deemed to commence accruing
on the date of the applicable Registration Default and to cease accruing when
all Registration Defaults have been cured.
(d) All Preferred Stock Liquidated Damages with respect to
any shares of Preferred Stock that are Transfer Restricted Securities, that
remain unpaid when such Securities cease to be Transfer Restricted Securities or
cease to be outstanding, shall remain unpaid obligations of the Company until
they have been paid in full.
7. Rules 144 and 144A. The Company shall use its reasonable
efforts to file the reports required to be filed under the Act and the Exchange
Act in a timely manner and, if at any time the Company is not required to file
such reports, will, upon the request of any Holder of Transfer Restricted
Securities, make publicly available other information so long as necessary to
permit sales of its securities pursuant to Rules 144 and 144A. The Company
covenants that it will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Act within the limitation of the exemptions
provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).
The Company will provide a copy of this Agreement to prospective purchasers of
Securities identified to the Company by the Purchasers upon written request.
Upon such request of any Holder of Transfer Restricted Securities, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section 7
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.
<PAGE> 21
21
8. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of
the date hereof, entered into, nor shall it, on or after the date
hereof, enter into, any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be
amended, qualified, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of the Majority Holders;
provided that, with respect to any matter that directly or indirectly
affects the rights of the Purchasers hereunder, the Company shall obtain
the written consent of the Purchasers against which such amendment,
qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver
or consent to departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose
Securities are being sold pursuant to a Shelf Registration Statement and
that does not directly or indirectly affect the rights of other Holders
may be given by the Majority Holders, determined on the basis of
securities being sold rather than registered under such Shelf
Registration Statement.
<PAGE> 22
22
(c) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a Holder, at the most current address
given by such holder to the Company in accordance with the
provisions of this Section 8(c), which address initially is,
with respect to each Holder, the address of such Holder
maintained by the Registrar of the Securities, with a copy in
like manner to Lehman Brothers Inc.;
(2) if to you, initially at the address set forth in
the Purchase Agreement; and
(3) if to the Company, initially at its address set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given when received.
The Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of
the parties, including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders of Securities.
The Company hereby agrees to extend the benefits of this Agreement to
any Holder of Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.
<PAGE> 23
23
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(h) Jurisdiction; Consent to Service of Process. THE COMPANY
HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE
UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY
LAWSUITS, CLAIMS OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND AGREES NOT TO COMMENCE ANY SUCH LAWSUIT, CLAIM OR OTHER
PROCEEDING EXCEPT IN SUCH COURTS. THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY
LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM
IN ANY SUCH COURT THAT ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE
COMPANY HAS 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 YOU THAT IT HAS
NOTIFIED THE PROCESS AGENT OF SUCH DESIGNATION AND APPOINTMENT AND THAT
THE PROCESS AGENT HAS ACCEPTED THE SAME IN WRITING. THE COMPANY HAS
AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT SUCH SERVICE. IF THE
PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S AGENT FOR SERVICE OF
PROCESS, THE COMPANY SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND
NOTIFY YOU OF SUCH APPOINTMENT. THE COMPANY FURTHER AGREES THAT SERVICE
OF PROCESS UPON THE PROCESS AGENT AND WRITTEN NOTICE OF SAID SERVICE TO
THE COMPANY MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS AGENT
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
<PAGE> 24
24
SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT YOUR RIGHT OR THE RIGHT OF ANY PERSON CONTROLLING
ANY OF YOU TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE
COMPANY AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended
that all the rights and privileges of the parties shall be enforceable
to the fullest extent permitted by law.
(j) Securities Held by the Company, etc. Whenever the
consent or approval of Holders of a specified percentage of principal
amount or liquidation preference, as the case may be, of Securities is
required hereunder, Securities held by the Company or their respective
Affiliates (other than subsequent Holders of Securities if such
subsequent Holders are deemed to be Affiliates solely by reason of their
holdings of such Securities) shall not be counted in determining whether
such consent or approval was given by the Holders of such required
percentage.
<PAGE> 25
25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to Lehman Brothers Inc. a counterpart hereof,
whereupon this Agreement will become a binding agreement among the Company and
the several Purchasers in accordance with its terms.
Very truly yours,
LORAL SPACE & COMMUNICATIONS LTD.
by:/s/Avi Katz
-----------------------------
Name: Avi Katz
Title:Vice President, General
Counsel and Secretary
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
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/David Brand
----------------------------
Name: David Brand
Title:Managing Director
<PAGE> 1
EXHIBIT 12
LORAL SPACE & COMMUNICATIONS LTD.
COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
AND RATIO OF EARNINGS TO COVER FIXED CHARGES
(in thousands, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- ------------
<S> <C> <C> <C>
Earnings:
Income (loss) before income taxes, equity in net loss
of affiliates and minority interest................. $(62,138) $(25,628) $126,982
Plus fixed charges:
Interest expense.................................... 173,612 111,334 37,871
Interest component of rent expense(1)............... 9,953 6,600 4,400
Less capitalized interest.............................. 84,315 60,125 22,641
-------- -------- --------
Earnings available to cover fixed charges................ $ 37,112 $ 32,181 $146,612
======== ======== ========
Fixed charges(2)......................................... $229,044 $172,619 $ 78,568
======== ======== ========
Deficiency of earnings to cover fixed charges............ $191,932 $140,438
======== ========
Ratio of earnings to cover fixed charges................. 1.9x
========
</TABLE>
- ---------------
(1) The interest component of rent expense is deemed to be approximately 25% of
total rent expense.
(2) Fixed charges include preferred dividends as adjusted for the Company's
effective tax rate. The effective tax rate for 1999 excludes the effect of a
$34 million tax benefit affecting the utilization of Loral CyberStar's
pre-acquisition loss carryforwards.
<PAGE> 1
LORAL SPACE & COMMUNICATIONS
AS OF FEBRUARY 29,2000, ACTIVE SUBSIDIARIES, ALL 100% OWNED DIRECTLY OR
INDIRECTLY (EXCEPT AS NOTED BELOW) CONSIST OF THE FOLLOWING:
EXHIBIT 21
LORAL SPACE & COMMUNICATIONS CORPORATION DELAWARE
LORAL GENERAL PARTNER, INC. DELAWARE
LORAL HOLDINGS, INC. DELAWARE
LORAL SATELLITE, INC. DELAWARE
LORAL SPACECOM DBS HOLDINGS, INC. DELAWARE
LORAL SPACECOM DBS, INC. DELAWARE
CONTINENTAL SATELLITE CORPORATION (1) CALIFORNIA
LORAL CYBERSTAR, INC. DELAWARE
LORAL CYBERSTAR GLOBAL SERVICES, INC. DELAWARE
LORAL CYBERSTAR INTERNATIONAL, INC. DELAWARE
LORAL ORION-EUROPE GMBH (2) GERMANY
LORAL CYBERSTAR JAPAN, INC. DELAWARE
ONS MAURITIUS MAURITIUS
LORAL CYBERSTAR SERVICES, INC. DELAWARE
ORIONNET, INC. DELAWARE
ORION FINANCIAL PARTNERSHIP (3) DELAWARE
LORAL CYBERSTAR HOLDINGS L.L.C. DELAWARE
LORAL ASIA PACIFIC SATELLITE (HK) LTD HONG KONG
LORAL CYBERSTAR AMERICAS DO BRASIL LTDA BRAZIL
LORAL CYBERSTAR DO BRASIL LTDA BRAZIL
LORAL CYBERSTAR ARGENTINA SRL ARGENTINA
LORAL SPACECOM CORPORATION DELAWARE
LORAL COMMUNICATIONS SERVICES, INC. DELAWARE
LORAL SKYNET INTERNATIONAL, INC. DELAWARE
LORAL GROUND SERVICES, LLC DELAWARE
LORAL DE EQUADOR LTDA EQUADOR
SPACE SYSTEMS/LORAL, INC. DELAWARE
INTERNATIONAL SPACE TECHNOLOGY, INC. (4) DELAWARE
COSMOTECH (4) RUSSIAN FEDERATION
SS/L EXPORT CORPORATION U.S. VIRGIN ISLANDS
LGP (BERMUDA) LTD. BERMUDA
LORAL CYBERSTAR LTD. BERMUDA
LORAL BROADBAND HOLDINGS, L.P. DELAWARE
LORAL CYBERSTAR L.L.C. DELAWARE
CYBERSTAR, L.P. (5) DELAWARE
CYBERSTAR LICENSEE, L.L.C. (5) DELAWARE
CYBERSTAR INTERNATIONAL, L.L.C. (5) DELAWARE
CYBERSTAR SERVICES, L.L.C. (5) DELAWARE
GLOBAL ACCESS TELECOMMUNICATIONS
SERVICES LTD (5) UNITED KINGDOM
CYBERSTAR, L.L.C. (5) DELAWARE
LORAL GLOBAL SERVICES N.V. NETHERLANDS ANTILLES
LORAL GLOBAL SERVICES B.V. NETHERLANDS
LORAL HOLDINGS LTD. BERMUDA
LORAL SPACE DO BRASIL LTDA. BRAZIL
LORAL SKYNET DO BRASIL LTDA. BRAZIL
LORAL LICENSING LTD. BERMUDA
LORAL SATMEX LTD. BERMUDA
LORAL SATCOM LTD. BERMUDA
LORAL SATELLITE LTD BERMUDA
LORAL SPACE LICENSING LTD BERMUDA
TABLE
(1) ONLY 86% OWNED DIRECTLY OR INDIRECTLY
(2) ONLY 99.5% OWNED DIRECTLY OR INDIRECTLY
(3) ONLY 50% OWNED DIRECTLY OR INDIRECTLY
(4) ONLY 42.9% OWNED DIRECTLY OR INDIRECTLY
(5) ONLY 82.4% OWNED DIRECTLY OR INDIRECTLY
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Nos.
333-26517, 333-46407 and 333-51133 on Form S-3 and Nos. 333-14863, 333-61723 and
333-49091 on Form S-8 of Loral Space & Communications Ltd. (a Bermuda company)
of our reports with respect to the consolidated financial statements of Loral
Space & Communications Ltd. and Globalstar, L.P. and the financial statement
schedule of Loral Space & Communications Ltd., appearing in or incorporated by
reference in this Annual Report on Form 10-K of Loral Space & Communications
Ltd. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
San Jose, California
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL SPACE & COMMUNICATIONS LTD. FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 239,865
<SECURITIES> 0
<RECEIVABLES> 487,820
<ALLOWANCES> 4,649
<INVENTORY> 111,060
<CURRENT-ASSETS> 1,073,321
<PP&E> 2,207,527
<DEPRECIATION> (322,552)
<TOTAL-ASSETS> 5,610,421
<CURRENT-LIABILITIES> 693,879
<BONDS> 1,913,826
459
735,437
<COMMON> 2,452
<OTHER-SE> 2,073,512
<TOTAL-LIABILITY-AND-EQUITY> 5,610,421
<SALES> 1,457,720
<TOTAL-REVENUES> 1,457,720
<CGS> 1,296,937
<TOTAL-COSTS> 1,519,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,297
<INCOME-PRETAX> (62,138)
<INCOME-TAX> (32,516)
<INCOME-CONTINUING> (201,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,644)
<EPS-BASIC> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Restated Financial Data Schedule contains summary financial information
extracted from the financial statements of Loral Space & Communications Ltd.
for the fiscal year ended December 31, 1998, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 546,772
<SECURITIES> 0
<RECEIVABLES> 378,833
<ALLOWANCES> 2,521
<INVENTORY> 191,245
<CURRENT-ASSETS> 1,197,093
<PP&E> 1,859,466
<DEPRECIATION> (191,958)
<TOTAL-ASSETS> 5,229,215
<CURRENT-LIABILITIES> 529,071
<BONDS> 1,533,039
459
735,437
<COMMON> 2,439
<OTHER-SE> 2,197,386
<TOTAL-LIABILITY-AND-EQUITY> 5,229,215
<SALES> 1,301,702
<TOTAL-REVENUES> 1,301,702
<CGS> 1,129,874
<TOTAL-COSTS> 1,335,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,209
<INCOME-PRETAX> (25,628)
<INCOME-TAX> (3,871)
<INCOME-CONTINUING> (185,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,223)
<EPS-BASIC> (0.68)<F1>
<EPS-DILUTED> (0.68)<F1>
<FN>
<F1> Note: The adoption of SFAS 128 had no effect on reported earnings per
share for the year ended December 31, 1998.
</FN>
</TABLE>
