<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement/Prospectus [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement/Prospectus
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LORAL SPACE & COMMUNICATIONS LTD.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ORION NETWORK SYSTEMS, INC.
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement/Prospectus if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
(2) Aggregate number of securities to which transaction applies:
27,442,163 shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$23,78125 per share of Common Stock (average of high and low trading
price on 2/13/98)
(4) Proposed maximum aggregate value of transaction:
$652,608,939
(5) Total fee paid:
$192,520
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
$192,520
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Form S-4 Registration No. 333-46407
-----------------------------------------------------------------------
(3) Filing Party:
Loral Space & Communications Ltd.
-----------------------------------------------------------------------
(4) Date Filed:
February 17, 1998
-----------------------------------------------------------------------
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
February 19, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Orion Network Systems, Inc. ("Orion"), to be held on
Friday, March 20, 1998 at 9:00 a.m., local time, at 2440 Research Boulevard,
Suite 400, Rockville, Maryland.
As described in the accompanying Proxy Statement/Prospectus, at the
Special Meeting, Orion stockholders will be asked to consider and vote upon
the following proposals:
(1) Approval and adoption of the Agreement and Plan of Merger, dated as
of October 7, 1997, as amended on February 11, 1998 (the "Merger Agreement"),
among Orion, Loral Space & Communications Ltd., a Bermuda company ("Loral"),
and Loral Satellite Corporation, a newly formed Delaware corporation and a
wholly owned subsidiary of Loral ("Merger Subsidiary") and the transactions
contemplated thereunder, including the Merger (as defined therein).
(2) Approval of amendments to Orion's Non-Employee Director Stock Option
Plan (the "Director Option Plan") and certain options granted thereunder to
provide for early vesting of certain options and conversion of options
granted under the plan in connection with the Merger.
(3) Approval of amendments to the Stock Option Agreement, dated as of
July 17, 1996, by and between Orion and John G. Puente, a director and
Chairman of the Executive Committee of Orion's Board of Directors (the
"Puente Option Agreement"), and the options granted thereunder to provide for
conversion of such options in connection with the Merger.
(4) Approval of amendments to the Stock Option Agreement, dated as of
March 12, 1997, by and between Orion and Gustave M. Hauser, a director and
Chairman of Orion's Board of Directors (the "Hauser Option Agreement"), and
the options granted thereunder to provide for conversion of such options in
connection with the Merger.
(5) To transact such other business as may properly come before the
Special Meeting, or any adjournments or postponements thereof.
The accompanying Proxy Statement/Prospectus provides a detailed
description of the Merger, including Orion's reasons for entering into the
Merger Agreement and the effect of the Merger on Orion and its stockholders,
and the amendments to the Director Option Plan and Puente and Hauser Option
Agreements. I urge you to read the accompanying Proxy Statement/Prospectus
(including the attachments thereto) and the accompanying Notice of Special
Meeting carefully.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger Agreement and recommends that stockholders vote
for approval and adoption of the Merger Agreement. In reaching this
conclusion, the Board of Directors considered, among other things, the
opinion dated October 6, 1997 of Morgan Stanley & Co. Incorporated ("Morgan
Stanley") that, as of such date and based on and subject to the matters set
forth therein, the exchange ratio set forth in the Merger Agreement is fair
from a financial point of view to the holders of Orion Common Stock (other
than Loral and its affiliates) and, assuming the conversion of the Orion
Preferred Stock into Orion Common Stock in accordance with their terms, to
the holders of Orion Preferred Stock. A copy of Morgan Stanley's opinion,
including the assumptions, qualifications and other matters contained
therein, is included in the Proxy Statement/Prospectus as Attachment C. Your
Board of Directors also recommends that stockholders vote for approval of the
amendments to the Director Option Plan and Puente and Hauser Option
Agreements.
The matters to be considered and voted upon at the Special Meeting are of
great importance to your investment and the future of Orion. Regardless of
your plans for attending in person, it is important that
<PAGE>
your shares be represented and voted at the Special Meeting. Accordingly, you
are requested to complete, sign, date, and return the enclosed proxy card in
the enclosed postage paid envelope. Signing this proxy will not prevent you
from voting in person should you be able to attend the Special Meeting, but
will assure that your vote is counted if, for any reason, you are unable to
attend.
Please do not send your stock certificates with your proxy card. If the
Merger Agreement is approved by the Orion stockholders and the Merger is
consummated, you will receive a transmittal form and instructions for the
surrender and exchange of your shares.
We hope that you can attend the Special Meeting. Your interest and support
in the affairs of Orion Network Systems, Inc. are appreciated.
Sincerely,
W. Neil Bauer
President and Chief
Executive Officer
Rockville, Maryland
February 19, 1998
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
(301) 258-8101
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 20, 1998
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Special Meeting") of Orion Network Systems, Inc. ("Orion") will be held on
Friday, March 20, 1998 at 9:00 a.m., local time, at 2440 Research Boulevard,
Suite 400, Rockville, Maryland, to consider and act upon the following
proposals:
1. To approve and adopt the Agreement and Plan of Merger, dated as of
October 7, 1997, as amended on February 11, 1998 (the "Merger
Agreement"), among Orion, Loral Space & Communications Ltd., a
Bermuda company ("Loral"), and Loral Satellite Corporation, a newly
formed Delaware corporation and a wholly owned subsidiary of Loral
("Merger Subsidiary"), and the transactions contemplated
thereunder, including the Merger (as defined therein).
2. To approve amendments to Orion's Non-Employee Director Stock Option
Plan (the "Director Option Plan") and certain options granted
thereunder to provide for early vesting of certain options and
conversion of options granted under the plan in connection with the
Merger.
3. To approve amendments to the Stock Option Agreement, dated as of
July 17, 1996, by and between Orion and John G. Puente, a director
and Chairman of the Executive Committee of Orion's Board of
Directors (the "Puente Option Agreement"), and the options granted
thereunder to provide for conversion of such options in connection
with the Merger.
4. To approve amendments to the Stock Option Agreement, dated as of
March 12, 1997, by and between Orion and Gustave M. Hauser, a
director and Chairman of Orion's Board of Directors (the "Hauser
Option Agreement"), and the options granted thereunder to provide
for conversion of such options in connection with the Merger.
5. To transact such other business as may properly come before the
Special Meeting, or any adjournments or postponements thereof.
The Board of Directors has carefully considered the terms of the Merger
Agreement, and believes that the Merger is in the best interests of Orion and
its stockholders. The Board of Directors also believes that amendments of the
Director Option Plan and the Puente Option Agreement and Hauser Option
Agreement are in the best interests of Orion and its stockholders. The Board
of Directors has unanimously approved the matters being submitted by Orion
for stockholder approval at the Special Meeting and recommends that
stockholders vote FOR approval and adoption of the Merger Agreement and FOR
approval of each of the amendments of the Director Option Plan and the Puente
Option Agreement and Hauser Option Agreement. Certain members of the Orion
Board of Directors and their affiliated companies holding, in the aggregate,
approximately 32% of the voting stock outstanding as of February 12, 1998,
have agreed to vote for approval and adoption of the Merger Agreement. In
addition, Space Systems/Loral, Inc. ("SS/L"), a wholly-owned subsidiary of
Loral, holds approximately 2.7% of the voting stock of Orion oustanding as of
February 12, 1998, and will vote for approval and adoption of the Merger
Agreement.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the shares of Orion common stock and Orion preferred
stock, voting together as a single class. Orion stockholders have no
dissenters' rights in connection with the matters submitted by Orion for
stockholder approval at the Special Meeting.
Pursuant to Orion's Amended and Restated By-laws, the Board of Directors
has fixed the close of business on February 5, 1998 as the record date for
the determination of stockholders entitled to notice of and to vote at the
Special Meeting. Only holders of Orion common stock and Orion preferred stock
of record at the close of business on that date will be entitled to notice of
and to vote at the Special Meeting or any adjournments or postponements
thereof. A list of Orion's stockholders entitled to vote at the Special
Meeting will be open to the examination of any stockholder for any purposes
germane to the Special Meeting during ordinary business hours for a period of
ten (10) days before the Special Meeting at Orion's offices.
Information regarding the proposed Merger, the Merger Agreement and
related matters is contained in the accompanying Proxy Statement/Prospectus
and the attachments thereto, which are incorporated by reference herein and
form part of this Notice.
By Order of the
Board of Directors
Richard H. Shay
Secretary
Rockville, Maryland
February 19, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR
PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME
<PAGE>
TABLE OF CONTENTS OF
ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/
LORAL SPACE & COMMUNICATIONS LTD. PROSPECTUS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
AVAILABLE INFORMATION .................................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................................ 4
FORWARD-LOOKING STATEMENTS ............................................................. 6
SUMMARY ................................................................................ 7
The Special Meeting ................................................................... 7
The Merger ............................................................................ 8
Amendments to Director Option Plan, Puente and Hauser Option Agreements .............. 19
Risk Factors .......................................................................... 19
Comparative Stock Prices .............................................................. 20
Comparative Per Share Data ............................................................ 21
RISK FACTORS ........................................................................... 22
Risks Related to the Transactions ..................................................... 22
Tax Treatment Uncertain Due to Special Considerations ................................ 22
Limitation on Adjustments to Exchange Ratio; Determination Price May Be Different
than Market Value ................................................................... 22
Offer to Purchase Orion's Senior Notes and Senior Discount Notes ..................... 22
Risks Related to Loral's Businesses ................................................... 23
Risks of Operations in the Space Environment ......................................... 23
Launch Risk and Vehicle Access ....................................................... 24
Leverage of Loral Group............................................................... 24
Obsolescence Due to Rapid Technological Change ....................................... 25
The Globalstar System ................................................................ 25
Competition .......................................................................... 26
Competitive Bidding .................................................................. 26
Regulation ........................................................................... 26
Potential Conflicts of Interest; Lack of Full Control ................................ 27
Risk of Conducting International Business ............................................ 27
Integration of the Businesses of Loral and Orion ..................................... 27
Reliance on Key Personnel ............................................................ 28
Dependence on SS/L ................................................................... 28
Operating Losses ..................................................................... 28
THE SPECIAL MEETING .................................................................... 29
Purpose of the Special Meeting of Stockholders ........................................ 29
Voting Rights and Related Matters ..................................................... 29
Vote Required ......................................................................... 30
No Dissenters' Rights ................................................................. 30
Proxies ............................................................................... 30
INFORMATION ABOUT ORION ................................................................ 31
INFORMATION ABOUT LORAL ................................................................ 33
Loral Skynet .......................................................................... 34
Globalstar ............................................................................ 34
i
<PAGE>
PAGE
--------
Space Systems/Loral ................................................................... 35
Loral Orion ........................................................................... 35
SatMex ................................................................................ 35
Future Opportunities .................................................................. 36
THE MERGER ............................................................................. 37
Background of the Merger .............................................................. 37
Recommendation of Orion Board of Directors; Orion's Reasons for the Transactions ..... 40
Opinion of Orion's Financial Advisor .................................................. 42
Loral's Reasons for the Transactions .................................................. 45
Conversion of Orion Capital Stock ..................................................... 45
Exchange of Certificates in the Merger ................................................ 47
Conversion of Options and Warrants; Stock Purchase Plan ............................... 48
Interests of Certain Persons in the Merger ............................................ 49
Fees and Expenses ..................................................................... 50
Accounting Treatment .................................................................. 50
Certain U.S. Federal Income Tax Consequences of the Merger ............................ 50
Taxation of Loral and its Stockholders ................................................ 53
United States Tax Considerations ..................................................... 53
Bermuda Tax Considerations ........................................................... 54
Resale of Loral Common Stock .......................................................... 55
Listing ............................................................................... 55
Certain Effects of the Principal Stockholder Agreement and Termination Fee ........... 55
Certain Legal Matters ................................................................. 56
THE MERGER AGREEMENT AND PRINCIPAL STOCKHOLDER AGREEMENT ............................... 57
The Merger Agreement .................................................................. 57
General .............................................................................. 57
Effective Time ....................................................................... 57
Representations and Warranties ....................................................... 57
Business of Orion Pending the Merger ................................................. 58
Additional Covenants ................................................................. 61
Conditions ........................................................................... 62
Termination; Amendment ............................................................... 63
Termination Fee ...................................................................... 64
Expenses ............................................................................. 64
Waiver ............................................................................... 65
The Principal Stockholder Agreement ................................................... 65
General .............................................................................. 65
Agreement to Vote .................................................................... 65
Grant of Loral Option ................................................................ 66
Adjustment of Number of Shares Subject to Option ..................................... 67
Agreement Not to Transfer ............................................................ 67
Debentures Conversion ................................................................ 68
Transfer of Loral Common Stock by British Aerospace .................................. 68
Control Shares ....................................................................... 68
ii
<PAGE>
PAGE
--------
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION ...................................... 69
Market and Market Prices .............................................................. 69
Comparative Per Share Data ............................................................ 70
CERTAIN TRANSACTIONS OF ORION .......................................................... 71
DESCRIPTION OF LORAL CAPITAL STOCK ..................................................... 71
Loral Common Stock .................................................................... 71
Loral Preferred Stock ................................................................. 71
Transfer Agent and Registrar .......................................................... 72
Certain Antitakeover Effects of Certain Provisions of the Bye-Laws .................... 72
COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND LORAL STOCKHOLDERS ....................... 77
Dividends ............................................................................. 77
Voting Rights ......................................................................... 78
Rights in Liquidation ................................................................. 78
Meetings of Shareholders .............................................................. 78
Access to Books and Records and Dissemination of Information .......................... 78
Board of Directors .................................................................... 79
Election or Removal of Directors ...................................................... 79
Amendment of Orion's Certificate of Incorporation, Loral's Memorandum of Association
and Bye-Laws ......................................................................... 79
Appraisal Rights and Shareholder Suits ................................................ 80
Redemption Rights ..................................................................... 81
Indemnification ....................................................................... 81
Business Combinations ................................................................. 81
Other Anti-Takeover Provisions ........................................................ 82
SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION .......................... 83
SELECTED CONSOLIDATED FINANCIAL DATA OF LORAL........................................... 85
SELECTED UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA ............................... 86
PRO FORMA FINANCIAL DATA ............................................................... 87
OWNERSHIP OF ORION COMMON STOCK ........................................................ 98
AMENDMENTS TO DIRECTOR OPTION PLAN ..................................................... 102
AMENDMENTS TO PUENTE OPTION AGREEMENT .................................................. 102
AMENDMENTS TO HAUSER OPTION AGREEMENT .................................................. 103
OTHER MATTERS .......................................................................... 104
LEGAL AND TAX MATTERS .................................................................. 104
EXPERTS ................................................................................ 104
ATTACHMENTS
ATTACHMENT A --AGREEMENT AND PLAN OF MERGER
ATTACHMENT B --PRINCIPAL STOCKHOLDER AGREEMENT
ATTACHMENT C --OPINION OF MORGAN STANLEY & CO. INCORPORATED
ATTACHMENT D --AMENDMENTS TO DIRECTOR OPTION PLAN
ATTACHMENT E --AMENDMENTS TO PUENTE OPTION AGREEMENT
ATTACHMENT F --AMENDMENTS TO HAUSER OPTION AGREEMENT
</TABLE>
iii
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
LORAL SPACE & COMMUNICATIONS LTD.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/
LORAL SPACE & COMMUNICATIONS LTD. PROSPECTUS
SPECIAL MEETING OF STOCKHOLDERS
OF ORION NETWORK SYSTEMS, INC.
TO BE HELD ON MARCH 20, 1998
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to stockholders of Orion Network Systems, Inc. ("Orion") in
connection with the solicitation by the Board of Directors of Orion of
proxies to be used at a special meeting of stockholders of Orion (the
"Special Meeting") and at any adjournments or postponements thereof. The
Special Meeting will be held on Friday, March 20, 1998 at 9:00 a.m., local
time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland.
This Proxy Statement/Prospectus also constitutes the prospectus of Loral
(as defined below) for an estimated 27,442,163 shares of Loral Common Stock
(as defined below) to be issued in connection with the Merger (as defined
below) under the Securities Act of 1933 (the "Securities Act"). Each new
share of Loral Common Stock (as defined below) issued in connection with the
Merger (as defined below) will be accompanied by one Loral Right (as defined
below). Loral has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission (the "Commission") with respect to such
shares, of which this Proxy Statement/Prospectus is a part. This Proxy
Statement/Prospectus and form of proxy are first being sent or given to
stockholders on or about February 19, 1998.
At the Special Meeting, Orion stockholders will be asked to consider and
vote upon the following proposals:
(1) Approval and adoption of the Agreement and Plan of Merger, dated as of
October 7, 1997, as amended on February 11, 1998 (the "Merger Agreement"),
among Orion, Loral Space & Communications Ltd., a Bermuda company ("Loral"),
and Loral Satellite Corporation, a newly formed Delaware corporation and a
wholly owned subsidiary of Loral ("Merger Subsidiary") and the transactions
contemplated thereunder, including the Merger (as defined below).
(2) Approval of amendments to Orion's Non-Employee Director Stock Option
Plan (the "Director Option Plan") and certain options granted thereunder to
provide for early vesting of certain options and conversion of options
granted under the plan in connection with the Merger.
(3) Approval of amendments to the Stock Option Agreement, dated as of July
17, 1996, by and between Orion and John G. Puente, a director and Chairman of
the Executive Committee of Orion's Board of Directors (the "Puente Option
Agreement"), and the options granted thereunder to provide for conversion of
such options in connection with the Merger.
(4) Approval of amendments to the Stock Option Agreement, dated as of
March 12, 1997, by and between Orion and Gustave M. Hauser, a director and
Chairman of Orion's Board of Directors (the "Hauser Option Agreement"), and
the options granted thereunder to provide for conversion of such options in
connection with the Merger.
(5) To transact such other business as may properly come before the
Special Meeting, or any adjournments or postponements thereof.
Merger. Pursuant to the Merger Agreement, Merger Subsidiary will be merged
with and into Orion (the "Merger"). Orion will be the surviving corporation
(the "Surviving Corporation") in the Merger and will become a wholly owned
subsidiary of Loral.
In the Merger, persons who hold shares of (i) common stock, par value $.01
per share, of Orion ("Orion Common Stock"), excluding treasury shares and
shares owned by Loral or its subsidiaries, and (ii) preferred stock, par
value $.01 per share, of Orion ("Orion Preferred Stock", and together with
Orion Common Stock, "Orion Capital Stock"), excluding treasury shares and
shares owned by Loral or its subsidiaries, will receive a pre-determined
amount of common stock, par value $.01 per share, of Loral ("Loral Common
Stock"). Shares of Orion Capital Stock owned by Loral or any subsidiary of
Loral will be converted into the right to receive enough shares in the
Surviving Corporation as necessary in order to ensure that such entity's
proportionate interest in the Surviving Corporation immediately after the
Merger is as it was in Orion immediately before the Merger. In addition,
persons who hold (i) outstanding stock options to purchase shares of Orion
Common Stock and (ii) outstanding warrants to purchase shares of Orion Common
Stock will receive Loral stock options and warrants that will entitle them to
receive a pre-determined amount of Loral Common Stock upon exercise of such
options or warrants.
The formula in the Merger Agreement that determines the exact amount of
Loral Common Stock that each Orion stockholder will receive in exchange
(defined as the Exchange Ratio, see "The Merger Agreement -- Conversion of
Orion Capital Stock") for their shares of Orion Capital Stock or upon
exercise of their stock options or warrants depends on the trading prices of
Loral Common Stock for a twenty day period that ends on the tenth trading day
prior to the date of the Merger (defined as the Determination Price, see "The
Merger Agreement -- Conversion of Orion Capital Stock"). The exact amount of
Loral Common Stock that each Orion stockholder will receive, therefore, is
not presently ascertainable.
<PAGE>
The following table, however, presents for each whole dollar Determination
Price from $15 through $26, as well as for a Determination Price equal to
$16.305, $20.3815 and $24.458 (the low, middle and high end of the
Determination Price range), (i) the Exchange Ratio and (ii) the dollar value
of each share of Loral Common Stock that Orion stockholders would receive in
the Merger in exchange for shares of Orion Common Stock:
<TABLE>
<CAPTION>
EFFECT OF EXCHANGE RATIO
------------------------
LORAL MARKET VALUE LORAL
COMMON STOCK OF LORAL COMMON ORION COMMON
DETERMINATION EXCHANGE STOCK ISSUED TO COMMON STOCK
PRICE RATIO ORION STOCKHOLDERS STOCK EQUIVALENT
- ----------------------------------------------- --------- --------------
<S> <C> <C> <C> <C>
$15.00 1.07329 $16.10 100 107.329
$16.00 1.07329 $17.17 100 107.329
$16.305 1.07329 $17.50 100 107.329
$17.00 1.02941 $17.50 100 102.941
$18.00 0.97222 $17.50 100 97.222
$19.00 0.92105 $17.50 100 92.105
$20.00 0.875 $17.50 100 87.5
$20.3815 0.85862 $17.50 100 85.862
$21.00 0.83333 $17.50 100 83.333
$22.00 0.79545 $17.50 100 79.545
$23.00 0.76087 $17.50 100 76.087
$24.00 0.72917 $17.50 100 72.917
$24.458 0.71553 $17.50 100 71.553
$25.00 0.71553 $17.89 100 71.553
$26.00 0.71553 $18.60 100 71.553
</TABLE>
As the above table illustrates, so long as the Determination Price of
Loral Common Stock remains between $16.305 and $24.458, the intended economic
effect of the Merger is to provide Orion stockholders with $17.50 worth of
Loral Common Stock in exchange for each share of Orion Common Stock. As the
above table also illustrates, if the Determination Price of Loral Common
Stock is greater than $24.458, or less than $16.305, Orion stockholders will
receive a maximum of 1.07329 and a minimum of 0.71553 shares of Loral Common
Stock in exchange for each share of Orion Common Stock, which would provide
Orion stockholders with Loral Common Stock with a value that is greater than
$17.50 (in the case of a Determination Price greater than $24.458) or less
than $17.50 (in the case of a Determination Price less than $16.305).
The intended economic effect of the Merger is to provide each holder of an
outstanding option or warrant to purchase Orion Common Stock with an option
or warrant to acquire Loral Common Stock with the same terms and conditions
that were applicable under such option or warrant prior to the Merger.
Specifically, at the time of the Merger, each Orion option or warrant will be
converted into a Loral option or warrant to acquire the number of whole
shares of Loral Common Stock equal to the product of the aggregate number of
shares of Orion Common Stock for which such Orion option or warrant was
exercisable multiplied by the Exchange Ratio. The exercise price per share of
Loral Common Stock issuable pursuant to each Orion option will be equal to
the aggregate exercise price of such option or warrant at the time of the
Merger divided by the number of shares of Loral Common Stock for which such
option or warrant is exercisable as determined above and rounded to the next
highest whole cent. No Orion option or warrant shall be exercisable for
fractional shares. Instead, each holder of an Orion option or warrant
exercisable for a fractional share of Loral Common Stock will be entitled to
receive, upon exercise thereof, an offset against the aggregate exercise
price of the option or warrant. For more detail on the treatment of Orion
options and warrants in the Merger, stockholders should review the
information provided under "The Merger -- Conversion of Options and Warrants;
Stock Purchase Plan."
From February 23, 1998 until the date of the Merger, Orion stockholders
can call (301) 721-2626 and listen to a recording of what the Exchange Ratio
would be if the Merger occurred on the date of the phone call. A more
detailed explanation of how the Determination Price and the Exchange Ratio
are defined and calculated is set forth under the caption "The Merger
Agreement -- Conversion of Orion Capital Stock."
As provided for in the Rights Agreement dated March 27, 1996 between Loral
and The Bank of New York, as Rights Agent (the "Rights Agreement"), each
share of Loral Common Stock issued in connection with the Merger will be
accompanied by one Loral Right (a "Loral Right") to purchase from Loral a
unit consisting initially of one one-thousandth of a share of Series B
Preferred Stock, par value $.01 per share.
2
<PAGE>
Approval of the Merger Agreement shall constitute the approval of the
specific terms therein and the transactions contemplated thereunder,
including the Merger. Prior to voting on the Merger, Orion stockholders
should review carefully the Merger Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Attachment A and incorporated herein by
reference.
This Proxy Statement/Prospectus provides a detailed description of the
Merger, including Orion's and Loral's reasons for entering into the Merger
Agreement and the effect of the Merger on Orion and its stockholders, and of
the business and financial condition of Orion and Loral.
Amendments of Director Option Plan and Puente and Hauser Option
Agreements. As indicated above, in the Merger each outstanding stock option
to purchase shares of Orion Common Stock is to be converted into an option to
acquire the number of shares of Loral Common Stock equal to the Exchange
Ratio multiplied by the number of shares of Orion Common Stock for which such
option was exercisable. In the case of the options granted under the Director
Option Plan and the Puente and Hauser Option Agreements, Orion is seeking to
effect the conversion of such options by amending the Director Option Plan
and the Puente and Hauser Option Agreements. Orion also has amended its other
stock option plans to effect such conversion, but amendment of such other
plans does not require stockholder approval and accordingly is not one of the
matters to be acted upon at the Special Meeting.
Orion also is proposing to amend the Director Option Plan to provide that
options granted to Orion's directors that vest at the next annual meeting of
stockholders of Orion instead would vest upon consummation of the Merger, if
the Merger occurs prior to such annual meeting. Orion believes that since its
directors will have performed nearly a full year of service since the last
annual meeting of stockholders, and since such directors would be resigning
prior to the next annual meeting of stockholders in order to satisfy a
condition of the Merger, it is appropriate for the directors' options to vest
upon consummation of the Merger. Copies of the proposed amendments to the
Director Option Plan and the Puente and Hauser Option Agreements are attached
to this Proxy Statement/Prospectus as Attachments D, E and F, respectively.
THE BOARD OF DIRECTORS OF ORION RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, AS DESCRIBED IN THIS PROXY
STATEMENT/ PROSPECTUS. CERTAIN MEMBERS OF THE ORION BOARD OF DIRECTORS AND
THEIR AFFILIATED COMPANIES HOLDING, IN THE AGGREGATE, APPROXIMATELY 32% OF
THE VOTING STOCK OF ORION OUTSTANDING AS OF FEBRUARY 12, 1998, HAVE AGREED TO
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, SPACE
SYSTEMS/LORAL, INC. ("SS/L"), A WHOLLY-OWNED SUBSIDIARY OF LORAL, HOLDS
APPROXIMATELY 2.7% OF THE VOTING STOCK OF ORION OUTSTANDING AS OF FEBRUARY
12, 1998, AND WILL VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE BOARD OF DIRECTORS OF ORION ALSO RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF EACH OF THE AMENDMENTS OF THE DIRECTOR OPTION PLAN AND THE PUENTE
OPTION AGREEMENT AND HAUSER OPTION AGREEMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY ORION STOCKHOLDERS.
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is February 17, 1998.
3
<PAGE>
AVAILABLE INFORMATION
Orion and Loral are each subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance with the Exchange Act, Orion and Loral each file proxy statements,
reports and other information with the Commission. This material can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. and at the Regional Offices of the Commission
at 7 World Trade Center, Suite 1300, New York, NY 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants,
including Orion and Loral. The Orion Common Stock is quoted on the Nasdaq
National Market under the symbol "ONSI", and such reports, proxy statements
and other information concerning Orion also can be inspected at the offices
of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Loral
Common Stock is listed on the New York Stock Exchange under the symbol "LOR",
and such reports, proxy statements and other information concerning Loral
also can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Loral has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Loral
Common Stock to be issued upon consummation of the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement and the exhibits filed
therewith. Statements contained in this Proxy Statement/Prospectus relating
to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Orion and Loral, as
applicable, will provide without charge to each person to whom this Proxy
Statement/Prospectus is delivered a copy of any or all of such documents
which are incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
into the documents that this Proxy Statement/Prospectus incorporates). Oral
or written requests for Orion documents should be directed to Orion Network
Systems, Inc., 2440 Research Boulevard, Suite 400, Rockville Maryland 20850,
telephone number (301) 258-8101, attention: Richard H. Shay, General Counsel.
Oral or written requests for Loral documents should be directed to Eric J.
Zahler, General Counsel, 600 Third Avenue, New York, New York 10016,
telephone number (212) 697-1105. To ensure timely delivery of the documents,
any request should be made by March 13, 1998.
The documents listed below have been filed by Orion (File No. 000-22085)
under the Exchange Act with the Commission and are incorporated herein by
reference:
1. Orion's Current Report on Form 8-K dated October 9, 1997, reporting
the execution of the Merger Agreement.
2. Orion's Annual Report on Form 10-K for the year ended December 31,
1996 and amendment thereto on Form 10-K/A dated June 25, 1997.
3. Orion's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997.
4. Orion's definitive proxy statement on Schedule 14A dated April 22,
1997, with respect to Orion's annual meeting of stockholders held
on May 22, 1997.
4
<PAGE>
5. Orion's Current Report on Form 8-K dated February 14, 1997, and
Current Report on Form 8-K dated March 31, 1997.
6. The description of Orion's Common Stock contained in Orion's
Registration Statement on Form 8-B filed with the Commission on
January 31, 1997, pursuant to Section 12(g) of the Exchange Act,
including any amendments or reports filed for the purpose of
updating such description.
The documents listed below have been filed by Loral (File No. 1-14180)
under the Exchange Act with the Commission and are incorporated herein by
reference:
1. Loral's Annual Report on Form 10-K for the transition period ended
December 31, 1996.
2. Loral's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997.
3. Loral's definitive proxy statement on Schedule 14A dated April 7,
1997, with respect to Loral's annual meeting of stockholders held
on April 30, 1997.
4. Loral's Current Report on Form 8-K dated March 14, 1997, and
amendment to Current Report on Form 8-K/A dated March 14, 1997.
5. Loral's Current Report on Form 8-K dated March 25, 1997.
6. Loral's Current Report on Form 8-K dated June 23, 1997.
7. Loral's Current Report on Form 8-K dated October 7, 1997.
8. Loral's Current Report on Form 8-K dated November 14, 1997.
9. Loral's Current Report on Form 8-K dated December 29, 1997.
10. The description of Loral's Common Stock contained in Loral's
registration statement on Form 8-A, filed under the Exchange Act,
including any amendments or reports filed for the purpose of
updating such description.
All documents filed by Orion and Loral subsequent to the date of this
Proxy Statement/Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act and prior to the Orion Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and shall be
part hereof from the date of filing of such document.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed modified or superseded for
purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein (or in any other subsequently filed document that also is
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
of this Proxy Statement/Prospectus. This Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements
(including notes thereto) appearing in the documents incorporated by
reference, except to the extent set forth in the immediately preceding
statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY ORION OR LORAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY ISSUANCE OR SALE OF ANY
SECURITIES MADE HEREUNDER SHALL, UNDER
5
<PAGE>
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF ORION OR LORAL SINCE THE DATE HEREOF OR THAT THE INFORMATION
IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF. ALL INFORMATION REGARDING LORAL AND MERGER SUBSIDIARY IN THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN SUPPLIED BY LORAL, AND ALL INFORMATION
REGARDING ORION HEREIN HAS BEEN SUPPLIED BY ORION.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements regarding Orion and/or Loral's expected future
financial position, business strategies and plans, combinations of the Orion
and Loral businesses, any projected revenues or costs, and future operations
are forward-looking statements. Although Orion and/or Loral believe their
respective expectations reflected in such forward-looking statements are
based on reasonable assumptions, no assurance can be given that such
expectations will be proven to have been correct. Important factors that
could cause actual results to differ materially from the expectations
reflected in the forward-looking statements herein include, among others, the
factors set forth under the caption "Risk Factors," general economic and
business and market conditions, changes in laws and regulations, increased
competitive pressure in the satellite industry, costs or difficulties
relating to the integration of the Orion and Loral businesses, and the
ability of Orion and/or Loral to achieve their respective goals described
herein.
6
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus and/or the Attachments attached hereto.
Reference is made to, and this Summary is qualified in its entirety by, the
more detailed information contained in this Proxy Statement/Prospectus and
the Attachments. Stockholders are urged to review carefully the entire Proxy
Statement/Prospectus, including the Attachments attached hereto.
THE SPECIAL MEETING
Date, Time, Place of Meeting .. The Special Meeting of Stockholders of Orion
will be held on Friday, March 20, 1998 at
9:00 a.m., local time, at 2440 Research
Boulevard, Suite 400, Rockville, Maryland.
Record Date ................... Only Orion stockholders of record at the
close of business on February 5, 1998 (the
"Record Date") will be entitled to notice of
and to vote at the Special Meeting or any
adjournments or postponements thereof. See
"The Special Meeting -- Voting Rights and
Related Matters."
Purpose of the Special
Meeting ....................... At the Special Meeting, Orion stockholders
will be asked to consider and vote upon the
following proposals: (1) approval and
adoption of the Merger Agreement and the
transactions contemplated thereunder; (2)
approval of amendments to Orion's Director
Option Plan and certain options granted
thereunder to provide for early vesting of
certain options and conversion of options
granted under the plan in connection with
the Merger; (3) approval of amendments to
the Puente Option Agreement and the options
granted thereunder to provide for conversion
of such options in connection with the
Merger; and (4) approval of amendments to
the Hauser Option Agreement and the options
granted thereunder to provide for conversion
of such options in connection with the
Merger. See "The Special Meeting -- Voting
Rights and Related Matters."
Quorum ........................ The holders of a majority of Orion Capital
Stock issued and outstanding and entitled to
vote, present in person or represented by
proxy, treated as a single class, will
constitute a quorum at the Special Meeting.
See "The Special Meeting --Voting Rights and
Related Matters."
Vote Required ................. Under Orion's Amended and Restated By-laws
and applicable law, the approval and
adoption of the Merger Agreement requires
the affirmative vote of the holders of a
majority of the outstanding shares of Orion
Common Stock and Orion Preferred Stock, and
entitled to vote at the Special Meeting,
voting together as a single class, and the
approval of the amendments to the Director
Option Plan and the Puente and Hauser Option
Agreements require the affirmative vote of
the holders of a majority of the shares of
Orion Common Stock and Orion Preferred
Stock, present in person or represented by
proxy, voting together as a single class.
Certain members of the Orion Board of
Directors and their affiliated companies
holding, in the
7
<PAGE>
aggregate, approximately 32% of the voting
stock outstanding as of February 12, 1998,
have agreed pursuant to the Principal
Stockholder Agreement, dated as of October
7, 1997, as amended and restated as of
December 1, 1997, among Orion, Loral, Merger
Subsidiary and certain principal
stockholders of Orion (the "Principal
Stockholder Agreement") to vote for approval
and adoption or the Merger Agreement. In
addition, SS/L holds approximately 2.7% of
the voting stock of Orion outstanding as of
February 12, 1998, and will vote for
approval and adoption of the Merger
Agreement. See "The Special Meeting --
Voting Rights and Related Matters" and "The
Special Meeting -- Vote Required" and "The
Merger Agreement and Principal Stockholder
Agreement -- The Principal Stockholder
Agreement."
No Dissenters' Rights ......... Orion stockholders have no dissenters'
rights in connection with the matters
submitted by Orion for stockholder approval
at the Special Meeting. See "The Special
Meeting -- No Dissenters' Rights."
Revocability of Proxies ....... An Orion stockholder giving a proxy in the
form accompanying this Proxy
Statement/Prospectus has the power to revoke
the proxy at any time prior to its exercise.
A proxy may be revoked by any stockholder
who attends the Special Meeting and gives
notice of his or her intention to vote in
person without compliance with any other
formalities. In addition, any Orion
stockholder may revoke a proxy at any time
before it is voted by executing and
delivering a subsequent proxy or by
delivering a written notice to the Secretary
of Orion stating that the proxy is revoked.
See "The Special Meeting -- Proxies."
THE MERGER
The Merger Agreement .......... The Merger Agreement, dated as of October 7,
1997, as amended on February 11, 1998, among
Orion, Loral and Merger Subsidiary, pursuant
to which Merger Subsidiary will be merged
with and into Orion, and Orion will become a
wholly owned subsidiary of Loral. See "The
Merger Agreement and Principal Stockholder
Agreement -- The Merger Agreement."
Parties to the Merger ......... ORION'S predecessor company was organized as
a Delaware corporation in 1982. Orion is a
rapidly growing provider of satellite-based
communications services, focused primarily
on (i) private communications network
services, (ii) Internet services and (iii)
video distribution and other satellite
transmission services. Orion provides
multinational corporations with private
communications networks designed to carry
high speed data, fax, video
teleconferencing, voice and other
specialized services. Orion provides its
services directly to customer premises using
very small aperture terminals ("VSATs").
Orion commenced operations of Orion 1, a
high power Ku-band satellite, in January
1995. Orion is constructing two additional
satellites,
8
<PAGE>
Orion 2, a high power satellite which will
increase significantly Orion's pan-European
capacity, and Orion 3, which will cover
broad areas of the Asia Pacific region. In
the aggregate, the footprints of Orion 1,
Orion 2 and Orion 3 will cover over 85% of
the world's population. As of September 30,
1997, Orion serviced 282 customers through
635 points of service. Orion's principal
executive offices are located at 2440
Research Boulevard, Suite 400, Rockville,
Maryland 20850 and its telephone number is
(301) 258-8101. See "Information About
Orion."
LORAL was incorporated in 1996 under The
Companies Act 1981 of Bermuda (the "Bermuda
Law"). Loral, together with its
subsidiaries, is one of the world's leading
satellite communications companies. Loral's
Skynet Satellite Services ("Skynet")
subsidiary currently has two high-powered
satellites operating in-orbit and is a
provider of satellite communications
services in the United States. In December
1997, a joint venture company in which Loral
has a 65% economic interest completed the
acquisition of a 75% interest in Satelites
Mexicanos, S.A. de C.V. ("SatMex"), which
owns and operates three geosynchronous
("GEO") telecommunications satellites. Loral
is the largest equity owner and manager of
Globalstar, L.P. ("Globalstar"), a system of
low-earth orbit ("LEO") satellites that is
scheduled to begin digital wireless
telephone service to handheld mobile and
fixed user terminals in 100 countries in the
first quarter of 1999. Loral owns directly
and indirectly, on a fully diluted basis,
approximately 39% of Globalstar. Loral is
also one of the world's leading
manufacturers of communications and direct
broadcast satellites through SS/L. In
addition, Loral intends to pursue additional
satellite-based communications services
opportunities, including CyberStar
("CyberStar"), a proposed worldwide
high-speed broadband communications system
using GEO satellites. Loral's board and
executive officers will not change as a
result of the Merger. Loral's principal
executive offices are located at 600 Third
Avenue, New York, New York 10016 and its
telephone number is (212) 697-1105. See
"Information About Loral."
MERGER SUBSIDIARY is a Delaware corporation
and a wholly owned subsidiary of Loral
recently organized by Loral for the purpose
of effecting the Merger. It has no material
assets and has not engaged in any activities
except in connection with the Merger.
The Merger -- Structure ....... Merger Subsidiary will be merged with and
into Orion and Orion, the Surviving
Corporation, will become a wholly owned
subsidiary of Loral. In the Merger, persons
who hold shares of Orion Capital Stock,
excluding treasury shares and shares owned
by Loral or its subsidiaries, will receive a
pre-determined amount of Loral Common Stock.
Shares of Orion Capital Stock owned by Loral
or any subsidiary of Loral will be converted
into the right to receive enough shares in
the Surviving Corporation as necessary in
order to ensure that such entity's
proportionate
9
<PAGE>
interest in the Surviving Corporation
immediately after the Merger is as it was in
Orion immediately before the Merger. In
addition, persons who hold (i) outstanding
stock options to purchase shares of Orion
Common Stock and (ii) outstanding warrants
to purchase shares of Orion Common Stock
will receive Loral stock options and
warrants that will entitle them to receive a
pre-determined amount of Loral Common Stock
upon exercise of such options or warrants.
The formula in the Merger Agreement that
determines the exact amount of Loral Common
Stock that each Orion stockholder will
receive in exchange (defined as the Exchange
Ratio, see "The Merger Agreement --
Conversion of Orion Capital Stock") for
their shares of Orion Capital Stock or upon
exercise of their stock options or warrants
depends on the trading prices of Loral
Common Stock for a twenty day period that
ends on the tenth trading day prior to the
date of the Merger (defined as the
Determination Price, see "The Merger
Agreement -- Conversion of Orion Capital
Stock"). The exact amount of Loral Common
Stock that each Orion stockholder will
receive, therefore, is not presently
ascertainable. The determination of the
numbers of shares is illustrated in the next
paragraph. Each share of Loral Common Stock
issued in connection with the Merger will be
accompanied by one Loral Right. No
fractional shares will be issued. The Merger
will become effective upon the filing of the
Certificate of Merger (as defined in the
Merger Agreement) with the Delaware
Secretary of State (the "Effective Time"),
which is expected to be filed following
approval of the Merger by the requisite vote
of the Orion stockholders and the
satisfaction or waiver of the other
conditions set forth in the Merger
Agreement. See "The Merger -- Conversion of
Orion Capital Stock."
Conversion of Orion Capital
Stock;
Exchange Ratio ............... The following table presents for each whole
dollar Determination Price from $15 through
$26, as well as for a Determination Price
equal to $16.305, $20.3815 and $24.458 (the
low, middle and high end of the
Determination Price range), (i) the Exchange
Ratio and (ii) the dollar value of each
share of Loral Common Stock that Orion
stockholders would receive in the Merger in
exchange for shares of Orion Common Stock:
10
<PAGE>
<TABLE>
<CAPTION>
EFFECT OF EXCHANGE RATIO
LORAL MARKET VALUE --------------------------
COMMON OF LORAL COMMON LORAL
STOCK STOCK ISSUED TO ORION COMMON
DETERMINATION EXCHANGE ORION COMMON STOCK
PRICE RATIO STOCKHOLDERS STOCK EQUIVALENT
- --------------- ---------- ----------------- -------- ------------
<S> <C> <C> <C> <C>
$15.00 1.07329 $16.10 100 107.329
$16.00 1.07329 $17.17 100 107.329
$16.305 1.07329 $17.50 100 107.329
$17.00 1.02941 $17.50 100 102.941
$18.00 0.97222 $17.50 100 97.222
$19.00 0.92105 $17.50 100 92.105
$20.00 0.875 $17.50 100 87.5
$20.3815 0.85862 $17.50 100 85.862
$21.00 0.83333 $17.50 100 83.333
$22.00 0.79545 $17.50 100 79.545
$23.00 0.76087 $17.50 100 76.087
$24.00 0.72917 $17.50 100 72.917
$24.458 0.71553 $17.50 100 71.553
$25.00 0.71553 $17.89 100 71.553
$26.00 0.71553 $18.60 100 71.553
</TABLE>
By way of illustration, if the Merger
occurred as of February 12, 1998 and all
Orion stockholders exchanged their Orion
stock (excluding treasury shares and shares
owned by Loral or its subsidiaries), there
would have been approximately 24,878,000
shares of Orion Common Stock exchanged for
Loral Common Stock. Based on assumed
Determination Prices of $15 and $26, the
approximately 24,878,000 shares of Orion
Common Stock would have been exchanged for
26,701,309 (representing a beneficial
ownership of approximately 13.3% of Loral
Common Stock) and 17,800,956 shares of Loral
Common Stock (representing a beneficial
ownership of approximately 8.9% of Loral
Common Stock), respectively.
From February 23, 1998 until the date of the
Merger, Orion stockholders can call (301)
721-2626 and listen to a recording of what
the Exchange Ratio would be if the Merger
occurred on the day of the phone call.
Conversion of Orion Options
and Warrants .................. The intended economic effect of the Merger
is to provide each holder of an outstanding
option or warrant to purchase Orion Common
Stock with an option or warrant to acquire
Loral Common Stock with the same terms and
conditions that were applicable under such
option or warrant prior to the Merger.
Specifically, at the time of the Merger,
each Orion option or warrant will be
converted into a Loral option or warrant to
acquire the number of whole shares of Loral
Common Stock equal to the product of the
aggregate number of shares of Orion Common
Stock for which such Orion option or warrant
was exercisable multiplied by the Exchange
Ratio. The exercise price per share of Loral
Common Stock issuable pursuant to each Orion
option will be equal to the aggregate
exercise price of such option or warrant at
the time of the Merger divided by the number
of shares of Loral Common Stock for which
such option or warrant is exercisable as
determined above and rounded to the next
highest whole cent. No Orion option or
warrant shall be exercisable for fractional
shares. Instead, each
11
<PAGE>
holder of an Orion option or warrant
exercisable for a fractional share of Loral
Common Stock will be entitled to receive,
upon exercise thereof, an offset against the
aggregate exercise price of the option or
warrant. Loral will file one or more
registration statements to become effective
as soon as practicable after the Merger with
respect to the Loral Common Stock subject to
options and warrants. For more detail on the
treatment of Orion options and warrants in
the Merger, stockholders should review the
information provided under "The
Merger--Conversion of Options and Warrants;
Stock Purchase Plan."
Consequences of the Merger .... Upon the consummation of the Merger, all
shares of Orion Common Stock and Orion
Preferred Stock shall no longer be
outstanding and shall automatically be
canceled and retired and shall cease to
exist, and each holder of a certificate
representing any shares of Orion Common
Stock and Orion Preferred Stock shall cease
to have any rights with respect thereto,
except the right to receive the shares of
Loral Common Stock issued in exchange
therefor upon the surrender of such
certificate (excluding treasury shares and
shares owned by Loral and its subsidiaries).
Effective upon consummation of the Merger,
Orion will be a wholly owned subsidiary of
Loral, and Orion will change its name to
Loral Orion Network Systems, Inc." See "The
Merger -- Conversion of Orion Capital
Stock."
Conditions of the Merger;
Regulatory
Approvals ................... The respective obligations of each party to
effect the Merger are subject to
satisfaction or waiver of certain conditions
set forth in the Merger Agreement including,
among others, (i) the approval and adoption
of the Merger Agreement by Orion
stockholders, (ii) the effectiveness of the
Registration Statement (which has occurred),
(iii) the absence of any order issued by any
Governmental Entity (as such term is used in
the Merger Agreement) or federal or state
court of competent jurisdiction which
prevents or prohibits consummation of the
Merger or any other transactions
contemplated by the Merger Agreement, (iv)
the listing of the Loral Common Stock to be
issued in the Merger on the New York Stock
Exchange, (v) the expiration or termination
of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), which
period expired on November 21, 1997, (vi)
the continued accuracy of the
representations and warranties made by each
party in the Merger Agreement, (vii) the
performance of the agreements and covenants
by each party; (viii) the receipt of a Final
Order (as such term is used in the Merger
Agreement) by the Federal Communications
Commission (the "FCC"), (ix) the receipt of
all authorizations, consents and approvals
of any Governmental Entity (as such term is
used in the Merger Agreement) necessary for
the Merger and (x) the requisite consents
from a majority of the holders of Orion's
Notes, which consents have been obtained.
See "The Merger Agreement and Principal
Stockholder Agreement -- The Merger
Agreement -- Conditions to Each Party's
Obligations to Effect the Merger."
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<PAGE>
Recommendation of Orion Board
of Directors ................. The Orion Board of Directors has approved
the terms of the Merger Agreement and
determined that the Merger Agreement and the
transactions contemplated thereunder,
including the Merger, are fair to, and in
the best interests of, Orion and its
stockholders. The Orion Board of Directors
unanimously recommends that Orion
stockholders vote "FOR" approval of the
Merger Agreement and the transactions
contemplated thereunder, including the
Merger. See "The Merger -- Background of the
Merger"; "The Merger -- Recommendation of
Orion Board of Directors; Orion's Reasons
for the Transactions"; and "The Merger --
Interest of Certain Persons in the Merger."
Orion's Reasons for the
Transactions ................. In reaching its determination, the Orion
Board of Directors considered a number of
factors, including: (i) the Orion Board of
Directors' desire to maximize stockholder
value; (ii) the failure of the market price
of Orion Common Stock to increase following
the January 1997 Transactions (as defined
below) and various factors putting downward
pressure on the market price of the Orion
stock; (iii) perceived limitations on
Orion's growth potential due to lack of
financial resources and limitations on
expanding through acquisitions due to the
market price of Orion Common Stock; (iv) the
competitive environment, including the trend
toward consolidation in the satellite
services industry and the Orion Board of
Director's belief that during the one to two
years before Orion 2 and Orion 3 would be
ready for launch and operation Orion's
ability to remain competitive would be
limited; (v) Orion's belief that the Merger
will expand its business opportunities, that
its international satellite business will
fit well with Loral's existing Skynet
business, that the Merger will enable Loral
and Orion collectively to take advantage of
more opportunities to expand than Orion
could pursue on its own, and that Orion will
have increased access to the capital markets
to provide financing for such opportunities;
(vi) Orion's belief that in comparison to
other potential transactions and strategies
the Merger represented the best opportunity
for increasing stockholder value; (vii) the
process followed by Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), Orion's
financial advisor, in seeking an acquiror
for Orion; (viii) the opinion of Morgan
Stanley (discussed below); (ix) the per
share value based on the Exchange Ratio
being considerably above the market price
for shares of Orion Common Stock preceding
the commencement of the process of seeking
an acquiror; (x) the benefit to Orion
stockholders from becoming stockholders in a
larger, more diversified entity; (xi) the
business, financial condition and recent
results of operations of Orion, and
estimates of the prospects of Orion; (xii)
the terms of the Merger Agreement being
determined through arm's length
negotiations; (xiii) the effect of the
Merger on Orion's employees; (xiv) the terms
of the Merger Agreement and Principal
Stockholder Agreement; and (xv) the Orion
Board of Directors' belief that the required
regulatory approvals could be obtained for
the Merger.
13
<PAGE>
Opinion of Orion's Financial
Advisor ...................... Orion has received the opinion of Morgan
Stanley to the effect that, as of October 6,
1997, the Exchange Ratio is fair from a
financial point of view to the holders of
Orion Common Stock (other than Loral and its
affiliates) and, assuming the conversion of
the Orion Preferred Stock into Orion Common
Stock in accordance with their terms, to the
holders of Orion Preferred Stock. The full
text of the opinion of Morgan Stanley, which
sets forth the assumptions made, procedures
followed, matters considered and limitations
on the review undertaken, is attached hereto
as Attachment C. Each Orion stockholder
should read such opinion carefully in its
entirety. The opinion of Morgan Stanley is
directed only to the matters set forth
therein and does not constitute an opinion
or recommendation as to how the stockholders
of Orion should vote at the Special Meeting
and, with respect to the holders of Orion
Preferred Stock, whether such holders should
convert their shares of Orion Preferred
Stock into Orion Common Stock. See "The
Merger -- Opinion of Orion's Financial
Advisor."
Loral's Reasons for the
Transactions. ................. Loral is undertaking the Merger in
furtherance of its long-term strategy to
expand the range of its geosynchronous
satellite service businesses
internationally. Orion's business was deemed
an attractive acquisition candidate because
of the orbital location of Orion 1 and the
proposed locations for the Orion satellites
under construction, the experience of Orion
management and personnel in European
operations, the expertise of Orion in value
added satellite services and
satellite-supported data networking, all of
which, Loral believes, will complement the
businesses of Skynet and CyberStar. Loral
also believes that the business of Orion
will benefit from the market position and
marketing expertise of Skynet, the
technological expertise of SS/L and the
financial resources of Loral.
Exchange of Certificates
in the Merger ................ Loral shall, on behalf of Merger Subsidiary,
deposit with The Bank of New York (the
"Exchange Agent"), the shares of Loral
Common Stock issuable pursuant to the Merger
Agreement plus cash in an amount sufficient
to make payment for fractional shares.
Promptly after the Effective Time, the
Exchange Agent will mail a transmittal
letter and instructions to each holder of
record of certificates which immediately
prior to the Effective Time represented
outstanding shares of Orion Capital Stock.
Upon surrender to the Exchange Agent of a
certificate which immediately prior to the
Effective Time represented outstanding
shares of Orion Capital Stock, together with
such letter of transmittal duly executed,
and any other required documents, the holder
of such certificate shall be entitled to
receive in exchange therefor the applicable
merger consideration and such certificate
shall forthwith be canceled. ORION
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER
THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH
TRANSMITTAL LETTER AND INSTRUCTIONS ARE
RECEIVED.
14
<PAGE>
Orion Stock Purchase Plan ..... Effective as of the last trading day of
Orion Common Stock prior to the Effective
Time, the then applicable payroll deduction
period, as defined in Orion's 1996 Employee
Stock Purchase Plan, shall be terminated and
the rights of all participating employees
shall be deemed to be automatically
exercised as of such last trading day of
Orion Common Stock. See "The Merger --
Conversion of Options and Warrants; Stock
Purchase Plan."
Interest of Certain Persons
in the Merger ................ Certain members of Orion's management and
Board of Directors have certain interests in
the Merger that are in addition to the
interests of stockholders of Orion
generally. These interests arise from, among
other things, certain employee benefit
plans, and indemnification and insurance
arrangements which Loral will assume or has
agreed to provide after the Merger. As of
the Record Date, directors and executive
officers of Orion owned (i) 2,363,698 shares
of Orion Common Stock and 1,454 shares of
Orion Preferred Stock (for which they will
receive the same consideration as other
Orion stockholders) and (ii) options to
acquire 901,236 shares of Orion Common
Stock. See "The Merger -- Interests of
Certain Persons in the Merger." Under the
proposed amendments to the Director Option
Plan, options issued to Orion's directors
under the Director Option Plan will vest
upon consummation of the Merger instead of
at the next annual meeting of Orion
stockholders. See "Amendments to Director
Option Plan." Certain directors and their
affiliated companies holding, in the
aggregate, approximately 32% of the voting
stock outstanding as of February 12, 1998
have entered into the Principal Stockholder
Agreement with Loral. In addition, SS/L
owned, as of February 12, 1998, 588,235
shares of Orion Common Stock, equal to
approximately 2.7% of the voting stock
outstanding as of such date, and will vote
for approval and adoption of the Merger
Agreement. See "The Merger Agreement and
Principal Stockholder Agreement -- The
Principal Stockholder Agreement."
Fees and Expenses ............. All fees and expenses incurred in connection
with the Merger, the Merger Agreement and
the transactions contemplated thereunder
shall be paid by the party incurring such
fees or expenses, whether or not the Merger
is consummated. See "The Merger -- Fees and
Expenses."
Accounting Treatment .......... The Merger will be accounted for using the
purchase method of accounting. See "The
Merger -- Accounting Treatment."
Certain U.S. Federal Income Tax
Consequences of the Merger ... The tax treatment of the Merger is uncertain
due to special considerations under Section
367 of the Internal Revenue Code, as amended
(the "Code") because of Loral's status as a
foreign corporation. Subject to such
considerations, Orion and Loral expect that
the Merger would constitute a
"reorganization" within the meaning of
Section 368(a) of the Code and that for
15
<PAGE>
U.S. federal income tax purposes no gain or
loss would be recognized by U.S.
stockholders of Orion upon the receipt of
Loral Common Stock in exchange for Orion
Common Stock or Orion Preferred Stock
pursuant to the Merger (except with respect
to the receipt of cash by a holder of Orion
Common Stock or Orion Preferred Stock in
lieu of a fractional share interest in Loral
Common Stock). However, these special
considerations because of Loral's status as
a foreign corporation may result in the
Merger not constituting a "reorganization"
within the meaning of Section 368(a) of the
Code, so that for U.S. federal income tax
purposes any gain (but not loss) realized
would be recognized by U.S. stockholders of
Orion upon the receipt of Loral Common Stock
in exchange for Orion Common Stock or Orion
Preferred Stock pursuant to the Merger. Such
gain would be in an amount equal to the
excess, if any, of the fair market value of
the Loral Common Stock received over the
Orion stockholders' adjusted tax basis in
the Orion Common Stock or Orion Preferred
Stock exchanged therefor. Orion and Loral
are seeking a private letter ruling from the
Internal Revenue Service ("IRS") regarding
Loral's status as a corporation under
Section 367 of the Code and, therefore,
whether the Merger is eligible to qualify as
a reorganization under Section 368(a) of the
Code. THERE CAN BE NO ASSURANCE THAT A
FAVORABLE IRS RULING WILL BE OBTAINED OR
THAT ORION STOCKHOLDERS WILL NOT BE REQUIRED
TO RECOGNIZE ANY GAIN REALIZED FOR U.S.
FEDERAL INCOME TAX PURPOSES AS A RESULT OF
THE MERGER. See "The Merger -- Certain U.S.
Federal Income Tax Consequences of the
Merger."
Resale of Loral Common Stock .. The Loral Common Stock to be issued pursuant
to the Merger will be freely transferable
under the Securities Act except for shares
issued to any Orion stockholder who, prior
to the Merger, may be deemed an "Affiliate"
under the Securities Act. Orion will use its
reasonable efforts to cause each Affiliate
to enter into an agreement with Loral
providing that such Affiliate will not
transfer any Loral Common Stock received in
the Merger except in compliance with the
Securities Act. See "The Merger -- Resale of
Loral Common Stock."
Listing ....................... The shares of Loral Common Stock to be
issued in connection with the Merger will be
authorized for listing on the New York Stock
Exchange ("NYSE"). See "The Merger --
Listing."
Principal Stockholder Agreement
............................... The Principal Stockholder Agreement, dated
as of October 7, 1997, as amended and
restated as of December 1, 1997, among
Orion, Loral, Merger Subsidiary and certain
principal stockholders of Orion, consisting
of certain directors of Orion and their
affiliated companies. Such principal
stockholders collectively hold approximately
32% of the Orion voting stock outstanding as
of the Record Date for the Special Meeting.
As a condition to entering into the Merger
Agreement, Loral required such principal
stockholders to enter into the Principal
16
<PAGE>
Stockholder Agreement (which was amended and
restated to make certain technical
corrections), pursuant to which such
stockholder parties (i) have agreed to vote
all of their shares of Orion Capital Stock
in favor of the Merger and the Merger
Agreement and against competing
transactions. Such stockholders also granted
Loral an irrevocable option to purchase all
(but not less than all) of their shares of
Orion Capital Stock for an exercise price
equal to the number of shares of Orion
Capital Stock to be purchased by Loral
multiplied by the Exchange Ratio. The option
will become exercisable in whole (but not in
part) upon the occurrence of the following
events or transactions: (a) the Board of
Directors of Orion or any committee thereof
shall have withdrawn or modified its
approval or recommendation of the Merger or
the Merger Agreement in any manner adverse
to Loral, or approved or recommended any
acquisition proposal, or shall have adopted
a resolution to take any of the foregoing
actions; (b) (i) the approval of the Merger
Agreement by the stockholders of Orion shall
not have been obtained by reason of the
failure to obtain the required vote at the
Special Meeting and (ii) at the time of such
negative vote there shall be pending an
acquisition proposal; (c) Orion or any of
its subsidiaries shall have entered into any
agreement with any person (other than Loral
or any of its affiliates), the Board of
Directors of such entity shall have
approved, recommended or resolved to enter
into an agreement with any person, or Orion
shall have publicly announced its intention
to take any of the foregoing actions, with
respect to the sale of 20% or more (in
voting power) of the voting securities of
Orion or of 20% or more (in fair market
value) of the assets of Orion and its
subsidiaries, on a consolidated basis,
however such transaction may be effected; or
(d) any person (other than Loral or any of
its affiliates), shall have commenced (as
such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a
registration statement under the Exchange
Act, with respect to a tender or exchange
offer for securities representing 35% or
more of the voting power of Orion; or the
acquisition, by any person or group (as
defined in Section 13(d) of the Exchange
Act), other than Loral or any of its
affiliates, of beneficial ownership of (as
defined in the Rule 13d-3 under the Exchange
Act), or the right to acquire beneficial
ownership of, securities representing 35% or
more of the voting power of Orion. Orion and
Loral are currently contemplating an
amendment to the Principal Stockholder
Agreement that would permit BAe (as defined
herein) to convert its Debentures (as
defined herein) into 3,571,429 shares of
Orion Common Stock and sell such shares
prior to the Effective Date of the Merger.
In addition, SS/L is contemplating the sale
of the 588,235 shares of Orion Common Stock
it owns prior to Effective Date of the
Merger. Any such sales would take place
following the Record Date, and the right to
direct the voting of such shares would not
be transferred. See "The Merger Agreement
and Principal Stockholder Agreement -- The
Principal Stockholder Agreement."
17
<PAGE>
Business of Orion Pending
the Merger ................... Orion has agreed that, prior to the
Effective Time or earlier termination of the
Merger Agreement, Orion will conduct its
operations in the ordinary course of
business consistent with past practice. In
addition, unless Loral agrees in writing or
except as otherwise permitted pursuant to
the Merger Agreement, Orion is restricted
from engaging in a number of actions,
including certain expenditures outside of
its business plan. See "The Merger Agreement
and Principal Stockholder Agreement -- The
Merger Agreement -- Business of Orion
Pending the Merger."
Termination ................... The Merger Agreement may be terminated, at
any time prior to the effective date, (i) by
mutual consent of Orion and Loral, (ii) by
either Orion or Loral if the other has
breached any of its obligations under the
Merger Agreement or any representation or
warranty made by such other party is
incorrect in any material respect, and such
breach or misrepresentation is not cured
within thirty (30) days after notice thereof
and such breach or misrepresentation results
in a material adverse effect; (iii) by
either Orion or Loral if any action by any
court or Governmental Entity preventing or
prohibiting consummation of the Merger has
become final and nonappealable; (iv) by
either Orion or Loral if the approval of
Orion's stockholders has not been obtained
at the Special Meeting, (v) by either Orion
or Loral if the Merger has not been
consummated by June 30, 1998, or (vi) by
either Orion or Loral if Orion's Board of
Directors or any committee thereof has
withdrawn or modified its approval of the
Merger Agreement or has approved any other
acquisition proposal. See "The Merger
Agreement and Principal Stockholder
Agreement -- The Merger Agreement --
Termination; Amendment."
Termination Fee ............... Orion has agreed to pay Loral a termination
fee of $20 million (the "Termination Fee")
in the event that Loral or Orion terminates
the Merger Agreement (i) as a result of
Orion's Board of Directors withdrawing or
modifying its approval of the Merger
Agreement or approving any other acquisition
proposal or (ii) pursuant to a failure to
receive the requisite Orion stockholder
approval of the Merger Agreement when
another acquisition proposal is pending, and
within one year after such termination Orion
consummates a business combination or the
sale of 30% or more of Orion's voting
securities or of 30% or more of the assets
of Orion and its subsidiaries, as described
in the Merger Agreement. See "The Merger
Agreement and Principal Stockholder
Agreement -- The Merger Agreement --
Termination Fee."
18
<PAGE>
AMENDMENTS TO DIRECTOR OPTION
PLAN, PUENTE AND HAUSER
OPTION AGREEMENTS
The Amendments ................ The amendments to the Puente and Hauser
Option Agreements and certain of the
amendments to the Director Option Plan would
effect the conversion provided for in the
Merger Agreement, so that in the Merger each
outstanding stock option to purchase shares
of Orion Common Stock will be converted into
an option to acquire the number of shares of
Loral Common Stock equal to the Exchange
Ratio multiplied by the number of shares of
Orion Common Stock for which such option was
exercisable. Other amendments to the
Director Option Plan provide that options
granted to Orion's directors that vest at
the next annual meeting of stockholders of
Orion instead would vest upon consummation
of the Merger, if the Merger occurs prior to
such annual meeting.
Purpose of the Amendments ..... In the Merger each outstanding stock option
to purchase shares of Orion Common Stock
will be converted into an option to acquire
Loral Common Stock based upon the Exchange
Ratio. Orion is seeking to effect the
conversion of certain options by amending
the Director Option Plan and the Puente and
Hauser Option Agreements. Orion also has
amended its other stock option plans to
effect such conversion, but amendment of
such other plans does not require
stockholder approval and accordingly is not
one of the matters to be acted upon at the
Special Meeting. With regard to the vesting
of options held by Orion's directors, Orion
believes that since its directors will have
performed nearly a full year of service
since the last annual meeting of
stockholders, and since such directors would
be resigning prior to the next annual
meeting of stockholders to satisfy a
condition of the Merger, it is appropriate
for the directors' options to vest upon
consummation of the Merger.
Recommendations of Orion Board
of Directors .................. The Orion Board of Directors has unanimously
approved the amendments to the Director
Option Plan and to the Puente and Hauser
Option Agreements and determined that these
amendments are in the best interests of
Orion and its stockholders. The Board
recommends unanimously that stockholders
vote FOR the amendments to the Director
Option Plan, FOR the amendments to the
Puente Option Agreement and FOR the
amendments to the Hauser Option Agreement.
RISK FACTORS
In considering whether to approve the Merger and the other matters set
forth in this Proxy Statement/Prospectus, Orion stockholders should consider,
in addition to the other information set forth in this Proxy
Statement/Prospectus, the matters described under "RISK FACTORS," including
the following summarized risk factors. The section captioned "RISK FACTORS"
should, however, be reviewed by Orion stockholders in its entirety.
19
<PAGE>
Tax Treatment Uncertain ....... The tax treatment of the Merger is uncertain
due to special considerations because of
Loral's status as a foreign corporation.
Exchange Ratio Adjustments .... Limitations on adjustments to the Exchange
Ratio and the possibility that the
Determination Price may be different than
the market price of the Loral Common Stock.
Offer to Purchase ............. Consummation of the Merger will require
Orion to offer to purchase bonds issued by
Orion in January 1997 at a purchase price
equal to 101% of their principal amount
(approximately $752 million if the offer to
purchase had occurred as of January 30,
1998).
Satellite Industry ............ Special technical and regulatory risks
associated with the satellite industry.
Financial Risks; Leverage ..... At September 30, 1997, Loral's outstanding
long-term debt was $231.5 million. In
addition, at September 30, 1997, Loral had
outstanding Series C Preferred Stock having
a redemption value of $747.3 million, which
will be payable at Loral's option, in cash,
common stock or a combination thereof. For
the nine months ended September 30, 1997,
Loral had a deficiency of earnings to cover
fixed charges of $13.6 million. Following
consummation of the Merger, Orion will
continue to have outstanding approximately
$710.4 million of publicly traded debt
before interest accretion of $22.1 million
and unamortized discount of $9.0 million at
September 30, 1997.
Conflicts of Interest ......... Possible conflicts of interest resulting
from, among other things, Loral's ownership
interests in Globalstar and SatMex.
Loral/Orion Integration ....... The integration of Loral and Orion could
cause the interruption of, or a disruption
in, the activities of either or both of the
companies' businesses and have a material
adverse effect on future combined
operations.
Dependence on SS/L ............ Currently, SS/L generates a significant
portion of Loral's revenue and operating
income. Loral intends to capitalize on
SS/L's capabilities, market position and
advanced technologies to identify and
develop additional space-based
communications services opportunities There
can be no assurance that current or future
satellite-based ventures entered into by
Loral will result in revenues or operating
income that will materially reduce its
dependence on SS/L.
COMPARATIVE STOCK PRICES
Orion Quotation ............... Orion Common Stock is quoted on the Nasdaq
National Market ("Nasdaq") under the trading
symbol "ONSI."
Loral Listing ................. Loral Common Stock is listed for trading on
the NYSE under the trading symbol "LOR."
20
<PAGE>
Market Price Information
Quotation ..................... The following table sets forth, for the
periods indicated, the high and low sales
prices per share of Orion Common Stock on
Nasdaq and of Loral Common Stock on the
NYSE. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS.
<TABLE>
<CAPTION>
ORION LORAL
QUARTER COMMON COMMON
ENDED STOCK STOCK
- ---------------- -------------- --------------
<S> <C> <C>
1997
- ----------------
March 31 $8 5/8 to $15 $14 1/8 to $19 1/8
June 30 $8 to $12 1/4 $13 3/8 to $17 1/8
September 30 $11 7/8 to $17 1/8 $14 1/8 to $20 5/8
December 31 $16 3/8 to $18 1/4 $19 to $24 1/4
1998
- ----------------
March 31
(through $16 3/4 to $17 1/2 $19 to $24 7/8
February 12)
</TABLE>
COMPARATIVE PER SHARE DATA
Historical and Pro Forma ...... The following table sets forth selected per
share data for both Loral and Orion.
<TABLE>
<CAPTION>
LORAL ORION
------------------------ ----------------------------
PRO PRO FORMA
HISTORICAL FORMA (1) HISTORICAL EQUIVALENT (5)
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Book value per share as of:
September 30, 1997 ................ $ 4.79(3) $ 6.18(3) $(6.25) $ 4.75
$ 4.80(4) $ 6.19(4)
December 31, 1996 (2) ............. $ 4.51(3) $(0.04)
$ 4.52(4)
Cash dividends per share ........... -- -- -- --
Income (loss) per common share from
continuing operations--nine months
ended:
September 30 1997.................. $(0.12) $(0.47) $(7.53) $(0.36)
December 31, 1996 (2) ............. $ 0.04 $(0.43) $(1.91) $(0.33)
</TABLE>
- ------------
(1) Includes the pro forma impact on book value per share of the Merger and
income (loss) per common share of Loral's acquisitions of SS/L and
Skynet, the acquisition of a 49% indirect economic interest in SatMex and
the Merger. (See "Pro Forma Financial Data").
(2) Loral was formed to effectuate the distribution of Loral Corporation's
("Old Loral") space and telecommunications businesses (the
"Distribution") to shareholders of Old Loral and holders of options to
purchase Old Loral common stock pursuant to a merger agreement dated
January 7, 1996 between Loral and Lockheed Martin Corporation ("Lockheed
Martin"). The Distribution of approximately 183.6 million shares of Loral
Common Stock was made on April 23, 1996. Old Loral's fiscal year end was
March 31. Loral adopted a December 31 year end and its first fiscal
quarter ended on June 30, 1996. Accordingly, data reflects Loral
financial data for the nine months ended September 30, 1997 (interim
period) and for the nine months ended December 31, 1996 (fiscal year).
Data for Orion, accordingly, also reflects the nine months ended December
31, 1996.
(3) Loral Common Stock.
(4) Loral Series A Preferred Stock.
(5) Represents historical amount multiplied by the assumed exchange ratio of
.76923 Loral share for one Orion share. Assuming the low end and the high
end of the exchange ratio range, respectively, book value per share would
have been $4.42 and $6.63 at September 30, 1997 and income (loss) per
common share from continuing operations would have been $(0.26) and
$(0.51) for the nine months ended September 30, 1997 and $(0.24) and
$(0.46) for the nine months ended December 31, 1996.
21
<PAGE>
RISK FACTORS
The following risk factors should be carefully considered by Orion
stockholders in deciding whether to approve and adopt the Merger Agreement.
RISKS RELATED TO THE TRANSACTIONS
TAX TREATMENT UNCERTAIN DUE TO SPECIAL CONSIDERATIONS
The tax treatment of the Merger is uncertain due to special considerations
because of Loral's status as a foreign corporation. Loral and Orion are
seeking a private letter ruling from the IRS with respect to whether Loral
will be treated as a corporation for U.S. federal income tax purposes. The
ruling request to be submitted to the IRS deals with the length of time that
Loral has directly or indirectly conducted an active business outside the
United States. The tax issues are highly technical and no comparable ruling
has ever been issued. The receipt of a favorable ruling is not a condition to
the Merger. There can be no assurance that a favorable ruling will be
received. Unless and until a favorable ruling is received, Loral intends to
treat the Merger as a taxable transaction and, accordingly, Orion
stockholders will be required to recognize any gain (and will not be entitled
to recognize any loss) realized for U.S. federal income tax purposes as a
result of the Merger. See "The Merger -- Certain U.S. Federal Income Tax
Consequences of the Merger."
LIMITATION ON ADJUSTMENTS TO EXCHANGE RATIO; DETERMINATION PRICE MAY BE
DIFFERENT THAN MARKET VALUE
The Exchange Ratio adjusts based on the Determination Price of Loral
Common Stock. If the Determination Price is less than $24.458 but greater
than $16.305 (the "Pre-established Range"), the Exchange Ratio is the
quotient obtained by dividing $17.50 by the Determination Price. As a result,
if Loral Common Stock is generally trading within the Pre-established Range
the holders of Orion Capital Stock will receive in the Merger an amount of
Loral Common Stock equal to approximately $17.50 for each share of Orion
Capital Stock.
However, if the Determination Price is at or outside of the
Pre-established Range, holders of Orion Capital Stock will receive instead a
fixed number of shares of Loral Common Stock, obtained by dividing $17.50 by
the high or low end of the Pre-established Range, as applicable. As a result,
if the Determination Price is equal to or less than $16.305, the Exchange
Ratio is determined by dividing $17.50 by $16.305, instead of by the
Determination Price, with the result that the amount of Loral Common Stock
received by holders of Orion Capital Stock in such event will likely be less
than $17.50 for each share of Orion Capital Stock.
The Determination Price will equal the average of the volume-weighted
average trading prices of Loral Common Stock for the twenty consecutive
trading days on which trading of Loral Common Stock occurs ending the tenth
trading day immediately prior to the closing date for the Merger. The
Determination Price therefor will likely be greater or less than the market
price of the Loral Common Stock at the Effective Time, so that even if the
Determination Price is within the Pre-established Range the Loral Common
Stock to be issued in the Merger may not have a market value of $17.50 per
share.
OFFER TO PURCHASE ORION'S SENIOR NOTES AND SENIOR DISCOUNT NOTES
Consummation of the Merger will constitute a "change of control" of Orion
as defined in the Indentures (the "Indentures") pursuant to which $445
million principal amount of Orion's 11 1/4% Senior Notes due 2007 (the
"Senior Notes") and $265.4 million principal amount of Orion's 12 1/2% Senior
Discount Notes due 2007 (the "Senior Discount Notes" and together with the
Senior Notes, the "Notes") were outstanding as of September 30, 1997.
Pursuant to the Indentures, within 30 business days after the Merger is
consummated, Orion will be required to make an offer to purchase the Notes at
a purchase price equal to 101% of their principal amount (approximately $752
million if the offer to purchase had occurred as of January 30, 1998), plus
accrued interest from the most recent interest payment date to the
22
<PAGE>
payment date. Because the Notes have traded in recent periods at prices above
101% of their principal amount, Orion does not currently anticipate that the
holders of a material principal amount of Notes will accept the offer to
repurchase.
The Merger Agreement does not obligate Loral to assume or guarantee the
Notes. Following the Merger, Loral will not be responsible for the Notes and
Orion, as a wholly owned subsidiary of Loral, will remain responsible for
principal and interest payments on the Notes.
RISKS RELATED TO LORAL'S BUSINESSES
An investment in Loral and its subsidiaries as listed in the chart
included below under the heading "Information About Loral" on page 34 (the
"Loral Group") carries with it risks due to special financial, technical and
regulatory factors. The risks are accentuated by the possibility of a number
of them being realized at the same time. This is a summary of such factors.
RISKS OF OPERATIONS IN THE SPACE ENVIRONMENT
Satellites operate in a distant, hostile environment. Despite costly high
reliability parts and significant on ground testing to assure reliability for
their designed lives, satellites remain vulnerable to complete or partial
failure or degradation from hazards which include space debris, solar and
other astronomical events, acts of war and component failure. Repair of
satellites in space is not practicable. In addition, a number of factors
affect the useful lives of Globalstar's, Skynet's, SatMex's and Orion's
satellites, including the quality of construction, expected gradual
environmental degradation of solar panels and the durability of component
parts. Random failure of satellite components could result in damage to or
loss of a satellite ("cold failures").
The first-generation Globalstar satellite constellation (including spares)
is designed to operate at full performance for a minimum of 7 1/2 years,
after which performance is expected to gradually decline. However, there can
be no assurance of the constellation's useful life. Globalstar anticipates
using funds from operations to develop a second generation of satellites. If
sufficient funds from operations are not available and Globalstar is unable
to obtain financing for the second-generation constellation, Globalstar will
not be able to deploy a second-generation constellation to replace
first-generation satellites at the end of their useful lives.
In November 1995, an Orion 1 component supporting nine transponders
serving the European portion of Orion 1's footprint experienced an anomaly
that resulted in a service interruption lasting approximately two hours. Full
service was restored using redundant equipment. These transponders generate a
majority of Orion's revenues. Orion believes, based on Orion's own
investigations and the manufacturer's, and based upon advice from Orion's
engineering consultant that because the redundant component is functioning in
accordance with specifications and the performance record of similar
components is strong, the anomalous behavior is unlikely to affect the
expected performance of the satellite over its useful life. There has been no
further effect on Orion's ability to service customers. However, if the
currently operating component fails, Orion 1 would experience a significant
loss of usable capacity, resulting in lost service and a corresponding
adverse effect on Orion's results of operations.
In 1994 and 1997 (prior to the acquisition by Loral), Skynet experienced
the loss of its Telstar 402 and Telstar 401 satellites, respectively,
resulting in lost service and a corresponding adverse effect on Skynet's
results of operations.
Certain of SS/L's contracts provide that a portion of the total contract
price is payable in the form of "incentive" payments earned during the life
of the satellite in orbit as its mission is performed. Although SS/L
generally receives the present value of such incentive payments in the event
of launch failure or one caused by customer error, it forfeits such revenues
if the loss is caused by system failure or an error on its part. While
insurance against loss of such payments has been available in the past, its
cost and availability are subject to substantial fluctuations. In addition,
SS/L is prohibited under agreements with certain of its customers from
insuring its orbital incentives. Certain of SS/L's contracts call for
on-orbit delivery, allocating launch risk to SS/L. It is SS/L's intention to
obtain insurance for that exposure.
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However, SS/L cannot predict whether, and there can be no assurance that,
insurance against launch failure and loss of incentive payments will continue
to be available on reasonable terms.
LAUNCH RISK AND VEHICLE ACCESS
About 15% of commercial satellite launches have historically resulted in
loss before the payload reaches its planned orbit ("hot failures"). While the
Loral Group ordinarily obtains insurance against loss due to hot failures,
such events can nevertheless disrupt and delay business schedules and cause
substantial uninsured losses above and beyond the insured cost of the lost
satellite. The Loral Group's ability to place satellites in orbit, and SS/L's
ability to perform its on-orbit delivery contracts depend on the availability
of launch vehicles and the requisite insurance. Launch slots are limited, and
the launch insurance market has been subject to considerable fluctuation.
Different launch facilities and vehicles have different success records, but
the Loral Group, for business or scheduling reasons does not always use, or
have available to it, the most successful facilities and vehicles for its
launches. The cost and availability of launch insurance varies from time to
time so there is no assurance that such insurance will shield every future
loss. Moreover, the availability of launches from the republics of the former
Soviet Union and the People's Republic of China are affected by U.S.
government policies and international agreements. Changes in governmental
policies or political leadership in the United States, Russia, Kazakhstan or
China could affect the Loral Group's ability to launch from these countries.
LEVERAGE OF LORAL GROUP
Many of the Loral Group's businesses are capital intensive, requiring high
initial investments in the expectation of future revenues requiring
relatively low marginal costs. At September 30, 1997, Loral's outstanding
long-term debt was $231.5 million. In addition, Loral had outstanding at
September 30, 1997 series C preferred stock having a redemption value of
$747.3 million, which may be payable at Loral's option in cash, common stock
of Loral or a combination thereof. For the nine months ended September 30,
1997, Loral had a deficiency of earnings to cover fixed charges of $13.6
million. Loral's Skynet and SS/L subsidiaries have recently consummated an
$850 million credit facility. SS/L will also require continuous investment to
maintain its technological position and the fixed satellite service
businesses are at the beginning of a planned expansion. Following
consummation of the Merger, Orion will continue to have outstanding,
approximately $710.4 million of publicly-traded debt before interest
accretion of $22.1 million and unamortized discount of $9.0 million at
September 30, 1997.
In December 1997, a joint venture company ("SatMex Holdings") owned by
Loral and Telefonica Autrey, S.A. de C.V. ("Telefonica Autrey) completed the
acquisition of 75% of the outstanding stock of SatMex from the Mexican
Government for $651.4 million (including installment interest). Loral and
Telefonica Autrey hold 65% and 35%, respectively, of the economic interests,
and 49% and 51% of the voting interests, respectively, in SatMex Holdings.
SatMex currently has $645 million of outstanding indebtedness related to the
acquisition and the construction and launch of a new SatMex satellite and has
an additional $125 million available under a bank credit facility for
completion of the satellite and for working capital purposes, which
indebtedness and credit facility are non-recourse to Loral. In consideration
for the assumption by SatMex of the debt incurred in connection with the
acquisition, Servicios Corporativos Satelitales S.A. de C.V., a subsidiary of
SatMex Holdings, issued to the Mexican Government a note having an initial
principal amount of $125.1 million, with interest payable at maturity
accreting at a rate of 6.03% per annum and maturing on December 30, 2004 (the
"Government Obligation"). In order to guarantee payment of the Government
Obligation upon maturity, Loral SatMex Ltd. ("LoralSat"), an indirect
subsidiary of Loral, and Ediciones Enigma, S.A. de C.V. ("Ediciones"), a
subsidiary of Telefonica Autrey, have deposited into a collateral trust their
shares in SatMex Holdings and have agreed that they will, at all times during
the three-year period ended December 29, 2000, maintain collateral in favor
of the Mexican Government having a value equal to the Government Obligation,
including all interest accrued thereon, and thereafter and until the maturity
of the Government Obligation, a value equal to 1.2 times the Government
Obligation, including all interest accrued thereon. In order to induce
certain parties to enter into financing arrangements with SatMex, including a
$450,000,000 senior secured credit facility and the placement of $320,000,000
aggregate principal amount
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of high yield bonds, Loral entered into a letter agreement dated December 29,
1997 whereby it and Telefonica Autrey agreed to ensure compliance by LoralSat
and Ediciones of their obligations to maintain certain collateral in favor of
the Mexican Government, for so long as (A) there remain any undrawn
commitments or amounts outstanding under SatMex's senior secured credit
facility (or certain secured notes to be issued to refinance a portion of the
senior secured credit facility) or (B) there remain outstanding any of the
high yield bonds. Each of Loral and Telefonica Autrey have agreed to share
this obligation in proportion to their respective economic interests in
SatMex Holdings. Loral accounts for its investment in SatMex Holdings using
the equity method.
Globalstar, of which Loral currently owns directly and indirectly, on a
fully diluted basis, approximately 39%, is still in the development stage. At
September 30, 1997, Globalstar had outstanding long-term indebtedness of
$1,266.7 million. In addition, on October 29, 1997, Globalstar issued $325
million of 10 3/4% Senior notes due 2004. The foregoing indebtedness is
non-recourse to Loral.
The Loral Group is therefore subject to substantial financial risks in the
face of possible delays or reductions in revenue realization, unforeseen
capital requirements or unanticipated expenses attributable to the factors
described in this document. Such risks could result not only in adverse
financial results due to ongoing debt service charges, but also in the
necessity for additional financing which could result in increased debt and
debt service costs, potential dilution of equity interests resulting from
issuances of debt or equity, rights to distributions senior to those of the
holders of Loral Common Stock, and covenants restricting distributions to
holders of Loral Common Stock.
OBSOLESCENCE DUE TO RAPID TECHNOLOGICAL CHANGE
In common with all high technology enterprises, the Loral Group's
businesses are subject to obsolescence due to new technological developments.
The rapid pace of technological change exposes the Loral Group to risk of
loss due to the deployment of superior technologies by competitors. The Loral
Group is also dependent upon technologies developed by third parties to
implement key aspects of its strategy to integrate its satellite systems with
terrestrial networks. SS/L, SkyNet, SatMex, Orion and Globalstar, in
particular, are susceptible to such risks. As land-based telecommunications
services expand, demand for certain types of satellite-based services may be
reduced. New technology used by competitors could render Skynet, Globalstar,
SatMex or Orion less competitive by satisfying consumer demand in alternative
ways or through the use of incompatible telecommunications standards. In
addition, SS/L's success depends on its ability to introduce innovative new
products and services on a cost-effective and timely basis.
THE GLOBALSTAR SYSTEM
Loral currently owns directly and indirectly, on a fully diluted basis,
approximately 39% of Globalstar. The Globalstar System will consist of 56
satellites (including 8 in-orbit spares) in low earth orbit together with
ground facilities in numerous remote and sometimes primitive regions. Its
operating facilities will be in more than 100 countries, many of which are
based on emerging economies, eventually connecting hundreds of thousands of
mobile and fixed telephone handsets. While Loral believes that each component
of the Globalstar System, and the Globalstar System as a whole, is capable of
performing as designed, no such complex, dispersed space/earth communications
network has ever been operated commercially. Until the Globalstar System has
operated as a whole in its actual space/earth environment, there can be no
assurance that losses due to delays, failures and unforeseen additional costs
will not occur. Globalstar's financial objectives are, in part, based on
estimates as to the potential market for Globalstar System services and the
price that users will be willing and able to pay, which cannot be practically
validated until commercial operations have begun. There can be no assurance
that such economic assumptions are justified.
Globalstar is not scheduled to begin commercial operations until the first
quarter of 1999. Successful commencement of operations will require
successful implementation of each of the elements of the Globalstar System --
space and ground segments, digital communications technology, user terminal
supply, service provider arrangements and licensing. Globalstar launched 4
satellites on February 14, 1998
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and expects to launch an additional 40 satellites during 1998 and 12
satellites in early 1999. The initial launch was delayed from November 1997
to February 1998 to allow for further testing and rehearsals of the tracking,
telemetry and control (TT&C) ground equipment that monitors the launch and
deployment of the Globalstar satellites. The postponement was adopted in
order to assure an adequate period of time to complete testing of
Globalstar's TT&C function prior to the initial launch and was not related to
any segment performance issue. There can be no assurance that additional
schedule delays will not occur.
Loral's equity in net loss attributable to its interest in Globalstar for
the nine months ended September 30, 1997 was $24.3 million as compared to
$18.1 million for the nine months ended December 31, 1996. Globalstar is
expending significant funds for the construction, testing and deployment of
the Globalstar System and such losses are expected to continue through
commencement of revenue generating service operations.
COMPETITION
Each of the Loral Group's businesses is subject to intense competition
from entities, including several of the world's largest corporations, as well
as governments and quasi-governmental organizations, which are larger and
which may bring greater financial and operating resources to bear in
competing as to marketing, regulation and technology. The Loral Group
competes for customers and for local regulatory approval in jurisdictions in
which both the Loral Group and a competing party may wish to operate. In
addition, the Loral Group competes for allocation of scarce frequency
assignments and geosynchronous orbital slots. Competition comes not only from
entities carrying on the same activities as the Loral Group, but from others
using alternative technologies such as terrestrial telecommunications and
cable television, which themselves are constantly pursuing advanced
technologies in order to enhance their competitive positions. In addition, as
the Loral Group expands into international markets, it will have to compete
with international operators including Intelsat and PanAmSat. To the extent
that these entities offer products and services which are more sophisticated,
efficient or reliable than those of the Loral Group, there could be a
material adverse effect on the financial condition or results of operations
of the Loral Group.
COMPETITIVE BIDDING
SS/L generally obtains its contracts through competitive bidding. There
can be no assurance that SS/L will continue to be successful in having its
bids accepted or, if accepted, that awarded contracts will result in
profitability for SS/L. SS/L has in the past submitted bids which would
result in minimal or no profitability due to a high level of non-recurring
engineering costs. Such contracts are generally bid with the expectation of
more profitable follow-on contracts as to which there is generally no advance
assurance. To the extent that actual costs exceed the projected costs on
which bids or contract prices were based, SS/L's profitability could be
adversely affected.
REGULATION
The Loral Group's activities, particularly the Globalstar System, Skynet
and Orion, are subject to licensing and regulation by authorities in more
than 100 jurisdictions, including the United States, the International
Telecommunications Union ("ITU") and the Commission of the European Union.
Regulated activity includes the occupation of orbital positions ("orbital
slots"), the pricing and quality of services, the use of frequency bands,
competitive behavior, the export of space-related products and services
(which frequently require licenses from the Department of State or the
Department of Commerce), and other matters essential to conduct of the
business. The regulatory authorities, depending on the location, often have
broad discretion over such activities, including frequently the power to
modify, withdraw or impose charges or conditions upon, or delay the grant of,
the rights required for the conduct of the business. In particular, in
determining whether to grant the Loral Group authorization, the FCC must
evaluate whether certain FCC standards and financial qualification
requirements are met. Many of the licenses the Loral Group holds or has
applied for have been contested by third parties, including competitors,
which increase the risk of regulatory decisions adverse to the Loral Group.
In particular, two of Loral's Ka-band orbital slots for CyberStar are in
positions that are subject to prior claims of parties from other countries.
While regulation is an expected incident of international telecommunications
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business, and the Loral Group expects to obtain the rights and licenses which
it requires under satisfactory conditions, the broad reach of the Globalstar
System, the expansion of Skynet's operations beyond the domestic U.S. market,
the expansion of SatMex's Latin American presence, the proposed launch and
operation of Orion 2 and Orion 3 and the development of other satellite
services businesses, by becoming subject to such a large number of diverse
regulatory regimes and political systems, entail unusual risks of unforeseen
costs, delays and other burdens on planned performance. In addition, as part
of the regulatory process for orbital slot allocation of its satellites, the
Loral Group is required to engage in frequency coordination with other
satellite operators. Although the Loral Group has in the past been able to
coordinate its existing satellites, there can be no assurance that
satisfactory coordination will be achieved in the future for any of the Loral
Group's satellites.
Orion has begun construction of Orion 2 and Orion 3 before completion of
the required consultation with Intelsat and Eutelsat, receipt of final
authority from the FCC (in the case of Orion 2) and completion of the ITU
coordination process. Failure to obtain one or more necessary approvals on
time would have an adverse effect on Orion's business or results of
operations.
POTENTIAL CONFLICTS OF INTEREST; LACK OF FULL CONTROL
Loral has financed the development and acquisition of certain of its
assets which it does not own completely through complex financial and
governance arrangements. Loral currently owns directly and indirectly, on a
fully diluted basis, approximately 39% of Globalstar and approximately 49% of
SatMex.
Loral is the managing general partner of Globalstar, but its governance
rights are limited by rights of other partners and fiduciary duties that
could result in Globalstar actions that are not in Loral's own best
interests. In accordance with Mexican law, voting control of SatMex must be
held by Mexican nationals. While Loral's investment will be protected by
contractual rights and it is anticipated that SatMex will be managed in close
coordination with the activities of Skynet, there can be no assurance that
SatMex will be managed as it would be if it were a controlled subsidiary of
Loral.
Conflicts of interest may arise as a result of such arrangements, and
because some of the Loral Group's businesses may (i) compete with one another
and (ii) are or may become customers of SS/L.
Both Skynet and Orion own or are building satellites whose footprints
overlap with those of SatMex's present and proposed satellites and will
therefore compete directly with SatMex for customers in some of its markets.
Although Skynet and Orion will adopt a marketing policy which will provide
for cross-selling of capacity with SatMex and a process for allocating
opportunities between the companies, situations may arise where SatMex and
Loral will have a conflict. This conflict will become particularly acute if
there is an oversupply of capacity in their markets.
Partners and affiliates of Globalstar, including companies affiliated with
Loral, will be among Globalstar's service provider customers and may
therefore have conflicts with Globalstar and/or Loral as to service provider
agreements.
RISKS OF CONDUCTING INTERNATIONAL BUSINESS
Operations in numerous countries outside the United States carry
substantial managerial, operational, legal and political uncertainties apart
from the technical risks of initiating a previously untried
telecommunications system. Such operations are subject to changes in
government regulations and telecommunications standards, tariffs or taxes and
other trade barriers. In addition, the Loral Group's agreements relating to
local operations may be enforceable only in foreign jurisdictions so that it
may be difficult for the Loral Group to enforce its rights. Also, limited
availability of U.S. currency in local markets may prevent a service provider
from making payments in U.S. dollars and exchange rate fluctuations may
adversely affect Globalstar's, SatMex's and Orion's revenues. Loral does not
expect the Asian currency crisis to have any material impact on Loral's
businesses.
INTEGRATION OF THE BUSINESSES OF LORAL AND ORION
Loral and Orion have entered into the Merger Agreement with the
expectation that the Merger will result in certain benefits. Achieving such
benefits will depend in part upon the efficient integration of the
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businesses of Loral and Orion and will require substantial attention from
management. The diversion of management attention and any difficulties
encountered in the transition process could have an adverse effect on the
Loral Group. In addition, the process of combining Loral and Orion could
cause the interruption of, or a disruption in, the activities of either or
both of the companies' businesses, which could have a material adverse effect
on their combined operations.
RELIANCE ON KEY PERSONNEL
The success of the Loral Group will be partially dependent upon the
ability of the Loral Group to attract and retain highly qualified personnel.
Except for Mr. Bernard L. Schwartz, Loral's Chairman and Chief Executive
Officer, none of the officers of the Loral Group has an employment contract
with the Loral Group nor does Loral expect to maintain "key man" life
insurance. The loss of any of these individuals and the subsequent effect on
business relationships could have an adverse effect on the business or
results of operations of the Loral Group.
DEPENDENCE ON SS/L
Currently, SS/L generates a significant portion of Loral's revenue and
operating income. Loral intends to capitalize on SS/L's capabilities, market
position and advanced technologies to identify and develop additional
space-based communications services opportunities. There can be no assurance
that current or future satellite-based ventures entered into by Loral will
result in revenues or operating income that will materially reduce its
dependence on SS/L.
SS/L has historically derived a large portion of its total revenues from a
limited number of customers, and its revenues and operating results may be
adversely affected in the event completed or canceled contracts are not
promptly replaced. For the nine months ended December 31, 1996, sales to two
customers represented 43% of SS/L's revenues.
The financial results of long-term fixed-price contracts are recognized
using the cost-to-cost percentage of completion method. Loral's Statement of
Operations reflects revisions in revenue and profit estimates in the period
in which the conditions that require the revision become known and can be
estimated. Adjustments for profits and losses may therefore have a material
effect on results for the period in question. The risks inherent in
long-term, fixed-price contracts include the forecasting of costs and
schedules, contract revenues related to contract performance (including
revenues from orbital payments) and the potential for component obsolescence
in connection with long-term procurements.
In 1997, two in-orbit satellites built by SS/L have experienced some solar
array circuit failures. One of the customers has asserted that, in light of
the failures and uncertainty as to failure, it has not accepted the
satellite. Loral believes that the customer was contractually required to
accept the satellite at completion of in-orbit testing and that risk of loss
has passed to the customer. In addition, due to a delay caused by the
replacement on a satellite under construction of solar arrays similar to
those that have experienced failures, another customer has requested that
SS/L structure an arrangement whereby the satellite would be sold to another
customer. Management believes that these matters will not have a material
adverse effect on the business or results of operations of the Loral Group.
In January 1998, SS/L announced the elimination of up to 300 jobs, or 9%
of its work force, as a result of its suspension of work on three satellites
for two Asian programs. The satellites in question were being built for Asia
Pacific Broadcasting and Communications Network PCL ("ABCN") of Bangkok,
Thailand and P.T. Pasifik Satelit Nusantara of Jakarta, Indonesia. SS/L's
backlog is approximately $1.8 billion after the de-booking of these projects.
SS/L expects that if financial arrangements are not concluded in the near
future that would permit these programs to be restarted, the satellites in
question will be redeployed to other customers.
OPERATING LOSSES
For the nine months ended September 30, 1997, Loral's net loss applicable
to common stockholders was $29.2 million. The loss is primarily due to
development costs related to new satellite-based services, allocated
Globalstar losses, and preferred dividends.
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THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Orion Network Systems, Inc. in connection with the solicitation of proxies
for use at the Special Meeting of Stockholders to be held on Friday, March
20, 1998 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400,
Rockville, Maryland.
At the Special Meeting, Orion stockholders will be asked to consider and
vote upon the following proposals:
(1) Approval and adoption of the Merger Agreement and the transactions
contemplated thereunder;
(2) Approval of amendments to Orion's Director Option Plan and certain
options granted thereunder to provide for early vesting of certain options
and conversion of options granted under the plan in connection with the
Merger;
(3) Approval of amendments to the Puente Option Agreement and the options
granted thereunder to provide for conversion of such options in connection
with the Merger; and
(4) Approval of amendments to the Hauser Option Agreement and the options
granted thereunder to provide for conversion of such options in connection
with the Merger.
(5) To transact such other business as may properly come before the
Special Meeting, or any adjournments or postponements thereof.
Except for procedural matters incident to the conduct of the Special
Meeting, Orion does not know of any matters other than those described in the
Notice of Special Meeting that are to come before the Special Meeting. If any
other matter or matters are properly presented for action at the Special
Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance
with their best judgment, unless authorization is withheld.
VOTING RIGHTS AND RELATED MATTERS
The securities which can be voted at the Special Meeting consist of shares
of Orion Common Stock and shares of Orion Series A 6% Cumulative Redeemable
Preferred Stock ("Orion Series A Preferred Stock"), Orion Series B 6%
Cumulative Redeemable Preferred Stock ("Orion Series B Preferred Stock" and
together with the Orion Series A Preferred Stock, the "Orion Senior Preferred
Stock") and Orion Series C 8% Cumulative Redeemable Preferred Stock ("Orion
Series C Preferred Stock"). Each share of Orion Common Stock eligible to vote
entitles its holder to one vote on all matters, each share of Orion Series A
Preferred Stock eligible to vote entitles its holder to 117 votes on all
matters (the 117 votes per share is the number of votes of the shares of
Orion Common Stock into which Orion Series A Preferred Stock is convertible,
determined by dividing the liquidation preference of Orion Series A Preferred
Stock ($1,000 per share) by a conversion price of $8.50 per share of Orion
Common Stock, rounded down to the nearest whole share), each share of Orion
Series B Preferred Stock eligible to vote entitles its holder to 98 votes on
all matters (the 98 votes per share is determined by dividing the liquidation
preference of Orion Series B Preferred Stock ($1,000 per share) by a
conversion price of $10.20 per share of Orion Common Stock, rounded down to
the nearest whole share) and each share of Orion Series C Preferred Stock
eligible to vote entitles its holder to 57 votes on all matters (the 57 votes
per share is determined by dividing the liquidation preference of Orion
Series C Preferred Stock ($1,000 per share) by a conversion price of $17.50
per share of Orion Common Stock, rounded down to the nearest whole share).
The close of business on February 5, 1998 has been fixed by the Board of
Directors as the Record Date for determination of stockholders entitled to
notice of, and to vote at, the Special Meeting. On the Record Date,
16,674,841 shares of Orion Common Stock were outstanding and eligible to be
voted, 6,933 shares of Orion Series A Preferred Stock were outstanding and
eligible to be voted (an aggregate of 815,647 votes), 2,059 shares of Orion
Series B Preferred Stock were outstanding and eligible to be voted (an
aggregate of 201,863 votes) and 66,680 shares of Orion Series C Preferred
Stock were outstanding and eligible to be voted (an aggregate of 3,810,286
votes) at the Special Meeting.
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The holders of a majority of the votes of the shares of Orion Capital
Stock issued and outstanding and entitled to vote, present in person or
represented by proxy, treated as a single class, will be required to
constitute a quorum at the Special Meeting. Under the Delaware General
Corporation Law, as amended (the "DGCL"), abstentions and broker non-votes
are counted for purposes of determining a quorum.
VOTE REQUIRED
Under Orion's Amended and Restated By-laws and applicable law, the
approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of Orion Common Stock
and Orion Preferred Stock, entitled to vote at the Special Meeting, voting
together as a single class, with each share of Orion Common Stock entitled to
one vote per share, and each share of Orion Preferred Stock (including
fractional shares) entitled to one vote for each whole share of Orion Common
Stock that would be issuable upon conversion of such shares of Orion
Preferred Stock, as described above under "Voting Rights and Related
Matters". The approval of the amendments to the Director Option Plan and the
Puente and Hauser Option Agreements require the affirmative vote of the
holders of a majority of the shares of Orion Common Stock and Orion Preferred
Stock present in person or represented by proxy and entitled to vote at the
Special Meeting, voting together as a single class, with each share of Orion
Common Stock entitled to one vote per share, and each share of Orion
Preferred Stock (including fractional shares) entitled to one vote for each
whole share of Orion Common Stock that would be issuable upon conversion of
such shares of Orion Preferred Stock, as described above under "Voting Rights
and Related Matters." Certain members of the Orion Board of Directors and
their affiliated companies holding, in the aggregate, approximately 32% of
the voting stock outstanding as of February 12, 1998, have agreed pursuant to
the Principal Stockholder Agreement to vote for approval and adoption of the
Merger Agreement.
Under the DGCL, abstentions, but not broker non-votes, are counted as
shares entitled to vote for purposes of determining whether a proposal has
been approved by the necessary number of votes. Abstentions on a proposal
will have the effect of a vote against such a proposal.
On the Record Date, directors and executive officers of Orion, together
with their affiliates as a group, beneficially owned an aggregate of
7,020,140 shares of Orion Common Stock (assuming conversion of their shares
of Orion Preferred Stock) approximately 33% of the issued and outstanding
Orion voting stock. All directors and executive officers of Orion are
expected to vote, or cause to be voted (although directors and officers who
are not parties to the Principal Stockholder Agreement are not contractually
obligated to so vote), all shares over which they exercise voting control FOR
the approval of proposals described in this Proxy Statement/Prospectus.
NO DISSENTERS' RIGHTS
Orion is incorporated under the laws of the State of Delaware, and,
accordingly is governed by the provisions of the DGCL. Under Section
262(b)(1) of the DGCL, Orion stockholders are not entitled to appraisal
rights in connection with the Merger because Orion Common Stock is quoted on
the Nasdaq National Market and Orion stockholders will receive as
consideration in the Merger only (i) shares of Loral Common Stock, which
shares will be listed on the New York Stock Exchange upon the closing of the
Merger, and (ii) cash in lieu of fractional shares.
PROXIES
A proxy may be revoked by any Orion stockholder who attends the Special
Meeting and gives notice of his or her intention to vote in person without
compliance with any other formalities. In addition, any stockholder may
revoke a proxy at any time before it is voted by executing and delivering a
subsequent proxy or by delivering a written notice to the Secretary of Orion
stating that the proxy is revoked. At the Special Meeting, stockholders'
votes cast, either in person or by proxy, will be tabulated by persons
appointed by the Board of Directors to act as inspectors of election.
The cost of soliciting proxies in the form enclosed herewith will be borne
entirely by Orion. In addition to the solicitation of proxies by mail,
proxies may be solicited by officers and directors and
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regular employees of Orion, without additional remuneration, by personal
interviews, telephone, telegraph or otherwise. Orion may also utilize the
services of its transfer agent, American Stock Transfer and Trust Company, to
provide broker search and proxy distribution services at an estimated cost of
$2,000. Copies of solicitation material may be furnished to brokers,
custodians, nominees and other fiduciaries for forwarding to beneficial
owners of shares of Orion Common Stock, and normal handling charges may be
paid for such forwarding service. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED
FOR EACH OF THE PROPOSALS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND
FOR APPROVAL OF THE ADJOURNMENTS OR POSTPONEMENTS OF ORION'S SPECIAL MEETING.
THE MATTERS TO BE CONSIDERED AT THE ORION SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF ORION. ACCORDINGLY, STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
INFORMATION ABOUT ORION
Orion is a rapidly growing provider of satellite-based communications
services, focused primarily on (i) private communications network services,
(ii) Internet services and (iii) video distribution and other satellite
transmission services. Orion provides multinational corporations with private
communications networks designed to carry high speed data, fax, video
teleconferencing, voice and other specialized services. The Orion satellite's
ubiquitous coverage reaches all locations within its footprint, enabling the
delivery of high speed data to customers in emerging markets and remote
locations which lack the necessary infrastructure to support these services.
Orion also offers high speed Internet access and transmission services to
companies outside the United States seeking to avoid "last mile" terrestrial
connections and to bypass congested regional Internet network routes. In
addition, Orion provides satellite capacity for video distribution, satellite
news gathering and other satellite services primarily to broadcasters, news
organizations and telecommunications service providers. Orion provides its
services directly to customer premises using VSATs.
Orion commenced operations of Orion 1, a high power Ku-band satellite with
34 Ku-band transponders, in January 1995. As of September 30, 1997, Orion
serviced 282 customers through 635 sites in service. As of September 30,
1997, Orion's contract backlog was $254.1 million (including $89 million for
one pre-launch customer on Orion 3). Orion presently anticipates that
approximately $62 million of its $254.1 million in backlog (as of September
30, 1997) will be realized in 1998. The weighted average realization of the
backlog was approximately 22 months, and the entire backlog should be filled
by 2008. Substantially all of Orion's current contracts with customers are
denominated in U.S. dollars. For the nine months ended September 30, 1997,
Orion generated revenues of $54.5 million and had a loss from operations, net
loss, net cash used in operating activities and EBITDA (as defined below) of
$30.5 million, $78.2 million, $17.8 million and $5.3 million, respectively.
For the year ended December 31, 1996, Orion generated revenues of $41.8
million and had a loss from operations, net loss, net cash used in operating
activities and EBITDA of $36.4 million, $27.2 million, $21.8 million and $0.6
million, respectively. "EBITDA" represents earnings before minority
interests, interest income, interest expense, other expense (income), income
taxes, depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent cash
flows from operating, investing or financing activities as determined in
accordance with generally accepted accounting principles ("GAAP"). EBITDA is
not a measurement under GAAP and may not be comparable to other similarly
titled measures of other companies.
Orion believes that demand for satellite-based communications services
will continue to grow due to (i) the expansion of businesses beyond the
limits of wide bandwidth terrestrial infrastructure, (ii) accelerating demand
for high speed data services, (iii) growing demand for Internet and intranet
services, especially outside the United States, (iv) increased size and scope
of television programming distribution, (v) worldwide deregulation of
telecommunications markets and (vi) continuing technological
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advancements. Satellites are able to provide reliable, high bandwidth
services anywhere in their coverage areas, and Orion believes that it is well
positioned to satisfy market demand for these services.
Orion 1 provides coverage of 34 European countries, much of the United
States and parts of Canada, Mexico and North Africa. Through arrangements
with local ground operators, Orion currently has the ability to deliver
network services to and among points in 27 European countries, portions of
the United States and a limited number of Latin American countries.
In July 1996, Orion signed a contract with Matra Marconi Space UK Limited
("Matra Marconi Space"), which was amended and restated in January 1997, for
the construction and launch of Orion 2, its second satellite, and in February
1997 commenced construction of that satellite. Orion 2, which will be a high
power satellite with 30 Ku-band transponders, will expand Orion's European
coverage and extend coverage to portions of the Commonwealth of Independent
States, Latin America and the Middle East. Orion 2 will increase
significantly Orion's pan-European capacity, currently the area of strongest
demand for Orion's services. Orion recently commenced selling services in
certain areas of Latin America. Orion 2 is scheduled to be launched in the
second quarter of 1999.
In January 1997, Orion entered into a satellite procurement contract with
Hughes Space and Communications International, Inc. for the construction and
launch of Orion 3, construction of which was commenced in December 1996.
Orion 3, which will be a high power satellite with 33 Ku-band transponders
and 10 C-Band transponders, will cover broad areas of the Asia Pacific
region, including China, Japan, Korea, India, Southeast Asia, Australia, New
Zealand, Eastern Russia and Hawaii. Orion 3's footprint will provide Orion
with the ability to distribute programming from the United States via Hawaii
to most of the Asia Pacific region. Orion has already taken a number of steps
to establish an early market presence in Asia, and has entered into a $89
million lease for eight of Orion 3's transponders. Orion 3 is scheduled to be
launched in the fourth quarter of 1998.
In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will
cover over 85% of the world's population.
Orion's principal executive offices are located at 2440 Research
Boulevard, Rockville, Maryland 20850, and its telephone number is (301)
258-8101.
RECENT DEVELOPMENTS
Pre-Construction Lease on Orion 3
Orion has entered into a contract with DACOM Corp., a Korean
communications company ("DACOM"), under which DACOM will, subject to certain
conditions, lease eight dedicated transponders on Orion 3 for 13 years, in
return for approximately $89 million, payable over a period from December
1996 through seven months following the lease commencement date for the
transponders (which is scheduled to occur by January 1999). Payments are
subject to refund if Orion 3 fails to commence commercial operation by June
30, 1999.
Acquisition of Teleport Europe GmbH
On March 26, 1997, Orion acquired Teleport Europe GmbH (whose name was
subsequently changed to Orion Network Systems-Europe GmbH) ("Orion Europe"),
a German communications company specializing in private satellite networks
for voice and data services. Orion purchased the shares of Orion Europe held
by two German companies, Vebacom GmbH and RWE Telliance AG, now known as
o.tel.o., for $8.9 million. Orion Europe's 1996 revenues were approximately
$14 million. The acquisition expanded Orion's customer base by approximately
55 customers, including some of Germany's leading multinational corporations,
and added over 200 network service sites (exclusive of broadcast service
sites). In addition, Orion acquired Orion Europe's licenses and operating
agreements to provide satellite network services in 40 countries, including
17 countries in which Orion previously did not provide service.
January 1997 Transactions
In January 1997, Orion consummated a series of transactions that are
described briefly below, including the Exchange, the January Merger, the Bond
Offering and the Debentures Offering (each as
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defined below), the acquisition of the remaining minority interest in a
subsidiary and certain uses of proceeds of the offerings (collectively, the
"January 1997 Transactions"), all as described more fully in Note 9 to the
Consolidated Financial Statements incorporated herein by reference from
Orion's Annual Report on Form 10-K for the year ended December 31, 1996 and
amendment thereto on Form 10-K/A dated June 25, 1997 (together, the "1996
Form 10-K").
The Exchange. On January 31, 1997, Orion acquired all of the limited
partnership interests which it did not already own in Orion's operating
subsidiary, International Private Satellite Partners, L.P. ("Orion
Atlantic"), that owns the Orion 1 satellite. Specifically, pursuant to a
Section 351 Exchange Agreement and Plan of Conversion (the "Exchange
Agreement"), Orion acquired the Orion Atlantic limited partnership interests
and other rights relating thereto held by British Aerospace Communications,
Inc., COM DEV Satellite Communications Limited, Kingston, Communications
International Limited, Lockheed Martin Commercial Launch Services, Inc., MCN
Sat US, Inc., an affiliate of Matra Hachette, and Trans-Atlantic Satellite,
Inc., an affiliate of Nissho Iwai Corp. (collectively, the "Exchanging
Partners"). The Exchanging Partners exchanged (the "Exchange") their Orion
Atlantic limited partnership interests for 123,172 shares of Orion Series C
Preferred Stock. In addition, Orion acquired certain rights held by certain
of the Exchanging Partners to receive repayment of various advances
(aggregating approximately $41.6 million at January 31, 1997). The 123,172
shares of Orion Series C Preferred Stock issued in the Exchange are
convertible into approximately 7 million shares of Orion's Common Stock. As a
result of the Exchange, certain of the Exchanging Partners became principal
stockholders of Orion.
The January Merger. Pursuant to the Exchange Agreement, Orion Oldco
Services, Inc., formerly known as Orion Network Systems, Inc. ("Old Orion"),
formed Orion as a new Delaware corporation with a certificate of
incorporation, bylaws and capital structure substantially identical in all
material respects with those of Old Orion. Also pursuant to the Exchange
Agreement, Orion formed a wholly owned subsidiary, Orion Merger Company, Inc.
("Orion Merger Subsidiary"). Pursuant to an Agreement and Plan of Merger,
Orion Merger Subsidiary was merged with and into Old Orion, and Old Orion
became a wholly owned subsidiary of Orion (the "January Merger"). On January
31, 1997, the effective time of the January Merger, all of the stockholders
of Old Orion received stock in Orion with substantially identical rights to
the Old Orion stock they held prior to the effective time of the January
Merger. Following the January Merger, Orion changed its name from Orion Newco
Services, Inc. to Orion Network Systems, Inc. and Orion's wholly owned
subsidiary, Orion Network Systems, Inc., changed its name to Orion Oldco
Services, Inc.
Bond Offering and Debentures Offering. On January 31, 1997, Orion
completed the $710 million Bond Offering composed of 445,000 Senior Note
Units, each of which consists of one 11 1/4% Senior Note with a principal
amount of $1,000 due 2007 and one Senior Note Warrant to purchase 0.8463
shares of Orion Common Stock, and 484,000 Senior Discount Note Units, each of
which consists of one 12 1/2% Senior Discount Note with a principal amount of
$1,000 due 2007 and one Warrant to purchase 0.6628 shares of Orion Common
Stock. Interest on the Senior Notes is payable semi-annually in cash on
January 15 and July 15 of each year, commencing July 15, 1997. The Senior
Discount Notes do not pay cash interest prior to January 15, 2002.
Thereafter, cash interest will be payable semi-annually on January 15 and
July 15 of each year, commencing July 15, 2002.
On January 31, 1997, Orion also completed the sale of $60 million of its
convertible junior subordinated debentures (the "Debentures") to two
investors, British Aerospace Holdings, Inc. ("British Aerospace" or "BAe")
and Matra Marconi Space. British Aerospace purchased $50 million of the
Debentures and Matra Marconi Space purchased $10 million of the Debentures
(collectively, the "Debentures Offering").
Orion used a portion of the net proceeds of the Bond Offering and
Debentures Offering primarily to repay the Orion 1 credit facility and to
pre-fund the first three years of interest payments on the Senior Notes.
Orion plans to use the balance of such net proceeds primarily to build and
launch Orion 2 and Orion 3.
INFORMATION ABOUT LORAL
Loral, together with its subsidiaries, is one of the world's leading
satellite communications companies. Loral's Skynet subsidiary is a leading
provider of satellite communications services in the United States
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that is expanding its business internationally. Loral is the principal equity
owner and manager of Globalstar, a system of low-earth orbit satellites that
is scheduled to begin digital wireless telephone service to handheld mobile
and fixed user terminals in more than 100 countries in 1999. Loral is also
one of the world's leading manufacturers of communications and direct
broadcast satellites through its SS/L subsidiary. Loral's board and executive
officers will not change as a result of the Merger.
The following chart sets forth in simplified form on a fully diluted basis
the direct and indirect ownership interests of the Loral Group after
consummation of the Merger.
LORAL SPACE &
COMMUNICATIONS LTD.
|
|
|
--------------------------------------------------------------------
| | | | | |
100% | 100% | 91.3% | | 49% | 39% | 100%
| | | | | |
SPACE SYSTEMS/ LORAL SKYNET CYBERSTAR SATMEX GLOBALSTAR ORION
LORAL
LORAL SKYNET
Loral's Skynet division, acquired in March 1997 from AT&T, is a leading
U.S. satellite communications service provider which owns and operates the
Telstar satellite network. Loral Skynet leases transponder capacity to its
customers for distribution of network television programs to local affiliate
stations, collection of live video feeds for the reporting of news and
sporting events and for distance learning and educational and other business
television services. Loral Skynet currently has two high-powered satellites
operating in-orbit: Telstar 4, with 24 C-band and 24 Ku-band transponders,
and the 52-transponder Telstar 5, which was built by SS/L and launched in May
1997. Loral Skynet plans to launch a number of additional high-powered
C/Ku-band satellites. The addition of these satellites is intended to
substantially increase Loral Skynet's capacity within the United States, and
will extend its coverage area to Canada and Mexico. Telstar 6 is scheduled
for launch in October 1998.
GLOBALSTAR
Loral manages and currently owns, directly and indirectly, on a fully
diluted basis, approximately 39% of Globalstar. Globalstar has begun to
launch and is preparing to operate a worldwide, LEO satellite-based digital
telecommunications system (the "Globalstar(Trademark) System") that is
scheduled to commence service in early 1999. The Globalstar System is
designed to enable local service providers to offer low-cost, high quality
wireless voice telephony and data services in virtually every populated area
of the world. To date, Globalstar's designated service providers have agreed
to offer service and seek all necessary regulatory approvals in more than 100
nations, accounting for about 88% of the world's population.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services to millions
who lack basic telephone service and to enhance wireless telecommunications
in areas underserved by existing or future cellular systems, providing a
telecommunications solution in parts of the world where the construction of
terrestrial systems is not economically
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justified. The Globalstar System has been designed to provide service at
prices comparable to today's cellular service and which are substantially
lower than those announced by Globalstar's principal anticipated competitors.
Loral, together with partners, will be Globalstar service providers in
Canada, Brazil and Mexico. Jointly with QUALCOMM, Loral holds the exclusive
rights to provide in-flight phone service using Globalstar in the United
States.
As of February 14, 1998, each of the elements of the Globalstar System --
space and ground segments, digital communications technology, user terminal
supply, service provider arrangements and licensing -is on schedule.
Globalstar launched its four initial satellites on February 14, 1998 and
expects to commence commercial operations in the first quarter of 1999
following the launch of an additional 40 satellites during 1998. The
remaining 12 satellites will be launched in early 1999 as scheduled.
Globalstar's current budgeted expenditures for the cost for the design,
construction and development of the Globalstar System, including working
capital, cash interest on anticipated borrowings and operating expenses,
after giving effect to the rescheduled launch, are approximately $2.7
billion. Globalstar has raised or received commitments for approximately $2.6
billion in equity, debt and vendor financing.
SPACE SYSTEMS/LORAL
Loral's wholly-owned subsidiary, SS/L, is a worldwide leader in the
design, manufacture and integration of telecommunications, weather and direct
broadcast satellites with over 35 years of experience. SS/L is the leading
supplier of satellites to Intelsat, which is an international consortium of
135 member nations and the world's largest operator of commercial
communications satellites. Other significant SS/L customers include APT
Satellite, Chinasat, Globalstar, MCI, PanAmSat, Loral Skynet and TCI. SS/L
has a broad range of technical capabilities in spacecraft design, as well as
all critical spacecraft subsystems, and maintains a completely integrated
complex of satellite manufacturing, assembly, integration and testing
facilities. The satellites built by SS/L have accumulated more than 600 years
of service in space. This 600-year milestone represents the combined success
of 88 communications and weather satellites built by SS/L since 1960.
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 on-orbit lifetime, rechargeable nickel-hydrogen
batteries with a life span of ten years or more, the use of advanced
composites to significantly enhance satellite performance at lighter weights,
and the first communications satellite with more than ten kilowatts of power.
SS/L also created the first multi-mission geostationary satellite and was the
first U.S. company to exchange space technology with Russia's space industry,
obtaining exclusive rights outside the former Eastern bloc to an electric
propulsion subsystem that is five times as efficient as bipropellant
propulsion systems. Since 1993, SS/L has shortened delivery schedules
significantly, increased spacecraft reliability by 30% and increased
spacecraft power by 60%. When combined with recent improvements in
transmission technology, the total communications capacity of an SS/L
satellite has increased 20-fold since 1993. See "Risk Factors--Dependence on
SS/L."
LORAL ORION
For a description of Orion's business, see "--Information About Orion."
Following consummation of the Merger, Loral intends to operate the business
of Loral Orion in close coordination with the businesses of Loral Skynet and
of SatMex so that each of its affiliates can benefit from one another's
particular marketing strengths and areas of technical expertise, with a view
to creating a coordinated, world-wide system, fully integrated with
terrestrial telecommunications networks.
SATMEX
In December 1997, a joint venture company in which Loral holds a 65%
economic interest, completed the acquisition of a 75% interest in SatMex.
SatMex is the dominant satellite telecommunications company currently
providing services in Mexico. SatMex owns and operates three geosynchronous
telecommunications satellites: Morelos II, Solidaridad 1 and Solidaridad 2.
The total payload of the
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Mexican satellites is 4,752 MHz distributed in 72 transponders in C-Band (36
MHz each) and 40 transponders in Ku-band (54 MHz each) for a total of 132 36
MHz transponder equivalents. A replacement for the Morelos II, which is
currently approaching the end of its life, is under construction by Hughes
and is expected to be launched in the fourth quarter of 1998. SatMex intends
to utilize the considerable expertise of its new equity owners, Loral and
Telefonica Autrey, a company with extensive experience in the Mexican
communications industry, to transform SatMex from a government agency into a
commercially-oriented business focused on increasing revenues and
profitability.
FUTURE OPPORTUNITIES
Loral is pursuing additional satellite-based communications services
opportunities, including CyberStar, a proposed worldwide high-speed broadband
communications system using GEO satellites designed to provide interactive
multimedia data transmission. Initially, services will be offered using
leased Ku-band transponders. Loral will also deploy a Ka-band CyberStar
constellation. Loral holds FCC licenses for the necessary CyberStar Ka-band
orbital slots covering the Americas, Asia, Europe and the Middle East. In
addition, Loral, through SS/L, recently established a joint venture with
Mabuhay to provide direct-to-home ("DTH") services to the Philippines, and
holds a 12.4% equity interest in CD Radio, Inc., a company that is proposing
to establish a service to provide digital audio radio service to automobiles
by satellite.
Loral's principal U.S. executive offices are located at 600 Third Avenue,
New York, New York 10016 and its telephone number is (212) 697-1105.
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MATTERS TO BE ACTED UPON
THE MERGER
(PROPOSAL 1)
The following discussion summarizes the principal aspects of the Merger,
as set forth in the Merger Agreement and the exhibit thereto. The information
in this Section is qualified in its entirety by reference to the full text of
the Merger Agreement, including the exhibit thereto, a copy of which is
attached hereto as Attachment A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
BACKGROUND OF THE MERGER
Orion's principal business is the provision of global satellite
communications for private communications networks and transmission capacity
and video distribution services. Orion's satellite system, as envisaged over
the last several years, is to include at least three satellites, which would
give Orion coverage of the large majority of the world's population.
From its inception in 1982 through January 20, 1995, Orion was a
development stage enterprise. On January 20, 1995, Orion Atlantic's first
satellite, Orion 1 (with coverage of Europe and most of the United States)
commenced commercial operations. Since January 1995, Orion had been pursuing
the refinancing of the senior debt incurred in connection with Orion 1 and
the financing, construction and operation of two additional satellites, Orion
2 (with coverage of Europe, the eastern United States and South America) and
Orion 3 (with coverage of the Asia Pacific region). Orion completed an
initial public offering in August 1995, raising approximately $50 million in
net proceeds, but its plans for Orion 2 and Orion 3 required significantly
greater amounts of capital.
In the fall of 1995, Orion Atlantic commenced but ultimately deferred a
plan to raise over $290 million of financing for Orion 2, plus $300 million
of senior secured notes to repay the existing Orion 1 Credit Facility, make
certain repayments to the limited partners of Orion Atlantic and provide
working capital (the "1995 Proposed Financing"). Following the deferral of
the 1995 Proposed Financing, Orion continued to pursue financing for Orion 2
and Orion 3, including, as a possible alternative, the sale of a substantial
amount of equity to a new strategic partner. During this period Orion also
pursued, as an important component of the financing of Orion 2 and Orion 3,
and of a possible transaction with a strategic partner, the exchange by the
non-Orion limited partners of Orion Atlantic of their partnership interests
in Orion Atlantic for stock in Orion.
In November 1996, Orion engaged Morgan Stanley & Co., Incorporated
("Morgan Stanley") as its investment banker, and filed proxy materials for a
merger and exchange transaction that would effect the conversion of the
limited partners' partnership interests in Orion Atlantic for stock in Orion,
and commenced work on a registration statement (filed in December 1996) for a
high yield offering to repay the Orion 1 Credit Facility and finance Orion 2
and Orion 3. During December 1996, Orion received an indication of interest
from Loral regarding a possible strategic transaction or acquisition, but
elected to defer consideration of such a transaction to complete the high
yield financing and the limited partner exchange. The high yield financing
and limited partner exchange, and other January 1997 Transactions, were
consummated on January 31, 1997.
At a meeting of the Orion Board of Directors held on February 12, 1997,
the Board considered a number of strategic matters, particularly ones
relating to the failure of the market price of Orion Common Stock to increase
in response to consummation of the January 1997 Transactions. Although the
January 1997 Transactions were viewed as highly successful by the Orion Board
of Directors and its advisors, they had not achieved the expected increase in
stockholder value. Several possible reasons for the lack of appreciation were
suggested, including the limited public float of the Orion stock, a downward
shift in market prices for companies in Orion's industry generally, and
perceived downward pressure on the Orion stock generated by the large number
of shares issued to the former limited partners combined with an expectation
that such former limited partners would sell such shares when eligible to do
so.
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On February 12, 1997, the Orion Board of Directors and Morgan Stanley
discussed Orion's early stage of development and its operation of only one
satellite. Although Orion had raised financing for two other satellites, it
would be one to two years before such satellites would be ready for launch
and operation. In addition, although the January 1997 Transactions
constituted an important step in Orion's plan to build its business, the
Orion Board of Directors believed that Orion's lack of financial resources
for purposes other than construction of two additional satellites, and the
perceived limitations on expanding through acquisitions due to the market
price of Orion Common Stock, were limiting Orion's growth potential.
Also at the February 12, 1997 meeting, the Orion Board of Directors
considered Orion's ability to conduct another public offering to relieve the
limited public float problem and reduce the price pressure arising from the
limited partner shares. The Orion Board of Directors discussed Orion's
ability to pursue a transaction with a strategic investor or acquiror. The
Orion Board of Directors determined to explore on a preliminary basis, in
parallel, several possible paths, including a second public offering that
would include shares held by the former limited partners, a strategy under
which Orion would attempt to grow by acquiring other similar or complementary
businesses despite its low stock price and limited financial resources, and a
strategic transaction or sale of the company.
On March 26, 1997 and April 1, 1997, at Executive Committee and Orion
Board of Directors meetings, respectively, Orion concluded that reductions in
the market price for Orion stock had made a new public offering an
unattractive alternative for the company (and the limited partners who may
have wished to sell Orion stock) at that time.
On April 22, 1997, the Orion Board of Directors met and determined to
explore the possible interest of a strategic partner in investing in or
acquiring Orion. The Executive Committee of the Orion Board of Directors
(consisting of John G. Puente (chairman), Gustave M. Hauser (chairman of the
Orion Board of Directors), Sidney S. Kahn, W. Anthony Rice, John V. Saeman
and Robert Van Degna), was formally given responsibility to oversee an
orderly process of exploring possible transactions, subject to approval by
the Orion Board of Directors of the terms of any such transaction. Morgan
Stanley was asked to develop a list of companies that could be expected to
have some interest in such a strategic partner investment or acquisition. At
these and at other meetings, the Executive Committee and the Orion Board of
Directors also reviewed Orion's prospects to expand through acquisitions.
During May 1997, the Executive Committee or its representatives met or
spoke several times with representatives of Morgan Stanley to develop and
refine a list of companies to approach, and initial contacts were made with
certain companies, including Loral, to solicit interest in a transaction
involving Orion. The list was subsequently expanded on several occasions, and
additional companies were contacted. Following the initial contacts, weekly
or bi-weekly meetings of the Orion Executive Committee (on May 28, June 4,
June 12, June 18, June 25, July 2, July 9, July 16, July 25, August 4, August
12, August 18, August 20, August 21, September 2, September 8, September 11,
September 18 and October 1) were held until the Merger Agreement was
executed, in each case with Morgan Stanley and counsel participating, to
review and discuss the status of the exploration process, discuss issues
raised by companies that had been contacted, discuss information regarding
the potential strategic investors or acquirors and consider matters relating
to Orion's business, plans and growth potential.
During May and early June, confidentiality agreements with various parties
were executed and information requests were made of and responded to by
Orion. Loral signed a confidentiality agreement with Orion on June 5, 1997
and commenced its information requests immediately.
On May 22, 1997, the Orion Board of Directors instructed Morgan Stanley to
forward to the various interested parties a letter outlining the procedures
for written preliminary indications of interest. Loral was sent a similar
letter on June 5, 1997. Over the next several weeks, the interested parties
responded with preliminary indications of interest to Morgan Stanley. Most of
such indications of interest were for an acquisition of Orion, although one
proposal contemplated a substantial investment in Orion and various
contractual relationships. On or about June 6, 1997, Loral submitted to
Morgan Stanley its initial non-binding indication of interest in acquiring
Orion in the form of an exchange for stock of Loral at a purchase price that
would represent a small premium over market.
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Pursuant to instructions of the Orion Board of Directors, Morgan Stanley
notified certain of the interested parties of their selection to proceed to
the due diligence phase of the process the following week. Loral was
initially not invited into the next phase of the process, but was instructed
that if Loral were to subsequently revise its proposal, it would receive
access to additional information. A number of the interested parties and
their representatives met at the offices of Hogan & Hartson L.L.P., counsel
to Orion, in Washington, D.C. during June, July and August to attend
management presentations, if requested, to review certain documents of Orion
made available in a due diligence room, and to discuss with Orion and its
representatives follow-up questions with respect to the management
presentations and the due diligence materials.
On or about July 15, 1997, Orion received a non-binding proposal from
Loral, proposing a purchase of Orion for cash at the then market price, with
each Orion stockholder to receive a contingent value right that would give
the stockholder shares of Loral stock equal to the difference between such
market price and $17.00 if Orion achieved a specified revenue target during
1998. This proposal was considered at a meeting of the Orion Executive
Committee on July 16, 1997, at which most Orion directors were present. After
debate by the Orion Executive Committee about the proposal and discussions
with Morgan Stanley regarding the value to Orion stockholders of such a
contingent value right, the proposal was rejected. Orion determined, however,
that, based on the receipt of such proposal, Loral had shown sufficiently
promising interest to include Loral in the next phase of the process.
Thereafter, as discussed below, discussions between Orion and Loral continued
during July, August and September regarding price and terms, possible
transaction structures, legal issues and document review. During this period,
Orion continued its discussions, directly or through Morgan Stanley, with
other companies that remained interested in pursuing a transaction with
Orion.
During the week beginning July 14, 1997, at the direction of the Board of
Directors of Orion, Morgan Stanley discussed with various interested parties
the preliminary indications of interest, the sale process and the related
timetable, and on July 21, 1997, Morgan Stanley sent out a letter to
interested parties, including Loral, outlining the procedures for a firm
written offer for Orion and a draft merger agreement. The letter indicated
that final proposals were due on August 11, 1997.
On July 24, 1997, representatives from Loral and Loral Skynet visited the
offices of Hogan & Hartson L.L.P., counsel to Orion, and reviewed certain
documents of Orion made available in a due diligence room and held due
diligence discussions with Orion management.
On August 12, 1997, Loral management presented to the Loral Board of
Directors, at its regularly scheduled meeting, information regarding the
possible acquisition of Orion. After discussion, the Loral Board of Directors
authorized Loral management to proceed with discussions and negotiations with
Orion concerning a possible transaction and delegated to the Executive
Committee of the Board of Directors the authority to approve a final
agreement. Thereafter, during the remainder of the month of August, Loral
submitted to and discussed with Morgan Stanley and Orion senior management
various proposals regarding possible transaction structures in which Loral
would acquire control of Orion.
In August 1997, rumors developed that GE American Communications, Inc.
would acquire Orion, beginning with stories in the press on August 15, 1997
and August 18, 1997. No new potential acquirors or strategic partners
surfaced as a result of the rumored sale.
On August 29, 1997, Orion management visited the offices of Loral and
conducted a management presentation for Loral executives. After further
discussions between Loral and Orion and its representatives, on or about
September 2, 1997, Loral proposed an acquisition of Orion for Loral Common
Stock valued at $17.00 per share with a transaction structure similar to that
ultimately set forth in the Merger Agreement. The proposal was oral, and was
subject to various contingencies. Following a meeting of the Orion Executive
Committee, Orion initially responded by requesting that Loral make an offer
at a higher price or offer cash rather than Loral stock. Loral declined to
increase its price and indicated that it would consider making a cash offer,
but only subject to financing contingencies. While discussions between Orion
and Loral continued, Orion's Executive Committee continued to consider
whether the $17.00 proposal would represent an acceptable price for Orion
stock.
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<PAGE>
On September 11, 1997, following additional Orion Executive Committee
meetings, Orion approached Loral and indicated that certain large
stockholders of Orion (mostly holding Orion Series C Preferred Stock) likely
would not support a transaction at less than $17.50 per share, the conversion
price of the Orion Series C Preferred Stock. After consideration, Loral
orally indicated its nonbinding intention to negotiate a definitive merger
agreement with Orion at $17.50 per share, provided that Orion's principal
stockholders were prepared to agree to support this transaction. After
further discussion by the Orion Executive Committee, Orion indicated to Loral
its willingness to begin to negotiate a definitive merger agreement on the
basis of the $17.50 Loral proposal.
Orion and Loral then commenced a period of intensive negotiations
regarding the terms of a definitive merger agreement and principal
stockholder agreement. In addition, on September 15, 1997, at Loral's
offices, Loral management conducted a management presentation for Orion
executives. During the negotiation period, until execution of the Merger
Agreement, the Orion Executive Committee continued to meet on a weekly or
semi-weekly basis to consider the issues that had been raised during the
negotiations.
On September 24, 1997, the Orion Board of Directors met and received
presentations from management, Morgan Stanley and legal advisors regarding
the proposed Loral transaction. Following discussion, the Orion Board of
Directors authorized management and its advisors to proceed with negotiating
a definitive merger agreement with Loral, subject to Orion Board of Directors
approval of the final terms and conditions.
On October 6, 1997, the Orion Board of Directors met again, and received
detailed presentations from management, counsel and Morgan Stanley regarding
the financial and legal aspects of the Loral transaction, the terms of the
proposed Merger Agreement, Principal Stockholder Agreement and related
transaction documents, an in-depth analysis of Loral, and alternatives to the
Loral transaction. Morgan Stanley delivered an oral opinion to the Orion
Board of Directors, which was confirmed by delivery of a written opinion
dated October 6, 1997, to the effect that, based upon the analysis performed
by Morgan Stanley and subject to the matters stated therein, the Exchange
Ratio was fair from a financial point of view to the holders of Orion Common
Stock (other than Loral and its affiliates) and, assuming conversion of Orion
Preferred Stock into Orion Common Stock in accordance with their terms, to
the holders of Orion Preferred Stock. See "--Opinion of Orion's Financial
Advisor." After discussion and consideration, the Orion Board of Directors
unanimously determined that the Merger Agreement and the transactions
contemplated thereunder, including the Merger, are fair to, and in the best
interests of, Orion and its stockholders, unanimously approved the Merger
Agreement and the transactions contemplated thereunder, including the Merger,
and unanimously recommended that the Merger be submitted to the stockholders
of Orion for approval.
On October 6, 1997, the Executive Committee of the Loral Board of
Directors met to evaluate the proposed transaction with Orion. After
discussion and consideration, the Executive Committee, pursuant to authority
delegated to it by the Board of Directors, unanimously approved the Merger
Agreement and the transactions contemplated thereunder, including the Merger
and the Principal Stockholder Agreement.
As of October 7, 1997, Orion and Loral executed the Merger Agreement and
the Principal Stockholder Agreement, and the principal stockholders of Orion
who are parties to the Principal Stockholder Agreement executed that
agreement (which was amended and restated as of December 1, 1997 to make
certain technical amendments).
RECOMMENDATION OF ORION BOARD OF DIRECTORS; ORION'S REASONS FOR THE
TRANSACTIONS
The Orion Board of Directors has approved the terms of the Merger
Agreement and determined that the Merger Agreement and the transactions
contemplated thereunder, including the Merger, are fair to, and in the best
interests of, Orion and its stockholders. The Orion Board of Directors
unanimously recommends that Orion stockholders vote "FOR" approval and
adoption of the Merger Agreement and the transactions contemplated
thereunder, including the Merger.
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<PAGE>
In reaching its determination that the Merger Agreement and the
transactions contemplated thereunder, including the Merger, are fair to, and
in the best interests of, Orion and its stockholders, the Orion Board of
Directors considered a number of factors, including the following:
(i) the Orion Board of Directors' desire to maximize stockholder value;
(ii) the failure of the market price of Orion Common Stock to increase
following the January 1997 Transactions; the limited public float of the
Orion Common Stock; a downward shift in market prices for companies in
Orion's industry generally; perceived downward pressure on the Orion stock
generated by the large number of shares issued to the former limited
partners combined with an expectation that such former limited partners
would sell such shares when eligible to do so; the less favorable
treatment of Orion by the market relative to other satellite companies
(particularly PanAmSat, a significant competitor of Orion, which was
viewed as having achieved significant value for its stockholders through
its acquisition by Hughes); and views of the Orion Board of Directors
about Orion's ability to conduct another public offering to relieve the
limited public float and reduce the price pressure arising from the
expectation of sales of the limited partner shares;
(iii) Orion's desire to build its business, perceived limitations on its
growth potential due to Orion's lack of financial resources for purposes
other than construction of two additional satellites, and the perceived
limitations on expanding through acquisitions due to the market price of
Orion Common Stock;
(iv) the current and prospective business environment in which Orion
operates, including the competitive environment for telecommunications
companies generally and satellite service providers specifically, the
trend toward consolidation in the satellite services industry; and the
Orion Board of Director's belief that although Orion had raised financing
for Orion 2 and Orion 3, it would be one to two years before such
satellites would be ready for launch and operation;
(v) Orion's belief that the Merger will increase its abilities to expand
its business opportunities and pursue its goal of becoming a preeminent
provider of satellite communications services; Orion's belief that its
international satellite business, including the Orion 2 and Orion 3
satellites under construction, will fit well with Loral's existing Skynet
business; Orion's belief that the Merger will enable Loral and Orion
collectively to offer global satellite services and take advantage of more
opportunities to expand satellite communications offerings than Orion is
able to pursue on its own; and Orion's expectation that as a subsidiary of
Loral, it will have increased access to the capital markets to provide
financing for such opportunities;
(vi) Orion's belief that in comparison to other potential transactions
and strategies that were available, or were reasonably expected to become
available over time, primarily proposed acquisitions of Orion or
investments in Orion at lower per share values or remaining independent
for the present and considering business combinations again in the future,
the Merger represented the best opportunity for increasing stockholder
value;
(vii) written and oral presentations by Morgan Stanley and the opinion of
Morgan Stanley that the Exchange Ratio is fair from a financial point of
view to the holders of Orion Common Stock (other than Loral and its
affiliates) and, assuming conversion of Orion Preferred Stock into Orion
Common Stock in accordance with their terms, to the holders of Orion
Preferred Stock;
(viii) the process followed by Morgan Stanley in seeking an acquiror for
Orion and the fact that the per share value based on the Exchange Ratio
was considerably above the market price for shares of Orion Common Stock
preceding the commencement of the process of exploring for a strategic
investor or acquiror, and that the market price for shares of Orion Common
Stock included significant appreciation based on speculation that Orion
was likely to be acquired;
(ix) the benefit to Orion stockholders from becoming stockholders in a
larger, more diversified entity with a substantially greater number of
outstanding shares and trading volume;
(x) oral presentations by executive officers of Orion regarding the
business, financial condition and recent results of operations of Orion,
and their best estimates of the prospects of Orion;
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<PAGE>
(xi) the fact that the terms of the Merger Agreement were determined
through arm's length negotiations;
(xii) the effect of the Merger on Orion's employees;
(xiii) the terms of the Merger Agreement and the Principal Stockholder
Agreement, as reviewed by the Orion Board of Directors with its legal and
financial advisors; and
(xiv) the Orion Board of Directors' belief, after consultation with its
legal counsel, that the required regulatory approvals could be obtained
for the Merger.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Orion Board of Directors did not quantify or
otherwise attempt to assign relative numerical weights to the specific
factors that it considered in reaching its determination that the Merger is
fair to, and in the best interests of, stockholders of Orion.
OPINION OF ORION'S FINANCIAL ADVISOR
In 1997, Orion retained Morgan Stanley to act as its financial advisor in
connection with a proposed sale or business combination involving Orion.
At the October 6, 1997 meeting of the Orion Board, Morgan Stanley rendered
its oral opinion that, as of such date and subject to the various
considerations to be set forth in its written opinion, the Exchange Ratio is
fair from a financial point of view to the holders of Orion Common Stock
(other than Loral and its affiliates) and, assuming the conversion of the
Orion Preferred Stock into Orion Common Stock in accordance with their terms,
to the holders of Orion Preferred Stock. Morgan Stanley subsequently
delivered to the Orion Board a written opinion dated October 6, 1997 (the
"Morgan Stanley Opinion") confirming such oral opinion.
THE FULL TEXT OF THE MORGAN STANLEY OPINION WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURE FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN STANLEY, IS ATTACHED AS
ATTACHMENT C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE MORGAN STANLEY OPINION IS DIRECTED TO THE ORION BOARD AND
ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE
RATIO TO THE HOLDERS OF ORION COMMON STOCK AND, ASSUMING THE CONVERSION OF
THE ORION PREFERRED STOCK INTO ORION COMMON STOCK IN ACCORDANCE WITH THEIR
TERMS, THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO
THE HOLDERS OF ORION PREFERRED STOCK. IT DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER AND DOES NOT CONSTITUTE AN OPINION OR A RECOMMENDATION AS TO HOW
ANY HOLDER OF ORION COMMON STOCK OR ORION PREFERRED STOCK SHOULD VOTE AT THE
SPECIAL MEETING OR WHETHER HOLDERS OF ORION PREFERRED STOCK SHOULD CONVERT
THEIR SHARES OF ORION PREFERRED STOCK INTO ORION COMMON STOCK. IN ADDITION,
THE MORGAN STANLEY OPINION DOES NOT IN ANY MANNER ADDRESS THE PRICES AT WHICH
THE SHARES OF LORAL COMMON STOCK WILL TRADE FOLLOWING CONSUMMATION OF THE
MERGER. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. THE HOLDERS OF SHARES OF ORION COMMON STOCK AND ORION
PREFERRED STOCK ARE URGED TO READ THE MORGAN STANLEY OPINION IN ITS ENTIRETY.
In arriving at its opinion, Morgan Stanley, among other things: (i)
reviewed certain publicly available financial statements and other
information of Orion, Loral and Globalstar; (ii) reviewed certain internal
financial statements and other financial and operating data concerning Orion,
Loral and Globalstar prepared by the respective managements of Orion, Loral
and Globalstar and discussed certain of the foregoing with senior executives
of Orion, Loral and Globalstar; (iii) analyzed certain financial forecasts of
Orion, Loral and Globalstar prepared by the respective managements of Orion,
Loral and Globalstar; (iv) discussed the past and current operations and
financial condition and the prospects of Orion, Loral and Globalstar with
senior executives of Orion, Loral and Globalstar; (v) reviewed the reported
prices and trading activity for the common stock of Orion, Loral and
Globalstar; (vi) compared the financial performance of Orion, Loral and
Globalstar and the prices and trading activity of the Orion Common Stock and
the common stock of Loral and Globalstar with that of comparable publicly
traded companies and their securities; (vii) reviewed the financial terms, to
the extent publicly available, of certain comparable acquisition
transactions; (viii) participated in discussions and negotiations among
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<PAGE>
representatives of Orion, Loral and certain other parties and their financial
and legal advisors; (ix) reviewed the Merger Agreement, the Principal
Stockholder Agreement and certain related documents; and (x) performed such
other analyses and considered such other factors as Morgan Stanley deemed
appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. Morgan Stanley
assumed that the financial forecasts of Orion, Loral and Globalstar were
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Orion, Loral
and Globalstar. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Orion, Loral or Globalstar, nor was
it furnished with any such appraisals. Morgan Stanley relied upon, without
independent verification, the assessment by the respective managements of
Orion, Loral and Globalstar of each of their technologies and products, the
timing and risks associated with the integration of Orion and Loral, and the
validity of, and risks associated with, Orion's, Loral's and Globalstar's
existing and future products and technologies. The Morgan Stanley Opinion is
necessarily based on economic, market and other conditions as in effect on,
and the information made available to it as of, the date of the Morgan
Stanley Opinion. Morgan Stanley assumed that in connection with the receipt
of all necessary regulatory approvals for the Merger, no restrictions will be
imposed that would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Orion Board in connection with its opinion to
the Orion Board.
Historical Stock Performance. Morgan Stanley's analysis of the
performance of the Orion Common Stock consisted of a historical analysis of
closing prices and trading volumes for the period from August 1, 1995 through
and including October 3, 1997. During this period, Orion Common Stock
achieved a high of $16.969 and a low of $8.00 per share. During the period
from October 3, 1996 to August 15, 1997, the day upon which rumors of a
possible GE American Communications bid for Orion reached the market, Orion
achieved a high of $15.00 and a low of $8.00 per share. Orion Common Stock
closed at a price of $16.969 per share on October 3, 1997.
Morgan Stanley also reviewed the performance of the Loral Common Stock,
which consisted of a historical analysis of closing prices and trading
volumes from the date of Loral's spin-off from Loral Corporation on April 16,
1996 through and including October 3, 1997. During this period, Loral Common
Stock achieved a high of $22.563 and a low of $12.00, based on closing per
share prices. Loral Common Stock closed at a price of $22.00 per share on
October 3, 1997.
Morgan Stanley also reviewed the performance of the common stock of
Globalstar, which consisted of a historical analysis of closing prices and
trading volumes from the date of Globalstar's IPO on February 14, 1995
through and including October 3, 1997. During this period, the common stock
of Globalstar achieved a high of $54.25 and a low of $5.875, based on closing
per share prices. The common stock of Globalstar closed at a price of $54.25
per share on October 3, 1997.
Comparable Company Analysis. Morgan Stanley performed a comparable public
company analysis pursuant to which it compared certain financial information
of Orion with that of a group of publicly traded satellite service operators,
including APT Satellite Holdings Ltd., AsiaSat Telecommunications Holdings
Ltd., PanAmSat/Hughes Galaxy and Pasifik Satelit Nusantara (collectively, the
"Satellite Comparables"). The Satellite Comparables were selected based on
the general business, operating and financial characteristics representative
of companies in the satellite services industry. For fiscal years 1997
through 2000, Morgan Stanley used financial forecasts prepared by Orion's
management for the 1997 planning period (the "1997 Estimates"), which were
the most recent forecasts prepared by Orion's management. In addition, Morgan
Stanley conducted a sensitivity analysis using research consensus estimates
for such fiscal years (the "Consensus Estimates"). Such financial information
included. among other things, the ratio of common equity market value as
adjusted for total debt ("Aggregate Value") to (i) EBITDA and (ii)
shareholder's equity book value as adjusted for total debt and intangible
assets ("Invested Book Capital"). Morgan Stanley noted that, the multiple of
Aggregate Value to estimated 1999
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EBITDA was 7.1x for the 1997 Estimates and 13.8x for the Consensus Estimates,
compared to a range of 7.6x to 10.3x, with a mean of 9.3x, for the Satellite
Comparables; the multiple of Aggregate Value to estimated 2000 EBITDA was
5.3x for the 1997 Estimates and 8.7x for the Consensus Estimates, compared to
a range of 5.2x to 8.0x, with a mean of 6.6x, for the Satellite Comparables;
and the multiple of Aggregate Value to Invested Book Capital was 1.2x for
Orion, compared to a range of 2.4x to 5.1x, with a mean of 3.6x, for the
Satellite Comparables.
No company utilized as a comparison in the comparable company analysis is
identical to Orion. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of Orion and the Satellite
Comparables and other factors that could affect public trading
characteristics of the Satellite Comparables. Mathematical analysis (such as
determining the average or the mean) is thus not in itself the sole method of
using the comparable company analysis.
Comparable Transaction Analysis. Using publicly available information,
Morgan Stanley reviewed the PanAmSat and Hughes Galaxy transaction, which was
the only transaction that Morgan Stanley considered comparable to the Merger.
Morgan Stanley noted that in such transaction, using forecasts developed by
securities analysts, Hughes Electronics effectively paid 9.9x 2-year forward
EBITDA, 7.5x 3-year forward EBITDA and 6.7x 4-year forward EBITDA for
PanAmSat on an Aggregate Value basis. Applying these multiples to 2-year,
3-year, and 4-year forward EBITDA estimates from the 1997 Estimates and the
Consensus Estimates, Morgan Stanley computed per share values for Orion
ranging from $12.00 to $24.00. Morgan Stanley also noted that Hughes
Electronics effectively paid a multiple of 2.4x PanAmSat's estimated June 30,
1997 invested book capital as compared to 1.4x for the Merger. Morgan Stanley
noted that the PanAmSat and Hughes Galaxy transaction is not identical to the
Merger and that any comparison of such transactions necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of Orion and PanAmSat that could affect the
acquisition value of Orion as compared to PanAmSat.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis of Orion for the fiscal years ended 1998 through 2006 based on
the 1997 Estimates. Unlevered free cash flows were calculated as net income
available to common stockholders plus preferred stock dividends plus
depreciation and amortization plus deferred taxes plus other noncash expenses
plus after-tax net interest expense less capital expenditures less investment
in working capital. Morgan Stanley calculated terminal values by applying a
range of EBITDA multiples in fiscal 2006 from 7.0x to 9.0x. The cash-flow
streams and terminal values were then discounted to the present using a range
of discount rates from 17.5% to 22.5%, representing an estimated weighted
average cost of capital range of Orion. Based on this analysis, Morgan
Stanley calculated per share values for Orion ranging from $16.25 to $35.17.
Morgan Stanley also derived an implied per share equity value for Orion based
on applying certain sensitivities to the forecasts provided by Orion's
management, which indicated an implied per share equity value ranging from
$6.21 to $32.65.
Loral Valuation. Morgan Stanley analyzed the valuation of Loral by
applying discounted cash flow and trading analyses to the Space Systems/Loral
and Skynet businesses of Loral, a discounted cash flow analysis to the
CyberStar business of Loral and current market value and discounted cash flow
analyses to the Globalstar investment of Loral. Morgan Stanley based the
discounted cash flow analyses on Loral management's forecasts and applied
applicable terminal EBITDA multiples and discount rate for each business,
taken separately. Utilizing these analyses, Morgan Stanley calculated per
share values for Loral ranging from $18.29 to $22.42.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Morgan Stanley's analyses, without considering all analyses,
would create an incomplete view of the process underlying the Morgan Stanley
Opinion. In addition, Morgan Stanley may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting for any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of Orion, Loral or Globalstar.
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In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Orion, Loral or
Globalstar. The analyses performed by Morgan Stanley are not necessarily
indicative of actual values, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as a part of the Morgan Stanley Opinion and were provided to the Orion Board
in connection with the delivery of the Morgan Stanley Opinion. The analyses
do not purport to be appraisals or to reflect the prices at which Orion,
Loral or Globalstar might actually be sold. Because such estimates are
inherently subject to uncertainty, none of Orion, Loral, Globalstar or Morgan
Stanley nor any other person assumes responsibility for their accuracy. In
addition, as described above, the Morgan Stanley Opinion, including Morgan
Stanley's presentation to the Orion Board, was one of many factors taken into
consideration by the Orion Board in making its determination to approve the
Merger. Consequently, Morgan Stanley's analyses described above should not be
viewed as determinative of the opinion of the Orion Board with respect to the
value of Orion, Loral or Globalstar.
The Orion Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. Morgan Stanley, as part of its investment banking
business, is continually engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwriting, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and
other purposes. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of its
trading and brokerage activities, Morgan Stanley or its affiliates may at any
time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in securities
of Orion, Loral or Globalstar. In the past, Morgan Stanley and its affiliates
have provided financial advisory and investment banking services to Orion,
for which services Morgan Stanley has received customary fees, including
acting as lead underwriter in connection with a public offering of high-yield
notes and warrants in January 1997 for which Morgan Stanley earned an
underwriting discount and commission of $16.8 million.
Pursuant to an engagement letter between Orion and Morgan Stanley, Orion
agreed to pay Morgan Stanley (i) an advisory fee estimated to be $250,000 in
the event the Merger is not consummated, and (ii) if the Merger is
consummated, a transaction fee equal to approximately $4.8 million, assuming
a $17.50 price per share at closing. This transaction fee will vary depending
on the Determination Price, and consequently the value per share received by
Orion stockholders, at closing. In addition to the foregoing compensation,
Orion agreed to reimburse Morgan Stanley for its expenses, including
reasonable fees and expenses of its counsel, and to indemnify Morgan Stanley
for liabilities and expenses arising out of the engagement and the
transactions in connection therewith, including liabilities under federal
securities laws.
LORAL'S REASONS FOR THE TRANSACTIONS
Loral is undertaking the Merger in furtherance of its long-term strategy
to expand the range of its geosynchronous satellite service businesses
internationally. Orion's business was deemed an attractive acquisition
candidate because of the orbital location of Orion 1 and the proposed
locations for the Orion satellites under construction, the experience of
Orion management and personnel in European operations, the expertise of Orion
in value added satellite services and satellite-supported data networking,
all of which, Loral believes, will complement the businesses of Skynet and
CyberStar. Loral also believes that the business of Orion will benefit from
the market position and marketing expertise of Skynet, the technological
expertise of SS/L and the superior financial resources of Loral.
CONVERSION OF ORION CAPITAL STOCK
Exchange Ratio. At the Effective Time, each share of Orion Common Stock
issued and outstanding immediately prior to the Effective Time, excluding
treasury shares and shares owned by Loral or any subsidiary of Loral, will be
converted into the right to receive that number of fully paid and
nonassessable shares of Loral Common Stock equal to the Exchange Ratio.
Shares of Orion Capital Stock owned by
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Loral or any subsidiary of Loral will be converted into the right to receive
such fully paid and nonassessable shares of the Surviving Corporation as
necessary in order to ensure that such entity's proportionate interest in the
Surviving Corporation immediately after the Effective Time will be equal to
such entity's proportionate interest in Orion immediately prior to the
Effective Time.
Pursuant to the terms of the Merger Agreement, the Exchange Ratio is
determined as follows:
(i) if the average of the volume-weighted average trading prices of Loral
Common Stock for the twenty consecutive trading days on which trading of
Loral Common Stock occurs ending the tenth trading day immediately prior
to the closing date for the Merger (the "Determination Price") is less
than $24.458 but greater than $16.305, the Exchange Ratio is the quotient
obtained by dividing $17.50 by the Determination Price;
(ii) if the Determination Price is equal to or greater than $24.458, the
Exchange Ratio is 0.71553; and
(iii) if the Determination Price is equal to or less than $16.305, the
Exchange Ratio is 1.07329.
For each whole dollar Determination Price from $15 through $26, as well as
for a Determination Price equal to $16.305, $20.3815 and $24.458 (the low,
middle and high end of the Determination Price range), the following table
sets forth (i) Exchange Ratio and (ii) the dollar value of each share of
Loral Common Stock that Orion stockholders would receive in the Merger in
exchange for shares of Orion Common Stock:
<TABLE>
<CAPTION>
EFFECT OF EXCHANGE RATIO
------------------------
LORAL MARKET VALUE
COMMON OF LORAL COMMON LORAL
STOCK STOCK ISSUED TO ORION COMMON
DETERMINATION EXCHANGE ORION COMMON STOCK
PRICE RATIO STOCKHOLDERS STOCK EQUIVALENT
----------------------------------------- --------------- ----------
<S> <C> <C> <C> <C>
$15.00 1.07329 $16.10 100 107.329
$16.00 1.07329 $17.17 100 107.329
$16.305 1.07329 $17.50 100 107.329
$17.00 1.02941 $17.50 100 102.941
$18.00 0.97222 $17.50 100 97.222
$19.00 0.92105 $17.50 100 92.105
$20.00 0.875 $17.50 100 87.5
$20.3815 0.85862 $17.50 100 85.862
$21.00 0.83333 $17.50 100 83.333
$22.00 0.79545 $17.50 100 79.545
$23.00 0.76087 $17.50 100 76.087
$24.00 0.72917 $17.50 100 72.917
$24.458 0.71553 $17.50 100 71.553
$25.00 0.71553 $17.89 100 71.553
$26.00 0.71553 $18.60 100 71.553
</TABLE>
As the above table illustrates, so long as the Determination Price of
Loral Common Stock remains between $16.305 and $24.458, the intended economic
effect of the Merger is to provide Orion stockholders with $17.50 worth of
Loral Common Stock in exchange for each share of Orion Common Stock. As the
above table also illustrates, if the Determination Price of Loral Common
Stock is greater than $24.458, or less than $16.305, Orion stockholders will
receive a maximum of 1.07329 and a minimum of 0.71553 shares, respectively,
of Loral Common Stock in exchange for each share of Orion Common Stock, which
would provide Orion stockholders with Loral Common Stock having a value that
is greater than $17.50 (in the case of a Determination Price greater than
$24.458) or less than $17.50 (in the case of a Determination Price less than
$16.305).
By way of illustration, if the Merger occurred as of February 12, 1998 and
all Orion stockholders exchanged their Orion stock (excluding treasury shares
and shares owned by Loral or its subsidiaries), there would have been
approximately 24,878,000 shares of Orion Common Stock exchanged for Loral
Common Stock. Based on assumed Determination Prices of $15 and $26, the
approximately 24,878,000
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shares of Orion Common Stock would have been exchanged for 26,701,309
(representing a beneficial ownership of approximately 13.3% of Loral Common
Stock) and 17,800,956 shares of Loral Common Stock (representing a beneficial
ownership of approximately 8.9% of Loral Common Stock), respectively.
From February 23, 1998 until the date of the Merger, Orion stockholders
can call (301) 721-2626 and listen to a recording of what the Exchange Ratio
would be if the Merger occurred on the day of the phone call.
Each share of Orion Preferred Stock issued and outstanding immediately
prior to the Effective Time, excluding treasury shares and shares owned by
Loral or any subsidiary of Loral, will be converted into the right to receive
the number of fully paid and nonassessable shares of Loral Common Stock equal
to the Exchange Ratio multiplied by the number of shares of Orion Common
Stock into which such share of Orion Preferred Stock was convertible
immediately prior to the Effective Time.
Each share of Loral Common Stock issued in connection with the Merger will
be accompanied by one Loral Right.
Possible Adjustments. If, prior to the Effective Time, the outstanding
number of shares of Orion Capital Stock or Loral Common Stock are changed
into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any
dividend payable in stock or other securities is declared thereon with a
Record Date within such period, the Exchange Ratio shall be adjusted
accordingly to provide the holders of shares of Orion Capital Stock with the
same economic effect as contemplated by the Merger Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
Fractional Shares. No fractional share of Loral Common Stock will be
issued in the Merger. In lieu of any such fractional shares, each holder
entitled to receive a fractional share will be paid cash (without interest)
in an amount equal to the product of (a) such fractional interest to which
such holder otherwise would be entitled and (b) the last sales price per
share of Loral Common Stock on the NYSE Composite Transactions reporting
system for the closing date of the Merger. As promptly as practicable after
the determination of the amount of cash, if any, to be paid to holders of
fractional interests, Loral shall cause the Surviving Corporation to deposit
with the Exchange Agent the cash necessary for such purpose and shall cause
the Exchange Agent to forward payments to such holders of fractional
interests subject to the terms of the Merger Agreement.
Interest and Dividend Shares. To the extent that any interest accrued or
payable with respect to the Debentures or any dividends accrued or payable
with respect to the Orion Series C Preferred Stock, in each case which are
payable in the form of common stock, have not been paid as of the closing
date, such interest and dividends shall be converted into the right to
receive the number of shares of fully paid and non-assessable Loral Common
Stock equal to the Exchange Ratio multiplied by the number of shares of Orion
Common stock that would have been issued if such interest or dividends had
been paid immediately prior to the Effective Time or, to the extent such
interest or dividends cannot be converted under the terms of their governing
instruments, such interest and dividends shall be paid in Orion Common Stock
immediately prior to the Effective Time and converted as Orion Common Stock.
EXCHANGE OF CERTIFICATES IN THE MERGER
As of the Effective Time, all shares of Orion Capital Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and, immediately prior to the Effective Time, each
holder of a certificate representing any such shares of Orion Capital Stock
shall cease to have any rights with respect thereto, except as otherwise
provided in the Merger Agreement or by law. Loral shall, on behalf of Merger
Subsidiary, deposit with the Exchange Agent for the benefit of the holders of
shares of Orion Capital Stock, excluding treasury shares and shares owned by
Loral or any subsidiary of Loral, the shares of Loral Common Stock issuable
pursuant to the Merger Agreement plus cash in an amount sufficient to make
payment for fractional shares. Promptly after the Effective Time, the
Exchange Agent will mail a transmittal letter and instructions to each holder
of record of certificates which immediately prior to the Effective Time
represented outstanding shares of Orion Capital Stock. Upon surrender to the
Exchange Agent of a certificate which immediately prior to the Effective Time
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represented outstanding shares of Orion Capital Stock, together with such
letter of transmittal duly executed, and any other required documents, the
holder of such certificate shall be entitled to receive in exchange therefor
the applicable merger consideration and such certificate shall forthwith be
canceled. ORION STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL SUCH TRANSMITTAL LETTER AND INSTRUCTIONS ARE
RECEIVED. Until surrendered in accordance with the provisions of the Merger
Agreement, each certificate shall represent for all purposes only the right
to receive the applicable merger consideration, without any interest thereon.
In the event any certificate evidencing shares of Orion Capital Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit setting
forth that fact by the person claiming such lost, stolen or destroyed
certificate and the granting of a reasonable indemnity against any claim that
may be made against Loral or the Exchange Agent with respect to such
certificate, Loral shall cause the Exchange Agent to pay to such person the
merger consideration with respect to such lost, stolen or destroyed
certificate.
CONVERSION OF OPTIONS AND WARRANTS; STOCK PURCHASE PLAN
As of the Effective Time (i) each outstanding option to purchase Orion
Common Stock (an "Option") will be converted into an option (a "Converted
Option") to acquire, on the same terms and conditions that were applicable
under such Option, a number of whole shares of Loral Common Stock equal to
the product of the aggregate number of shares of Orion Common Stock for which
such Option was exercisable multiplied by the Exchange Ratio; and (ii) the
exercise price per share of Loral Common Stock issuable pursuant to each
Option shall be equal to the aggregate exercise price of such Option at the
Effective Time divided by the number of shares of Loral Common Stock for
which such Option shall be exercisable as determined above and rounded to the
next highest whole cent. Each outstanding warrant to purchase Orion Common
Stock (a "Warrant") will be converted into a warrant (a "Converted Warrant")
to acquire on the same terms and conditions that were applicable under such
Warrant, a number of whole shares of Loral Common Stock equal to the product
of the aggregate number of shares of Orion Common Stock for which such
warrant was exercisable times the Exchange Ratio, and the exercise price per
share of Loral Common Stock issuable pursuant to such Warrant shall be equal
to the aggregate exercise price for such Warrant at the Effective Time
divided by the number of shares of Loral Common Stock for which such Warrant
shall be exercisable as determined above and rounded to the next highest
whole cent.
No Option or Warrant shall be exercisable for fractional shares. Each
holder of an Option or Warrant exercisable for a fractional share of Loral
Common Stock shall be entitled to receive, upon exercise thereof, an offset
against the aggregate exercise price of the Option or Warrant being exercised
equal to the product of the fraction of a share of Loral Common Stock to
which a holder of such Option or Warrant would be entitled to receive times
the excess of the closing price of a share of Loral Common Stock as reported
on the NYSE on the date of exercise over the exercise price for such Option
or Warrant.
Loral, on behalf of Merger Subsidiary, will take all corporate action
necessary to reserve for issuance a sufficient number of shares of Loral
Common Stock for delivery upon exercise of the Options and Warrants. Loral
will file one or more registration statements on Form S-8 to become effective
as soon as practicable after the Effective Time, with respect to the Loral
Common Stock subject to Options granted under the Orion stock option plans
and will use all reasonable efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain
outstanding. As soon as practicable following the Effective Time, Loral
shall, on behalf of Merger Subsidiary, take such other actions as are
reasonably necessary to revise and adjust each Option and each Warrant,
including providing the holder of each Option and each Warrant with an
appropriate option agreement or warrant agreement, respectively, or amendment
to existing option agreement or warrant agreement, respectively. Except as
set forth in the Merger Agreement, the conversion of Options shall not give
the holders of such Options additional benefits or additional vesting rights
which they did not have immediately prior to the Effective Time or relieve
the holders of obligations or restrictions applicable to their Options or the
shares obtainable upon exercise of the Options.
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In connection with the Merger, Orion has amended its employee stock option
plans to provide that in the event an optionee's employment is terminated
within two years after a "Change in Control" (as defined) by Orion other than
for "Cause" (as defined) or by the optionee for "Good Reason" (as defined),
all non-vested Options held by the optionee under such plans will immediately
vest. "Cause" includes certain criminal acts, willfully failure to perform
material assigned duties and gross or willful misconduct that causes
substantial harm to Orion's business. "Good Reason" means any reduction in
optionee's base salary (with certain exceptions), substantially reduction of
responsibilities or relocation outside the metropolitan areas in which
offices of Orion were located immediately prior to the Change in Control.
Effective as of the last trading day of Orion Common Stock prior to the
Effective Time, the then applicable payroll deduction period, as defined in
Orion's 1996 Employee Stock Purchase Plan, shall be terminated and the rights
of all participating employees shall be deemed to be automatically exercised
as of such last trading day of Orion Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Orion's management and Board of Directors have certain
interests in the Merger that are in addition to the interests of stockholders
of Orion generally. These interests arise from, among other things, certain
employee benefit plans and indemnification and insurance arrangements which
Loral will assume or has agreed to provide after the Merger.
As of the Record Date, directors and executive officers of Orion owned (i)
2,363,698 shares of Orion Common Stock and 1,454 shares of Orion Preferred
Stock (for which they will receive the same consideration as other Orion
stockholders) and (ii) options to acquire 901,236 shares of Orion Common
Stock. The stock and options held by such directors and executive officers
will be treated in the Merger in a manner identical to stock and options held
by other persons, except that directors and executive officers of Orion, as
affiliates of Orion for purposes of Rule 145 under the Securities Act, will
be subject to certain limitations on resale of Loral Common Stock and that,
under the proposed amendments to the Director Option Plan (see "Amendments to
Director Option Plan"), options issued to Orion's directors under the
Director Option Plan will vest upon consummation of the Merger instead of at
the next annual meeting of Orion stockholders.
As a condition to entering into the Merger Agreement, Loral required
certain stockholders of Orion to enter into the Principal Stockholder
Agreement pursuant to which such stockholders (i) agreed to vote their shares
of Orion Common Stock in favor of the approval of the Merger Agreement and
against any proposal for any recapitalization, merger (other than the
Merger), sale of assets or other business combination between Orion and any
person or entity (other than Loral and Merger Subsidiary) or any other action
or agreement that would result in a breach of the Merger Agreement or result
in any condition of the Merger Agreement not being fulfilled, (ii) granted
irrevocable proxies in favor of Loral and Merger Subsidiary to so vote their
shares, (iii) granted to Loral an option to purchase such stockholders'
shares of Orion Common Stock and Orion Preferred Stock for the Exchange
Ratio, and (iv) one such stockholder, British Aerospace Holdings, Inc.,
granted to Loral an option to require the conversion of all (but not less
than all) of its Debentures into Orion Common Stock and, upon such
conversion, the option to purchase such shares for the Exchange Ratio. The
options described in (iii) and (iv) above may only be exercised upon the
occurrence of certain events, which generally relate to, or are designed to
culminate in, the acquisition of control of, or a significant equity interest
in or significant assets of, Orion by a third party. See "The Principal
Stockholder Agreement." See "The Merger Agreement and Principal Stockholder
Agreement -- Principal Stockholder Agreement."
Under the Merger Agreement, Loral and Orion have agreed that the
certificate of incorporation and bylaws of the Surviving Corporation will
contain the provisions for indemnification set forth in Orion's certificate
of incorporation and bylaws for a period of six years after the Effective
Time unless otherwise required by law. Loral has agreed to cause the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers, directors and employees of Orion and Orion's subsidiaries
against losses arising out of actions or omissions occurring at or prior to
the Effective Time to the fullest
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extent permitted under Delaware law, and agreed to maintain in effect for six
years the current policies of directors' and officers' liability insurance
and fiduciary liability insurance maintained by Orion with respect to matters
occurring prior to the Effective Time.
In addition, Loral has agreed to cause the Surviving Corporation to
provide employee benefits under plans, programs and arrangements, which, in
the aggregate, will provide benefits to the employees of Orion and its
subsidiaries, which are not less favorable, in the aggregate, than those
provided pursuant to the plans, programs and arrangements of Orion in effect
on the date of the Merger Agreement.
Loral has also acknowledged and agreed that prior to the Effective Time,
Orion will take all actions as may be necessary to cause (i) all participants
to become fully vested in their benefits under Orion's 401(k) plan, and (ii)
employer contributions to be made with respect to periods prior to the
Effective Time to Orion's 401(k) plan to the extent that such contributions
would be made if the participants were employed by Orion on the last day of
the calendar year in which the closing occurs.
In addition, SS/L owned, as of February 12, 1998, 588,235 shares of Orion
Common Stock, equal to approximately 2.7% of the voting stock of Orion
outstanding as of such date.
Loral has agreed to pay a $1 million finder's fee to C.E. Unterberg,
Towbin in connection with the Merger. A. Robert Towbin, a principal of C.E.
Unterberg, Towbin, is a director of Globalstar.
FEES AND EXPENSES
All fees and expenses incurred in connection with the Merger, the Merger
Agreement and the transactions contemplated thereunder shall be paid by the
party incurring such fees or expenses, whether or not the Merger is
consummated.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting.
Under the purchase method of accounting, the purchase price of Orion,
including direct costs of the Merger, will be allocated to the identifiable
assets acquired and liabilities assumed based upon their estimated relative
fair values, with the excess purchase consideration allocated to goodwill.
The results of Loral's operations will include the results of operations of
Orion commencing at the Effective Time.
The Pro Forma Financial Data describing the pro forma effects of the
Merger appearing elsewhere in this Proxy Statement/Prospectus are based upon
certain assumptions and allocate the purchase price to assets and liabilities
based upon their historical values, pending completion of an independent
valuation and allocation of their respective fair values, which are not
expected to result in material adjustments. The unaudited pro forma
adjustments and combined amounts are included for informational purposes
only. If the Merger is consummated, Loral's financial statements will reflect
the effects of acquisition adjustments only from the Effective Time. The
actual allocation of the purchase price may differ significantly from the
allocation reflected in the Pro Forma Financial Data.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
General. The following discussion summarizes certain material U.S. federal
income tax consequences of the Merger to U.S. holders of Orion Common Stock
and Orion Preferred Stock (assuming such Orion Common Stock and Orion
Preferred Stock are held as capital assets) and does not purport to be a
complete analysis or listing of all potential tax effects relevant to a
decision whether to vote in favor of the Merger. The discussion is for
general information purposes only and does not take into account the
particular circumstances of any individual holder of Orion Common Stock and
Orion Preferred Stock and does not address the tax consequences that may be
relevant to holders of Orion Common Stock and Orion Preferred Stock with
special tax status, including but not limited to financial institutions,
insurance companies, dealers in securities, holders that are not citizens or
residents of the United States and tax-exempt entities, or to holders that
acquired Orion Common Stock upon the exercise of employee stock options or
otherwise as compensation. Moreover, the discussion does not address any
consequences arising under the laws of any state, locality or foreign
jurisdiction. Additionally, the tax consequences to holders of stock options
are not discussed.
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The discussion is based on the Code, Treasury Regulations thereunder and
administrative rulings and court decisions as of the date of the Tax Opinion
(see below). All of the foregoing are subject to change and any such change
could adversely affect the opinions expressed in the Tax Opinion
retroactively. Holders of Orion Common Stock and Orion Preferred Stock are
urged to consult with their own tax advisors regarding the tax consequences
of the Merger to them, including the effects of federal, state, local,
foreign and other tax laws.
TAX TREATMENT UNCERTAIN DUE TO SPECIAL CONSIDERATIONS. The U.S. federal
income tax treatment of the Merger is uncertain due to special considerations
discussed below because of Loral's status as a foreign corporation. Subject
to such considerations, Orion and Loral expect that the Merger would
constitute a "reorganization" within the meaning of Section 368(a) of the
Code and that for U.S. federal income tax purposes no gain or loss would be
recognized by U.S. stockholders of Orion upon the receipt of Loral Common
Stock in exchange for Orion Common Stock or Orion Preferred Stock pursuant to
the Merger (except with respect to the receipt of cash by a holder of Orion
Common Stock or Orion Preferred Stock in lieu of a fractional share interest
in Loral Common Stock).
However, special considerations under Section 367 of the Code because of
Loral's status as a foreign corporation may result in the Merger not
constituting a "reorganization" within the meaning of Section 368(a) of the
Code, so that for U.S. federal income tax purposes gain, but not loss, would
be recognized by U.S. stockholders of Orion upon the receipt of Loral Common
Stock in exchange for Orion Common Stock or Orion Preferred Stock pursuant to
the Merger. Such gain would be in an amount equal to the excess, if any, of
the fair market value of the Loral Common Stock received over the Orion
stockholders' adjusted tax basis in the Orion Common Stock or Orion Preferred
Stock exchanged therefor. THERE CAN BE NO ASSURANCES AS TO WHETHER ORION
STOCKHOLDERS WILL BE REQUIRED TO RECOGNIZE GAIN REALIZED FOR U.S. FEDERAL
INCOME TAX PURPOSES AS A RESULT OF THE MERGER.
Tax Treatment as a "Reorganization," EXCLUDING EFFECT OF SPECIAL
CONSIDERATIONS. On or prior to the Effective Date, Ernst & Young LLP, tax
advisor to Orion, is expected to deliver to Orion its opinion (the "Tax
Opinion") addressing and limited to the following issues. Subject to the
special considerations because of Loral's status as a foreign corporation
under Section 367 of the Code: (i) the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, (ii)
Loral, Merger Subsidiary and Orion will each be a party to the reorganization
within the meaning of Section 368(b) of the Code, (iii) no income, gain or
loss will be recognized for U.S. federal income tax purposes by either Loral
or Orion as a result of the Merger, (iv) no income, gain or loss will be
recognized for U.S. federal income tax purposes by U.S. stockholders of Orion
upon the exchange in the Merger of Orion Common Stock and Orion Preferred
Stock solely for Loral Common Stock (except to the extent of any cash
received in lieu of fractional shares), (v) the tax basis of Loral Common
Stock received by each U.S. stockholder of Orion will be the same as the tax
basis of such stockholder's Orion Common Stock and Orion Preferred Stock
exchanged therefor, reduced by any amount allocable to a fractional share
interest for which cash is received, and (vi) the holding period of Loral
Common Stock in the hands of the U.S. stockholders of Orion will include the
holding period of such stockholder's Orion Common Stock and Orion Preferred
Stock exchanged therefor, provided that such Stock is held as a capital asset
at the Effective Time.
Special Tax Considerations. Because Loral (as a Bermuda company) is a
foreign corporation, certain special rules under Section 367 of the Code
regarding mergers involving foreign corporations apply to the Merger. In
general, under Section 367 of the Code, gain realized by U.S. stockholders in
an otherwise tax-free reorganization involving domestic and foreign
corporations will be taxable unless the parties satisfy certain objective
criteria set forth in relevant Treasury Regulations under Section 367 of the
Code. Those criteria include, among other things, (i) the amount of Loral
stock which is received by the domestic Orion stockholders in the Merger
cannot exceed 50% of Loral's outstanding stock; (ii) the post-Merger amount
of Loral stock held by certain 5% U.S. stockholders of Orion and U.S.
officers and directors of Orion, both individually and collectively, in Loral
cannot exceed 50% of Loral's outstanding stock (counting for this purpose
Loral stock held or treated as held by those Orion stockholders, officers,
and directors, prior to the Merger); and (iii) Loral must satisfy a detailed
active trade or business requirement for the thirty-six month period
immediately prior to the Merger (the "Active Trade or
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Business Requirement"). In addition, in order to defer recognition of gain
each Orion stockholder owning five percent or more of the stock of Loral
immediately after the Merger must enter into an agreement to recognize gain
as of the Effective Time in the event Loral disposes of the Orion shares
within a five (and in certain cases, ten) year period following the year in
which the transfer takes place. Orion and Loral management believe that the
limitations in clause (i) and (ii) above should be met with respect to the
Merger.
The Active Trade or Business Requirement is based on activities conducted
outside the U.S. by a company directly or through one or more qualified
subsidiaries and/or partnerships. Therefore, the determination of whether
Loral satisfies the Active Trade or Business Requirement is based on numerous
factual matters relating to the business conducted outside of the U.S. by
Loral and its qualified subsidiaries and/or partnerships and the application
of the relevant regulations and other interpretive guidance to such factual
matters. In addition, the application of the Active Trade or Business
Requirement to Loral's historical business activities is unclear because
there is limited guidance as to the nature of the activities necessary to
satisfy that rule. Furthermore, the IRS recognizes that it may be appropriate
to treat transactions that substantially comply with the Active Trade or
Business Requirement as non-taxable even though all aspects of the Active
Trade or Business Requirement are not strictly satisfied. IRS regulations
expressly invite companies who believe, as Loral and Orion do, that their
transaction should not be taxable to apply for a tax ruling that the
transaction will be treated as non-taxable. However, the IRS has not yet
considered such a request. Accordingly, there is no guidance as to what
circumstances the IRS will consider in determining whether it will treat a
transaction as non-taxable. Without such guidance, Loral and Orion cannot
determine how the IRS will treat the transaction.
Therefore, under the Merger Agreement, Loral and Orion have agreed and
plan to seek to obtain, a private letter ruling from the IRS that Loral will
be treated as a corporation for purposes of Section 367(a) of the Code. The
information to be collected in preparing the ruling request has not been
completed. Depending on the additional information which is collected, the
request will (i) seek a ruling that Loral satisfies the Active Trade or
Business Requirement and/or (ii) request that the IRS exercise its authority
under Section 367 regulations and treat Loral as a foreign corporation for
purposes of Section 367(a) of the Code even though such requirement is not
satisfied. If a ruling is obtained and all other applicable requirements are
satisfied, the Merger will qualify as a tax-free reorganization under Section
368(a) of the Code. In addition, Loral has agreed that it will not, and will
not permit any of its subsidiaries, to intentionally take, fail to take, or
cause to be taken or not taken any action within its control that would
disqualify the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Loral and Orion do not expect to receive any such ruling until after the
Effective Time. Loral and Orion intend to proceed with the Merger while such
ruling is being sought, and receipt of a favorable ruling from the IRS is not
a condition to consummation of the Merger. Loral and Orion intend to continue
to pursue such ruling after the Effective Time, if necessary, and, if such
ruling is received, they will notify any U.S. stockholder of Orion as of the
Effective Time as to the outcome of the request. Unless a favorable ruling is
obtained from the IRS, based on the facts as they exist as of the date of
this Proxy Statement/Prospectus, Loral intends to take the position that the
Merger is a taxable transaction and, accordingly, any Orion stockholders that
realized gain, but not loss, as a result of the Merger will be required to
recognize such gain for U.S. federal income tax purposes. The grant or denial
of the proposed ruling request is within the discretion of the IRS and no
comparable private rulings have ever been issued. Accordingly, there can be
no assurance that a favorable ruling will be granted in this case.
Tax Treatment ASSUMING GAIN ON THE MERGER MUST BE RECOGNIZED Due to
Special Considerations. The Tax Opinion is expected to state that if the
Section 367 rules do require the recognition of gain: (i) each U.S. Orion
stockholder recognize gain upon the receipt of Loral Common Stock in exchange
for Orion Common Stock or Orion Preferred Stock pursuant to the Merger in an
amount equal to the excess, if any, of the fair market value of the Loral
Common Stock received over the Orion stockholders' adjusted tax basis in the
Orion Common Stock or Orion Preferred Stock exchanged therefor, (ii) such
gain will constitute long-term capital gain if, at the Effective Time, such
stockholder's Orion Common Stock and Orion Preferred Stock is held as a
capital asset and has been held for more
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than 18 months, (iii) any U.S. Orion stockholder that realizes a loss upon
the receipt of Loral Common Stock in exchange for Orion Common Stock or Orion
Preferred Stock pursuant to the Merger will not be entitled to recognize such
loss for U.S. federal income tax purposes, (iv) any U.S. Orion stockholder
that realizes gain for U.S. federal income tax purposes upon the Merger will
have a tax basis in the Loral Common Stock received equal to its fair market
value, and the holding period of Loral Common Stock in the hands of such
Orion stockholder will begin on the day following the Effective Time, and (v)
any U.S. Orion stockholder that realizes but is unable to recognize a loss
for U.S. federal income tax purposes upon the exchange will have a tax basis
in the Loral Common Stock received equal to the tax basis of such
stockholder's Orion Common Stock and Orion Preferred Stock exchanged
therefor, and the holding period of Loral Common Stock in the hands of such
Orion stockholder will include the holding period of such stockholder's Orion
Common Stock and Orion Preferred Stock exchanged therefor.
Tax Treatment of Cash Received in Lieu of Fractional Shares. Regardless of
the tax treatment of Loral Common Stock received by Orion stockholders
discussed above, a holder of Orion Common Stock and Orion Preferred Stock who
receives cash in lieu of a fractional share of Loral Common Stock will
recognize gain or loss equal to the difference between the amount of such
cash and the tax basis allocated to such stockholder's fractional share of
Loral Common Stock. Such gain or loss will constitute long-term capital gain
or loss if, at the Effective Time, such stockholder's Orion Common Stock and
Orion Preferred Stock is held as a capital asset and has been held for more
than 18 months.
Opinion of Tax Advisors Based on Representations made by Orion and Loral
and on Current Law. The Tax Opinion referred to above is based on
representations made by Orion, Loral and certain significant Orion
stockholders, which representations Ernst & Young LLP has not independently
verified. The Tax Opinion is based upon the Merger taking place as described
in the Merger Agreement and that certain factual matters with respect to
Loral, Merger Subsidiary and Orion, respectively, described in certain
representation letters to be delivered to Ernst & Young LLP prior to the
issuance of its Tax Opinion, will be true, complete and correct as of the
Effective Time. Such representation letters include, among other things,
representations relating to the continued ownership of a sufficient amount of
Loral stock by historic stockholders of Orion, the absence of plans to engage
in certain transactions with respect to Merger Subsidiary and the assets of
Orion, the continued operation of Orion's historic business after the Merger,
payment of Merger expenses, limitation on cash paid for fractional shares in
connection with the Merger, and the nature of compensation paid to
employee-stockholders and the officers and directors of Orion after the
Merger. The Tax Opinion will be based on current laws and interpretations
thereof as of the date of the Tax Opinion, including the Code, the
regulations promulgated thereunder, administrative rulings and practice and
judicial authority. All of these authorities are subject to change, possibly
with an adverse effect on the opinions expressed in the Tax Opinion that
could be applied retroactively. Ernst & Young LLP is not responsible for
updating its opinion for any such change which may occur subsequently to the
date of the Tax Opinion. The Tax Opinion is not binding on the IRS and there
can be no assurance, and none is hereby given, that the IRS will not take a
position contrary to one or more positions reflected in such opinions or that
such opinions will be upheld by the courts if challenged by the IRS.
THE DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION PURPOSES ONLY.
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO
CHANGE. ANY SUCH CHANGE, WHICH MAY OR MAY NOT BE RETROACTIVE, COULD ALTER THE
TAX CONSEQUENCES DESCRIBED ABOVE. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER APPLICABLE
TAX LAWS AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
TAXATION OF LORAL AND ITS STOCKHOLDERS
The discussion of U.S. tax law is based upon the opinion of Willkie Farr &
Gallagher, special U.S. counsel to Loral. The summary of certain Bermuda tax
consequences is based upon the opinion of Appleby, Spurling & Kempe, Bermuda
counsel to Loral.
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UNITED STATES TAX CONSIDERATIONS
Taxation of Loral. Loral will 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 will be subject to an additional 30
percent "branch profits" tax. Based upon counsel's opinion as to the source
of income and effective connection rules that are applicable, Loral expects
that a significant portion of its income will be from foreign sources and
will not be effectively connected with the conduct of a U.S. trade or
business. The IRS may disagree and/or may promulgate regulations that would
recharacterize a substantial portion of Loral's income as from United States
sources and as effectively connected with a U.S. trade or business so as to
subject that income to regular United States income and branch profits taxes.
Any U.S. subsidiaries, such as SS/L and Orion, will be subject to regular
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 corporations to Loral.
Loral expects that a significant portion of its worldwide income will not
be subject to tax by the United States, Bermuda or by other countries from
which it derives income. However, some portion of Loral's income from sources
outside the United States, realized through Globalstar or otherwise, will be
subject to taxation by foreign countries and the extent to which certain
countries may require Loral or Globalstar to pay tax or to make payments in
lieu of tax cannot be determined in advance.
Taxation of Non-U.S. Securityholders in Loral. A non-U.S. resident alien
individual, a non-U.S. corporation, a non-U.S. trust or a non-U.S. estate
holding shares in Loral (a "Securityholder") will not be subject to U.S.
Federal income taxation on payments of dividends on the shares he holds in
Loral unless those payments are (i) effectively connected with the conduct by
the Securityholder of a trade or business in the United States or (ii) 25% or
more of Loral's gross income for a certain period (generally three years)
prior to the year of the payment was treated as effectively connected with
trades or businesses conducted by Loral in the United States. In this latter
case, a proportionate part of any payment, corresponding to the percentage of
Loral's gross income that is deemed effectively connected with Loral's United
States trades and businesses, would be subject to a 30% (or lower treaty
rate) U.S. withholding tax. Consistent with the discussion above, Loral
expects that less than 25% of its income in any year will be effectively
connected with the conduct of a trade or business in the United States.
In addition, such a non-U.S. Securityholder will not be subject to U.S.
Federal income taxation on gains realized by the Securityholder on a sale or
exchange of Shares he holds in Loral unless the sale of such shares is
attributable to an office or fixed place of business maintained by the
Securityholder in the United States or the Securityholder is an individual
who is present in the United States for 183 or more days during the year of
sale and who have either a tax home or an office or other fixed place of
business in the United States to which the offer or exchange is attributable.
The determination of whether a Securityholder is engaged in the conduct of a
trade or business in the United States or whether the sale of a
Securityholder's shares in Loral is attributable to an office or fixed place
of business of the Securityholder in the United States depends on the facts
and circumstances of each Securityholder's case. Each Securityholder should
consult with his own tax advisor to determine whether his payments or gains
with respect to a Security will be subject to U.S. federal income taxation.
Taxation of United States Securityholders in Loral. A Securityholder
holding a share in Loral as a capital asset will recognize capital gain or
loss on a sale or other disposition of the share in Loral (other than in
certain limited circumstances on a redemption by Loral).
To the extent Loral has undistributed current or accumulated earnings and
profits, payment of dividends with respect to Loral's shares will be taxable
dividend income to a Securityholder. Because Loral is not incorporated in the
United States, the payments that are treated as dividends will not be
eligible for the dividends received deduction.
BERMUDA TAX CONSIDERATIONS
There is no Bermuda income tax, corporation or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate or stamp duty or
inheritance tax payable by Loral or the holders of shares in Loral (other
than holders who are ordinarily resident in Bermuda).
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Loral has obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966, as amended, a certificate confirming
that, in the event of there being enacted in Bermuda, any legislation
imposing tax computed on profits or income, or computed on any capital asset,
gain or appreciation or any tax in the nature of estate duty or inheritance
tax, such tax shall not until March 28, 2016 be applicable to Loral or to any
of its operations, or other obligations of Loral except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding shares in Loral
or other obligations, or to any land in Bermuda leased or let to Loral.
Loral has been classified as non-resident of the Bermuda exchange control
area by the Bermuda Monetary Authority. The transfer of shares between
persons regarded as non-resident of Bermuda for exchange control purposes and
the issue and redemption of shares to and by such persons may be effected
without specific consents under the Exchange Control Act 1972 of Bermuda and
Regulations made thereunder. Transfers involving any person regarded as
resident in Bermuda for exchange control purposes requires specific
authorization under that Act. Loral by virtue of being a non-resident of
Bermuda for exchange control purposes, is free to acquire, hold and sell any
foreign currency, securities and other investments without restrictions.
RESALE OF LORAL COMMON STOCK
The Loral Common Stock to be issued pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any Orion
stockholder who, prior to the Merger, may be deemed an affiliate of Orion (an
"Affiliate") as such term is defined under the Securities Act. Orion will use
its reasonable efforts to cause each Affiliate to enter into an agreement
with Loral providing that such Affiliate will not transfer any Loral Common
Stock received in the Merger except in compliance with the Securities Act.
Persons who may be deemed to be affiliates of Orion generally include
individuals or entities that control, are controlled by, or are under common
control with, Orion and may include certain officers and directors of Orion
as well as principal stockholders of Orion.
Pursuant to the Principal Stockholder Agreement, BAe and Loral have agreed
to consult and cooperate with respect to the orderly disposition of shares of
Loral Common Stock obtained by BAe. BAe has agreed that for a period of
twelve months from the date it acquires the shares of Loral Common Stock it
will not and will cause each of its affiliates not to transfer any shares of
Loral Common Stock other than by means of a block trade (or a series of block
trades) with an entity that qualifies as a block trade positioner (as
defined). BAe will consult with Loral prior to such sale and seek the consent
of Loral to such sale, which consent shall not be unreasonably withheld,
conditioned or delayed. As an alternative to conducting block trades, BAe has
the right to sell all (but not less than all) of its shares of Loral Common
Stock pursuant to an underwritten sale with an underwriter reasonably
acceptable to Loral. In addition, all of the stockholder parties to the
Principal Stockholder Agreement have agreed pursuant to such agreement not to
transfer Loral Common Stock received in the Merger except in compliance with
the Securities Act.
LISTING
It is a condition to the Merger that the shares of Loral Common Stock to
be issued in connection with the Merger be authorized for listing on the
NYSE, subject to official notice of issuance.
CERTAIN EFFECTS OF THE PRINCIPAL STOCKHOLDER AGREEMENT AND TERMINATION FEE
As a condition to entering into the Merger Agreement, Loral required
certain stockholders of Orion to enter into the Principal Stockholder
Agreement pursuant to which such stockholders (i) agreed to vote their shares
of Orion Common Stock in favor of the approval of the Merger Agreement and
against any proposal for any recapitalization, merger (other than the
Merger), sale of assets or other business combination between Orion and any
person or entity (other than Loral and Merger Subsidiary) or any other action
or agreement that would result in a breach of the Merger Agreement or result
in any condition of the Merger Agreement not being fulfilled, (ii) granted
irrevocable proxies in favor of Loral and Merger Subsidiary to so vote their
shares, (iii) granted to Loral an option to purchase such
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stockholders' shares of Orion Common Stock and Orion Preferred Stock for the
Exchange Ratio, and (iv) one such stockholder, BAe, granted to Loral an
option to require the conversion of all (but not less than all) of its
Debentures into Orion Common Stock and, upon such conversion, the option to
purchase such shares for the Exchange Ratio. The options described in (iii)
and (iv) above may only be exercised upon the occurrence of certain events,
which generally relate to, or are designed to culminate in, the acquisition
of control of, or a significant equity interest in or significant assets of,
Orion by a third party. See "The Principal Stockholder Agreement."
Certain aspects of the Principal Stockholder Agreement, as well as certain
aspects of the $20 million termination fee payable by Orion provided for in
the Merger Agreement, may have the effect of discouraging persons who might
now or prior to the consummation of the Merger be interested in acquiring all
of or a significant interest in Orion from considering or proposing such an
acquisition. See "The Merger Agreement -- Termination; Fees and Expenses" and
"The Principal Stockholder Agreement -- Exercise of the Option."
CERTAIN LEGAL MATTERS
Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain acquisition transactions may not be
consummated unless notice has been given and certain information has been
furnished to the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") and the FTC and certain waiting period
requirements have been satisfied. The required waiting period under the HSR
Act expired on November 21, 1997.
Notwithstanding the expiration of the HSR waiting period, state Attorneys
General and private parties may also bring legal actions under the federal or
state antitrust laws under certain circumstances. Based upon an examination
of information available to Loral and Orion relating to the businesses in
which Loral, Orion and their respective subsidiaries are engaged, Loral and
Orion believe that the consummation of the Merger will not violate the
antitrust laws. Nevertheless, there can be no assurance that a challenge to
the proposed Merger on antitrust grounds will not be made or, if such a
challenge is made, that Loral and Orion will prevail.
On October 16, 1997 Loral and Orion filed an application with the Federal
Communications Commission ("FCC") seeking consent for Loral to acquire
control of Orion and its affiliates. On October 22, 1997 the FCC placed the
application on public notice and sought oppositions or petitions from
interested parties with respect to the application within thirty (30) days.
No comments were filed in response to the FCC's public notice by November 21,
1997. Despite the passage of the filing deadline, there can be no assurance
that parties will not file pleadings challenging grant of the application
and, if such pleadings are filed, that the FCC will not consider any issues
raised before acting on the application.
Although Loral anticipates that the FCC will grant the application, there
can be no assurance that the FCC will do so. The FCC may, sua sponte, reject
the application or place materially adverse conditions on any grant. Despite
the fact that Loral and Orion seek to consummate the merger as promptly as
practicable, the FCC may delay acting on the application. If the application
is approved by the FCC, third parties may seek reconsideration or appeal of
the FCC decision. There can be no assurance that these challenges will not
prove successful.
Neither Loral nor Orion is aware of any other federal or state regulatory
requirements or other requisitive approvals that may be required for
consummation of the Merger except as described above. Should any such
requirement or approval be required, it is presently contemplated that such
requirement or approval would be sought. There can be no assurance, however,
that any such requirement or approval, if needed, could be obtained and would
not be conditioned in a manner that would cause the parties to abandon the
Merger.
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THE MERGER AGREEMENT AND PRINCIPAL STOCKHOLDER AGREEMENT
This section of the Proxy Statement/Prospectus describes all material
terms of the Merger Agreement and the Principal Stockholder Agreement. The
following description, however, does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement and the
Principal Stockholder Agreement, which are attached hereto as Attachments A
and B, respectively, and are incorporated herein by reference. Capitalized
terms used herein and not otherwise defined have the meanings given to such
terms in the Merger Agreement or the Principal Stockholder Agreement.
THE MERGER AGREEMENT
General
Subject to the terms and conditions of the Merger Agreement, Merger
Subsidiary will be merged with and into Orion at the Effective Time. The
separate corporate existence of Merger Subsidiary will then cease, and Orion
will continue as the Surviving Corporation and a wholly-owned subsidiary of
Loral. The name of the Surviving Corporation will be Loral Orion Network
Systems, Inc.
Certificate of Incorporation and Bylaws of Surviving Corporation. The
Merger Agreement provides that the certificate of incorporation of Merger
Subsidiary as in effect immediately prior to the Effective Time will become
the certificate of incorporation of the Surviving Corporation. The bylaws of
Merger Subsidiary in effect at the Effective Time will become the bylaws of
the Surviving Corporation.
Directors and Officers of Surviving Corporation. The directors of Merger
Subsidiary (or such other or additional individuals as Loral may designate
prior to the Effective Time) shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation; and the officers of
Merger Subsidiary (or such other or additional individuals as Loral may
designate prior to the Effective Time) shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected
or appointed and qualified.
Effective Time
The Merger will be consummated and become effective at the time of the
filing of a certificate of merger pursuant to the DGCL with the Secretary of
State of the State of Delaware, which will be filed as promptly as
practicable on the closing date of the Merger.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the parties thereto. The following summary lists the material representations
and warranties contained in the Merger Agreement.
The Merger Agreement includes representations and warranties by Orion as
to, among other things, the following: (a) the corporate organization,
standing and power of Orion and its subsidiaries; (b) the absence of
violation of Orion's or its subsidiaries' respective certificates or articles
of incorporation, bylaws or partnership agreements; (c) Orion's
capitalization; (d) the power and authority of Orion to enter into and to
perform its obligations under the Merger Agreement and the Principal
Stockholder Agreement and the execution, delivery, performance and
enforceability of the Merger Agreement by Orion and of the transactions
contemplated thereunder; (e) the absence of conflict of the Merger Agreement
or the Principal Stockholder Agreement with Orion's or its subsidiaries'
certificate or articles of incorporation, bylaws or partnership agreement,
with any law or with any agreement to which Orion or its subsidiaries are
party or by which their assets are bound, and the absence (except as
specified) of required governmental or third-party consents to the Merger;
(f) the accuracy of Orion's documents required to be filed with the
Commission and the compliance of Orion's and its subsidiaries' financial
statements with applicable accounting requirements; (g) the conduct of
Orion's business in the ordinary course since June 30, 1997, and the absence
of any material adverse change in the business, financial condition, results
of operations, properties, assets or liabilities of Orion and its
subsidiaries since June 30, 1997; (h) the absence of pending or threatened
litigation; (i) the compliance of Orion and its subsidiaries with applicable
laws; (j) the existence of and compliance of Orion and its subsidiaries with
all permits, licenses or approvals issued by governmental entities necessary
to operate the Orion 1 satellite and to
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construct, launch and operate Orion 2 and Orion 3 satellites; (k) the due
payment of taxes and certain other tax matters; (l) the ownership of and
rights to use certain intellectual property; (m) the validity and compliance
of Orion and its subsidiaries with the terms of the material contracts of
Orion and its subsidiaries; (n) the terms, existence, operations, liabilities
and compliance with applicable laws of employee benefit plans of Orion and
its subsidiaries, certain other matters relating to the Employee Retirement
Income Security Act of 1974, as amended (the "ERISA"), and certain labor
matters; (o) the good and marketable title of Orion to its assets and
properties; (p) the compliance of Orion and its subsidiaries with
environmental laws; (q) the validity and compliance of Orion and its
subsidiaries with their insurance policies; (r) the Board of Directors
recommendation to stockholders to approve the Merger Agreement; (s) the
opinion received by Orion from Morgan Stanley; (t) brokers and finders
employed by Orion; and (u) the inapplicability of state takeover status and
certain provisions.
The Merger Agreement also includes representations and warranties by Loral
as to, among other things, the following: (a) the corporate organization,
standing and power of Loral and its subsidiaries; (b) the absence of
violation of Loral's or its subsidiaries' respective certificate or articles
of incorporation, bylaws or partnership agreements, (c) Loral's
capitalization; (d) the power and authority of Loral to enter into and to
perform its obligations under the Merger Agreement and the execution,
delivery, performance and enforceability of the Merger Agreement by Loral and
the transactions contemplated thereunder; (e) the absence of conflict of the
Merger Agreement with Loral's memorandum of association, bye-laws, with any
law or with any agreement to which Loral or its subsidiaries are party or by
which their assets are bound, and the absence (except as specified) of
required governmental or third-party consents to the Merger; (f) the accuracy
of Loral's documents required to be filed with the Commission and the
compliance of Loral's and its subsidiaries' financial statements with
applicable accounting requirements; (g) the conduct of Loral's business in
the ordinary course and the absence of any material adverse change in the
business, financial condition, results of operations, properties, assets or
liabilities of Loral and its subsidiaries since June 30, 1997; (h) the
absence of pending or threatened litigation; (i) the compliance of Loral and
its subsidiaries with applicable laws; (j) the due payment of taxes and
certain other tax matters; (k) the ownership of and rights to use certain
intellectual property; (l) the validity and compliance of Loral and its
subsidiaries with the terms of the material contracts of Loral and its
subsidiaries; (m) the terms, existence, operations, liabilities and
compliance with applicable laws of employee plans of Loral and its
subsidiaries, and certain other matters relating to the ERISA; (n)
qualification of Loral under the Communications Act of 1934, as amended (the
"Communications Act") to own and operate its material assets, and (o) brokers
and finders employed by Loral.
The Merger Agreement also includes representations and warranties by
Merger Subsidiary as to, among other things, (a) the corporate organization,
standing and power of Merger Subsidiary; (b) the absence of violation of its
certificate of incorporation or bylaws; (c) the power and authority of Merger
Subsidiary to enter into and perform its obligations under the Merger
Agreement and (d) the absence of conflict of the Merger Agreement with Merger
Subsidiary's certificate of incorporation or bylaws, with any law or with any
agreement to which Merger Subsidiary is party or by which its assets are
bound, and the absence (except as specified) of required governmental or
third-party consents to the Merger.
The representations and warranties of each of the parties contain various
customary exceptions for materiality, knowledge and previously disclosed
information. The representations and warranties of each of the parties are
deemed to be conditions to the Merger to the extent provided for in the
Merger Agreement, but will not survive the Effective Time.
Business of Orion Pending the Merger
Orion has agreed that, among other things, prior to the Effective Time,
except as expressly contemplated by the Merger Agreement or consented to in
writing by Loral, Orion will, and Orion will cause each of its subsidiaries
to, (a) conduct its business in the ordinary course consistent with past
practice; (b) use its commercially reasonable efforts to preserve
substantially intact its current business organization, to maintain its
rights and franchises, retain the services of its current officers and other
key employees and to maintain its relationships with its respective principal
customers and suppliers; (c) use its commercially reasonable efforts to
maintain and keep its properties and assets in as good repair and
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condition as at present, ordinary wear and tear excepted; (d) use its
commercially reasonable efforts to keep in full force and effect insurance
comparable in amount and scope of coverage to that currently maintained; (e)
prepare and file all tax returns required to be filed in a timely manner, and
in a manner consistent with prior years and applicable laws and regulations;
(f) timely file with the Commission all reports required to be filed under
the Exchange Act, which reports (including the unaudited interim financial
statements included in such reports) shall comply with the Exchange Act, the
rules and regulations promulgated thereunder and all applicable accounting
requirements; (g) operate its business in accordance with the terms of its
licenses, the Communications Act and the FCC rules and policies and in all
material respects with all other applicable laws; (h) use its commercially
reasonable efforts to maintain each key Orion permit in effect until the
applicable construction projects are complete except where (x) the loss of
such key Orion permit or pending application would not, individually or in
the aggregate, have a material adverse effect or (y) the maintenance of any
such key Orion permit would require an expenditure which would be in
violation of the Merger Agreement; (i) use its commercially reasonable
efforts to enforce its rights to have the transmissions to and from
satellites and major stations be free from interference from other radio
communications facilities (existing or proposed), to the extent that such
interference is prohibited by FCC rules or inconsistent with rights accorded
its satellites under the International Telecommunication Union's radio
regulations and shall promptly notify Loral of any actual or threatened
interference; and (j) proceed in the ordinary course of business with all
pending applications submitted by Orion or any of its subsidiaries with any
Governmental Entity and use its commercially reasonable efforts to ensure
that such applications are granted.
Orion has agreed that, except as contemplated by the Merger Agreement and
as previously disclosed to Loral or otherwise consented to in writing by
Loral, prior to the Effective Time neither Orion nor any of its subsidiaries
will:
(a) (i) increase the periodic compensation payable to or to become payable
to any of its directors or executive officers, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary course
of business and consistent with past practice; (ii) grant any severance or
termination pay (other than pursuant to existing severance arrangements or
policies as in effect on the date of the Merger Agreement) to, or enter into
or modify any employment or severance agreement with, any of its directors,
officers or employees; or (iii) adopt or amend any employee benefit plan or
arrangement, except as may be required by applicable law;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock, except as required under
the Certificates of Designations with respect to the Orion Series C Preferred
Stock, as presently in effect;
(c) (i) redeem, repurchase or otherwise reacquire any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations (except as specified); (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for, shares of
its capital stock;
(d) (i) issue, pledge, deliver, award, grant or sell, or authorize or
propose the issuance, pledge, delivery, award, grant or sale (including the
grant of any encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares (except as specified); or (ii) amend or
otherwise modify the terms of any such rights, warrants or options;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, (i) any business or any corporation, partnership, association
or other business organization or division (other than a wholly-owned
subsidiary) thereof or any satellite or other spacecraft Orion has not, on
the date of the Merger Agreement, previously agreed in writing to acquire, or
otherwise acquire or agree to acquire any assets of any other person or (ii)
make or commit to make any investments or capital expenditures, other than
investments or capital expenditures: (A) contemplated by the 1997 written
business plan previously furnished to Loral or by the
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1998 written business plan to be furnished to Loral (and the investments or
capital expenditures of such plan shall be subject to Loral's approval, which
shall not be unreasonably withheld or conditioned); (B) to replace any
satellite lost in a launch or in orbit; (C) to continue capital programs now
underway as described on Orion's schedules, plus additional expenses solely
for change orders of up to 10% of the progress payments on each satellite
remaining to be paid as of the date hereof; (D) purchase such terrestrial
equipment as necessary to supply customers in the ordinary course; or (E)
other investments or capital expenditures that do not exceed $500,000 in the
aggregate for all such investments or expenditures that occur from the date
of the Merger Agreement.
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise encumber or dispose of, any of its material assets except for
dispositions in the ordinary course of business and consistent with past
practice which do not exceed five hundred thousand dollars ($500,000) in the
aggregate;
(g) propose or adopt any amendments to its certificate of incorporation or
its bylaws;
(h) (i) make any significant change in any of its methods of accounting
(other than in the ordinary course), or (ii) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes (except where the amount of such settlements or
controversies, individually or in the aggregate, does not exceed five hundred
thousand dollars ($500,000), or change any of its methods of reporting income
or deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year ended
December 31, 1996, except, in the case of clause (i) or clause (ii), as may
be required by law or generally accepted accounting principles;
(i) incur any obligation for borrowed money, whether or not evidenced by a
note, bond, debenture or similar instrument, other than purchase money
indebtedness not to exceed five hundred thousand dollars ($500,000) in the
aggregate, except in the ordinary course of business under existing loan
agreements or capitalized leases, or prepay, before the scheduled maturity
thereof, any of its long-term debt;
(j) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of such
entity's affiliates (as defined in Rule 12(b)-2 under the Exchange Act) which
involves the transfer of consideration or has a financial impact on such
entity, other than pursuant to such agreements, arrangements, or
understandings (i) existing on the date of the Merger Agreement or (ii) which
are on terms that the Board of Directors of Orion determines in good faith to
be equal to, or more favorable to Orion, than the terms that Orion would be
able to obtain from third parties in similar transactions and/or for similar
goods or services;
(k) surrender, agree to allow to expire or be terminated, modify
adversely, forfeit, or fail to use reasonable best efforts to renew or extend
under regular terms any of the key Orion permits or violate or breach any key
Orion permits in a manner that would give valid grounds to the FCC or any
Governmental Entity (as defined in the Merger Agreement) to institute any
proceeding for the revocation, suspension, or adverse modification of any key
Orion permit issued by the FCC or any Governmental Entity except for key
Orion permits which lapse or expire due to ordinary course changes in the
business of Orion. Should the FCC or other Governmental Entity with
jurisdiction institute any proceedings for the suspension, revocation or
adverse modification of any of such key Orion permits, Orion shall use
reasonable best efforts to promptly contest such proceedings and to seek to
have such proceedings terminated in a manner that is favorable to Orion;
(l) fail to use reasonable best efforts to avoid having, any pending key
application to be dismissed or denied, except where (i) the loss of such key
Orion permit or pending key application would not, individually or in the
aggregate, have a material adverse effect or (ii) the maintenance of any such
key Orion permit would require an expenditure which would be in violation of
subsection (e) above;
(m) enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument
that (i) does not expire by the later of one (1) year after the date hereof
or six (6) months after the closing date of the Merger (as defined in the
Merger
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Agreement) or (ii) is not subject to termination by Orion upon less than six
months written notice to the other party thereto, which in either case
materially restricts or limits Orion's or any of its subsidiaries' right to
conduct its business or compete, including, without limitation, any
restriction on its ability to sell, lease or otherwise provide services from
available transponder capacity to any person or entity for any purpose at any
orbital location and in any frequency band, any geographical market segment,
product line or other industry limitation, or any exclusive or sole supply or
vendor arrangement or agreement. Nothing in the Merger Agreement shall
preclude or require Orion or any of its subsidiaries from entering into
agreements containing most favored nation provisions, options for additional
services or capacity, rights of negotiation, or similar provisions, in each
case in the ordinary course of business; or
(n) agree in writing or otherwise to do any of the foregoing.
Additional Covenants
Directors' and Officers' Indemnification and Insurance. Under the Merger
Agreement, Loral and Orion have agreed that the certificate of incorporation
and bylaws of the Surviving Corporation will contain the provisions for
indemnification set forth in Orion's certificate of incorporation and bylaws
for a period of six years after the Effective Time unless otherwise required
by law. Loral has agreed to cause the Surviving Corporation to indemnify,
defend and hold harmless the present and former officers, directors and
employees of Orion and Orion's subsidiaries against losses arising out of
actions or omissions occurring at or prior to the Effective Time to the
fullest extent permitted under the DGCL. Loral has also agreed to maintain in
effect for six years the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by Orion
with respect to matters occurring prior to the Effective Time.
Effect on Employee Benefit Plans. Loral has agreed to cause the Surviving
Corporation to provide employee benefits under plans, programs and
arrangements, which, in the aggregate, will provide benefits to the employees
of Orion and its subsidiaries which are not less favorable, in the aggregate,
than those provided pursuant to the plans, programs and arrangements of Orion
in effect on the date of the Merger Agreement; provided, however, that
nothing shall interfere with the Surviving Corporation's right or obligation
to make such changes to such plans, programs or arrangements as are necessary
to conform with applicable law.
Loral has also agreed that prior to the Effective Time, Orion will take
all such actions as may be necessary to cause (i) all participants to become
fully vested in their benefits under Orion's 401(k) Plan, and (ii) employer
contributions to be made with respect to periods prior to the Effective Time
to Orion's 401(k) Plan to the extent that such contributions would be made if
the participants were employed by Orion on the last day of the calendar year
in which the closing occurs.
No Solicitation. Under the Merger Agreement, Orion has agreed that, prior
to the Effective Time, it and its subsidiaries will not directly or
indirectly encourage, initiate or solicit, from any third party proposals
relating to, or enter into any agreement with respect to or accept any
proposals or encourage, initiate or solicit the making of any proposal that
constitutes, or that may reasonably be expected to lead to, a proposal of
merger, consolidation or similar transaction, sale, lease or other
disposition of assets of Orion or its subsidiaries representing 20% or more
of their consolidated assets, or issue, sale or other disposition of
securities representing 20% or more of the voting power of Orion or any
transaction in which any person shall acquire or has the right to acquire
beneficial ownership or any group which beneficially owns or has the right to
acquire beneficial ownership of 35% or more of the Orion Common stock, unless
such action is necessary for the directors to comply with their fiduciary
duties to the stockholders under the DGCL (and Orion is required to notify
Loral promptly of all of the relevant details relating to all inquiries and
proposals which it may receive relating to any such matters).
Certain Other Covenants. Under the Merger Agreement, both Loral and Orion
have agreed as follows: (a) to afford access to officers, employees, legal
counsel, accountants, consultants and other representatives of the other
party, during the period prior to the Effective Time, to their respective
properties, executive personnel and all information concerning their
respective businesses, properties, contracts, records and personnel as may
reasonably be requested; (b) to deem all information received by
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each party from the other party subject to the confidentiality agreements
between the parties; (c) to cooperate and prepare the Registration Statement,
which Loral has agreed to file with the Commission as promptly as practicable
after the date of the Merger Agreement; (d) as promptly as practicable after
the execution of the Merger Agreement, to file appropriate applications with
the FCC seeking approval of the change of control of Orion; (e) to file all
documents required under the HSR Act with the FTC and United States
Department of Justice; (f) to consult with the other party before issuing any
press releases relating to matters contemplated by the Merger Agreement; (g)
to use all commercially reasonable efforts to take, or cause to be taken, all
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective, as promptly as practicable, the
transactions contemplated by the Merger Agreement; (h) that Loral shall cause
the Surviving Corporation to provide employee benefits to Orion employees
which are no less favorable, in the aggregate, than those provided by Orion
on the date of the Merger Agreement; (i) that Loral will use all reasonable
efforts to cause the shares of Loral Common Stock issuable pursuant to the
Merger Agreement (including shares issuable upon exercise of the Converted
Options and Converted Warrants) to be approved for listing on the NYSE,
subject to official notice of issuance prior to the closing date of the
Merger; (j) that Loral shall obtain any necessary blue sky permits and
approvals required to distribute Loral Common Stock; (k) that Orion not less
than 30 days prior to the Effective Time will deliver to Loral a letter
identifying all persons who may be deemed to be affiliates of Orion under
Rule 145 of the Securities Act and will use all reasonable efforts to cause
each person so identified to deliver to Loral an affiliate agreement with
respect to Rule 145 under the Securities Act providing that such affiliate
will not transfer any Loral Common Stock received in the Merger except in
compliance with the Securities Act; and (l) take all action necessary in
accordance with applicable law to convene the Stockholders' Meeting.
Conditions
Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of Loral, Merger Subsidiary and Orion to effect the
Merger and the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent
permitted by applicable law: (a) the Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote of the stockholders of
Orion in accordance with applicable law; (b) the Registration Statement (or
the Exchange Registration Statement as applicable) shall have been declared
effective by the Commission under the Securities Act and no stop order or
proceedings seeking a stop order shall have been issued, initiated or
threatened by the Commission; (c) no Governmental Entity (as such term is
defined in the Merger Agreement) or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, judgment, injunction or
other order (whether temporary, preliminary or permanent), in any case which
is in effect and which prevents or prohibits consummation of the Merger or
any other transactions contemplated in the Merger Agreement; (d) the shares
of Loral Common Stock issuable pursuant to the Merger Agreement shall have
been included for listing on the NYSE upon official notice of issuance; and
(e) any waiting period with any extensions thereof under the HSR Act shall
have expired or been terminated.
Conditions to the Obligations of Loral. The obligations of Loral and
Merger Subsidiary to effect the Merger and the other transactions
contemplated in the Merger Agreement (except the Principal Stockholder
Agreement) are also subject to the following conditions, any or all of which
may be waived by Loral, in whole or in part, to the extent permitted by
applicable law: (a) the representations and warranties of Orion made in this
Agreement shall be true and correct both when made and as of the Effective
Time (except for representations and warranties that speak as of a specific
date or time, which need only be true and correct as of such date or time),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have a material adverse
effect; (b) the agreements and covenants of Orion required to be performed on
or before the Effective Time shall have been performed in all material
respects; (c) the FCC shall have granted by Final Order (as such term is
defined in the Merger Agreement) the FCC Application (as defined in the
Merger Agreement), without conditions, qualifications or other restrictions
that are likely to have a material adverse effect immediately
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after the closing date of the Merger; (d) each Governmental Entity (as such
term is defined in the Merger Agreement) other than the FCC that has issued
to Orion or any of its subsidiaries (i) any permit with respect to the
operation of or transmission to or from a satellite or a ground station that
communicates with a satellite, or (ii) any permit with respect to the
provision of broadcasting or communications services shall have, where
required by applicable law, approved the transfer of control or assignment,
as applicable, of all such permits as a result of the Merger without any
material qualifications, restrictions or limitations and such approval shall
have become a final order, except where the failure to obtain such approvals
would not, individually or in the aggregate, have a material adverse effect;
(e) all consents, waivers, approvals and authorizations required to be
obtained, and all filings or notices required to be made, by Orion and the
stockholders prior to consummation of the transactions contemplated in the
Merger Agreement shall have been obtained from and made with all required
Governmental Entities, other than those that the failure to be filed, expired
or obtained would not have a material adverse effect; and (f) the requisite
consents from a majority of the holders of the Notes shall have been
obtained, which consents have been obtained.
Conditions to the Obligations of Orion. The obligations of Orion to effect
the Merger and the other transactions contemplated in the Merger Agreement
(except the Principal Stockholder Agreement) are also subject to the
following conditions any or all of which may be waived by Orion, in whole or
in part, to the extent permitted by applicable law: (a) the representations
and warranties of Loral and Merger Subsidiary made in the Merger Agreement
shall be true and correct both when made and as of the Effective Time (except
for representations and warranties that speak as of a specific date or time,
which need only be true and correct as of such date or time), except where
the failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein) does not have a material adverse effect;
(b) the agreements and covenants of Loral and Merger Subsidiary required to
be performed on or before the Effective Time shall have been performed in all
material respects; (c) the FCC shall have granted by Final Order (as such
term is defined in the Merger Agreement) the FCC Application, without
conditions, qualifications or other restrictions that are likely to have a
material adverse effect immediately after the closing date of the Merger; and
(d) all consents, waivers, approvals and authorizations required to be
obtained, and all filings or notices required to be made, by Loral prior to
consummation of the transactions contemplated in this Agreement shall have
been obtained from and made with all required Governmental Entities, other
than those that the failure to be filed, expired or obtained would not have a
material adverse effect.
Termination; Amendment
Termination by Mutual Consent. The Merger Agreement may be terminated at
any time prior to the Effective Time by the mutual written consent of Orion
and Loral.
Termination by Either Orion or Loral. The Merger Agreement may also be
terminated by either Orion or Loral at any time prior to the Effective Time
if (a) the Merger is not consummated by June 30, 1998 (provided that the
right to terminate the Merger Agreement under such provision will not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in the failure of the
Merger to occur on or before such date); (b) the approval of Orion's
stockholders required under the Merger Agreement shall not have been obtained
at the Special Meeting; (c) any decree, permanent injunction, judgment, order
or other action by any court of competent jurisdiction or any Governmental
Entity preventing or prohibiting consummation of the Merger shall have become
final and nonappealable; or (d) the other shall have breached, or failed to
comply with, any of its obligations under the Merger Agreement or any
representation or warranty made by such other party shall have been incorrect
when made or shall have since ceased to be true and correct in any material
respect, and such breach, failure or misrepresentation is not cured within
thirty (30) days after notice thereof and such breach, failure or
misrepresentation, results or would reasonably be expected to result in a
material adverse effect.
Termination by Loral. The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger
Agreement and the Merger by the stockholders of
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Orion, by Loral if the Board of Directors of Orion or any committee thereof
shall have withdrawn or modified its approval or recommendation of the Merger
or the Merger Agreement in any manner adverse to Loral, or approved or
recommended any acquisition proposal (other than the Merger), or shall have
resolved to take any of the foregoing actions.
Termination by Orion. The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger
Agreement and the Merger by the stockholders of Orion, by Orion if the Board
of Directors of Orion or any committee thereof shall have withdrawn or
modified its approval or recommendation of the Merger or the Merger Agreement
in any manner adverse to Loral, or approved or recommended any acquisition
proposal (other than the Merger); provided that the termination described in
this paragraph shall not be effective unless and until Orion shall have paid
to Loral the Termination Fee described below.
Certain Consequences of Termination. Except as provided below, in the
event of the termination of the Merger Agreement as provided above, the
Merger Agreement shall forthwith become void, there shall be no liability on
the part of Loral, Merger Subsidiary or Orion or any of their respective
officers or directors to the other parties to the Merger Agreement and all
rights and obligations of any party thereto shall cease, except (i) to the
extent that such termination results from the willful or reckless breach by
any party hereto of any of its representations or warranties, or of any of
its covenants or agreements, in each case, as set forth in the Merger
Agreement, (ii) that nothing therein shall relieve any party for any breach
of the Merger Agreement and (iii) that certain provisions relating to
confidentiality and expenses shall survive termination of the Merger
Agreement indefinitely.
Amendment. The Merger Agreement may be amended by the parties by action
taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger Agreement and the Merger by the stockholders of Orion, no amendment
may be made which would reduce the amount or change the type of consideration
into which each share of Orion Capital Stock shall be converted pursuant to
the Merger Agreement upon consummation of the Merger or which by law
otherwise requires the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties to the Merger Agreement.
Termination Fee
Loral and Orion have agreed that Orion will pay Loral a termination fee of
$20 million (the "Termination Fee") by wire transfer if (i) Orion terminates
the Merger Agreement as provided under "--Termination by Orion," in which
case, the Termination Fee must be paid simultaneously with such termination;
(ii) Loral terminates the Merger Agreement as provided under "--Termination
by Loral," in which case, the Termination Fee must be paid no later than
three business days after the termination of the Merger Agreement; or (iii)
(A) Loral or Orion terminates the Merger Agreement pursuant to a failure to
receive the requisite vote for approval by the stockholders of Orion, (B) the
approval of the Merger Agreement by the stockholders of Orion shall have not
been obtained by reason of the failure to obtain the required vote at the
Special Meeting, (C) at the time of such negative vote there shall be pending
an acquisition proposal, and (D) within one year after such termination,
Orion consummates either (1) a merger, consolidation or other business
combination between Orion and any other person (other than Loral, Merger
Subsidiary or an affiliate of Loral) or (2) the sale of 30% or more (in
voting power) of the voting securities of Orion or of 30% or more (in fair
market value) of the assets of Orion and its subsidiaries, on a consolidated
basis, in which case, the Termination Fee must be paid simultaneously with
the closing of the event described in clause (1) or (2) above.
Expenses
Except as provided under "--Termination Fee," all fees and expenses
incurred in connection with the Merger, the Merger Agreement and the
transactions contemplated thereunder shall be paid by the party incurring
such fees or expenses, whether or not the Merger is consummated.
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Waiver
At any time prior to the Effective Time, each party to the Merger
Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in the Merger Agreement or in
any document delivered pursuant to the Merger Agreement by the other parties
and (c) waive compliance by the other parties with any of the agreements or
conditions contained in the Merger Agreement. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party. No delay or failure on the part of any party to the Merger
Agreement in exercising any right, power or privilege thereunder or under any
instrument or document given in connection with or pursuant to the Merger
Agreement shall impair any right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial
exercise of any right, power or privilege shall preclude the further exercise
of such right, power or privilege, or the exercise of any other right, power
or privilege.
THE PRINCIPAL STOCKHOLDER AGREEMENT
General
As an inducement and condition to Loral's willingness to enter into the
Merger Agreement, Orion, certain principal stockholders of Orion consisting
of certain members of Orion's Board of Directors and their affiliated
companies (the "Principal Stockholders"), Loral and Merger Subsidiary entered
into the Principal Stockholder Agreement on October 7, 1997, which covers an
aggregate of approximately 32% of the Orion voting stock as of February 12,
1998, as well as shares of Orion Common Stock into which certain Debentures
may be converted in accordance with the provisions of the Principal
Stockholder Agreement (collectively with other shares that have or will
become subject thereto, the "Covered Shares"). The Principal Stockholder
Agreement was amended and restated as of December 1, 1997 to make certain
technical corrections.
Agreement to Vote
Pursuant to the Principal Stockholder Agreement, each of the Principal
Stockholders has agreed at any meeting of Orion's stockholders, however
called, and in any action by consent of the stockholders of Orion, to vote
his or her Covered Shares from the date of the Principal Stockholder
Agreement to the earliest to occur of the termination of the Merger Agreement
or the Effective Time, (i) in favor of the Merger, the Merger Agreement (as
amended from time to time) and the transaction contemplated by the Merger
Agreement (collectively, the "subject transactions"), (ii) against any
proposal for any recapitalization, merger (other than the Merger), sale of
assets or other business combination between Orion and any person or entity
(other than Loral or Merger Subsidiary) or any other action or agreement that
would result in a breach of any covenant or any other obligation or agreement
of Orion under the Merger Agreement or which would result in any of the
conditions to the Merger Agreement not being fulfilled and (iii) against the
following actions (other than pursuant to the terms of the Principal
Stockholder Agreement or the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving Orion or any of its subsidiaries; (B) any sale, lease
or transfer by Orion of a material amount of assets (including stock) of
Orion or any of its subsidiaries; or a reorganization, restructuring,
recapitalization, special dividend, dissolution or liquidation of Orion or
any of its subsidiaries; or (C)(1) any change in a majority of the persons
who constitute the Board of Directors of Orion or any of its subsidiaries;
(2) any change in the present capitalization of Orion or any of its
subsidiaries including any proposal to sell a substantial equity interest in
Orion or any of its subsidiaries; (3) any amendment to Orion or any of its
subsidiaries' charters or bylaws; (4) any other change in Orion or any of its
subsidiaries' corporate structure or business; or (5) any other action which,
in the case of each of the matters referred to in clauses (C)(1), (2), (3) or
(4), is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially adversely affect the Merger and the
transactions contemplated by the Principal Stockholder Agreement.
With respect to each of its Covered Shares, from the date of the Principal
Stockholder Agreement to the earliest to occur of the termination of the
Merger Agreement or the Effective Time, each of the Principal Stockholders
has appointed Loral and Merger Subsidiary to be its lawful attorney and
proxy, for
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and in its name place and stead, to vote each of its Covered Shares as its
proxy at every annual, special or adjourned meeting of the stockholders of
Orion, including the right to sign its name to any consent, certificate or
other document relating to Orion that the law of the State of Delaware may
permit or require in each of the situations described in (i) to (iii) in the
preceding paragraph. This power of attorney is irrevocable.
Each Principal Stockholder has agreed that it will not enter into any
agreement or understanding the effect of which would be inconsistent with or
violative of the provisions and agreements contained in the Principal
Stockholder Agreement. Further, each Principal Stockholder has agreed that it
will, if the Board of Directors of Orion fails or refuses (other than as a
result of breach by Loral or any of its affiliates of the Merger Agreement or
because the Loral and its affiliates will not or cannot satisfy the
conditions precedent thereto) to submit the subject transactions to Orion's
stockholders, vote all Covered Shares held of record or beneficially owned by
it to (i) call or cause to be called a special meeting of stockholders of
Orion (or effect a written consent) to remove the directors of Orion who have
so failed or refused, or to increase the size of the Board of Directors and
elect a majority of new directors who will submit the subject transactions to
the stockholders of Orion for a vote, and (ii) use its reasonable efforts to
effect such removal and replacement, or increase and election, and the
submission of the subject transactions to the stockholders of Orion; and
(iii) at any time after initial approval by the stockholders of Orion of the
subject transactions, if so requested by Loral, to approve all or any actions
incident to the subject transactions or certain other matters described in
the Principal Stockholder Agreement by stockholder written consent. If there
is an Exchange Offer (as defined above), each Principal Stockholder has
agreed to tender his or her Covered Shares into the Exchange Offer.
Grant of Loral Option
Pursuant to the Principal Stockholder Agreement, the Principal
Stockholders granted Loral an irrevocable option to purchase all (but not
less than all) of the Covered Shares in certain circumstances (the "Loral
Option"). The option exercise price is equal to the number of Covered Shares
to be purchased by Loral multiplied by the Exchange Ratio (calculated using
the date Loral gives notice of exercise of the option as if it were the
closing date of the Merger for purposes of determining the Determination
Price) together with the associated rights under Loral's Rights Plan dated as
of March 27, 1996 between Loral and the Bank of New York, as Right Agent. The
shares of Orion Common Stock or Debentures subject to the Loral Option are
held by BAe, W. Neil Bauer, Orion's President and Chief Executive Officer,
Fleet Venture Resources, Inc., Fleet Equity Partners, VI L.P., Chisholm
Partners, II, L.P. and the following members of the Orion Board of Directors:
John V. Saeman, Gustave M. Hauser, Sidney S. Kahn and John G. Puente.
The Loral Option will become exercisable in whole (but not in part) upon
the occurrence of specified events or transactions, which are listed below
(each, a "Purchase Event"). If Loral exercises the Loral Option, Loral and
Merger Subsidiary have agreed to use their reasonable best efforts to
consummate the Merger (or the Exchange Offer as applicable) as promptly as
practicable, except to the extent that consummation of the Merger would
violate applicable law.
A Purchase Event under the Loral Option means any of the following events
or transactions:
(a) the Board of Directors of Orion or any committee thereof shall have
withdrawn or modified its approval or recommendation of the Merger or the
Merger Agreement in any manner adverse to Loral, or approved or recommended
any acquisition proposal, or shall have adopted a resolution to take any of
the foregoing actions;
(b) (i) the approval of the Merger Agreement by the stockholders of Orion
shall have not been obtained by reason of the failure to obtain the required
vote at the Special Meeting and (ii) at the time of such negative vote there
shall be pending an acquisition proposal;
(c) Orion or any of its subsidiaries shall have entered into any agreement
with any person (other than Loral or any of its affiliates), the Board of
Directors of such entity shall have approved, recommended or resolved to
enter into an agreement with any person, or Orion shall have publicly
announced its intention
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to take any of the foregoing actions, with respect to the sale of 20% or more
(in voting power) of the voting securities of Orion or of 20% or more (in
fair market value) of the assets of Orion and its subsidiaries, on a
consolidated basis, however such transaction may be effected; or
(d) any person (other than Loral or any of its affiliates), shall have
commenced (as such term is defined in Rule 14d-2 under the Exchange Act) or
shall have filed a registration statement under the Exchange Act, with
respect to a tender or exchange offer for securities representing 35% or more
of the voting power of Orion; or the acquisition, by any person or group (as
defined in Section 13(d) of the Exchange Act), other than Loral or any of its
affiliates, of beneficial ownership of (as defined in the Rule 13d-3 under
the Exchange Act), or the right to acquire beneficial ownership of,
securities representing 35% or more of the voting power of Orion.
The Loral Option will terminate upon the earliest to occur of the (i)
Effective Time, (ii) June 30, 1998 or (iii) termination of the Merger
Agreement by Loral or Merger Subsidiary in accordance with the terms thereof.
In the event that Loral exercises the Loral Option, as promptly as
practicable following the closing date for the Exchange Offer (but not more
than 60 days following the closing date thereof), Loral shall (i) file a
shelf registration statement covering all shares of Loral Common Stock for
the purposes of resale of shares of Loral Common Stock by each Principal
Stockholder and (ii) use its reasonable best efforts to cause such shelf
registration statement to become and remain effective for the resale of all
shares of Loral Common Stock issued pursuant to the Principal Stockholder
Agreement.
The consummation of a purchase or sale pursuant to the Principal
Stockholder Agreement is subject to, among other things, the registration of
the shares of Loral Common Stock to be issued upon Loral Option exercise and
obtaining any required regulatory approvals. In the event that prior
notification to or approval of any regulatory authority is required in
connection with such purchase or sale, Loral and, if applicable, a Principal
Stockholder will promptly file the required notice or application for
approval and will expeditiously process the same (and such Principal
Stockholder will cooperate with Loral in the filing of any such notice or
application and the obtaining of any such approval).
Adjustment of Number of Shares Subject to Option
If on or after the date of the Principal Stockholder Agreement there
occurs any stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by Orion, as a result of which shares of any class of
stock, other securities, cash or other property will be issued in respect of
any Covered Shares or if any Covered Shares shall be changed in the same or
another class of stock or other securities, then, upon exercise of the Loral
Option, Loral will receive for the aggregate price payable upon exercise of
the Loral Option, all such shares of stock, other securities, cash or other
property issued, delivered or received with respect to such Covered Shares.
If on or after the date of the Principal Stockholder Agreement there
occurs any stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by Loral, as a result of which shares of any class of
stock, other securities, cash or other property will be issued in respect of
any Loral Common Stock or if any Loral Common Stock shall be changed in the
same or another class of stock or other securities, then, upon exercise of
the Loral Option, each Principal Stockholder will receive for the aggregate
price payable to such Principal Stockholder upon exercise of the Loral
Option, all such shares of stock, other securities, cash or other property
issued, delivered or received with respect to such Loral Common Stock to be
delivered to such Principal Stockholder.
Agreement Not to Transfer
Pursuant to the Principal Stockholder Agreement, each Principal
Stockholder has agreed that, from the date of the Principal Stockholder
Agreement to the termination of the rights of Loral under the Principal
Stockholder Agreement, it shall not sell, transfer, tender, assign,
hypothecate or otherwise dispose of, or create or permit to exist any
encumbrance on the Covered Shares owned by such Principal
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Stockholder at any time prior to the Effective Time. However, each Principal
Stockholder may transfer Covered Shares to (a) any member of such Principal
Stockholder's immediate family, (b) any trust or similar instrument for
estate planning purposes or (c) any charitable organization, foundation or
similar entities. Such transfer, however, may be made to any such permitted
transferee only if such permitted transferee agrees in writing to all of the
terms, conditions and restrictions set forth in the Principal Stockholder
Agreement regarding Covered Shares received by such permitted transferee.
Debentures Conversion
Pursuant to the Principal Stockholder Agreement, BAe has agreed that all
the Debentures it holds will be converted into shares of Orion Common Stock
(together with any shares of Orion Common Stock representing accrued but
unpaid interest on the Debentures) in accordance with the terms of the
debenture purchase agreement relating thereto immediately prior to the
Effective Time (except if converted prior to such date), and at such time,
converted into the right to receive in the Merger Loral Common Stock in
accordance with the Merger Agreement.
Transfer of Loral Common Stock by British Aerospace
BAe and Loral have agreed to consult and cooperate with respect to the
orderly disposition of the Loral shares obtained by BAe. BAe has agreed that
for a period of twelve months from the date it acquires Loral shares it will
not and will cause each of its affiliates not to, sell or otherwise transfer
any Loral shares other than by means of a block trade positioner (as that
term is defined and/or interpreted under the federal securities laws and the
rules and regulations promulgated thereunder) who is experienced in block
trade transactions. BAe will consult with Loral prior to such sale and seek
the consent of Loral to such sale, which consent shall not be unreasonably
withheld, conditioned or delayed. As an alternative to conducting block
trades, BAe shall have the right to sell all (but not less than all) of its
Loral shares pursuant to an underwritten sale with an underwriter reasonably
acceptable to Loral.
Control Shares
Pursuant to the Principal Stockholder Agreement, Orion has agreed to waive
its rights under Article ELEVENTH, Section H, of its Restated Certificate of
Incorporation with respect to all Covered Shares acquired pursuant to
exercise of the Loral Option, and has agreed, promptly following any such
exercise, to exchange for such Covered Shares an equal number of duly
authorized, but unissued shares of Orion Common Stock, which upon issuance
will be validly issued, fully paid and nonassessable shares, and which will
not be "control shares" within the meaning of such Article ELEVENTH.
Possible Amendment
Orion and Loral are currently contemplating an amendment to the Principal
Stockholder Agree-ment that would permit BAe to convert its Debentures into
3,571,429 shares of Orion Common Stock and sell such shares prior to the
Effective Date of the Merger. In addition, SS/L is contemplating the sale of
the 588,235 shares of Orion Common Stock it owns prior to Effective Date of
the Merger. Any such sales would take place following the Record Date, and
the right to direct the voting of such shares would not be transferred.
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COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
MARKET AND MARKET PRICES
Orion Common Stock is quoted on the Nasdaq National Market under the
trading symbol "ONSI." Loral Common Stock is listed for trading on the New
York Stock Exchange under the trading symbol "LOR." The following table sets
forth, for the periods indicated, the high and low sales price per share of
Orion Common Stock on Nasdaq and of Loral Common Stock on the NYSE.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
<TABLE>
<CAPTION>
ORION LORAL
COMMON COMMON
QUARTER ENDED STOCK STOCK
- ----------------------------------- -------------- --------------
<S> <C> <C>
1995:
September 30 (from August 1) ...... $10 3/4 to $14 1/4 N/A
December 31 ........................ $ 6 3/4 to $12 N/A
1996:
March 31 ........................... $ 8 1/4 to $14 3/4 N/A
June 30 ............................ $10 1/4 to $14 1/4 $12 1/8 to $17 7/8
September 30 ....................... $ 7 1/4 to $12 1/8 $12 to $16 1/8
December 31 ........................ $ 9 1/2 to $13 5/8 $15 1/2 to $19 1/4
1997:
March 31 ........................... $ 8 5/8 to $15 $14 1/8 to $19 1/8
June 30 ............................ $ 8 to $12 1/4 $13 3/8 to $17 1/8
September 30 ....................... $11 7/8 to $17 1/8 $14 1/8 to $20 5/8
December 31 ........................ $16 3/8 to $18 1/4 $19 to $24 1/4
1998:
March 31 (through February 12) .... $16 3/4 to $17 1/2 $19 to $24 7/8
</TABLE>
On February 12, 1998, the last sales price of Orion Common Stock on Nasdaq
was $17.375. On February 12, 1998, the last sales price of Loral Common Stock
on the NYSE was $23.50. The public announcement of the Merger Agreement
occurred on October 7, 1997.
Orion has never paid any cash dividends on Orion Common Stock. As
required, Loral is currently paying dividends on its Series C Preferred
Stock. Loral does not currently anticipate paying any dividends or
distributions on Loral Common Stock or on its Series A Preferred Stock.
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COMPARATIVE PER SHARE DATA
The following table sets forth certain data concerning the historical book
value per share, cash dividends declared per share and income(loss) per share
from continuing operations for Loral and Orion, respectively, and on a pro
forma basis after giving effect to the Merger. The pro-forma combined data
are presented for comparative purposes only and are not necessarily
indicative of what the actual financial position and results of operations
would have been as of and for the periods ended December 31, 1996 and
September 30, 1997 had the Merger been consummated nor does such data purport
to represent results for future periods. The information should be read in
conjunction with the Pro Forma Financial Data contained elsewhere in this
Proxy Statement/Prospectus, the historical financial statements of Loral
incorporated herein by reference and the historical financial statements of
Orion also incorporated herein by reference. The unaudited pro forma
equivalent per share data shows the Loral pro forma per share data adjusted
for the Exchange Ratio. Orion stockholders will receive a maximum of 1.07329
and a minimum of 0.71553 shares of Loral Common Stock in exchange for each
share of Orion Common Stock outstanding.
<TABLE>
<CAPTION>
LORAL ORION
------------------------ ----------------------------
PRO PRO FORMA
HISTORICAL FORMA (1) HISTORICAL EQUIVALENT (5)
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Book value per share as of:
September 30, 1997 ................ $ 4.79 (3) $ 6.18 (3) $(6.25) $ 4.75
$ 4.80 (4) $ 6.19 (4)
December 31, 1996 (2) ............. $ 4.51 (3) $(0.04)
$ 4.52 (4)
Cash dividends per share ........... -- -- -- --
Income (loss) per common share from
continuing operations--nine months
ended:
September 30, 1997 ................ $(0.12) $(0.47) $(7.53) $(0.36)
December 31, 1996 (2) ............. $ 0.04 $(0.43) $(1.91) $(0.33)
</TABLE>
- ------------
(1) Includes the pro forma impact on book value per share of the Merger and
income (loss) per common share of Loral's acquisitions of SS/L and
Skynet, the acquisition of a 49% indirect economic interest in SatMex
and the Merger (See "Pro Forma Financial Data").
(2) Loral was formed to effectuate the Distribution to shareholders of Old
Loral and holders of options to purchase Old Loral common stock
pursuant to a merger agreement dated January 7, 1996 between Loral and
Lockheed Martin. The Distribution of approximately 183.6 million shares
of Loral Common Stock was made on April 23, 1996. Old Loral's fiscal
year end was March 31. Loral adopted a December 31 year end and its
first fiscal quarter ended on June 30, 1996. Accordingly, data reflects
Loral financial data for the nine months ended September 30, 1997
(interim period) and for the nine months ended December 31, 1996
(fiscal year). Data for Orion, accordingly, also reflects the nine
months ended December 31, 1996.
(3) Loral Common Stock.
(4) Loral Series A Preferred Stock.
(5) Represents historical amount multiplied by the assumed exchange ratio of
.76923 Loral share for one Orion share. Assuming the low end and the
high end of the exchange ratio range, respectively, book value per share
would have been $4.42 and $6.63 at September 30, 1997 and income (loss)
per common share from continuing operations would have been $(0.26) and
$(0.51) for the nine months ended September 30, 1997 and $(0.24) and
$(0.46) for the nine months ended December 31, 1996.
The book value per share of the Loral Series A Preferred Stock and the
Loral Common Stock (which Loral is required to disclose in accordance with
applicable Bermuda law) was $4.80 and $4.79 as of September 30, 1997 and
$4.52 and $4.51 as of December 31, 1996, respectively. The pro forma book
value per share as of September 30, 1997 of the Loral Series A Preferred
Stock and the Loral Common Stock is $6.19 and $6.18, respectively. The book
value per share and the pro forma book value per share of the Loral Series C
Preferred Stock as of September 30, 1997 is equal to its liquidation value of
$50.00 per share.
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<PAGE>
CERTAIN TRANSACTIONS OF ORION
In April 1994, Orion entered into an agreement with SS/L whereby SS/L
purchased 588,235 shares of Orion Common Stock for an aggregate purchase
price of $5,000,000.
On January 4, 1997, Orion entered into a Capacity Services Agreement with
AT&T Skynet (now Loral Skynet), as amended on July 23, 1997, whereby Orion
provided to AT&T Skynet 54 MHz of capacity on the Orion 1 satellite for a
term of nine (9) months for aggregate fees of approximately $810,000. This
agreement terminated in September 1997.
DESCRIPTION OF LORAL CAPITAL STOCK
The authorized capital of Loral consists of (i) 750,000,000 shares of
Loral Common Stock, par value $.01 per share, of which approximately
200,547,000 shares are issued and outstanding as of September 30, 1997, (ii)
150,000,000 shares of Series A Convertible Preferred Stock, par value $.01
per share (the "Loral Series A Preferred Stock"), of which approximately
45,896,977 shares are issued and outstanding as of September 30, 1997, (iii)
750,000 shares of Loral Series B Preferred Stock, par value $.01 per share
(the "Loral Series B Preferred Stock"), to be issued upon exercise, if any,
of the rights (the "Rights") issued pursuant to Loral's Rights Plan and
attached to each certificate representing outstanding shares of Loral Common
Stock, and (iv) 20,000,000 shares of 6% Series C Convertible Redeemable
Preferred Stock, par value $.01 per share (the "Loral Series C Preferred
Stock"), of which approximately 14,909,437 shares are issued and outstanding
as of September 30, 1997.
LORAL COMMON STOCK
The holders of Loral Common Stock are entitled to voting rights. Under
Bermuda Law, questions brought before a general meeting of shareholders are
decided by a majority vote of shareholders present at the meeting (or by such
majority as The Companies Act 1981 of Bermuda (the "Bermuda Law") or Loral's
Bye-Laws (as defined below) prescribe). Loral's Bye-Laws provide that, with
certain exceptions, any questions proposed for the consideration of the
shareholders will be decided by a simple majority of votes cast by
shareholders entitled to vote at the meeting, with each shareholder present,
or person holding proxies for any shareholder, entitled to one vote for each
share held.
The holders of Loral Common Stock are entitled to receive ratably the
dividends, if any, that may be declared from time to time by the Board of
Directors out of funds legally available for such dividends. The holders of
Loral Common Stock are entitled, under certain circumstances, to share
ratably with holders of the Loral Series A Preferred Stock in all assets
remaining after payment of liabilities and after provision has been made for
the payment of the $.01 liquidation preference on the Loral Series A
Preferred Stock and the liquidation preference on any other series of
preferred stock of Loral. Holders of Loral Common Stock have no preemptive
rights and no right to convert their Loral Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the Loral Common Stock. All the outstanding shares of Loral Common Stock are
validly issued, fully paid and nonassessable.
LORAL PREFERRED STOCK
Loral Series A Preferred Stock. The holders of Loral Series A Preferred
Stock are entitled to vote together with the holders of Loral Common Stock as
a single class on all matters submitted to shareholders, except that the
holders of Loral Series A Preferred Stock may not vote with respect to the
election of directors of Loral. The Loral Series A Preferred Stock is
entitled to a liquidation preference of $.01 per share and otherwise
participates pro rata with the Loral Common Stock in dividends and
distributions, subject under certain circumstances to priority rights over
the Loral Common Stock and pro rata distribution rights with the most senior
preferred stock of Loral then outstanding in a liquidating distribution. The
Loral Series A Preferred Stock is subject to certain antidilution
adjustments, including adjustments for stock splits and reclassifications.
The Loral Series A Preferred Stock will be convertible into Loral Common
Stock at the option of the holder upon receipt of certain antitrust
clearances or upon a sale to a third party unaffiliated with Lockheed Martin.
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<PAGE>
Loral Series B Preferred Stock. The Loral Series B Preferred Stock will,
if issued, be junior to any other series of preferred stock which may be
authorized by Loral's shareholders. Holders of the Rights will be entitled,
subject to the occurrence of certain events, to purchase from Loral, one
one-thousandth of a share of Loral Series B Preferred Stock at a purchase
price of $50, but before such purchase will have no voting, conversion,
redemption or preemptive rights, nor will they have any right to receive
dividends.
Loral Series C Preferred Stock. The Loral Series C Preferred Stock, with
respect to dividend rights and rights upon liquidation, winding up and
dissolution, ranks pari passu with the Loral 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 the Loral Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Loral Common Stock is The Bank of New
York.
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE BYE-LAWS
Loral's Bye-Laws contain certain provisions that could make more difficult
the acquisition of Loral by means of a tender offer, a proxy contest or
otherwise.
CLASSIFIED BOARD OF DIRECTORS; ELECTION AND REMOVAL OF DIRECTORS
Loral's Bye-Laws provide that the Board will be divided into three classes
of directors, with the classes to be as nearly equal in number as possible.
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the Board. At least
two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the Board. Such a delay may help
ensure that Loral's directors, if confronted by a holder attempting to force
a proxy contest, a tender or exchange offer, or an extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be
the best interest of the shareholders. The classification provisions will
apply to every election of directors, regardless of whether a change in the
composition of the Board would be beneficial to Loral and its shareholders
and whether or not a majority of Loral's shareholders believe that such a
change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of Loral, even though such an attempt
might be beneficial to Loral and its shareholders. The classification of the
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of Loral's stock by purchasers whose
objective is to take control of Loral and remove a majority of the Board, the
classification of the Board could tend to reduce the likelihood of
fluctuations in the market price of Loral Common Stock that might result from
accumulations of large blocks for such a purpose. Accordingly, shareholders
could be deprived of certain opportunities to sell their shares of Loral
Common Stock at a higher market price than might otherwise be the case.
Loral's Bye-Laws provide that, unless recommended by the directors, no
person other than a director whose term is expiring at an annual general
meeting shall be eligible for election to the office of director at any
annual general meeting. Directors may only be removed by the shareholders, at
a special general meeting specifically called for that purpose, for cause and
only upon the affirmative vote of shareholders holding at least 80% of the
shares issued and outstanding and entitled to vote at the annual general
meetings.
NO SHAREHOLDER ACTION BY CONSENT; SPECIAL MEETINGS
Loral's Bye-Laws provide that shareholder action can be taken only at an
annual or special meeting of shareholders and prohibit shareholder action by
written consent in lieu of a meeting. The business permitted to be conducted
at any special meeting of shareholders is limited to the business brought
before the meeting pursuant to the notice of meeting given by Loral.
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<PAGE>
The provisions of Loral's Bye-Laws prohibiting shareholder action by
written consent may have the effect of delaying consideration of a
shareholder proposal until the next annual meeting unless a special meeting
is called by the Board at the request of a majority of the directors or a
shareholder holding at least 10% of the total voting rights. These provisions
would also prevent the holders of a majority of the shares issued and
outstanding and entitled to vote from unilaterally using the written consent
procedure to take shareholder action and from taking action by consent.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER
PROPOSALS
Loral's Bye-Laws establish an advance notice procedure for shareholders to
make nominations of candidates for election as directors, or bring other
business before an annual meeting of shareholders of Loral (the "Shareholder
Notice Procedure").
The Shareholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, any number of shareholders
holding at least 5% of the total voting rights of all shareholders or not
less than 100 shareholders who have given timely written notice to the
Secretary of Loral prior to the meeting at which directors are to be elected,
will be eligible for election as directors of Loral. The Shareholder Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of,
the Chairman of the Board or by shareholders who have given timely written
notice to the Secretary of Loral of such shareholders' intention to bring
such business before such meeting. Under the Shareholder Notice Procedure,
for a notice of shareholder nominations to be made at an annual meeting to be
timely, such notice must be received by Loral not less than 6 weeks nor more
than 10 weeks prior to the first anniversary of the previous year's annual
meeting.
Under the Shareholder Notice Procedure, a shareholder's notice to Loral
proposing to nominate a person for election as a director must contain
information, including, without limitation, the identity and address of the
nominating shareholder, the class and number of shares of stock of Loral
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. Under the Shareholder Notice
Procedure, a shareholder's notice relating to the conduct of business other
than the nomination of directors must contain certain information about such
business and about the proposing shareholder including, without limitation, a
brief description of the business such shareholder proposes 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 stock
of Loral beneficially owned by such shareholder, and any material interest of
such shareholder in the business so proposed. If the Chairman of the Board or
other officer presiding at a meeting determines that a person was not
nominated, or other business was not brought before the meeting, in
accordance with the Shareholder Notice Procedure, such person will not be
eligible for election as a director, or such business will not be conducted
at such meeting, as the case may be.
By requiring advance notice of nominations by shareholders, the
Shareholder Notice Procedure will afford the Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform shareholders about such
qualifications. By requiring advance notice of other proposed business, the
Shareholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed
necessary or desirable by the Board, will provide the Board with an
opportunity to inform shareholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations
as to the Board's position regarding action to be taken with respect to such
business, so that shareholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Loral's Bye-Laws may have the effect of reducing the shareholders' ability
to engage a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether considerations of such nominees or proposals might
be harmful or beneficial to Loral and its shareholders.
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<PAGE>
VOTING REQUIREMENT FOR CERTAIN BUSINESS COMBINATIONS
Loral's Bye-Laws also provide that, in addition to any affirmative vote
required by law, the affirmative vote of holders of not less than 80% of the
shares carrying voting rights of Loral shall be necessary to approve any
"Business Combination" (as defined below) proposed by an "Interested
Shareholder" (as defined below). The additional voting requirements will not
apply, however, 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 (in summary) (a) that the
consideration to be paid to Loral's shareholders in the Business Combination
must be at least equal to the higher of (x) the highest per-share price paid
by the Interested Shareholder in acquiring any shares of Loral Common Stock
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 share of Loral Common Stock on the announcement date or
Determination Date, whichever is higher, in either case appropriately
adjusted for any stock dividend, stock split, combination of shares or
similar event (any non-cash consideration is treated similarly) and (b)
certain "procedural" requirements are complied with, such as the solicitation
of proxies pursuant to the rules of the 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).
An "Interested Shareholder" is defined as anyone who is the beneficial
owner of more than 15% of shares carrying voting rights, other than Loral and
any employee stock plans sponsored by Loral, and includes any person who is
an assignee of, or has succeeded to any shares of voting stock 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 persons directly and indirectly owning or
having the right to acquire or vote the stock. Interested Shareholders
participate fully in all shareholder voting.
A "Business Combination" includes the following transactions: (a) merger
or consolidation of Loral or any 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, (b) the
sale or other disposition by Loral or a 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; (c) the adoption of any
plan or proposal for the liquidation or dissolution of Loral proposed by or
on behalf of an Interested Shareholder (or an affiliate thereof); or (d) 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 stock (or
securities convertible into stock) of Loral 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.
As used in Loral's Bye-Laws, the term "Continuing Directors" means any
member of the Board of Directors of Loral, 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 successors 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.
AMENDMENT OF CERTAIN PROVISIONS OF THE BYE-LAWS
Loral's Bye-Laws provide that the vote of shareholders holding at least
80% of the shares issued and outstanding and entitled to vote, is required to
amend provisions of Loral's Bye-Laws relating to the prohibition of
shareholder action without a meeting; the number, election and term of
Loral's directors; the removal of directors; or approval of Business
Combinations. The vote of shareholders holding not less than a majority of
the shares issued and outstanding and entitled to vote is required to amend
all other provisions of Loral's Bye-Laws. The 80% voting requirement will
have the effect of making more difficult any amendment by shareholders of
Loral's Bye-Laws described above, even if a majority of Loral's shareholders
believe that such amendment would be in their best interests.
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<PAGE>
LORAL'S RIGHTS PLAN
The following is a description of the Rights Plan (the "Rights Plan")
which Loral has adopted and has entered into a Rights Agreement dated March
27, 1996 between Loral and The Bank of New York, as Rights Agent (the "Rights
Agreement"):
The Rights Plan provides that one Right will be issued for each share of
Loral Common Stock outstanding at the close of business on a date to be set
by the Board of Directors (the "Rights Record Date") and with respect to the
Loral Common Stock issued thereafter until the Rights Separation Date (as
defined below) and in certain circumstances, with respect to the Loral Common
Stock issued after the Rights Separation Date. Except as set forth below each
Right, when it becomes exercisable, entitles the registered holder thereof to
purchase from Loral a unit consisting initially of one one-thousandth of a
share (a "Unit") of Series B Preferred Stock, par value $.01 per share, at a
purchase price of $50 per Unit, subject to adjustment (the "Purchase Price").
Initially, the Rights will attach to all certificates representing shares
of Loral Common Stock then outstanding, and no separate certificates
evidencing the Rights (the "Rights Certificate") will be distributed. The
Rights will separate from the Loral Common Stock and a "Rights Separation
Date" will occur upon the earlier of (i) ten days (or such later date as
Loral's Board of Directors shall determine with the concurrence of a majority
of the Continuing Directors) following public disclosure that a person or
group of affiliated or associated persons has become an "Acquiring Person"
(as defined below) or (ii) ten business days (or such later date as Loral's
Board of Directors shall determine with the concurrence of a majority of the
Continuing Directors) following the commencement of a tender offer or
exchange offer that would result in a person or group becoming an "Acquiring
Person." Except as set forth below, an "Acquiring Person" is a person or
group of affiliated or associated persons who has acquired beneficial
ownership of 15% or more of the outstanding shares of Loral Common Stock
except that Loral and its affiliates and associates will not be deemed to be
an "Acquiring Person" until such time as Loral and its affiliates and
associates become the beneficial owner of 25% or more of the outstanding
shares of Loral Common Stock. The term "Acquiring Person" excludes (i) Loral,
(ii) any subsidiary of Loral, (iii) any employee benefit plan of Loral or any
subsidiary of Loral or (iv) any person, or entity organized, appointed or
established by Loral for or pursuant to the terms of any such plan. A
"Continuing Director" is a member of the Board of Directors who is not an
Acquiring Person, an affiliate or associate of an Acquiring Person or a
representative or nominee of an Acquiring Person.
Until the occurrence of the Rights Separation Date, (i) the Rights will be
evidenced by the Loral Common Stock certificates and would be transferred
with and only with such Loral Common Stock certificates, (ii) new Loral
Common Stock certificates issued after the Rights Record Date will contain a
notation incorporating the Rights Agreement by reference, and (iii) the
surrender for transfer of any certificates for Loral Common Stock outstanding
will also constitute the transfer of the Rights associated with the Loral
Common Stock represented by such certificate. Pursuant to the Rights
Agreement, Loral reserves the right to require prior to the occurrence of a
Triggering Event (as defined below) that, upon any exercise of Rights, a
number of Rights be exercised so that only whole shares of the Loral Series B
Preferred Stock will be issued.
As soon as practicable after the occurrence of the Rights Separation Date,
Rights Certificates will be mailed to holders of record of Loral Common Stock
as of the close of business on the Rights Separation Date and, thereafter,
the separate Rights Certificates alone will represent the Rights. Except in
certain circumstances specified in the Rights Agreement or as otherwise
determined by the Board of Directors of Loral, only shares of the Loral
Common Stock issued prior to the Rights Separation Date will be issued with
Rights.
The Rights will not be exercisable until the occurrence of the Rights
Separation Date. The Rights will expire at the close of business on a date
ten years after the Rights Record Date unless extended or earlier redeemed by
Loral as described below.
In the event that, at any time following the Rights Separation Date, a
person becomes an Acquiring Person (except pursuant to an offer for all
outstanding shares of Loral Common Stock at a price and on
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<PAGE>
terms which a majority of each of the Continuing Directors and independent
directors determine to be fair to and otherwise in the best interests of
Loral and its shareholders), each holder of a Right would thereafter have the
right to receive, upon exercise of the Right, Loral Common Stock (or, in
certain circumstances, cash, property or other securities of Loral) having a
value equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of the event set forth above, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void and
nontransferable and any holder of any such Right (including any purported
transferee or subsequent holder) will be unable to exercise or transfer any
such Right. For example, at an exercise price of $50 per Right, each Right
not owned by an Acquiring Person (or by certain related parties) following an
event set forth in this paragraph would entitle its holder to purchase $100
worth of Loral Common Stock (or other consideration, as noted above) for $50.
Assuming that the Loral Common Stock had a per share value of $25 at such
time, the holder of each valid Right would be entitled to purchase four
shares of Loral Common Stock for $50.
In the event that, at any time following the date on which there has been
public disclosure that, or of facts indicating that, a person has become an
Acquiring Person (the "Stock Acquisition Date"), (i) Loral is acquired in a
merger or other business combination transaction in which Loral is not the
surviving corporation (other than a merger which follows an offer described
in the preceding paragraph or a merger with Globalstar Telecommunications
Limited ("GTL")), or (ii) 50% or more of Loral's assets or earnings power is
sold, mortgaged or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) will thereafter have the
right to receive, upon exercise, common stock of the acquiring company having
a value equal to two times the exercise price of the Right. The events set
forth in this paragraph and in the preceding paragraph are referred to as the
"Triggering Events."
The Purchase Price payable, and the number of Units of Series B Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Loral Series B Preferred Stock, (ii) if holders of
Series B Preferred Stock are granted certain rights or warrants to subscribe
for Series B Preferred Stock or convertible securities at less than the
current market price of the Loral Series B Preferred Stock, or (iii) upon
distribution to holders of the Loral Series B Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Rights Purchase Price will
be required until cumulative adjustments amount to at least 1% of the Rights
Purchase Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Loral Series
B Preferred Stock on the last trading date prior to the date of exercise.
Because of the nature of the Loral Series B Preferred Stock's dividend and
liquidation rights, the value of the one one-thousandth interest in a share
of the Loral Series B Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of Common Stock. Securities of
Series B Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Series B Preferred Stock will be entitled to a
quarterly dividend payment of 1,000 times the dividend declared per share of
Common Stock. In the event of liquidation, each share of Series B Preferred
Stock will be entitled to a $1.00 preference and, thereafter, the holders of
the shares of Series B Preferred Stock will be entitled to an aggregate
payment of 1,000 times the aggregate payment made per share of Common Stock.
Each share of Series B Preferred Stock will have 1,000 times the vote of a
share of Loral Common Stock, voting together with the shares of Loral Common
Stock. These rights are protected by customary antidilution provisions.
At any time until ten days (or such later date as determined by action of
the Board of Directors with the concurrence of a majority of the Continuing
Directors) following the Stock Acquisition Date, Loral may redeem the Rights
in whole, but not in part, at a price (the "Redemption Price") of $.0001 per
Right (payable in cash, Loral Common Stock or other consideration deemed
appropriate by Loral's Board of Directors) by resolution of Loral's Board of
Directors. The redemption of the Rights may be made
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effective at such time, on such basis, and with such conditions as the Board
of Directors in its sole discretion may establish. Immediately upon such
action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of Loral including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to Loral, shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Loral Common Stock (or other consideration) or for common
stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by
resolution of Loral's Board of Directors. After the Rights Separation Date,
the provisions of the Rights Agreement may be amended by resolution of
Loral's Board of Directors (with the concurrence of a majority of the
Continuing Directors, if adopted following the Stock Acquisition Date) in
order to cure any ambiguity, to make changes which do not adversely affect
the interests of holders of Rights (excluding the interests of any Acquiring
Person or its affiliates or associates), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
The Rights will have certain antitakeover effects as they will cause
substantial dilution to a person or group that acquires a substantial
interest in Loral without the prior approval of the Board of Directors of
Loral. The effect of the Rights may be to inhibit a change in control of
Loral (including through a third party tender offer at a price which reflects
a premium to then prevailing trading prices) that may be beneficial to
Loral's shareholders.
COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND LORAL STOCKHOLDERS
The following discussion (so far as it relates to matters of the laws of
Bermuda) is based upon the advice of Appleby, Spurling & Kempe, Bermuda
counsel for Loral.
Loral was incorporated on January 12, 1996 as an exempted company under
the laws of Bermuda. The rights of its shareholders are governed by Bermuda
Law and by Loral's Memorandum of Association and its Second Amended and
Restated Bye-Laws ("Loral's Bye-Laws"). Orion was incorporated in the State
of Delaware on June 26, 1996 under the name Orion Newco Services, Inc., and
in January 1997, changed its name to Orion Network Systems, Inc. Orion is the
successor of Orion Network Systems, Inc. incorporated in the State of
Delaware on October 26, 1982 (inception) under the name Orion Satellite
Corporation, which in January 1988 changed its name to Orion Network Systems,
Inc. The rights of its shareholders are governed by the DGCL and its Restated
Certificate of Incorporation, as amended ("Orion's Certificate of
Incorporation"), and its Amended and Restated By-Laws ("Orion's By-Laws").
The following is a summary of certain material differences between the
rights of holders of Orion's securities and the rights of holders of Loral's
securities, as contained in provisions of Bermuda Law and the DGCL and in
Loral's and Orion's constitutional documents. This summary is not a
comprehensive description of such laws and documents and is qualified in its
entirety by appropriate reference to Bermuda Law and to the DGCL and to the
constitutional documents of Loral and Orion. The indication of certain
specific differences is not meant to indicate that other equally or more
significant differences do not exist.
DIVIDENDS
Under the DGCL, dividends may be declared by the Board of Directors at any
regular or special meeting. Under Bermuda Law, a company may pay such
dividends as are declared from time to time by its Board of Directors unless
there are reasonable grounds for believing that Loral is or would, after the
payment, be unable to pay its liabilities as they become due or that the
realizable value of its assets would thereunder be less than the aggregate of
its liabilities and issued share capital and share premium accounts.
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VOTING RIGHTS
Under both the DGCL and Bermuda Law, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders
present at the meeting (or by such majority as the DGCL or Bermuda Law or the
bye-laws prescribe).
RIGHTS IN LIQUIDATION
Under Orion's Certificate of Incorporation, the Board of Directors is
empowered to determine the rights awarded to any series of preferred stock in
the event of voluntary or involuntary liquidation, dissolution or winding up
of Orion. Under Bermuda Law, in the event of liquidation, dissolution or
winding up of a company, after satisfaction in full of all claims of
creditors and subject to the preferential rights accorded to any series of
preferred shares, the proceeds of such liquidation, dissolution or winding up
are distributed pro rata among the holders of common shares, after
satisfaction of the obligations with respect to the preferred shares, if any.
MEETINGS OF SHAREHOLDERS
Under Orion's By-Laws, annual meetings of stockholders shall be held on
the first Thursday of May, if not a legal holiday. The DGCL permits special
meetings of shareholders to be called by the Board of Directors and such
other persons, including shareholders, as the certificate of incorporation or
bylaws may provide. Orion's Certificate of Incorporation provides that
special meetings may be called by the president or the Board of Directors and
shall be called by the president or secretary at the request in writing of
two or more stockholders owning at least 35% in amount of the entire capital
stock of the corporation issued and outstanding and entitled to vote, if no
special meeting of stockholders has been called and held at the request of
stockholders within the six months preceding such written request. Under
Orion's By-Laws, shareholders must be given at least ten days' advance
written notice of a general meeting.
Under Orion's By-Laws, the holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum, except as otherwise provided by statute or by
Orion's Certificate of Incorporation.
Under Bermuda Law, a company is required to convene an Annual General
Meeting once in every calendar year. Bermuda Law provides that a Special
General Meeting may be called by the Board of Directors. A Special General
Meeting may also be convened at the request of shareholders holding not less
than 10% of such of the paid-up capital of Loral carrying the right to vote
at General Meetings of Loral. Bermuda Law also requires that shareholders be
given at least five days' advance notice of a general meeting but the
accidental omission of notice to any person does not invalidate the
proceedings at a meeting.
Under Bermuda Law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the bye-laws of a company.
Loral's Bye-Laws provide that except as set forth under certain anti-takeover
provisions of the Bye-Laws, the presence in person or by proxy of the holders
of more than 50% of the voting capital stock of Loral constitutes a quorum.
ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION
Under the DGCL, Orion's shareholders and directors have a general right to
inspect the corporation's stock ledger, a list of stockholders and its other
books and records.
Under Bermuda Law, members of the general public have the right to inspect
the public documents of a company available at the office of the Registrar of
Companies in Bermuda. These documents include Loral's certificate of
incorporation, its memorandum of association (including its objects and
powers) and any alteration to Loral's memorandum of association. The
shareholders have the additional right to inspect the bye-laws of Loral,
minutes of general meetings and Loral's audited financial statements, which
must be presented at the annual general meeting. The register of shareholders
of a company is also open to inspection by shareholders without charge and to
members of the general public upon the payment of
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a fee. A company is required to maintain its share register in Bermuda but
may, subject to the provisions of Bermuda Law, establish a branch register
outside Bermuda. A company is required to keep at its registered office a
register of its directors and officers which is open for inspection for not
less than two hours in each day by members of the public without charge.
Bermuda Law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
BOARD OF DIRECTORS
Under the DGCL, the Board of Directors of a Delaware corporation shall
consist of one or more directors as fixed by the certificate of incorporation
or by-laws. Under Orion's Certificate of Incorporation, the number of
directors shall be not less than 3 and not more than 15. Currently, under
Orion's By-laws, Orion's Board of Directors consists of 10 members.
Under Loral's Bye-Laws, the numbers of directors shall be not less than 2
nor more than 15, as Loral may from time to time determine.
Both Orion's and Loral's boards of directors are divided into three
classes, designated as Class I, Class II and Class III, as nearly equal in
number as possible.
ELECTION OR REMOVAL OF DIRECTORS
Under Orion's Certificate of Incorporation and By-Laws, the directors are
elected at the meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder entitled to vote for the election of
directors who complies with certain notice procedures for a term expiring at
the third succeeding annual meeting and in all cases until their successors
shall be elected and shall qualify, or until their earlier resignation,
removal from office, death or incapacity. There shall be no cumulative voting
rights for the election of directors.
The DGCL provides that directors may be removed from office with or
without cause, by the holders of a majority of the voting power of all
outstanding voting stock, unless the corporation has a classified board and
its certificate does not otherwise provide, in which case directors may be
removed only for cause. Orion's Certificate of Incorporation does not
otherwise provide.
Under Bermuda Law and Loral's Bye-Laws, directors are elected at the
Annual General Meeting or elected or appointed in such other manner as
provided for in Loral's Bye-Laws until their successors are elected or
appointed, unless they are earlier removed or resign.
Under Bermuda Law and Loral's Bye-Laws and subject to the provisions
described under certain provisions of the Bye-Laws, a director may be removed
at a Special General Meeting of shareholders specifically called for that
purpose, provided that the director was served with at least 14 days' notice.
The director has a right to be heard at the meeting. Any vacancy created by
the removal of a director at a Special General Meeting may be filled at such
meeting by the election of another director in his or her place or, in the
absence of any such election, by the Board of Directors.
AMENDMENT OF ORION'S CERTIFICATE OF INCORPORATION, LORAL'S MEMORANDUM OF
ASSOCIATION AND BYE-LAWS
Under the DGCL, holders of a majority of the voting power of a corporation
and, when provided in the certificate of incorporation, the directors of the
corporation, have the power to adopt, amend and repeal the bylaws of a
corporation. Orion's Certificate of Incorporation grants the directors of
Orion such power.
Under the DGCL, amendment of the certificate of incorporation shall be
made by a resolution of the Board of Directors setting forth the amendment,
declaring its advisability, and either calling a special meeting of the
shareholders entitled to vote or directing that the amendment proposed be
considered at the next annual meeting of the shareholders. The DGCL requires
that, unless a different percentage is provided for, a majority of the voting
power of the corporation is required to approve the amendment of the
certificate of incorporation at the shareholders meeting. Orion's Certificate
of Incorporation requires the affirmative vote of two-thirds of the stock
entitled to vote and the affirmative vote of the Board of
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Directors in order to amend the provisions of Orion's By-Laws concerning the
capital stock, the number of directors and their election, the redemption of
stock, the control share acquisitions and certain business combinations, the
indemnification, and the meeting of shareholders.
Bermuda Law provides that the Memorandum of Association of a company may
be amended by a resolution passed at a General Meeting of shareholders of
which due notice has been given. In addition, the holders of the Loral Series
A Preferred Stock have the right to approve, voting as a separate class, any
amendments to the Memorandum of Association or Bye-Laws of Loral if such
amendment would adversely affect the rights, powers, privileges or
preferences of the Loral Series A Preferred Stock. An amendment to the
Memorandum of Association of a company other than an amendment which alters
or reduces a company's share capital as provided in Bermuda Law also requires
the approval of the Bermuda Minister of Finance, who may grant or withhold
approval at his discretion.
Under Bermuda Law, the holders of an aggregate of no less than 20% in par
value of a company's issued share capital have the right to apply to the
Bermuda Court for an annulment of any amendment of the memorandum of
association adopted by shareholders at any general meeting, other than an
amendment which alters or reduces a company's share capital as provided in
Bermuda Law. Where such an application is made, the amendment becomes
effective only to the extent that it is confirmed by the Bermuda Court. An
application for amendment of the memorandum of association must be made
within 21 days after the date on which the resolution altering Loral's
memorandum is passed and may be made on behalf of the persons entitled to
make the application by one or more of their number as they may appoint in
writing for the purpose. No such application may be made by persons voting in
favor of the amendment.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS
Under the DGCL, stockholders may exercise a right of dissent from certain
corporate actions and obtain payment of the fair value of their stock. This
remedy is an exclusive remedy, except where the corporate action involves
fraud or illegality. Under the DGCL, appraisal rights are available to
dissenting shareholders in connection with certain mergers or consolidations.
However, unless the certificate of incorporation otherwise provides, the DGCL
does not provide for appraisal rights (i) if the stock of the corporation are
listed on a national securities exchange or designated as a national market
systems security on an interdealer quotations system by the NASD or held of
record by more than 2,000 shareholders (as long as the shareholders receive
in the merger shares of the Surviving Corporation or of any other corporation
the shares of which are listed on a national securities exchange or
designated as a national market systems security on an interdealer quotations
system by the NASD or held of record by more than 2,000 shareholders) or (ii)
if the corporation is the Surviving Corporation and no vote of its
shareholders is required for the merger. Orion's Certificate of Incorporation
provides that Orion's shareholders other than the acquiring person will be
entitled to dissenter's rights in the event control shares acquired in a
control share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting
power.
Under Bermuda Law, in the event of an amalgamation of two Bermuda
companies, a shareholder who did not vote in favor of the amalgamation and
who is not satisfied that fair value has been paid for his shares may apply
to the Bermuda Court to appraise the fair value of his shares. The
amalgamation of a company with another company requires the amalgamation
agreement to be approved by the Board of Directors and by a meeting of the
holders of shares of the amalgamating company of which they are directors and
of the holders of each class of such shares. Under Bermuda Law, an
amalgamation also requires the consent of the Bermuda Minister of Finance,
who may grant or withhold consent at his discretion.
Class actions and derivative actions are generally not available to
shareholders under Bermuda Law. The Bermuda courts, however, would ordinarily
be expected to permit a shareholder to commence an action in the name of a
company to remedy a wrong done to Loral where an act committed by Loral is
alleged to be beyond the corporate power of Loral or is illegal or would
result in the violation of Loral's
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memorandum of association or bye-laws. Furthermore, consideration would be
given by the court to acts that are alleged to constitute a fraud against the
minority shareholders or, for instance, where an act requires the approval of
a greater percentage of Loral's shareholders than those who actually approved
it.
When the affairs of a company are being conducted in a manner oppressive
or prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to the Bermuda Court for an order regulating Loral's
conduct of affairs in the future or ordering the purchase of the shares by
any shareholder, by other shareholders or by Loral.
REDEMPTION RIGHTS
Stock of Orion will always be subject to redemption by the corporation, by
action of the Board of Directors, if it in its judgment such action should be
taken, to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held
by Orion or any of its subsidiaries to conduct any portion of the business of
Orion or any of its subsidiaries, which license or franchise is conditioned
upon some or all of the holders of Orion's stock possessing prescribed
qualifications.
Under Loral's Bye-Laws, Loral may from time to time by resolution
authorize the reduction of its issued share capital or any capital
redemption.
INDEMNIFICATION
The DGCL contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and agents.
While indemnification is permitted only if certain statutory standards of
conduct are met, the DGCL provides for indemnification if the person acted in
good faith and in a manner the personal reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful.
Under Orion's Certificate of Incorporation, every director, officer,
employee and agent shall be indemnified against all proceeding; provided,
however, that Orion shall indemnify an eligible person in connection with a
proceeding initiated by such person only if the proceeding was authorized by
Orion's Board of Directors.
Under the DGCL, a corporation's certificate of incorporation may contain a
provision limiting or eliminating a director's personal liability to the
corporation or its stockholders for monetary damages for a director's breach
of fiduciary duty subject to certain limitations. Orion's Certificate of
Incorporation contains a provision that eliminates the liability of Orion's
directors to Orion or its stockholders for monetary damages for breach of
fiduciary duty as a director. The provision does not change the liability of
a director for a breach of duty of loyalty to Orion or its stockholders, for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or for unlawful payment of dividend or
unlawful stock purchase or redemption, or for any transaction from which the
director derived an improper personal benefit.
Under Loral's Bye-Laws, every director, officer and member of a committee
shall be indemnified out of the funds of Loral against all civil liabilities,
loss, damage or expense incurred or suffered by him as such director, officer
or committee member and the indemnity 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.
BUSINESS COMBINATIONS
The DGCL requires approval of mergers, consolidations and dispositions of
all or substantially all of a corporation's assets (other than so-called
parent-subsidiary mergers) by a majority of the voting power of the
corporation, unless the certificate of incorporation specifies a different
percentage. Orion's Certificate of Incorporation contains a provision which
restricts certain business combination transactions
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with an interested stockholder for two years after such stockholder has
acquired 20% of the voting power. Under Orion's Certificate of Incorporation,
if a business combination (including a merger, disposition of substantial
assets, issuance of securities and other similar transactions) occurs with a
person, who together with its affiliates, owns 20% or more of the outstanding
capital stock of Orion (an "interested stockholder"), then the combination
must be approved by the holders of at least a majority of the voting power of
the then outstanding shares of capital stock of Orion entitled to vote,
voting together as a single class and the holders of at least a majority of
the voting stock, voting together as a single class, excluding the interested
stockholders and their affiliates.
However, the combination may occur without such a vote if, among other
exceptions, those directors who were directors before the acquiring party
became an interested stockholder approve the combination by a unanimous vote.
Pursuant to Loral's Bye-Laws, the affirmative vote of shareholders of at
least 80% of the shares of Loral carrying voting rights then outstanding
shall be necessary to approve any business combination (including a merger,
disposition of substantial assets, issuance of securities or other similar
transactions) proposed by a person, who together with its affiliates, owns
15% or more of the shares carrying voting rights by an interested
shareholder. However, the combination may occur without such a vote, if,
among other exceptions, those directors who were directors before the
acquiring party become an interested shareholder approve the combination by
not less than a majority.
OTHER ANTI-TAKEOVER PROVISIONS
The DGCL does not contain a control share acquisition statute which
restricts the voting rights of a person who acquires a controlling interest
in the corporation to those voting rights which are conferred by the
stockholders at a meeting. Orion's Certificate of Incorporation contains a
control share acquisition provision which requires approval by disinterested
shareholders of any acquisition of voting power above specified levels of
ownership of Orion's stock.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated statements of operations and balance
sheet data as of and for the years ended December 31, 1992, 1993, 1994, 1995
and 1996 are derived from Orion's audited consolidated financial statements.
The selected consolidated statements of operations and balance sheet data as
of September 30, 1997 and for the nine months ended September 30, 1996 and
1997 are derived from the unaudited consolidated financial statements of
Orion and, in the opinion of Orion, include all adjustments consisting of
normal accruals, necessary for a fair presentation of such information.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be achieved for the year
ending December 31, 1997. The pro forma consolidated statements of operations
and balance sheet data are derived from unaudited pro forma condensed
consolidated financial statements. The pro forma data is not necessarily
indicative of the results that would have been achieved nor are they
indicative of Orion's future results. The data should be read in conjunction
with the Consolidated Financial Statements, related notes and other financial
information of Orion incorporated herein by reference. From its inception in
1982 through January 20, 1995, when Orion 1 commenced commercial operations,
Orion was a development stage enterprise. Because Orion's wholly owned
subsidiary, Orion Network Services, Inc., has exclusive management and
control of Orion Atlantic as its sole general partner, and Orion's 41 2/3%
partnership interest, the financial statements of Orion Atlantic are
consolidated with the financial statements of Orion.
In January 1997, Orion consummated the January Merger as part of a series
of transactions which significantly changed Orion. Those transactions, which
are discussed in more detail under "Information About Orion" of this Proxy
Statement/Prospectus are as follows:
(i) the Exchange;
(ii) the acquisition by Orion of the only outstanding minority interest
in Orion's subsidiary Orion Network Systems-Asia Pacific, Inc. from British
Aerospace Satellite Investments, Inc., in exchange (the "OAP Acquisition")
for approximately 86,000 shares of Orion Common Stock;
(iii) the Bond Offering; and
(iv) the Debentures Offering.
The Exchange and the OAP Acquisition resulted in Orion owning 100% of
Orion Atlantic and its other significant subsidiaries and, therefore, a
greatly simplified corporate structure. The Exchange also resulted in a
significant increase in Orion's Capital Stock outstanding. The net proceeds
of the Bond Offering and the Debentures Offering were used by Orion to repay
the credit facility it entered into in connection with the construction of
the Orion 1 satellite, to pre-fund the first three years of interest payment
on certain of the Notes, and will be used by Orion for the construction and
launch of two additional satellites, Orion 2 and Orion 3.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
PRO FORMA
1992 1993(2) 1994 1995 1996 1996 (1)
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $ 1,403 $ 2,006 $ 3,415 $ 22,284 $ 41,847 $ 41,847
Interest expense ............. 180 133 61 24,738 27,764 94,838
Net loss (3) ................. (3,295) (7,886) (7,965) (26,915) (27,195) (133,630)
Net loss per common share ... (0.40) (0.85) (0.86) (3.07) (2.62) (12.71)
Weighted average common
shares outstanding (4) ...... 8,232,548 9,266,445 9,272,166 9,103,505 10,951,823 11,247,062
OTHER OPERATIONAL DATA:
Number of customers .......... 5 10 34 109 182
Capital expenditures ......... $ 78,429 $ 44,130 $ 51,103 $ 9,060 $ 12,625
Customer contract
backlog (5) ................. $ 9,402 $ 18,185 $ 39,122 $ 120,612 $ 214,887
Sites (6) .................... -- -- 57 151 322
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents ... $ 7,668 3,404 11,219 55,112 42,188
Restricted and segregated
cash (7) .................... -- -- -- -- --
Total assets ................. 204,975 271,522 340,176 389,075 358,264
Long-term debt (less current
portion) .................... 106,821 185,294 230,175 250,669 218,237
Limited Partners' interest in
Orion Atlantic (8) .......... 77,753 69,909 62,519 14,626 10,130
Redeemable preferred stock ... -- -- 14,555 20,358 20,902
Total stockholders' (deficit)
equity ...................... 14,478 8,400 3,351 26,681 (436)
Book value per share ......... 2.36 1.33 .49 2.46 (.04)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------------------
PRO FORMA
1996 1997 1997 (1)
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $ 30,016 $ 54,539 $ 54,539
Interest expense ............. 20,229 62,290 52,841
Net loss (3) ................. (19,807) (78,239) (83,740)
Net loss per common share ... (1.90) (7.53) (8.08)
Weighted average common
shares outstanding (4) ...... 10,943,287 11,221,618 11,221,618
OTHER OPERATIONAL DATA:
Number of customers .......... 167 282
Capital expenditures ......... $ 10,266 $ 11,924
Customer contract
backlog (5) ................. $ 134,320 $ 254,098
Sites (6) .................... 304 635
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents ... 82,811
Restricted and segregated
cash (7) .................... 359,798
Total assets ................. 901,444
Long-term debt (less current
portion) .................... 790,561
Limited Partners' interest in
Orion Atlantic (8) .......... --
Redeemable preferred stock ... 117,868
Total stockholders' (deficit)
equity ...................... (71,245)
Book value per share ......... (6.25)
</TABLE>
- ------------
(1) Adjusted to reflect the pro forma effects of the January 1997
Transactions (see "Information About Orion"), assuming such events
occurred on January 1, 1996.
(2) In 1993, Orion Atlantic terminated its commitment to purchase a second
satellite from MMS Space Systems, resulting in a termination charge of
$5 million.
(3) As required by GAAP, net loss is presented before accretion of
preferred stock and preferred stock dividends. For the years ended
December 31, 1992, 1993, 1994, 1995, 1996, 1996 (pro forma) and the
nine months ended September 30, 1996 and 1997 preferred stock dividends
and accretion are $0.0, $0.0, $0.6, $1.3, $1.4, $9.3, $1.0, and $6.3
million, respectively.
(4) Computed on the basis described for net loss per common share in Note 2
to the Consolidated Financial Statements incorporated herein by
reference from Orion's 1996 Form 10-K.
(5) Backlog represents future revenues under contract.
(6) Sites includes installed VSATs and additional transmission destinations
(such as customer premises) that share a VSAT.
(7) Restricted and segregated cash represents (i) $116 million that has
been placed in a pledged account to fund the payment of the first six
scheduled payments of interest on the Senior Notes and (ii) $244
million that will be segregated by Orion and used only to invest in
certain high quality short term investments to make payments for
additional satellites and certain related costs.
(8) Represents amounts invested by the former limited partners of Orion
Atlantic (net of syndication costs related to the investments),
adjusted for such limited partners' share of net losses. The interests
of the limited partners were acquired by Orion in the Exchange.
84
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
LORAL SPACE & COMMUNICATIONS LTD. (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED NINE MONTHS
SEPTEMBER 30, 1997 ENDED
(4) DECEMBER 31, 1996
------------------ -----------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C>
Revenues ......................... $1,002,619 $ --
Management fee from affiliate ... -- 5,088
Income (loss) before minority
interest and equity in net
loss of affiliates and
cumulative effect of accounting
change (3) ...................... 14,677 13,269 (6)
Minority interest ................ (5,021) --
Equity in net income (loss) of
affiliates (2)(4) ............... (24,320) (4,392)(6)
Income (loss) before cumulative
effect of accounting changes (3) (14,664) 8,877
Net income (loss) ................ (14,664) 8,877
Preferred dividends .............. (14,580) --
Net income (loss) applicable to
common stockholders ............. (29,244) 8,877
Earnings (loss) per share ........ (0.12) 0.04
CASH FLOW DATA:
Used in operating activities .... $ (219,932) $ 3,003
Used in (provided by) investing
activities ...................... (860,677) 1,962
Provided by (used in) equity
transactions .................... (10,862) 602,413
Provided by financing activities (103,883) 583,292
Dividends paid per share ......... -- --
BALANCE SHEET:
Cash and cash equivalents ........ $ 193,164 $1,180,752
Investment in Globalstar (2) .... 358,926 175,639
Investment in SS/L (4) ........... -- 267,418
Total assets ..................... 2,748,654 1,699,326
Long-term debt, including current
portion.......................... 231,469 --
Convertible preferred ............ -- 583,292
Shareholders' equity (5)/Invested
equity .......................... 1,926,465 1,070,069
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1996 1995 1994 1993
---------- --------- --------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues ......................... $ -- $ -- $ -- $ --
Management fee from affiliate ... 5,608 3,169 2,981 2,576
Income (loss) before minority
interest and equity in net
loss of affiliates and
cumulative effect of accounting
change (3) ...................... (5,157) 1,115 (4,868) (5,905)
Minority interest ................ -- -- -- --
Equity in net income (loss) of
affiliates (2)(4) ............... (8,628) (8,988) 1,174 663
Income (loss) before cumulative
effect of accounting changes (3) (13,785) (7,873) (3,694) (5,242)
Net income (loss) ................ (13,785) (7,873) (3,694) (12,001)
Preferred dividends .............. -- -- -- --
Net income (loss) applicable to
common stockholders ............. (13,785) (7,873) (3,694) (12,001)
Earnings (loss) per share ........ (0.08) N/A N/A N/A
CASH FLOW DATA:
Used in operating activities .... $ 1,319 $ 8,439 $ 587 $ 5,905
Used in (provided by) investing
activities ...................... 115,031 92,055 25,288 (2,697)
Provided by (used in) equity
transactions .................... 116,362 100,494 25,875 3,208
Provided by financing activities -- -- -- --
Dividends paid per share ......... N/A N/A N/A N/A
BALANCE SHEET:
Cash and cash equivalents ........ $ 12 $ -- $ -- $ --
Investment in Globalstar (2) .... 195,221 110,970 25,288 --
Investment in SS/L (4) ........... 144,051 140,007 138,191 137,017
Total assets ..................... 354,396 251,819 163,479 137,017
Long-term debt, including current
portion.......................... -- -- -- --
Convertible preferred ............ -- -- -- --
Shareholders' equity (5)/Invested
equity .......................... 354,396 251,819 159,198 137,017
</TABLE>
- ------------
(1) Financial information for the four years in the period ended March 31,
1996, represent the space and communications operations of Old Loral.
The results of operations for the four years in the period ended March
31, 1996 include allocations and estimates of certain expenses of Loral
based upon estimates of actual services performed by Old Loral on
behalf of Loral. Interest expense for the four years in the period
ended March 31, 1996, was allocated to Loral based on Old Loral's
historical weighted average interest rate applied to the average
investment in affiliates. Management of Loral believes such allocations
are based on reasonable allocation methods.
(2) Globalstar commenced operations on March 23, 1994.
(3) Before the effect of adopting Statement of Financial Accounting
Standards No. 106 "Accounting for Postretirement Benefits Other than
Pensions," in fiscal 1993 net of related income taxes.
(4) In 1997, Loral acquired the remaining portion of SS/L it did not own
and, accordingly, began consolidating the operating results of SS/L
from January 1, 1997. Prior to January 1, 1997, SS/L was accounted for
using the equity method of accounting. In addition, the results of
operations for the nine months ended September 30, 1997 reflect the
operations of Skynet from March 14, 1997, the date of acquisition.
(5) As of September 30, 1997 and December 31, 1996, the book value per
share of the Loral Series A Preferred Stock and the Loral Common stock
(which Loral is required to disclose herein in accordance with
applicable Bermuda law) was $4.80 and $4.79 and $4.52 and $4.51,
respectively. Book value per share represents the quotient obtained by
dividing shareholders' equity by the number of outstanding shares of
Common Stock, giving effect to the conversion of the Loral Series A
Preferred Stock, plus, in the case of such preferred stock, the $.01
liquidation preference thereof. The book value per share and pro forma
book value per share of Loral Series C Preferred Stock as of September
30, 1997 is equal to its liquidation value of $50.00 per share.
(6) Reflects certain reclassifications to conform to 1997 presentation.
85
<PAGE>
SELECTED UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
LORAL SPACE & COMMUNICATIONS LTD.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected unaudited consolidated pro forma
financial data after giving effect to the acquisitions of SS/L, Skynet,
SatMex and Orion. The unaudited pro forma balance sheet data gives effect to
the acquisitions of SatMex and Orion as if they occurred on September 30,
1997. The unaudited pro forma statement of operations data give effect to all
acquisitions as if they had occurred on April 1, 1996. The following selected
unaudited consolidated pro forma financial data has been derived from, and
should be read in conjunction with, the related unaudited pro forma condensed
consolidated financial statements included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues...................................... $1,050,267 $1,044,889
Net loss...................................... (110,383) (111,470)
Preferred dividends........................... (14,580) --
Net loss applicable to common shareholders ... (124,963) (111,470)
Loss per share ............................... (0.47) (0.43)
SEPTEMBER 30, 1997
-------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents .................... $ 184,275
Working capital .............................. 509,349
Total assets ................................. 4,019,242
Long-term debt, including current portion (1) 971,192
Shareholder's equity ......................... 2,388,180
</TABLE>
- ------------
(1) Includes $739.8 million of Orion debt, including current portion, that
will be non-recourse to Loral.
86
<PAGE>
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND DECEMBER 31, 1996
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 and statements of operations for the nine months ended
September 30, 1997 and December 31, 1996 give effect to 1) the acquisition of
a 49% indirect economic interest in SatMex completed on December 29, 1997,
which will be accounted for using the equity method of accounting, 2) the
acquisition between March 25, 1997 and June 23, 1997 by Loral of the
remaining SS/L common stock not previously owned, pursuant to agreements
negotiated in February 1997, 3) the acquisition by Loral of Skynet on March
14, 1997, and 4) the proposed acquisition by Loral of Orion which is subject
to regulatory and Orion shareholder approvals and is expected to close in the
first quarter of 1998. The SS/L and Skynet acquisitions are reflected in
Loral's historical unaudited condensed consolidated balance sheet as of
September 30, 1997 and the unaudited pro forma condensed consolidated balance
sheet assumes the SatMex acquisition and the proposed Orion acquisition
occurred as of September 30, 1997. The unaudited pro forma condensed
consolidated statements of operations assume that these acquisitions occurred
as of April 1, 1996. The unaudited pro forma condensed consolidated statement
of operations for the nine months ended September 30, 1997 is based on the
historical unaudited condensed consolidated statement of operations of Loral
which includes the results of operations for SS/L from January 1, 1997 and
the related minority interest, and Skynet for the period March 14, 1997 to
September 30, 1997. The historical Loral condensed consolidated statement of
operations for the nine months ended December 31, 1996 reflect the results of
operations from the inception of Loral in April 1996 through December 31,
1996. The unaudited pro forma condensed consolidated statement of operations
information for the nine months ended December 31, 1996 is based on the
historical condensed consolidated statements of operations of Loral and Orion
as well as the condensed statements of operations of SS/L and Skynet for that
period. The unaudited pro forma condensed statements of operations for Orion
for the nine months ended December 31, 1996 and September 30, 1997 reflect
the pro forma effects of certain transactions completed by Orion in January
1997, as if such transactions had occurred January 1, 1996. Equity in the net
loss of SatMex has been included in the unaudited pro forma condensed
consolidated statements of operations for the nine months ended September 30,
1997 and December 31, 1996, based on Loral's share of the pro forma results
of SatMex for such periods. The unaudited pro forma condensed consolidated
financial statements reflect the purchase method of accounting and the
adjustments and assumptions described in the accompanying notes.
Pending completion of valuations and allocation of their respective fair
values, the pro forma adjustments for SS/L, Skynet and SatMex are based upon
preliminary estimates of fair values and the pro forma adjustments for Orion
are based on historical values of assets and liabilities. Actual adjustments
will be based on final appraisals and other analyses of fair values, which
are not expected to result in material adjustments. The unaudited pro forma
condensed consolidated balance sheet and statements of operations should be
read in conjunction with the audited consolidated financial statements and
notes of the respective companies. The unaudited pro forma condensed
consolidated statements of operations data may not be indicative of the
results that actually would have occurred if the acquisitions had taken place
on April 1, 1996, or future results.
87
<PAGE>
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SKYNET SATMEX ORION
PRO FORMA PRO FORMA PRO FORMA
LORAL ADJUSTMENTS ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS
------------ ------------- -------------- ------------ ---------- --------------
(NOTE 2) (NOTE 3) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..... $ 193,164 $ $(91,700)(h) $ 101,464 $ 82,811 $ --
Contracts in process ........... 459,916 -- -- 459,916 10,616 --
Inventories .................... 94,074 -- -- 94,074 -- --
Restricted assets .............. -- -- -- -- 50,064 --
Other current assets ........... 186,087 708 (f) -- 186,795 8,076 --
------------ ------------- -------------- ------------ ---------- --------------
Total current assets ............ 933,241 708 (91,700) 842,249 151,567 --
Property, plant and equipment,
net ............................ 768,277 34,764 (f) -- 803,041 388,813 --
Cost in excess of net assets
acquired, less amortization ... 436,632 (30,309)(f) -- 406,323 21,119 385,804 (i),(j)
(21,119)(j)
Long-term receivables ........... 104,574 -- -- 104,574 -- --
Investments in affiliates ...... 358,926 91,700 (h) 450,626 -- --
Restricted and segregated
assets ......................... -- -- -- -- 309,734 --
Other assets .................... 147,004 4,296 (f) -- 151,300 30,211 (5,000)(i)
------------ ------------- -------------- ------------ ---------- --------------
$2,748,654 $ 9,459 $ -- $2,758,113 $901,444 $ 359,685
============ ============= ============== ============ ========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............... $ 227,998 $ -- $ -- $ 227,998 $ 3,015 $ 5,000 (i)
Customer advances .............. 75,981 -- -- 75,981 -- --
Accrued interest and preferred
dividends ..................... 11,005 -- -- 11,005 11,315 (875)(j)
Other current liabilities ..... 53,909 (4,052)(f) -- 49,857 18,918 688 (j)
Income taxes payable ........... 5,452 -- -- 5,452 -- --
Deferred income taxes .......... 64,805 -- -- 64,805 -- --
Current portion of long-term
debt .......................... 2,146 -- -- 2,146 9,162 --
------------ ------------- -------------- ------------ ---------- --------------
Total current liabilities ...... 441,296 (4,052) -- 437,244 42,410 4,813
Deferred income taxes ........... 45,108 -- -- 45,108 -- --
Pension and other postretirement
liabilities .................... 57,088 -- -- 57,088 -- --
Long-term liabilities ........... 38,238 13,291 (f) -- 51,529 21,850 --
Long-term debt .................. 229,323 -- -- 229,323 790,561 (60,000)(j)
Minority interest ............... 11,136 -- -- 11,136 -- --
Commitments and contingencies
Redeemable Convertible Preferred
Stock .......................... -- -- -- -- 117,868 (117,868)(j)
Shareholders' equity:
Series A convertible preferred
stock, par value $.01 ......... 459 -- -- 459 -- --
Series C convertible redeemable
preferred stock, par value
$.01 .......................... 731,195 -- -- 731,195 -- --
Common stock, par value $.01 ... 2,007 -- -- 2,007 -- 191 (j)
Paid-in capital ................ 1,214,850 -- -- 1,214,850 -- 467,165 (j)(k)
Treasury stock ................. (1,680) -- -- (1,680) -- --
Unearned compensation........... -- -- -- -- -- (5,861)(k)
Retained deficit ............... (20,366) 220 (f) -- (20,146) -- --
Orion preacquisition deficit .. -- -- -- -- (71,245) 71,245 (l)
------------ ------------- -------------- ------------ ---------- --------------
Total shareholders' equity ..... 1,926,465 220 -- 1,926,685 (71,245) 532,740
------------ ------------- -------------- ------------ ---------- --------------
$2,748,654 $ 9,459 $ -- $2,758,113 $901,444 $ 359,685
============ ============= ============== ============ ========== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
-------------
<S> <C>
Current assets:
Cash and cash equivalents ..... $ 184,275
Contracts in process ........... 470,532
Inventories .................... 94,074
Restricted assets .............. 50,064
Other current assets ........... 194,871
-------------
Total current assets ............ 993,816
Property, plant and equipment,
net ............................ 1,191,854
Cost in excess of net assets
acquired, less amortization ... 792,127
Long-term receivables ........... 104,574
Investments in affiliates ...... 450,626
Restricted and segregated
assets ......................... 309,734
Other assets .................... 176,511
-------------
$ 4,019,242
=============
Current liabilities:
Accounts payable ............... $ 236,013
Customer advances .............. 75,981
Accrued interest and preferred
dividends ..................... 21,445
Other current liabilities ..... 69,463
Income taxes payable ........... 5,452
Deferred income taxes .......... 64,805
Current portion of long-term
debt .......................... 11,308
-------------
Total current liabilities ...... 484,467
Deferred income taxes ........... 45,108
Pension and other postretirement
liabilities .................... 57,088
Long-term liabilities ........... 73,379
Long-term debt .................. 959,884
Minority interest ............... 11,136
Commitments and contingencies
Redeemable Convertible Preferred
Stock .......................... --
Shareholders' equity:
Series A convertible preferred
stock, par value $.01 ......... 459
Series C convertible redeemable
preferred stock, par value
$.01 .......................... 731,195
Common stock, par value $.01 ... 2,198
Paid-in capital ................ 1,682,015
Treasury stock ................. (1,680)
Unearned compensation........... (5,861)
Retained deficit ............... (20,146)
Orion preacquisition deficit .. --
-------------
Total shareholders' equity ..... 2,388,180
-------------
$ 4,019,242
=============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
88
<PAGE>
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIODS COVERED:
Loral and Orion January 1 -- September 30, 1997
Skynet January 1 -- March 14, 1997 (Pre-acquisition period)
<TABLE>
<CAPTION>
PRO ORION
PRO FORMA FORMA PRO FORMA PRO FORMA
LORAL SKYNET ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------------- ----------- ----------- -------------- -------------
(NOTE 2) (NOTES 1, 2, 3) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ................. $1,002,619 $ 17,938 $(24,829)(c) $995,728 $ 54,539 $ -- $1,050,267
Costs and expenses ....... 993,527 14,066 (20,137)(c),(f) 987,456 85,459 6,748 (k)(j) 1,079,663
------------ ----------- ------------------- ----------- ----------- -------------- -------------
Operating income (loss) . 9,092 3,872 (4,692) 8,272 (30,920) (6,748) (29,396)
Loss from failure of
satellite................ -- (20,500) -- (20,500) -- -- (20,500)
Interest income (expense)
net ..................... 23,106 (2,500) (11,284)(b),(e), 9,322 (52,841) 3,937 (k) (39,582)
(h)
Other income (expense) .. -- -- -- -- 21 -- 21
------------ ----------- ------------------- ----------- ----------- -------------- -------------
Pre-tax income (loss) .. 32,198 (19,128) (15,976) (2,906) (83,740) (2,811) (89,457)
Income taxes ............. 17,582 (1,465) (3,198)(d),(g) 12,919 -- (27,760)(l) (14,841)
------------ ----------- ------------------- ----------- ----------- -------------- -------------
Income (loss) before
equity in net loss of
affiliates ............. 14,616 (17,663) (12,778) (15,825) (83,740) 24,949 (74,616)
Equity in net loss of
affiliates .............. (24,320) -- (11,447)(h) (35,767) -- -- (35,767)
Minority interest ........ (4,960) -- 4,960 (a) -- -- -- --
------------ ----------- ------------------- ----------- ----------- -------------- -------------
Net income (loss) ....... (14,664) (17,663) (19,265) (51,592) (83,740) 24,949 (110,383)
Preferred dividends ..... (14,580) -- -- (14,580) (6,933) 6,933 (k) (14,580)
------------ ----------- ------------------- ----------- ----------- -------------- -------------
Net income (loss)
attributable to common
shares ................. $ (29,244) $(17,663) $(19,265) $(66,172) $(90,673) $ 31,882 $ (124,963)
============ =========== =================== =========== =========== ============== =============
Earnings (loss) per share
(Note 6):
Primary ................. $ (0.12) $ (0.27) $ (0.47)
============ =========== =============
Fully Diluted ........... $ (0.12) $ (0.27) $ (0.47)
============ =========== =============
Shares used in per share
calculations;
Primary ................. 240,539 245,665 264,772
============ =========== =============
Fully Diluted ........... 240,539 245,665 264,772
============ =========== =============
Common shares outstanding
at September 30, 1997 ... 200,633 200,633 219,740
============ =========== =============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
89
<PAGE>
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ORION
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
LORAL* SS/L SKYNET ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS AS ADJUSTED
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
(NOTE 1) (NOTE 2) (NOTES 1, 2, 3) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ....... $ 5,088 $1,017,653 $ 84,435 $(96,488)(c) $1,010,688 $ 34,201 $ -- $1,044,889
Costs and
expenses ...... 17,606 963,517 39,051 (58,867)(a),(c) 961,307 64,149 7,119 (j) 1,032,575
(f) (k)
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
Operating
income
(loss) ....... (12,518) 54,136 45,384 (37,621) 49,381 (29,948) (7,119) 12,314
Interest income
(expense),
net............ 28,699 6,081 (11,305) (35,570)(b),(e) (12,095) (70,130) 2,245 (k) (79,980)
(h)
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
Pre-tax income
(loss) ....... 16,181 60,217 34,079 (73,191) 37,286 (100,078) (4,874) (67,666)
Income taxes .. 2,912 27,643 13,369 (23,681)(d),(g) 20,243 -- (19,128)(l) 1,115
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
Income (loss)
before equity
in net loss
of
affiliates .. 13,269 32,574 20,710 (49,510) 17,043 (100,078) 14,254 (68,781)
Equity in net
loss of
affiliates .... (4,392) (1,549) -- (36,748)(a),(h) (42,689) -- -- (42,689)
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
Net income
(loss) ....... 8,877 31,025 20,710 (86,258) (25,646) (100,078) 14,254 (111,470)
Preferred
dividends ..... -- -- -- -- -- (6,837) 6,837 (k) --
---------- ------------ ---------- ------------------- ------------ ------------ ------------- -------------
Net income
(loss)
attributable
to common
shares ....... $ 8,877 $ 31,025 $ 20,710 $(86,258) $ (25,646) $(106,915) $ 21,091 $ (111,470)
========== ============ ========== =================== ============ ============ ============= =============
Earnings (loss)
per share
(Note 6):
Primary ....... $ 0.04 $ (0.11) $ (0.43)
========== ============ =============
Fully Diluted $ 0.04 $ (0.11) $ (0.43)
========== ============ =============
Shares used in
per share
calculations;
average shares
outstanding:
Primary ....... 229,396 241,026 260,133
========== ============ =============
Fully Diluted 229,396 241,026 260,133
========== ============ =============
Common shares
outstanding at
December 31,
1996........... 191,092 199,135 218,242
========== ============ =============
</TABLE>
* Reflects certain reclassifications to conform to the 1997 presentation.
See notes to unaudited pro forma condensed consolidated financial statements.
90
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND DECEMBER 31, 1996
1. The following facts and assumptions in notes (a) through (d) were used in
determining the effect on the pro forma statements of operations for the
increase in Loral's ownership of SS/L to 100%. Such transactions are
reflected in Loral's September 30, 1997 historical balance sheet.
(a) Pursuant to agreements negotiated in December 1996 and February 1997,
Loral acquired 49% of SS/L from four international aerospace and
communications companies (the "Alliance Partners") between March 25,
1997 and June 23, 1997 for $374 million. These transactions, in which
Loral acquired 24.5% of SS/L for $93.5 million in cash and $93.5
million in convertible preferred equivalent obligations ("CPEOs"), and
the remaining 24.5% of SS/L acquired on June 23, 1997 for 8,042,922
shares of Loral Common Stock and 1,063,663 shares of Loral Series C
Preferred Stock are reflected in Loral's historical unaudited
condensed consolidated balance sheet as of September 30, 1997. On June
5, 1997, the CPEOs were exchanged into shares of Loral's Series C
Preferred Stock after shareholder approval (the "Exchange").
In August 1996, Loral increased its ownership of SS/L to 51% through
the acquisition of an 18.3% interest held by certain partnerships
affiliated with Lehman Brothers (the "Lehman Partnerships") for $110.0
million including cash of $4 million, 7.5 million shares of Loral
Common Stock, and 267,256 shares of common stock of Globalstar
Telecommunications Limited previously held by a Loral subsidiary. In
accordance with the terms of Loral's agreement with the Lehman
Partnerships, the purchase price was increased by $9.2 million in
April 1997.
Loral increased its ownership of SS/L to 75.5% and entered into
agreements to acquire the remaining 24.5% during the first quarter of
1997. Accordingly, Loral discontinued the equity method of accounting
and began consolidating the results of SS/L as of January 1, 1997,
with a reduction for SS/L's earnings attributable to its other
shareholders.
The acquisition of SS/L common stock has been accounted for as a
purchase. The cost in excess of net assets acquired arising from this
acquisition is being amortized over 40 years. A pro forma adjustment
of $1.7 million to amortization expense was made to the unaudited pro
forma condensed consolidated statement of operations for the nine
months ended December, 31, 1996. Loral's historical unaudited
condensed consolidated statement of operations for the nine months
ended September 30, 1997 reflects the results of operations of SS/L
from January 1, 1997 and the related minority interest of the SS/L
equity not owned by Loral during the period. Loral's historical
unaudited condensed consolidated statement of operations for the nine
months ended December 31, 1996 includes SS/L's operations using the
equity method of accounting. Pro forma adjustments assume that Loral
had acquired 100% of the common stock of SS/L as of April 1, 1996.
(b) The purchase price for SS/L was determined through arm's length
bargaining between Loral and the Alliance Partners and Loral and the
Lehman partnerships. The cash portion of the acquisition was financed
with cash on hand. The unaudited pro forma condensed consolidated
statements of operations reflect charges for interest expense of 7% on
the cash portion of the purchase price and 6% on the CPEOs and
preferred stock portion of the purchase price. Loral intends to
refinance the cash portion of the purchase price with debt. The fixed
payments under the CPEOs and preferred stock have been reflected as
interest expense for periods prior to the exchange. The interest
charge of 7% on the cash portion of the purchase price reflects the
interest rate on Loral's current borrowing under its revolving credit
facility.
(c) Other pro forma adjustments to the unaudited pro forma condensed
consolidated statement of operations for the nine months ended
September 30, 1997, include elimination of SS/L's sales to Skynet of
$24.8 million and related costs and expenses of $22.5 million for the
period January 1, 1997 through March 14, 1997. Other pro forma
adjustments to the unaudited pro forma
91
<PAGE>
condensed consolidated statement of operations for the nine months
ended December 31, 1996 include elimination of SS/L's sales to Skynet
of $96.5 million and related cost of sales of $82.1 million and
elimination of Loral's equity in the net income of SS/L based on its
historical ownership interest during the period.
(d) A statutory (Federal and state) tax rate of 41%, adjusted for
non-deductible interest and goodwill, was assumed with respect to the
pro forma adjustments.
2. The following facts and assumptions in notes (e) through (g) were used in
determining the pro forma effect of the acquisition of Skynet from AT&T.
On March 14, 1997 Loral acquired certain assets of Skynet for $478.1
million in cash. The price reflects a reduction from the $712.5 million
price originally agreed upon in September 1996 arising from an adjustment
resulting from the failure of Skynet's Telstar 401 satellite in January
1997. The price is subject to further adjustment based upon net assets
delivered at closing, as defined.
This acquisition has been accounted for as a purchase. Loral's historical
unaudited condensed consolidated statement of operations for the nine
months ended September 30, 1997 reflects the operations of Skynet from the
date of acquisition through September 30, 1997. The Skynet preacquisition
period January 1, 1997 through March 14, 1997 is presented in the
unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1997. The Skynet historical unaudited
condensed consolidated statement of operations included in the unaudited
pro forma condensed consolidated statement of operations for the nine
months ended December 31, 1996 includes the operations of Skynet for the
entire period. The Skynet operations have been calculated by deducting the
Skynet operations for the three month period ended March 31, 1996 from the
Skynet operations for the year ended December 31, 1996. Revenues,
operating income and net income for Skynet for the three months ended
March 31, 1996 were $39.9 million, $19.0 million and $9.3 million,
respectively. Pro forma adjustments have been calculated for the nine
month period.
(e) The purchase price for Skynet was determined through arm's length
bargaining between Loral and AT&T. The acquisition was initially
financed with cash on hand. A portion of the purchase price is
expected to be refinanced with debt. The pro forma adjustment for
interest expense reflects charges for interest based on an adjusted
purchase price of $478.1 million for the period January 1, 1997
through March 14, 1997 and an unadjusted price of $712.5 million for
the nine months ended December 31, 1996 at an assumed interest rate of
7%, reduced for capitalized interest of $2.9 million for the period
January 1, 1997 through March 14, 1997 and $7.5 million for the nine
months ended December 31, 1996 and interest expense recorded by Skynet
of $2.5 million for the period January 1, 1997 through March 14, 1997
and $11.3 million for the nine months ended December 31, 1996. Loral
intends to refinance a portion of the purchase price with debt. The
interest charge of 7% on the cash portion of the purchase price
reflects the interest rate on Loral's current borrowing under its
revolving credit facility. The unadjusted purchase price of $712.5
million was used as the basis of the interest expense calculation
during the nine months ended December 31, 1996 because Telstar 401 was
operating and generating revenues during that entire period.
(f) During the fourth quarter of 1997, Loral revised its allocations of
fair values for the acquisition, which are included in Loral's
September 30, 1997 historical balance sheet. Such adjustments resulted
primarily in an increase to the value of the satellites and a
reduction in cost in excess of net assets acquired. Other adjustments
to the unaudited pro forma condensed consolidated balance sheet
include an additional accrual for long-term customer obligations
associated with the failure of Telstar 401 which reflects finalization
of lease obligations related to replacement and backup capacity for
sold transponders on Telstar 401. These adjustments and the resulting
changes in accumulated depreciation and amortization of cost in excess
of net assets acquired have been reflected in the pro forma balance
sheet as of September 30, 1997. After giving effect to such revised
allocations, The estimated excess of purchase price over net assets
acquired of $69.4 million is being amortized over 40 years. Other
purchase accounting adjustments to the
92
<PAGE>
unaudited pro forma condensed consolidated statement of operations for
the period January 1, 1997 through March 14, 1997, pursuant to the
provisions of Accounting Principles Board Opinion No. 16, include
depreciation expense related to the excess of fair value over carrying
value of $89.2 million using estimated useful lives of 12.5 to 18
years. Other purchase accounting adjustments to the unaudited pro
forma condensed consolidated statement of operations for the nine
months ended December 31, 1996 include depreciation expense over an
estimated weighted average ten year life for the excess of fair value
over the carrying value of $278.6 million. For purposes of this
adjustment, the fair value of fixed assets includes an estimated fair
value of Telstar 401, and historical book value includes the carrying
value of Telstar 401. Additional pro forma adjustments to the
unaudited pro forma condensed consolidated statement of operations for
the nine months ended September 30, 1997 and December 31, 1996 include
$0.4 million and $1.3 million, of amortization of the excess of
purchase price over fair value and $0.7 million and $20.2 million of
depreciation expense related to the difference between the fair value
of assets acquired and their related carrying values.
(g) A statutory (Federal and state) tax rate of 39% was assumed with
respect to the pro forma adjustments.
3. The following facts and assumptions in note (h) were used in determining
the pro forma effect of the investment in SatMex.
(h) Loral and Telefonica Autrey, (the "Sponsors") formed a joint venture
("Holdings") which acquired, through a wholly owned subsidiary
("Acquisition Sub"), 75% of the outstanding capital stock of SatMex
for $638.0 million, paid in two installments. The first installment
was paid on November 17, 1997 using $141.1 million of equity
contributed by the Sponsors and $52.5 million of debt incurred by
Acquisition Sub. Loral's investment was $91.7 million for a 49%
indirect economic interest in SatMex. As part of the Acquisition,
Holdings entered into a $125.1 million seven year obligation to the
Mexican government ("Government Obligation") in consideration for the
assumption by SatMex of the debt incurred in connection with the
Acquisition. The final installment plus interest, financed with debt
incurred by Acquisition Sub, was paid on December 29, 1997. Loral will
account for this investment under the equity method of accounting. The
unaudited pro forma condensed consolidated balance sheet reflects a
reduction in cash and increase in investments in affiliates to record
Loral's investment in SatMex.
Pro forma adjustments were made to the unaudited pro forma condensed
consolidated statements of operations for the nine months ended
September 30, 1997 and December 31, 1996 to reflect the equity in
earnings of SatMex as if the investment was made April 1, 1996. The
pro forma adjustments were based on the unaudited pro forma financial
statements of SatMex for the nine months ended September 30, 1997 and
the year ended December 31, 1996. Interim historical financial
statements of SatMex for the nine months ended December 31, 1996 are
not available. Therefore, net income for the nine months ended
December 31, 1996 was calculated on a pro rata basis using the
historical net income for the year ended December 31, 1996 adjusted
for a major customer contract entered into in October 1997. The pro
forma adjustments for the nine months ended December 31, 1996 were
calculated on a pro rata basis with the exception of financing fees
which were assumed to have been incurred on April 1, 1996. Management
believes that this method provides a reasonable approximation of
SatMex's historical and pro forma results of operations for the nine
months ended December 31, 1996.
93
<PAGE>
The pro forma adjustment for equity in net loss of affiliates was
calculated as follows (amounts in thousands of U.S. dollars):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
Historical net income of SatMex.......................... $ 35,052 $ 14,744
Pro forma adjustments:
Amortization of Concessions ............................. (8,265) (8,265)
Interest expense ........................................ (43,920) (43,920)
Amortization of deferred financing costs ................ (1,785) (1,785)
Financing fees .......................................... -- (8,850)
Amortization of offering costs .......................... (667) (667)
Adjustments to reflect post-acquisition operations ..... (3,942) (4,406)
Reversal of Government assessment ....................... 4,809 3,401
Income tax benefit ...................................... 2,479 10,501
--------------- --------------
Total pro forma adjustments ............................. (51,291) (53,991)
--------------- --------------
Pro forma net loss of SatMex ............................ (16,239) (39,247)
Loral indirect ownership interest in SatMex ............. 49% 49%
--------------- --------------
Loral share of SatMex pro forma net loss ................ (7,957) (19,231)
Loral share of management and intellectual property fees 1,499 868
Loral share of Holdings' interest on Government
Obligation ............................................. (4,989) (4,989)
--------------- --------------
Pro forma equity in net loss of affiliates .............. $ (11,447) $ (23,352)
=============== ==============
</TABLE>
The cost in excess of net assets acquired has been assigned to the
orbital slot concessions received from the Mexican government
("Concessions") and is being amortized over 40 years. Interest has
been reflected at rates ranging from 9.37% to 10.13% plus Mexican
withholding tax, and deferred financing and offering costs are being
amortized over 6 to 7 years, when the related debt matures. Other pro
forma adjustments have been made to reflect revenue and expenses on a
post-acquisition basis. Revenue adjustments reflect reduced revenues
from Telecomm based upon new contracts entered into concurrent with
the acquisition. Operating expense adjustments include increased
payroll cost to post-acquisition pay scales, increased in-orbit
insurance premiums driven by higher levels of insurance required due
to the financings, incremental lease costs, reversal of non-recurring
bad debt recoveries recorded in 1997, management and intellectual
property fees to be paid to the Sponsors and elimination of
non-recurring bonuses and employment costs related to the
privatization. Pro forma adjustments have been made to eliminate
assessments from the Mexican Government. A pro forma tax benefit has
been reflected on the pro forma adjustments and historical income.
Pro forma adjustments related to affiliates of Loral other than SatMex
include Loral's share of the Government Obligation interest expense
which accrues at 12% per year applied to the discounted amount of
$85.3 million and management and intellectual property fees payable
from SatMex to other Loral affiliates.
The unaudited pro forma condensed consolidated statements of
operations reflect charges for interest expense of 7% on the cash
portion of the purchase price. Loral intends to refinance a portion of
the purchase price with debt. The interest charge of 7% on the cash
portion of the purchase price reflects the interest rate on Loral's
current borrowing under its revolving credit facility.
4. The following facts and assumptions were used in determining the pro forma
effect on Orion of the January merger, Exchange, Bond Offering and
Debentures Offering completed in January 1997 (see "Information about
Orion--Recent Developments"):
The unaudited pro forma condensed consolidated statements of operations
for the nine months ended September 30, 1997 and December 31, 1996 have
been prepared as if the transactions took place on April 1, 1996. The
unaudited pro forma condensed consolidated financial statements do not
purport to present the actual financial position or results of operations
of Orion had the transactions in fact
94
<PAGE>
occurred on the dates specified, nor are they indicative of the results of
operations that may be achieved in the future. The unaudited pro forma
condensed consolidated financial statements are based on the assumptions
and adjustments further described herein.
The tables below illustrate the January Transaction adjustments made to the
Orion historical statements of operations for the nine month periods ended
September 30, 1997 and December 31, 1996. Certain historical items have been
reclassified to conform to the condensed pro forma presentation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
(IN THOUSANDS)
----------------------------------------
PRO FORMA ORION
----------------------------------------
ACTUAL ORION ORION
ORION ADJUSTMENTS PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
Revenues..................................... $ 54,539 $ -- $ 54,539
Costs and expenses .......................... 85,042 417 (ii) 85,459
----------- -------------- -----------
Operating loss ............................. (30,503) (417) (30,920)
Interest income (expenses), net ............. (44,036) (8,805)(iii) (52,841)
Other income (expenses) ..................... 21 -- 21
----------- -------------- -----------
Loss before extraordinary item and minority
interest .................................. (74,518) (9,222) (83,740)
Extraordinary item .......................... (15,763) 15,763 (i) --
Minority interest ........................... 12,043 (12,043)(iv) --
----------- -------------- -----------
Net loss ................................... (78,238) (5,502) (83,740)
Preferred dividends ......................... (6,281) (652)(v) (6,933)
----------- -------------- -----------
Net loss attributable to common shares .... $(84,519) $ (6,154) $(90,673)
=========== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, 1996
(IN THOUSANDS)
-----------------------------------------
PRO FORMA ORION
-----------------------------------------
ACTUAL ORION ORION
ORION ADJUSTMENTS PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
Revenues................................. $ 34,201 $ -- $ 34,201
Costs and expenses ...................... 60,398 3,751 (ii) 64,149
----------- --------------- -----------
Operating loss ......................... (26,197) (3,751) (29,948)
Interest income (expenses), net ........ (18,642) (51,488)(iii) (70,130)
Other income (expenses) ................. -- -- --
----------- --------------- -----------
Loss before minority interest .......... (44,839) (55,239) (100,078)
Minority interest ....................... 24,896 (24,896)(iv) --
----------- --------------- -----------
Net loss ............................... (19,943) (80,135) (100,078)
Preferred dividends ..................... (991) (5,846)(v) (6,837)
----------- --------------- -----------
Net loss attributable to common shares $(20,934) $(85,981) $(106,915)
=========== =============== ===========
</TABLE>
- ------------
(i) Excludes the $15.8 million extraordinary loss on the extinguishment of
debt as a result of the refinancing of the Orion 1 Credit Facility.
(ii) Reflects depreciation on the step up in basis on the Orion 1 satellite
of $.3 million and $2.4 million for the nine months ended September
30, 1997 and December 31, 1996, respectively; and the amortization of
excess cost over fair value of net assets acquired of $.1 million and
$1.4 million for the nine months ended September 30, 1997 and December
31, 1996, respectively, resulting from the acquisition of the Limited
Partners' partnership interests in Orion Atlantic over the estimated
useful life of the satellite of 10.5 years.
95
<PAGE>
(iii) Reflects the adjustment to interest as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
Reduction in Orion 1 Credit Facility interest
expense........................................ $(1,359) $(12,003)
Reduction in Orion 1 Credit Facility interest
rate cap expense............................... (377) (1,092)
Reduction in amortization of deferred financing
costs on the Orion 1 Credit Facility........... (178) (1,598)
Interest expense on Senior Notes................ 4,172 37,837
Interest expense on Senior Discount Notes ...... 6,155 26,029
Interest expense on Debentures.................. 438 2,245
Interest expense from amortization of deferred
financing costs on new borrowings.............. 194 1,748
Reduction in interest expense relating to
repayment of other obligations to Limited
Partners....................................... (240) (1,678)
--------------- --------------
Net increase in pro forma interest expense ... $ 8,805 $ 51,488
=============== ==============
</TABLE>
(iv) Elimination of minority interest as a result of the Exchange.
(v) Dividend requirement on the Orion Newco Series C Preferred Stock
issued as a result of the Exchange, as well as pro rata accretion to
redemption value over a 25 year period.
5. The following facts and assumptions in notes (i) through (l) were used in
determining the pro forma effect of the proposed acquisition of Orion.
(i) On October 7, 1997, Loral agreed to acquire 100% of Orion's
outstanding capital stock for Loral common stock. The purchase price
of approximately $461.5 million, including estimated expenses of $5
million, was based on a closing price of $22.75 of Loral Common Stock
on December 2, 1997. The price was determined pursuant to the
requirements of APB No. 16 and EITF 95-19 and assumed the issuance of
19.1 million shares of Loral Common Stock (including the conversion of
Orion's redeemable convertible preferred stock and 8.75% convertible
debentures), the exchange of options and warrants to purchase common
stock and the elimination of the Orion shares held by SS/L. The
transaction is expected to close in the first quarter of 1998 and is
subject to regulatory and Orion shareholder approvals. At the close,
each share of Orion Capital Stock will be converted into $17.50 worth
of Loral Common Stock assuming the "determination price", as defined,
of Loral Common Stock is between $16.305 and $24.458. If the
determination price is at or outside either end of this range, each
Orion share will be converted into a fixed number of Loral common
shares obtained by dividing $17.50 by the high or low end of the
range, as appropriate. In no case will the exchange ratio be fewer
than 0.71553 shares of Loral Common Stock for each share of Orion
Capital Stock. The purchase price excludes the repurchase of Orion's
Senior Notes and Senior Discount Notes ("Notes"). Under certain change
in control provisions contained in the applicable agreements thereto,
Orion is required to offer to repurchase the Notes. Since the market
value of the Notes exceeds the call value, Loral does not believe the
noteholders will accept the repurchase offer. See "Risk Factors --
Risk Related to the Transactions -- Offer to Purchase Orion's Senior
Notes and Senior Discount Notes." The unaudited pro forma condensed
consolidated balance sheet has been prepared as if the acquisition of
Orion's net assets had been completed on September 30, 1997.
This acquisition will be accounted for as a purchase. Pro forma
adjustments to the unaudited condensed consolidated statement of
operations have been calculated for the nine month periods ended
December 31, 1996 and September 30, 1997, respectively. These
unaudited pro
96
<PAGE>
forma condensed consolidated statement of operations adjustments have
been prepared as if the proposed acquisition of Orion had occurred on
April 1, 1996. Orion operations have been calculated by deducting the
Orion operations for the three month period ended March 31, 1996 from
the Orion operations for the year ended December 31, 1996. Such
operations give effect on a pro forma basis to certain transactions
completed by Orion in January 1997, as if such transactions had been
completed January 1, 1996. Revenues, operating loss and net loss
attributable to common shareholders for Orion on a pro forma basis for
the three months ended March 31, 1996 were $7.6 million, $11.1 million
and $37.4 million, respectively.
(j) The estimated excess of purchase price over the net assets acquired of
$385.8 million is being amortized over 40 years. Orion's identifiable
assets and liabilities used in the preparation of these unaudited pro
forma condensed consolidated financial statements were based on
historical cost, pending the completion of an independent valuation
and allocation of their respective fair values, which are not expected
to result in material adjustments. Other pro forma adjustments to the
unaudited condensed consolidated balance sheet include (i) the assumed
conversion to equity at September 30, 1997 of Orion's Series A 8%
Cumulative Redeemable Convertible Preferred Stock aggregating $16.9
million at September 30, 1997 plus accrued dividends; Series B 8%
Cumulative Redeemable Convertible Preferred Stock aggregating $5.1
million at September 30, 1997 plus accrued dividends; Series C 6%
Cumulative Redeemable Convertible Preferred Stock aggregating $95.9
million at September 30, 1997 plus accrued dividends and $60.0
million, 8.75% convertible debentures dated January 31, 1997 and the
elimination of the accrued interest thereon; (ii) the elimination of
Orion's goodwill aggregating $21.1 million at September 30, 1997; and
(iii) the accrual of $.7 million relating to the assumed acceleration
of vesting of Non-Employee Director unvested stock options in
connection with the Merger.
(k) Other pro forma adjustments to the unaudited condensed consolidated
statement of operations include amortization expense of the
preliminary valuation of the excess purchase price, preferred
dividends, interest expense on the convertible debentures from the
historical Orion results and unearned compensation of $5.9 million and
the related amortization, resulting from the difference between the
purchase price and exercise price of unvested options.
(l) A tax benefit was recorded as an adjustment to the unaudited pro forma
condensed consolidated statement of operations for the nine months
ended December 31, 1996 and September 30, 1997 related to the Orion
loss which would have been available to Loral on its US income tax
return. A statutory (federal and state) tax rate of 40% was applied to
certain pro forma adjustments for the nine months ended September 30,
1997.
6. Primary and fully diluted earnings per share are computed based upon the
weighted average number of shares of common stock and common equivalent
shares (Loral Series A Preferred Stock) outstanding, after giving pro
forma effect to the shares issued for the transactions described above.
The Loral Series C Preferred Stock was excluded from the earnings per
share calculations as their effect would have been anti-dilutive.
The following table presents the shares used in the pro forma earning
(loss) per share calculations (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Shares--historical financial statements ......... 240,539 229,396
Shares issued to acquire SS/L--weighted average . 5,126 11,630
------------------ -----------------
245,665 241,026
Assumed issuance of shares to Orion
shareholders.................................... 19,107 19,107
------------------ -----------------
Pro forma shares used in per share calculations . 264,772 260,133
================== =================
</TABLE>
97
<PAGE>
OWNERSHIP OF ORION COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Orion's Common Stock, as of January 15, 1998, by (i) each
stockholder known by Orion to be the beneficial owner of more than five
percent of the outstanding Orion Common Stock, (ii) each Director of Orion
and each current executive officer of Orion, and (iv) all Directors and
officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL SHARES OF
AMOUNT AND PERCENT OF COMMON STOCK
NATURE OF TOTAL SHARES OF OUTSTANDING ON A
BENEFICIAL COMMON STOCK FULLY DILUTED BASIS
OWNERSHIP (1) OUTSTANDING (2) (5)
------------- --------------- ---------------------
<S> <C> <C> <C>
British Aerospace.............................. 7,650,226 32.9 26.9
Holdings, Inc. (3)(4)
13873 Park Center Road
Herndon, VA 22071
CIBC Wood Gundy Ventures, Inc. ................ 977,123 5.9 3.4
425 Lexington Avenue
New York, NY 10017
W. Neil Bauer, President and Chief ............ 215,340 1.3 *
Executive Officer (3)(6)(7)
2440 Research Blvd., Suite 400
Rockville, MD 20850
Richard J. Brekka, Director (8) ............... 20,000 * *
712 Fifth Avenue
Suite 8D
New York, NY 10019
Denis J. Curtin, Senior Vice President, ....... 68,252 * *
and General Manager, Engineering
and Satellite
Operations (19)
2440 Research Blvd., Suite 400
Rockville, MD 20850
David J. Frear, Senior Vice President, Chief . 179,660 1.0 *
Financial Officer and Treasurer (6)(9)
2440 Research Blvd., Suite 400
Rockville, MD 20850
Warren B. French, Jr., Director (10) ......... 25,623 * *
124 S. Main Street
Edinburg, VA 22824
Hans Giner, President, Orion .................. 12,000 * *
Network Systems-Asia Pacific, Inc. (11)
2440 Research Blvd., Suite 400
Rockville, MD 20850
Gustave M. Hauser, Chairman, Director 547,517 3.2 1.9
(3)(6)(12).....................................
712 Fifth Avenue
New York, NY 10019
98
<PAGE>
PERCENT OF
TOTAL SHARES OF
AMOUNT AND PERCENT OF COMMON STOCK
NATURE OF TOTAL SHARES OF OUTSTANDING ON A
BENEFICIAL COMMON STOCK FULLY DILUTED BASIS
OWNERSHIP (1) OUTSTANDING (2) (5)
------------- --------------- ---------------------
Barry Horowitz, Director (13).................. 20,000 * *
Mitretek Systems, Inc.
7525 Colshire Drive
McLean, VA 22102
Sidney S. Kahn, Director (3)(6)(14)............ 235,429 1.4 *
14 East 60th Street, Suite 500
New York, NY 10022
John G. Puente, Director (3)(6)(15)............ 519,181 3.1 1.8
2440 Research Blvd., Suite 400
Rockville, MD 20850
W. Anthony Rice, Director (16) ................ 20,000 * *
British Aerospace Public Limited Company
Warwick House, PO Box 87
Farnborough Aerospace Centre, Farnborough
Hants, GU146YU
John V. Saeman, Director....................... 1,489,240 8.9 5.2
J.V. Saeman & Co. (3)(6)(17)
Medallion Enterprises, LLC
Suite 570
3200 Cherry Creek South Drive
Denver, CO 80209
Richard H. Shay, Senior Vice President ....... 55,392 * *
Law and Administration, Secretary (18)
2440 Research Blvd., Suite 400
Rockville, MD 20850
Robert M. Van Degna, Director (20)............. 20,000 * *
Fleet Equity Partners
50 Kennedy Plaza
Providence, RI 02903
All directors and executive officers........... 3,427,633 19.3 12.1
as a group (14 persons)
</TABLE>
- ------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be a "beneficial owner" of a security if he or she has or
shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities of which
that person has the right to acquire beneficial ownership within 60
days from January 15, 1998. More than one person may be deemed to be
a beneficial owner of the same securities. All persons shown in the
table above have sole voting and investment power, except as
otherwise indicated.
(2) For the purpose of computing the percentage ownership of each
beneficial owner, any securities which were not outstanding but which
were subject to options, warrants, rights or conversion
99
<PAGE>
privileges held by such beneficial owner exercisable within 60 days
were deemed to be outstanding in determining the percentage owned by
such person, but were not deemed outstanding in determining the
percentage owned by any other person.
(3) Stockholders who are parties to the Principal Stockholder Agreement.
(4) Includes 3,007,770 shares issuable upon conversion of 52,636 shares
of Orion Series C Preferred Stock and 3,571,429 shares issuable upon
conversion of $50 million of Debentures.
(5) The percentage ownership of each beneficial owner calculated on a
fully diluted basis assumes conversion or exercise of all derivative
securities, including options, warrants, rights or conversion
privileges.
(6) Does not include shares issuable upon exercise of warrants which are
exercisable only in the event that the Orion Senior Preferred Stock
is redeemed by Orion prior to its conversion into Orion Common Stock.
(7) Includes 211,763 shares issuable upon the exercise of stock options
held by Mr. Bauer exercisable within 60 days. Does not include 10,220
shares held of record, 1,882 shares issuable upon the conversion of
16 shares of Orion Series A Preferred Stock and 522 shares issuable
upon conversion of 5.333 shares of Orion Series B Preferred Stock
purchased in June 1995 held by Mr. Bauer's wife. Mr. Bauer disclaims
beneficial ownership of these shares.
(8) Includes 20,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(9) Includes 171,812 shares issuable upon the exercise of stock options
exercisable within 60 days and 1,176 shares issuable upon conversion
of 10 shares of Orion Series A Preferred Stock and 326 shares
issuable upon conversion of 3.333 shares of Orion Series B Preferred
Stock.
(10) Does not include 172,520 shares held of record, 29,412 shares
issuable upon the conversion of 250 shares of Orion Series A
Preferred Stock or 8,170 shares issuable upon conversion of 83.334
shares of Orion Series B Preferred Stock held by Shenandoah
Telecommunications Company, of which Mr. French is the former
Chairman and presently a consultant. Mr. French disclaims beneficial
ownership of these shares. Includes 20,000 shares issuable upon
exercise of stock options exercisable within 60 days.
(11) Includes 12,000 shares issuable upon the exercise of stock options
exercisable within 60 days.
(12) Includes 58,823 shares issuable upon the conversion of 500 shares of
Orion Series A Preferred Stock and 16,339 shares issuable upon
conversion of 166.667 shares of Orion Series B Preferred Stock held
by Mr. Hauser and his wife. Includes 120,000 shares issuable upon
exercise of stock options exercisable within 60 days.
(13) Includes 20,000 shares issuable upon the exercise of stock options
exercisable within 60 days.
(14) Includes 8,169 shares issuable upon conversion of 83.333 shares of
Orion Series B Preferred Stock. Includes 20,000 shares issuable upon
exercise of stock options exercisable within 60 days.
(15) Includes 153,087 shares issuable upon the exercise of stock options
exercisable within 60 days, 1,411 shares issuable upon the conversion
of 12 shares of Orion Series A Preferred Stock and 392 shares
issuable upon conversion of 4 shares of Orion Series B Preferred
Stock held by Mr. Puente.
(16) Does not include 7,650,226 shares beneficially owned by British
Aerospace Holdings, Inc. Mr. Rice, a director of Orion and a director
of British Aerospace Holdings, Inc., disclaims beneficial ownership
of these shares. Includes 20,000 shares issuable upon exercise of
stock options exercisable within 60 days.
(17) The 1,489,240 shares of Orion Common Stock beneficially owned by John
V. Saeman include 58,823 shares issuable upon conversion of 500
shares of Orion Series A Preferred Stock, and 16,339 shares issuable
upon conversion of 166.667 shares of Orion Series B Preferred Stock.
Of the remaining 1,414,078 shares of stock beneficially owned by John
V. Saeman, 796,805 are held by J. V. Saeman & Co., a general
partnership, of which Mr. Saeman and his wife are the sole partners,
40,196 are held by JCC, Ltd., a limited partnership, of which J. V.
Saeman & Co. is the general partner, and 545,523 are held by
Medallion Enterprises, LLC, a limited liability company, of which Mr.
Saeman and his wife are the sole members. Includes 20,000 shares
issuable upon exercise of stock options exercisable within 60 days.
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(18) Includes 37,544 shares issuable upon exercise of stock options
exercisable within 60 days.
(19) Includes 55,030 shares issuable upon the exercise of stock options
exercisable within 60 days, and 705 shares issuable upon the
conversion of 6 shares of Orion Series A Preferred Stock and 196
shares issuable upon conversion of 2 shares of Orion Series B
Preferred Stock.
(20) Excludes 588,234 shares issuable upon conversion of 4,000 shares of
Orion Series A Preferred Stock held by Fleet and 1,000 shares of
Orion Series A Preferred Stock held by Chisholm, and 130,718 shares
issuable upon conversion of 1,333.333 shares of Orion Series B
Preferred Stock held by Fleet. Mr. Van Degna, a director of Orion, is
the chairman and chief executive officer of each of the managing
general partners of Fleet Equity Partners VI, L.P., the chairman and
chief executive officer of Fleet Venture Resources, Inc. and the
chairman and chief executive officer of the corporation that is the
general partner of the partnership that is the general partner of
Chisholm Partners II, L.P. Mr. Van Degna disclaims beneficial
ownership of these shares. Includes 20,000 shares issuable upon
exercise of stock options exercisable within 60 days.
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AMENDMENTS TO DIRECTOR OPTION PLAN
(PROPOSAL 2)
The Board of Directors has approved and is proposing for stockholder
approval amendments to the Director Option Plan. As indicated above, in the
Merger each outstanding stock option to purchase shares of Orion Common Stock
is to be converted into an option to acquire the number of shares of Loral
Common Stock equal to the Exchange Ratio multiplied by the number of shares
of Orion Common Stock for which such option was exercisable. In the case of
the options granted under the Director Option Plan, Orion is seeking to
effect the conversion of such options by amending the Director Option Plan.
Orion also has amended its employee stock option plans to effect such
conversion, but amendment of such employee stock option plans does not
require stockholder approval and accordingly is not one of the matters to be
acted upon at the Special Meeting.
Orion also is proposing to amend the Director Option Plan to provide that
options granted to Orion's directors that vest at the next annual meeting of
stockholders of Orion instead would vest upon consummation of the Merger, if
the Merger occurs prior to such annual meeting. Orion believes that since its
directors will have performed nearly a full year of service since the last
annual meeting of stockholders, and since such directors would be resigning
prior to the next annual meeting of stockholders to satisfy a condition of
the Merger, it is appropriate for the directors' options to vest upon
consummation of the Merger.
The Director Option Plan was adopted on March 20, 1996, with 380,000
shares of Orion Common Stock reserved for issuance upon the exercise of
options granted thereunder. To date, options to purchase 270,000 shares have
been granted to non-employee directors of Orion, of which options to purchase
80,000 shares granted at the 1997 annual meeting of stockholders of Orion
(the "Unvested 1997 Options") have not yet vested and are scheduled to vest
at the 1998 annual meeting of stockholders of Orion. Based upon the closing
price of Orion's Common Stock on January 15, 1998, the aggregate market value
of the total number of shares of Orion Common Stock underlying the Unvested
1997 Options is $1,360,000.
The affirmative vote of a majority of the shares of Orion Common Stock and
Orion Preferred Stock, present in person or represented by proxy and entitled
to vote at the Annual Meeting, voting together as a single class, with each
share of Orion Common Stock entitled to one vote per share, and each share of
Orion Preferred Stock (including fractional shares) entitled to one vote for
each whole share of Orion Common Stock that would be issuable upon conversion
of such share of Orion Preferred Stock is required to approve the amendments
to the Director Option Plan. Unless otherwise indicated, properly executed
proxies will be voted in favor of Proposal 2 to approve the amendments to the
Director Option Plan. If Proposal 2 is not approved by stockholders at the
Special Meeting, Orion intends to rely on Loral's obligation in the Merger
Agreement to ensure that stock options granted under the Director Option Plan
are properly converted into options to acquire Loral Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
The foregoing summary of the amendments to the Director Option Plan does
not purport to be complete, and is subject to and qualified in its entirety
by reference to the complete text of such amendments, which is attached
hereto as Attachment D and is incorporated herein by reference.
AMENDMENTS TO PUENTE OPTION AGREEMENT
(PROPOSAL 3)
The Board of Directors has approved and is proposing for stockholder
approval amendments to the Puente Option Agreement. As indicated above, in
the Merger each outstanding stock option to purchase shares of Orion Common
Stock is to be converted into an option to acquire the number of shares of
Loral Common Stock equal to the Exchange Ratio multiplied by the number of
shares of Orion Common Stock for which such option was exercisable. In the
case of the options granted under the Puente Option Agreement, Orion is
seeking to effect the conversion of such options by amending the Puente
Option Agreement. Orion also has amended its other stock option agreements
through amendments to its
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employee stock option plans to effect such conversion, but amendment of such
employee stock option plans does not require stockholder approval and
accordingly is not one of the matters to be acted upon at the Special
Meeting.
The Puente Option Agreement was entered into by Orion in connection with
the establishment of Company's Executive Committee, the appointment of John
G. Puente as Chairman of that committee and the retention of Mr. Puente as a
consultant to Orion on matters of strategic importance to Orion. The
Executive Committee is charged with overseeing, on behalf of the Board of
Directors, the strategic direction of Orion's financing efforts, matters
relating to strategic partners, alliances and acquisitions and the overall
market focus of Orion, and played a significant role in Orion's decision to
enter into the Merger Agreement. The Board of Directors believes that the
Executive Committee has been very effective since its establishment and
believes that Mr. Puente, as Chairman of that committee, contributed
significantly to its effectiveness.
The affirmative vote of a majority of the shares of Orion Common Stock and
Orion Preferred Stock, present in person or represented by proxy and entitled
to vote at the Annual Meeting, voting together as a single class, with each
share of Orion Common Stock entitled to one vote per share, and each share of
Orion Preferred Stock (including fractional shares) entitled to one vote for
each whole share of Orion Common Stock that would be issuable upon conversion
of such share of Orion Preferred Stock is required to approve the amendments
to the Puente Option Agreement. Unless otherwise indicated, properly executed
proxies will be voted in favor of Proposal 3 to approve the amendments to the
Puente Option Agreement. If Proposal 3 is not approved by stockholders at the
Special Meeting, Orion intends to rely on Loral's obligation in the Merger
Agreement to ensure that stock options granted under the Puente Option
Agreement are properly converted into options to acquire Loral Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
The foregoing summary of the amendments to the Puente Option Agreement
does not purport to be complete, and is subject to and qualified in its
entirety by reference to the complete text of such amendments, which is
attached hereto as Attachment E and is incorporated herein by reference.
AMENDMENTS TO HAUSER OPTION AGREEMENT
(PROPOSAL 4)
The Board of Directors has approved and is proposing for stockholder
approval amendments to the Hauser Option Agreement. As indicated above, in
the Merger each outstanding stock option to purchase shares of Orion Common
Stock is to be converted into an option to acquire the number of shares of
Loral Common Stock equal to the Exchange Ratio multiplied by the number of
shares of Orion Common Stock for which such option was exercisable. In the
case of the options granted under the Hauser Option Agreement, Orion is
seeking to effect the conversion of such options by amending the Hauser
Option Agreement. Orion also has amended its other stock option agreements
through amendments to its employee stock option plans to effect such
conversion, but amendment of such employee stock option plans does not
require stockholder approval and accordingly is not one of the matters to be
acted upon at the Special Meeting.
The Hauser Option Agreement was entered into by Orion in connection with
the successful completion of the January 1997 Transactions. The Board of
Directors believes that Mr. Hauser, as Chairman of Orion, contributed
significantly to the successful completion of those transactions and granted
options to Mr. Hauser pursuant to the Hauser Option Agreement to reward Mr.
Hauser for his chairmanship of Orion during the period in which such
transactions were planned, proposed and completed.
The affirmative vote of a majority of the shares of Orion Common Stock and
Orion Preferred Stock, present in person or represented by proxy and entitled
to vote at the Annual Meeting, voting together as a single class, with each
share of Orion Common Stock entitled to one vote per share, and each share of
Orion Preferred Stock (including fractional shares) entitled to one vote for
each whole share of Orion Common Stock that would be issuable upon conversion
of such share of Orion Preferred Stock is required
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to approve the amendments to the Hauser Option Agreement. Unless otherwise
indicated, properly executed proxies will be voted in favor of Proposal 4 to
approve the amendments to the Hauser Option Agreement. If Proposal 4 is not
approved by stockholders at the Special Meeting, Orion intends to rely on
Loral's obligation in the Merger Agreement to ensure that stock options
granted under the Hauser Option Agreement are properly converted into options
to acquire Loral Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
The foregoing summary of the amendments to the Hauser Option Agreement
does not purport to be complete, and is subject to and qualified in its
entirety by reference to the complete text of such amendments, which is
attached hereto as Attachment F and is incorporated herein by reference.
OTHER MATTERS
No business may be brought before the Special Meeting other than the
proposals and procedural matters that may arise in connection with the
proposals set forth in this Proxy Statement/Prospectus. Any proposals by
stockholders of Orion to be considered for inclusion in Orion's Proxy
Statement relating to the 1999 Annual Meeting of Stockholders must be in
writing and received by Orion, at its principal office, no later than
December 26, 1998. Nothing in this paragraph shall be deemed to require Orion
to include in the proxy statement relating to Orion's 1998 Annual Meeting of
Stockholders any stockholder proposal that does not meet all of the
requirements for such inclusion in effect at that time.
LEGAL AND TAX MATTERS
Certain United States tax matters described under "The Merger -- Taxation
of Loral and its Stockholders" have been passed upon for Loral by Willkie
Farr & Gallagher, New York, New York, general counsel to Loral. Certain
Bermuda tax matters described under "The Merger -- Taxation of Loral and its
Stockholders" have been passed upon for Loral by Appleby, Spurling & Kempe,
Bermuda counsel to Loral. Certain United States tax matters described under
"The Merger -- Certain U.S. Federal Income Tax Consequences of the Merger"
have been passed upon for Orion by Ernst & Young LLP. A legal opinion to the
effect that the Loral Common Stock to be issued in the Merger, when issued in
accordance with the Merger Agreement, will be validly issued and fully paid
and nonassessable, has been rendered by Appleby, Spurling & Kempe, Bermuda
counsel to Loral. As of December 15, 1997, partners and counsel in Willkie
Farr & Gallagher beneficially owned approximately 20,000 shares of Loral
Common Stock. Mr. Robert B. Hodes is of counsel to the law firm of Willkie
Farr & Gallagher, and a Director of Loral and a member of the Audit and
Executive Committees of the Board of Directors of Loral.
EXPERTS
The consolidated financial statements of Orion Network Systems, Inc. at
December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in the Orion Network Systems, Inc. Annual
Report (Form 10-K and amendment thereto on Form 10-K/A) for the year ended
December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated by reference in the Proxy Statement of Orion Network Systems,
Inc., which is referred to and made a part of this Prospectus and
Registration Statement. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Loral and those of its affiliates, SS/L and
Globalstar, incorporated in this Proxy Statement/Prospectus by reference from
Loral's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The statements of net assets of Skynet Satellite Services as of December
31, 1996 and 1995 and the related statements of operations and changes in net
assets and cash flows for the years ended December
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31, 1996, 1995 and 1994, incorporated by reference in the Registration
Statement of which this Proxy Statement/Prospectus is a part, have been
incorporated by reference in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, upon the authority of such firm as experts
in accounting and auditing.
The audited financial statements of the fixed satellite service business
of Telecomunicaciones de Mexico (the "Predecessor Company" of Satelites
Mexicanos, S.A. de C.V.) and the audited balance sheet of Satelites
Mexicanos, S.A. de C.V., incorporated by reference in the Registration
Statement of which this Proxy Statement/Prospectus is a part, to the extent
and for the periods indicated in their reports, have been audited by Price
Waterhouse, and are incorporated by reference herein in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
105
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ATTACHMENT A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ORION NETWORK SYSTEMS, INC.
LORAL SPACE & COMMUNICATIONS LTD.
AND
LORAL SATELLITE CORPORATION
DATED AS OF OCTOBER 7, 1997
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I. THE MERGER
SECTION 1.1. The Merger............................................................. 8
SECTION 1.2. Effective Time......................................................... 8
SECTION 1.3. Effect of the Merger...................................................
SECTION 1.4. Certificate of Incorporation; Bylaws................................... 8
SECTION 1.5. Directors and Officers................................................. 9
SECTION 1.6. Closing................................................................ 9
SECTION 1.7. Subsequent Actions..................................................... 9
ARTICLE II. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities............................................... 9
SECTION 2.2. Payment................................................................ 11
SECTION 2.3. Company Options; Stock Purchase Plan; Warrants......................... 12
SECTION 2.4. Stock Transfer Books................................................... 13
SECTION 2.5. Certain Adjustments.................................................... 14
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1. Organization and Qualification; Subsidiaries........................... 14
SECTION 3.2. Certificate of Incorporation and Bylaws................................ 15
SECTION 3.3. Capitalization......................................................... 15
SECTION 3.4. Authority.............................................................. 16
SECTION 3.5. No Conflict; Required Filings and Consents............................. 16
SECTION 3.6. SEC Filings; Financial Statements...................................... 17
SECTION 3.7. Absence of Certain Changes or Events................................... 17
SECTION 3.8. Absence of Litigation.................................................. 17
SECTION 3.9. Licenses and Permits; Compliance with Laws............................. 18
SECTION 3.10. Taxes................................................................. 20
SECTION 3.11. Intellectual Property................................................. 21
SECTION 3.12. Material Contracts.................................................... 21
SECTION 3.13. Employee Benefit Plans................................................ 22
SECTION 3.14. Properties; Assets.................................................... 23
SECTION 3.15. Labor Relations....................................................... 24
SECTION 3.16. Environmental Matters................................................. 24
SECTION 3.17. Insurance............................................................. 25
SECTION 3.18. Board Approval; Vote Required......................................... 25
SECTION 3.19. Opinion of Financial Advisor.......................................... 25
SECTION 3.20. Brokers............................................................... 25
SECTION 3.21. Takeover Provisions Inapplicable...................................... 26
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF MERGER SUB
SECTION 4.1. Organization and Qualification......................................... 26
SECTION 4.2. Certificate of Incorporation and Bylaws................................ 26
SECTION 4.3. Authority.............................................................. 26
SECTION 4.4. No Conflict; Required Filings and Consents............................. 26
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ACQUIROR
SECTION 5.1. Organization and Qualification; Subsidiaries........................... 27
SECTION 5.2. Certificate of Incorporation and Bylaws................................ 27
SECTION 5.3. Capitalization......................................................... 27
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SECTION 5.4. Authority.............................................................. 28
SECTION 5.5. No Conflict; Required Filings and Consents............................. 28
SECTION 5.6. SEC Filings; Financial Statements...................................... 29
SECTION 5.7. Absence of Certain Changes or Events................................... 29
SECTION 5.8. Absence of Litigation.................................................. 29
SECTION 5.9. Licenses and Permits; Compliance with Laws............................. 30
SECTION 5.10. Taxes................................................................. 30
SECTION 5.11. Intellectual Property................................................. 31
SECTION 5.12. Material Contracts.................................................... 31
SECTION 5.13. Employee Benefit Plans................................................ 31
SECTION 5.14. Qualification of Acquiror............................................. 32
SECTION 5.15. Brokers............................................................... 32
ARTICLE VI. COVENANTS
SECTION 6.1. Affirmative Covenants of the Company................................... 32
SECTION 6.2. Negative Covenants of the Company...................................... 33
ARTICLE VII. ADDITIONAL AGREEMENTS
SECTION 7.1. Access and Information................................................. 35
SECTION 7.2. Confidentiality........................................................ 35
SECTION 7.3. Proxy Registration Statement; Board Recommendation and Stockholder
Vote............................................................................... 36
SECTION 7.4. FCC Application........................................................ 36
SECTION 7.5. HSR Act Matters........................................................ 37
SECTION 7.6. Public Announcements................................................... 37
SECTION 7.7. Indemnification; Directors' and Officers' Insurance.................... 37
SECTION 7.8. Employee Benefits Matters.............................................. 38
SECTION 7.9. Further Action; Commercially Reasonable Efforts........................ 38
SECTION 7.10. Negotiation With Others............................................... 39
SECTION 7.11. Stock Merger Listing.................................................. 40
SECTION 7.12. Blue Sky.............................................................. 40
SECTION 7.13. Affiliate Agreements.................................................. 40
SECTION 7.14. Consent Solicitation and Supplemental Indenture....................... 40
SECTION 7.15. The Exchange Offer.................................................... 41
SECTION 7.16. Control of Acquiror and the Company................................... 43
SECTION 7.17. Private Letter Ruling................................................. 43
ARTICLE VIII. CLOSING CONDITIONS
SECTION 8.1. Conditions to Obligations of Acquiror, Merger Sub and the Company to
Effect the Merger.................................................................. 44
SECTION 8.2. Additional Conditions to Obligations of Acquiror and Merger Sub ....... 44
SECTION 8.3. Additional Conditions to Obligations of the Company.................... 45
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination............................................................ 46
SECTION 9.2. Effect of Termination.................................................. 46
SECTION 9.3. Expenses............................................................... 47
SECTION 9.4. Amendment.............................................................. 47
SECTION 9.5. Waiver................................................................. 47
ARTICLE X. GENERAL PROVISIONS
SECTION 10.1. Nonsurvival of Representations, Warranties and Agreements ............ 48
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SECTION 10.2. Notices............................................................... 48
SECTION 10.3. Certain Definitions................................................... 49
SECTION 10.4. Headings.............................................................. 49
SECTION 10.5. Severability.......................................................... 49
SECTION 10.6. Entire Agreement...................................................... 50
SECTION 10.7. Specific Performance.................................................. 50
SECTION 10.8. Assignment............................................................ 50
SECTION 10.9. Third Party Beneficiaries............................................. 50
SECTION 10.10. Governing Law........................................................ 50
SECTION 10.11. Counterparts......................................................... 50
EXHIBITS
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Exhibit A Affiliate Agreement
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INDEX OF DEFINED TERMS
<TABLE>
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SECTION
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<S> <C>
Acquiror .......................................... PREAMBLE
Acquiror Benefit Plans ............................ 5.13(a)
Acquiror Commonly Controlled Entity ............... 5.13(a)
Acquiror Election ................................. 7.14(b)
Acquiror ERISA Plan ............................... 5.13(b)
Acquiror Ground Stations .......................... 5.9
Acquiror Intellectual Property .................... 5.11
Acquiror Material Adverse Effect .................. 5.1
Acquiror Material Contracts ....................... 5.12
Acquiror Permits .................................. 5.9
Acquiror Rights Plan .............................. 2.1(h)
Acquiror Satellites ............................... 5.9(a)
Acquiror SEC Reports .............................. 5.6(a)
Acquiror Series A Preferred ....................... 5.3
Acquiror Series C Preferred ....................... 5.3
Acquiror Shares ................................... 2.1(a)
Acquiror Subsidiary and Acquiror Subsidiaries .... 5.1
Acquisition Proposal .............................. 7.10(a)
affiliate ......................................... 10.3(a)
Affiliate Agreements .............................. 7.13
Agreement.......................................... PREAMBLE
Averaging Period .................................. 2.1(a)
Backlog ........................................... 3.12(c)
beneficial owner .................................. 10.3(b)
benefit liabilities ............................... 3.13(c)
Benefit Plans ..................................... 3.13(a)
Blue Sky Laws ..................................... 3.5(b)
business day ...................................... 10.3(c)
Capital Stock ..................................... 2.1(b)
Certificate and Certificates ...................... 2.2(b)
Certificate of Merger ............................. 1.2
Claim ............................................. 7.7(b)
Closing ........................................... 1.6
Closing Date ...................................... 1.6
Code .............................................. 2.3
Common Stock ...................................... 2.1(a)
Communications Act ................................ 3.5(b)
Company ........................................... PREAMBLE
Company Balance Sheet ............................. 3.14(a)
Company Benefit Plans ............................. 3.13(a)
Company Commonly Controlled Entity ................ 3.13(a)
Company ERISA Plan ................................ 3.13(a)
Company Ground Stations ........................... 3.9(a)
Company Intellectual Property ..................... 3.11
Company Material Adverse Effect ................... 3.1(a)
Company Material Contracts ........................ 3.12(a)
Company Negative Vote ............................. 9.3(a)(iii)
Company Satellites ................................ 3.9(a)
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SECTION
--------------
Company SEC Reports ............................... 3.6(a)
Company Stock Option Plans ........................ 2.3(a)
Company Subsidiary and Company Subsidiaries ...... 3.1(a)
Company Termination Fee ........................... 9.3(a)
Confidentiality Agreement ......................... 7.2
Consent Solicitation .............................. 7.14(a)
control, controlled by, under common control with 10.3(d)
Convertible Debentures ............................ 3.3
Delaware Law ...................................... PREAMBLE
Determination Price ............................... 2.1(a)
Effective Time .................................... 1.2
Employee Stock Purchase Plan ...................... 2.3(b)
Encumbrances ...................................... 3.3
Environmental Claim ............................... 3.16(d)(i)
Environmental Laws ................................ 3.16(d)(ii)
Environmental Permits ............................. 3.16(a)
ERISA ............................................. 3.13(a)
Exchange Act ...................................... 3.5(b)
Exchange Agent .................................... 2.2(a)
Exchange Consideration ............................ 7.15
Exchange Fund ..................................... 2.2(a)
Exchange Offer .................................... 7.15(a)
Exchange Offer Conditions ......................... 7.15(a)
Exchange Offer Documents .......................... 7.15(b)
Exchange Ratio .................................... 2.1(a)
Exchange Registration Statement ................... 7.15(b)
FCC ............................................... 3.5(b)
FCC Application ................................... 7.4(a)
FCC Rules ......................................... 3.9(a)
Final Order ....................................... 8.2(c)
Governmental Entity ............................... 3.5(b)
Hazardous Materials ............................... 3.16(d)(iii)
HSR Act ........................................... 3.5(b)
IGO Determinations ................................ 3.9(c)
Indemnified Parties ............................... 7.7(b)
Indentures ........................................ 7.14(a)
Interim Period .................................... 7.1
Key Applications .................................. 3.9(a)
Key Company Permits ............................... 3.9(a)
Major Station ..................................... 3.14(b)
Merger ............................................ 1.1
Merger Consideration .............................. 2.2(b)
Merger Consideration Value ........................ 6.3(d)(i)
Merger Sub ........................................ PREAMBLE
Multiemployer Plan ................................ 3.13(d)
NASD .............................................. 3.5(b)
Nasdaq ............................................ 3.5(b)
NYSE .............................................. 2.1(a)
Offer to Exchange ................................. 7.15(b)
Oldco ............................................. 3.6(a)
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SECTION
--------------
Option ............................................ 2.3(a)
Other Permits ..................................... 3.9(a)
Per Share Amount .................................. 2.1(b)
person ............................................ 10.3(e)
Preferred Stock ................................... 2.1(b)
Principal Stockholder Agreement ................... PREAMBLE
Proxy Registration Statement ...................... 7.3(a)
qualified ......................................... 3.13(b)
reasonable efforts ................................ 10.3(f)
Receiving Party ................................... 7.2
Requisite Consents ................................ 7.14(a)
Schedule 14D-1 .................................... 7.15(c)
Schedule 14D-9 .................................... 7.15(d)
SEC ............................................... 3.6(a)
Securities Act .................................... 3.5(b)
Senior Notes ...................................... 7.14(a)
Series A Preferred Stock .......................... 2.1(b)
Series B Preferred Stock .......................... 2.1(b)
Series C Preferred Stock .......................... 2.1(b)
Solicitation Termination Date ..................... 7.14(b)
Stockholders' Meeting ............................. 7.3(b)
Subsidiary ........................................ 3.1(b)
Surviving Corporation ............................. 1.1
Tax, Taxable and Taxes ............................ 3.10
Termination Date .................................. 9.1(e)
Trading Day ....................................... 2.1(a)
unfunded current liability ........................ 3.13(c)
VSAT Stations ..................................... 3.14(b)
Volume Weighted Average Trading Price ............. 2.1(a)
Warrant ........................................... 2.3(c)
</TABLE>
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ATTACHMENT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
7th day of October, 1997, by and among ORION NETWORK SYSTEMS, INC., a
Delaware corporation ("Company"), LORAL SPACE & COMMUNICATIONS LTD., a
Bermuda company ("Acquiror"), and LORAL SATELLITE CORPORATION, a Delaware
corporation ("Merger Sub").
WHEREAS, the Boards of Directors of the Company, Acquiror and Merger Sub
have each determined that it is fair to, and in the best interests of, their
respective stockholders that Merger Sub, a wholly-owned subsidiary of
Acquiror, be merged with and into the Company, pursuant to and subject to the
terms and conditions of this Agreement and the Delaware General Corporation
Law ("Delaware Law"); and
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, certain stockholders
have entered into an agreement with Acquiror (the "Principal Stockholder
Agreement") pursuant to which, among other things, such stockholders have
agreed to vote their shares of stock of the Company in favor of this
Agreement, the Merger (as defined below) and the other transactions
contemplated by this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with Delaware Law, at the Effective Time (as defined in
Section 1.2) Merger Sub shall be merged with and into the Company (the
"Merger"). As a result of the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (sometimes referred to herein as the "Surviving
Corporation") and a wholly-owned subsidiary of Acquiror. The name of the
Surviving Corporation shall be Loral Orion Network Systems, Inc.
SECTION 1.2. EFFECTIVE TIME.
As promptly as practicable on the Closing Date (as defined in Section
1.6), the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law and in such form as
approved by the Company and Acquiror prior to such filing (the time of the
filing of the Certificate of Merger or the time specified therein being the
"Effective Time").
SECTION 1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, except as
otherwise provided herein, all the rights, privileges, powers and franchises
of Merger Sub and the Company shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Merger Sub and the Company shall become
the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
At the Effective Time, (a) the certificate of incorporation of Merger Sub,
as, in effect immediately prior to the Effective Time and as amended by the
Certificate of Merger, shall be the certificate of incorporation of the
Surviving Corporation, and (b) the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
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SECTION 1.5. DIRECTORS AND OFFICERS.
The directors of Merger Sub (or such other or additional individuals as
Acquiror may designate prior to Closing) shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the
certificate of incorporation and bylaws of the Surviving Corporation; and the
officers of Merger Sub (or such other or additional individuals as Acquiror
may designate prior to Closing) shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected
or appointed and qualified.
SECTION 1.6. CLOSING.
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") will take place as promptly as practicable after
satisfaction of the latest to occur or, if permissible, waiver of the
conditions set forth in Article VIII hereof (the "Closing Date"), at the
offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd East
Street, New York, New York 10022, unless another date or place is agreed to
in writing by the parties hereto.
SECTION 1.7. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances
or any other actions or things are necessary or desirable to continue in,
vest, perfect or confirm of record or otherwise in the Surviving Corporation
its right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be directed and
authorized to execute and deliver, in the name and on behalf of either of
such constituent corporations, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties, privileges, franchises
or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any action on
the part of Acquiror, Merger Sub, the Company or the holders of any of the
following securities:
(a) Common Stock. Each share of common stock, par value $.01 per share, of
the Company ("Common Stock") (excluding any shares described in Sections
2.1(c) and (d)) issued and outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall be converted into and exchanged
for the right to receive the number of fully paid and nonassessable shares of
common stock, par value $0.01 per share, of Acquiror ("Acquiror Shares")
equal to the Exchange Ratio defined below. All such shares of Common Stock
shall cease to be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously evidencing any such
shares shall thereafter represent only the right to receive the Merger
Consideration as described below. The holders of certificates previously
evidencing such shares of Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Common Stock, except as otherwise provided herein or by law. Each such
certificate previously evidencing such shares of Common Stock shall be
exchanged for the number of shares previously evidenced by the canceled
certificate upon the surrender of such certificate in accordance with the
provisions of Section 2.2, multiplied by the Exchange Ratio.
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The Exchange Ratio shall be as follows:
(i) if the Determination Price shall be less than $24.458 but greater than
$16.305, the Exchange Ratio shall be the quotient obtained by dividing $17.50
by the Determination Price,
(ii) if the Determination Price shall be equal to or greater than $24.458,
the Exchange Ratio shall be 0.71553 and
(iii) if the Determination Price shall be equal to or less than $16.305,
the Exchange Ratio shall be 1.07329.
"Determination Price" shall mean the average of the Volume-Weighted
Average Trading Prices of Acquiror Shares for the twenty (20) consecutive
trading days on which trading of Acquiror Shares occurs (each a "Trading
Day") (the "Averaging Period") ending on the tenth trading day immediately
prior to the Closing Date for the Merger, rounded to the nearest one-hundred
thousandth (or if there shall not be a nearest one-hundred thousandth, to the
next higher one-hundred thousandth). "Volume-Weighted Average Trading Price"
means, for any Trading Day, an amount equal to (i) the cumulative sum, for
each trade of Acquiror Shares during such Trading Day on the New York Stock
Exchange, Inc. (the "NYSE") (or, if such security is not listed on the NYSE,
such other principal exchange or over-the-counter market on which such
security is listed), of the product of: (x) the sale price times (y) the
number of Acquiror Shares sold at such price, divided by (ii) the total
number of Acquiror Shares so traded during the Trading Day.
(b) Company Preferred Stock. Subject to the other provisions of this
Section 2.1, each share of preferred stock, par value $.01 per share, of the
Company ("Preferred Stock"), issued and outstanding immediately prior to the
Effective Time (excluding any shares described in Sections 2.1(c) and (d)),
shall be converted into the right to receive the number of fully paid and
nonassessable Acquiror Shares equal to the Exchange Ratio multiplied by the
number of shares of Common Stock into which such share of Preferred Stock was
convertible immediately prior to the Effective Time. The Company's Series A
8% Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), Series
B 8% Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") and
Series C 6% Cumulative Redeemable Preferred Stock ("Series C Preferred
Stock"), shall be referred to herein collectively as the "Preferred Stock."
The Exchange Ratio multiplied by the number of Acquiror Shares into which a
share of each series of the Company's Preferred Stock shall be converted in
the Merger shall be referred to herein collectively as the "Per Share
Amounts" and individually as a "Per Share Amount." The Common Stock and
Preferred Stock shall be referred to herein collectively as the "Capital
Stock."
All such shares of Preferred Stock shall cease to be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter represent
only the right to receive the Merger Consideration as described below. The
holders of certificates previously evidencing such shares of Preferred Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Preferred Stock, except as otherwise
provided herein or by law. Each such certificate previously evidencing such
shares of Preferred Stock shall be exchanged for the applicable Per Share
Amount multiplied by the number of shares previously evidenced by the
canceled certificate upon the surrender of such certificate in accordance
with the provisions of Section 2.3, without interest.
(c) Acquiror-Owned Shares. All shares of capital stock of the Company
owned, directly or indirectly, by Acquiror, Merger Sub or any other Acquiror
Subsidiary (as defined in Section 5.1) shall be canceled and extinguished
without any conversion thereof and no amount shall be delivered or
deliverable in exchange therefor;
(d) Treasury Stock. All shares of capital stock of the Company held in
the treasury of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no amount shall
be delivered or deliverable in exchange therefor;
(e) Merger Sub Stock. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation; and
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(f) No Fractional Shares. No certificate or scrip representing a
fractional share of Acquiror Shares shall be issued pursuant to this Section
2.1, and such fractional interests shall not entitle the owner thereof to any
rights as a security holder of Acquiror. All holders entitled to receive a
fractional share of Acquiror Shares shall be entitled to receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i)
such fractional part of Acquiror Shares multiplied by (ii) the last sales
price per Acquiror Share on the NYSE Composite Transactions reporting system
for the Closing Date. As promptly as possible after the determination of the
amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall so notify Acquiror, and Acquiror shall cause the
Surviving Corporation to deposit such amount with the Exchange Agent and
shall cause the Exchange Agent to forward payments to such holders of
fractional interests subject to and in accordance with the terms hereof.
(g) Interest and Dividend Shares. To the extent that any interest accrued
or payable with respect to the Company's 8.75% Convertible Junior
Subordinated Debentures due 2012 or any dividends accrued or payable with
respect to the Series C Preferred Stock, in each case which are payable in
the form of Common Stock, have not been paid as of the Closing Date, such
interest and dividends shall be converted into the right to receive the
number of fully paid and nonassessable Acquiror Shares equal to the Exchange
Ratio multiplied by the number of shares of Common Stock that would have been
issued if such interest or dividends had been paid immediately prior to the
Effective Time or, to the extent such interest or dividends cannot be so
converted under the terms of their governing instruments, such interest and
dividends shall be paid in Common Stock immediately prior to the Effective
Time and converted pursuant to Section 2.1(a).
(h) Rights. Pursuant to the Acquiror's Rights Agreement dated as of March
27, 1996 between Acquiror and The Bank of New York, as Rights Agent (the
"Acquiror Rights Plan"), the issuance of each Acquiror Share hereunder (or
under the Exchange Offer) shall be accompanied by the associated right under
the Acquiror Rights Plan.
(i) No Liens or Calls on Acquiror Shares. Prior to the issuance of any
Acquiror Shares pursuant to this Agreement, the Principal Stockholder
Agreement or the Exchange Offer, the Board of Directors of the Acquiror
shall, to the extent permitted by Bermuda law, (i) irrevocably waive any lien
that has arisen or may arise on any such Acquiror Shares under Bermuda law;
(ii) irrevocably declare exempt from Section 14 of Acquiror's bye-laws all
such Acquiror Shares; and (iii) irrevocably declare that the Acquiror shall
not make any calls on any such Acquiror Shares pursuant to Section 17 of
Acquiror's bye-laws.
SECTION 2.2. PAYMENT.
(a) Exchange Agent. As of the Effective Time, Acquiror shall, on behalf of
Merger Sub, deposit with an exchange agent theretofore designated by the
Company and Acquiror (the "Exchange Agent"), for the benefit of the holders
of shares of Capital Stock (excluding any shares described in Sections 2.1(c)
and (d)), for payment in accordance with this Article II, through the
Exchange Agent, the Acquiror Shares issuable pursuant to Sections 2.1(a) and
(b) plus from time to time as necessary cash in an amount sufficient to make
payment for fractional shares under Section 2.1(f) (such Acquiror Shares and
cash being hereinafter referred to as the "Exchange Fund"). Acquiror shall
cause the Exchange Agent, pursuant to irrevocable instructions, to deliver
the Acquiror Shares (and cash for fractional shares) contemplated to be paid
pursuant to Sections 2.1(a), (b) and (f) out of the Exchange Fund. The
Exchange Fund shall not be used for any other purpose.
(b) Payment Procedures. Promptly after the Effective Time, but in no
event later than five (5) business days thereafter, Acquiror shall cause the
Exchange Agent to mail to each record holder, as of the Effective Time, an
outstanding certificate (each a "Certificate" and collectively, the
"Certificates") that immediately prior to the Effective Time evidenced
outstanding shares of Capital Stock (excluding any shares described in
Sections 2.1(c) and (d)); a form letter of transmittal and instructions for
use in effecting the surrender of the Certificates for payment therefor. Upon
surrender to the Exchange Agent of a Certificate, together with such letter
of transmittal duly executed, and any other required documents, the holder of
such Certificate shall be entitled to receive in exchange therefor the
applicable consideration set forth in Section 2.1 (the "Merger
Consideration"), and such Certificate shall forthwith be canceled. Until
surrendered in accordance with the provisions of this Section 2.2, each
Certificate shall represent for all
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purposes only the right to receive the applicable consideration set forth in
Section 2.1, without any interest thereon. Acquiror or the Surviving
Corporation shall pay any transfer or other similar taxes required by reason
of the issuance and receipt by the former stockholders of the Company of
Acquiror Shares pursuant to the provisions of this Article II.
(c) No Further Rights in Stock. All Acquiror Shares paid upon conversion
of the shares of Capital Stock in accordance with the terms of this Article
II shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of Capital Stock.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Capital Stock for one hundred eighty
(180) days after the Effective Time shall be delivered to Acquiror, upon
demand, and any holders of Capital Stock that have not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation
and Acquiror for the Merger Consideration to which they are entitled.
(e) No Liability. Neither Acquiror nor the Surviving Corporation shall be
liable to any holder of shares of Capital Stock for any Acquiror Shares or
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
evidencing shares of Capital Stock shall have been lost, stolen or destroyed,
upon the making of an affidavit setting forth that fact by the person
claiming such lost, stolen or destroyed Certificate and the granting of a
reasonable indemnity against any claim that may be made against Acquiror or
the Exchange Agent with respect to such Certificate, Acquiror shall cause the
Exchange Agent to pay to such person the Merger Consideration with respect to
such lost, stolen or destroyed Certificate.
SECTION 2.3. COMPANY OPTIONS; STOCK PURCHASE PLAN; WARRANTS.
(a) Company Options. As of the Effective Time, each outstanding stock
option (an "Option") to purchase shares of Common Stock, including without
limitation those granted under the Company's 1986 Stock Option Plan, 1997
Stock Option Plan and Non-Employee Directors' Stock Option Plan, each as
amended to the date of this Agreement (collectively, the "Company Stock
Option Plans"), shall be converted into an option to acquire Acquiror Shares,
as provided in this Section. Following the Effective Time, each Option shall
continue to have, and shall be subject to, the terms and conditions of each
agreement pursuant to which such Option was subject immediately prior to the
Effective Time (including, in the case of each Option granted under the
Company Stock Option Plans, the terms and conditions of the Company Stock
Option Plans), except that (A) each Option shall be exercisable for that
number of Acquiror Shares equal to the product of (1) the aggregate number of
shares of Common Stock for which such Option was exercisable multiplied by
(2) the Exchange Ratio, provided, however, that no Option shall be
exercisable for a fractional Acquiror Share, and the holder of an Option
exercisable for a fractional Acquiror Share shall be entitled to receive,
upon exercise thereof, an offset against the aggregate exercise price of the
Option being exercised therewith, such offset to be determined by multiplying
the fraction of a Acquiror Share to which a holder of an Option would be
entitled to receive times the excess of the closing price of the Acquiror
Share as reported on the NYSE on the date of exercise over the exercise price
of such Option; (B) the exercise price per share of Acquiror Shares issuable
pursuant to each Option shall be equal to the aggregate exercise price of
such Option at the Effective Time divided by the number of shares of Acquiror
Shares for which such Option shall be exercisable as determined in accordance
with the preceding clause (A), rounded to the next highest whole cent, if
necessary; and (C) each outstanding Option shall accelerate and be
exercisable, if not vested and exercisable at such time to the extent, and
only to the extent, provided in Schedule 2.3. Except as set forth herein, the
assumption and substitution of options as provided herein shall not give the
holders of such options additional benefits or additional vesting rights
which they did not have immediately prior to the Effective Time or relieve
the holders of any obligations or restrictions applicable to their options or
the shares obtainable upon exercise of the options. The adjustment provided
herein with respect to any Options that are "incentive stock options" as
defined in the Internal Revenue Code of 1986, as amended (the "Code") shall
be and is intended to be effected in a manner that is consistent with
continued treatment of such Options as "incentive stock options" under of the
Code. The Company Stock Option
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Plans shall be assumed by Acquiror with respect to all outstanding Options,
and no further options shall be granted under the Company Stock Option Plans
after the Effective Time.
Acquiror shall (i) file one or more registration statements on Form S-8
(or amend existing registration statements on Form S-8) to become effective
as soon as practicable after the Effective Time with respect to the Acquiror
Shares subject to Options granted under the Company Stock Option Plans; (ii)
use all reasonable efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding; and (iii)
promptly prepare and submit to the NYSE applications covering the Acquiror
Shares subject to such Options and use commercially reasonable efforts to
cause such securities to be approved for listing on or prior to the Effective
Time, subject to official notice of issuance.
Acquiror shall, on behalf of Merger Sub, take such other actions as are
reasonably necessary to revise and adjust each Option as provided in this
Section, including providing the holder of each Option as soon as practicable
after the Effective Time with an appropriate option agreement or amendment to
existing option agreement. Acquiror shall take all corporate action
reasonably necessary to reserve for issuance a sufficient number of Acquiror
Shares for delivery upon the exercise of Options. To the extent that the
provisions of this Section 2.3(a) require amendments to the Company Stock
Option Plans, the Company shall take all actions necessary to make such
amendments to allow for the treatment of Options as provided for in this
Section 2.3(a).
(b) Employee Stock Purchase Plan. Effective as of the last trading day of
the Common Stock prior to the Effective Time, the then applicable Payroll
Deduction Period, as defined in the Company's 1996 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"), shall be terminated and shall be
deemed to have ended on the last day of the last payroll period ending prior
to the Effective Time; and the rights of each participating employee shall be
deemed to be automatically exercised as of such last trading day of the
Common Stock, as provided in Sections 10 and 26(c) of the Employee Stock
Purchase Plan.
(c) Warrants. As of the Effective Time, each outstanding warrant (a
"Warrant") to purchase shares of Common Stock shall be converted into a
warrant to acquire Acquiror Shares, as provided in this Section. Following
the Effective Time, each Warrant shall continue to have, and shall be subject
to, the terms and conditions of each agreement pursuant to which such Warrant
was subject immediately prior to the Effective Time, except as set forth in
this Section and except that (A) each such Warrant shall be exercisable for
that number of whole Acquiror Shares equal to the product of (x) the
aggregate number of shares of Common Stock for which such Warrant was
exercisable multiplied by (y) the Exchange Ratio; provided, however, that no
Warrant shall be exercisable for a fractional Acquiror Share, and the holder
of a Warrant exercisable for a fractional Acquiror Share shall be entitled to
receive, upon exercise thereof, an offset against the aggregate exercise
price of the Warrant being exercised therewith, such offset to be determined
by multiplying the fraction of an Acquiror Share to which a holder of a
Warrant would be entitled to receive times the excess of the closing price of
the Acquiror Share as reported on the NYSE on the date of exercise over the
exercise price of such Warrant, and (B) the exercise price per Acquiror Share
issuable pursuant to such Warrant shall be equal to the aggregate exercise
price of such Warrant at the Effective Time divided by the number of Acquiror
Shares for which such Warrant shall be exercisable as determined in
accordance with the preceding clause (A), rounded to the next highest whole
cent, if necessary.
Acquiror shall, on behalf of Merger Sub, take such other actions as are
reasonably necessary to revise and adjust each Warrant as provided in this
Section, including providing the holder of each Warrant as soon as
practicable after the Effective Time with an appropriate warrant agreement or
amendment to existing warrant agreement. Acquiror shall take all corporate
action reasonably necessary to reserve for issuance a sufficient number of
Acquiror Shares for delivery upon the exercise of Warrants.
SECTION 2.4. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company with
respect to all shares of capital stock of the Company shall be closed and no
further registration of transfers of such shares of capital stock
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shall thereafter be made on the records of the Company. On or after the
Effective Time, if any Certificates for shares of Capital Stock (excluding
any shares described in Sections 2.1(c) and (d)) are presented to the
Exchange Agent, the Surviving Corporation or Acquiror for any reason, such
Certificates shall be canceled and exchanged as provided in this Article II,
except as otherwise provided by law.
SECTION 2.5. CERTAIN ADJUSTMENTS.
If between the date hereof and the Effective Time, the outstanding shares
of Capital Stock or of Acquiror Shares shall be changed into a different
number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock
or other securities shall be declared thereon with a record date within such
period, the Exchange Ratio shall be adjusted accordingly to provide to the
holders of Capital Stock the same economic effect as contemplated by this
Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend; provided, however, that in the event that,
prior to the Effective Time, Acquiror consummates any merger, amalgamation or
consolidation as a result of which Acquiror Shares being issued hereunder are
neither registered with the SEC pursuant to Section 12(b) or 12(g) of the
Exchange Act (as defined below) nor converted into the right to receive
securities so registered, the Exchange Ratio shall be determined assuming
that the Volume-Weighted Average Trading Price was equal to the per share
amount of consideration a common stockholder of Acquiror received on the date
of consummation of such transaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger Sub as
follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) The Company and each Subsidiary (as defined below) of the Company
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries") is
a corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. The Company
and each Company Subsidiary is duly qualified to conduct its business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failures which would not in the
aggregate have a Company Material Adverse Effect (as defined below). The
Company and each Company Subsidiary has the requisite corporate or
partnership power and authority and any necessary governmental authority,
franchise, license or permit to own, operate, lease and otherwise to hold and
operate its assets and properties and to carry on its businesses as now being
conducted, except for such failures which would not have a Company Material
Adverse Effect. The Company has no Subsidiaries (as defined below) or any
equity or similar interest in any entity other than those listed in Schedule
3.1. Except as set forth in Schedule 3.1, each Company Subsidiary is a
wholly-owned direct or indirect subsidiary of the Company. As used herein,
the term "Company Material Adverse Effect" means any material adverse effect
on the business (where "business" shall be deemed to include the Orion 1
satellite and the proposed Orion 2 satellite and Orion 3 satellite), assets
or condition (financial or otherwise), liabilities or operations of the
Company and the Company Subsidiaries taken as a whole.
(b) For purposes of this Agreement, a "Subsidiary" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other Subsidiary) (i)
owns, directly or indirectly, fifty percent (50%) or more of the capital
stock, partnership interests or other equity interests the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership, joint venture or other
legal entity; or (ii) possesses, directly or indirectly, control over the
direction of management or policies of such corporation, partnership, joint
venture or other legal entity (whether through ownership of voting
securities, by agreement or otherwise).
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SECTION 3.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
The Company has heretofore delivered to Acquiror a complete and correct
copy of the certificate or articles of incorporation and the bylaws of the
Company and each Company Subsidiary that is a corporation, and a correct copy
of the partnership agreement for each Company Subsidiary that is a
partnership, each as amended to date. Each such certificate or articles of
incorporation, bylaws and partnership agreement is in full force and effect.
Neither the Company nor any Company Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws
or partnership agreement.
SECTION 3.3. CAPITALIZATION.
The authorized capital stock of the Company consists, as of September 30,
1997, of: (a) 40,000,000 shares of Common Stock, of which 11,675,436 shares
are issued and 11,406,162 shares are outstanding; and (b) 1,000,000 shares of
Preferred Stock, of which 15,000 shares have been designated as Series A
Preferred Stock, 5,000 shares have been designated as Series B Preferred
Stock and 150,000 shares have been designated as Series C Preferred Stock,
with 13,845 shares of Series A Preferred Stock, 4,295 shares of Series B
Preferred Stock and 123,172 shares of Series C Preferred Stock being issued
and outstanding.
As of September 30, 1997, (i) 2,022,573 shares of Common Stock were
reserved for issuance upon the exercise of Options outstanding under the
Company Stock Option Plans, 500,000 shares of Common Stock were reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan and 100,000
shares of Common Stock were reserved for issuance under the Company's 401(k)
Plan; (ii) 9,088,300 shares of Common Stock were reserved for purposes of
effecting conversions of Preferred Stock into Common Stock; (iii) 4,285,714
shares of Common Stock were reserved for purposes of effecting conversions of
the Company's Convertible Junior Subordinated Debentures due February 1, 2012
(the "Convertible Debentures") into Common Stock; and (iv) 961,238 shares
were issuable (and were reserved for issuance) upon the exercise of
outstanding warrants and options other than those referred to in clauses (i)
and (ii) above. In addition, Common Stock has been reserved for issuance in
payment of interest on Convertible Debentures and dividends on Series C
Preferred Stock.
As of the date hereof, there are no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Company's
stockholders may vote issued or outstanding.
Since June 30, 1997, no shares of Capital Stock have been issued, except
for shares of Common Stock issued upon the exercise of options granted under
the Company's Stock Option Plans, shares of Common Stock issued pursuant to
the Company's Employee Stock Purchase Plan or 401(k) Plan and shares of
Common Stock issued upon conversion of Preferred Stock and in payment of
interest on Preferred Stock and the Convertible Debentures. Other than as set
forth above, except as set forth in Schedule 3.3, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or
any Company Subsidiary or obligating the Company or any Company Subsidiary to
issue, deliver or sell any shares of capital stock of, or other equity
interests, in the Company or any Company Subsidiary. Set forth on Schedule
3.3 is a list of all options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of the Company or any Company Subsidiary granted by
the Company or any Company Subsidiary since June 30, 1997.
Except as set forth in Schedule 3.3, there are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
shares of its capital stock. All of the issued and outstanding shares of
Capital Stock have been duly authorized and validly issued and are fully paid
and nonassessable and not subject to preemptive rights. Except as set forth
in Schedule 3.3, all of the outstanding shares of capital stock of each
Company Subsidiary that is a corporation have been duly authorized and
validly issued and are fully paid and nonassessable, and all of the
partnership interests of each Company Subsidiary that is a partnership have
been duly authorized and validly issued and, except pursuant to provisions of
the applicable partnership agreement, are fully paid. With respect to each
Company Subsidiary that is a partnership, all of the partnership interests
owned by the Company, and with respect to each Company Subsidiary that is a
corporation, all of the outstanding shares of capital
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stock owned by the Company, are owned by the Company free and clear of any
liens, security interests, pledges, agreements, claims, charges or
encumbrances (collectively, the "Encumbrances").
SECTION 3.4. AUTHORITY.
The Company has the necessary corporate power and authority to enter into
this Agreement and the Principal Stockholder Agreement and, subject to
obtaining any necessary stockholder approval of the Merger, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Except for the approval of this Agreement by
the stockholders of the Company in accordance with Delaware Law, the
execution and delivery of this Agreement and the Principal Stockholder
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement and the Principal Stockholder Agreement or to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and the
Principal Stockholder Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by
Acquiror and Merger Sub, constitutes a legal, valid and binding obligation of
the Company, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Principal
Stockholder Agreement by the Company do not, and the performance by the
Company of its obligations under this Agreement and the Principal Stockholder
Agreement will not, (i) conflict with or violate the certificate or articles
of incorporation, bylaws or partnership agreement of the Company or any
Company Subsidiary, (ii) subject to obtaining the approvals and compliance
with the requirements set forth in Section 3.5(b), conflict with or violate
any law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to the Company or any Company Subsidiary or by which any of their
respective properties is bound or affected, or (iii) except as set forth in
Schedule 3.5, result in any breach of or constitute a default (or an event
which with or without notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets of the Company or any Company Subsidiary pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any Company Subsidiary is a party or by which the Company, any Company
Subsidiary or any of their respective properties or assets is bound or
affected, except, in the case of clauses (ii) and (iii) above, for any such
conflicts, violations, breaches, defaults or other alterations or occurrences
that would not prevent or delay consummation of the Merger in any material
respect, or otherwise prevent the Company from performing its obligations
under this Agreement in any material respect, and would not have a Company
Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity"), by or with respect to the Company except (i) for (A)
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Securities Act of 1933, as amended (the
"Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws"),
state takeover laws, the National Association of Securities Dealers, Inc.
(the "NASD") or the Nasdaq National Market ("Nasdaq"), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the
Communications Act of 1934, as amended (the "Communications Act"), the
Federal Communications Commission (the "FCC"), Telekommunikationsgesetz (TKG)
and the German Telecommunications Installations Act, (B) applicable
requirements, if any, of the consents, approvals, authorizations or permits
described in Schedule 3.5, and (C) filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals,
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authorizations or permits, or to make such filings or notifications, would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect, and would not have a Company Material
Adverse Effect.
SECTION 3.6. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company (or its predecessor, Constellation Oldco Services, Inc.,
now a 100% owned Company Subsidiary ("Oldco")) has filed all forms, reports,
statements and other documents required to be filed with the Securities and
Exchange Commission (the "SEC") since August 4, 1995, the date of Oldco's
initial public offering, and has heretofore furnished to Acquiror, in the
form filed with the SEC since such date, together with any amendments
thereto, its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on
Form 10-Q, (iii) all proxy statements relating to meetings of stockholders
(whether annual or special), (iv) all reports on Form 8-K, and (v) all other
reports or registration statements filed by the Company (collectively, the
"Company SEC Reports"). As of their respective filing dates, the Company SEC
Reports (i) complied as to form in all material respects with the
requirements of the Exchange Act and the Securities Act, and (ii) did not at
the time they were filed contain any 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, in the light of the circumstances under which
they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto. The financial statements, including all related notes and
schedules, contained in the Company SEC Reports (or incorporated by reference
therein) present fairly in all material respects the consolidated financial
position of the Company (or Oldco, as the case may be) and the Company
Subsidiaries as at the respective dates thereof and the consolidated results
of operations and cash flows of the Company (or Oldco, as the case may be)
and the Company Subsidiaries for the periods indicated, in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be noted therein) and subject
in the case of interim financial statements to normal year-end adjustments.
SECTION 3.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Schedule 3.7, since June 30, 1997, the Company and
the Company Subsidiaries have not incurred any material liability, except in
the ordinary course of business consistent with their past practices, and the
Company and the Company Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices.
Except as set forth in Schedule 3.7, since June 30, 1997, there has not been
any change in the business (where "business" shall be deemed to include the
Orion 1 satellite and the proposed Orion 2 satellite and Orion 3 satellite),
condition (financial or otherwise) or results of operations of the Company
and the Company Subsidiaries, including any transaction, commitment, dispute,
damage, destruction or loss, whether or not covered by insurance, or other
event of any character (whether or not in the ordinary course of business)
individually or in the aggregate, which has had, or is reasonably likely to
have, a Company Material Adverse Effect, other than (i) any change arising
out of matters of a general economic nature, or (ii) any change arising out
of matters affecting the satellite industry, either international or
national, generally (including, but not limited to, competition from other
satellite systems or service providers and legislation, rulemaking,
regulation or regulatory practice by any governmental agency or international
rulemaking body such as the International Telecommunication Union).
SECTION 3.8. ABSENCE OF LITIGATION.
Except as set forth in Schedule 3.8, as of the date hereof there are (a)
no claims, actions, suits, investigations, or proceedings pending or, to the
Company's knowledge, threatened against the Company or any of the Company
Subsidiaries before any court, administrative, governmental, arbitral,
mediation
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or regulatory authority or body, domestic or foreign, that would be
reasonably likely to have a Company Material Adverse Effect, or that
challenge or seek to prevent, enjoin, alter or materially delay the
transactions contemplated hereby, and (b) no judgments, decrees, injunctions
or orders of any Governmental Entity or arbitrator outstanding against the
Company or any Company Subsidiary that would reasonably be likely to have a
Company Material Adverse Effect.
SECTION 3.9. LICENSES AND PERMITS; COMPLIANCE WITH LAWS.
Except as set forth in Schedule 3.9:
(a) Set forth on Schedule 3.9(a) is a true and complete list of all
permits, licenses and approvals (none of which has been modified or rescinded
and all of which are in full force and effect) from all Governmental Entities
held by the Company ("Company Permits"), except in each case for Company
Permits whose absence or revocation would not individually or in the
aggregate have a Company Material Adverse Effect (all of the foregoing, which
are denoted by an asterisk on Schedule 3.9(a), being referred to herein
collectively as the "Key Company Permits"); provided, however, that Schedule
3.9(a) shall not be required to include a list of Company Permits for Very
Small Aperture Terminals (VSATs). The Key Company Permits listed on Schedule
3.9(a) include, without limitation, all Key Company Permits (i) issued by the
FCC to the Company or any Company Subsidiary, (ii) authorizing the
construction, launch or operation in their assigned orbital locations of
Company Satellites (as defined below) or construction and operation of
Company Ground Stations (as defined below), including without limitation the
agreement with the Republic of the Marshall Islands and the license granted
by the Federal Republic of Germany, and (iii) issued to the Company or any
Company Subsidiary by Governmental Entities that regulate broadcasting or
communications services, authorizing the Company or the Company Subsidiaries
to provide broadcasting or communications services. The parties acknowledge
that (i) the approval for the Orion 2 satellite is a conditional approval
subject to the conditions described in the orders and agreements relating
thereto and (ii) the approval for the Orion 3 satellite results from an
agreement with the Republic of the Marshall Islands (and no further
regulatory approvals from the Republic of the Marshall Islands are necessary
for such construction, launch and operation of the Orion 3 satellite).
Schedule 3.9(a) also sets forth a true and complete list of all Company
Permits issued by the FCC, the Marshall Islands or the Federal Republic of
Germany (including applications therefor) which are not Key Company Permits
or VSATs ("Other Permits"). To the best of the Company's knowledge, the Other
Permits are in full force and effect or, in the case of applications
therefor, the Company knows of no reason why the same should not be granted.
Schedule 3.9(a) also sets forth a true and complete list of all pending
applications for Company Permits that would be Key Company Permits required
to be listed in such Schedule if issued or granted and if the satellites
which they relate were owned by the Company, all pending applications by the
Company or any Company Subsidiary with the FCC and all pending applications
by the Company or any Company Subsidiary for modification, extension or
renewal of Key Company Permits (the "Key Applications").
The Key Company Permits held by the Company or Company Subsidiaries and
listed on Schedule 3.9(a) include all permits, licenses and approvals from
all Governmental Entities which are necessary for the Company and the Company
Subsidiaries to (i) operate the Orion 1 satellite in its present orbital
location and provide communications services (and broadcast services, if any
are provided by the Company or Company Subsidiaries) therefrom, operate
ground stations communicating therewith, including, without limitation, the
related broadcasting facility assets consisting of land, building, fixtures,
equipment, improvements (if any) and telemetry, tracking and control
equipment that is owned or leased by the Company or a Company Subsidiary
(each a "Company Ground Station" and collectively the "Company Ground
Stations"), and own, lease and operate their properties and to carry on their
business as currently conducted using the Orion 1 satellite, and (ii)
construct, launch and operate, at their assigned orbital locations, the
proposed Orion 2 and Orion 3 satellites (collectively with the Orion 1
satellite, the "Company Satellites"), except as set forth in the last
sentence of the first paragraph of this subsection (a) and in each case for
permits, licenses and approvals whose absence or revocation would not
individually or in the aggregate have a Company Material Adverse Effect
(without giving effect to any limitation as of "materiality" or "Company
Material Adverse Effect" in the definition of Key Company Permits).
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Each of the Company and the Company Subsidiaries has fulfilled and
complied in all material respects with its obligations under each of the Key
Company Permits and the Key Applications owned, held or possessed by it, and
no event has occurred or condition or state of facts exists which constitutes
or, after notice or lapse of time or both, would constitute a breach or
default under any Key Company Permit or Key Applications and which permits
or, after notice or lapse of time or both, would permit revocation or
termination of any such Key Company Permit or Key Application, and neither
the Company nor any Company Subsidiary has received or has knowledge of any
written notice of cancellation or default or of any dispute concerning any
Key Company Permit or Key Application, or of any such event, condition or
state of facts that would constitute a default the effect of which would be
revocation or termination of such Key Company Permit or Key Application,
except, in each case, any of the foregoing which individually or in the
aggregate would not have a Company Material Adverse Effect. Each of the Key
Company Permits is validly held by the entities listed on Schedule 3.9(a), is
in full force and effect in all material respects, is free and clear of all
liens (other than permitted liens), is unimpaired in any material respect by
acts or omissions of the Company or its employees, partners or affiliates,
will expire on the date shown on Schedule 3.9(a), is valid for the balance of
its current term, and is not subject to any restriction or condition that
limits in any material respect the full operation of the Company's and
Company Subsidiaries' business as now operated.
The Company has not received any complaint that any of the Company
Satellites or Company Ground Stations is causing objectionable interference
to the transmissions or reception of any other radio communications facility,
and to the Company's best knowledge, no other radio communications facility
is causing objectionable interference to the transmissions from or the
receipt of signals by any Company Satellite or Company Ground Station. None
of the Key Company Permits issued prior to the date hereof is the subject of
any pending renewal application; no renewal of any Key Company Permit issued
by the FCC would constitute a major environmental action under the rules and
regulations promulgated by the FCC (the "FCC Rules"), excluding the impact of
the FCC's new RF radiation rules adopted by the FCC in the ET Docket No.
93-62 on August 1, 1996; and the Company is not aware of any reason why the
Key Company Permits will not be renewed in the ordinary course or why any of
the Key Company Permits might be revoked. The Company knows of the existence
of no fact that, under any Key Company Permits and present law relating
thereto, would disqualify the Company from consummating the Merger within the
time contemplated herein (other than matters disclosed on Schedule 5.14).
All information contained in any pending Key Application is true, correct
and complete in all material respects. The Company has duly filed or caused
to be filed with the FCC or any other Governmental Entity all required
material reports, statements, documents, registrations, filings or
submissions with respect to the operations of the business of the Company and
the Company Subsidiaries, the Key Company Permits, the Company's and Company
Subsidiaries' ownership of their assets and the pending applications by the
Company or any Company Subsidiary for Key Company Permits or for
modification, extension or renewal of Company Permits, in each case as
required by the FCC or any other Governmental Entity. All such filings
complied in all material respects with applicable laws when made and no
material deficiencies have been asserted with respect to any such filings.
Except for rulemaking proceedings affecting the satellite industry in
general, no judgment, decree, order or notice of violation has been issued by
the FCC (or other Governmental Entity) which permits or contemplates
revocation, modification or termination or any of the Key Company Permits or
which would result in any material impairment of any rights thereunder. The
business of the Company and the Company Subsidiaries (where "business" shall
be deemed to include the Orion 1 satellite and the proposed Orion 2 satellite
and Orion 3 satellite), is not being conducted in violation of any applicable
law, statute, ordinance, regulation or judgment or any Key Company Permit,
order, decree, concession, grant or other authorization of any Governmental
Entity, in each case except for violations that, individually or in the
aggregate, would not be reasonably likely to have a Company Material Adverse
Effect. Except for rulemaking proceedings affecting the satellite industry in
general, no complaints, proceedings or applications are pending, or to the
Company's best knowledge, threatened, at the FCC or any other Governmental
Entity, that would result in the revocation, forfeiture, adverse
modification, non-renewal or suspension of any of the Key Company Permits,
the denial of any pending Key Application, the
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issuance against the Company or any Company Subsidiary of a cease and desist
order, or the imposition of any administrative actions by the FCC or any
other Governmental Entity with respect to the Key Company Permits, in each
case that would have, whether individually or in the aggregate, a Company
Material Adverse Effect.
(b) Neither the Company nor any Company Subsidiary or affiliate has taken,
is taking or will take, or has allowed or will allow on its behalf to be
taken, any action which would have violated or would violate the United
States Foreign Corrupt Practices Act of 1977, the US Export Administration
Act, as amended, or any laws to which such party or persons is subject,
relating in each case to payments for the purpose of influencing an act or
decision of a Governmental Entity or government official, except for
violations that individually or in the aggregate would not have a Company
Material Adverse Effect; provided, however, that nothing in this sentence
shall be deemed to subject any party or person to any law to which such party
or person would not otherwise be subject. Each of the Company and the Company
Subsidiaries is in material compliance with all domestic and, to the
knowledge of the Company, foreign laws restricting or regulating the export
of technology to foreign countries, except for violations that individually
or in the aggregate would not have a Company Material Adverse Effect.
(c) Schedule 3.9(c) contains a list of all consultations and similar
arrangements that have been effectuated with INTELSTAT, EUTELSAT and other
similar intergovernmental entities (collectively the "IGO Determinations")
with respect to the Company Satellites that are needed to operate the
business of the Company and the Company Subsidiaries as it is now being
conducted. Except as set forth on such schedule, the Company is not aware of
any material difficulties in obtaining any other determinations from such
entities with respect to any satellite now operated by the Company or any
Company Subsidiary or for which the Company or any Company Subsidiary has
applied for a Company Permit, except for those that individually or in the
aggregate would not have a Company Material Adverse Effect.
SECTION 3.10. TAXES.
Except as set forth in Schedule 3.10, the Company and the Company
Subsidiaries have prepared and filed on a timely basis with all appropriate
Governmental Entities all material returns, reports, information statements
and other documentation in respect of Taxes that they are required to file on
or prior to the Closing Date or by the date therefor including extensions,
and all such returns, reports, information statements and other documentation
are correct and complete in all material respects. Except as set forth in
Schedule 3.10, the Company and the Company Subsidiaries have paid in full all
Taxes (other than Taxes, the failure to pay which would not, individually or
in the aggregate, have a Company Material Adverse Effect) due on or before
the Closing Date and, in the case of material Taxes accruing on or before the
Closing Date that are not due on or before the Closing Date, the Company has
made adequate provisions in its books and records and financial statements
for such payment. Except as set forth in Schedule 3.10, the Company and the
Company Subsidiaries have withheld from payments made to its present or
former employees, contractors, officers and directors, creditor or other
third party, all amounts required by law to be withheld except where the
liability would not, individually or in the aggregate, have a Company
Material Adverse Effect, and has, where required, remitted such amounts
within the applicable periods to the appropriate Governmental Entities. In
addition, except as set forth in Schedule 3.10, (a) there are no assessments
of, or claims against, the Company or the Company Subsidiaries with respect
to Taxes, the liability for which would, individually or in the aggregate,
have a Company Material Adverse Effect, that are outstanding; (b) no
Governmental Entity is conducting an examination or audit of the Company or
any Company Subsidiary in respect of Taxes and neither the Company nor any
Company Subsidiary has received notice of any such examination or audit from
any Governmental Entity; and (c) neither the Company nor any Company
Subsidiary has executed or filed any agreement extending the period of
assessment or collection of any Taxes which remain in effect. For the purpose
of this Agreement, the term "Tax" (including, with correlative meaning, the
terms "Taxes" and "Taxable") shall include, except where the context
otherwise requires, all federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise, occupancy and other taxes, duties or assessments or
claims of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.
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SECTION 3.11. INTELLECTUAL PROPERTY.
Schedule 3.11 sets forth a listing and description of all material
domestic, foreign, common law, registered and pending applications for
patents, trademarks, service marks, logos, slogans, designs, copyrights,
trade names, and all material intellectual property licenses running to or
from the Company or any Company Subsidiary relating to the Company's or any
Company Subsidiaries' businesses or owned by the Company or any Company
Subsidiary. Unless expressly set forth otherwise on Schedule 3.11, the
Company and the Company Subsidiaries own (or where indicated on Schedule
3.11, have a right to use), free and clear of any liens, security interests,
encumbrances or claims of others, all patents, trademarks, service marks,
logos, slogans, designs, copyrights, tradenames, design registrations, and
other intellectual property listed on Schedule 3.11 and any trade secrets,
know-how, confidential information, material computer programs (including any
source code), documentation, engineering and technical drawings, processes,
methodologies, trade dress, mask works and technology, in each case material
to the conduct of the business of the Company and the Company Subsidiaries
taken as a whole (all of the foregoing items collectively referred to as the
"Company Intellectual Property"). Except as set forth on Schedule 3.11, (a)
no proceedings are pending or, to the Company's knowledge, threatened in
writing, which challenge the validity of the ownership by the Company and/or
any Company Subsidiary of the Company Intellectual Property; (b) the Company
has no knowledge of any infringement or infringing use of any of the Company
Intellectual Property or licenses by any person or entity, and the Company
and the Company Subsidiaries have, and as of the Closing Date will have, good
and valid title to all of the Company Intellectual Property owned by the
Company or Company Subsidiaries and their licenses and other rights to use
will be adequate for conducting the businesses of the Company and the Company
Subsidiaries and enforceable in accordance with their terms; (c) to the
Company's knowledge, no infringement of any material intellectual property
right or other proprietary right of any third party has occurred or will
result in any way from the signing and execution of this Agreement or the
consummation of any or all of the transactions contemplated hereby, and no
written claim has been made by any third party based upon an allegation of
any such infringement; (d) the material Company Intellectual Property is
valid and in full force and effect and no aspect thereof is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any
court, arbitrator or administrative agency; and (e) there are no restrictions
on the direct or indirect transfer of any license, or any interest therein,
held by the Company or any Company Subsidiary in respect of the Company
Intellectual Property.
SECTION 3.12. MATERIAL CONTRACTS.
(a) Schedule 3.12(a) sets forth a complete and correct list, as of the
date of this Agreement, of all agreements of the following type to which the
Company or a Company Subsidiary is a party or may be bound (collectively, the
"Company Material Contracts"): (i) agreements filed as an exhibit to the
Company SEC Reports and each agreement that would have been required to be
filed as an exhibit to the Company SEC Reports if such agreement had been
entered into as of the date of filing any such Company SEC Report; (ii)
employment, severance, termination, consulting and retirement agreements;
(iii) loan agreements, indentures, letters of credit, mortgages, notes and
other debt instruments evidencing indebtedness in excess of five hundred
thousand dollars ($500,000), other than those relating to intercompany debt
among the Company and the Company Subsidiaries; (iv) agreements that require
aggregate future payments of more than five hundred thousand dollars
($500,000) (other than purchase orders and sales contracts entered into in
the ordinary course of business); (v) agreements involving payments in excess
of two hundred fifty thousand dollars ($250,000) concerning any provisions
with respect to a "change in control"; (vi) material agreements with any key
employee, director, officer or beneficial owner (as determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of 5% or more of the Company's
Common Stock; and (vii) agreements for a remaining term of five (5) years or
more with any customer of the Company or any Company Subsidiary.
(b) Except as set forth in Schedule 3.12(b), all the Company Material
Contracts are valid and in full force and effect on the date hereof except to
the extent they have previously expired in accordance with their terms, and
neither the Company nor any Company Subsidiary has (or has any knowledge that
any party thereto has) violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any Company
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Material Contract, except for defaults which, individually or in the
aggregate, would not reasonably be expected to have a Company Material
Adverse Effect. True and complete copies of all Company Material Contracts
have been delivered to Acquiror or made available for inspection by Acquiror.
(c) As of August 31, 1997, the contracts, agreements, commitments,
arrangements, leases (including with respect to personal property) that
represent obligations of third parties to make payments to the Company or any
Company Subsidiary, as the case may be, in exchange for the sale or lease of
transponder capacity, have an aggregate stated amount of unpaid payments
owing to the Company or any Company Subsidiary, as the case may be, of
approximately $263 million over the remaining stated term of such contracts
(the "Backlog") (prior to any reserve for doubtful accounts or other similar
allowances or deductions). The Backlog represents amounts that, assuming the
due performance by each party of its obligations under each contract and the
occurrence of no event that would permit termination of a contract without
liability to the terminating party, will be due for, and will arise out of,
bona fide sales and delivery of goods, performance of services and other
business transactions, unless the underlying contract thereto is properly
terminated in accordance with the terms thereof. Except as set forth on
Schedule 3.12(c), neither the Company nor any Company Subsidiary is, or has
received any notice or has any knowledge that any other party is, in default
in any material respect under any contract representing any material portion
of the Backlog, other than (i) payment defaults under transponder lease
agreements which are not more than 90 days past due and (ii) defaults or
terminations under transponder lease agreements that are promptly replaced by
contracts providing for reasonably equivalent or superior backlog payments.
SECTION 3.13. EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.13 sets forth a list of all of the material pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation or bonus plans or agreements or
other material incentive plans or agreements, all other material written
employee programs, arrangements or agreements and all other material employee
benefit plans or fringe benefit plans, including, without limitation, all
"employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, "Benefit Plans"), currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by the Company or any entity
required to be aggregated with the Company which is a member of the
"controlled group of corporations" which includes the Company within the
meaning of Section 414(b) or (c) of the Code (each, a "Company Commonly
Controlled Entity") for the benefit of present and former employees or
directors of the Company and of each Company Subsidiary or their
beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity (collectively, the "Company Benefit Plans"). Any
Company Benefit Plan which is an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a "Company
ERISA Plan."
(b) Each of the Company Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and, to the Company's knowledge, no
circumstances exist that could reasonably be expected by the Company to
result in the revocation of any such determination. Each of the Company
Benefit Plans is in compliance with the applicable terms of ERISA and the
Code and any other applicable laws, rules and regulations the breach or
violation of which could result in a material liability to the Company or any
Company Commonly Controlled Entity.
(c) No Company ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A)
of ERISA, and the present fair market value of the assets of any such plan
equals or exceeds the plan's "benefit liabilities," as that term is defined
in Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan terminated in accordance with all applicable legal
requirements.
(d) Except as disclosed in Schedule 3.13, no Company Benefit Plan is or
has been a multiemployer plan within the meaning of Section 3(37) of ERISA (a
"Multiemployer Plan"). Neither the Company nor any Company Commonly
Controlled Entity has completely or partially withdrawn from any
Multiemployer Plan. No termination liability to the Pension Benefit Guaranty
Corporation or withdrawal liability
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to any Multiemployer Plan that is material in the aggregate has been or is
reasonably expected to be incurred with respect to any Multiemployer Plan by
the Company or any Company Commonly Controlled Entity.
(e) The Company has furnished to Acquiror complete copies, as of the date
hereof, of all of the Company Benefit Plans that have been reduced to
writing, together with all documents establishing or constituting any related
trust, annuity contract, insurance contract or other funding instrument. The
Company has furnished to Acquiror complete copies of all existing current
plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning the Company Benefit Plans.
(f) Except as set forth on Schedule 3.13, there are no Company Benefit
Plans which provide for payments which would not be deductible for Federal
income tax purposes by reason of Section 280G of the Code.
SECTION 3.14. PROPERTIES; ASSETS.
(a) Except as set forth in Schedule 3.14(a), the Company or one of the
Company Subsidiaries (a) has good and marketable title to all the properties
and assets reflected in the consolidated balance sheet of the Company dated
as of June 30, 1997 (the "Company Balance Sheet") as being owned by the
Company or one of the Company Subsidiaries (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), or acquired after the date thereof which are material to the
Company's business on a consolidated basis, free and clear of all
Encumbrances except (i) statutory liens securing payments not yet due, and
(ii) such imperfections or irregularities of title, claims, liens, charges,
security interests or encumbrances as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties, and (b) is the
lessee of all leasehold estates reflected in the Company Balance Sheet
(except for leases that have expired by their terms since the date thereof)
or acquired after the date thereof which are material to its business on a
consolidated basis and is in possession of the properties purported to be
leased thereunder, and, to the knowledge of the Company, each such lease is
valid without default thereunder by the lessee. The assets and properties of
the Company and the Company Subsidiaries, taken as a whole, are in good
operating condition and repair (ordinary wear and tear excepted), and
constitute all of the assets and properties which are required for the
businesses and operations of the Company and the Company Subsidiaries as
presently conducted.
(b) Each Company Ground Station other than Very Small Aperture Terminal
(VSAT) earth stations (the "VSAT Stations") now operated by the Company or a
Company Subsidiary (a "Major Station") is listed on Schedule 3.14(b), and,
except as set forth on such schedule, with respect to each such Major
Station, the improvements thereto and all components used in connection
therewith are (i) in good operating condition and repair and are suitable for
their intended purposes and (ii) supported by a back-up, fuel-powered
electricity generator capable of generating power sufficient to meet the
requirements of the operations conducted at the Major Station. The
transmission/reception systems and programming and data broadcasting systems
at each such Major Station have the redundancies that are set forth on
Schedule 3.14(b). The VSAT Stations, taken as a whole, are in good operating
condition and repair, ordinary wear and tear excepted, and are suitable for
their intended purposes.
(c) Set forth on Schedule 3.14(c) are the following: (i) a complete and
accurate list, by orbital location, of each Company Satellite, (ii) a true
and correct copy of a satellite loading chart listing each transponder on the
Satellite, along with the type of transponder and the customer or group of
related customers that have purchased services utilizing capacity on such
transponder and the amount of such capacity allocated to such customer(s),
and (iii) the most recent "Health Status Report," summarizing all spacecraft
related incidents and anomalies known to the Company as well as the current
status, to the best knowledge of the Company, of the subsystems on the
Company Satellites.
(d) Except as set forth on Schedule 3.14(d), to the best knowledge of the
Company the equipment to provide tracking, telemetry and control services
related to each Satellite is (i) in good operating condition and repair,
ordinary wear and tear excepted, and (ii) not in need of maintenance or
repairs except for ordinary, routine maintenance and repairs.
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(e) Except as set forth on Schedule 3.14(e), to the best knowledge of the
Company, no person or entity has asserted that it has rights to operate a
spacecraft in a manner that would result in interference with respect to any
satellite now operated by the Company or any Company Subsidiary or for which
the Company or any Company Subsidiary has applied for a permit. Schedule
3.14(e) contains a list of all satellite coordination agreements to which the
Company or any Company Subsidiary are a party, a summary of all operational
or technical limitations set forth therein, and a summary of all coordination
discussions in which the Company or the Company Subsidiaries has been engaged
in the past three (3) years with other persons or entities with regard to any
Satellite now operated by the Company or any Company Subsidiary or for which
the Company or any Company Subsidiary has applied for a permit.
(f) Schedule 3.14(f) contains a summary, by orbital location, of the
status of frequency registration at the International Telecommunication
Union, for each Satellite operated, or proposed to be operated during the
next three (3) years, by the Company or any Company Subsidiary, including the
identity of the sponsoring administration and frequency bands covered.
SECTION 3.15. LABOR RELATIONS.
Except as set forth in Schedule 3.15, Neither the Company nor any Company
Subsidiary is a party to any collective bargaining agreement or other
contract or agreement with any labor organization or other representative of
any of the employees of the Company or any Company Subsidiary. Except as set
forth in Schedule 3.15, the Company and each Company Subsidiary is in
compliance in all material respects with all laws relating to the employment
or the workplace, including, without limitation, provisions relating to
wages, hours, collective bargaining, safety and health, work authorization,
equal employment opportunity, immigration and the withholding of income
taxes, unemployment compensation, worker's compensation, employee privacy and
right to know and social security contributions.
SECTION 3.16. ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 3.16 and except for matters which
would not have a Company Material Adverse Effect, (i) the Company and each
Company Subsidiary is in compliance with all applicable Environmental Laws
(as defined below) in effect on the date hereof; (ii) neither the Company nor
any Company Subsidiary has received any written communication that alleges
that the Company or any Company Subsidiary is not in compliance in all
material respects with all applicable Environmental Laws in effect on the
date hereof; (iii) all material permits and other governmental authorizations
currently held by the Company and each Company Subsidiary pursuant to the
Environmental Laws ("Environmental Permits") are in full force and effect,
the Company and each Company Subsidiary is in compliance with all of the
terms of such Environmental Permits and authorizations, and no other
Environmental Permits or authorizations are required by the Company or any
Company Subsidiary for the conduct of their respective businesses on the date
hereof; and (iv) the management, handling, storage, transportation,
treatment, and disposal by the Company and each Company Subsidiary of any
Hazardous Materials (as defined below) has been in compliance with all
applicable Environmental Laws.
(b) Except as set forth in Schedule 3.16 and except for Environmental
Claims (as defined below) which would not have a Company Material Adverse
Effect, there is no Environmental Claim pending or, to the knowledge of the
Company, threatened against or involving the Company or any of the Company
Subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of the Company Subsidiaries has or may
have retained or assumed either contractually or by operation of law.
(c) Except as set forth in Schedule 3.16 and except for matters which
would not have a Company Material Adverse Effect, to the knowledge of the
Company, there are no past or present actions or activities by the Company or
any Company Subsidiary involving the storage, treatment, release, emission,
discharge, disposal or arrangement for disposal of any Hazardous Materials,
that could reasonably form the basis of any Environmental Claim against the
Company or any Company Subsidiary or against any person or entity whose
liability for any Environmental Claim the Company or any Company Subsidiary
may have retained or assumed either contractually or by operation of law.
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(d) As used herein, these terms shall have the following meanings:
(i) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person or governmental authority
alleging potential liability arising out of, based on or resulting from
the presence, or release or threatened release into the environment, or
any exposure to, of any Hazardous Materials at any property or location
owned or leased by the Company or any Company Subsidiary (for purposes of
this Section 3.16) or other circumstances forming the basis of any
violation or alleged violation of any Environmental Law.
(ii) "Environmental Laws" means all applicable foreign, federal, state
and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating
to releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials or relating to management of
asbestos in buildings.
(iii) "Hazardous Materials" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants under any Environmental Laws, including,
without limitation, substances defined as "hazardous substances," "toxic
substances," "radioactive materials, including sources of ionizing and
nonionizing radiation," "petroleum products or wastes," or other similar
designations in, or otherwise subject to regulation under, any
Environmental Law.
SECTION 3.17. INSURANCE.
Schedule 3.17 contains a list of all insurance policies of title,
property, fire, casualty, liability, life, workmen's compensation, libel and
slander, and other forms of insurance in force at the date thereof with
respect to the Company and the Company Subsidiaries. All such insurance
policies: (a) insure against such risks, and are in such amounts, as are
appropriate and reasonable, in the judgment of the Company's Board of
Directors, considering the Company and the Company Subsidiaries' properties,
businesses and operations; (b) are in full force and effect; and (c) are
valid, outstanding, and enforceable. Neither the Company nor any of the
Company Subsidiaries has received or given notice of cancellation with
respect to any of the material insurance policies. The Company is in
compliance with the provisions of the Indentures (as defined below) regarding
insurance.
SECTION 3.18. BOARD APPROVAL; VOTE REQUIRED.
The Board of Directors of the Company has determined that the transactions
contemplated by this Agreement are in the best interests of the Company and
its stockholders and has resolved to recommend to such stockholders that they
vote in favor thereof.
SECTION 3.19. OPINION OF FINANCIAL ADVISOR.
The Company's Board of Directors has received the written opinion of
Morgan Stanley & Co. Incorporated that, as of the date of this Agreement, the
consideration to be received pursuant to the Agreement is fair from a
financial point of view to the holders of shares of Common Stock (other than
Acquiror and its affiliates) and, assuming the conversion of Preferred Stock
into Common Stock in accordance with its terms, to the holders of Preferred
Stock. A copy of such opinion has been delivered to Acquiror, and such
opinion has not been withdrawn or modified in any material respect.
SECTION 3.20. BROKERS.
Except for Morgan Stanley & Co. Incorporated, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
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SECTION 3.21. TAKEOVER PROVISIONS INAPPLICABLE.
Assuming Acquiror and its "associates" and "affiliates" (as defined in
Section 203 of the Delaware Law in effect as of the date hereof) collectively
beneficially own and have beneficially owned at all times during the three
year period prior to the date hereof less than fifteen percent (15%) of the
Common Stock outstanding (other than the Common Stock subject to the
Principal Stockholder Agreement), Section 203 of the Delaware Law is, and
shall be, inapplicable to the Merger and the transactions contemplated by
this Agreement, including the Principal Stockholder Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION.
Merger Sub is a corporation duly organized, validly existing and in good
standing under Delaware Law. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. As of the date
of this Agreement, except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement, Merger Sub has not incurred, directly or
indirectly, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
SECTION 4.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Merger Sub has heretofore made available to the Company a complete and
correct copy of the certificate of incorporation and the bylaws of Merger
Sub, each as amended to date. Such certificate of incorporation and bylaws
are in full force and effect. Merger Sub is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
SECTION 4.3. AUTHORITY.
Merger Sub has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery of this Agreement by the Company and Acquiror, constitutes a legal,
valid and binding obligation of Merger Sub, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
SECTION 4.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Merger Sub do not, and
the performance by Merger Sub of its obligations under this Agreement will
not, (i) conflict with or violate the certificate of incorporation or bylaws
of Merger Sub, (ii) subject to compliance with the requirements set forth in
Section 4.4(b) below, conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to Merger Sub or by
which any of its properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on any of the properties or assets of Merger Sub
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger
Sub is a party or by which Merger Sub or any
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of its properties or assets is bound or affected, except, in the case of
clauses (ii) and (iii) above, for any such conflicts, violations, breaches,
defaults or other alterations or occurrences that would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent
Merger Sub from performing its obligations under this Agreement in any
material respect.
(b) The execution and delivery of this Agreement by Merger Sub does not,
and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) applicable requirements, if
any, of the Exchange Act, state takeover laws, the NASD, the HSR Act, the
Communications Act and the FCC, (B) applicable requirements, if any, of the
consents, approvals, authorizations or permits described in Schedule 4.4, and
(C) filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or delay consummation of the Merger in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR
Acquiror represents and warrants to the Company as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each Subsidiary of Acquiror, Globalstar Telecommunications Limited, a
Bermuda company, and Globalstar, L.P., a Delaware limited partnership (each
an "Acquiror Subsidiary" and collectively, the "Acquiror Subsidiaries,") and
Acquiror is a corporation or partnership duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization. The
Acquiror and each Acquiror Subsidiary is duly qualified to conduct its
business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failures which would not
in the aggregate have an Acquiror Material Adverse Effect (as defined below).
The Acquiror and each Acquiror Subsidiary has the requisite power and
authority and any necessary governmental authority, franchise, license or
permit to own, operate, lease and otherwise to hold and operate its assets
and properties and to carry on its business as now being conducted, except
for such failures which would not have an Acquiror Material Adverse Effect.
As used herein, the term "Acquiror Material Adverse Effect" means any
material adverse effect on the business, assets or condition (financial or
otherwise), liabilities or operations of Acquiror and Acquiror Subsidiaries
taken as a whole.
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Acquiror has heretofore delivered to the Company a complete and correct
copy of the memorandum of association and the bye-laws of Acquiror, each as
amended to date. Such memorandum of association and bye-laws are in full
force and effect. Acquiror is not in violation of any of the provisions of
its memorandum of association or bye-laws.
SECTION 5.3. CAPITALIZATION.
As of September 30, 1997, the authorized capital stock of Acquiror
consists of: (a) seven hundred fifty million (750,000,000) shares of common
stock, par value $.01 per share of which two hundred million six hundred
thirty-three thousand one hundred sixty-one (200,633,161) shares are issued
and outstanding; (b) one hundred fifty million (150,000,000) shares of Series
A convertible preferred stock, par value $.01 per share ("Acquiror Series A
Preferred") of which forty-five million eight hundred ninety-six thousand
nine hundred seventy-seven (45,896,977) shares are issued and outstanding;
(c) seven hundred fifty thousand (750,000) shares Series B preferred stock,
par value $.01 per share, no shares of which are outstanding; and (d) twenty
million (20,000,000) shares 6% Series C convertible redeemable preferred
stock, par value $.01 per share ("Acquiror Series C Preferred") of which
fourteen million nine hundred nine thousand four
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hundred thirty-seven (14,909,437) are outstanding. As of September 30, 1997,
(i) eleven million eight hundred thirteen thousand five hundred (11,813,500)
shares of common stock were reserved for issuance under the Acquiror's 1996
stock option plan; (ii) four million eight hundred forty-three thousand two
hundred (4,843,200) shares of common stock were reserved for issuance under
the Acquiror's savings plan; (iii) two hundred thousand (200,000) shares of
the Acquiror's common stock were reserved for issuance under the Acquiror's
non-employee director stock option plan; and (iv) shares were reserved for
issuance upon conversion of the Acquiror Series A Preferred and Acquiror
Series C Preferred. Other than as set forth above, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of Acquiror or
obligating Acquiror to issue or sell any shares of capital stock of, or other
equity interests, in Acquiror.
As of the date hereof, there are no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which Acquiror's
stockholders may vote issued or outstanding. Except for agreements or other
documents set forth in Schedule 5.3, there are no outstanding contractual
obligations of Acquiror to repurchase, redeem or otherwise acquire any shares
of its capital stock. All of the issued and outstanding shares of Acquiror
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable and not subject to preemptive rights. All of the Acquiror
Shares issuable in accordance with this Agreement in exchange for Capital
Stock will be when so issued duly authorized, validly issued, fully paid and
nonassessable and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever. Except as set
forth in Schedule 5.3, with respect to each Acquiror Subsidiary that is a
corporation, all of the outstanding shares of capital stock of such Acquiror
Subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable. With respect to each Acquiror Subsidiary that is a
partnership, all of the partnership interests owned by Acquiror, and with
respect to each Acquiror Subsidiary that is a corporation, all of the
outstanding shares of capital stock owned by Acquiror, are owned by Acquiror
free and clear of any Encumbrances, except as set forth in Schedule 5.3.
SECTION 5.4. AUTHORITY.
Acquiror has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Acquiror and the consummation by Acquiror of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other proceedings on the part of Acquiror are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Acquiror and, assuming the due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of Acquiror,
enforceable in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general applicability relating to or affecting creditors'
rights generally and by the application of general principles of equity. No
vote of the stockholders of Acquiror is necessary to approve this Agreement
or any of the transactions contemplated hereby.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Acquiror do not, and
the performance by Acquiror of its obligations under this Agreement will not,
(i) conflict with or violate the memorandum of association or bye-laws of
Acquiror, (ii) subject to obtaining the approvals and compliance with the
requirements set forth in Section 5.5(b) below, conflict with or violate any
law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to Acquiror or any Acquiror Subsidiary or by which any of its
properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with or without notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of Acquiror
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Acquiror or any Acquiror Subsidiary is a party or by which Acquiror or any of
its properties or assets is
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bound or affected, except, in the case of clauses (ii) and (iii) above, for
any such conflicts, violations, breaches, defaults or other alterations or
occurrences that would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Acquiror from performing its
obligations under this Agreement in any material respect, and would not have
an Acquiror Material Adverse Effect.
(b) The execution and delivery of this Agreement by Acquiror does not, and
the performance of this Agreement by Acquiror will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of
the Securities Act, Blue Sky Laws, Exchange Act, state takeover laws, the
NYSE, the NASD, the HSR Act, the Communications Act and the FCC, (B)
applicable requirements, if any, of the consents, approvals, authorizations
or permits described in Schedule 5.5, and (C) filing and recordation of
appropriate merger documents as required by Delaware Law and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation
of the Merger in any material respect, or otherwise prevent Acquiror from
performing its obligations under this Agreement in any material respect, and
would not have an Acquiror Material Adverse Effect.
SECTION 5.6. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Acquiror and each Acquiror Subsidiary required to file has filed all
forms, reports, statements and other documents required to be filed with the
SEC since January 1, 1996, and has heretofore delivered to the Company, in
the form filed with the SEC since such date, together with any amendments
thereto, its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on
Form 10-Q, (iii) all proxy statements relating to meetings of stockholders
(whether annual or special), (iv) all reports on Form 8-K and (v) all other
reports or registration statements filed by Acquiror and such Acquiror
Subsidiaries (collectively, the "Acquiror SEC Reports"). As of their
respective filing dates, the Acquiror SEC Reports (i) complied as to form in
all material respects with the requirements of the Exchange Act and the
Securities Act and (ii) did not at the time they were filed contain any
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, in the
light of the circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of Acquiror included in the Acquiror SEC Reports comply
as to form in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto.
The financial statements, including all related notes and schedules,
contained in the Acquiror SEC Reports (or incorporated by reference therein)
present fairly in all material respects the consolidated financial position
of Acquiror and the Acquiror Subsidiaries as at the respective dates thereof
and the consolidated results of operations and cash flows of Acquiror and the
Acquiror Subsidiaries for the periods indicated, in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be noted therein) and subject in the case of
interim financial statements to normal year-end adjustments.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Schedule 5.7, since June 30, 1997, Acquiror and the
Acquiror Subsidiaries have not incurred any material liability, except in the
ordinary course of their businesses consistent with their past practices, and
Acquiror and the Acquiror Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices.
Except set forth in Schedule 5.7, since June 30, 1997, there has not been any
change in the business, condition (financial or otherwise) or results of
operations of Acquiror and the Acquiror Subsidiaries, including any
transaction, commitment, dispute, damage, destruction or loss, whether or not
covered by insurance, or other event of any character (whether or not in the
ordinary course of business) individually or in the aggregate which has had,
or is reasonably likely to have, an Acquiror Material Adverse Effect.
SECTION 5.8. ABSENCE OF LITIGATION.
Except as set forth in Schedule 5.8, as of the date hereof, there are (a)
no claims, actions, suits, investigations, or proceedings pending or, to
Acquiror's knowledge, threatened against Acquiror or any
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Acquiror Subsidiary before any court, administrative, governmental, arbitral,
mediation or regulatory authority or body, domestic or foreign, that would be
reasonably likely to have an Acquiror Material Adverse Effect, or that
challenge or seek to prevent, enjoin, alter or materially delay the
transactions contemplated hereby, and (b) no judgments, decrees, injunctions
or orders of any Governmental Entity or arbitrator outstanding against
Acquiror or any Acquiror Subsidiary that would reasonably be likely to have
an Acquiror Material Adverse Effect.
SECTION 5.9. LICENSES AND PERMITS; COMPLIANCE WITH LAWS.
Except as set forth in Schedule 5.9 or disclosed in the Acquiror SEC
Reports:
(a) Acquiror and Acquiror Subsidiaries hold all permits, licenses and
approvals (none of which has been modified or rescinded and all of which are
in full force and effect) from all Governmental Entities (collectively, the
"Acquiror Permits") necessary for Acquiror and Acquiror Subsidiaries to own,
lease and operate their respective properties and to carry on their
respective businesses, including, without limitation, the construction,
launch and operation of, and transmitting to and from, each of the satellites
and transponders owned by Acquiror (the "Acquiror Satellites") and ground
stations, including, without limitation, the related broadcasting facility
assets consisting of land, building, fixtures, improvements and telemetry,
tracking and control equipment that is owned or leased by Acquiror or an
Acquiror Subsidiary (each an "Acquiror Ground Station" and collectively the
"Acquiror Ground Stations") and the provision of broadcasting or
communications services, except for Acquiror Permits for which the failure to
obtain would not have a Acquiror Material Adverse Effect. Each of Acquiror
and Acquiror Subsidiaries has fulfilled and complied in all material respects
with its obligations under each of Acquiror Permits owned, held or possessed
by it, and no event has occurred or condition or state of facts exists which
constitutes or, after notice or lapse of time or both, would constitute a
breach or default under any Acquiror Permit and which permits or, after
notice or lapse of time or both, would permit revocation or termination of
any such Acquiror Permit, and neither Acquiror nor any Acquiror Subsidiary
has received or has knowledge of any written notice of cancellation or
default or of any dispute concerning any Acquiror Permit, or of any such
event, condition or state of facts that would constitute a default the effect
of which would be revocation or termination of such Acquiror Permit, in each
case where these would be an Acquiror Material Adverse Effect. If any of the
Acquiror Permits that has been issued prior to the date hereof is the subject
of any pending renewal application, Acquiror is not aware of any reason why
the Acquiror Permits will not be renewed in the ordinary course or why any of
Acquiror Permits might be revoked, except in each case where any such
non-renewal or revocation would not individually or in the aggregate be an
Acquiror Material Adverse Effect. Except for rulemaking proceedings affecting
the satellite industry in general, no judgment, decree, order or notice of
violation has been issued by the FCC (or other Governmental Entity) which
permits or contemplates revocation, modification or termination or any of
Acquiror Permits or which would result in any material impairment of any
rights thereunder, except where there would be no Acquiror Material Adverse
Effect. The businesses of Acquiror and the Acquiror Subsidiaries are not
being conducted in violation of any applicable law, statute, ordinance,
regulation, judgment, Acquiror Permit, order, decree, concession, grant or
other authorization of any Governmental Entity, except for violations that
would not be reasonably likely to have an Acquiror Material Adverse Effect.
(b) Acquiror is not aware of any material difficulties in obtaining any
IGO Determinations with respect to the Acquiror Satellites that are needed to
operate the business of Acquiror and Acquiror Subsidiaries, taken as a whole,
as it is now conducted, or for which Acquiror or any Acquiror Subsidiary has
applied for an Acquiror Permit, except for those that would not have an
Acquiror Material Adverse Effect.
SECTION 5.10. TAXES.
Except as set forth in Schedule 5.10, Acquiror and the Acquiror
Subsidiaries have prepared and filed on a timely basis with all appropriate
Governmental Entities all material returns, reports, information statements
and other documentation in respect of Taxes that they are required to file on
or prior to the Closing Date or by the date therefor including extensions,
and all such returns, reports, information
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statements and other documentation are correct and complete in all material
respects. Except as set forth in Schedule 5.10, Acquiror and the Acquiror
Subsidiaries have paid in full all Taxes (other than Taxes, the failure to
pay which would not, individually or in the aggregate, have a Acquiror
Material Adverse Effect) due on or before the Closing Date and, in the case
of material Taxes accruing on or before the Closing Date that are not due on
or before the Closing Date, Acquiror has made adequate provision in its books
and records and financial statements for such payment. Except as set forth in
Schedule 5.10, Acquiror and the Acquiror Subsidiaries have withheld from
payments made to its present or former employees, officers and directors all
amounts required by law to be withheld, except where the liability would not,
individually or in the aggregate, have a Acquiror Material Adverse Effect,
and has, where required, remitted such amounts within the applicable periods
to the appropriate Governmental Entities. In addition, except as set forth in
Schedule 5.10 and except for such matters which would not individually or in
the aggregate have an Acquiror Material Adverse Effect, (a) there are no
assessments of, or claims against, Acquiror or the Acquiror Subsidiaries with
respect to Taxes, that are outstanding; (b) no Governmental Entity is
conducting an examination or audit of Acquiror or any Acquiror Subsidiary in
respect of taxes; and (c) neither Acquiror nor any Acquiror Subsidiary has
executed or filed any agreement extending the period of assessment or
collection of any taxes which remain in effect.
SECTION 5.11. INTELLECTUAL PROPERTY.
Unless expressly set forth otherwise on Schedule 5.11, Acquiror and
Acquiror Subsidiaries own or have a right to use, free and clear of any
liens, security interests, encumbrances or claims of others, all patents,
trademarks, service marks, logos, slogans, designs, copyrights, tradenames,
design registrations, and other intellectual property and any trade secrets,
know-how, confidential information, material computer programs (including any
source code), documentation, engineering and technical drawings, processes,
methodologies, trade dress, mask works and technology, in each case material
to the conduct of the business of Acquiror and Acquiror Subsidiaries taken as
a whole (all of the foregoing items collectively referred to as the "Acquiror
Intellectual Property"). Except as set forth on Schedule 5.11 or where there
would be no Acquiror Material Adverse Effect, (a) no proceedings are pending
or, to Acquiror's knowledge, threatened in writing, which challenge the
validity of the ownership by Acquiror and/or any Acquiror Subsidiary of any
material Acquiror Intellectual Property; (b) Acquiror has no knowledge of any
infringement or infringing use of any material Acquiror Intellectual Property
or licenses by any person or entity; (c) to Acquiror's knowledge, no
infringement of any material intellectual property right or other proprietary
right of any third party has occurred or will result in any way from the
signing and execution of this Agreement or the consummation of any or all of
the transactions contemplated hereby, and no written claim has been made by
any third party based upon an allegation of any such infringement; and (d)
material Acquiror Intellectual Property is valid and in full force and effect
and no aspect thereof is subject to any outstanding order, ruling, decree,
judgment or stipulation by or with any court, arbitrator or administrative
agency.
SECTION 5.12. MATERIAL CONTRACTS.
Except as set forth in Schedule 5.12, all agreements filed as exhibits to
Acquiror SEC Reports and each agreement that would have been required to be
filed as an exhibit to Acquiror SEC Reports if such agreement had been
entered into prior to the date of filing any such Acquiror SEC Report
(collectively, the "Acquiror Material Contracts") are valid and in full force
and effect on the date hereof except to the extent they have previously
expired in accordance with their terms, and neither Acquiror nor any Acquiror
Subsidiary has (or has any knowledge that any party thereto has) violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default under the provisions
of, any Acquiror Material Contract, except for defaults which would not
reasonably be expected to have an Acquiror Material Adverse Effect.
SECTION 5.13. EMPLOYEE BENEFIT PLANS.
(a) Each of the Benefit Plans currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by Acquiror or any entity required
to be aggregated with Acquiror which is a member of
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the controlled group of corporations which includes Acquiror within the
meaning of Section 414(b) or (c) of the Code (each, an "Acquiror Commonly
Controlled Entity") for the benefit of present and former employees or
directors of Acquiror and of each Acquiror Subsidiary or their beneficiaries,
or providing benefits to such persons in respect of services provided to any
such entity (collectively, the "Acquiror Benefit Plans") intended to be
"qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and, to
Acquiror's knowledge, no circumstances exist that could reasonably be
expected by Acquiror to result in the revocation of any such determination.
Each of the Acquiror Benefit Plans is in compliance with the applicable terms
of ERISA and the Code and any other applicable laws, rules and regulations
the breach or violation of which could result in a material liability to
Acquiror or any Acquiror Commonly Controlled Entity.
(b) No Acquiror Benefit Plan which is an "employee pension benefit plan,"
as that term is defined in Section 3(2) of ERISA (an "Acquiror ERISA Plan")
which is a defined benefit pension plan that is subject to Title IV of ERISA
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA.
(c) No Acquiror Benefit Plan is a Multiemployer Plan. Neither Acquiror nor
any Acquiror Commonly Controlled Entity has completely or partially withdrawn
from any Multiemployer Plan. No termination liability to the Pension Benefit
Guaranty Corporation or withdrawal liability to any Multiemployer Plan that
is material in the aggregate has been or is reasonably expected to be
incurred with respect to any Multiemployer Plan by Acquiror or any Acquiror
Commonly Controlled Entity.
SECTION 5.14. QUALIFICATION OF ACQUIROR.
Acquiror is and pending the Effective Time will be legally, technically,
financially and otherwise qualified under the Communications Act and all
rules, regulations and policies of the FCC to acquire, own and operate the
material assets and business of the Company and the Company Subsidiaries.
Acquiror knows of the existence of no fact that, under any Acquiror Permits
and present law relating thereto, would disqualify Acquiror from consummating
the Merger within the time contemplated herein. There are no facts or
proceedings which would reasonably be expected to disqualify Acquiror under
the Communications Act or otherwise from acquiring or operating any of the
assets and business of the Company and the Company Subsidiaries or would
cause the FCC not to approve the FCC Application (as defined in Section
7.4(a)). Acquiror has no knowledge of any fact or circumstance relating to
Acquiror or any of its affiliates that would reasonably be expected to (a)
except as set forth on Schedule 5.14, cause the filing of any objection to
the FCC Application, or (b) lead to a material delay in the processing by the
FCC of the FCC Application. No waiver of any FCC rule or policy is necessary
to be obtained for the approval of the FCC Application, nor will processing
pursuant to any exception or rule of general applicability be requested or
required in connection with the consummation of the transactions herein.
SECTION 5.15. BROKERS.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Acquiror.
ARTICLE VI
COVENANTS
SECTION 6.1. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees that, prior to the Closing Date,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Acquiror, the Company shall, and shall cause each Company
Subsidiary to, (a) operate its business in the usual and ordinary course
consistent with past practices; (b) use its commercially reasonable efforts
to preserve substantially intact its business organization, maintain its
rights and franchises, retain the services of its respective principal
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officers and key employees and maintain its relationship with its respective
principal customers and suppliers; (c) use its commercially reasonable
efforts to maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted; (d) use its
commercially reasonable efforts to keep in full force and effect insurance
comparable in amount and scope of coverage to that currently maintained; (e)
prepare and file all tax returns required to be filed in a timely manner, and
in a manner consistent with prior years and applicable laws and regulations;
(f) timely file with the Commission all reports required to be filed under
the Exchange Act, which reports (including the unaudited interim financial
statements included in such reports) shall comply with the Exchange Act, the
rules and regulations promulgated thereunder and all applicable accounting
requirements; (g) operate its business in accordance with the terms of its
licenses, the Communications Act and the FCC rules and policies and in all
material respects with all other applicable laws; (h) use its commercially
reasonable efforts to maintain each Key Company Permit in effect until the
applicable construction projects are complete except where (x) the loss of
such Key Company Permit or pending Key Application would not, individually or
in the aggregate, have a Company Material Adverse Effect or (y) the
maintenance of any such Company Permit would require an expenditure which
would be in violation Section 6.2(e); (i) use its commercially reasonable
efforts to enforce its rights to have the transmissions to and from the
Company Satellites and Major Stations be free from interference from other
radio communications facilities (existing or proposed), to the extent that
such interference is prohibited by FCC Rules or inconsistent with rights
accorded the Company Satellites under the International Telecommunication
Union's radio regulations and shall promptly notify Acquiror of any actual or
threatened interference; and (j) proceed in the ordinary course of business
with all pending applications submitted by the Company or any Company
Subsidiary with any Governmental Entity and use its commercially reasonable
efforts to ensure that such applications are granted; provided, however, that
in the event the Company or any of the Company Subsidiaries deems it
necessary to take certain actions that would otherwise be prohibited by
clauses (a)-(j) of this Section 6.1, the Company shall consult with the
President and Chief Operating Officer of Acquiror and Acquiror shall consider
in good faith the Company's request to take such action and not unreasonably
withhold or delay its consent for such action.
SECTION 6.2. NEGATIVE COVENANTS OF THE COMPANY.
EXCEPT AS EXPRESSLY CONTEMPLATED BY THIS AGREEMENT AND EXCEPT AS SET FORTH
IN SCHEDULE 6.2, OR OTHERWISE CONSENTED TO IN WRITING BY ACQUIROR (WHICH
APPROVAL SHALL NOT BE UNREASONABLY DELAYED OR WITHHELD), FROM THE DATE HEREOF
UNTIL THE CLOSING DATE, THE COMPANY SHALL NOT, AND SHALL CAUSE EACH COMPANY
SUBSIDIARY NOT TO, DO ANY OF THE FOLLOWING:
(a) (i) increase the periodic compensation payable to or to become payable
to any of its directors or executive officers, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary course
of business and consistent with past practice; (ii) grant any severance or
termination pay (other than pursuant to existing severance arrangements or
policies as in effect on the date of this Agreement) to, or enter into or
modify any employment or severance agreement with, any of its directors,
officers or employees; or (iii) adopt or amend any employee benefit plan or
arrangement, except as may be required by applicable law;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock, except as required under
the Certificates of Designations with respect to the Series C Preferred
Stock, as presently in effect;
(c) (i) redeem, repurchase or otherwise reacquire any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations (except pursuant to agreements and documents
as set forth in Schedule 3.3 or Schedule 3.12, and except in connection with
the exercise of outstanding Options referred to in Schedule 3.3 in accordance
with their terms); (ii) effect any reorganization or recapitalization; or
(iii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of its capital stock;
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(d) (i) issue, pledge, deliver, award, grant or sell, or authorize or
propose the issuance, pledge, delivery, award, grant or sale (including the
grant of any Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares (except pursuant to agreements or other
documents set forth on Schedule 3.12, except pursuant to the agreements and
documents (other than the Company Stock Option Plans) set forth in Schedule
3.3 and except for the issuance of shares upon the exercise of outstanding
Options, the issuance of options to employees with the written consent of
Acquiror and the issuance of shares under the Company Stock Purchase Plan as
presently in effect, but only to the extent such issuances are in the
ordinary course of business and consistent with past practice); or (ii) amend
or otherwise modify the terms of any such rights, warrants or options;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, (i) any business or any corporation, partnership, association
or other business organization or division (other than a wholly-owned
Subsidiary) thereof or any satellite or other spacecraft the Company has not,
on the date hereof, previously agreed in writing to acquire, or otherwise
acquire or agree to acquire any assets of any other person or (ii) make or
commit to make any investments or capital expenditures, other than
investments or capital expenditures: (A) contemplated by the 1997 written
business plan previously furnished to Acquiror or by the 1998 written
business plan to be furnished to Acquiror (and the investments or capital
expenditures of such plan shall be subject to Acquiror's approval, which
shall not be unreasonably withheld or conditioned) (B) to replace any Company
Satellite lost in a launch or in orbit; (C) to continue capital programs now
underway as described on Schedule 6.2, plus additional expenses solely for
change orders of up to 10% of the progress payments on each satellite
remaining to be paid as of the date hereof; (D) purchase such terrestrial
equipment as necessary to supply customers in the ordinary course; or (E)
other investments or capital expenditures that do not exceed $500,000 in the
aggregate for all such investments or expenditures that occur from the date
hereof.
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise encumber or dispose of, any of its material assets except for
dispositions in the ordinary course of business and consistent with past
practice which do not exceed five hundred thousand dollars ($500,000) in the
aggregate;
(g) propose or adopt any amendments to its certificate of incorporation or
its bylaws;
(h) (i) make any significant change in any of its methods of accounting
(other than in the ordinary course), or (ii) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes (except where the amount of such settlements or
controversies, individually or in the aggregate, does not exceed five hundred
thousand dollars ($500,000), or change any of its methods of reporting income
or deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year ended
December 31, 1996, except, in the case of clause (i) or clause (ii), as may
be required by law or generally accepted accounting principles;
(i) incur any obligation for borrowed money, whether or not evidenced by
a note, bond, debenture or similar instrument, other than purchase money
indebtedness not to exceed five hundred thousand dollars ($500,000) in the
aggregate, except in the ordinary course of business under existing loan
agreements or capitalized leases, or prepay, before the scheduled maturity
thereof, any of its long-term debt;
(j) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of such
entity's affiliates (as defined in Rule 12(b)-2 under the Exchange Act) which
involves the transfer of consideration or has a financial impact on such
entity, other than pursuant to such agreements, arrangements, or
understandings (i) existing on the date of this Agreement or (ii) which are
on terms that the Board of Directors of the Company determines in good faith
to be equal to, or more favorable to the Company, than the terms that the
Company would be able to obtain from third parties in similar transactions
and/or for similar goods or services;
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(k) surrender, agree to allow to expire or be terminated, modify
adversely, forfeit, or fail to use reasonable best efforts to renew or extend
under regular terms any of the Key Company Permits or violate or breach any
Key Company Permits in a manner that would give valid grounds to the FCC or
any Governmental Entity to institute any proceeding for the revocation,
suspension, or adverse modification of any Key Company Permit issued by the
FCC or any Governmental Entity except for Key Company Permits which lapse or
expire due to ordinary course changes in the business of the Company. Should
the FCC or other Governmental Entity with jurisdiction institute any
proceedings for the suspension, revocation or adverse modification of any of
such Key Company Permits, the Company shall use reasonable best efforts to
promptly contest such proceedings and to seek to have such proceedings
terminated in a manner that is favorable to the Company;
(l) fail to use reasonable best efforts to avoid having, any pending Key
Application to be dismissed or denied, except where (i) the loss of such Key
Company Permit or pending Key Application would not, individually or in the
aggregate, have a Company Material Adverse Effect or (ii) the maintenance of
any such Key Company Permit would require an expenditure which would be in
violation of subsection (e) above;
(m) enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument
that (i) does not expire by the later of one (1) year after the date hereof
or six (6) months after the Closing Date or (ii) is not subject to
termination by the Company upon less than six months written notice to the
other party thereto, which in either case materially restricts or limits the
Company's or any Company Subsidiary's right to conduct its business or
compete, including, without limitation, any restriction on its ability to
sell, lease or otherwise provide services from available transponder capacity
to any person or entity for any purpose at any orbital location and in any
frequency band, any geographical market segment, product line or other
industry limitation, or any exclusive or sole supply or vendor arrangement or
agreement. Nothing in this Section 6.2(m) shall preclude or require the
Company or any Company Subsidiary from entering into agreements containing
most favored nation provisions, options for additional services or capacity,
rights of negotiation, or similar provisions, in each case in the ordinary
course of business; or
(n) agree in writing or otherwise to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS AND INFORMATION.
During the period from the date hereof to the Effective Time (the "Interim
Period"), the Company and Acquiror shall, and shall cause the Company
Subsidiaries and the Acquiror Subsidiaries, respectively, to, afford to each
other and their respective officers, employees, accountants, consultants,
legal counsel and other representatives reasonable access during normal
business hours (and at such other times as the parties may mutually agree) to
the properties, executive personnel and all information concerning the
business, properties, contracts, records and personnel of the Company and the
Company Subsidiaries or Acquiror and the Acquiror Subsidiaries, as the case
may be, as such other party may reasonably request.
SECTION 7.2. CONFIDENTIALITY.
Acquiror and the Company each acknowledge and agree that all information
received by it (the "Receiving Party") from or on behalf of the other party
in connection with the transactions contemplated under this Agreement shall
be deemed received, if by Acquiror, pursuant to the confidentiality
agreement, dated as of June 5, 1997, between the Company and Acquiror, and if
by the Company, pursuant to the confidentiality agreement, dated as of
September 12, 1997, between the Company and Acquiror (each, a
"Confidentiality Agreement" and together, the "Confidentiality Agreements")
and such Receiving Party shall, and shall cause its officers, directors,
employees, affiliates, financial advisors and agents to, comply with the
provisions of the applicable Confidentiality Agreement with respect to such
information, and the provisions of the Confidentiality Agreements are hereby
incorporated herein by reference with the same effect as if fully set forth
herein.
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SECTION 7.3. PROXY REGISTRATION STATEMENT; BOARD RECOMMENDATION AND STOCKHOLDER
VOTE.
(a) Proxy Registration Statement. As promptly as practicable after the
execution and delivery of this Agreement, Acquiror and the Company shall
cooperate and prepare and Acquiror shall file with the SEC a merger proxy
registration statement on Form S-4 (together with the amendments thereof or
supplements thereto, the "Proxy Registration Statement") in connection with
the registration under the Securities Act of the Acquiror Shares to be issued
pursuant to this Agreement and the approval by stockholders of the Company of
the Merger. As promptly as practicable after the execution and delivery of
this Agreement, the Company shall prepare for inclusion in the Proxy
Registration Statement the information relating to the merger and approval of
the merger by stockholders of the Company and any other information relating
to the Company which would be included in a merger proxy statement of the
Company relating thereto under the rules and regulations of the SEC. Such
information furnished by the Company shall include the recommendation of the
Company's Board of Directors in favor of approval and adoption of this
Agreement and the Merger (subject to Section 7.10 hereof). Acquiror and the
Company will cooperate in the production and filing of the Proxy Registration
Statement, use all reasonable efforts to have or cause the Proxy Registration
Statement to become effective as promptly as practicable, and take any action
required to be taken under any applicable federal or state securities laws in
connection with the issuance of Acquiror Shares pursuant to this Agreement
and approval of this Agreement and the Merger by stockholders of the Company.
None of the information supplied by any party hereto for inclusion in the
Proxy Registration Statement will at the time the Proxy Registration
Statement is filed with the SEC and at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statement therein, in light of the circumstances under
which they are made, not misleading.
(b) Board Recommendation; Stockholder Approval. The Company shall,
promptly after the date of this Agreement, take all action necessary in
accordance with Delaware Law and its certificate of incorporation and bylaws
to convene a meeting of the Company's stockholders (together with any
adjournment or postponement thereof, the "Stockholders' Meeting"), to approve
and adopt this Agreement and the Merger. As promptly as practicable after
effectiveness of the Proxy Registration Statement, the Company shall mail the
proxy statement included in the Proxy Registration Statement to its
stockholders. The Company's Board of Directors shall recommend approval of
the transactions contemplated hereby and shall take all lawful action to
solicit from stockholders of the Company proxies in favor of the approval and
adoption of this Agreement and this Merger (subject to Section 7.10 hereof).
Notwithstanding the foregoing, the Company shall not be obligated to mail
such proxy statement (or, if the proxy statement has been mailed, hold the
Stockholders Meeting) until the earlier of (i) the receipt of the Requisite
Consents under Section 7.14 or (ii) the making by Acquiror of the election
under Section 7.14(b) as to whether to (A) waive as a condition of Closing
(Section 8.2(f)) that the Requisite Consents shall have been obtained, or (B)
except as otherwise provided in Section 7.15(g), commence an Exchange Offer.
SECTION 7.4. FCC APPLICATION.
(a) As promptly as practicable after the execution and delivery of this
Agreement, Acquiror, Merger Sub and the Company shall prepare all appropriate
applications for FCC consent, and such other documents as may be required,
with respect to the transfer of control of the Company to Acquiror
(collectively, the "FCC Application"). As promptly as practicable thereafter,
Acquiror and Merger Sub shall deliver to the Company their respective
completed portions of the FCC Application. As promptly as practicable, but
not later than twenty-one (21) calendar days after the date hereof, the
Company and Acquiror shall jointly file, or cause to be filed, the FCC
Application. Acquiror, Merger Sub and the Company shall use their reasonable
best efforts to prosecute the FCC Application in good faith and with due
diligence in order to obtain such FCC consent as expeditiously as
practicable. If the Closing shall not have occurred for any reason within the
initial effective period of the granting of approval by the FCC of the FCC
Application, and neither Acquiror nor the Company shall have terminated this
Agreement
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pursuant to Section 9.1, Acquiror and the Company shall jointly request one
or more extensions of the effective period of such grant. No party hereto
shall knowingly take, or fail to take, any action the intent or reasonably
anticipated consequence of which action or failure to act would be to cause
the FCC not to grant approval of the FCC Application.
(b) Acquiror and the Company shall each pay one-half (1/2) of any FCC fees
that may be payable in connection with the filing or granting of approval of
the FCC Application. The Company shall pay any cost incurred in connection
with complying with the FCC notice and advertisement requirements in
connection with the transfer of control of the Company.
SECTION 7.5. HSR ACT MATTERS.
Acquiror, Merger Sub and the Company (as may be required pursuant to the
HSR Act) promptly will complete all documents required to be filed with the
Federal Trade Commission and the United States Department of Justice in order
to comply with the HSR Act and, not later than fifteen (15) calendar days
after the date hereof, together with the persons, if any, who are required to
join in such filings, shall file such documents with the appropriate
Governmental Entities. Acquiror, Merger Sub and the Company shall promptly
furnish all materials thereafter required by any of the Governmental Entities
having jurisdiction over such filings, and shall take all reasonable actions
and shall file and use their best efforts to have declared effective or
approved all documents and notifications with any such Governmental Entity,
as may be required under the HSR Act or other federal or state antitrust laws
for the consummation of the Merger and the other transactions contemplated
hereby. Acquiror and the Company shall each pay one-half (1/2) of all filing
fees related to compliance with the HSR Act in connection with the
transactions contemplated hereby.
SECTION 7.6. PUBLIC ANNOUNCEMENTS.
Acquiror and the Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated hereunder and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law or any listing agreement with the NYSE, or the
Nasdaq National Market.
SECTION 7.7. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the certificate of incorporation and bylaws of the Company on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six (6) years after the Effective Time in
any manner that would adversely affect the rights thereunder of persons who
at any time prior to the Effective Time were identified as prospective
indemnitees under the certificate of incorporation or bylaws of the Company
in respect of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by applicable law.
(b) From and after the Effective Time, Acquiror shall cause the Surviving
Corporation to indemnify, defend and hold harmless the present and former
officers, directors and employees of the Company and the Company Subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages, liabilities or amounts that are paid in settlement of, with
the approval of Acquiror (which approval shall not be unreasonably withheld),
or otherwise in connection with, any claim, action, suit, proceeding or
investigation (a "Claim"), based in whole or in part on the fact that such
person is or was such a director, officer or employee and arising out of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), in each
case to the fullest extent permitted under Delaware Law (and shall pay
expenses in advance of the final disposition of any such action or proceeding
to each Indemnified Party to the fullest extent permitted under Delaware Law,
upon receipt from the Indemnified Party to whom expenses are advanced of the
undertaking to repay such advances contemplated by Section 145(e) of Delaware
Law).
(c) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time: (i) the Indemnified Parties
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may retain its regularly engaged independent legal counsel as of the date of
this Agreement, or other independent legal counsel satisfactory to them
provided that such other counsel shall be reasonably acceptable to Acquiror,
(ii) Acquiror shall cause the Surviving Corporation to pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received, and (iii) Acquiror shall cause the
Surviving Corporation to use its reasonable efforts to assist in the vigorous
defense of any such matter, provided that neither the Acquiror nor the
Surviving Corporation shall be liable for any settlement of any Claim
effected without the written consent of Acquiror, which consent shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.7, promptly upon learning of any such Claim, shall
notify the Acquiror and Surviving Corporation (although the failure so to
notify the Acquiror and Surviving Corporation shall not relieve the Acquiror
and Surviving Corporation from any liability which the Acquiror and Surviving
Corporation may have under this Section 7.7, except to the extent such
failure prejudices the Acquiror and Surviving Corporation), and shall deliver
to the Acquiror and Surviving Corporation the undertaking contemplated by
Section 145(e) of Delaware Law. The Indemnified Parties as a group may retain
one law firm (in addition to local counsel) to represent them with respect to
each such matter unless there is, under applicable standards of professional
conduct (as reasonably determined by counsel to such Indemnified Parties) a
conflict on any significant issue between the position of any two or more of
such Indemnified Parties, in which event, an additional counsel as may be
required may be retained by such Indemnified Parties.
(d) Acquiror shall cause to be maintained in effect for not less than six
(6) years after the Effective Time the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
the Company with respect to matters occurring prior to the Effective Time;
provided, however, that (i) Acquiror may substitute therefor policies of
substantially the same coverage containing terms and conditions that are
substantially the same for the Indemnified Parties to the extent reasonably
available and (ii) Acquiror shall not be required to pay an annual premium
for such insurance in excess of two hundred percent (200%) of the last annual
premium paid prior to the date of this Agreement, but in such case shall
purchase as much coverage as possible for such amount.
(e) This Section 7.7 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties referred to herein, their heirs and
personal representatives and shall be binding on Acquiror and Merger Sub and
the Surviving Corporation and their respective successors and assigns.
Acquiror hereby guarantees the Surviving Corporation's obligations pursuant
to this Section 7.7.
SECTION 7.8. EMPLOYEE BENEFITS MATTERS.
(a) Acquiror shall cause the Surviving Corporation to provide employee
benefits under plans, programs and arrangements, which, in the aggregate,
will provide benefits to the employees of the Company and the Company
Subsidiaries which are no less favorable, in the aggregate, than those
provided pursuant to the plans, programs and arrangements of the Company in
effect and disclosed to Acquiror on the date hereof; provided, however, that
nothing herein shall interfere with the Surviving Corporation's right or
obligation to make such changes to such plans, programs or arrangements as
are necessary to conform with applicable law.
(b) Acquiror acknowledges and agrees that prior to the Effective Time, the
Company will take all such actions as may be necessary to cause (i) all
participants to become fully vested in their benefits under the Company's
401(k) Plan, and (ii) employer contributions to be made with respect to
periods prior to the Effective Time to the Company's 401(k) Plan to the
extent that such contributions would be made if the participants were
employed by the Company on the last day of the calendar year in which the
Closing occurs.
SECTION 7.9. FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS.
(a) Each of the parties shall use all commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable under applicable laws or
otherwise to consummate and make effective the transactions contemplated by
this Agreement
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as promptly as practicable, including, without limitation, using all its
commercially reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and parties to contracts with the Company and Acquiror as are necessary for
the transactions contemplated herein. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes
of this Agreement, the proper officers and directors of each party to this
Agreement shall use all commercially reasonable efforts to take all such
action.
(b) During the Interim Period, each of the parties shall promptly notify
the other in writing of any pending or, to the knowledge of such party,
threatened action, proceeding or investigation by any Governmental Entity or
any other person (i) challenging or seeking damages in connection with the
Merger or the conversion of the Capital Stock into the Merger Consideration
pursuant to the Merger or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Acquiror to own or
operate all or any portion of the business or assets of the Company.
(c) Each party shall use its commercially reasonable efforts to refrain
from taking any action, or entering into any transaction, which would cause
any of its representations or warranties contained in this Agreement to be
untrue or result in a breach of any covenant made by it in this Agreement.
SECTION 7.10. NEGOTIATION WITH OTHERS.
(a) Neither the Company nor any Company Subsidiary shall, through any
officer, director, employee, representative, agent or direct or indirect
stockholder of the Company or any Company Subsidiary, directly or indirectly,
take any action to (i) encourage, initiate or solicit the submission of any
proposal that constitutes an Acquisition Proposal, (ii) enter into any
agreement with respect to or accept any Acquisition Proposal; or (iii)
encourage, initiate or solicit the making of any proposal that constitutes or
may reasonably be expected to lead to, an Acquisition Proposal; provided,
however, that nothing contained in this Section 7.10 shall prohibit the
Company, or its Board of Directors, from making any disclosure to its
stockholders that, in the judgment of its Board of Directors in accordance
with, and based upon, the advice of independent legal counsel, is required
under applicable law.
For purposes of this Agreement, "Acquisition Proposal" means any of the
following: (i) any merger, consolidation or similar transaction involving the
Company, (ii) any sale, lease or other disposition directly or indirectly by
merger, consolidation, share exchange or otherwise of assets of the Company
or Company Subsidiaries representing 20% or more of the consolidated assets
of the Company and the Company Subsidiaries, (iii) any issue, sale, or other
disposition of securities (or options, rights or warrants to purchase, or
securities convertible into or exchangeable for, such securities)
representing 20% or more of the voting power of the Company, or (iv) any
transaction in which any person shall acquire beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership or any "group" (as such term is defined under
the Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of 35% or more of the outstanding
Common Stock.
(b) Notwithstanding Section 7.10(a), the Board of Directors of the
Company, in the exercise of and as required by its fiduciary duties as
determined in good faith by the Board of Directors of the Company in
accordance with and based upon the advice of independent legal counsel, may
(i) furnish information to, or enter into discussions with, a third party who
makes (or requests information for the purpose of making) an unsolicited bona
fide Acquisition Proposal, if such third party executes and delivers a
confidentiality agreement in reasonably customary form on terms not more
favorable to such person or entity than the terms of the Confidentiality
Agreement, or (ii) withdraw or modify in any manner adverse to the Acquiror
or propose publicly to withdraw or modify in any manner adverse to the
Acquiror the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, if and only to the extent that the
Board of Directors: (A) believes in good faith, based on the advice of its
financial advisor that such Acquisition Proposal would, if consummated,
result in a transaction more favorable from a financial point of view to all
stockholders of the Company, and (B) determines in good faith, based upon, to
the extent legal matters are relevant to such fiduciary duties, a reasoned
written opinion of its outside legal counsel, that such action is necessary
for the directors to comply with their fiduciary duties to the stockholders
under applicable Delaware Law; and (C) in the
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event that the Board of Directors of the Company determines to withdraw or
modify in a manner adverse to the Acquiror its approval or recommendation of
the Merger or this Agreement, it shall do so only at a time that is after the
second business day following Acquiror's receipt of the written notice in
accordance with the next succeeding sentence. The Company shall promptly
notify Acquiror in writing of any such request for information or Acquisition
Proposal, specifying reasonable details of any inquiry or Acquisition
Proposal (including the identity of the entity making the Acquisition
Proposal, to the extent not prohibited by a confidentiality agreement in
effect on the date hereof), and shall keep Acquiror informed as to the status
of any discussions or negotiations.
SECTION 7.11. STOCK MERGER LISTING.
Acquiror shall use all reasonable efforts to cause the Acquiror Shares to
be issued pursuant to this Agreement to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing Date.
SECTION 7.12. BLUE SKY.
Acquiror shall use reasonable efforts to obtain prior to the Closing Date
any necessary blue sky permits and approvals required to permit the
distribution of the shares of Acquiror Shares to be issued in accordance with
the provisions of this Agreement.
SECTION 7.13. AFFILIATE AGREEMENTS.
At least 30 days prior to the Effective Time, the Company shall deliver to
Acquiror a letter identifying all persons who may be deemed affiliates of the
Company under Rule 145 of the Securities Act. The Company shall use all
reasonable efforts to deliver or cause to be delivered to Acquiror, from each
person who will be identified in such letter, written agreements
(collectively, the "Affiliate Agreements") substantially in the form attached
to this Agreement as Exhibit A.
SECTION 7.14. CONSENT SOLICITATION AND SUPPLEMENTAL INDENTURE.
(a) As promptly as practicable after the execution and delivery of this
Agreement, the Company shall prepare, in consultation with Acquiror, written
materials to commence a solicitation (the "Consent Solicitation") of consents
to amendments to, or waivers under, the Indentures, dated as of January 31,
1997, for the Senior Notes (as defined below) among the Company, the
subsidiaries of the Company named therein as Guarantors, and Bankers Trust
Company, as Trustee (the "Indentures"), from the Holders (as defined in the
Indentures) of not less than a majority in aggregate principal amount of the
Senior Notes in order to obtain a waiver of the Company's compliance with the
covenants set forth in Section 5.01 (iii) and Section 5.01(iv) of the
Indentures in connection with the consummation of the Merger (the consents
from such Holders, the "Requisite Consents"). The Company will distribute
such solicitation materials to the Holders as promptly as practicable and
will use commercially reasonable efforts to obtain such consents, provided
that no consideration shall be offered to the Holders of the Senior Notes
pursuant to the Consent Solicitation for rendering their consents thereunder
without the prior written approval of Acquiror. At the Effective Time,
Acquiror shall cause the Surviving Corporation to execute and deliver to the
Trustee a supplemental indenture pursuant to, and satisfying the requirements
of, the Indentures. "Senior Notes" shall mean the Company's 11.25% Senior
Notes Due 2007 and 12.5% Senior Discount Notes Due 2007.
(b) If, within forty (40) days after the date the Company distributes the
Consent Solicitation to the Holders (the "Solicitation Termination Date"),
the Company has not received the Requisite Consents, Acquiror shall elect
(the "Acquiror Election") either to (i) commence an exchange offer as set
forth in Section 7.15, or (ii) waive as a condition of Closing (Section
8.2(f)) that the Requisite Consents shall have been obtained. Acquiror shall
exercise the Acquiror Election by delivering written notice of Acquiror's
election to the Company within two business days after the Solicitation
Termination Date. If Acquiror fails to timely and properly exercise the
Acquiror Election within such two business days, Acquiror shall
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be deemed to have waived the delivery of the Requisite Consents as a closing
condition. The Company agrees to provide the Acquiror with written notice of
the date of the Solicitation Termination Date at least five business days
prior to the occurrence of such Solicitation Termination Date.
SECTION 7.15. THE EXCHANGE OFFER.
(a) Terms of the Exchange Offer. As promptly as practicable (and in any
event within five business days) after Acquiror's delivery of an Acquiror
Election pursuant to Section 7.14(b) hereof electing to commence an exchange
offer, Acquiror shall announce its election to commence (within the meaning
of Rule 14d-2 under the Exchange Act) an irrevocable exchange offer (the
"Exchange Offer") to acquire all of the issued and outstanding shares of
Capital Stock in exchange for the number of fully paid and nonassessable
Acquiror Shares (the "Exchange Consideration") equal to the number that would
be issued pursuant to the Merger (except that the Averaging Period would end
on the tenth Trading Day immediately prior to the closing date for the
Exchange Offer), and with such other terms and conditions which make the
Exchange Offer at least as favorable to the holders of the issued and
outstanding shares of Capital Stock (and options, warrants and other rights
to purchase Capital Stock) as the terms and conditions of the Merger, as set
forth herein. Acquiror shall conduct such Exchange Offer in accordance with
this Section 7.15 and applicable law. To the extent practicable in the
context of the Exchange Offer the parties hereto shall seek to provide to
each other all of the benefits of the provisions of this Agreement. Acquiror
hereby agrees that within two business days following the later to occur of
the expiration of the minimum statutory period during which exchange offers
must remain open and all Exchange Offer Conditions (as defined below) having
been satisfied or waived, Acquiror shall accept for exchange all shares of
Capital Stock tendered and promptly issue the Exchange Consideration to the
holders of Capital Stock who shall have tendered their shares in the Exchange
Offer.
The obligation of Acquiror to consummate the Exchange Offer once it is
commenced and to accept for exchange the shares of Capital Stock tendered
pursuant to the Exchange Offer shall be subject only to the following
conditions (the "Exchange Offer Conditions"): (i) the holders of the
outstanding Capital Stock representing at least 50.1% of the voting power of
the Capital Stock (on a fully diluted basis) as of the date the Exchange
Offer is commenced (and all shares of Capital Stock held by Acquiror, each
Acquiror Subsidiary and each affiliate thereof shall be deemed to be included
within such 50.1%) accepting the Exchange Offer, (ii) the resignations of the
Company's directors prior to consummation of the Exchange Offer and (iii) the
satisfaction of the following conditions precedent sections of this Agreement
(to the extent applicable to an exchange offer): 8.1(b), 8.1(c), 8.1(d),
8.1(e), 8.2(a), 8.2(b), 8.2(c), 8.2(d), 8.2(e). Acquiror expressly reserves
the right to waive any such condition, to increase the consideration payable
in the Exchange Offer and to make any other changes in the terms and
conditions of the Exchange Offer which make the Exchange Offer more favorable
to the holders of the issued and outstanding shares of Capital Stock than the
Merger and than the requirements for the Exchange Offer set forth herein.
Notwithstanding the foregoing, no change may be made which (i) causes the
Exchange Offer not to meet the requirements of this Section 7.15, (ii)
decreases or changes the Exchange Consideration to be paid in the Exchange
Offer, (iii) reduces the number of shares of Capital Stock sought to be
purchased in the Exchange Offer, (iv) imposes conditions to the Exchange
Offer other than those permitted by this Section 7.15, (v) extends the
expiration date of the Exchange Offer or (vi) otherwise alters or amends any
term of the Exchange Offer in any manner materially adverse to the holders of
shares of Capital Stock; provided, however, that subject to the right of the
parties to terminate this Agreement pursuant to Section 9.1, the Exchange
Offer may be extended for any period to the extent required to satisfy any
Exchange Offer Condition or to the extent required by law or by any rule,
regulation, interpretation or position of the SEC or the staff thereof, so
long as the Exchange Offer shall not extend beyond June 30, 1998. Acquiror
shall not acquire less than all of the shares of Capital Stock or other
securities that are tendered pursuant to the Exchange Offer.
(b) Exchange Offer Documents. As promptly as practicable after the
election by the Acquiror to commence of the Exchange Offer, Acquiror shall
convert the Proxy Registration Statement into and shall file with the SEC a
registration statement (together with the amendments thereof or supplements
thereto, the "Exchange Registration Statement") in connection with the
registration under the Securities Act of the Acquiror Shares to be issued
pursuant to the Exchange Offer. Acquiror shall use all reasonable efforts to
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have or cause the Exchange Registration Statement to become effective as
promptly as practicable. As promptly as practicable (and in any event within
five business days) after the Exchange Registration Statement has become
effective, Acquiror shall commence the Exchange Offer. As promptly as
practicable on the date of commencement of the Exchange Offer, Acquiror shall
file with the SEC a Tender Exchange Offer Statement on Schedule 14D-1
promulgated under the Exchange Act (together with all amendments and
supplements thereto, the "Schedule 14D-1") with respect to the Exchange
Offer, and take such steps as are reasonably necessary to cause the Exchange
Offer to be disseminated to the holders of shares of Capital Stock as and to
the extent required by applicable federal securities laws. The Schedule 14D-1
shall contain an offer to exchange (the "Offer to Exchange") and forms of the
related letter of transmittal and any related summary advertisement (the
Schedule 14D-1, the Exchange Registration Statement, the Offer to Exchange
and such other documents as may be required by the Exchange Act, the NYSE,
the NASD or any other applicable laws, rules or regulations, together with
all amendments and supplements thereto, the "Exchange Offer Documents").
Acquiror shall use its best efforts to distribute such Exchange Offer
Documents, and any other documents required by law or this Agreement to all
holders of shares of Capital Stock, in accordance with the requirements of
this Section 7.15. Acquiror and the Company shall correct promptly any
information provided by any of them for use in the Exchange Offer Documents
if such information shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading, and Acquiror shall use all
reasonable efforts to cause the Schedule 14D-1 as so corrected to be filed
with the SEC and the other Exchange Offer Documents as so corrected to be
disseminated to holders of shares of Capital Stock, in each case as and to
the extent required by applicable federal securities laws and this Section
7.15. The Company and its counsel shall be given a reasonable opportunity to
review and comment on the Exchange Offer Documents prior to their being filed
with the SEC, and Acquiror will provide the Company and its counsel with
copies of any written comments that Acquiror receives from the SEC or its
staff with respect to the Exchange Offer Documents promptly after receipt of
any such comments.
(c) Stock Options. The Exchange Offer will extend to all shares of Capital
Stock which may be issued as a result of the exercise of outstanding options,
warrants and other rights to purchase or acquire Capital Stock, and will
involve assumption of other options, warrants and rights, to the same extent
as required with respect to the Merger under Section 2.3.
(d) Company Recommendation. On the date the Schedule 14D-1 is filed with
the SEC, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 promulgated under the Exchange Act (together with
all amendments and supplements thereto, the "Schedule 14D-9") containing the
recommendation of the Board of Directors of the Company for the stockholders
of the Company to accept the Exchange Offer, except to the extent the Board
of Directors would be permitted to alter its recommendation under Section
7.10(b) with respect to the Merger, and shall take such steps as are
necessary to cause the Schedule 14D-9 to be disseminated to the holders of
shares of Capital Stock as and to the extent required by the NASD or any
other applicable laws, rules and regulations, including, without limitation,
applicable federal securities laws. The Company and Acquiror shall amend or
correct promptly any information provided by any of them for use in the
Schedule 14D-9 which shall have become false or misleading, and the Company
shall take all steps necessary to cause the Schedule 14D-9 as so amended or
corrected to be filed with the SEC and disseminated to holders of shares of
Capital Stock, in each case as and to the extent required by applicable
federal securities laws. Acquiror and its counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-9 prior to its being
filed with the SEC, and the Company will provide Acquiror and its counsel
with copies of any written comments that the Company receives from the SEC or
its staff with respect to the Schedule 14D-9 promptly after receipt of any
such comments.
(e) Stockholder List. In connection with the Exchange Offer, the Company
shall cause the Company's transfer agent to furnish Acquiror promptly with
mailing labels containing the names and addresses of all record holders of
shares of Capital Stock and with security position listings of shares of
Capital Stock held in stock depositories, each as of a recent date, together
with all other available listings
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and computer files containing names, addresses and security position listings
of record holders and beneficial owners of shares of Capital Stock. The
Company shall furnish Acquiror with such additional information, including,
without limitation, updated listings and files of stockholders, mailing
labels and security position listings and such other assistance as Acquiror
or its agents may reasonably request in communicating the Exchange Offer to
record and beneficial holders of shares of Capital Stock. Subject to the
requirements of the Securities Act, the Exchange Act, the NYSE, the NASD and
any other applicable laws, rules or regulations, and except for such steps as
are necessary to disseminate the Exchange Offer Documents and any other
documents necessary to consummate the transactions contemplated by this
Agreement, Acquiror shall hold in confidence the information contained in
such labels, listings and files, shall use such information only in
connection with the transactions contemplated by this Agreement, and, if this
Agreement shall be terminated in accordance with Section 11, shall deliver to
the Company all copies of, and any extracts or summaries from, such
information then in their possession or control.
(f) Cooperation. In connection with the Exchange Offer, the Company will
furnish Acquiror with such information (which will be treated and held in
confidence by Acquiror except to the extent required to be disclosed pursuant
to the Exchange Offer or this Agreement) and assistance as Acquiror or its
representatives may reasonably request in connection with the preparation of
the Exchange Offer and communicating the Exchange Offer to the record and
beneficial holders of shares of Capital Stock.
(g) Subsequent Merger. In the event that the Requisite Consents are
obtained following commencement of the Exchange Offer, Acquiror will continue
with the Exchange Offer pursuant to this Section and promptly following
consummation of the Exchange Offer Acquiror will cause the Merger to occur,
with the Exchange Ratio equal to the exchange ratio applicable to the
Exchange Offer. Acquiror will make all requisite filings in connection with
the Merger, including the preparation and distribution of a registration
statement and any required information statement. If the Requisite Consents
are obtained after the Solicitation Termination Date but prior to the time
the Exchange Offer is commenced, Acquiror shall either proceed as set forth
in this paragraph or abandon the Exchange Offer and (by written notice to the
Company) restore the obligations of the parties with respect to the Merger,
fully as though the Requisite Consents had been obtained prior to
commencement of the Exchange Offer.
SECTION 7.16. CONTROL OF ACQUIROR AND THE COMPANY.
During the Interim Period, control of the operations of the Company and
the Company's Subsidiaries shall remain with the Company and control of
Acquiror and Acquiror Subsidiaries shall remain with Acquiror. Acquiror
agrees that neither it nor any of Acquiror's Subsidiaries shall control,
direct, supervise, or attempt to control, direct or supervise, the operations
of the Company during this period. Likewise, the parties agree that neither
the Company nor any of the Company's Subsidiaries shall control, direct,
supervise, or attempt to control, direct or supervise Acquiror during the
Interim Period. Notwithstanding anything in this Agreement to the contrary,
no action shall be taken hereunder constituting an assignment or transfer of
control of an FCC license, permit, authorization or application requiring the
prior consent or approval of the FCC without first obtaining such consent or
approval.
SECTION 7.17. PRIVATE LETTER RULING.
As promptly as practicable, Acquiror and the Company shall jointly seek
(including through the filing of an appropriate request) a private letter
ruling from the Internal Revenue Service under Section 367(a) of the Code
that the Merger will be respected for purposes of Section 367(a) as a
tax-free reorganization under Section 368(a) of the Code (the "Private Letter
Ruling"). Acquiror agrees to use commercially reasonable efforts to satisfy
any requirements identified by the Internal Revenue Service as a condition to
receipt of such Private Letter Ruling. Following receipt (or internal
assurances of receipt by the staff of the Internal Revenue Service, as
notified to Acquiror in writing by one or more of the representatives of
Acquiror or the Company assisting in the seeking of the Private Letter
Ruling) of such Private Letter Ruling, Acquiror shall not, and shall not
permit Merger Sub or any Acquiror Subsidiaries to, intentionally take, fail
to take, or cause to be taken or not taken any action within its control that
(without regard to any action taken or agreed to be taken by the Company or
any of its affiliates) would disqualify the
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<PAGE>
Merger as a "reorganization" within the meaning of Section 368(a) of the
Code. Nothing contained in this Section 7.17 shall be construed to require
Acquiror to incur substantial tax detriments or substantial direct expenses.
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.1. CONDITIONS TO OBLIGATIONS OF ACQUIROR, MERGER SUB AND THE
COMPANY TO EFFECT THE MERGER.
The respective obligations of Acquiror, Merger Sub and the Company to
effect the Merger and the other transactions contemplated herein shall be
subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in whole or in part,
to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company
in accordance with applicable law.
(b) Effectiveness of Registration Statement. The Proxy Registration
Statement (or the Exchange Registration Statement as applicable) shall have
been declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of such registration statement shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated or, to the knowledge of Acquiror, the Company or the Stockholders,
threatened by the SEC.
(c) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in
any case which is in effect and which prevents or prohibits consummation of
the Merger or any other transactions contemplated in this Agreement;
provided, however, that the parties shall use their reasonable best efforts
to cause any such decree, judgment, injunction or other order to be vacated
or lifted.
(d) Stock Merger Listing. The Acquiror Shares issuable pursuant to this
Agreement shall have been included for listing on the NYSE upon official
notice of issuance.
(e) HSR Act. Any waiting period with any extensions thereof under the HSR
Act shall have expired or been terminated.
SECTION 8.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB.
The obligations of Acquiror and Merger Sub to effect the Merger and the
other transactions contemplated in this Agreement (except the Principal
Stockholder Agreement) are also subject to the following conditions, any or
all of which may be waived by Acquiror, in whole or in part, to the extent
permitted by applicable law:
(a) Representations and Warranties. The representations and warranties of
the Company made in this Agreement shall be true and correct when made and on
and as of the Effective Time with the same effect as though such
representations and warranties had been made on and as of the Effective Time
(except for representations and warranties that speak as of a specific date
or time, which need only be true and correct as of such date or time), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Company Material Adverse Effect" set forth therein) does not have a Company
Material Adverse Effect. Acquiror shall have received a certificate of the
Chief Executive Officer or Chief Financial Officer of the Company to that
effect.
(b) Agreements and Covenants. The agreements and covenants of the Company
required to be performed on or before the Effective Time shall have been
performed in all material respects. Acquiror shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
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(c) FCC Approval. The FCC shall have granted by Final Order the FCC
Application, without conditions, qualifications or other restrictions that
are likely to have an Acquiror Material Adverse Effect or a Company Material
Adverse Effect immediately after the Closing Date. As used in this Agreement,
the term "Final Order" means an order, action or decision of a Governmental
Entity that has not been reversed, stayed or enjoined and as to which the
time to appeal, petition for certiorari or seek reargument or rehearing or
administrative reconsideration or review has expired and as to which no
appeal, reargument, petition for certiorari or rehearing or petition for
reconsideration or application for review is pending or as to which any right
to appeal, reargue, petition for certiorari or rehearing or reconsideration
or review has been waived in writing by each party having such a right or, if
any appeal, reargument, petition for certiorari or rehearing or
reconsideration or review thereof has been sought, the order or judgment of
the court or agency has been affirmed by the highest court (or the
administrative entity or body) to which the order was appealed or from which
the argument or rehearing or reconsideration or review was sought, or
certiorari has been denied, and the time to take any further appeal or to
seek certiorari or further reargument or rehearing, or reconsideration or
review, has expired.
(d) Other Satellite Approvals. Each Governmental Entity other than the FCC
that has issued to the Company or any of the Company Subsidiaries (i) any
Company Permit with respect to the operation of or transmission to or from a
Company Satellite or a Company Ground Station that communicates with a
Company Satellite, or (ii) any Company Permit with respect to the provision
of broadcasting or communications services shall have, where required by
applicable law, approved the transfer of control or assignment, as
applicable, of all such Company Permits as a result of the Merger without any
material qualifications, restrictions or limitations and such approval shall
have become a Final Order, except where the failure to obtain such approvals
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(e) Other Approvals. All consents, waivers, approvals and authorizations
required to be obtained, and all filings or notices required to be made, by
the Company and the stockholders prior to consummation of the transactions
contemplated in this Agreement shall have been obtained from and made with
all required Governmental Entities, other than those that the failure to be
filed, expired or obtained would not have a Company Material Adverse Effect.
(f) Requisite Consents. Subject to waiver pursuant to Section 7.14(b), the
Requisite Consents shall have been obtained.
SECTION 8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and the other
transactions contemplated in this Agreement (except the Principal Stockholder
Agreement) are also subject to the following conditions any or all of which
may be waived by the Company, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Merger Sub made in this Agreement shall be true and correct when
made and on and as of the Effective Time with the same effect as though such
representations and warranties had been made on and as of the Effective Time
(except for representations and warranties that speak as of a specific date
or time, which need only be true and correct as of such date or time), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Acquiror Material Adverse Effect" set forth therein) does not have an
Acquiror Material Adverse Effect. The Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Acquiror to that effect.
(b) Agreements and Covenants. The agreements and covenants of Acquiror and
Merger Sub required to be performed on or before the Effective Time shall
have been performed in all material respects. The Company shall have received
a certificate of the Chief Executive Officer or Chief Financial Officer of
Acquiror to that effect.
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(c) FCC Approval. The FCC shall have granted by Final Order the FCC
Application, without conditions, qualifications or other restrictions that
are likely to have an Acquiror Material Adverse Effect or a Company Material
Adverse Effect immediately after the Closing Date.
(d) Other Approvals. All consents, waivers, approvals and authorizations
required to be obtained, and all filings or notices required to be made, by
Acquiror prior to consummation of the transactions contemplated in this
Agreement shall have been obtained from and made with all required
Governmental Entities, other than those that the failure to be filed, expired
or obtained would not have an Acquiror Material Adverse Effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. TERMINATION.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement and the Merger by the
stockholders of the Company:
(a) by mutual written consent of each of Acquiror and the Company;
(b) by either the Company or Acquiror if the other shall have breached, or
failed to comply with, any of its obligations under this Agreement or any
representation or warranty made by such other party shall have been incorrect
when made or shall have since ceased to be true and correct in any material
respect, and such breach, failure or misrepresentation is not cured within
thirty (30) days after notice thereof and such breach, failure or
misrepresentation, results or would reasonably be expected to result in a
Company Material Adverse Effect or an Acquiror Material Adverse Effect;
(c) by either Acquiror or the Company if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
Governmental Entity preventing or prohibiting consummation of the Merger
shall have become final and nonappealable;
(d) by either Acquiror or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of
the Company at the Stockholders' Meeting;
(e) by either the Company or Acquiror if the merger shall not have been
consummated before June 30, 1998 (the "Termination Date"); provided, however,
that the right to terminate this Agreement under this Section 9.1(e) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date.
(f) by Acquiror if the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified its approval or recommendation of
the Merger or this Agreement in any manner adverse to Acquiror, or approved
or recommended any Acquisition Proposal (other than the Merger), or shall
have resolved to take any of the foregoing actions (provided that a
termination pursuant to this provision will be subject to Section 9.3
hereof); and
(g) by the Company if the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified its approval or
recommendation of the Merger or this Agreement in any manner adverse to
Acquiror, or approved or recommended any Acquisition Proposal (other than the
Merger); provided, however, that the Company has complied with all provisions
of Section 7.10(b), including the notice provisions therein, and the
requirements of Section 9.3 hereof (provided that the termination described
in this clause (g) shall not be effective unless and until the Company shall
have paid to Acquiror the fee described in Section 9.3 hereof).
SECTION 9.2. EFFECT OF TERMINATION.
Except as provided in Section 9.3 or Section 10.1, in the event of the
termination of this Agreement pursuant to Section 9.1, this Agreement shall
forthwith become void, there shall be no liability on the part
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of Acquiror, Merger Sub or the Company or any of their respective officers or
directors to the other parties hereto and all rights and obligations of any
party hereto shall cease, except (i) to the extent that such termination
results from the willful or reckless breach by any party hereto of any of its
representations or warranties, or of any of its covenants or agreements, in
each case, as set forth in this Agreement, (ii) that nothing herein shall
relieve any party for any breach of this Agreement and (iii) that Sections
7.2 (Confidentiality) and 9.3 (Expenses) shall survive termination of this
Agreement indefinitely.
SECTION 9.3. EXPENSES.
(a) The Company shall pay to Acquiror (the "Company Termination Fee") by
wire transfer the amount of Twenty Million Dollars ($20,000,000) if:
(i) the Company terminates this Agreement pursuant to Section 9.1(g), in
which case, the Company Termination Fee must be paid simultaneously with
such termination;
(ii) Acquiror terminates this Agreement pursuant to Section 9.1(f), in
which case, the Company Termination Fee must be paid no later than three
business days after the termination of this Agreement; or
(iii) (A) Acquiror or the Company terminates this Agreement pursuant to
Section 9.1(d), (B) the approval of this Agreement by the stockholders of
the Company shall have not been obtained by reason of the failure to
obtain the required vote at the Stockholders' Meeting (a "Company Negative
Vote"), (C) at the time of such Company Negative Vote there shall be
pending an Acquisition Proposal, and (D) within one year after such
termination, the Company consummates either (1) a merger, consolidation or
other business combination between the Company and any other person (other
than Acquiror, Merger Sub or an affiliate of Acquiror) or (2) the sale of
30% or more (in voting power) of the voting securities of the Company or
of 30% or more (in fair market value) of the assets of the Company and its
Subsidiaries, on a consolidated basis, in which case, the Company
Termination Fee must be paid simultaneously with the closing of the event
described in clause (1) or (2) of this subparagraph.
(b) Except as set forth above and in Sections 7.4, 7.5 and 9.2, all fees
and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated.
SECTION 9.4. AMENDMENT.
This Agreement may be amended by the parties hereto by action taken by or
on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of this Agreement and
the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Capital Stock shall be converted pursuant to this Agreement upon
consummation of the Merger or which by law otherwise requires the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 9.5. WAIVER.
At any time prior to the Effective Time, each party may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement by the other parties and (c) waive compliance by the other parties
with any of the agreements or conditions contained in this Agreement. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. No delay or failure on the part of
any party hereto in exercising any right, power or privilege under this
Agreement or under any other instrument or document given in connection with
or pursuant to this Agreement shall impair any such right, power or privilege
or be construed as a waiver of any default or any acquiescence therein. No
single or partial exercise of any such right, power or privilege shall
preclude the further exercise of such right, power or privilege, or the
exercise of any other right, power or privilege.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties and agreements in this Agreement (and in
any certificate delivered in connection with the Closing) shall be deemed to
be conditions to the Merger (or the Exchange Offer, as applicable) and shall
not survive the Effective Time (or consummation of the Exchange Offer, as
applicable) or termination of this Agreement, except for the agreements set
forth in Articles I (the Merger) and II (Conversion of Securities; Exchange
of Certificates) and Sections 7.7 (Indemnification and Insurance), 7.8
(Employee Benefits Matters) 7.9 (Further Action) and 7.15(g) (Subsequent
Merger), each of which shall survive the Effective Time (or consummation of
the Exchange Offer, as applicable) indefinitely, and Sections 7.2
(Confidentiality), 9.2 (Effect of Termination) and 9.3 (Expenses), each of
which shall survive termination of this Agreement indefinitely.
SECTION 10.2. NOTICES.
All notices and other communications given or made pursuant hereto shall
be in writing and shall be deemed to have been duly given or made as of the
date delivered, mailed or transmitted, and shall be effective upon receipt,
if delivered personally, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by like changes
of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Acquiror:
LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
New York, New York 10016
Telecopier No.: (212) 338-5350
Attention: Eric J. Zahler, Esq.
With a copy (which shall not constitute notice) to:
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopier No.: (212) 821-8111
Attention: Bruce R. Kraus, Esq.
(b) If to the Company:
ORION NETWORK SYSTEMS, INC.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
Telecopier No.: (301) 258-3300
Attention: President
With a copy (which shall not constitute notice) to:
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Anthony S. Harrington, Esq.
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<PAGE>
SECTION 10.3. CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "beneficial owner" means with respect to any shares of Capital Stock
or Acquiror Shares a person who shall be deemed to be the beneficial owner of
such shares (i) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding, (iii) which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding voting or disposing of any such shares or (iv) pursuant to
Section 13(d) of the Exchange Act and any rules or regulations promulgated
thereunder;
(c) "business day" shall mean any day other than a day on which banks in
the State of Maryland are authorized or obligated to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d) of the Exchange Act);
(f) "reasonable efforts" shall mean, as to a party hereto, an undertaking
by such party to perform or satisfy an obligation or duty or otherwise act in
a manner reasonably calculated to obtain the intended result by action or
expenditure not disproportionate or unduly burdensome in the circumstances,
which means, among other things, that such party shall not be required to (i)
expend funds other than for payment of the reasonable and customary costs and
expenses of employees, counsel, consultants, representatives or agents of
such party in connection with the performance or satisfaction of such
obligation or duty or other action or (ii) institute litigation or
arbitration as a part of its reasonable efforts.
SECTION 10.4. HEADINGS.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.5. SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
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SECTION 10.6. ENTIRE AGREEMENT.
This Agreement (together with the Exhibits, the Schedules and the other
documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer upon any
other person any rights or remedies hereunder.
SECTION 10.7. SPECIFIC PERFORMANCE.
The transactions contemplated by this Agreement are unique. Accordingly,
each of the parties acknowledges and agrees that, in addition to all other
remedies to which it may be entitled, each of the parties hereto is entitled
to a decree of specific performance, provided such party is not in material
default hereunder.
SECTION 10.8. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
SECTION 10.9. THIRD PARTY BENEFICIARIES.
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 right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement except
for (a) the Indemnified Parties under Section 7.7, and (b) the rights of the
holders of Capital Stock to receive the Merger Consideration payable in the
Merger pursuant to Article II or to receive the Exchange Consideration
payable in the Exchange Offer pursuant to Section 7.15.
SECTION 10.10. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with, the
Delaware Law, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law.
SECTION 10.11. COUNTERPARTS.
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be executed and delivered as of the date first written
above.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Eric J. Zahler
-------------------------------
Name: Eric J. Zahler
Title: Vice President, General
Counsel and Secretary
LORAL SATELLITE CORPORATION
By: /s/ Eric J. Zahler
-------------------------------
Name: Eric J. Zahler
Title: Vice President, General
Counsel and Secretary
ORION NETWORK SYSTEMS, INC.
By: /s/ W. Neil Bauer
-------------------------------
Name: W. Neil Bauer
Title: President and Chief
Executive Officer
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EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
FORM OF AFFILIATE LETTER
, 1997
Loral Space & Communications Ltd.
600 Third Avenue
New York, New York 10016
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Orion Network Systems, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"). I have been further
advised that pursuant to the terms of the Agreement and Plan of Merger dated
as of October 7, 1997 (the "Merger Agreement"), among the Company, Loral
Space & Communications Ltd., a Bermuda company ("Acquiror"), and Loral
Satellite Corporation, a Delaware corporation and wholly-owned subsidiary of
Acquiror ("Merger Sub"), Merger Sub will be merged with and into the Company
(the "Merger"), and that as a result of the Merger, I may receive Acquiror
Shares (as defined in the Merger Agreement), in exchange for shares of Common
Stock (as defined in the Merger Agreement), owned by me.
I represent, warrant and covenant to Acquiror that in the event I receive
any Acquiror Shares as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of the
Acquiror Common Stock in violation of the Act or the Rules and Regulations.
(b) I have carefully read this letter and the Merger Agreement and
discussed their respective requirements and other applicable limitations upon
my ability to sell, transfer or otherwise dispose of Acquiror Shares.
(c) I have been advised that the issuance of Acquiror Shares to me
pursuant to the Merger will be registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger will be submitted for a vote of the
stockholders of the Company, I may be deemed to have been an affiliate of the
Company and the distribution by me of Acquiror Shares has not been registered
under the Act, I may not sell, transfer or otherwise dispose of Acquiror
Shares issued to me in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the volume and other limitations
of Rule 145 promulgated by the Commission under the Act, or (iii) in
accordance with a legal opinion of counsel reasonably acceptable to Acquiror,
such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
(d) I understand that Acquiror is under no obligation to register the
sale, transfer or other disposition of Acquiror Shares by me or on my behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
(e) I also understand that stop transfer instructions will be given to
Acquiror's transfer agent with respect to Acquiror Shares and that there will
be placed on the certificates for Acquiror Shares issued to me, or any
substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been issued in a
transfer to which Rule 145 promulgated under the Securities Act of 1933
applies and may only be sold or otherwise transferred in compliance with
the requirements of Rule 145 or pursuant to a registration statement under
said act or an exemption from such registration."
(f) I also understand that unless the transfer by me of my Acquiror Shares
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Acquiror reserves the right to put the following
legend on the certificates issued to my transferee:
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"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 and
may not be sold, pledged or otherwise transferred except in accordance
with an exemption from the registration requirements of the Securities Act
of 1933."
It is understood and agreed that the legends set forth in paragraphs (e)
and (f) above shall be removed by delivery of substitute certificates without
such legend if the undersigned shall have delivered to Acquiror a copy of a
letter from the staff of the Commission, or a legal opinion of counsel in
form and substance reasonably satisfactory to Acquiror, to the effect that
such legend is not required for purposes of the Act.
Execution of this letter should not be construed as an admission by me
that I am an "affiliate" of the Company as described in the first paragraph
hereof or considered as a waiver of any rights that I may have to object to
any claim that I am such an affiliate on or after the date hereof.
I understand that pursuant to the Merger Agreement, no certificate for
Acquiror Shares shall be delivered to me in exchange for certificates
representing Common Stock until I have executed and delivered this Agreement.
Very truly yours,
By:
----------------------------------
Name:
--------------------------------
Accepted this day of
, 1997 by
LORAL SPACE & COMMUNICATIONS LTD.
By:
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Name:
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Title:
A-53
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1, dated as of February 11, 1998 (the "Amendment"), to
the AGREEMENT AND PLAN OF MERGER, dated October 7, 1997 (the "Merger
Agreement"), by and among Orion Network Systems, Inc., a Delaware corporation
("Company"), Loral Space & Communications Ltd., a Bermuda company
("Acquiror") and Loral Satellite Corporation, a Delaware corporation ("Merger
Sub").
WHEREAS, the parties have entered into the Merger Agreement;
WHEREAS, the parties to the Merger Agreement desire to amend the Merger
Agreement to provide for the exchange by an Acquiror Subsidiary of the
Company's capital stock for Acquiror Shares;
WHEREAS, pursuant to Section 9.4 of the Merger Agreement, the Merger
Agreement may be amended with the written consent of the parties thereto.
NOW THEREFORE, in consideration of the foregoing premises, it is hereby
agreed by and among, the Company, Acquiror and Merger Sub as follows:
(1) Section 2.1 (c) shall be amended to read as follows:
"Each share of capital stock of the Company owned, directly or
indirectly, by Acquiror, Merger Sub or any Acquiror Subsidiary (as
defined in Section 5.1) shall be converted into and exchanged for
the right to receive such number of fully paid and nonassessable
shares of Surviving Corporation as necessary in order to ensure
that such entity's proportionate interest in the Surviving
Corporation immediately after the Effective Time will be equal to
such entity's proportionate interest in the Company immediately
prior to the Effective Time."
(2) Unless otherwise defined herein, capitalized terms used in this
Amendment No. 1 to the Merger Agreement (including the Recitals
hereto) shall have the meanings ascribed to such terms in the
Merger Agreement.
(3) This Amendment may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed and delivered as of the date written above.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Avi Katz
-----------------------------------
Name: Avi Katz
Title: Vice President
LORAL SATELLITE CORPORATION
By: /s/ Avi Katz
-----------------------------------
Name: Avi Katz
Title: Vice President
ORION NETWORK SYSTEMS, INC.
By: /s/ David J. Frear
-----------------------------------
Name: David J. Frear
Title: Senior Vice President
A-54
<PAGE>
ATTACHMENT B
AMENDED AND RESTATED PRINCIPAL STOCKHOLDER AGREEMENT
THIS AMENDED AND RESTATED PRINCIPAL STOCKHOLDER AGREEMENT, dated as of
December 1, 1997 (this "Agreement") among LORAL SPACE & COMMUNICATIONS LTD.,
a Bermuda company ("Acquiror"), LORAL SATELLITE CORPORATION, a Delaware
corporation, a wholly owned subsidiary of Acquiror ("Sub"), ORION NETWORK
SYSTEMS, INC., a Delaware corporation ("Company"), and each other person and
entity listed on the signature pages hereof (each, a "Stockholder").
WHEREAS, as of the date hereof, each Stockholder holds of record or
beneficially owns the number of shares of common stock, $.01 par value (the
"Common Stock") of the Company set forth opposite such Stockholder's name on
Exhibit A;
WHEREAS, as of the date hereof, certain Stockholders also hold of record
or beneficially own the number of shares of the Company's Series A 8%
Cumulative Redeemable Convertible Preferred Stock ("Series A Shares"), Series
B 8% Cumulative Redeemable Convertible Preferred Stock ("Series B Shares"),
and/or Series C 6% Cumulative Redeemable Convertible Preferred Stock ("Series
C Shares, and together with the Series A Shares and Series B Shares, the
"Preferred Stock"), set forth opposite such Stockholder's name on Exhibit A
(all such Preferred Stock, together with all shares of Common Stock currently
held and all shares of Common Stock and Preferred Stock hereafter acquired by
the Stockholders (including but not limited to shares acquired upon the
exercise of options, warrants or rights or the conversion or exchange of
convertible or exchangeable securities) being referred to herein as the
"Shares");
WHEREAS, as of the date hereof, certain Stockholders also hold the
Company's Convertible Junior Subordinated Debentures due February 1, 2012
(the "Debentures") in the principal amount set forth opposite such
Stockholder's name on Exhibit A;
WHEREAS, Acquiror, Sub and the Company have entered into an Agreement and
Plan of Merger dated as of October 7, 1997 (the "Merger Agreement";
capitalized terms used but not otherwise defined in this Agreement have the
meanings assigned to such terms in the Merger Agreement), which provides,
upon the terms and subject to the conditions set forth therein, for the
merger of Sub with and into the Company (the "Merger");
WHEREAS, as a condition to the willingness of Acquiror and Sub to enter
into the Merger Agreement and in furtherance of the acquisition of the
Company by Acquiror, Acquiror and Sub required that the Stockholders agree,
and in order to induce Acquiror and Sub to enter into the Merger Agreement,
each Stockholder entered into, severally and not jointly, a Principal
Stockholder Agreement, dated as of October 7, 1997 (the "Initial Agreement");
WHEREAS, the parties hereto desire to amend and restate the Initial
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
GRANT OF OPTION AND EXERCISE; TRANSFER AND
VOTING OF SHARES; DEBENTURES
SECTION 1.1. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, each Stockholder
hereby severally and not jointly grants to Acquiror an irrevocable option
(the "Option") to purchase all (but not less than all) of such Stockholder's
Shares held on the date of option exercise (and to require the conversion of
all (but not less than all) of such Stockholder's Debentures into Shares
immediately prior to the Closing (defined
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in Section 1.3 below) hereunder, and upon such conversion such Shares shall
be subject to the Option hereunder) for the number of fully paid and
nonassessable Acquiror Shares (as adjusted pursuant to Section 2.5 of the
Merger Agreement) equal to the number of Shares to be purchased by Acquiror
multiplied by the Exchange Ratio (calculated using the Notice Date as if it
were the "Closing Date" (as defined in the Merger Agreement) for purposes of
calculating the Determination Price), together with the associated rights
under Acquiror's Rights Agreement ("Acquiror Rights Plan") dated as of March
27, 1996 between Acquiror and The Bank of New York, as Rights Agent
(together, the "Purchase Price").
SECTION 1.2. EXERCISE OF OPTION.
(a) Provided that neither Acquiror nor Sub shall be in material breach of
their respective agreements or covenants contained in the Merger Agreement,
Acquiror may exercise the Option, in whole (but not in part) with respect to
all of the Shares of all of the Stockholders covered hereby (but not less
than all), at any time following the occurrence of any event described in
Section 1.9 (a "Purchase Event"); provided that, the Option shall terminate
and be of no further force and effect upon the earliest to occur of (i) the
Effective Time, (ii) June 30, 1998, or (iii) termination of the Merger
Agreement by Acquiror or Sub in accordance with the terms thereof.
(b) If Acquiror exercises the Option hereunder (except following
termination of the Merger Agreement by the Company) (i) neither Acquiror nor
Sub shall terminate the Merger Agreement under any circumstances except
Section 9.1(a) (with approval of the Company) and Section 9.1(c) of the
Merger Agreement, (ii) all conditions set forth in Section 8.2 and Section
8.3 (other than Section 8.2(c) and Section 8.3(c), but it is understood and
agreed that receipt of an initial FCC order shall be deemed to satisfy
Section 8.2(c) and Section 8.3(c) for this purpose) of the Merger Agreement
shall be deemed waived by each of Acquiror, Sub, and the Company,
respectively, (iii) Acquiror and Sub shall each use their reasonable best
efforts to consummate the Merger (or the Exchange Offer as applicable) as
promptly as practicable, except to the extent that (and so long as)
consummation of the Merger (or the Exchange Offer as applicable) would
violate applicable law (and if consummation of the Merger would violate
applicable law, but conducting the Exchange Offer would not violate
applicable law, Acquiror shall conduct the Exchange Offer pursuant to the
requirements of Section 7.15 (including Section 7.15(g)), except as otherwise
provided in this paragraph rather than the Merger).
(c) If following the exercise of the Option there is an Acquisition
Proposal pending prior to consummation of the Merger or the Exchange Offer,
and such Acquisition Proposal includes a per Share price higher than the per
Share consideration to be paid in the Merger or the Exchange Offer as
applicable (a "Topping Bid"), Acquiror shall have the right to tender the
Shares purchased under the Option into the Topping Bid or otherwise support
the Topping Bid and realize value therefrom, and Acquiror's obligations under
the Merger Agreement (and Section 1.6 hereof) shall (if not previously
terminated) be suspended during the pendency of the Topping Bid; provided,
however, that such obligations shall cease to be suspended if the Topping Bid
ceases to be pending without a majority of the Shares having been acquired
pursuant to the Topping Bid.
SECTION 1.3. CLOSING DATE.
In the event Acquiror wishes to exercise the Option, which may only be
exercised in whole (but not in part), with respect to all of the Shares of
all of the Stockholders covered hereby it shall send to each Stockholder a
written notice (the date of which being herein referred to as the "Notice
Date") specifying a place and date not earlier than five business days nor
later than 20 Business Days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if the closing of the purchase
and sale pursuant to the Option (the "Closing") cannot be consummated by
reason of any applicable judgment, decree, order, law or regulation, Acquiror
shall use its commercially reasonable efforts to resolve such matters and
close as promptly as practicable. Without limiting the foregoing, if prior
notification to or approval of any regulatory authority is required in
connection with such purchase, Acquiror and, if applicable, a Stockholder
shall promptly file the required notice or application for approval and shall
expeditiously process the same (and such Stockholder shall cooperate with
Acquiror in the filing of any such notice or application and the obtaining of
any such approval).
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SECTION 1.4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) Subject to the terms and conditions of this Agreement, in reliance on
the representations, warranties and covenants of each Stockholder contained
herein and in full payment for the Shares, at the Closing, Acquiror will
deliver, or cause to be delivered, to each Stockholder, certificates
representing the Acquiror Shares to be paid pursuant to Section 1.1 duly
issued to each Stockholder, together with any necessary stock transfer stamps
properly affixed. Subject to the terms and conditions in this Agreement, in
reliance on the representations, warranties and covenants of the Acquiror
contained herein and in the Merger Agreement, at the Closing, the
Stockholders shall deliver to Acquiror certificates representing the Shares
sold by the Stockholders to Acquiror at the Closing, duly endorsed in blank
or accompanied by stock powers duly executed by the Stockholders in blank, in
proper form for transfer.
(b) No certificates or scrip representing less than one share of Acquiror
Shares shall be issued upon the exercise of the Option. In lieu of any such
fractional share, each Stockholder who would otherwise have been entitled to
a fraction of a share of Acquiror Shares upon exercise of the Option shall be
paid at the Closing cash (without interest) in an amount equal to such
Stockholder's fractional part of a share of Acquiror Shares multiplied by the
last reported sale price of Acquiror Shares, as reported on the NYSE, on the
Closing Date.
SECTION 1.5. LEGENDS.
(a) Each Stockholder shall instruct the Company to cause each certificate
of any Stockholder evidencing the Shares to bear a legend in the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS OF THE PRINCIPAL STOCKHOLDER AGREEMENT DATED AS OF OCTOBER
7, 1997 AS IT MAY BE AMENDED, AMONG LORAL SPACE & COMMUNICATIONS LTD.,
LORAL SATELLITE CORPORATION, ORION NETWORK SYSTEMS, INC. ("ISSUER") AND
THE REGISTERED HOLDER OF THIS CERTIFICATE, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
(b) In the event that the Shares shall cease to be subject to the
restrictions on transfer set forth in this Agreement, the Company shall, upon
the written request of the holder thereof, issue to such holder a new
certificate evidencing such Shares without the legend required by Section
1.5(a).
SECTION 1.6. VOTING AGREEMENT; AGREEMENT TO TENDER.
(a) Each Stockholder and Acquiror hereby severally and not jointly agrees
that from the date hereof to the earlier to occur of the termination of the
Merger Agreement or the Effective Time, at any meeting of the stockholders of
the Company, however called, and in any action by consent of the stockholders
of the company, such Stockholder and Acquiror shall vote the Shares: (i) in
favor of the Merger, the Merger Agreement (as amended from time to time) and
the transactions contemplated by the Merger Agreement (collectively, the
"subject transactions"), (ii) against any proposal for any recapitalization,
merger (other than the Merger), sale of assets or other business combination
between the Company and any person or entity (other than Acquiror or Sub) or
any other action or agreement that would result in a breach of any covenant
or any other obligation or agreement of the Company under the Merger
Agreement or which would result in any of the conditions to the Merger
Agreement not being fulfilled and (iii) against the following actions (other
than pursuant to the terms of this Agreement or the Merger Agreement): (A)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of it Subsidiaries;
(B) any sale, lease or transfer by the Company of a material amount of assets
(including stock) of the Company or any of its Subsidiaries; or a
reorganization, restructuring, recapitalization, special dividend,
dissolution or liquidation of the Company or any of its Subsidiaries; or
(C)(1) any change in a majority of the persons who constitute the board of
directors of the Company or any of its Subsidiaries; (2) any change in the
present capitalization of the Company or any of its Subsidiaries including
any proposal to sell a substantial equity interest in the Company or any
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<PAGE>
of its Subsidiaries; (3) any amendment to the Company or any of its
Subsidiaries' charters or By-laws; (4) any other change in the Company or any
of its Subsidiaries' corporate structure or business; or (5) any other action
which, in the case of each of the matters referred to in clauses (C)(1), (2),
(3) or (4), is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially adversely affect the Merger
and the transactions contemplated by this Agreement.
(b) Each Stockholder and Acquiror severally and not jointly agrees that it
shall not enter into any agreement or understanding the effect of which would
be inconsistent with or violative of the provisions and agreements contained
herein, including in this Section 1.6. Further, each Stockholder and Acquiror
severally and not jointly agrees that it will, if the Board of Directors of
the Company fails or refuses (other than as a result of breach by Acquiror or
any of its Affiliates of the Merger Agreement or because the Acquiror and its
Affiliates will not or cannot satisfy the conditions precedent thereto) to
submit the subject transactions to the Company's stockholders, vote all
Shares held of record or beneficially owned by it to (i) call or cause to be
called a special meeting of stockholders of the Company (or effect a written
consent) to remove the directors of the Company who have so failed or
refused, or to increase the size of the Board of Directors and elect a
majority of new directors who will submit the subject transactions to the
stockholders of the Company for a vote, and (ii) use its reasonable efforts
to effect such removal and replacement, or increase and election, and the
submission of the subject transactions to the stockholders of the Company;
and (iii) at any time after initial approval by the stockholders of the
Company of the subject transactions, if so requested by Acquiror, to approve
all or any actions incident to the subject transactions or the other matters
referred to in this Section 1.6 by stockholder written consent.
(c) If there is an Exchange Offer pursuant to Section 7.15 of the Merger
Agreement, each Stockholder agrees to tender such Stockholder's Shares into
the Exchange Offer (including all Shares issusable upon conversion of the
Debentures; provided, however, that actual conversion need not be effected
until consummation of the Exchange Offer).
SECTION 1.7. NO DISPOSITION OR ENCUMBRANCE OF SHARES AND OPTIONS.
Except to the extent set forth in Exhibit B, each Stockholder hereby
severally and not jointly covenants and agrees that, from the date hereof to
the termination of the rights of Acquiror under this Agreement, it shall not,
and shall not offer or agree to, sell, transfer, tender, assign, hypothecate
or otherwise dispose of, or create or permit to exist any Encumbrance (as
hereinafter defined) on the Shares owned by such Stockholder at any time
prior to the Effective Time.
SECTION 1.8. VOTING OF SHARES; FURTHER ASSURANCES.
(a) Each Stockholder, by this Agreement, with respect to its Shares, does
hereby constitute and appoint Sub and Acquiror, or any nominee of Sub and
Acquiror, with full power of substitution, from the date hereof to the
earlier to occur of the termination of the Merger Agreement or the Effective
Time, as its true and lawful attorney and proxy (its "Proxy"), for and in its
name, place and stead, to vote each of such Shares as its Proxy, at every
annual, special or adjourned meeting of the stockholders of the Company,
including the right to sign its name (as stockholder) to any consent,
certificate or other document relating to the Company that the law of the
State of Delaware may permit or require:
(i) in favor of the Merger, the Merger Agreement (as amended from time to
time) and the transactions contemplated by the Merger Agreement;
(ii) against any Acquisition Proposal for any recapitalization, merger
(other than the Merger), sale of assets or other business combination
between the Company and any person or entity (other than Acquiror or Sub)
or any other action or agreement that would result in a breach of any
covenant or any other obligation or agreement of the Company under the
Merger Agreement or which could result in any of the conditions to the
Merger Agreement not being fulfilled; and
(iii) against (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company
or any of its Subsidiaries, (B) any sale, lease, or
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transfer by the Company of a material amount of assets (including stock)
of the Company or any of its Subsidiaries, or a reorganization,
restructuring, recapitalization, special dividend, dissolution or
liquidation of the Company or any of its Subsidiaries; or (C) (1) any
change in a majority of the persons who constitute the board of directors
of the Company or any of its Subsidiaries; (2) any change in the present
capitalization of the Company or any of its Subsidiaries including any
proposal to sell a substantial equity interest in the Company or any of
its Subsidiaries; any amendment of the Company or any of its Subsidiaries'
charters or By-laws; (4) any other change in the Company or any of its
Subsidiaries' corporate structure or business; or (5) any other action
which, in the case of each of the matters referred to in clauses (C)(1),
(2), (3) or (4), is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially adversely affect the Merger
and the transactions contemplated by this Agreement.
THIS POWER OF ATTORNEY IS IRREVOCABLE, IS GRANTED IN CONSIDERATION OF
ACQUIROR AND SUB ENTERING INTO THE MERGER AGREEMENT AND IS COUPLED WITH AN
INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER. This appointment
shall revoke all prior attorneys and proxies appointed by any Stockholder at
any time with respect to the Shares and no subsequent attorneys or proxies
will be appointed by such Stockholder, or be effective, with respect thereto
during the term of this Agreement.
(e) Each Stockholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in
Sub and Acquiror the power to carry out and give effect to the provisions of
this Agreement.
(f) Nothing contained in this Section 1.8 shall be construed to invalidate
any action taken by a Stockholder in accordance with Section 1.8.
SECTION 1.9. PURCHASE EVENTS.
Acquiror may exercise the Option only if one or more of the following
events has occurred:
(a) the Board of Directors of the Company or any committee thereof shall
have withdrawn or modified its approval or recommendation of the Merger or
the Merger Agreement in any manner adverse to Acquiror, or approved or
recommended any Acquisition Proposal (as defined in the Merger Agreement), or
shall have adopted a resolution to take any of the foregoing actions;
(b) (i) the approval of the Merger Agreement by the stockholders of the
Company shall have not been obtained by reason of the failure to obtain the
required vote at the Stockholders' Meeting (as defined in the Merger
Agreement) and (ii) at the time of such negative vote there shall be pending
an Acquisition Proposal (as defined in the Merger Agreement);
(c) the Company or any of its Subsidiaries shall have entered into any
agreement with any person (other than Acquiror or any of its affiliates), the
Board of Directors of such entity shall have approved, recommended or
resolved to enter into an agreement with any person, or the Company shall
have publicly announced its intention to take any of the foregoing actions,
with respect to the sale of 20% or more (in voting power) of the voting
securities of the Company or of 20% or more (in fair market value) of the
assets of the Company and its Subsidiaries, on a consolidated basis, however
such transaction may be effected; or
(d) any person (other than Acquiror or any of its affiliates), shall have
commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to a tender or exchange offer for securities
representing 35% or more of the voting power of the Company; or the
acquisition, by any person or group (as defined in Section 13(d) of the
Exchange Act), other than Acquiror or any of its affiliates, of beneficial
ownership of (as defined in the Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership of, securities representing 35% or more
of the voting power of the Company;
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provided that no event set forth in this Section 1.9 shall be deemed to
occur solely by reason of any agreement, or any action that is taken, or of
any event that occurs, for which Acquiror has given its prior written
consent. As used in this Agreement, "person" shall have the meaning specified
in Section 13(d)(3) of the Exchange Act.
SECTION 1.10. CONVERTIBLE DEBENTURES.
Each Stockholder that holds Debentures agrees that all Debentures held by
such Stockholder shall be converted into shares of Common Stock (together
with any shares of Common Stock representing accrued but unpaid interest on
the Debentures) in accordance with Section 15.1 of the Debenture Purchase
Agreement, dated as of January 13, 1997, as amended as of January 31, 1997,
among the Company, British Aerospace Holdings, Inc. ("BAe") and Matra Marconi
Space UK Limited (the "Debenture Agreement") relating thereto immediately
prior to the Effective Time (except if converted prior to such date), and at
such time, converted into the right to receive in the Merger Acquiror Shares
in accordance with the terms of the Merger Agreement. In consideration for
the foregoing, such Stockholder waives its rights under Section 11.3 of the
Debenture Agreement with respect to the consummation of the Merger.
SECTION 1.11. CONTROL SHARES.
The Company hereby waives its rights under Article ELEVENTH, Section H, of
its Restated Certificate of Incorporation with respect to all Shares acquired
pursuant to exercise of the Option, and hereby agrees, promptly following any
such exercise, to exchange for such Shares an equal number of duly
authorized, but unissued Shares, which upon issuance will be validly issued,
fully paid and nonassessable Shares, and which will not be "control shares"
within the meaning of such Article ELEVENTH.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and
warrants to Acquiror as follows:
SECTION 2.1. DUE ORGANIZATION, AUTHORIZATION, ETC.
Such Stockholder (if it is a corporation, partnership or other legal
entity) is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. Such
Stockholder has all requisite power (corporate or otherwise) to execute and
deliver this Agreement, to grant the Option and to consummate the transaction
contemplated hereby. The execution and delivery of this Agreement, the
appointment of Acquiror and Sub as such Stockholder's Proxy, the granting of
the Option and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action (corporate or otherwise) on the
part of such Stockholder. This Agreement has been duly executed and delivered
by or on behalf of such Stockholder and, assuming its due authorization,
execution and delivery by Acquiror, constitutes a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
SECTION 2.2. NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, (i)
conflict with or violate the Certificate of Incorporation by By-Laws or other
similar organizational documents of such Stockholder (in the case of a
Stockholder that is a corporation, partnership or other legal entity), (ii)
conflict with or violate any statute, law, ordinance, rule, regulation,
order, decree or judgment applicable to such Stockholder or by which it or
any of its properties is bound or affected, or (iii) result in any breach of
or constitute a default (with or without notice or lapse of time, or both)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance on any
of the property or assets of such Stockholder or (if such Stockholder is a
corporation, partnership or other
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legal entity) any of its subsidiaries, including, without limitation, the
Shares, pursuant to, any indenture or other loan document provision or other
contract, license, franchise, permit or other instrument or obligation to
which such Stockholder is a party or by which such Stockholder or any of its
properties is bound or affected, except, in the case of clauses (ii) and
(iii), for any such breaches, defaults or other occurrences that would not
prevent the performance by such Stockholder of its obligations under this
Agreement.
(b) The execution and delivery of this Agreement by such Stockholder do
not, and the performance of this agreement by such Stockholder will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent the performance by the Stockholder of its obligations under this
Agreement.
SECTION 2.3. TITLE TO SHARES.
Such Stockholder has, and the transfer by the Stockholder of the Shares
hereunder will pass, good and marketable title to the Shares listed on
Exhibit A hereto, free and clear of any pledge, lien, security interest,
mortgage, charge, claim, equity, option, proxy, voting restriction, right of
first refusal, limitation on disposition, adverse claim of ownership or use
or encumbrance of any kind ("Encumbrances"), except to the extent disclosed
on Exhibit B and for Shares sold prior to the Closing as permitted under
Section 1.8.
SECTION 2.4. NO BROKERS.
Except as contemplated in the Merger Agreement, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this
Agreement.
SECTION 2.5. INVESTMENT INTENT, ETC.
Each Stockholder is acquiring the Acquiror Shares, together with the
associated rights, to be received in the Merger or pursuant to the exercise
of the Option, for its own account for investment and not with a view towards
the resale, transfer or distribution thereof, nor with any present intention
of distributing the Acquiror Shares. Each Stockholder is an "accredited
investor" within the meaning of Regulation D promulgated under the Act. Each
Stockholder has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in Acquiror and is able to bear the economic risk of such
investment for an indefinite period of time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
SECTION 3.1. AUTHORITY RELATIVE TO THE AGREEMENT.
(a) Acquiror has the corporate power to execute and deliver this Agreement
and to carry out its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Acquiror's Board of Directors. The Agreement
constitutes a valid and binding obligation of Acquiror, enforceable against
Acquiror in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. No other corporate
proceedings on the part of Acquiror are necessary to authorize the execution
and delivery by Acquiror of this Agreement or the consummation of the
transactions contemplated hereby.
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(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, does not and will not result in the
change in conversion ratios, conversion rights or voting rights, or the
breach, violation, default (with or without notice or lapse of time, or
both), termination, cancellation or acceleration of any obligation, or the
loss of a material benefit, under (i) the Acquiror's Memorandum of
Association or bye-laws or (ii) any indenture or other loan document
provision or other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to Acquiror or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clause (ii) only,
(A) any breaches, violations, defaults, terminations, cancellations,
accelerations or losses which, either singly or in the aggregate, will not
have a Acquiror Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby.
SECTION 3.2. REPRESENTATIONS IN MERGER AGREEMENT.
Acquiror represents and warrants to each Stockholder that the
representations and warranties set forth in Article V of the Merger Agreement
were (or will be) true and correct when made and on and as of the date of any
action taken by Acquiror hereunder (including without limitation exercise of
the Option) with the same effect as though such representations and
warranties had been made on and as of such date (except for representations
and warranties that speak as of a specific date or time, which need only be
true and correct as of such date or time), except where the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "Acquiror Material Adverse
Effect" set forth therein) does not have an Acquiror Material Adverse Effect,
and such representations and warranties shall be deemed incorporated herein;
provided, however, that incorporated representations and warranties which
relate to the Merger Agreement shall be deemed for purposes of this Section
to have been modified to relate only to this Agreement.
ARTICLE IV
DISTRIBUTIONS; ADJUSTMENT UPON
CHANGES IN CAPITALIZATION
(a) Any dividends or other distributions (whether payable in cash, stock
or otherwise) by the Company with respect to any Shares purchased hereunder
with a record date on or after the Closing Date will belong to Acquiror. If
any such dividend or distribution belonging to Acquiror is paid by the
Company to the Stockholder, the Stockholder shall hold such dividend or
distribution in trust for the benefit of Acquiror and shall promptly remit
such dividend or distribution to Acquiror in exactly the form received,
accompanied by appropriate instruments of transfer. If on or after the date
of this Agreement there shall occur any stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by the Company, as a
result of which shares of any class of stock, other securities, cash or other
property shall be issued in respect of any Shares or if any Shares shall be
changed into the same or another class of stock or other securities, then,
upon exercise of the Option, Acquiror shall receive for the aggregate price
payable upon exercise of the Option with respect to the Shares, all such
shares of stock, other securities, cash or other property issued, delivered
or received with respect to such Shares (or if the Option shall not be
exercised, appropriate adjustment shall be made for purposes of the
calculations set forth in this Agreement).
(b) Any dividends or other distributions (whether payable in cash, stock
or otherwise) by Acquiror with respect to any Acquiror Shares issued
hereunder with a record date on or after the Closing Date will belong to the
Stockholder to which such Acquiror Shares were issued. If on or after the
date of this Agreement there shall occur any stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by Acquiror, as a result
of which shares of any class of stock, other securities, cash or other
property shall be issued in respect of any Acquiror Shares or if any Acquiror
Shares shall be changed into the same or another class of stock or other
securities, then, upon exercise of the Option, each Stockholder shall receive
for the aggregate price payable to such Stockholder upon exercise of the
Option, all such shares of stock, other securities,
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<PAGE>
cash or other property issued, delivered or received with respect to the
Acquiror Shares to be delivered to such Stockholder (or if the Option shall
not be exercised, appropriate adjustment shall be made for purposes of the
calculations set forth in this Agreement).
ARTICLE V
NO SOLICITATION OF TRANSACTIONS
Each Stockholder severally and not jointly covenants and agrees that in
its capacity as a stockholder of the Company it shall not, through any
officer, director, employee, representative, agent or direct or indirect
stockholder of the Company or any Company Subsidiary, directly or indirectly,
take any action to (i) encourage, initiate or solicit the submission of any
proposal that constitutes an Acquisition Proposal, (ii) enter into any
agreement with respect to or accept any Acquisition Proposal or (iii)
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, an Acquisition Proposal. The
Stockholder shall promptly notify Acquiror in writing of any request for
information or Acquisition Proposal, specifying reasonable details of any
inquiry or Acquisition Proposal, and shall keep Acquiror informed as to the
status of any such discussions or negotiations. Each Stockholder severally
and not jointly further agrees to use its best efforts as a stockholder to
cause the Company not to, directly or indirectly, solicit, initiate, seek, or
encourage (including by way of furnishing information or assistance), or take
other action to facilitate, any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to, an Acquisition
Proposal.
ARTICLE VI
COVENANTS OF THE STOCKHOLDERS
SECTION 6.1. NEGATIVE COVENANTS.
Each Stockholder agrees, until the Option has terminated, not to:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter into
any contract, option or other arrangement with respect to the sale, transfer,
pledge, assignment or other disposition of, the Shares owned by such
Stockholder to any person other than Acquiror or Acquiror's designee and
except as contemplated in Exhibit B;
(b) acquire any additional shares of Common Stock without the prior
consent of Acquiror other than pursuant to rights under the Company Stock
Purchase Plans, options outstanding on the date of this Agreement, or Shares
issued in payment of interest on the Debentures or dividends on the Series C
Shares;
(c) deposit any Shares into a voting trust or grant a proxy or enter into
a voting agreement with respect to any Shares, except for this Agreement; or
(d) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or would result in a breach
by such Stockholder of its obligations under this Agreement or a breach by
the Company of its obligations under the Merger Agreement.
SECTION 6.2. RELIANCE; FURTHER ASSURANCES.
Each Stockholder understands and acknowledges that Acquiror and Sub are
entering into the Merger Agreement in reliance upon each Stockholder's
execution and delivery of this Agreement. If Acquiror shall exercise the
Option in accordance with the terms of this Agreement, from time to time and
without additional consideration the Stockholder will execute and deliver, or
cause to be executed and delivered, such additional or further transfers,
assignments, endorsements, consents and other instruments as Acquiror may
reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement, including the transfer of the
Shares to Acquiror and the release of any and all Encumbrances with respect
thereto.
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SECTION 6.3. TRANSFER OF ACQUIROR SHARES BY BRITISH AEROSPACE HOLDINGS, INC.
BAe and Acquiror agree to consult and cooperate with respect to the
orderly disposition of Acquiror Shares obtained by BAe. BAe agrees that for a
period of twelve months from the date it acquires the Acquiror Shares it will
not, and will cause each of its affiliates not to, sell or otherwise transfer
any Acquiror Shares other than by means of a block trade (or a series of
block trades) with an entity that qualifies as a block trade positioner (as
that term is defined and/or interpreted under the federal securities laws and
the rules and regulations promulgated thereunder) who is experienced in block
trade transactions. BAe shall consult with Acquiror prior to such sale and
seek the consent of Acquiror to such sale, which consent shall not be
unreasonably withheld, conditioned or delayed. In the event of such
withholding of consent, BAe shall have the right to revise the proposed sale,
and Acquiror shall reconsider the revised sale in accordance with the
standard of this Section. No delay in any proposed sale shall be beyond the
expiration of the twelve-month period. As an alternative to conducting block
trades, BAe shall have the right to sell all (but not less than all) of its
Acquiror Shares pursuant to an underwritten sale with an underwriter
reasonably acceptable to Acquiror. In such event, Acquiror shall modify the
registration statement filed pursuant to Section 6.5 (or file a separate
registration statement meeting the requirements of Section 6.5) to enable BAe
to effect such sale. Except as provided in the prior sentence, Acquiror shall
not be obligated to conduct a "road show" or otherwise support such sale.
SECTION 6.4. AFFILIATE AGREEMENT.
Each Stockholder acknowledges that such Stockholder may be deemed an
affiliate (as defined in Rule 12b-2 of the rules promulgated under the
Exchange Act) of the Company, Acquiror or Sub, and further acknowledges and
agrees to transfer, sell or otherwise dispose of Acquiror Shares (including
Acquiror Shares acquired upon the exercise of options, warrants or rights or
the conversion or exchange of convertible or exchangeable securities) only
(a) if such transfer, sale or disposition is registered under the Act, (b) is
in compliance with the requirements of paragraphs (c) and (d) of Rule 145
promulgated under the Act ("Rule 145") (as indicated in the restrictive
legend that will appear on the stock certificate), or (c) pursuant to another
exemption from registration under the Act for such offer and sale. Each
Stockholder agrees not to make an illegal "distribution" (within the meaning
of the Act and Rule 145) of Acquiror Shares. Acquiror shall be entitled to
place restrictive legends upon certificates for each Stockholder's Acquiror
Shares to enforce the applicable provisions of law and this Agreement and
Acquiror shall not be required to maintain the effectiveness of the Proxy
Registration Statement (or Exchange Registration Statement, as the case may
be) under the Act for the purposes of resale of Acquiror Shares by each
Stockholder.
SECTION 6.5. REGISTRATION RIGHTS.
(a) In the event that Acquiror exercises the Option, as promptly as
practicable following the closing date for the exchange offer referred to in
Section 1.2 above (but not more than 60 days following the Closing Date),
Acquiror shall (i) file a shelf registration statement covering all Acquiror
Shares for the purposes of resale of Acquiror Shares by each Stockholder and
(ii) use its reasonable best efforts to cause such shelf registration
statement to become and remain effective for the resale of all Acquiror
Shares issued pursuant to this Agreement; provided, however, that Acquiror
shall be required to include in such registration statement only those
Acquiror Shares as to which the Stockholder holding such Acquiror Shares
agrees to sell such shares in compliance with the requirements of paragraphs
(c) and (d) of Rule 145 that would have been applicable to such sale if such
Acquiror Shares had been registered under the Proxy Registration Statement
(or Exchange Registration Statement, as the case may be) rather than such
shelf registration statement.
(b) Registrations effected under this Section shall be effected at
Acquiror's expense, including the fees and expenses of one counsel to the
holders of Acquiror Shares, but excluding underwriting discounts and
commissions to brokers or dealers. In connection with each registration under
this Section, Acquiror shall indemnify and hold each holder of Acquiror
Shares whose shares are registered pursuant to such registration statement (a
"Holder of Acquiror Shares"), its underwriters and each of their respective
affiliates harmless against any and all losses, claims, damages, liabilities
and expenses (including, without
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<PAGE>
limitation, investigation expenses and fees and disbursements of counsel and
accountants), joint or several, to which such Holder of Acquiror Shares, its
underwriters and each of their respective affiliates may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in such registration statement (including any
prospectus therein), of any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, other than such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) which arise out of
are based upon an untrue statement or alleged untrue statement of a material
fact contained in written information furnished by a Holder of Acquiror
Shares to Acquiror expressly for use in such registration statement;
provided, however, that the foregoing indemnity shall not inure to the
benefit of any Holder of Acquiror Shares, its underwriters or respective
affiliates, if a copy of the prospectus was not sent or given by or on behalf
of such person to the person purchasing the Shares, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of
the Shares to such person, and if the prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
(c) In connection with any registration statement pursuant to this
Section, each Holder of Acquiror Shares agrees to furnish Acquiror with such
information concerning itself and the proposed sale or distribution as shall
reasonably be required in order to ensure compliance with the requirements of
the Securities Act. Each Holder of Acquiror Shares shall indemnify and hold
Acquiror, its underwriters and each of their respective affiliates harmless
against any and all losses, claims, damages, liabilities and expenses
(including without limitation investigation expenses and fees and
disbursements of counsel and accountants), joint or several, to which
Acquiror, its underwriters and each of their respective affiliates may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in written information furnished by
any Holder of Acquiror Shares to Acquiror expressly for use in such
registration statement. In no event shall the liability of any Holder of
Acquiror Shares or any affiliate thereof under this Section be greater in
amount than the dollar amount of the proceeds received by such Holder of
Acquiror Shares upon the sale of the Acquiror Shares giving rise to such
indemnification obligation.
(d) Upon the issuance of Acquiror Shares hereunder, Acquiror will use its
reasonable best efforts promptly to list such Acquiror Shares with the New
York Stock Exchange or on such national or other exchange on which Acquiror
Shares are at the time principally listed.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
All representations, warranties and agreements made by the parties to this
Agreement shall terminate at the Closing except for those which by their
terms are to be performed after the Closing.
SECTION 7.2. EXPENSES.
All costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
costs and expenses.
SECTION 7.3. NOTICES.
All notices or other communications under this Agreement shall be in
writing and shall be given by delivery in person, by facsimile, cable,
telegram, telex or other standard form of telecommunications, or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows (or such
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<PAGE>
other address for a party as shall be specified in a notice given in
accordance with this Section 7.3) and shall be deemed to have been given one
business day after transmission by facsimile of other standard form of
telecommunications or four days after deposit in the US mail:
If to the Company:
ORION NETWORK SYSTEMS, INC.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
Telecopier No.: (301) 258-3300
Attention: President
With a copy (which shall not constitute notice) to:
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Anthony S. Harrington, Esq.
If to a Stockholder, at the address or facsimile number of such
Stockholder set forth on Exhibit A, with a copy to:
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Anthony S. Harrington, Esq.
If to Acquiror or Sub, at:
LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
New York, New York 10016
Telecopier No.: (212) 338-5350
Attention: Eric J. Zahler, Esq.
with a copy to:
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopier No.: (212) 821-8111
Attention: Bruce R. Kraus, Esq.
SECTION 7.4. SEVERABILITY.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and revisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, the provision shall interpreted to be
only so broad as is enforceable.
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SECTION 10.12. ENTIRE AGREEMENT.
This Agreement and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
SECTION 10.13. ASSIGNMENT, BINDING EFFECT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Acquiror or Sub may assign all or any of their rights
and obligations hereunder to any affiliate of Acquiror, provided that no such
assignment shall relieve Acquiror or Sub of its obligations hereunder if such
assignee does not perform such obligations. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 10.14. SPECIFIC PERFORMANCE.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement was not performed in accordance
with its specific terms or was otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any Delaware Court, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 10.15. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS.
The parties recognize that successful consummation of the transactions
contemplated by this Agreement may be dependent upon confidentiality with
respect to the matters referred to herein. In this connection, pending public
disclosure thereof, each of the parties hereto severally and not jointly
agrees not to disclose or discuss such matters with anyone not a party to
this Agreement (other than its counsel, advisors, corporate parents and
Affiliates) without the prior written consent of the other parties hereto,
except for filings required pursuant to the Exchange Act and the rules and
regulations thereunder or disclosures its counsel advises are necessary in
order to fulfill its obligations imposed by law or the requirements of any
securities exchange. At all times during the terms of this Agreement, the
parties hereto will consult with each other before issuing or making any
reports, statements or releases to the public with respect to this Agreement
or the transactions contemplated hereby and will use good faith efforts to
agree on the text of public reports, statements or releases. For purposes of
this Section, any consultation or consent required of from the Stockholders
may be obtained from Gustave M. Hauser.
SECTION 10.16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to its rules of conflict of
laws.
SECTION 10.17. READINGS.
Headings of the Articles and Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
SECTION 10.18. COUNTERPARTS.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Principal Stockholder Agreement to be executed and delivered as of
the date first written above.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Eric J. Zahler
-----------------------------
Name: Eric J. Zahler
Title: Vice President,
General
Counsel and
Secretary
LORAL SATELLITE CORPORATION
By: /s/ Eric J. Zahler
-----------------------------
Name: Eric J. Zahler
Title: Vice President,
General
Counsel and
Secretary
ORION NETWORK SYSTEMS INC.
By: /s/ W. Neil Bauer
-----------------------------
Name: W. Neil Bauer
Title: President and
Chief Executive
Officer
BRITISH AEROSPACE HOLDINGS, INC.
By: /s/ Paul L. Harris
-----------------------------
Name: Paul H. Harris
Title: Senior Vice
President
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<PAGE>
FLEET VENTURE RESOURCES, INC.
By: /s/ Robert M. Van Degna
---------------------------
Name: Robert M. Van Degna
Title: Chairman and
Chief Executive
Officer
/s/ John V. Saeman
-------------------------------
John V. Saeman
/s/ W. Neil Bauer
-------------------------------
W. Neil Bauer
/s/ Gustave M. Hauser
-------------------------------
Gustave M. Hauser
/s/ Sidney S. Kahn
-------------------------------
Sidney S. Kahn
/s/ John G. Puente
-------------------------------
John G. Puente
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<PAGE>
FLEET EQUITY PARTNERS, VI L.P.
Fleet Growth Resources II,
Inc., a General Partner
By: /s/ Robert M. Van Degna
---------------------------
Name: Robert M. Van Degna
Title: Chairman and
Chief Executive
Officer
CHISHOLM PARTNERS, II, L.P.
By: Silverado II, L.P., Its
General Partner
By: Silverado II Corp., Its
General Partner
By: /s/ Robert M. Van Degna
---------------------------
Name: Robert M. Van Degna
Title: Chairman and
Chief Executive
Officer
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<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B SERIES C CONVERTIBLE
STOCK PREFERRED PREFERRED PREFERRED DEBENTURES
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
British Aerospace Holdings, Inc. 729,921 -- -- 3,007,770 3,571,429
15000 Conference Center Drive
Suite 200
Chantilly, VA 20151-3819
Telecopier No.: (703) 227-1522
John V. Saeman ................... 1,394,078 58,823 16,339 -- --
Medallion Enterprises, LLC
3200 Cherry Creek South Dr.
Suite 570
Denver, CO 80209
Telecopier No.:(303) 722-0443
W. Neil Bauer(1)(2) .............. -- -- -- -- --
Orion
2440 Research Blvd.
Suite 400
Rockville, MD 20850
Telecopier No.: (301) 258-3300
Gustave M. Hauser ................ 352,355 58,823 16,339 -- --
Hauser Communications, Inc.
712 Fifth Avenue
41st Floor
New York, NY 10019
Telecopier No.: (212) 956-1413
Sidney S. Kahn ................... 207,260 -- 8,169 -- --
14 East 60th Street
Suite 500
New York, NY 10022
Telecopier No.: (212) 750-8904
John G. Puente(2) ................ 321,501 1,411 392 -- --
10500 Willowbrook Dr.
Potomac, MD 20854
Telecopier No.: (301) 299-9691
Fleet Venture Resources, Inc. ... -- 588,234 130,718 -- --
Fleet Equity Partners, VI L.P.
Chisholm Partners, II, L.P.
RI MO F12C
50 Kennedy Plaza
Providence, RI 02903
Telecopier No.: (401) 278-6387
</TABLE>
- ------------
(1) Does not include shares purchased under Employee Stock Purchase Plan.
(2) Does not include shares beneficially owned by wife.
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<PAGE>
EXHIBIT B
Each of the Stockholders shall have the right to transfer Shares to (a)
any member of such Stockholder's immediate family, (b) any trust or similar
instrument for estate planning purposes or (c) any charitable organization,
foundation or similar entities; provided, however, such transfer may be made
to any such permitted transferee only if such permitted transferee shall
agree in writing to all of the terms, conditions and restrictions set forth
in this Agreement regarding Shares received by such permitted transferee.
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<PAGE>
ATTACHMENT C
October 6, 1997
Board of Directors
Orion Network Systems, Inc.
2440 Research Boulevard
Rockville, Maryland 20850
Members of the Board:
We understand that Orion Network Systems, Inc. ("Orion" or the "Company"),
Loral Space & Communications Ltd. ("Loral") and Loral Satellite Corporation
(the "Merger Subsidiary"), a wholly owned subsidiary of Loral, propose to
enter into an Agreement and Plan of Merger, substantially in the form of the
draft, dated as of October 6, 1997 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Merger Subsidiary with
and into Orion. Pursuant to the Merger, Orion will become a wholly owned
subsidiary of Loral, and each issued and outstanding share of common stock,
par value $0.01 per share ("Orion Common Stock"), of Orion, other than shares
held in treasury or held by Loral or any of its affiliates, will be converted
into the right to receive between 0.71553 and 1.07329 shares (the "Exchange
Ratio") of common stock, par value $0.01 per share ("Loral Common Stock") of
Loral, as more fully set forth in the Merger Agreement. In addition, pursuant
to the Merger, each share of preferred stock, par value $0.01 per share (the
"Preferred Stock"), of Orion, issued and outstanding immediately prior to the
Merger, other than shares held in treasury, will be converted into the right
to receive the number of shares of Loral Common Stock equal to the Exchange
Ratio multiplied by the number of shares of Orion Common Stock into which
such share of Preferred Stock was convertible immediately prior to the
effective time of the Merger. We also understand that the Merger Agreement
provides, under certain circumstances, that in lieu of the Merger, Loral will
commence an Exchange Offer pursuant to which the holders of all the
outstanding shares of Orion Common Stock and Preferred Stock will be offered
the opportunity to exchange (the "Exchange") such shares for shares of Loral
Common Stock on the same terms as pursuant to the Merger. The terms and
conditions of the Merger and the Exchange are more fully set forth in the
Merger Agreement. We further understand that approximately 2.1% of the
outstanding shares of Orion Common Stock is currently owned by Loral and its
affiliates.
You have asked for our opinion as to whether the Exchange Ratio is fair
from a financial point of view to the holders of Orion Common Stock (other
than Loral and affiliates) and, assuming the conversion of the Preferred
Stock into Orion Common Stock in accordance with their terms, to the holders
of Preferred Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Orion, Loral and Globalstar, L.P. ("Globalstar");
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Orion, Loral and Globalstar prepared by the
respective managements of Orion, Loral and Globalstar and discussed certain
of the foregoing with senior executives of Orion, Loral and Globalstar;
(iii) analyzed certain financial forecasts for Orion, Loral and Globalstar
prepared by the respective managements of Orion, Loral and Globalstar;
(iv) discussed the past and current operations and financial condition and
the prospects of Orion, Loral and Globalstar with senior executives of Orion,
Loral and Global star;
(v) reviewed the reported prices and trading activity for the common stock
of Orion, Loral and Global star;
(vi) compared the financial performance of Orion, Loral and Globalstar and
the prices and trading activity of the Orion Common Stock and the common
stock of Loral and Globalstar with that of certain other comparable
publicly-traded companies and their securities;
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<PAGE>
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives
of Orion, Loral and certain other parties and their financial and legal
advisors;
(ix) reviewed the Merger Agreement, a draft dated October 6, 1997 of the
Principal Stockholder Agreement among Loral, Merger Subsidiary and certain
principal stockholders of Orion, and certain related documents; and
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial forecasts, we have assumed
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Orion, Loral and Globalstar. We have not made any independent valuation or
appraisal of the assets or liabilities of Orion, Loral and Globalstar, nor
have we been furnished with any such appraisals. We have relied upon, without
independent verification, the assessment by the respective managements of
Orion, Loral and Globalstar of each of their technologies and products, the
timing and risks associated with the integration of Orion and Loral, and the
validity of, and risks associated with, Orion's, Loral's and Globalstar's
existing and future products and technologies. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof. We have also
assumed that in connection with the receipt of all necessary regulatory
approvals for the Merger or the Exchange, no restrictions will be imposed
that would have a material adverse effect on the contemplated benefits
expected to be derived in the proposed Merger or Exchange.
We have acted as financial advisor to the Board of Directors of Orion in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated ("Morgan Stanley") and its
affiliates have provided financial advisory and financing services for Orion
and have received fees for the rendering of these services. In the ordinary
course of business, Morgan Stanley may from time to time trade in the
securities of Orion, Loral and Globalstar for its own account, for the
accounts of investment funds under the management of Morgan Stanley and for
the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Orion, except that this opinion may be included in its entirety
in any filing made by Orion or Loral in respect of the Merger or the Exchange
with the Securities and Exchange Commission. In addition, this opinion does
not in any manner address the prices at which Loral Common Stock will trade
following consummation of the Merger or the Exchange, and Morgan Stanley
expresses no opinion or recommendation as to how the stockholders of Orion
should vote at the stockholders' meeting held in connection with the Merger
or whether the stockholders of Orion should tender their shares in connection
with the Exchange, and, with respect to the holders of Preferred Stock,
whether such holders should convert their shares of Preferred Stock into
Orion Common Stock.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio is fair from a financial point of view to the
holders of Orion Common Stock (other than Loral and its affiliates) and,
assuming the conversion of the Preferred Stock into Orion Common Stock in
accordance with their terms, to the holders of Preferred Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Scott W. Matlock
-----------------------------------
Scott W. Matlock
Vice President
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ATTACHMENT D
ORION NETWORK SYSTEMS, INC.
AMENDMENT NO. 1
TO
ORION NETWORK SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(THE "AMENDMENT")
Orion Network Systems, Inc. (the "Company") hereby amends the terms of the
Orion Network Systems, Inc. Non-Employee Director Stock Option Plan (the
"Plan") as follows:
New Article 4.3 is added to read as follows:
4.3. Notwithstanding any other provisions of the Plan, including without
limitation Section 4.2 above, upon consummation of the merger of Loral
Satellite Corporation ("Merger Subsidiary") with and into the Company (the
"Merger") pursuant to the Agreement and Plan of Merger, dated as of October
7, 1997 (the "Merger Agreement"), among Orion, Loral Space & Communications
Ltd. ("Loral") and Merger Subsidiary, a wholly owned subsidiary of Loral, as
such Merger Agreement may be amended from time to time, all Options
theretofore granted under the Plan shall not terminate, the Plan shall be
assumed by Loral, all Options shall be converted into options to acquire
shares of common stock of Loral with appropriate adjustments as to the number
of shares and exercise prices as provided in the Merger Agreement and all
Options shall continue in the manner and under the terms so provided. In
addition, notwithstanding any other provisions of the Plan, immediately prior
to consummation of the Merger (the "Pre-Merger Time"), all Options
theretofore granted under the Plan which are not then exercisable shall
become exercisable to the extent that such options would have become
exercisable if the next annual meeting of the stockholders of the Corporation
at which Directors are elected had occurred at or immediately prior to the
Pre-Merger Time.
* * *
This Amendment was duly adopted and approved by the Board of Directors of
the Corporation on December 31, 1997 effective as of December 31, 1997.
/s/ Richard H. Shay
-----------------------------------
Secretary
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<PAGE>
ATTACHMENT E
AMENDMENT TO STOCK OPTION AGREEMENT
BETWEEN ORION NETWORK SYSTEMS, INC.
AND JOHN G. PUENTE
(THE "AMENDMENT")
Orion Network Systems, Inc. (the "Company") hereby amends the terms of the
Stock Option Agreement between Orion Network Systems, Inc. and John G. Puente
dated as of July 17, 1996 (the "Puente Option Agreement") as follows:
New Article 17 is added to read as follows:
17. Notwithstanding any other provisions of this Agreement, including
without limitation Section 7(C) above, upon consummation of the merger of
Loral Satellite Corporation ("Merger Subsidiary") with and into the Company
(the "Merger") pursuant to the Agreement and Plan of Merger, dated as of
October 7, 1997 (the "Merger Agreement"), among Orion, Loral Space &
Communications Ltd. ("Loral") and Merger Subsidiary, a wholly owned
subsidiary of Loral, as such Merger Agreement may be amended from time to
time, the Option granted to John G. Puente under the Puente Option Agreement
(the "Puente Option") shall not terminate and, instead, the Puente Option
shall be assumed by Loral, the Puente Option shall be converted into an
option to acquire shares of common stock of Loral with appropriate
adjustments as to the number of shares and exercise price as provided in the
Merger Agreement and the Puente Option shall continue in the manner and under
the terms so provided. In addition, for the avoidance of doubt, the Company,
through action of its Board of Directors, acknowledges and agrees that all
conditions for the vesting of the Puente Option were satisfied as a result of
completion of the $710 million bond financing in January 1997.
* * *
This Amendment was duly adopted and approved by the Board of Directors of
the Corporation on December 31, 1997 effective as of December 31, 1997.
/s/ Richard H. Shay
-----------------------------------
Secretary
E-1
<PAGE>
ATTACHMENT F
AMENDMENT TO STOCK OPTION AGREEMENT
BETWEEN ORION NETWORK SYSTEMS, INC.
AND GUSTAVE M. HAUSER
(THE "AMENDMENT")
Orion Network Systems, Inc. (the "Company") hereby amends the terms of the
Stock Option Agreement between Orion Network Systems, Inc. and Gustave M.
Hauser dated as of March 12, 1997 (the "Hauser Option Agreement") as follows:
New Article 16 is added to read as follows:
16. Notwithstanding any other provisions of this Agreement, including
without limitation Section 7(C) above, upon consummation of the merger of
Loral Satellite Corporation ("Merger Subsidiary") with and into the Company
(the "Merger") pursuant to the Agreement and Plan of Merger, dated as of
October 7, 1997 (the "Merger Agreement"), among Orion, Loral Space &
Communications Ltd. ("Loral") and Merger Subsidiary, a wholly owned
subsidiary of Loral, as such Merger Agreement may be amended from time to
time, the Option granted to Gustave M. Hauser under the Hauser Option
Agreement (the "Hauser Option") shall not terminate and, instead, the Hauser
Option shall be assumed by Loral, the Hauser Option shall be converted into
an option to acquire shares of common stock of Loral with appropriate
adjustments as to the number of shares and exercise price as provided in the
Merger Agreement and the Hauser Option shall continue in the manner and under
the terms so provided.
* * *
This Amendment was duly adopted and approved by the Board of Directors of
the Corporation on December 31, 1997 effective as of December 31, 1997.
/s/ Richard H. Shay
-----------------------------------
Secretary
F-1
