| By Order of the Board of Directors Michael B. Targoff
Chief Executive Officer and Vice Chairman
of the Board April 23, 2007
TABLE OF CONTENTS | | | | | | | Page | | | |  | | | | | | | 1 | | | BERNARD L. SCHWARTZ | | 1 | | | Chairman of | | 3 | | | | | 5 | | | | | 6 | | | | | 8 | | | | | 11 | | | | | 17 | | | | | 19 | | | | | 20 | | | | | 20 | | | | | 29 | | | | | 30 | | | | | 38 | | | | | 41 | | | | | 43 | | | | | 43 | | | | | 43 | | | | | 43 | | | | | 44 | | | | | 44 | | | | | A-1 | |
April 18, 2003
Loral Space & Communications Inc.
600 Third Avenue
New York, New York 10016 | | | | Why did I receive this proxy statement? | | We have sent you this Notice of Annual Meeting and Proxy Statement and proxy or voting instruction card because Loral’sthe Board of Directors of Loral Space & Communications Inc. (“Loral” or the “Company”) is soliciting your proxy to vote at our Annual Meeting of ShareholdersStockholders on May 29, 200322, 2007 (the “Annual Meeting”). This Proxy Statement contains information about the items being voted on at the Annual Meeting and information about us. | | | | Who is entitled to vote? | | You may vote if you owned common stock as of the close of business on April 1, 2003.5, 2007. On April 1, 2003,5, 2007, there were 435,463,50220,065,856 shares of our common stock, par value $.01 per share, outstanding and entitled to vote at the Annual Meeting. In addition, certain affiliated funds of MHR Fund Management LLC (“MHR Fund Management”) hold shares of our preferred stock that entitle them to vote together with the common stock. These funds are together entitled to 99 votes with respect to all of the preferred stock held by them at the Annual Meeting. | | | | How many votes do I have? | | Each share of our common stock that you own entitles you to one vote. | | | | What am I voting on? | | You will be voting on the following:
| | | | • To elect fourto the Board three Class I Directors;
Directors whose terms have expired; | | | | • To amendapprove the Company’s bye-laws to allow the shareholders to grant discretionary authority to the Company’s Board of Directors to determine the ratio to be employed in a reverse splitamendment and restatement of the Company’s common stockLoral Space & Communications Inc. 2005 Stock Incentive Plan; and to grant such authority to the Company’s Board of Directors to effect a reverse stock split at a ratio within the range from one-for-five to one-for- twenty;
• To increase the number of authorized shares of common stock of the Company from 750,000,000 to 1,250,000,000;
| | | | • To ratify the selectionappointment of Deloitte & Touche LLP as our independent auditors; and
• To transact any other business which may properly come beforeregistered public accounting firm for the Annual Meeting.year ending December 31, 2007. | | | | How do I vote? | | You can vote in the following ways:
| | | | • By Mail: If you are a holder of record, you can vote by marking, dating and signing your proxy card and returning it by mail in the enclosed postage-paid envelope. If you hold your shares in street name, please complete and mail the voting instruction card.
| | | | • By Telephone or Internet: If you hold your shares in street name, you may be able to vote by telephone or over the Internet. Please follow the instructions on your voting instruction card.
| | | | • At the Annual Meeting: If you are planning to attend the Annual Meeting and wish to vote your shares in person, we will give you a ballot at the meeting. If your shares are held in street name, you need to bring an account statement or letter from your broker, bank or other nominee indicating that you were the beneficial owner of the shares on April 1, 2003,5, 2007, the record date for voting.Even if you plan to be present at the meeting, we encourage you to complete and mail the enclosed card to vote your shares by proxy. |
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| | | | What if I return my proxy or voting instructioncard but do not mark itto show how I am voting? | | Your shares will be voted according to the instructions you have indicated on your proxy or voting instruction card. If no direction is indicated, your shares will be voted “FOR” the election of all Class I nominees to the Board of Directors and “FOR” proposals 2 3 and 4 and, with respect to any other matter which may properly come before the Annual Meeting, at the discretion of the proxy holders.3. |
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| | | | May I change my vote after I return my proxyor voting instructioncard? | | You may change your vote at any time before your proxy is cast at the Annual Meeting in one of three ways:
| | | | • Notify our Corporate Secretary in writing before the Annual Meeting that you are revoking your proxy;
| | | | • Submit another proxy card (or voting instruction card if you hold your shares in street name) with a later date; or
| | | | • Vote in person at the Annual Meeting. | | | | What does it mean if I receive more than oneproxy or votinginstruction card? | | It means you have multiple accounts at the transfer agentand/or with banks and stock brokers.stockbrokers. Please vote all of your shares. |
| | | | What constitutes a quorum? | | The presenceAny number of stockholders, together holding at least a majority in voting power of the holders of a majoritycapital stock of the sharesCompany issued and outstanding and generally entitled to vote atin the Annual Meeting constitutes a quorum. Presence may beelection of directors, present in person or represented by proxy. Therefore, you will be considered partproxy at any meeting duly called, shall constitute a quorum for the transaction of the quorum if you return a signed and dated proxy or voting instruction card, if you vote by telephone or Internet or if you attend the Annual Meeting. | | | | all business. Abstentions and broker “non-votes”“broker non-votes” are counted as “shares present” at the meeting for purposes of determining whether a quorum exists butexists. A “broker non-vote” occurs when a bank, broker or other holder of record for a beneficial owner does not as “shares cast”vote on a particular proposal because that holder does not have discretionary voting power for any proposal. Because abstentionsthat particular matter and broker “non-votes” arehas not treated as shares cast, they would have no impact on proposals that requirereceived instructions from the approval of a majority of the votes cast (such as proposals 1, 3 or 4), but would be treated as a vote against any proposal that requires the approval of a majority of the shares outstanding (such as proposal 2).beneficial owner. | | | | What vote is required in order to approve each proposal? | | ElectionProposal 1 (Election of Directors:Directors): The election of the fourthree Class I nominees requires the affirmative vote of a majorityplurality of the votes castshares present at the Annual Meeting. This means that the director nominee with the most votes for a particular slot is elected for that slot. Votes withheld from one or more director nominees will have no effect on the election of any director from whom votes are withheld. If you do not want to vote your shares for a particular nominee, you may indicate that in the space provided on the proxy card or the voting instruction card or withhold authority as prompted during telephone or Internet voting. In the unanticipated event that any of such nomineesdirector nominee is unable or declines to serve, the proxy will be voted for such other person as shall be designated by the Board of Directors to replace such nominee, or in lieu thereof, the Board may reduce the number of directors. | | | | | AmendmentProposal 2 (Amended and Restated 2005 Stock Incentive Plan) and Proposal 3 (Ratification of the Company’s Bye-laws to Effect a Reverse Stock Split:appointment of Deloitte & Touche LLP): Amending our bye-laws to effect a reverse stock split in the manner described in proposal 2 requires These proposals require the affirmative vote of a majority of our outstanding shares of common stock. | | | | Increasing the Number of Authorized Shares of Common Stock: Increasing the number of authorized shares of our common stock requires the affirmative vote of a majority of the votes castpresent at the Annual Meeting. | | | | Ratification of Independent Auditors: Ratification of the selection of Deloitte & Touche LLP as our independent auditors requires the affirmative vote of a majority of the votes cast at the Annual Meeting. If the shareholders do not ratify the selection of Deloitte & Touche LLP, the selection Abstentions and “broker non-votes” will be reconsidered by our Audit Committee.counted as shares present but will not be counted as either voting for or against either proposal. Abstentions and “broker non-votes” will, therefore, have the effect of votes against the proposal. | | | | How will voting on any other business beconducted? | | We do not know of any business or proposals to be considered at the Annual Meeting other than those set forth in this Proxy Statement. If any other business is proposed and we decide to allow it to be presented at the Annual Meeting, the proxies received from our shareholdersstockholders give the |
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| | | | | proxy holders the authority to vote on the matter according to their best judgment. | | | | Who will count the votes? | | The Bank of New YorkRegistrar & Transfer Company will act as the inspector of election and will tabulate the votes. | | Who pays to prepare, mail and solicit the proxies? | | We will pay all of the costs of soliciting proxies. We will ask banks, brokers and other nominees and fiduciaries to forward the proxy materials to the beneficial owners of our common stock and to obtain the authority of executed proxies. We will reimburse them for their reasonable expenses. We have also retained W.F. Doring & Co., Inc. to solicit proxies on our behalf and will pay them a fee, not to exceed $7,500, for such services. | | | How do I submit a shareholder proposal for next year’s Annual Meeting? | | Any shareholder who intends to present a proposal at the 2004 Annual Meeting of Shareholders must deliver the proposal to the Corporate Secretary at our principal executive offices, located c/o Loral SpaceCom Corporation, 600 Third Avenue, New York, New York 10016:
• Not later than December 20, 2003, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934; or
| | | | | • No earlier than March 20, 2004 but no later than April 17, 2004, if the proposal is submitted pursuant to our bye-laws, in which case we are not required to include the proposal in our proxy materials. | |
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PROPOSAL #1:1 — ELECTION OF DIRECTORS The Company has three classes of directors serving staggered three-year terms, with Classes I and II each consisting of four directors and Class IIIclass consisting of three directors. The terms of the Class I, II and III directors expire on the date of the Annual Meeting in 2003, 20042007, 2008 and 2005,2009, respectively. Shareholders
Stockholders will elect fourthree Class I directors at the Annual Meeting. Of the directors named below, Messrs. Howard Gittis, Gershon Kekst,John D. Harkey, Jr., Arthur L. Simon and Eric J. ZahlerJohn P. Stenbit are the nominees to serve as Class I directors. Each director will serve for a period of three years, until a qualified successor director has been elected, or until he resigns or is removed by the Board. Election of each of the Class I nominees will require the affirmative vote in person or by proxy of a majorityplurality of the votes castshares present at the Annual Meeting. The Board of Directors unanimously recommends a vote FOR each director nominee. The following are brief biographical sketches of each of our directors and nominees: | | | | Bernard L. SchwartzMichael B. Targoff
| | | | Age: | | 7762 | | Director Since: | | 1996November 2005 | | Class: | | Class II | | Business Experience: | | Mr. Targoff has been Chief Executive Officer of Loral since March 1, 2006 and Vice Chairman of Loral since November 21, 2005. From 1998 to February 2006, Mr. Targoff was founder and principal of Michael B. Targoff & Co., a private investment company. | | Other Directorships: | | Chairman of the Board and Chairman of the Audit Committee of Communication Power Industries. Director and Chairman of the Audit Committee of Leap Wireless International, Inc. Director of ViaSat, Inc. | Sai S. Devabhaktuni | | | | Age: | | 35 | | Director Since: | | November 2005 | | Class: | | Class III | | Business Experience: | | Mr. SchwartzDevabhaktuni is Chairmancurrently a managing principal of the BoardMHR Fund Management, an investment manager of Directorsvarious private investment funds that invest in inefficient market sectors, including special situation equities and Chief Executive Officer of the Company. | Other Directorships: | | First Data Corp., K&F Industries, Inc. and Satélites Mexicanos, S.A. de C.V. Trustee of Mount Sinai — NYU Medical Center and Health System and Thirteen/ WNET Educational Broadcasting Corporation. | | distressed investments. Mr. Devabhaktuni has served MHR Fund Management in various capacities since 1998. | Howard GittisHal Goldstein
| | | | Age: | | 6941 | | Director Since: | | 1996November 2005 | | Class: | | Class I NomineeIII | | Business Experience: | | Mr. GittisGoldstein is Director, Vice Chairmana co-founder of MHR Fund Management and Chief Administrative Officeris currently a managing principal of MacAndrews & Forbes Holdings Inc. and itsMHR Fund Management. Mr. Goldstein has served MHR Fund Management in various affiliates.capacities since 1996. | | Other Directorships: | | Jones Apparel Group, Inc., M & F Worldwide Corp., REV Holdings Inc., Revlon ConsumerDirector of GF Health Products Corporation and Revlon, Inc. |
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| | | Robert B. HodesJohn D. Harkey, Jr.
| | | | Age: | | 7746 | | Director Since: | | 1996November 2005 | | Class: | | Class I | | Business Experience: | | Mr. Harkey has been Chairman and Chief Executive Officer of Consolidated Restaurant Companies, Inc. since 1998. | | Other Directorships: | | Director and Chairman of the Audit Committee of Energy Transfer Equity, L.P. and Emisphere Technologies, Inc. Director and member of the Audit Committee of Leap Wireless International, Inc. and Energy Transfer Partners, LLC. | Dean A. Olmstead | | | | Age: | | 51 | | Director Since: | | November 2005 | | Class: | | Class II | | Business Experience: | | Mr. HodesOlmstead has been a consultant for Loral since May 2006. Mr. Olmstead is counselthe founder of Satellite Development LLC and has been its Chairman since October 2004. From March 2005 to Willkie Farr & Gallagher,September 2006, Mr. Olmstead was President of Arrowhead Global Solutions, Inc. From November 2001 to September 2004, Mr. Olmstead was President and Chief Executive Officer of SES Americom and a law firm in New York, N.Y., and, until 1996,member of the SES Global Executive Committee. Prior to that, he was a partner in and co-chairmanmember of that firm.the SES Astra Management Committee. | | Other Directorships: | | K&F Industries,Chairman of the Board of BBSat LLC and member of the Advisory Board of Arrowhead Global Solutions, Inc., LCH Investments, N.V., Mueller Industries, Inc., Restructured Capital Holdings, Ltd. and R.V.I. Guaranty Ltd. | | Gershon KekstMark H. Rachesky, M.D.
| | | | Age: | | 6848 | | Director Since: | | 1996 | Class: | | Class I Nominee | Business Experience: | | Mr. Kekst is President of Kekst and Company Incorporated, corporate and financial communications consultants in New York, N.Y. |
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| | | | Charles Lazarus
| | | Age: | | 79 | Director Since: | | 1996 | Class: | | Class II | Business Experience: | | Mr. Lazarus is Chairman Emeritus of Toys “R” Us, Inc. | | Sally Minard
| | | Age: | | 60 | Director Since: | | 2002 | Class: | | Class II | Business Experience: | | Ms. Minard is co-chair of the Women’s Leadership Forum of the Democratic National Committee, NY State chapter. Previously, she was co-founder of Lotas Minard Patton McIver, an advertising communications firm in New York, N.Y., from 1986-1999. Ms. Minard also served as President of the New York Women’s Agenda and Treasurer of the American Association of Advertising Agencies. | Other Directorships: | | American Red Cross (NY) and member of the Board of Governors of New School University (NY) | | Malvin A. Ruderman
| | | Age: | | 76 | Director Since: | | 1996November 2005 | | Class: | | Class III | | Business Experience: | | Dr. Ruderman is the Centennial Professor of Physics at Columbia University in New York, N.Y. HeRachesky has been a membernon-executive Chairman of the Board of TrusteesDirectors of Loral since March 1, 2006. Dr. Rachesky is a co-founder of MHR Fund Management and has been its President since 1996. | | Other Directorships: | | Chairman of the Institute for Advanced StudyBoard of Leap Wireless International, Inc. Director of Neose Technologies, Inc., NationsHealth Inc. and of Associated Universities,Emisphere Technologies, Inc. | | E. Donald ShapiroArthur L. Simon
| | | | Age: | | 7175 | | Director Since: | | 1996 | Class: | | Class III | Business Experience: | | Professor Shapiro has been The Joseph Solomon Distinguished Professor of Law at New York Law School since 1983 and Dean Emeritus since 2000 and was previously Dean/ Professor of Law (1973-1983). | Other Directorships: | | Frequency Electronics, Inc., Group Health Incorporated, Kramont Realty Trust and Vasomedical, Inc. | | Arthur L. Simon
| | | Age: | | 71 | Director Since: | | 1996November 2005 | | Class: | | Class I Nominee | | Business Experience: | | Mr. Simon is an independent consultant. Previously, heBefore his retirement, Mr. Simon was a partner at Coopers & Lybrand L.L.P., Certified Public Accountants, from 1968 to 1994. | | Other Directorships: | | Director and member of the Audit and Governance Committees of L-3 Communications CorporationCorporation. |
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| | | | | Daniel YankelovichJohn P. Stenbit
| | | | Age: | | 7867 | | Director Since: | | 1996June 2006 | | Class: | | Class III | | Business Experience: | | Mr. YankelovichStenbit is Chairmana consultant for various government and commercial clients. From 2001 to his retirement in March 2004, he was Assistant Secretary of DYG, Inc., a market, consumerDefense of Networks and opinion research firm in New York, N.Y. He is also ChairmanInformation Integration/Department of Viewpoint Learning, Inc., a consulting firm based in San Diego, CA.Defense Chief Information Officer. | | Other Directorships: | | Director Emeritus of Arkla, Inc., CBS, Inc., Meredith Corporation and U S West, Inc. | | Eric J. Zahler
| | | Age: | | 52 | Director Since: | | 2001 | Class: | | Class I Nominee | Business Experience: | | Mr. Zahler has been President and Chief Operating Officermember of the Company since February 2000. Previously, he was Executive Vice PresidentGovernance and Nominating and Audit Committees of SM&A Corporation. Director and member of the Company since October 1999, Senior Vice President, General CounselNominating and SecretaryCorporate Governance, Audit and Compensation Committees of Cogent, Inc. Director and member of the Company since February 1998Corporate Governance and Vice President, General CounselCompensation Committees of SI International, Inc. Director and Secretarymember of the Company since 1996. | Other Directorships: | | Satélites Mexicanos, S.A. de C.V.Nominating and Corporate Governance and Compensation and Human Resources Committees of ViaSat, Inc. Trustee of The Mitre Corp., a not-for-profit corporation, and member of the Defense Science Board, the Technical Advisory Group of the National Reconnaissance Office, the Advisory Board of the National Security Agency, the Science Advisory Group of the US Strategic Command and the Naval Studies Board. |
Additional Information Concerning the Board of Directors of the Company During 2006, the Board of Directors held 13 meetings and acted by unanimous written consent three times. No director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and of committees of the Board of which he was a member. In addition to regularly scheduled meetings, a number of directors were involved in numerous informal meetings with management, offering valuable advice and suggestions on a broad range of corporate matters. We do not have a policy regarding directors’ attendance at annual meetings, and the Annual Meeting to be held on May 22, 2007 will be the Company’s first annual meeting since its emergence from Chapter 11 in November 2005. The Company held a Special Meeting of Stockholders on November 14, 2006 at which Messrs. Targoff and Olmstead were present. The Company is listed on the Nasdaq Stock Market and complies with the Nasdaq listing requirements regarding independent directors. Under Nasdaq’s Marketplace Rules, the definition of an “independent director” is a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that all of our directors, except for Messrs. Targoff and Olmstead, are independent directors; independent directors, therefore, constitute a majority of our Board. Non-management directors meet in executive sessions without members of the Company’s management at the conclusion of regularly scheduled Board meetings. Bernard L. Schwartz retired as Chairman of the Board and Chief Executive Officer of the Company effective March 1, 2006, and Robert B. Hodes retired as a director and member of the Compensation Committee effective February 28, 2006. Mr. Hodes was an “independent director” under the Nasdaq Marketplace Rules. Indemnification Agreements As of the effective date of our plan of reorganization (November 21, 2005), we entered into Officers’ and Directors’ Indemnification Agreements (each, an “Indemnification Agreement”) with our officers who entered into employment agreements with us. In addition, we entered into Indemnification Agreements with each of our directors as of the date such person became a director (each officer and director with an Indemnification Agreement, an “Indemnitee”). The Indemnification Agreement requires us to indemnify the Indemnitee if the
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On February 15, 2002, Globalstar, L.P.
Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (as that term is used in the Indemnification Agreement), except with regard to any Proceeding by or in our right to procure a judgment in our favor, against all Expenses and Losses (as those terms are used in the Indemnification Agreement), including judgments, fines, penalties and amounts paid in settlement, subject to certain conditions, actually and reasonably incurred in connection with such Proceeding, if the Indemnitee acted in good faith for a purpose which he or she reasonably believed to be in or not opposed to our best interests. With regard to Proceedings by or in our right, the Indemnification Agreement provides similar terms of indemnification; no indemnification will be made, however, with respect to any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to us, unless a court determines that the Indemnitee is entitled to indemnification for such portion of the Expenses as the court deems proper, all as detailed further in the Indemnification Agreement. The Indemnification Agreement also requires us to indemnify an Indemnitee where the Indemnitee is successful, on the merits or otherwise, in the defense of any claim, issue or matter therein, as well as in other circumstances delineated in the Indemnification Agreement. The indemnification provided for by the Indemnification Agreement is subject to certain exclusions detailed therein. Our subsidiaries, Space Systems/Loral, Inc. (“Globalstar”SS/L”) and Loral Skynet Corporation (“Loral Skynet”) both guarantee the due and punctual payment of all of our obligations under the Indemnification Agreements. We have received a request for indemnification by our directors for any losses or costs they may incur as a result of certain shareholder derivative lawsuits commenced against them relating to the preferred stock financing transaction with MHR Fund Management and certain of its direct subsidiaries filed voluntary petitions under Chapter 11 of Title 11, United States Codeaffiliated funds described in the United States Bankruptcy Court“Certain Relationships and Related Transactions — MHR Fund Management LLC.” These lawsuits are more fully described in note 19 to our consolidated financial statements included in our Annual Report onForm 10-K for the District of Delaware. In connection with this filing, Loral/ Qualcomm Satellite Services, L.P., the managing general partner of Globalstar, its general partner, Loral/ Qualcomm Partnership, L.P.,year ended December 31, 2006 and certain ofin our subsidiaries that serve as general partners of Loral/ Qualcomm Partnership, L.P. alsoCurrent Reports onForm 8-K filed voluntary petitions with the Delaware bankruptcy court. Messrs. SchwartzSEC on March 21 and Zahler and/or certain other of our executive officers either currently serve or23, 2007. Directors and Officers Liability Insurance We have previously served as executive officers of these general partner entities and Globalstar and certain of its subsidiaries.Directors are paid a fixed fee of $25,000 per year. Non-employee directors are also paid $6,000 for personal attendance or $2,000 for telephone participation at each meeting. In addition, the Chairman of the Audit Committee is paid $12,000 per year, and Audit Committee members are paid $4,000 per year. Audit Committee members are also paid $2,000 for personal attendance or $1,000 for telephone participation at each meeting. Compensation and Stock Option Committee members are paid an additional $2,000 per year and $1,000 for personal attendance or $500 for telephone participation at each meeting.
The Company provides certain life insurance and medical benefits to certain non-employee directors. For 2002, the cost of the life insurance benefits was $13,565 for Mr. Gittis, $14,553 for Mr. Kekst, $14,223 for Mr. Ruderman, $15,000 for Mr. Shapiro, $12,500 for Mr. Simon and $14,170 for Mr. Yankelovich, and the cost of life insurance and medical benefits was $40,283 for Mr. Hodes.
The Company has purchased insurance from various insurance companies insuring the Company against obligations itwe might incur as a result of itsour indemnification obligations of officersdirectors and directorsofficers for certain liabilities they might incur and insuring such officersdirectors and directorsofficers for additional liabilities against which they might not be indemnified by the Company. The policyus. We have also provides insuranceprocured coverage for the Company’sour own liabilities in certain circumstances. TheOur cost to the Company for the annual insurance premiumspremium covering the period ending April 2003from November 21, 2006 to November 20, 2007 is $1,548,000.
Director Compensation Board and Committee Compensation Structure In 2006, the Board of Directors retained The Delves Group to study director compensation for companies in Loral’s peer group and to advise the Board with respect to establishing a compensation structure. Based on the study and recommendations of The Delves Group, the Board of Directors adopted a compensation structure for non-management directors designed to achieve the following goals: | | | | • | Compensation should fairly pay directors for work required for a company of Loral’s size and scope; | | | • | Compensation should align directors’ interests with the long-term interests of shareholders; and | | | • | Compensation structure should be simple, transparent and easy to understand. |
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The compensation structure that was approximately $2,163,100.adopted is as follows: Board and Committee Compensation Structure | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Telephonic
| | | | | | | | | | | | | | | | | Meeting Fee
| | | | | | | | | | | Annual
| | | In-Person
| | | (over
| | | Annual
| | | | | | | | Fee(1) | | | Meeting Fee(2) | | | 30 minutes)(3) | | | Stock Award(4) | | | Medical | | Board of Directors | | | $ | 25,000 | | | | $ | 1,500 | | | | $ | 1,000 | | | | 2,000 Shares of Restricted Stock; 5,000 Shares of Restricted Stock for non-executive Chairman (vesting over two years) | | | Eligible for Loral Medical Plan at Company’s expense if not otherwise employed full-time | | Executive Committee | | | No extra fees unless set on an ad hoc basis by full Board of Directors | Audit Committee | | | | | | | | | | | | | | | | | | | | | | | Chairman | | | $ | 15,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | | Member | | | $ | 5,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | Compensation Committee | | | | | | | | | | | | | | | | | | | | | | | Chairman | | | $ | 5,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | | Member | | | $ | 2,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | Nominating Committee | | | | | | | | | | | | | | | | | | | | | | | Chairman | | | $ | 5,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | | Member | | | $ | 2,000 | | | | $ | 1,000 | | | | $ | 500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | Annual fees are payable to all directors, including employees and consultants. | | | (2) | | In-person meeting fees are not paid to employees or consultants. | | | (3) | | Telephonic meeting fees are not paid to employees or consultants. For meetings of less than 30 minutes in duration, per meeting fees may be paid if, in the discretion of the Chairman of the Board or Committee, as applicable, meaningful preparation was required in advance of the meeting. | | | (4) | | The annual grant of restricted stock is not awarded to directors who are employees or consultants. |
Non-management Directors Compensation for Fiscal 2006 For fiscal year 2006, Loral provided the compensation set forth in the table below to its directors. Directors were not granted stock awards in 2006 because there were no shares available for grant under our 2005 Stock Incentive Plan. On March 20, 2007, the Board of Directors approved grants of 31,000 shares of restricted stock to our non-executive directors as a group. 16,000 shares were granted as compensation for services rendered during 2006, and 15,000 shares were granted as part of their compensation for 2007. These grants are subject to stockholder approval of the Company’s Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). During 2006, Messrs. Harkey and Simon served on a special committee of the Board that negotiated the Amended and Restated Securities Purchase Agreement dated October 17, 2006, as amended and restated on February 27, 2007, by and between the Company and MHR Fund Management LLC. See “Certain Relationships and Related Transactions — MHR Fund Management LLC.” In consideration for their services on the special committee, they each received $120,500 in additional fees. On June 7, 2006, Loral entered into a consulting agreement with Dean A. Olmstead. Pursuant to Bermuda law,this agreement, Mr. Olmstead provides consulting services to the Company relating generally to exploration of strategic and growth opportunities for Loral and achievement of efficiencies within the Company’s divisions. Pursuant to this consulting agreement, Mr. Olmstead earned a total of $337,500 in 2006. In connection with Mr. Olmstead’s consulting agreement, we also granted Mr. Olmstead options to purchase 120,000 shares of
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our common stock which, like the other equity grants to directors discussed above, is also subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). For a more detailed description of Mr. Olmstead’s consulting agreement and the option grant associated therewith, see “Certain Relationships and Related Transactions — Consulting Agreement with Dean A. Olmstead.” 2006 Director Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value and
| | | | | | | | | | | | | Fees
| | | | | | | | | | | | | | | | Nonqualified
| | | | | | | | | | | | | Earned
| | | | | | | | | | | | Non-Equity
| | | | Deferred
| | | | | | | | | | | | | or Paid
| | | | Stock
| | | | Option
| | | | Incentive Plan
| | | | Compensation
| | | | All Other
| | | | | | Name | | | in Cash(1) | | | | Awards | | | | Awards | | | | Compensation | | | | Earnings | | | | Compensation | | | Total | | | Mark H. Rachesky, M.D. | | | $ | 44,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 44,500 | | | Michael B. Targoff | | | $ | 30,500 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 30,500 | | | Sai Devabhaktuni | | | $ | 38,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 38,500 | | | Hal Goldstein | | | $ | 42,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 42,000 | | | John D. Harkey, Jr. | | | $ | 181,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 181,500 | | | Dean A. Olmstead | | | $ | 32,000 | | | | | | | | | | | | | | | | | | | | | | | | $349,219(3) | | | $ | 32,000 | | | Arthur L. Simon | | | $ | 182,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 182,500 | | | John P. Stenbit | | | $ | 23,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 23,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | The column reports the amount of cash compensation for Board and Committee service paid in 2006 or earned with respect to meetings held in 2006 and paid in 2007. | | | (2) | | For Mr. Targoff, includes an annual director’s fee of $25,000 and meeting fees of $5,500 for meetings held prior to March 1, 2006 when Mr. Targoff became Chief Executive Officer of the Company. Does not include compensation paid or options awarded to Mr. Targoff after March 1, 2006 in his capacity as Chief Executive Officer, which compensation is described in “Executive Compensation — Compensation Tables — Summary Compensation Table.” | | | (3) | | For Mr. Olmstead, “All Other Compensation” includes a total amount earned during 2006 of $337,250 (consisting of $200,000 in consulting fees, a bonus of $120,000, $6,000 for life insurance premium reimbursement and $11,250 in lieu of retirement benefits). In addition, in 2006, the Company paid medical insurance premiums on behalf of Mr. Olmstead, the value of which was $11,969. See “Certain Relationships and Related Transactions — Consulting Agreement with Dean A. Olmstead.” |
Committees of the Board of Directors The Company’s standing committees of the Board of Directors are the Audit Committee, the Compensation Committee, the Executive Committee and the Nominating Committee. The charters of these committees were filed with the Securities and Exchange Commission (the “SEC”) in a Current Report onForm 8-K filed by the Company on November 23, 2005, and they are available on the Corporate Governance section of our website at www.loral.com. These documents are also available upon written request to: Investor Relations, Loral Space & Communications Inc., 600 Third Avenue, New York, New York 10016. Information concerning these committees is set out below. Audit Committee | | | | Members: | | Arthur L. Simon (Chairman), John D. Harkey, Jr., John P. Stenbit | | Number of Meetings in 2006: | | 11 |
The Board of Directors has entered into indemnity agreementsdetermined that all of the members of the Audit Committee meet the independence and experience requirements of the SEC and the Nasdaq Stock Market. Moreover, the Board of Directors has determined that one of the Committee’s members, Mr. Simon, qualifies as an “audit committee financial expert” as defined by the SEC. The Audit Committee is generally responsible for, among other things, (i) the appointment, termination, and compensation of the Company’s independent registered public accounting firm, and oversight of their
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services; (ii) approval of audit and any non-audit services to be performed by the independent registered public accounting firm and related compensation; (iii) reviewing the scope of the audit proposed for the current year and its results; (iv) reviewing the adequacy of our disclosure and accounting and financial controls; (v) reviewing the annual and quarterly financial statements and related disclosures with its directorsmanagement and the independent registered public accounting firm; (vi) monitoring the Company’s and the independent registered public accounting firm’s annual performance under the requirements of Sarbanes Oxley Act Section 404; and (vii) reviewing the internal audit function and findings from completed internal audits. Compensation Committee | | | | Members: | | Mark H. Rachesky, M.D. (Chairman), John D. Harkey, Jr. | | | Michael B. Targoff was a member of the Compensation Committee from November 21, 2005 to March 1, 2006, when he resigned from the Committee after becoming Chief Executive Officer. Robert B. Hodes was a member of the Compensation Committee prior to his resignation from the Board of Directors on February 28, 2006. | | Number of Meetings in 2006: | | 4 |
Our Compensation Committee has general authority and responsibility for establishing our compensation policies, fixing compensation levels for our officers and other senior executives and reviewing and providing recommendations to our Board of Directors regarding compensation of our senior executive officers. These indemnity agreementsOur Compensation Committee is also responsible for recommending to our Board of Directors the adoption, amendment and termination of our compensation plans and programs and is responsible for the administration of our 2005 Stock Incentive Plan. For more information regarding our Compensation Committee, see “Compensation Discussion and Analysis.” Compensation Committee Interlocks and Insider Participation No member of the Compensation Committee is a present or former officer of or employed by the Company or its subsidiaries. None of our executive officers serves as a member of the board of directors or compensation committee of any other entity the executive officers of which entity serve either on the Company’s Board of Directors or Compensation Committee. Dr. Rachesky is a co-founder and managing principal of MHR Fund Management, affiliated funds of which have engaged in transactions with the Company. See “Certain Relationships and Related Transactions — MHR Fund Management LLC.” Executive Committee | | | | Members: | | Michael B. Targoff (Chairman), Mark H. Rachesky, M.D. | | Number of Meetings in 2006: | | 6 |
The Executive Committee performs such duties as are intendedfrom time to providetime determined and assigned to it by the full indemnity protection authorizedBoard of Directors. Nominating Committee | | | | Members: | | John D. Harkey, Jr. (Chairman), Hal Goldstein | | Number of Meetings in 2006: | | 1 |
The Nominating Committee assists the Board of Directors in (i) identifying individuals qualified to become members of the Board (consistent with criteria approved by Bermuda law.the Board) and (ii) selecting, or recommending that the Board select, the director nominees for the next annual meeting of stockholders. The Nominating Committee will consider candidates for nomination as a director recommended by stockholders, directors, officers, third party search firms and other sources. Under its charter, the Nominating Committee seeks director nominees who have demonstrated exceptional ability and judgment. Nominees will be chosen with the primary goal of ensuring that the entire Board collectively serves the interests of the stockholders. Due consideration will be given to assessing the qualifications of potential nominees and any potential
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conflicts with the Company’s interests. The Nominating Committee will also assess the contributions of the Company’s incumbent directors in connection with their potential re-nomination. In identifying and recommending director nominees, the Nominating Committee members may take into account such factors as they determine appropriate, including any recommendations made by the Chief Executive Officer and stockholders of the Company. The Nominating Committee will review all candidates in the same manner, regardless of the source of the recommendation. Individuals recommended by stockholders for nomination as a director will be considered in accordance with the procedures described under “Other Matters — Stockholder Proposals for 2008.”
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PROPOSAL #2:2 — AMENDMENT AND RESTATEMENT OF THE COMPANY’S BYE-LAWS TO EFFECT A REVERSE
LORAL SPACE & COMMUNICATIONS INC. 2005 STOCK SPLITINCENTIVE PLANShareholders will act upon a proposal to amend
The Loral Space & Communications Inc. 2005 Stock Incentive Plan (the “Plan”) became effective on November 21, 2005. Since the Company’s bye-laws to alloweffective date, the shareholders to grant discretionary authority toBoard has amended and restated the Company’s Board of Directors to determine the ratio to be employed in a reverse stock split of the Company’s common stock and to grant such authority to the Company’s Board of Directors to effect a reverse stock split at a ratio within the range from one-for-five to one-for-twenty.Approval of this proposal will require the affirmative vote, in person or by proxy, of a majority of our outstanding shares of common stock. The Board of Directors unanimously recommends a vote FOR this proposal.Introduction
The Board of Directors of the Company previously approved,Plan, subject to shareholderstockholder approval, at the Annual Meeting: (a) a proposal to effect a reverse stock split (the “Reverse Stock Split”) of the Company’s common stock, at a ratio to be determined(i) increase by the Board, from one-for-five to one-for-twenty (the “Specified Range”); and (b) an amendment (the “Amendment”) to the Company’s Third Amended and Restated Bye-Laws (the “Bye-Laws”) to allow the shareholders to give the Board authority to implement the Reverse Stock Split, at a ratio within the Specified Range and on a date prior to the 2004 Annual Meeting of Shareholders, as selected by the Board in its discretion. The form of the Amendment is attached as Appendix A to this Proxy Statement.
The Board has proposed to amend the Bye-Laws to allow the shareholders to give the Board the authority to effectuate the Reverse Stock Split. If, for example, the Board were to select a ratio of one-for-five, for every five shares of common stock held by a shareholder prior to the Reverse Stock Split, that shareholder would hold one share of common stock immediately after the Reverse Stock Split. If the Board were to select a ratio of one-for-ten, for every ten shares of common stock held by a shareholder prior to the Reverse Stock Split, that shareholder would hold one share of common stock immediately after the Reverse Stock Split. If the Board were to select a ratio of one-for-twenty, for every twenty shares of common stock held by a shareholder prior to the Reverse Stock Split, that shareholder would hold one share of common stock immediately after the Reverse Stock Split. Any fractional shares resulting from a Reverse Stock Split would be rounded up to a whole share as provided below, and outstanding options and warrants to purchase common stock, and the conversion rights of outstanding preferred stock, would be adjusted accordingly.
The purpose of the Reverse Stock Split is to increase the per share market value of the Company’s common stock. If the Reverse Stock Split and the Amendment are authorized by the shareholders, the Board will implement the Reverse Stock Split on a date prior to the 2004 Annual Meeting of Shareholders, as selected by the Board in its discretion. The Board has submitted the proposed Reverse Stock Split with the Specified Range in order to give it the flexibility at time of implementation to determine the ratio within that range that it believes will provide for the greatest marketability of the common stock. The Amendment will give the Board the authority to effect only a single Reverse Stock Split. No further action on the part of the shareholders would be required to effect the Reverse Stock Split at the ratio within the Specified Range selected by the Board.
Adjustments to the Company’s financial statements to reflect the Reverse Stock Split are expected to be minimal. The expected immediate effect in the market would be an increase in the trading price per share, although not necessarily on a proportional basis. The Reverse Stock Split will proportionately reduce1,582,000 the number of issued and outstanding shares of the Company’sour common stock andavailable for delivery in connection with awards granted or to be granted under the Plan, (ii) increase for purposes of Section 162(m) of the Internal Revenue Code the maximum number of authorized but unissued shares, depending upon the Reverse Stock Split ratio selected by Board of Directors. As of March 31, 2003, the Company had 750,000,000 shares of authorizedour common stock ofthat may be granted pursuant to options or stock appreciation rights to any employee in any calendar year from 500,000 to 1,000,000 and (iii) make such other non-material changes as it deemed appropriate. These non-material amendments, for which 435,463,502 were outstanding. If the Amendment and the Reverse Stock Split are approved by the shareholders, the Company would have had as of that date after giving effectstockholder approval is not required, relate, among other things, to the Reverse Stock Split, 150,000,000 sharesdefinition of authorized“fair market value” of our common stock for purposes of the Plan and approximately 87,092,700 outstanding if,to the elimination of the discretionary authority of the Committee to make anti-dilution adjustments to awards granted under the Plan. We are seeking the approval of our stockholders for example, the Board of Directors chooses a Reverse Stock Split of one-for-five; 75,000,000 shares of authorized common stockthis amendment and
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restatement. approximately 43,546,350 outstanding if the Board of Directors chooses a Reverse Stock Split of one-for-ten; or 37,500,000 shares of authorized common stock and approximately 21,773,175 outstanding if the Board of Directors chooses a Reverse Stock Split of one-for-twenty. However, if
The principal reason for the increase in the number of shares to be made available under the Company’s authorizedPlan is to implement certain grants of 175,700 shares of commonrestricted stock described in proposal 3 is approved by the shareholders, it will become effective immediately, and therefore the number of authorized shares of the Company’s common stock will be increased priorthat were made to the Reverse Stock Split being effected. Under the New York Stock Exchange (“NYSE”) criteria for continued listing, the NYSE will normally give consideration to de-listing a company’s stock when the average closing price of the stock is less than $1.00 over a consecutive 30-trading day period. The average closing price of the Company’s common stock on the NYSE was less than $1.00 for 30 consecutive trading days and, on August 22, 2002, the Company received notice from the NYSE that its stock price was below the NYSE’s price criteria. If the Company is unable to cure this deficiency, the common stock could be de-listed from the NYSE. De-listing of the Company’s common stock by the NYSE could result in a material adverse effect on the liquidity of its shares, have an adverse effect on the trading value and impair its ability to raise funds in the capital markets.
The NYSE has informed the Company that price is the only criteria for listing that it does not currently meet. The NYSE’s rules provide for a six-month period from receipt of notice from the NYSE to cure this deficiency. In the event the actions the Company takes to cure the deficiency require shareholder approval, such as the Reverse Stock Split, the six-month cure period is extended until this Annual Meeting of Shareholders. The Company believes that, if the Reverse Stock Split and the Amendment are approved and a Reverse Stock Split is implemented, there is a greater likelihood that the price of the common stock will be maintained at a level over $1.00 per share. The Company can give no assurances, however, that approval of the Reverse Stock Split and the Amendment and the implementation of the Reverse Stock Split will succeed in raising the average closing price of the Company’s common stock above $1.00 per share, or that such minimum price, if achieved, would be maintained.
Even though a reverse stock split, by itself, does not affect a company’s assets or prospects, reverse stock splits can result in a decrease in the aggregate market value of a company’s equity capital. The Board of Directors, however, believes that this risk is offset by the prospect that the Reverse Stock Split will improve the likelihood that the Company will be able to maintain its NYSE listing and may, by increasing the per share price, make an investment in the Company’s common stock more attractive for certain investors. If the Company’s common stock is delisted from the NYSE, trading, if any, of the Company’s common stock would thereafter have to be conducted in a non-NYSE exchange, subject to listing requirements, or in the over-the-counter market. In such event, an investor could find it more difficult to dispose of the common stock, or to obtain accurate quotations as to the market value of the Company’s common stock.
Principal Effects of the Reverse Stock Split
The proposed Reverse Stock Split will not affect any shareholder’s proportionate equity interest in the Company or the rights, preferences, privileges or priorities of any shareholder, other than an adjustment which may occur due to the rounding up of fractional shares to whole shares. A shareholder may hold less than 100 shares of the Company’s common stock after the Reverse Stock Split and as a consequence may incur greater costs associated with trading. Likewise, the Reverse Stock Split will not affect the total shareholders’ equity129 non-executive employees of the Company, or any componentsgrants of shareholders’ equity as reflected on the financial statements of the Company except (i) to reduce the number of authorized and issued and outstanding shares of common stock, (ii) to increase the par value per share of the common stock, and (iii) for an adjustment which will occur due to the costs incurred by the Company in connection with this Proxy Statement and the implementation of this proposal.
The following table illustrates the principal effects on the Company’s common stock of the Reverse Stock Split using three different ratios within the Specified Range without giving effect to the proposal to increase the number of the Company’s authorized shares of common stock described in proposal 3.
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Accordingly, your attention is directed to the table set forth on page 14 of this Proxy Statement, which describes the impact on the Company’s authorized shares of common stock and the shares available for future issuance if the proposal to increase the number of the Company’s authorized shares of common stock is approved.
NUMBER OF SHARES OF COMMON STOCK
| | | | | | | | | | | | | | | | | | | | | | One-for-Five | | One-for-Ten | | One-for-Twenty | | | Prior to Reverse | | Reverse Stock Split | | Reverse Stock Split | | Reverse Stock Split | | | Stock Split | | (1:5) | | (1:10) | | (1:20) | | | | | |
| | Authorized | | | 750,000,000 | | | | 150,000,000 | | | | 75,000,000 | | | | 37,500,000 | | | Outstanding as of March 31, 2003 | | | 435,463,502 | | | | 87,092,700 | | | | 43,546,350 | | | | 21,773,175 | | | Available for future issuance as of March 31, 2003 | | | 314,536,498 | | | | 62,907,300 | | | | 31,453,650 | | | | 15,726,825 | |
The $0.01 per share par value of the common stock would be proportionately increased as a result of the Reverse Stock Split. For example, it would be changed to $0.05 in a one-for-five Reverse Stock Split, $0.10 in a one-for-ten Reverse Stock Split and $0.20 in a one-for-twenty Reverse Stock Split.
Effect on Outstanding Options and Warrants
In its recently completed exchange offer for certain of its outstanding stock options, the Company accepted and cancelled existing stock options to purchase an aggregate of 14,884,403acquire 965,000 shares of common stock that were tenderedwe are contractually obligated to make to Messrs. Targoff, Townsend and Olmstead and grants of 31,000 shares of restricted stock in the exchange offeraggregate to our directors as part of their compensation. These grants were made in 2006 and agreed2007 subject to stockholder approval of the amendment and restatement of our Plan and are more fully described below under “New Plan Benefits.” In addition to the 1,171,700 shares underlying grants that have already been made as described above, we are seeking to increase by 410,300 the number of shares available for grant under the Plan in exchange neworder to allow us to make additional grants in the future in order to continue to attract, retain, motivate and reward our executive and non-executive employees, to fulfill existing contractual obligations and to cover the equity component of our directors’ compensation.
The material terms of the Plan as amended and restated are summarized below. This summary is qualified in its entirety by the terms of the amended and restated Plan, a copy of which is attached hereto as Appendix A. Summary of Material Terms The purpose of the Plan is to assist us in attracting, retaining, motivating and rewarding individuals who provide services to the Company and to promote the creation of long-term value for stockholders by closely aligning the interests of these individuals with those of our stockholders. The Plan allows for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and other stock-based awards. Individuals eligible to purchase an aggregateparticipate in the Plan include employees, directors and individuals who provide substantial services to the Company or any affiliate of 6,021,488the Company. There are approximately 2,100 employees, eight directors and approximately 200 other service providers eligible to participate in the Plan. The Plan may be administered by the Board or, at the Board’s discretion, by a committee of the Board consisting of at least two persons. The Board has appointed our Compensation Committee to administer the Plan. The current members of the Compensation Committee are Dr. Mark H. Rachesky and John D. Harkey, Jr. The Plan (but not outstanding awards) will terminate on November 20, 2015, after which no further awards may be granted under the Plan. We initially reserved 1,390,452 shares of our common stock for issuance of awards under the Plan. Since the adoption of the Plan, we have issued awards covering all 1,390,452 shares of common stock. The new options will bestock originally reserved. Since the issuance of these awards, a number of employees who were granted awards have terminated their employment with the Company thereby forfeiting their awards and the Company has also withheld shares in connection with the cashless exercise of options. As of April 5, 2007, 97,269 shares of common stock are available for issuance under the Plan. In order to continue to attract, retain motivate and reward our employees and directors our Board has authorized several increases in the number of shares of our common stock available for issuance under the Plan during 2006 and 2007. These increases, aggregating an additional 1,582,000 shares, were made subject to the terms and conditionsapproval of our stockholders. If approved by the stockholders, a total of 2,972,452 shares of our common stock will be available for issuance under the Plan. To the extent that awards expire or are cancelled, forfeited, settled in cash or otherwise terminated or
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concluded without delivery of the exchange offer, on September 8, 2003, andfull number of shares subject to the awards, the undelivered shares will have anagain be available for issuance pursuant to other awards. Shares withheld in payment of exercise prices or for the payment of taxes for awards will also be available for issuance pursuant to other awards. Shares issued under the Plan may include previously issued shares reacquired by us as well as newly issued shares. Recipients of awards under the Plan are selected by our Compensation Committee. Our Compensation Committee determines the terms of each award, including the exercise price per sharefor options and the dates on which awards will become vested and exercisable. The maximum number of shares for which options or stock appreciation rights may be granted under the Plan to any single individual in any one year is 1,000,000 (subject to adjustments for capital changes). Options granted under the Plan will be non-qualified stock options, which are not qualified under section 422 of the Internal Revenue Code. While we generally grant options with exercise prices equal to the fair market value of theour common stock on the date of grant, the exercise price for options may be less than fair market value but not less than our common stock’s par value on the date of grant. AsOur Compensation Committee sets the vesting schedule for each option on the date of March 31, 2003,grant. Except as provided in the option agreements covering the initial option grants made upon our emergence from Chapter 11 or as may otherwise be provided by the Compensation Committee in other option agreements, if an option holder who is employed by the Company had outstanding employee stockis terminated, (i) all vesting of their options to purchase an aggregatewill cease and any unvested options will expire and (ii) vested options will remain exercisable for three months following termination of 26,180,781 shares of common stock (excluding the new options that it has agreed to grant as a resultemployment if such termination is for any reason other than cause, death, or disability, and for twelve months if such termination is by reason of the exchange offer), withholder’s death or disability. If such termination is for cause, the holder’s vested options will expire as well, unless our Compensation Committee determines otherwise. In all cases, no options may be exercised after the expiration of ten years following the date of grant. The purchase price upon the exercise prices per share ranging from $1.885of options may be paid in cash or by certified bank check or cashier’s check, or, at the discretion of the Compensation Committee, by tendering stock held by the optionee, by cashless exercise through a broker, by having the Company withhold that number of shares subject to $27.281 per share, and warrantsexercise having a value equal to purchase an aggregate of 6,172,255 shares of common stock with an averagethe exercise price per share equalof the shares subject to $2.32. Underexercise or by any other means approved by the Compensation Committee. Options granted under the Plan are evidenced by a written option agreement between the optionee and the Company, the terms of which are determined by the Compensation Committee. The material terms of stock appreciation rights are set by the Compensation Committee on the date of grant. As with options, all stock appreciation rights will expire no later than ten years following the date of grant. The provisions pertaining to the vesting and warrants, whenexpiration of stock appreciation rights following termination of employment are similar to those for options. The terms and conditions, including vesting conditions, of restricted stock are determined by the Reverse Stock Split becomes effective,Compensation Committee and evidenced by a restricted stock agreement. Recipients of restricted stock will generally have the numberrights and privileges as other stockholders, including the right to vote such shares. Shares of restricted stock are generally non-transferable and subject to forfeiture upon termination of employment until they vest. The Compensation Committee will determine whether dividends will accrue or be currently paid on shares underlying the optionsof restricted stock and warrantswhether any accrued dividends will be proportionately reducedsubject to forfeiture along with such shares. Unless otherwise determined by the Compensation Committee, in the event that a restricted stockholder’s employment with the Company is terminated for any reason, all vesting of restricted stock will cease and all unvested shares will expire. The material terms of restricted stock units are set by the exercise price per share will be proportionately increased dependingCompensation Committee on the Reverse Stock Split ratio selected bydate of grant. Each restricted stock unit represents the Boardright to receive the value of Directors. For example: with a one-for-five Reverse Stock Split, the number of shares underlying the options and warrants will be reduced to one-fifth of the number currently underlying them and the exercise price per share will be increased by five times; with a one-for-ten Reverse Stock Split, the number of shares underlying the options and warrants will be reduced to one-tenth of the number currently underlying them and the exercise price per share will be increased by ten times; and with a one-for-twenty Reverse Stock Split, the number of shares underlying the options and warrants will be reduced to one-twentieth of the number currently underlying them and the exercise price per share will be increased by twenty times.Effect on Series C Preferred Shares
As of March 31, 2003, the Company had outstanding 3,745,485 shares of Series C Convertible Redeemable Preferred Stock due 2006 (the “Series C Preferred Shares”). The Series C Preferred Shares are convertible at the option of the holder into the Company’s common stock. The current conversion price is $20.00 per share, which results in a conversion ratio of 2.5 shares of the Company’s common stock for the $50.00 liquidation preference per share of Series C Preferred Stock. At this conversion price the outstanding shares of the Series C Preferred Stock are convertible into an aggregate of 9,363,713 shares of the Company’s common stock. Under the terms of the Series C Preferred Shares, the outstanding Series C Preferred Shares will, for example, become convertible at: a conversion price of $100, into an
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aggregate of 1,872,743 shares of the Company’s common stock if a Reverse Stock Split of one-for-five is selected by the Board of Directors; a conversion price of $200, into an aggregate of 936,372 shares of the Company’s common stock if a Reverse Stock Split of one-for-ten is selected by the Board of Directors; or a conversion price of $400, into an aggregate of 468,186 shares of the Company’s common stock if a Reverse Stock Split of one-for-twenty is selected by the Board of Directors. The approval of the holders of the Series C Preferred Shares is not required for the Amendment or the Reverse Stock Split.
Effect on Series D Preferred Shares
As of March 31, 2003, the Company had outstanding 734,135 shares of Series D Convertible Redeemable Preferred Stock due 2007 (the “Series D Preferred Shares”). The Series D Preferred Shares are convertible at the option of the holder into the Company’s common stock. The current conversion price is $19.8303 per share, which results in a conversion ratio of 2.5214 shares of the Company’s common stock for the $50.00 liquidation preference per share of Series D Preferred Stock. At this conversion price the outstanding shares of the Series D Preferred Stock are convertible into an aggregate of 1,851,044 shares of the Company’s common stock. Under the terms of the Series D Preferred Shares, the outstanding Series D Preferred Shares will, for example, become convertible at: a conversion price of $99.1515, into an aggregate of 370,209 shares of the Company’s common stock if a Reverse Stock Split of one-for-five is selected by the Board of Directors; a conversion price of $198.303, into an aggregate of 185,105 shares of the Company’s common stock if a Reverse Stock Split of one-for-ten is selected by the Board of Directors; or a conversion price of $396.606, into an aggregate of 92,553 shares of the Company’s common stock if a Reverse Stock Split of one-for-twenty is selected by the Board of Directors. The approval of the holders of the Series D Preferred Shares is not required for the Amendment or the Reverse Stock Split.
Exchange of Shares; Rounding Up of Fractional Shares
Depending on the ratio within the Specified Range selected by the Board of Directors, a specified number of shares of the Company’s issued common stock would be converted and reclassified though a Reverse Stock Split into one share of our common stock. No certificates or scrip representing fractional share interests in the Company’s common stock will be issued, and no such fractional share interest will entitle the holder thereof to any rights as a stockholder of the Company. In lieu of any such fractional share interest, upon surrender of the certificates representing a holder’s common stock, such holder will receive a single whole share. All shares of the Company’s common stock held by a shareholder will be aggregated, and one new stock certificate will be issued, unless The Bank of New York (the “Transfer Agent”) is otherwise notified by the shareholder. Shareholders will be notified on or after the date the Reverse Stock Split becomes effective (the “Effective Date”), that the Reverse Stock Split has been effected. The Transfer Agent will act as the Company’s exchange agent (the “Exchange Agent”) for shareholders in implementing the exchange of their certificates.
As soon as practicable after the Effective Date, shareholders will be notified of the Reverse Stock Split and provided the opportunity (but will not be obligated) to surrender their certificates representing pre-Reverse Stock Split shares of common stock to the Exchange Agent in exchange for certificates representing post-Reverse Stock Split shares of common stock. Shareholders will not receive certificates representing post-Reverse Stock Split shares of common stock unless and until the certificates representing their pre-Reverse Stock Split shares of common stock are surrendered and they provide such evidence of ownership of such shares as the Company or the Exchange Agent may require. Shareholders should not forward their certificates to the Exchange Agent until they have received notice from the Company that the Reverse Stock Split has become effective. Beginningissued on the Effective Date, each certificate representing pre-Reverse Stock Splitdate of grant of a restricted stock unit award and recipients do not acquire the rights or privileges of stockholders. Restricted stock units may be settled in cash or shares of common stock. The Compensation Committee may determine to grant certain dividend equivalent rights along with restricted stock will be deemedunits. The provisions pertaining to the vesting and expiration of restricted stock units are similar to those for all corporate purposesrestricted stock. With respect to evidence ownershipgrants of restricted stock units under the appropriate number of post-Reverse Stock Split shares of common stock.
No service charge shall be payable by shareholdersPlan, in connectionthe event that a unit holder’s employment with the exchange of certificates,Company is terminated for any reason, all costs of which will be borne and paid by the Company.unvested restricted stock
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units will be forfeited, and vested units shall be settled as soon as practicable following the date of such termination; if such unit holder’s termination was for cause, all restricted stock units will be forfeited (whether or not then vested). The Compensation Committee may grant other stock-based awards, including bonus stock without restrictions, as it may determine from time to time are consistent with the purposes of the Plan. In the event of a Change in Control (as defined in the Plan) of the Company, all outstanding awards will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement. In the event of a Change in Control, the Compensation Committee may cancel any or all outstanding awards in exchange for a cash payment to each award holder having a value equal to the value of each such award at the time of such Change in Control (or without any payment in the event that an outstanding award has no value at the time of such Change in Control). Following a sale of all or substantially all of the common stock or assets of Loral Skynet Corporation (a “Skynet Sale Event”) or Space Systems/Loral, Inc. (an “SS/L Sale Event”), all outstanding awards held by employees or service providers of Loral Skynet or SS/L, as applicable, will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement. In addition, options held by employees or service providers of Loral Skynet or SS/L, as applicable, will remain exercisable following the sale for the shorter of (i) one year following the sale or (ii) the remaining term of the stock option as set forth in the applicable award agreement. For employees of Loral assigned to Loral’s corporate headquarters, if the Skynet Sale Event or SS/L Sale Event occurs on or prior to November 21, 2007, one-third (1/3) of all outstanding unvested awards held by employees of Loral assigned to Loral’s corporate headquarters will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement. The Board may amend the Plan at any time, provided that no amendment may increase the maximum number of shares that may be issued pursuant to awards under the Plan (except as contemplated by the antidilution adjustment provisions under the Plan) without further stockholder approval. The Board’s power to amend the Plan without stockholder approval is also limited to the extent that any such amendment would otherwise violate the stockholder approval requirements of the national securities exchange on which our common stock is listed. No such plan amendment may impair the rights under any award unless the award holder consents to such amendment in writing. The Committee may amend the terms of outstanding awards at any time, provided that no such amendment may impair the rights of award holders unless they consent in writing. On April 16, 2007, the closing market value of a share of our common stock was $51.05. Certain Federal Income Tax ConsequencesA summary
The following is a brief discussion of the United States federal income tax consequences for options under the Plan. The Plan is not qualified under Section 401(a) of the Reverse Stock Split is set forth below. The discussion is based on present United States federal income tax law. TheInternal Revenue Code. This discussion is not intended to be nor should it be relied onexhaustive and does not describe state or local taxes consequences. Except as a comprehensive analysis ofnoted below for corporate “insiders,” with respect to non-qualified stock options, (1) no income is realized by the tax issues arising from or relating tooptionee at the Reverse Stock Split. Income tax consequences to particular shareholders may vary fromtime the United States federal tax consequences describedoption is granted; (2) generally, below.Shareholders should consult their own tax advisors as toat exercise, ordinary income is realized by the effect of the contemplated reverse stock split under applicable United States federal, state, local and foreign tax laws.
The Reverse Stock Split will constitute a “recapitalization” to the Company and its shareholders to the extent that issued shares of the Company’s common stock are exchanged for a reduced number of shares of the Company’s common stock. Therefore, neither the Company nor its shareholders will recognize any gain or loss for federal income tax purposes as a result thereof.
The shares of the Company’s common stock to be issued to each shareholder will haveoptionee in an aggregate basisamount equal to the aggregate basisdifference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of such stock held by such shareholder immediately priorexercise, and the optionee’s employer is generally entitled to a tax deduction in the Effective Date. A shareholder’s holding period forsame amount subject to applicable tax withholding requirements; and (3) at sale, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares of the Company’s common stock to be issued ashave been held.
As a result of the Reverse Stock Split will include the holding period for the sharesrules under Section 16(b) of the Company’s common stock held thereby immediately priorSecurities Exchange Act of 1934, “insiders” (as defined in Section 16(b)), depending upon the particular exemption from the provisions of Section 16(b) utilized, may not receive the same tax treatment as set forth above with respect to the Effective Date provided that such sharesgrantand/or exercise of common stock were held byoptions. Generally, insiders will not be subject to taxation until the shareholder as capital assets on the Effective Date.expiration of any period during which they are
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subject to the liability provisions of Section 16(b) with respect to any particular option. Insiders should check with their own tax advisers to ascertain the appropriate tax treatment for any particular option. PROPOSAL #3: INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCKNew Plan BenefitsOn March 28, 2006, in connection with his appointment as our Chief Executive Officer, the Compensation Committee granted to Mr. Targoff, under the terms of the Plan, an option to purchase 825,000 shares of our common stock. The shareholders will act uponexercise price for the options granted to Mr. Targoff is $26.915 per share, the fair market value of our common stock on the grant date, and the options expire on March 28, 2011. The material terms of Mr. Targoff’s options are set forth in the Compensation Discussion and Analysis below under “Employment Agreements — CEO — Michael B. Targoff.” On June 14, 2006, in connection with an amendment to his employment agreement, the Compensation Committee granted to our Chief Financial Officer, Mr. Townsend, an option to purchase 20,000 shares of our common stock. The exercise price for the options granted to Mr. Townsend is $27.135 per share, the fair market value of our common stock on the grant date, and the options expire on June 14, 2013. The other material terms of Mr. Townsend’s options are set forth in the Compensation Discussion and Analysis below under “Employment Agreements — Other Named Executive Officers.” On June 14, 2006, in connection with his entering into a proposalconsulting agreement, the Compensation Committee granted to increaseour director, Mr. Olmstead, options to purchase 120,000 shares of our common stock. The exercise price for the options granted to Mr. Olmstead is $27.135 per share, the fair market value of our common stock on the grant date, and the options expire on June 14, 2013. The material terms of Mr. Olmstead’s options are set forth below under “Certain Relationships and Related Transactions — Consulting Agreement with Dean A. Olmstead.” On February 28, 2007, the Compensation Committee approved grants of 175,700 shares of restricted stock to non-executive employees of the Company. On March 20, 2007, the Board of Directors approved grants of 31,000 shares of restricted stock to our non-executive directors as a group. 16,000 shares were granted as compensation for services rendered during 2006, and 15,000 shares were granted as part of their compensation for 2007. All of these awards were and remain subject to the approval of the amendment and restatement of the Plan by our stockholders. As of the date of this Proxy Statement, other than the awards described above, no executive officer, employee or director of the Company has been granted any awards under the Plan. Inasmuch as awards under the Plan may be granted in the future at the sole discretion of the Compensation Committee, such benefits under the Plan are not presently determinable. Under Mr. Targoff’s employment agreement with the Company, Mr. Targoff is entitled in 2008, provided he has earned his target bonus for 2006 and 2007, to an equity award with a value equal to $2,875,000 (one-half of the value of the grant awarded to him in March 2006). This award may be either an option to purchase common stock with terms similar to his March 2006 option or other equity award. We are required under his employment agreement to seek stockholder approval of an amendment to the Plan to provide for sufficient shares to cover this award based on our best estimate at the time of the amendment of the number of authorizedshares necessary to implement this award. We are currently planning to issue Mr. Targoff’s 2008 equity award, assuming it is earned, in the form of restricted stock and have estimated, assuming a market value of our common stock of $50 per share, that we will need 57,500 shares to cover this award. Under Mr. Townsend’s employment agreement with the Company, we have agreed to grant to Mr. Townsend annually a target option grant or other equity award having a Black-Scholes value equal to his base salary then in effect multiplied by 1.4. We are currently planning to issue Mr. Townsend’s equity award for 2008 in the form of restricted stock and have estimated, assuming a market value of our common stock of $50 per share, that we will need 16,100 shares to cover this award. Also, our directors as a group will be entitled to an aggregate of 15,000 shares of commonrestricted stock from 750,000,000as part of their compensation for 2008. If we are not able to 1,250,000,000.Approval of this proposal will require the affirmative vote, in personattain stockholder approval on or by proxy, of a majority of the shares represented in person or by proxy and voting at the Annual Meeting. The Board of Directors unanimously recommends a vote FOR this proposal.Introduction
The Board of Directors of the Company previously approved, subject to shareholder approval at the Annual Meeting, a proposal to increase the number of authorized shares of common stock from 750,000,000 to 1,250,000,000. The Board of Directors believes that it would be in the Company’s best interestsbefore June 30, 2007 to increase the number of shares available for award under our 2005 Stock Incentive Plan in order to implement Mr. Targoff’s 2006 stock option grant and his 2008 equity award if earned, Mr. Targoff will be able to terminate his employment with us for “good reason” and will be entitled to the severance payments described below in “Executive Compensation — Compensation Tables — Potential Change in Control and other Post Employment Payments — CEO.” If we are not able to attain stockholder approval on or before June 30, 2007 to increase the
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number of shares available for award under our 2005 Stock Incentive Plan in order to implement the 2006 stock option grant to Mr. Townsend, Mr. Townsend’s base salary and target bonus opportunity will be restored to the levels in effect prior to the amendment to his employment agreement and he will be entitled to receive a one-time cash payment equal to the difference in base salary and annual bonus he would have received had the changes never gone into effect and the base salary and annual bonus that he actually received after giving effect to the changes. | | | | | | | | | | | | | Name and Position | | | Dollar Value | | | | Number of Units | | | Michael B. Targoff, Vice Chairman and Chief Executive Officer | | | | N/A | | | | | 825,000 (stock options | ) | | Richard J. Townsend, Executive Vice President and Chief Financial Officer | | | | N/A | | | | | 20,000 (stock options | ) | | Dean A. Olmstead, Director and Consultant | | | | N/A | | | | | 120,000 (stock options | ) | | Non-Executive Directors | | | $ | 1,547,520 | (1) | | | | 31,000 (restricted stock | ) | | Non-Executive Employees | | | $ | 8,178,835 | (2) | | | | 175,700 (restricted stock | ) | | | | | | | | | | | | |
| | | | (1) | | Dollar value is based on the $49.92 closing price of our common stock on March 20, 2007, the date of approval of the grant by our Board of Directors. | | | (2) | | Dollar value is based on the $46.55 closing price of our common stock on February 28, 2007, the date of approval of the grant by our Board of Directors. |
2005 Option Grants On November 21, 2005, upon our emergence from Chapter 11, we granted stock options to our employees covering an aggregate of 1,390,452 shares of our common stock. All of these options were granted for no consideration from the grantees. These options vest over four years at the rate of 25% per year on each of the Company’s common stock thatfirst four anniversaries of the Company is authorizedeffective date of our plan of reorganization (November 21, 2005), subject to issue. The Board of Directors believes that the availability of additional authorized but unissued shares will provide the Company with the flexibility to issue common stock for proper corporate purposes which may be identifiedearlier vesting upon a change in control or certain specified sale events as defined in the future, such as to make mandatory redemption payments in the formPlan. The per-share exercise price for all of common stock on the Company’s Series C Convertible Redeemable Preferred Stock due 2006 (the “Series C Preferred Shares”) and Series D Convertible Redeemable Preferred Stock due 2007 (the “Series D Preferred Shares,” and together with the Series C Preferred Shares, the “Preferred Shares”), to raise equity capital, to make acquisitions through the use of stock, to establish strategic relationships with other companies, to repurchase issued and outstanding debt obligations, to adopt additional employee benefit plans or reserve additional shares for issuance under such plans where the Board of Directors determines it advisable to do so, without the necessity of soliciting further shareholder approval (except as may be required by applicable laws and the NYSE with respect to such transactions or issuances).Principal Effects of the Authorized Share Increase
these options is $28.441. The additional 500,000,000 shares of common stock for which authorization is sought would be identical to the Company’s existing shares of common stock. The increase in the number of authorized shares and any future issuances of common stock would not affect the rights of holders of currently outstanding common stock, except for effects incidental to increasingtable below sets forth the number of shares of common stock outstanding. Holders of common stock do not have preemptive rights to subscribe to additional securities that may be issued by the Company, which means that current holders of common stock do not have a prior right to purchase any new issue of capital stock of the Company in order to maintain their proportionate ownership thereof. In addition, if the Board of Directors elects to issue additional shares of common stock, such issuance could have a dilutive effect on earnings per share and would have a dilutive effect on voting power and share holdings of current shareholders. If the increase in the number of authorized shares is approved by the shareholders, the increase will become effective immediately. Therefore, the increase in the number of authorized shares will be effected priorunderlying these options granted to the date on which the Reverse Stock Split is effected. As a result, upon the effectivenessindividuals and classes of the Reverse Stock Split, the number of authorized shares of common stock will then be proportionately reduced from 1,250,000,000, depending on the Reverse Stock Split ratio selected by the Board of Directors.individuals listed. | | | | | | | 2005 Stock Option Awards | | | | | Number of Shares
| | | | | Underlying
| | | Name and Position | | | Options Granted | | Michael B. Targoff
Vice Chairman and Chief Executive Officer | | | | 106,952 | * | Eric J. Zahler
President and Chief Operating Officer | | | | 120,000 | * | Richard J. Townsend
Executive Vice President and Chief Financial Officer | | | | 85,000 | * | C. Patrick DeWitt
Vice President and Chief Executive Officer of Space Systems/Loral, Inc. | | | | 75,000 | * | Avi Katz
Vice President, General Counsel and Secretary | | | | 50,000 | | Bernard L. Schwartz
Chairman of the Board and Chief Executive Officer (retired) | | | | 0 | | | All Current Executive Officers as a Group | | | | 526,952 | * | | All Current Non-Executive Directors as a Group | | | | 0 | | | All Employees, Including Current Officers Who Are Not Executive Officers as a Group | | | | 1,390,452 | * | | | | | | |
| | | | * | | Represents more than 5% of all awards under the Plan. |
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The following table illustrates the proposed effects on the Company’s common stock if proposal 3 is approved and the Reverse Stock Split effected, using three different ratios within the Specified Range:
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NUMBER OF SHARES OF COMMON STOCK
| | | | | | | | | | | | | | | | | | | | | | One-for-Five | | One-for-Ten | | One-for-Twenty | | | Prior to Reverse | | Reverse Stock Split | | Reverse Stock Split | | Reverse Stock Split | | | Stock Split | | (1:5) | | (1:10) | | (1:20) | | | | | |
| | Authorized | | | 1,250,000,000 | | | | 250,000,000 | | | | 125,000,000 | | | | 62,500,000 | | | Outstanding as of March 31, 2003 | | | 435,463,502 | | | | 87,092,700 | | | | 43,546,350 | | | | 21,773,175 | | | Available for future issuance as of March 31, 2003 | | | 814,536,498 | | | | 162,907,300 | | | | 81,453,650 | | | | 40,726,825 | |
The Board is required to make any determination to issue common stock based upon its judgment as to the best interests of the Company. The increase in the number of authorized shares of common stock could render more difficult any attempted takeover of the Company that is opposed by the Board of Directors. The Board of Directors may issue, without further action or approval of the shareholders, additional shares of common stock to the public (except as may be required by applicable laws and the NYSE with respect to such issuances), thereby increasing the number of shares that would have to be acquired to effect a change of control of the Company. This proposal to increase the number of authorized shares of common stock has not been prompted by any effort by anyone to gain control of the Company, and the Company is not aware of any such effort. In addition, this proposal is not part of any plan by the Company to recommend a series of anti-takeover measures and the Company does not currently contemplate recommending the adoption of other measures that could be construed to affect the ability of third parties to take over or change control of the Company.The Series C Preferred Shares and Series D Preferred Shares have mandatory redemption dates in 2006 and 2007, respectively. The Company has the right to make mandatory redemption payments to the holders of Preferred Shares in either cash or common stock, or a combination of the two. If the Company elects to make the mandatory redemption payments in whole or in part in common stock, the shares of common stock delivered will be valued at the then current market value of the common stock, which is defined under the terms of the Preferred Shares as the average volume-weighted daily trading price of the common stock for the ten business days ending on the second business day prior to the date of the mandatory redemption payment. Based upon the fair market value of the Company’s common stock at December 31, 2002 (approximately $0.38 per share), the Company did not have available a sufficient number of authorized shares of its common stock to effect payment of the total mandatory redemptions in common stock in 2006 and 2007. Accordingly, Equity Compensation Plan Information
(as of December 31, 2002, the Company classified an aggregate of $125 million of the Preferred Shares outside the shareholders’ deficit section of the Company’s balance sheet. The Company’s total shareholders’ deficit was $354 million at December 31, 2002. Had the proposed increase in the number of shares of authorized common stock been effected as of December 31, 2002, none of the Preferred Shares would have been classified outside the shareholders’ deficit section of the balance sheet, and the Company’s shareholders’ deficit would have been $229 million. The exact number of shares of the Company’s common stock that may be issued on a mandatory redemption date cannot be determined at this time. That number will depend on a number of factors not known today, such as the price of the Company’s common stock and the number of Preferred Shares outstanding at that time. The amount, if any, of the Preferred Shares classified outside the shareholders’ (deficit) equity section will vary in future periods depending on these factors. Therefore, even if the share increase proposal is approved by shareholders and effected, there can be no assurance that some or all of the Preferred Shares will not be classified outside the shareholders’ (deficit) equity section of the Company’s balance sheet in future periods or that the Company will have a sufficient number of shares of common stock to make all or a substantial portion of the mandatory redemption payments in common stock.2006)
| | | | | | | | | | | | | | | | | | | | | | | | | | | Number of
| | | | | Number of
| | | | | | Securities
| | | | | Securities to be
| | | | | | Remaining Available
| | | | | Issued Upon
| | | Weighted Average
| | | for Future Issuance
| | | | | Exercise of
| | | Exercise Price of
| | | Under Equity
| | | | | Outstanding
| | | Outstanding
| | | Compensation Plan
| | | | | Options, Warrants
| | | Options, Warrants
| | | (Excluding Securities
| | Plan category | | | and Rights | | | and Rights | | | Reflected in Column (a)) | | | | | (a) | | | (b) | | | (c) | | Equity compensation plans approved by security holders | | | | | | | | | | | | | | | | Equity compensation plans not approved by security holders(1) | | | | 1,310,452 | | | | $ | 28.441 | | | | | 80,000 | | Total | | | | 1,310,452 | | | | $ | 28.441 | | | | | 80,000 | | | | | | | | | | | | | | | | | | |
| | | | (1) | | Our 2005 Stock Incentive Plan was approved in connection with the confirmation of our plan of reorganization on August 1, 2005 by the United States Bankruptcy Court for the Southern District of New York. |
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE THEIR SHARES FORTHE PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE 2005 STOCK INCENTIVE PLAN.
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The approval of the holders of the Series C Preferred Shares or the Series D Preferred Shares is not required for this proposal.
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PROPOSAL #4:#3 — INDEPENDENT AUDITORSREGISTERED PUBLIC ACCOUNTING FIRMShareholders
Stockholders will act upon a proposal to ratify the selection of Deloitte & Touche LLP as the independent auditorsregistered public accounting firm of the Company. If the shareholders,stockholders, by the affirmative vote of the holders of a majority of the shares represented in person or by proxy and voting at the Annual Meeting, do not ratify the selection of Deloitte & Touche LLP, the selection of the independent auditorsregistered public accounting firm will be reconsidered by the Audit Committee. The Board of Directors unanimously recommends a vote FOR this proposal. The Audit Committee has selected Deloitte & Touche LLP certified public accountants, as the independent auditorsregistered public accounting firm of the Company for the fiscal year ending December 31, 2003.2007. Deloitte & Touche LLP has advised the Company that it has no direct or indirect financial interest in the Company or any of its subsidiaries and that it has had, during the last three years, no connection with the Company or any of its subsidiaries other than as our independent auditorsregistered public accounting firm and certain other activities as described below. Financial Statements and Reports The financial statements of the Company for the year ended December 31, 2002,2006 and report of the auditorsindependent registered public accounting firm will be presented at the Annual Meeting. Deloitte & Touche LLP will have a representative present at the meeting who will have an opportunity to make a statement if he or she so desires and to respond to appropriate questions from shareholders.stockholders. During 20022005 and 2001,2006, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) provided services consisting of the audit of the annual consolidated financial statements and internal controls over financial reporting of the Company, review of the quarterly financial statements of the Company, stand-alone audits of subsidiaries, foreign statutory reports, accounting consultations and consents and other services related to SEC filings and registration statements filed by the Company and its subsidiaries and other pertinent matters. Deloitte also provided other consultingpermitted services to the Company in 20022005 and 20012006 consisting primarily of tax consultation and related services. The aggregate fees billed or expected to be billed by Deloitte for professional services rendered for the audit of the Company’s annual consolidated financial statements and internal controls over financial reporting for the fiscal years ended December 31, 20022005 and 2001 and2006, for the reviews of the condensed consolidated financial statements included in the Company’s Quarterly Reports onForm 10-Q for the 20022005 and 20012006 fiscal years, for stand-alone and statutory audits of our subsidiaries and for accounting research and consultation related to the audits and reviews totaled approximately $1,347,000$6,258,000 and $1,105,000,$3,614,000, respectively. These fees were approved by the Audit Committee. Audit-Related Fees The aggregate fees billed by Deloitte for audit-related services for the fiscal years ended December 31, 20022005 and 20012006 were $200,000$75,900 and $277,000,$100,000, respectively. These fees related to research and consultation on various filings with the fees for stand-alone audits ofSEC and acquisition related due diligence reviews and were approved by the Company’s subsidiaries.Audit Committee. The aggregate fees billed by Deloitte for tax-related services for the fiscal years ended December 31, 20022005 and 20012006 were $231,000$194,000 and $115,000,$45,000, respectively. These fees related to tax consultation and related services.services and were approved by the Audit Committee.
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The aggregate fees billed or expected to be billed by Deloitte for services rendered to the Company, other than the services described above under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the fiscal years ended December 31, 20022005 and 20012006 totaled approximately $171,000$380,000 and $0,$15,000, respectively. These fees for 2005 related to the designChapter 11 filing and implementation of tax system software.related filings and activities and for 2006 related to consulting on internal control matters. These fees were approved by the Audit Committee. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining Deloitte’s independence. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE THEIR SHARES FORTHE PROPOSAL TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2007.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met seven times during 2002. Each director attended at least 75% of the meetings of the Board and of the meetings of the Board committees on which he or she served as a member in 2002.
The Board of Directors has standing audit, compensation and stock option and executive committees. The following shows the membership and functions of the various committees:
| | | Audit Committee
| Members: | | Malvin A. Ruderman, E. Donald Shapiro, Arthur L. Simon (Robert B. Hodes resigned from the Audit Committee on July 16, 2002) | Number of Meetings in 2002: | | 7 | Functions: | | Reviews and acts or reports to the Board of Directors with respect to various auditing and accounting matters, including the review of Loral’s audited financial statements, review of Loral’s interim financial results, the selection of Loral’s independent auditors, the accounting and financial practices and controls of Loral, audit procedures and findings and the nature of services performed for Loral by, and the fees paid to, the independent auditors. | Compensation and Stock Option Committee | Members: | | Sally Minard, E. Donald Shapiro, Arthur L. Simon | Number of Meetings in 2002: | | 1 | Functions: | | Reviews and provides recommendations to the Board of Directors regarding executive compensation matters and is responsible for the administration of Loral’s Stock Option Plans. | Executive Committee | Members: | | Bernard L. Schwartz, Robert B. Hodes, Gershon Kekst | Number of Meetings in 2002: | | 6 | Functions: | | The Executive Committee, between meetings of the Board of Directors, exercises all powers and authority of the Board of Directors in the management of Loral’s business affairs that may be lawfully delegated. |
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REPORT OF THE AUDIT COMMITTEE The Directors who serve on the Audit Committee are all “independent” for purposes of NYSENasdaq listing standards. That is,standards and applicable SEC rules and regulations. Among its functions, the Audit Committee reviews the financial reporting process of the Company on behalf of the Board of DirectorsDirectors. Management has determined that nonethe primary responsibility for the financial statements and the financial reporting process. The independent registered public accounting firm is responsible for expressing opinions on the conformity of us has a relationshipour financial statements to accounting principles generally accepted in the Company that may interfereUnited States of America, on management’s annual assessment of internal control over financial reporting, based on criteria established in “Internal Control — An Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (collectively, “COSO”), and on the effectiveness, in all material respects, of internal control over financial reporting, based on criteria established by COSO. We have reviewed and discussed with our independence frommanagement the CompanyCompany’s Annual Report onForm 10-K for the year ended December 31, 2006, which includes the Company’s audited consolidated financial statements for the year ended December 31, 2006, and its management.management’s assessment of, and the independent audit of, the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. For 2002,2006, the Audit Committee operated under a written charter adopted by the Board of Directors which was includedpreviously filed with the SEC in last year’s proxy statement.a Current Report onForm 8-K filed on November 23, 2005. All of the responsibilities enumerated in such charter were fulfilled for the year ended December 31, 2002. On March 27, 2003, in order to comply with the Sarbanes-Oxley Act of 2002 and requirements of the NYSE, the Board of Directors adopted a revised charter which is included in Appendix B to this Proxy Statement.2006. We have reviewed and discussed with management and the independent auditors,registered public accounting firm, Deloitte & Touche LLP, the Company’s audited financial statements as of and for the year ended December 31, 2002.2006. We have discussed with the independent auditors,registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed by the Sarbanes-Oxley Act of 2002 and Statement on Auditing Standards (“SAS”) No. 61, Communication with Audit Committees, as amended by SAS 89 and SAS 90, of the Auditing Standards Board of the American Institute of Certified Public Accountants (see Appendix B for a listingandRule 2-07,Communication with the Audit Committee, of such matters).Regulation S-X of the SEC. We have received and reviewed the written disclosures and the letter from Deloitte & Touche LLP, required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and have discussed with the auditorsindependent registered public accounting firm the auditors’firm’s independence. Based on the activities referred to above, we recommended to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2002.2006. The Audit Committee Arthur L. Simon, Chairman
John D. Harkey, Jr.
John P. Stenbit
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EXECUTIVE COMPENSATION Compensation Discussion and Analysis The Compensation Committee Our Compensation Committee has primary responsibility for overseeing our executive compensation program, including compensation of our named executive officers or NEOs listed in the compensation tables that follow. Our Compensation Committee is composed of independent directors, as determined by Nasdaq listing standards. The Committee’s responsibilities are set forth in the Committee charter, which is filed as Exhibit 99.3 to our Current Report onForm 8-K filed on November 23, 2005 and is available on our corporate website at www.loral.com. In order to fulfill its responsibilities pertaining to executive and director compensation, the Committee: | | | | | Members• | Reviews and recommends to the Board the compensation of officers and other senior executives of the Audit CommitteeCompany; | | | | | Arthur L. Simon, Chairman• | Proposes the adoption, amendment and termination of compensation plans and programs and oversees the administration of these plans and programs; | | | | Malvin A. Ruderman• | Reviews, approves and recommends to the Board the form and amount of all compensation awards provided to eligible executives pursuant to our compensation plans; and | | | | E. Donald Shapiro• | Reviews and recommends to the Board the form and amount of compensation paid to the Company’s outside directors. |
In 2006, the Compensation Committee met four times and acted by unanimous written consent twice. Objectives and Philosophy Our executive compensation program is designed to (i) attract and retain high quality executive officers who are critical to our long-term success and (ii) place an amount of each executive officer’s pay at risk so that he or she is rewarded for achieving our short-term business and long-term strategic goals. The Committee determines target total direct compensation levels for our named executive officers based on several factors, including: | | | | • | Each executive officer’s role and responsibilities; | | | • | The total compensation of executives who perform similar duties at other companies; | | | • | The total compensation for the executive officer during the prior fiscal year; | | | • | How the executive officer may contribute to our future success; and | | | • | Other circumstances as appropriate. |
“Total direct compensation” is comprised of base salary, annual bonus compensation (identified in the Summary Compensation Table below as Non-Equity Incentive Plan Compensation) and long-term incentive compensation in the form of equity awards. Each of these elements of total direct compensation is discussed in more detail below. We compete for executive talent in a highly specialized industry and often against firms that are significantly larger in size and scope than us. The Committee’s goal is to design a compensation program that rewards our NEOs for performance in relationship to achievement of corporate and personal performance goals. Due to an extended period of time during which we were unable to provide meaningful long-term incentives to our NEOs resulting from our Chapter 11 reorganization, short-term compensation (base salary and annual bonus compensation) for our NEOs has historically fallen within or near the 75th percentile for comparable positions at our peers if target levels for the performance measures are achieved (see “Compensation Committee Practices” below for a description of our peer companies). In the future, with respect to newly hired executives, total direct compensation levels for our NEOs will be designed and is expected to fall
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generally between the 50th and 75th percentile for comparable positions at our peer companies if target levels for the performance measures are achieved. REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The goals
In evaluating compensation for our NEOs, the Committee also considers other benefits and potential compensation payable to executive officers in certain circumstances. These other benefits and compensation include retirement benefits and potential benefits which may be payable in a situation involving a change of control of the Company. The nature of this other compensation program establishedis different from total direct compensation because it involves, in the case of retirement benefits, compensation payable only in the future, and, in the case of change of control compensation, compensation which is contingent upon the possible occurrence of future events. Retirement benefits are intended both to recognize long-term service and to keep our overall pay packages for our NEOs comparable to that of our peer companies so that we can attract and retain highly qualified executive officers. We maintain a defined benefit pension plan for our NEOs and we maintain a defined benefit supplemental executive retirement plan, pursuant to which we make contributions for the benefit of our NEOs. Our supplemental executive retirement plan is intended to make up for the limitations on covered compensation and potential benefits which apply under the Internal Revenue Code to our qualified retirement plans, so that the total actual retirement benefits that are earned and received by our NEOs are not artificially limited. We also maintain a 401(k) savings plan. The Committee believes that these retirement plans, in aggregate, are necessary to compete effectively with our peer companies. As with other companies, we provide various other benefits to our NEOs. Many of these, such as health and life insurance, are provided to most of our U.S. salaried employees on substantially the same basis. We also provide excess life insurance and excess medical coverage to our NEOs. In many respects, these additional benefits have historically been driven by reference to the Company’s past practices as well as competitive market forces. Upon our emergence from Chapter 11 in November 2005, we entered into two year employment agreements with each of our NEOs (other than Mr. Targoff who was not an officer at the time). On March 28, 2006, we entered into an employment agreement with Mr. Targoff for a term of approximately five years. Compensation Committee Process and Practices Our Compensation Committee has authority to retain a consulting firm to assist it in the evaluation of compensation for our NEOs and has the authority to approve the consultant’s fees and other retention terms. In 2006, the Committee retained as its executive compensation consultant, a member of The Delves Group, who, in 2007, joined James F. Reda & Associates and subsequently Hewitt Associates. In selecting this consultant, the Committee considered the reputation and experience of the consultant as well as his independence. In the past, we have retained, and continue to retain, The Segal Company for actuarial and related services in connection with our retirement plans. In 2006, The Delves Group assisted the Committee in conducting an assessment of general market compensation practices and the compensation levels of our executive officers, including our NEOs. The results of this assessment are referred to as the “2006 Peer Group Market Data.” The 2006 Peer Group Market Data study was used to help establish the compensation for our CEO and, as discussed below, formed the basis for proposed changes to total direct compensation levels for certain of our NEOs. The review was limited to an assessment of current market conditions and did not represent a complete plan review or redesign. In particular, the review was focused on providing the Committee with competitive pay levels given our recent emergence from Chapter 11. Specifically, the 2006 Peer Group Market Data consisted of data from a customized compensation peer group and market compensation surveys. The peer group, which is periodically reviewed and updated by the Committee, consists of companies against which the Committee believes we compete for executive talent. The companies comprising our peer group in 2006 were: The DIRECTV Group, EchoStar Communications, Orbital Sciences, New Skies Satellite Holdings (prior to its acquisition by SES Global), Scientific-Atlanta, Teledyne
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Technologies, Eutelsat Communications, Sirius Satellite Radio, PanAmSat (prior to its acquisition by Intelsat), XM Satellite Radio Holdings and Viasat. Additionally, the Committee observes compensation practices and relative pay levels at other significantly larger organizations competing for executive talent, such as Boeing, Northrop Grumman and Lockheed Martin. As stated above, upon our emergence from Chapter 11 in November 2005, we entered into two year employment agreements with each of our NEOs (other than Mr. Targoff who was not an officer at the time), and, on March 28, 2006, we entered into an employment agreement with Mr. Targoff for a term of approximately five years. After expiration of these employment agreements if not renewed, the Committee intends to follow the following procedure with respect to the setting of compensation for our NEOs and other executive officers. Generally, the Committee intends to begin its evaluation of total direct compensation for each year in the late fall of the prior year, meeting to preliminarily discuss compensation and related matters. During these meetings, matters such as changes in peer group market data, plan philosophy and design, expected performance and historical performance will be discussed. Final determinations of salaries, annual bonus targets, long-term incentive compensation awards and plan designs will be targeted to be made at the Committee’s meeting in March, which is shortly after the public release of the prior year’s financial results. At that meeting, the Committee also will review prior year performance and the status of prior awards of long-term incentive compensation. The Committee believes that considering these matters at the March meeting will allow the Committee not only to factor in the prior year’s financial results and the current year’s operating plan but also will allow it to assess prior years’ compensation. Occasionally, grants of long-term incentive compensation or changes in compensation may be made at other meetings in cases such as promotions, new hiring or other special situations. Generally, it is our intention that stock incentive awards will be granted effective as of the annual shareholder meeting date. In the ordinary course, it is also our intention to effect salary changes annually to reflect cost of living adjustments. Upon the request of the Committee, certain of our employees will compile and organize information, arrange and attend meetings and provide support for the Committee’s work. We expect that Mr. Targoff, our Chief Executive Officer, will also make compensation recommendations for the other NEOs, which will be considered by the Committee. Elements of Compensation Total Direct Compensation — Cash and Stock Option Committee (the “Compensation Committee”) are to alignIncentives Our total direct compensation with business objectivesconsists of three components: | | | | • | Base salary; | | | • | Cash performance-based annual bonus; and | | | • | Equity incentive awards. |
For 2006, the base salary and corporate performance and to enable the Company and its subsidiaries (collectively, the “Loral Group”) to attract, retain and reward executive officers who contribute to the long-term successtarget bonus percentages of the Loral Group and thereby create value for shareholders. In order to attain these goals,NEOs were governed by their employment agreements. Base Salary We provide an annual base level of compensation in the Compensation Committee’s compensation policies link compensation to corporate performance.The principal components of the Compensation Committee’s compensation program are annual compensation consistingform of base salary for services rendered by our NEOs throughout the year to give them resources upon which to live and an annual incentive bonus, as well as long-term incentive compensation using stock options. In determining the amount and form of executive compensation, the Compensation Committee has considered the competitive market for senior executives, the executive’s role in achieving the business objectives of the Loral Group and the overall performance of the Loral Group. The type and amount of discretionary compensation granted is based upon the subjective judgment of the Compensation Committee and Chief Executive Officer (“CEO”); nevertheless, in the exercise of their discretion, the Compensation Committee and CEO considerto provide a number of objective criteria which are discussed below in the context of the componentsportion of compensation which is assured in order to which they apply.
The Compensation Committee believes that its compensation policies, which have been instrumental in attracting and retaining highly qualified and dedicated personnel, are an important factor in the growth and successhelp provide them with a certain level of the Loral Group.
Section 162(m) of the Code
The Company’s 1996 Stock Option Plan, which was adopted by the Company’s Board of Directors and approved by the Company’s then sole shareholder on March 13, 1996, has been designed to comply with the requirements for “performance-based compensation” under Internal Revenue Code Section 162(m). The Compensation Committee, however, does not have a policy precluding the payment of nondeductible compensation. Compensation attributable to option grants made to certain executive officers under the Company’s 2000 Stock Option Plan will not be exempt from the deduction limits of Section 162(m).
CEO Compensation
The Company’s CEO, Bernard L. Schwartz, is paid pursuant to a long-term employment contract. This contract provides for a minimum annualfinancial security. When determining base salary, to be increased each year by the percentage change in the Consumer Price Index, plus such other annual increases as the Board of Directors or the Compensation Committee may grant from time to time. Effective April 23, 2002, Mr. Schwartz’s annual base salary increased to $1,752,900 in accordance with his contractual formula. The Compensation Committee sets annual incentive compensation for Mr. Schwartz by assessingwe consider a number of factors including hismarket data, prior salary, job responsibilities and changes in job responsibilities, achievement of specified Company goals, individual effort,experience, demonstrated leadership, performance potential, Company performance and contribution toward achieving the business plan and growth objectives of the Loral Group. At Mr. Schwartz’s request, the Compensation Committee agreed to amend his employment agreement to provide for no base salary for the twelve-month period commencing March 1, 2003. Consistent with this request, the Compensation Committee determined that it wouldretention considerations. These factors are not pay a bonus to Mr. Schwartz for 2002.
Compensation for Other Executive Officers
Other than Mr. Schwartz, base salaries for the named executive officersweighed or ranked in this Proxy Statement (the “NEOs”) and other executive officers have been set at competitive levels by the CEO in consultation with the Compensation Committee, giving due regard to individual performance and time in position. Incentive compensation for NEOs (other than Mr. Schwartz) and other executive officers is set by the CEO, in consultation with the Compensation Committee, based on factors similar to those used for establishing incentive compensation for the CEO. Incentive compensation for corporate officers with line responsibilityany particular way.
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The result of the 2006 Executive Compensation Analysis by The Delves Group concluded that, in the case of the President/COO and CFO, salaries and bonus compensation were above the 75th percentile levels, both relative to our peer group and market compensation surveys. The Committee believes that the reasons for division operationsthis finding were in part the historical pay levels set by our Compensation Committee prior to the Company’s Chapter 11 filing in 2003 and in part because executive talent in our specialized industry is generally tiedscarce and difficult to attract and retain. In order to minimize our on-going cost structure and restore profitability, in June 2006, we sought to adjust the pay levels of our President/COO and Chief Financial Officer and provided them with an opportunity to substantially reduce their base salaries to the 75th percentile level in consideration of a higher target annual cash bonus opportunity and a one-time grant of stock options. Our CFO accepted the alternative compensation arrangement, and his base salary was adjusted effective on June 19, 2006. In addition, at the request of our CEO, our General Counsel, as well as certain other executive officers, agreed to shift a portion of their base salaries to annual bonus compensation for a period of six months ending December 31, 2006. If we are not able to attain stockholder approval on or before June 2007 to increase the number of shares available for award under our 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement) in order to implement the one-time stock option grant to our CFO, his original base salary and target bonus opportunity will be restored and he will be entitled to receive a one-time cash payment equal to the difference in base salary and annual bonus he would have received had the changes never gone into effect and the base salary and annual bonus that he actually received after giving effect to the changes. Annual Bonus Compensation We provide annual cash bonus incentives for our NEOs under our Management Incentive Bonus or MIB program. Each NEO has a target bonus opportunity, which is payable upon the achievement of certain corporate performance goals at the target level. The 2006 target bonus opportunity ranged from 40% to 69.6% of base salary for our NEOs other than our CEO and was 125% of base salary for our CEO. Individual target opportunities are provided in “Employment Agreements — Other Named Executive Officers” below. For 2006, the primary performance measure that was used to evaluate our corporate performance was earnings before interest, taxes, depreciation and amortization or EBITDA. The EBITDA value was then adjusted for non-operating charges such as fresh start accounting, pension plan changes, stock option expense and other changes due to the implementation of new accounting methods and standards. Early in 2006, management provided the Committee and the Board with a matrix of adjusted EBITDA values defining three different performance levels (in order of rank) — “threshold,” “target” and “outstanding” performance. After the end of the year, the Committee compared our actual performance against these performance levels in order to determine the amount to be paid to executive officers under the MIB program. For example, in 2006, our CEO was entitled to an annual incentive bonus payment equal to 125% of base salary under the MIB program if “target” adjusted EBITDA was achieved for 2006. The program also provided the Chief Executive Officer and the other executive officers with the opportunity to earn up to 130% (up to 120% in the case of Mr. DeWitt) of their target percentage for performance at the “outstanding” performance level (in the case of the CEO, this would mean he could earn up to 162.5% of his base salary as a bonus). The “threshold” level of performance was the minimum level of performance for which any percentage of target bonus could be earned. The target percentage payout for each executive officer is governed by his employment contract, but the amount paid may increase or decrease proportionately in accordance with performance against our performance measures. The Committee intends that payments at the “target” level combined with base salaries would provide annual cash compensation at about the 75th percentile of the peer group market data for the combination of base salary and annual bonus incentives. In setting adjusted EBITDA targets for the businesses underMIB program, the Committee reviewed the budgets developed by our management and approved by our Board. The Committee used the budgeted numbers as the “target” due to the rigor and tactical planning involved in their authority. These performance targets are setdevelopment, the importance of achieving these goals as part of our longer term strategic plan and the annual budgeting process foracceptance of management’s commitments by the Company and its subsidiaries. Bonus compensation for 2002 has been awarded in accordance with these factors.Board. The Long-Term Compensation
It is
Committee and the Compensation Committee’s beliefBoard believed that shareholders’ interests are best servedachieving this budget would represent a stretch for management when considering internal and external challenges expected to affect us in 2006. These challenges included the global economic environment as well as significant internal organizational and strategic business changes which were being implemented by encouraging key employees of the Loral Group to develop ownership interestsus in 2006. The “threshold” adjusted EBITDA metric was set 30% (20% in the Company. To that end,case of Mr. DeWitt) below the Compensation Committee primarily relies upon fair market value employee stock options granted“target” amount. This amount was considered minimally acceptable, but likely achievable given the factors discussed above. The “outstanding” adjusted EBITDA metric was set 30% (20% in accordance with the provisionscase of Mr. DeWitt) higher than the 1996“target” amount. This level was considered to be a significant stretch above budget, required improvement over 2005 and 2000 Stock Option Plans. In determiningwould be quite difficult to achieve given the level of option grants to executive officers,challenges faced by management. For 2006, the Compensation Committee relies on recommendations by the CEO. The CEO considers factors similar to those described above in determining compensation level“threshold,” “target,” and makes subjective determinations with respect to individual grant recommendations. During 2002, 712,500 options were granted to employees under the 1996 Stock Option Plan, of which 562,500 were granted to NEOs; and 227,000 options were granted to employees under the 2000 Stock Option Plan, none of which were granted to NEOs. In 2003, the Compensation Committee approved a stock option exchange offer pursuant to which eligible employees (including“outstanding” adjusted EBITDA performance levels for the NEOs other than Mr. Schwartz) could exchange certainDeWitt were set at $48.4 million, $69.1 million and $89.8 million, respectively. Mr. DeWitt’s targets were set with respect to performance of their existingthe Company’s SS/L subsidiary, with the “threshold,” “target,” and “outstanding” adjusted EBITDA performance levels for SS/L set at $32.3 million, $40.4 million and $48.5 million, respectively. In 2006, the Company achieved performance at the outstanding level, and, therefore, bonuses were paid at 130% of “target” levels (120% in the case of Mr. DeWitt). Long-term Incentive Compensation We also provide long-term incentive compensation to our NEOs through our 2005 Stock Incentive Plan. We believe that equity-based awards help to align the financial interests of our NEOs with those of our stockholders by providing our NEOs with an additional equity stake in the Company. Equity-based awards also reward our NEOs for increasing stockholder value. The Stock Incentive Plan allows us to grant a variety of stock-based awards, including stock options, restricted stock, performance shares and performance units. These types of awards measure financial performance over a longer period of time than the other methods of compensation. In the past, we have primarily relied on stock options as the long-term incentive compensation vehicle for new options at certain specified exchange ratios. Under this offer, the NEOs tenderedour NEOs. With respect to future equity awards, however, our current intention is to rely more heavily on awards in the aggregate 4,383,000form of shares of restricted stock. The options previously granted have typically vested and become exercisable and shares of restricted stock that will be granted in the future will generally vest and become exercisable over a period of years and are or will be subject to forfeiture upon termination of employment until vested. These long-term vesting schedules provide continued motivation and reward our NEOs in line with our stockholders over the vesting period. Moreover, we believe that making periodic equity-based awards with overlapping vesting periods will continue to provide incentive and motivation over the longer term. We also believe that equity-based awards continue to provide long-term shareholder value beyond the vesting dates because of the continued upside financial potential for cancellation, entitling themexecutives. Because of the multiple-year vesting schedules, we also regard our equity-based award program as a significant factor in retaining our NEOs. In general, when granting awards, we take into account the following subjective and objective factors: | | | | • | Each NEO’s level of responsibility; | | | • | Each NEO’s contributions to our financial results; | | | • | Retention considerations; and | | | • | Practices of companies in our peer group. |
Prior to receive 1,865,700 newmaking a grant, we also consider our stock price, the volatility of the stock price and potential dilution. We do not have a specific policy regarding ownership of Company stock by our NEOs. Our policy on insider trading and confidentiality generally restricts executive officers from engaging in short-term or speculative transactions involving our stock, including short sales and publicly traded options.
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In 2006, we did not have shares available for grant under our 2005 Stock Incentive Plan, and accordingly, did not grant any equity-based awards, with the exception of certain awards to our CEO and CFO, which are subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement). In the future, assuming approval of Proposal 2, pursuant to which the number of shares available for grant under our Stock Incentive Plan would be increased, the Committee intends to grant equity-based awards to executive officers and employees. It is the Committee’s intention to determine the nature and value of these awards by first looking both at market conditions and at the estimated value of the proposed stock awards to develop ranges of awards for personnel at various levels (including both executive officers and other employees). After developing the potential range of awards, the Committee will seek recommendations from management as to the value of the awards to be granted to specific individuals. The Committee will review the recommendations, consider the total recommended grant size as compared to outstanding shares and expected dilution and make the final grant decision. Although we currently expect that future equity awards are more likely to be in the form of shares of restricted stock, if stock options on September 8, 2003,are the selected form of award, the Committee will use the Black-Scholes pricing model (a formula widely used to value exchange-traded options and determine the present value of the executive option award) to determine the value of the awards and for comparison to executives in our peer group. In connection with the changes to the compensation arrangements of our CFO, we agreed that, for so long as Mr. Townsend is employed by the Company, he will be a participant in a long term incentive plan to be established by the Company which newwill provide him with annual grants of equity-based awards under the 2005 Stock Incentive Plan in the form of stock options (such grants subject to obtaining stockholder approval of our Amended and Restated 2005 Stock Incentive Plan), and his target annual grant will have a value (calculated using the Black-Scholes method) at least equal to his effective base salary (at that time) multiplied by 1.4 (or, if the long-term incentive plan is for any reason not established, or, if established, not implemented or later discontinued, a cash bonus equal to that Black Scholes value will be provided), provided, however, that his actual annual grant may be increased above or decreased below the target level if and in the same proportion that actual annual grants to other similarly situated participants in the long-term incentive plan are increased above or decreased below their target annual grants. To date, all option grants have had an exercise price equal to the fair market value of theour common stock on the grant date. | | | Members of the Compensation and Stock Option Committee | | | E. Donald Shapiro, Chairman | | Sally Minard | | Arthur L. Simon |
We do not grant equity awards in anticipation of the release of material nonpublic information, nor do we time the release of material nonpublic information to coincide with our equity grant dates. We have not yet adopted a fixed policy or practice with regard to the timing of equity grants but may consider doing so in the future. Other Benefits and Perquisites Our NEOs receive other benefits also available to other salaried employees. For example, we provide our NEOs and other U.S. salaried employees with health insurance, life insurance, vacation pay and sick pay. We also provide our NEOs and certain other officers with universal life insurance policies in various amounts beyond that provided for other employees. NEOs and certain other officers are also entitled to reimbursement of medical and dental expenses not otherwise covered by our insurance program up to a maximum of $4,000 per year. We do not provide our NEOs with automobiles, aircraft for personal use, personal living accommodations, club memberships or reimbursement of “social expenses” except to the extent that they are specifically, directly and exclusively used to conduct Company business. Other than the additional life insurance and executive medical reimbursement, the Committee has determined that there generally should be no perquisites or similar benefits for NEOs which are not consistent with those available to other salaried employees. COMPENSATION COMMITTEE INTERLOCKS ANDNonqualified Deferred Compensation
INSIDER PARTICIPATION
In December 2005, pursuant to our plan of reorganization, we entered into deferred compensation arrangements for certain key employees, including our NEOs. The initial deferred compensation awards were
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None
calculated by multiplying $9.441 by the number of shares of common stock underlying the stock options granted to these key employees. The value of the membersdeferred compensation may decline depending on stock price performance within a defined range, until the occurrence of certain events, including the exercise of the related stock options. Subject to earlier vesting upon a change in control or certain specified sale events as defined in our 2005 Stock Incentive Plan, recipients of these deferred compensation arrangements vest in their accounts ratably over four years from the date of grant at the rate of 25% per year. These deferred amounts will become payable on the earlier of the recipient’s termination of employment, a change in control of the Company or seven years from the date of grant. Retirement Benefits Retirement benefits are intended both to recognize long-term service with us and to keep our overall pay packages for our NEOs comparable to that of our peer group so that we can attract and retain high quality executive officers. The Company maintains two types of retirement plans covering its executive officers, a defined benefit pension plan and a defined contribution program in which eligible employees and executives may receive matching contributions. Pension benefits are provided through both “qualified” and “non-qualified” plans (the non-qualified plans are designed to “restore” the benefit levels that may be limited by IRS regulations). Our defined contribution plan is a 401(k) plan which permits participants to defer a portion of their salary for retirement, and we match a portion of those contributions. Our Retirement Plan (the “Pension Plan”) is a defined benefit retirement plan which covers substantially all U.S. salaried employees, with minimum service requirements (the Company maintains separate retirement arrangements for hourly employees). In 2006, the Company changed the Pension Plan which, for all NEOs other than Mr. DeWitt, previously had been administered on a non-contributory basis to require certain contributions by participants thereby having the effect of sharing the cost of providing pension benefits with the NEOs. The Pension Plan is a “qualified” retirement plan under the Internal Revenue Code and is therefore subject to the Code’s limits on covered compensation and benefits payable. The NEOs, as well as all executives who earn in excess of applicable IRS limits, also participate in the Supplemental Executive Retirement Plan, known as the SERP. The SERP, a non-qualified excess benefit and supplemental retirement plan under ERISA, provides the benefits that would be payable to participants under the Pension Plan except for the limitations imposed on qualified plans under the Internal Revenue Code. The SERP was adopted on April 23, 1996. Under the SERP, each participant will receive the difference, if any, between the full amount of retirement income due under the Pension Plan formula without application of the IRS limitations and the amount of retirement income payable to the participant under the Pension Plan formula when applicable Internal Revenue Code limitations are applied. Employment Agreements CEO — Michael B. Targoff On March 1, 2006, Michael Targoff became our Chief Executive Officer. On March 28, 2006, we entered into an employment agreement with Mr. Targoff, which will expire on December 31, 2010. Prior to becoming our Chief Executive Officer, Mr. Targoff was Vice Chairman of our Board. We believed it was important and desirable to enter into an employment agreement with Mr. Targoff, which includes severance arrangements, in order to induce him to assume the position of Chief Executive Officer and to assure him of a degree of certainty relating to his employment situation and thereby secure his dedication notwithstanding any concern he might have regarding his continued employment prior to or following termination or a change in control. Under his employment agreement, Mr. Targoff is entitled to receive an annual base salary of $950,000, which is subject to annual review by our Board. The employment agreement also provides that Mr. Targoff will participate in our Management Incentive Bonus Program, with a target annual bonus of one hundred twenty-five percent (125%) of his base salary. Under this program, for 2006, Mr. Targoff earned 162% of his base salary earned during the 10 months in which he was our CEO in 2006, or $1,286,458. Pursuant to his employment agreement, Mr. Targoff was granted in March 2006 five year options to purchase 825,000 shares of our common stock with a per-share exercise price equal to $26.915, the fair market
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value of one share of our common stock on the date of grant. This stock option is subject to the approval by our stockholders of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement). This stock option will not be valid unless and until the plan amendment is approved by our stockholders. Subject to earlier vesting upon a change in control as defined in our 2005 Stock Incentive Plan, the stock option will vest over a four-year period with the first 121/2% vesting on the grant date, an additional 25% vesting on the next three anniversaries of the grant date and the remaining 121/2% vesting on the fourth anniversary of the grant date; provided, however, that no portion of this option (whether vested or not) will be exercisable prior to the date of stockholder approval of the Amended and Restated 2005 Stock Incentive Plan. We have agreed to indemnify Mr. Targoff, on an after tax basis, for any additional tax (including interest and penalties with respect thereto) that may be imposed on him by Section 409A of the Internal Revenue Code as a result of the options being granted subject to the approval by our stockholders of our Amended and Restated 2005 Stock Incentive Plan. Mr. Targoff’s employment agreement also provides for an additional equity award to be granted to him in 2008 having a comparable Black-Scholes or present value or economic value of $2.875 million (which is 50% of the value of the stock option granted to him in 2006). This grant will be contingent upon Mr. Targoff performing at the “target level” of financial performance as annually approved by the Board in 2006 and 2007 and as a result Mr. Targoff earning his target bonus for the 2006 and 2007 fiscal years. Mr. Targoff also participates in the Company benefit plans available to our other executive officers. Mr. Targoff’s participation is on the same basis as other executive officers of the Company. Upon Mr. Targoff’s termination of employment on account of death or permanent disability during the contract term, or if his employment is terminated by Loral without “cause” or Mr. Targoff resigns for “good reason” (as such terms are defined in his employment agreement), Mr. Targoff will be entitled to a severance payment described below and to accelerated vesting of a portion (in the case of death or disability) or all (in the case of termination by Loral without “cause” or resignation for “good reason”) of his options. These arrangements are described more fully below under “Potential Change in Control and other Post Employment Payments.” During the term of Mr. Targoff’s employment with Loral and for a twelve-month period (or twenty-four (24) months following a change in control of Loral) following a termination of employment, Mr. Targoff is restricted from (i) engaging in competitive activities, (ii) directly or indirectly soliciting current and certain former employees of Loral or any of its affiliates and (iii) knowingly soliciting, directly or indirectly, any customers or suppliers within the twelve-month period prior to such termination of employment to terminate or diminish their relationship with Loral or any of its affiliates. In addition, Mr. Targoff may not disclose confidential information of Loral. Mr. Targoff’s employment agreement also provides for the reimbursement of his attorney’s fees in connection with the negotiation of the employment agreement and a taxgross-up payment to cover his taxes for any such reimbursement. Loral Skynet Corporation and SS/L guarantee the payment and performance of Loral’s obligations under the employment contract with Mr. Targoff. Other Named Executive Officers Upon emergence from Chapter 11 in November 2005, the Company entered into employment agreements with each of the NEOs employed by Loral (other than Mr. Targoff who was not an officer at the time), and our SS/L subsidiary entered into an employment agreement with Mr. DeWitt. The Company believed it was important to enter into these agreements, which included severance arrangements, because they would provide the NEOs with a degree of certainty relating to their employment situation following our emergence from Chapter 11 and thereby help to secure their continued employment and dedication notwithstanding any concern they might have regarding their own continued employment prior to or following termination or a change in control. These arrangements were also important as a retention device, as most of the companies with which we compete for executive talent have similar agreements in place for their senior employees. The terms of the employment agreements with Messrs. Katz, Townsend and Zahler and the employment agreement with Mr. DeWitt (other than those relating to compensation levels) are substantially identical.
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Each of the employment agreements with the NEOs is for an initial term of two years (expiring on November 21, 2007) and sets forth the executive’s position and duties, annual salary, target annual bonus opportunity and entitlement to an initial stock option grant. In addition, each executive is entitled to participate in employee benefits generally provided to similarly situated employees. The principal compensation terms under the employment agreements, as amended in the case of Mr. Townsend, are set forth in the table below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Target Annual
| | | | Shares
| | | | | | | | | | | | | Bonus as a
| | | | Underlying
| | | | | | | | | Annual
| | | | Percentage of
| | | | Initial Option
| | | Executive | | | Position | | | Salary | | | | Salary | | | | Grant | | | | | | | | | | | | | | | | | | | | | | | Eric J. Zahler | | | President and Chief Operating Officer | | | $ | 1,248,000 | | | | | 40.0 | % | | | | 120,000 | | | Richard J. Townsend | | | Executive Vice President and
Chief Financial Officer | | | $ | 575,000 | | | | | 69.6 | % | | | | 85,000 | | | C. Patrick DeWitt | | | Vice President, and
Chief Executive Officer of SS/L | | | $ | 502,020 | | | | | 50.0 | % | | | | 75,000 | | | Avi Katz | | | Vice President, General Counsel and Secretary | | | $ | 438,048 | | | | | 40.0 | % | | | | 50,000 | | | | | | | | | | | | | | | | | | | | | |
Upon any executive’s termination of employment on account of death or permanent disability during the contract term, or if an executive’s employment is terminated by Loral without “cause” or the executive resigns for “good reason” (as such terms are defined in the employment agreement), the executive will be entitled to a severance payment and to accelerated vesting of a portion of his options. These arrangements are described more fully below under “Potential Change in Control and other Post Employment Payments.” During the term of an executive’s employment agreement and for a twelve-month period following a termination of employment during the term of the agreement, each executive is restricted from (i) engaging in competitive activities, (ii) directly or indirectly soliciting current and certain former employees of Loral or any of its affiliates and (iii) knowingly soliciting, directly or indirectly, any customers or suppliers within the twelve-month period prior to such termination of employment to terminate or diminish their relationship with Loral or any of its affiliates. In addition, the executives may not disclose confidential information of Loral. We believe that these provisions help ensure our long-term success. Loral Skynet Corporation and SS/L guarantee the payment and performance obligations of Loral under the employment agreements for the executives who employees of Loral. Pursuant to an amendment to the employment agreement with Mr. Townsend entered into in connection with adjustment of his base salary and target bonus opportunity, if (x) on or after January 1, 2007 and prior to May 21, 2007, Mr. Townsend’s employment is terminated by us without cause or by Mr. Townsend for good reason, or (y) on or after May 21, 2007 and prior to expiration of the term of the agreement, Mr. Townsend’s employment agreement is not renewed or extended on terms substantially similar to those contained in his current employment agreement as amended and his employment is terminated prior to expiration of the term for any reason other than by the Company for cause (for the avoidance of doubt, “any reason” includes, without limitation, by the Company without cause, by Mr. Townsend voluntarily or by Mr. Townsend for good reason), then, in addition to any other payments or benefits to which Mr. Townsend may be entitled under his employment agreement, he is entitled to receive as soon as practicable on or after termination of his employment a lump sum payment representing the difference in base salary and annual bonus he would have received had the changes effected by the amendment never gone into effect and the base salary and annual bonus that he actually received after giving effect to the amendment minus the value of any vested portion of the options to acquire 20,000 shares of common stock granted to him in connection with his entry into the amendment to his employment agreement. In connection with the amendment to Mr. Townsend’s employment agreement, on June 14, 2006, we granted to Mr. Townsend a seven-year option to purchase 20,000 shares of common stock of the Company, with a per-share exercise price equal to $27.135. This option vests over a four-year period, with 25% vesting on each of the first four anniversaries of the grant date, subject to earlier vesting upon a change in control as
28
defined in our 2005 Stock Incentive Plan. This grant is subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). The amendment further provides that if Mr. Townsend’s employment with the Company is terminated upon the expiration of the term of his employment agreement or the term under his employment agreement is not renewed or extended and he continues to be employed by the Company after the term on an “at will” basis and his employment is thereafter terminated, Mr. Townsend, at his election, shall be covered by, and entitled to severance benefits under, either (A) the severance policy applicable to Company officers described below in “Executive Compensation — Compensation Tables — Potential Change in Control and other Post Employment Payments — Other Named Executive Officers” (without regard or giving effect to any changes, modifications or amendments thereto that may be later adopted by the Company) or (B) such other severance policy generally applicable to employees of the corporate office as may then have been adopted in good faith by the Company and then be in effect. Tax Aspects of Executive Compensation Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation paid to the NEOs that is not “performance based” to $1 million annually per executive officer. Option awards under our 2005 Stock Incentive Plan are designed so that awards granted to the covered individuals meet Section 162(m) requirements for performance-based compensation, and thus, these awards should not be counted toward the $1 million limitation on tax deductions for an NEO’s compensation in any fiscal year. Our MIB program, however, is not designed to meet the Section 162(m) requirements. Accordingly, for 2006, compensation in the amount of $1,151,103, $918,706 and $248,790 payable to Messrs. Targoff, Zahler and Townsend, respectively, will not be deductible. In addition to the MIB program, there may be other instances, in which the Committee determines that it cannot structure compensation to meet Section 162(m) requirements. In those instances, the Committee may elect to structure elements of compensation (such as certain qualitative factors in annual bonuses) to accomplish business objectives that it believes are in our best interests and those of our stockholders, even though doing so may reduce the amount of our tax deduction for such compensation. Other provisions of the Internal Revenue Code also can affect the decisions which the Committee makes. Under Section 4999 of the Internal Revenue Code, a 20% excise tax is imposed upon executive officers who receive “excess” payments upon a change in control of a public corporation to the extent the payments received by them exceed an amount approximating three times their average annual compensation. The excise tax applies to all payments over one times annual compensation, determined by a five year average. Under Section 280G of the Internal Revenue Code, a company also loses its tax deduction for these “excess” payments. The employment agreement with our CEO provides that all severance benefits under that agreement that result from achange-in-control will be “grossed up,” if necessary, so that we reimburse him for these tax consequences. Although thisgross-up provision and loss of deductibility increase the severance expense to us, the Committee believed it was important that the effects of this tax code provision not negate the protections which we intend to provide to our CEO in the event of a change in control. The Committee also believed it was necessary to provide this benefit to our CEO in order to encourage him to take the position of CEO in March of 2006 when we were negotiating the terms of his employment with us. Report of the Compensation Committee are present or former officers or employed The Compensation Committee has reviewed and discussed the above “Compensation Discussion and Analysis” contained in this Proxy Statement with management. Based upon that review and those discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference into the CompanyCompany’s Annual Report onForm 10-K for the year ended December 31, 2006 and its subsidiaries.included in this Proxy Statement. The Compensation Committee Mark H. Rachesky, M.D., Chairman
John D. Harkey, Jr.
29
19
EXECUTIVE COMPENSATIONCompensation TablesThe Company has entered into a management agreement with Loral SpaceCom Corporation (“Loral SpaceCom”) pursuant to which Loral SpaceCom provides certain services to the Company. In accordance with this agreement, compensation for the NEOs and other executive officers and employees of the Company is paid by Loral SpaceCom. The following table summarizes the compensation paid to the NEOs.
Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value and
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-Qualified
| | | | | | | | | | | | | | | | | | | | | | | | | | Non-Equity
| | | Deferred
| | | | | | | | | | | | | | | | | | | | Stock
| | | Option
| | | Incentive Plan
| | | Compensation
| | | All Other
| | | | | | | | | | | Salary(1)
| | | Bonus
| | | Awards
| | | Awards(2)
| | | Compensation(3)
| | | Earnings(4)
| | | Compensation(5)
| | | Total
| | Name and Principal Position | | | Year | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael B. Targoff
Vice Chairman of the Board and Chief
Executive Officer | | | | 2006 | | | | $ | 796,538 | | | | | | | | | | | | | | $ | 181,923 | | | | | $1,286,458 | | | | $ | 29,000 | | | | $ | 358,859 | | | | $ | 2,652,778 | | Eric J. Zahler
President and Chief
Operating Officer | | | | 2006 | | | | $ | 1,248,000 | | | | | | | | | | | | | | $ | 204,118 | | | | | $648,960 | | | | $ | 186,000 | | | | $ | 312,790 | | | | $ | 2,599,868 | | Richard J. Townsend
Executive Vice President and
Chief Financial Officer | | | | 2006 | | | | $ | 714,295 | | | | | | | | | | | | | | $ | 144,583 | | | | | $520,260 | | | | $ | 121,000 | | | | $ | 222,696 | | | | $ | 1,722,834 | | C. Patrick DeWitt
Vice President and
Chief Executive Officer of Space Systems/
Loral, Inc. | | | | 2006 | | | | $ | 428,300 | | | | | | | | | | | | | | $ | 127,574 | | | | | $257,000 | | | | $ | 194,000 | | | | $ | 184,789 | | | | $ | 1,191,663 | | Avi Katz
Vice President, General Counsel and Secretary | | | | 2006 | | | | $ | 416,145 | | | | | | | | | | | | | | $ | 85,049 | | | | | $262,829 | | | | $ | 50,000 | | | | $ | 134,610 | | | | $ | 948,633 | | Bernard L. Schwartz
Chairman of the Board and Chief Executive Officer (retired) | | | | 2006 | | | | $ | 314,646 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 299,235 | | | | $ | 613,881 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Compensation | | Long Term Compensation | | | | | | |
| |
| | | | | | | | | Restricted | | Securities | | | | | Name and | | | | Other Annual | | Stock | | Underlying | | All Other | | | Principal Position | | Year | | Salary | | Bonus | | Compensation | | Awards | | Stock Options(b) | | Compensation(c) | | | | | |
| | | | Bernard L. Schwartz | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chairman of the Board | | 2002 | | $ | 1,744,576 | | | | — | | | | — | | | | — | | | | 250,000 | | | $ | 261,648 | | | | | of Directors and | | 2001 | | $ | 1,708,581 | | | | — | | | | — | | | | — | | | | 3,305,000 | | | $ | 219,713 | | | | | Chief Executive Officer(a) | | 2000 | | $ | 1,655,844 | | | | — | | | | — | | | | — | | | | 1,812,500 | | | $ | 320,506 | | | | |
| | | | Eric J. Zahler | | 2002 | | $ | 1,000,000 | | | $ | 225,000 | | | | — | | | | — | | | | 162,500 | | | $ | 53,346 | | | | | President and | | 2001 | | $ | 1,000,000 | | | | — | | | | — | | | | — | | | | 775,000 | | | $ | 27,866 | | | | | Chief Operating Officer | | 2000 | | $ | 975,962 | | | $ | 325,000 | | | | — | | | | — | | | | 1,550,000 | | | $ | 11,436 | | | | |
| | | | Richard J. Townsend | | 2002 | | $ | 640,673 | | | $ | 150,000 | | | | — | | | | — | | | | 150,000 | | | $ | 20,835 | | | | | Executive Vice President | | 2001 | | $ | 552,212 | | | | — | | | | — | | | | — | | | | 475,000 | | | $ | 20,355 | | | | | and Chief Financial Officer | | 2000 | | $ | 475,000 | | | $ | 300,000 | | | | — | | | | — | | | | 825,000 | | | $ | 12,140 | | | | |
| | | | C. Patrick DeWitt | | 2002 | | $ | 363,462 | | | $ | 250,000 | | | $ | 146,150 | (e) | | | 400,000 | (f) | | | 0 | | | $ | 7,194 | | | | | Vice President and President | | 2001 | | $ | 311,558 | | | $ | 75,057 | | | | — | | | | — | | | | 349,450 | | | $ | 6,118 | | | | | of Space Systems/ Loral, Inc. | | 2000 | | $ | 266,346 | | | $ | 26,654 | | | | — | | | | — | | | | 332,600 | | | $ | 6,115 | | | | |
| | | | Terry J. Hart | | 2002 | | $ | 378,154 | | | $ | 275,000 | (d) | | | — | | | | 300,000 | (g) | | | 0 | | | $ | 12,022 | | | | | Vice President and President | | 2001 | | $ | 351,461 | | | $ | 198,000 | | | | — | | | | — | | | | 169,700 | | | $ | 11,689 | | | | | of Loral Skynet | | 2000 | | $ | 294,346 | | | $ | 180,230 | | | | — | | | | — | | | | 339,400 | | | $ | 11,689 | |
| | | (a) (1) | At | 2006 base salaries for Messrs. Targoff and Schwartz represent 10 months and two months of service, respectively. Mr. Schwartz’s request, the Compensation Committee agreed to amend his employment agreement to provide for no base salary for the twelve-month period commencingSchwartz retired effective March 1, 2003. Consistent with this request, the Compensation Committee determined that it would not pay a bonus to Mr. Schwartz for 2002.2006. | | | (b) (2) | Does not include | The Option Awards column represents the amounts expensed by us in 2006 relating to outstanding stock option awards under the 2005 Stock Incentive Plan granted in 2005. See “Grants of Plan-Based Awards” table and “Compensation Discussion and Analysis — Long-Term Incentive Compensation” for further discussion regarding the awards in 2006 and “Outstanding Equity Awards at Fiscal Year-End” table regarding all outstanding awards. In October 2005, we adopted Statement of Financial Accounting Standards No. 123(R),Share-Based Payment(SFAS No. 123(R)), which requires us to recognize compensation expense for stock options and other stock-related awards granted to our employees and directors based on the estimated fair value under SFAS No. 123(R) of the equity instrument at the time of grant. The compensation expense is recognized over the vesting period. The assumptions used to determine the valuation of the awards are discussed in note 15 to our consolidated financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2006. | | | (3) | | Amounts shown represent the annual incentive bonuses earned under our Management Incentive Bonus Plan. See “Compensation Discussion and Analysis — Annual Incentives” for further discussion regarding these bonuses. | | | (4) | | Represents the increase in the actuarial present value of pension benefits between fiscal year-end 2005 and fiscal year-end 2006. See the “Pension Benefits” table below for further discussion regarding our pension plans. | | | (5) | | All Other Compensation includes the value of life insurance premiums paid by the Company, Company 401(k) matching contributions for each NEO and the expense recognized by us for each NEO in 2006 with respect to his deferred compensation account as set forth below. Upon emergence from Chapter 11 in 2005, each NEO (other than Mr. Schwartz) received an award of a deferred compensation account valued at $9.441 per unit. Subject to earlier vesting upon a change in control or certain specified sale events as defined in our 2005 Stock Incentive Plan, the deferred compensation units vest at the rate of 25% of the units per year on the first, second, third and fourth anniversaries of the effective date of our plan of reorganization (November 21, 2005). The amounts in this column related to these deferred compensation accounts and represent the expense recognized by us for each NEO in 2006. |
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All Other Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value of
| | | Company
| | | Deferred
| | | | | | | | | | | Insurance
| | | Matching 401(k)
| | | Compensation
| | | | | | | | Name | | | Premiums Paid | | | Contributions | | | Expense | | | Other | | | Total | | Michael B. Targoff | | | $ | 34,901 | | | | $ | 7,920 | | | | $ | 252,332 | | | | $ | 63,706 | | | | $ | 358,859 | | | Eric J. Zahler | | | $ | 21,746 | | | | $ | 7,928 | | | | $ | 283,116 | | | | | | | | | $ | 312,790 | | | Richard J. Townsend | | | $ | 14,235 | | | | $ | 7,920 | | | | $ | 200,541 | | | | | | | | | $ | 222,696 | | | C. Patrick DeWitt | | | | | | | | $ | 7,841 | | | | $ | 176,948 | | | | | | | | | $ | 184,789 | | | Avi Katz | | | $ | 8,721 | | | | $ | 7,924 | | | | $ | 117,965 | | | | | | | | | $ | 134,610 | | | Bernard L. Schwartz (retired) | | | $ | 291,315 | | | | $ | 7,920 | | | | | | | | | | | | | | $ | 299,235 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In addition, for Mr. Targoff, the “All Other Compensation” column includes $30,500 for director fees received in 2006 for his service on the Board of Directors (see “Director Compensation Table” above) and $33,206 for reimbursement of legal fees in connection with the negotiation of his employment agreement. Mr. Targoff will be entitled to a taxgross-up in 2007 with respect to the inclusion in his income of the amount of his legal fee reimbursement. Grants of Plan-Based Awards in 2006 The following table provides information about non-equity incentive plan awards granted to NEOs in 2006. The column titled “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” represents the annual incentive opportunity available to each NEO under various corporate performance conditions. The actual earned amount for 2006 is set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. 2006 Grants of Plan Based Awards | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Possible Payouts under
| | | All Other Option
| | | | | Non-Equity Incentive Plan Awards(1)
| | | Awards: Number of
| | | | | | | | Securities Underlying
| | | | | Threshold
| | | Target
| | | Maximum
| | | Options(2)
| | Name | | | ($) | | | ($) | | | ($) | | | (#) | | Michael. B. Targoff | | | $ | 692,708 | | | | $ | 989,583 | | | | $ | 1,286,458 | | | | | | | | Eric J. Zahler | | | $ | 349,440 | | | | $ | 499,200 | | | | $ | 648,960 | | | | | | | | Richard J. Townsend | | | $ | 280,140 | | | | $ | 400,200 | | | | $ | 520,260 | | | | | | | | C. Patrick DeWitt | | | $ | 171,333 | | | | $ | 214,167 | | | | $ | 257,000 | | | | | | | | Avi Katz | | | $ | 131,414 | | | | $ | 197,121 | | | | $ | 262,829 | | | | | | | | Bernard L. Schwartz (retired) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | Amounts represent the annual incentive opportunity available under the Company’s 2006 Management Incentive Bonus Plan. The annual incentive actually paid to each of the NEOs is set forth above in the “Summary Compensation Table” under the “Non-Equity Incentive Plan Compensation” column. Payouts under this program are made annually, dependent upon the achievement of certain pre-defined performance goals. Our targets relate to quantifiable financial performance — EBITDA. For 2006, the “threshold,” “target,” and “outstanding” adjusted EBITDA performance levels for the NEOs other than Mr. DeWitt were set at $48.4 million, $69.1 million and $89.8 million, respectively. Mr. DeWitt’s targets were set with respect to performance of the Company’s SS/L subsidiary, with the “threshold,” “target,” and “outstanding” adjusted EBITDA performance levels set at $32.3 million, $40.4 million and $48.5 million, respectively. See “Compensation Discussion and Analysis — Elements of Compensation — Annual Bonus Compensation” for further discussion of our Management Incentive Bonus Plan. | | | (2) | | On March 28 and June 14, 2006, we approved grants made in January 2000 by Globalstar Telecommunications Limited (“GTL”)of stock options to Messrs. SchwartzTargoff and Townsend to acquire 75,000covering 825,000 and 25,00020,000 shares of GTLour common stock respectively, at anwith exercise priceprices of $31.40625$26.915 and $27.135 per share. Theseshare, respectively. Subject to earlier vesting upon a change in control as defined in our 2005 Stock Incentive Plan, Mr. Targoff’s options are exercisablescheduled to vest over a five-yearfour-year period as follows:with the first 121/2% vesting immediately, an additional 25% vesting on the next three anniversaries of the grant date and the remaining 121/2% vesting on the fourth anniversary of the grant date; provided, however, that no portion of this option (whether vested or not) may be exercisable prior to the date of stockholder approval of the Amended and Restated 2005 Stock Incentive Plan. Mr. Townsend’s options are scheduled to vest over a four-year period, with 25% vesting on each of the second, third, fourthfirst four anniversaries of the grant date, subject to earlier vesting upon a change in control as defined in our 2005 Stock Incentive Plan. These grants, however, are also subject to stockholder approval of our Amended and fifth anniversary fromRestated 2005 Stock Incentive Plan (see Proposal 2). As such, we have not included these awards in the datetable for 2006. If the Amended and Restated 2005 Stock Incentive Plan is approved, we will disclose these grants in our 2007 Grants of grant. Also, does not include grants made in May 2000 by GTL to Messrs. Schwartz, Zahler and Townsend to acquire 75,000, 80,000 and 75,000 shares of GTL common stock, respectively,Plan-Based Awards table. |
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Outstanding Equity Awards at 2006 Fiscal Year-End The following table provides information on the current holdings of stock options by the NEOs. As we have not previously granted stock awards to the NEOs, the table below contains only unexercised option awards. Outstanding Equity Awards at 2006 Fiscal Year End | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | | | | | | | | | | | | | | | | Equity Incentive
| | | | | | | | | | | | | | | | | | Number of
| | | | Number of
| | | | Plan Awards:
| | | | | | | | | | | | | | | | | | Securities
| | | | Securities
| | | | Number of
| | | | | | | | | | | | | | | | | | Underlying
| | | | Underlying
| | | | Securities
| | | | | | | | | | | | | | | | | | Unexercised
| | | | Unexercised
| | | | Underlying
| | | | Option
| | | | | | | | | | | | | | Options
| | | | Options
| | | | Unexercised
| | | | Exercise
| | | | Option
| | | | | | Option
| | | | Exercisable
| | | | Unexercisable
| | | | Unearned Options
| | | | Price(1)
| | | | Expiration
| | | Name | | | Grant Date | | | | (#) | | | | (#) | | | | (#) | | | | ($) | | | | Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael. B. Targoff(2) | | | | 12/21/05 | | | | | 26,738 | | | | | 80,214 | | | | | | | | | $ | 28.441 | | | | | 12/21/2012 | | | Eric J. Zahler | | | | 12/21/05 | | | | | 30,000 | | | | | 90,000 | | | | | | | | | $ | 28.441 | | | | | 12/21/2012 | | Richard J. Townsend(2) | | | | 12/21/05 | | | | | 21,250 | | | | | 63,750 | | | | | | | | | $ | 28.441 | | | | | 12/21/2012 | | | C. Patrick DeWitt | | | | 12/21/05 | | | | | 18,750 | | | | | 56,250 | | | | | | | | | $ | 28.441 | | | | | 12/21/2012 | | | Avi Katz | | | | 12/21/05 | | | | | 12,500 | | | | | 37,500 | | | | | | | | | $ | 28.441 | | | | | 12/21/2012 | | | Bernard L. Schwartz (retired) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | These options have an exercise price of $8.7031 per share. These options vest in thirds over a three-year period commencing one year from the date of grant. As of April 1, 2003, the closing price of GTL’s common stock was $0.065 per share. |
| | | Excludes the effect of the stock option exchange offer completed in March 2003 pursuant to which Messrs. Zahler, Townsend, DeWitt and Hart tendered 2,325,000, 1,050,000, 498,900 and 509,100 options, respectively, for cancellation. In exchange for such tendered stock options, Messrs. Zahler, Townsend, DeWitt and Hart will receive a grant of 930,000, 532,500, 199,560 and 203,640 options, respectively, on September 8, 2003, which new options will have an exercise priceshare equal to the fair market value of theour common stock on the date of grant date. |
| | | (c) | For 2002, includesand vest in four equal annual Boardinstallments beginning on the first anniversary of Directors fee in the amounteffectiveness of $25,000 to eachour plan of Messrs. Schwartz and Zahler and Company matching contributions to the Savings Plan in the amount of $6,600 for each of Messrs. Schwartz, Zahler and Townsend and $7,194 and $7,333 for Messrs. DeWitt and Hart, respectively, and the value of supplemental life insurance premiums in the amounts of $230,048, $21,746, $14,235 and $4,689 for Messrs. Schwartz, Zahler, Townsend and Hart, respectively. | | reorganization (November 21, 2005). | | | (d) (2) | For 2002, represents a $275,000 one-time cash bonus payment to Mr. Hart on the fifth anniversary of the closing date of the purchase by Loral of Loral Skynet from AT&T. | | (e) | Consists of $146,150 for Mr. DeWitt for a tax gross-up on his restricted stock award. |
| | (f) | At year-end, Mr. DeWitt held 400,000On March 28 and June 14, 2006, we approved grants of stock options to Messrs. Targoff and Townsend covering 825,000 and 20,000 shares of restricted stock which had a market value of $172,000 based on the closing price of our common stock at year-end. The restrictions lapsewith exercise prices of $26.915 and $27.135 per share, respectively. Mr. Targoff’s options are scheduled to vest over a four-year period with the first 121/2% vesting immediately, an additional 25% vesting on the thirdnext three anniversaries of the grant date and the remaining 121/2% vesting on the fourth anniversary of the grant date; provided, however, that no portion of this option (whether vested or not) will be exercisable prior to the date of grant.stockholder approval of the Amended and Restated 2005 Stock Incentive Plan. Mr. Townsend’s options are scheduled to vest over a four-year period, with 25% vesting on each of the first four anniversaries of the grant date. These grants, however, are also subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). As such, we have not included these awards in the table for 2006. If the Amended and Restated 2005 Stock Incentive Plan is approved, we will disclose these grants in our 2007 Outstanding Equity Awards at Fiscal Year-End table. |
Option Exercises and Stock Vested in Fiscal 2006 None of our NEOs exercised any options in 2006. Pension Benefits in Fiscal Year 2006 The table below sets forth information on the pension benefits for the NEOs under each of the following pension plans: | | | (g) | Represents 300,000 shares• | Pension Plan. Our pension plan is a funded and tax qualified retirement plan that covered 1,578 eligible employees as of restricted stock grantedDecember 31, 2006. As applicable to Mr. Hartthe NEOs, the plan provides benefits based primarily on March 6, 2003a formula that takes into account the executive’s earnings for performance in 2002. Such shares hadeach year of service with us. The current contributory formula (meaning a market value of $96,000 based on the closing price of our common stock on March 6, 2003. The restrictions lapse on the third anniversaryrequired 1% post-tax contribution) effective July 1, 2006 for all eligible employees provides for an annual benefit accrual equal to 1.20% of the dateexecutive’s earnings, including base salary and management incentive bonus, for the year up to the Social Security Wage Base (SSWB) for the year ($94,200 for 2006) plus 1.45% of grant.his earnings for the year in excess of the SSWB up to the IRS-prescribed limit for such year ($220,000 for 2006). This formula applies for the first 14 years of service. For years 15 and later, the formula provides for an |
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OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
| | | | | | | | | | | | | | | | | | | | | | | | Number of | | % of Total | | | | | | | | | Securities | | Options | | | | | | | | | Underlying | | Granted to | | Exercise or | | | | | | | Options | | Employees in | | Base Price | | | | Grant Date | | Name | | Granted(a) | | Fiscal Year | | (per share) | | Expiration Date | | Present Value(b) | |
| | Bernard L. Schwartz | | | 250,000 | | | | 26.61 | % | | $ | 1.885 | | | | 03/04/2012 | | | $ | 415,000 | | | Eric J. Zahler | | | 162,500 | | | | 17.30 | % | | $ | 1.885 | | | | 03/04/2012 | | | $ | 269,750 | | | Richard J. Townsend | | | 150,000 | | | | 15.97 | % | | $ | 1.885 | | | | 03/04/2012 | | | $ | 249,000 | | | C. Patrick DeWitt | | | 0 | | | | | | | | | | | | | | | | | | | Terry J. Hart | | | 0 | | | | | | | | | | | | | | | | | |
| | | (a) | These options were granted on March 4, 2002 and | annual benefit accrual equal to 1.50% of earnings up the SSWB for each year plus 1.75% of earnings in excess of the SSWB up to the IRS limit for each year. Annual benefits under this formula are fully vested and exercisable. | | (b) | The Black-Scholes modelaccruedyear-to-year during the years of option valuation was used to determine grant date present value. The Company does not advocate or necessarily agree thatcredited service until retirement. At retirement, under the Black-Scholes model can properly determineplan’s normal form of retirement benefit (life annuity) the valueaggregate of an option. The present value calculation is basedall annual benefit accruals becomes the annual retirement benefit payable on a ten-year option term,monthly basis for life with a risk-free interest rate assumption of 5%, stock price volatility of 90% over a ten-year period and a dividend rate of $0 per share. However, there were no adjustments made for non-transferability or risk of forfeiture. The actual value realized, if any, will depend on the amount by which the stock price at the time of exercise exceeds the exercise price. There is no assurance that the amount estimated by the Black-Scholes model will be realized. |
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN 2002 AND
YEAR-END OPTION VALUES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Securities | | Value of Unexercised | | | | | | | Underlying Unexercised | | In-the-Money Options at | | | | | | | Options at Fiscal Year-End(a) | | Fiscal Year-End(b) | | | | | | |
| |
| | | Number of | | | | | | | | | Shares | | | | | | | | | Acquired on | | Value | | | | | | Name | | Exercise | | Realized | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | |
| | Bernard L. Schwartz | | | | | | | | | | | 7,180,000 | | | | 0 | | | | 0 | | | | 0 | | | Eric J. Zahler | | | | | | | | | | | 1,885,728 | | | | 1,376,772 | | | | 0 | | | | 0 | | | Richard J. Townsend | | | | | | | | | | | 813,281 | | | | 861,719 | | | | 0 | | | | 0 | | | C. Patrick DeWitt | | | | | | | | | | | 412,792 | | | | 435,558 | | | | 0 | | | | 0 | | | Terry J. Hart | | | | | | | | | | | 348,004 | | | | 330,796 | | | | 0 | | | | 0 | |
| | (a) | Excludes the effect of the stock option exchange offer completed in March 2003 pursuant to which Messrs. Zahler, Townsend, DeWitt and Hart tendered 2,325,000, 1,050,000, 498,900 and 509,100 options, respectively, for cancellation. In exchange for such tendered stock options, Messrs. Zahler, Townsend, DeWitt and Hart will receive a grant of 930,000, 532,500, 199,560 and 203,640 options, respectively, on September 8, 2003, which new options will have an exercise priceguaranteed minimum equal to the fair market valueexecutive’s contributions. So, for example, if an individual accrued $1,000 per year for 15 years and then retired, his annual retirement benefit for life would be $15,000. In order to accrue benefits under this formula, effective July 1, 2006, NEOs must make an annual contribution from their earnings. In 2006, each NEO contributed $1,100, with the exception of Mr. Dewitt who contributed $2,200. Prior to July 1, 2006, with the common stock onexception of Mr. Dewitt, there was no contribution requirement for the grant date. | | (b) | Market value of underlying securities at year-end, minus the exercise price.NEOs to receive this formula. |
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Employment and Other Related Arrangements
For Mr. Schwartz is compensatedDewitt, pursuant to an employment agreement with Loral SpaceCom, which was amended on July 18, 2000. This agreement, which expires on April 5, 2006, provides for a minimum annual base salary, to be increased each year by the percentage changeformula in a specified consumer price index, plus such other annual increases as the Board of Directors or the Compensation Committee may grant from time to time. At Mr. Schwartz’s request, the Compensation Committee agreed to amend his employment agreement to provide for no base salary for the twelve-month period commencing March 1, 2003. Consistent with this request, the Compensation Committee determined that it would not pay a bonus to Mr. Schwartz for 2002.Pursuant to the amended employment agreement, if Mr. Schwartz is removed as Chairman of the Board of Directors or as Chief Executive Officer other than for cause, or if his duties, authorities or responsibilities are diminished, or if there is a change of control of the Company, Mr. Schwartz may elect to terminate the agreement. A change of control of the Company is defined generally to mean: (1) the acquisition by any person of 35% or more of either (i) the then outstanding common stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (2) the incumbent directors cease for any reason to constitute at least a majority of the Board of Directors; (3) subject to certain exceptions, consummation of a reorganization, consolidation, merger or sale of substantially all of the assets of the Company; or (4) approval by the shareholders of the Company of a liquidation or dissolution of the Company. In any such event, or upon his death or disability, Mr. Schwartz will be entitled to receive a lump sum payment discounted at 3% per annum, in an amount equal to his highest annual base salary during the five yearseffect prior to his termination for a five-year period, an amount of incentive bonus equal to the highest bonus received by Mr. Schwartz during the term of the agreement for a five-year period, and an amount calculated to approximate the annual compensation elements reflected in the difference between fair market value and exercise price of stock options granted to Mr. Schwartz. All such sums are further increased to offset any tax due by Mr. Schwartz under the excise tax and related provisions of Section 4999 of the Internal Revenue Code.
Loral SpaceCom has established Supplemental Life Insurance Programs for certain key employees including Messrs. Schwartz, Zahler, Townsend and Hart. For Messrs. Zahler, Townsend and Hart, the Plans are funded with “universal” life insurance policies with death benefit amounts of $1,500,000, $1,000,000 and $250,000, respectively. For Mr. Schwartz, the Plan is funded with two “universal” life insurance policies, one with a death benefit of $20,000,000 and one with a death benefit of $500,000. The $20,000,000 policy (the “Policy”) is subject to a split-dollar agreement between Loral SpaceCom and the trustees of a life insurance trust established by Mr. Schwartz (the “Life Insurance Trust”). Pursuant to the split-dollar agreement, in the event of the death of Mr. Schwartz, the sponsor, currently Loral SpaceCom, will be entitled to receive an amount equal to the sponsor’s cumulative contributions to the Policy. If the split-dollar agreement is terminated prior to Mr. Schwartz’s death, the sponsor will be entitled to an amount equal to the available cash value of the Policy on the date of the termination. The split-dollar agreement is terminated prior to Mr. Schwartz’s death if (i) Mr. Schwartz’s employment with Loral SpaceCom is terminated for cause or (ii) the trustees of the Life Insurance Trust terminate the split-dollar agreement. No payments were made by Loral SpaceCom under the Policy in 2002 as a result of uncertainty as to whether such payments might be prohibited by the terms of the Sarbanes-Oxley Act. Loral SpaceCom and Mr. Schwartz have agreed that no further payments under the Policy will be made in 2003, and it is expected that the Policy will lapse in July 2003. At that time, there will be no available cash remaining in the Policy.
On July 18, 2000, the Board of Directors approved the entry by the Company into employment protection agreements with the NEOs and other officers that would provide them with certain protections in the event of a change of control of the Company. A change of control of the Company is defined generally to mean: (1) the acquisition by any person of 35% or more of either (i) the then outstanding common stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (2) the incumbent directors cease for any reason to constitute at least a majority of the Board of Directors; (3) subject to certain exceptions, consummation of a
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reorganization, consolidation, merger or sale of substantially all of the assets of the Company; or (4) approval by the shareholders of the Company of a liquidation or dissolution of the Company. These agreements provide that, after a change of control, the NEO would be entitled to certain protections relating to1, 2006, his responsibilities and duties, as well as compensation and benefits. In the event of a termination by the Company other than for “cause” or “disability” or a termination by the NEO for “good reason,” in each case as such terms are defined therein, the agreements provide for a severance package consisting of: (i) the NEO’s base salary through the date of termination; (ii) a cash amount equal to three times the sum of the NEO’s base salary, annual bonus, the present value amount of the cost of certain benefit plans and programs in which the NEO participates and the annualized value of the NEO’s vacation and fringe benefits; and (iii) any deferred compensation and any other amounts or benefits then owing to the NEO. The employment protection agreements were amended on January 22, 2002 to clarify that the value of certain special stock or stock option grants would be included for purposes of determining the amount of any such severance package.
Pension Plan
Loral maintains a defined benefit pension plan and trust (the “Pension Plan”) that is qualified under Section 401(a) of the Internal Revenue Code. The Pension Plan provides retirement benefits for eligible employees of Loral SpaceCom and Loral SpaceCom’s operating affiliates, including executive officers. Executive officers also participate in a supplemental executive retirement plan (the “SERP”) which provides supplemental retirement benefits due to certain reductions in retirement benefits under the Pension Plan that are caused by various limitations imposed by the Internal Revenue Code. The benefit formulas differ by operating affiliate. Compensation used in determining benefits under the Pension Plan and SERP includes salary and bonus for employees of Loral SpaceCom and Loral Skynet and salary only for employees of Space Systems/ Loral. In the case of the NEOs that are employed by Loral SpaceCom and Loral Skynet, compensation is the same salary and bonus as disclosed in the summary compensation table except that Mr. Hart’s 2002 one-time bonus of $275,000 is excluded from the Pension and SERP benefit calculation. In the case of Mr. DeWitt, compensation used to calculate his Pension and SERP benefit is his five year average year-end salary, not the salary actually earned over the course of each year as reported in the summary compensation table.
The benefit formula for executive officers employed by Loral SpaceCom, such as Messrs. Schwartz, Zahler and Townsend, for the period ending December 31, 1996 will generally provide an annual benefit equal to the greater of (A) or (B), where (A) equals (i) 1.2% of compensation up to the Social Security Wage Base and 1.45% of compensation in excess of the Social Security Wage Base for each year prior to the calendar year in which a participant completes 15 years of employment, plus (ii) 1.5% of compensation up to the Social Security Wage Base and 1.75% of compensation in excess of the Social Security Wage Base for the calendar year in which the participant has completed 15 years of employment and for each year thereafter; and (B) equals (i) 1.2% of average annual compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.45% of average annual compensation paid during 1992-1996 in excess of the 1996 Social Security Wage Base for each year prior to the calendar year in which a participant completes 15 years of employment, plus (ii) 1.5% of average annual compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.75% of average annual compensation paid during 1992-1996 in excess of the 1996 Social Security Wage Base for the calendar year in which the participant has completed 15 years of employment and for each year thereafter. The benefit for periods subsequent to December 31, 1996 will be based on (A) above. The estimated credited years of service for Messrs. Schwartz, Zahler and Townsend are 30.75, 10.75 and 4.25, respectively.
For executive officers employed by Space Systems/ Loral, such as Mr. DeWitt, the benefit formula for contributory service (in which a 1% post-tax contribution is required) provides an annualinto the plan enabled him to receive a benefit equal to 1.3% of the final five year average salary (no bonuses are included in eligible compensation for this formula) times years of contributory service plus 0.45% of final five year average salary over 150% of the Social Security Covered Compensation for each year up to 35 years.
The benefit formula for non-contributory service provides an annual benefit of $252 for each year of credited service. (See also the explanation and table below.) The estimated creditednormal retirement age as defined in this plan is 65. Eligible employees who have achieved ten years of service by the time they reach age 55 are eligible for an early retirement benefit at 50% (age 55) of the benefit they would receive at age 65. Currently, Messrs. Targoff, Zahler and DeWitt are eligible for early retirement. In addition to a life annuity, the plan offers other forms of benefit, including spousal survivor annuity options and beneficiary period-certain options. | | | | • | Supplemental Executive Retirement Plan. The Company provides the Supplemental Executive Retirement Plan, or SERP, to participants who earn in excess of the IRS-prescribed compensation limit in any given year to provide for full retirement benefits above amounts available under the Pension Plan because of IRS limits. The SERP is unfunded and is not qualified for tax purposes. For 2006, an employee’s annual SERP benefit was accrued under the same formulas as the Pension Plan, but was not limited to the $220,000 maximum noted above. Benefits under the SERP are generally payable at the same time and in the same manner as the Pension Plan. There is no policy or plan provision granting extra years of credited service with respect to the SERP. |
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The table below indicates the NEOs’ years of credited service under our pension plans and the present value of their accumulated benefits, in each case as of December 31, 2006. In addition, the table identifies all payments made to the NEOs during 2006. 2006 Pension Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Present Value of
| | | | | | | | | | | Number of Years of
| | | Accumulated
| | | Payments During
| | | | | | | | Credited Service(1)
| | | Benefit(2)
| | | Last Fiscal Year
| | Name | | | Plan Name | | | (#) | | | ($) | | | ($) | | Michael B. Targoff | | | Pension Plan | | | | 18 | | | | $ | 146,000 | | | | $ | 2,812 | | | | | | SERP | | | | 18 | | | | $ | 820,000 | | | | $ | 16,355 | | | Eric J. Zahler | | | Pension Plan | | | | 15 | | | | $ | 209,000 | | | | | | | | | | | SERP | | | | 15 | | | | $ | 1,162,000 | | | | | | | | Richard J. Townsend | | | Pension Plan | | | | 8 | | | | $ | 128,000 | | | | | | | | | | | SERP | | | | 8 | | | | $ | 559,000 | | | | | | | | C. Patrick DeWitt | | | Pension Plan | | | | 33 | | | | $ | 535,000 | | | | | | | | | | | SERP | | | | 33 | | | | $ | 732,000 | | | | | | | | Avi Katz | | | Pension Plan | | | | 10 | | | | $ | 91,000 | | | | | | | | | | | SERP | | | | 10 | | | | $ | 171,000 | | | | | | | | Bernard L. Schwartz | | | Pension Plan | | | | | | | | | | | | | $ | 13,866 | | | (retired) | | | SERP | | | | | | | | | | | | | $ | 250,000 | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | The number of years of credited service is rounded to the nearest whole number as of December 31, 2006. | | | (2) | | The accumulated benefit is based on service and earnings (base salary and bonus, as described above) considered by the plans for the period through December 31, 2006. It includes the value of contributions made by the NEOs throughout their careers. The present value has been calculated assuming the NEOs will remain in service until age 65, the age at which retirement may occur without any reduction in benefits, and that the benefit is payable under the available forms of annuity consistent with the assumptions as described in note 17 to the financial statements in our Annual Report onForm 10-K for the year ended December 31, 2006. As described in such note, the interest rate assumption is 6.0%. |
Nonqualified Deferred Compensation Table in Fiscal 2006 On December 21, 2005, we established a deferred compensation bookkeeping account for certain employees, including the NEOs, and credited that account with a dollar amount equal to $9.441 for each deferred compensation unit. To the extent our stock price declines below $28.441, the corresponding portion of the deferred compensation accounts also declines accordingly. The deferred compensation account becomes vested at the rate of 25% per year on the first, second, third and fourth anniversaries of the effective date of our plan of reorganization (November 21, 2005), subject to earlier vesting upon a change in control or certain specified sale events as defined in our 2005 Stock Incentive Plan. The vested portion, however, will be distributed to the account holder only upon the earlier of: (a) his termination of service; (b) a change of control; or (c) December 21, 2012. The value of the deferred compensation account is not initially credited with interest or subject to any rate of return, other than the potential decrease in value upon a corresponding decrease in our stock price below $28.441 and any recovery in value to the extent that our stock price returns to $28.441. The deferred compensation accounts will be converted into interest-bearing accounts upon exercise of the related stock options.
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The table below identifies the aggregate earnings during 2006 and the aggregate balance of the vested and unvested amount as of the end of 2006. 2006 Nonqualified Deferred Compensation | | | | | | | | | | | | | | | | Aggregate Earnings
| | | Aggregate Balance
| | | | | in Last FY(1)
| | | at Last FYE(2)
| | Name | | | ($) | | | ($) | | Michael B. Targoff | | | $ | 17,219 | | | | $ | 1,009,734 | | | Eric J. Zahler | | | $ | 19,320 | | | | $ | 1,132,920 | | | Richard J. Townsend | | | $ | 13,685 | | | | $ | 802,485 | | | C. Patrick DeWitt | | | $ | 12,075 | | | | $ | 708,075 | | | Avi Katz | | | $ | 8,050 | | | | $ | 472,050 | | | Bernard L. Schwartz (retired) | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | At December 31, 2005, the closing price of our common stock was $28.28. Because this price was below the $28.441 limit mentioned above, the value of the deferred compensation accounts at December 31, 2005 was $9.28 per unit. At December 31, 2006, the closing price of our common stock was $40.72. Because this price was above the $28.441 limit, the deferred compensation accounts regained their original value. The value of this recovery is listed in the “Aggregate Earnings in Last FY” column. As noted above, the deferred compensation accounts cannot increase in value above the $9.441 per unit value we originally accrued to the accounts, regardless of how much our stock price increases over the $28.441 limit, unless and until the accounts are converted into interest-bearing accounts. | | | (2) | | On November 21, 2006, 25% of the deferred compensation accounts vested. The vested balance for the NEOs is as follows: (i) Mr. Targoff ($252,433); (ii) Mr. Zahler ($283,230); Mr. Townsend ($200,621); Mr. DeWitt ($177,019); Mr. Katz ($118,013). During 2006, we recognized compensation expense with respect to the deferred compensation accounts for each NEO in the following amounts: (i) Mr. Targoff ($252,332); (ii) Mr. Zahler ($283,116); Mr. Townsend ($200,541); Mr. DeWitt ($176,948); Mr. Katz ($117,965). The amounts we recognized as a compensation expense for 2006 are disclosed in the “All Other Compensation” column of the Summary Compensation Table for 2006. |
Potential Change in Control and other Post Employment Payments As discussed above in the Compensation Discussion and Analysis, each NEO has an employment agreement with Loral that provides for potential post-termination payments. In this section, we provide details of these arrangements. CEO Upon Mr. Targoff’s death or disability during the term of his employment agreement, Mr. Targoff will be entitled to, among other payments, his accrued and unpaid bonus for the preceding year, a pro rated annual bonus for the year in which such death or permanent disability occurs, and, in the case of his death, salary through the end of the month in which he dies. In addition, any unvested options and deferred compensation that would have become vested on the next vesting date will become vested and, in the event of his death, his dependents will be entitled to continued medical, prescription drug and dental insurance coverage through the end of the current term of his employment agreement. In the event that Mr. Targoff’s employment is terminated by us without “cause” or Mr. Targoff resigns for “good reason” (as such terms are defined in his employment agreement), Mr. Targoff will be entitled to a severance payment, in a lump sum, equal to two (2) times the sum of his base salary and annual bonus (for the preceding year); provided, however, that if the Amended and Restated 2005 Stock Incentive Plan has not been approved (see Proposal 2) and we undergo a change in control, as defined in his employment agreement, Mr. Targoff may terminate employment for good reason and receive a severance payment equal to the value of his base salary and annual bonus for the remainder of the term. In addition, Mr. Targoff will be entitled to any accrued and unpaid annual bonus for the preceding year and a prorated annual bonus for the year in which any such termination of employment occurs. Mr. Targoff and his dependents will also be entitled to coverage under Loral’s medical, dental and life insurance in effect immediately prior to such termination for eighteen (18) months following such termination, or until he commences new employment and becomes eligible for
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comparable benefits. In addition, all of Mr. Targoff’s stock options, deferred compensation account and any other equity awards then held by Mr. Targoff will become fully vested. Mr. Targoff’s severance payments and benefits are contingent upon his execution of a release of claims in our favor. Mr. Targoff’s employment agreement also provides for a taxgross-up payment to Mr. Targoff in the event that he becomes subject to any parachute payment excise taxes under Section 4999 of the Internal Revenue Code. No other executive officer is entitled to such a gross up payment at Loral. Other Named Executive Officers Upon any NEO’s termination of employment on account of death or permanent disability during the contract term, such NEO is entitled to, among other payments, (i) such NEO’s accrued and unpaid bonus for the preceding year, (ii) a pro rated annual bonus for the year of termination, (iii) accelerated vesting of stock options that would have vested on the next vesting date, and (iv) in the case of such NEO’s death, salary through the end of the month of his death. In the event that an NEO’s employment is terminated by us without “cause” or the NEO resigns for “good reason” (as such terms are defined in the employment contract), the NEO will be entitled to a severance payment, in a lump sum, as follows (as of December 31, 2006): Mr. Zahler ($2,158,000), Mr. Townsend ($1,589,040), Mr. DeWitt ($425,040) and Mr. Katz ($809,838). Each NEO will also be entitled to (i) any accrued and unpaid annual bonus for the preceding year, (ii) a prorated annual bonus for the year in which any such termination of employment occurs and (iii) the full vesting of all outstanding stock options and the deferred compensation relating thereto. In addition, the NEO will be entitled to coverage under Loral’s medical, dental and life insurance plans in effect immediately prior to such termination until the earlier of (i) the expiration of a period determined by dividing the NEO’s lump sum severance payment by the NEO’s monthly salary rate and (ii) the date the NEO commences new employment and is 29.25.eligible for comparable benefits. Severance payments and benefits are contingent upon the execution by the NEOs of a release of claims in our favor. In June 2006, the Company formally adopted severance policies for employees of the Company’s corporate office, including officers. The following table showspolicy applicable to officers, which is subject to overriding terms in any employment agreement, applies to officers of the amounts of annual retirement benefits that would be payableCompany at normal retirement for executivesthe Vice President level and above who are employeddesignated by Space Systems/ Loral. Benefitsthe plan administrator. The policy provides for severance benefits following the termination of an eligible officer’s employment by the Company without cause. Severance benefits will be provided at different levels, depending on the seniority and length of service of the employee when termination occurs. Mr. Targoff and the Company’s other named executive officers (Messrs. Zahler, Townsend, DeWitt and Katz) are shownnot currently eligible for various rates of final average salary, assuming that employee contributions were madeparticipation in the severance policy because they currently have employment agreements with the Company. If, however, their employment agreements expire without renewal and they are designated by the plan administrator as eligible, they would become eligible for the periods indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years of Contributory Service | | | | | |
| | Final Average Salary | | 15 | | 20 | | 25 | | 30 | | 35 | | 40 | |
| | $100,000 | | $ | 22,270 | | | $ | 29,690 | | | $ | 37,110 | | | $ | 44,540 | | | $ | 51,960 | | | $ | 58,460 | | | | 125,000 | | | 28,830 | | | | 38,440 | | | | 48,050 | | | | 57,660 | | | | 67,270 | | | | 75,400 | | | | 150,000 | | | 35,390 | | | | 47,190 | | | | 58,990 | | | | 70,790 | | | | 82,580 | | | | 92,330 | | | | 175,000 | | | 41,960 | | | | 55,940 | | | | 69,930 | | | | 83,910 | | | | 97,900 | | | | 109,270 | | | | 200,000 | | | 48,520 | | | | 64,690 | | | | 80,860 | | | | 97,040 | | | | 113,210 | | | | 126,210 | | | | 225,000 | | | 55,080 | | | | 73,440 | | | | 91,800 | | | | 110,160 | | | | 128,520 | | | | 143,150 | | | | 250,000 | | | 61,640 | | | | 82,190 | | | | 102,740 | | | | 123,290 | | | | 143,830 | | | | 160,080 | | | | 275,000 | | | 68,210 | | | | 90,940 | | | | 113,680 | | | | 136,410 | | | | 159,150 | | | | 177,020 | | | | 300,000 | | | 74,770 | | | | 99,690 | | | | 124,610 | | | | 149,540 | | | | 174,460 | | | | 193,960 | | | | 350,000 | | | 87,890 | | | | 117,190 | | | | 146,490 | | | | 175,790 | | | | 205,080 | | | | 227,830 | | | | 400,000 | | | 101,020 | | | | 134,690 | | | | 168,360 | | | | 202,040 | | | | 235,710 | | | | 261,710 | |
The table above shows estimatedseverance benefits payable under the Plan and SERP including amounts attributable to employee contributions, determined on a straight life annuity basis. Such estimated benefits shown have been offset by Social Security Covered Compensation.
Effectiveseverance policy.
An eligible officer with the saletitle of Loral Skynet from AT&TChief Executive Officer, President, Chief Operating Officer, Chief Financial Officer or Executive Vice President will be entitled to Loral on March 15, 1997, the benefit formula for executive officers employed by Loral Skynet, such as Mr. Hart, provides an annual benefita severance payment equal to 1.6%(i) six months pay (defined as base salary plus average annual incentive bonus compensation paid over the last two years of compensationemployment), payable in a lump sum following termination, (ii) an additional six months pay, if unemployed after six months (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), payable over six months but subject to mitigation, and (iii) an additional 12 months base salary only, if unemployed after one year (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), payable over 12 months but subject to mitigation. An eligible officer with the title of Vice President will be entitled to a severance payment equal to (i) three months pay, payable in a lump sum following termination, and (ii) an additional amount, if unemployed after three months (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), equal to the sum of (A) three months pay plus (B) two weeks base salary for eachevery year of service. Serviceservice with AT&T preceding March 15, 1997 is recognizedthe Company plus (C) one-twelfth of two weeks base salary for eligibility and vesting purposes but not for benefit accrual. Mr. Hart’s estimated creditedevery month of service with the Company in excess of the participant’s full years of service with Loral Skynet is 5.75.
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Annual Benefits
Effective April 1, 1997, under
the minimum distribution rules prescribed bycase of (B) and (C) up to a maximum of twenty-six years, payable biweekly at the Internal Revenue Code, Mr. Schwartz began receiving an annual benefit under the Pension Plan and SERP of $2,165,700, determined onemployee’s pre-termination base salary rate, following termination but subject to mitigation. In addition, if a joint and 50% survivor basis. The projected annual benefit under the Pension Plan and SERP is $322,109 for Mr. Zahler, $152,685 for Mr. Townsend, $112,186 for Mr. DeWitt and $87,406 for Mr. Hart. These projected benefits have been computed assuming that (i) employmentterminated participant has outstanding unvested stock options or other equity or incentive compensation awards, such participant will be continued until normal retirement, (ii) current levels of creditable compensation and the Social Security Wage Base will continue without increases or adjustments throughout the remainderentitled to accelerated vesting of the computation period, (iii) contributions will continue to be made towardnext full tranche of all of such participant’s unvested options and other equity and incentive compensation awards. However, if such termination occurs within six months following a contributory benefit and (iv) paymentsmajor corporate transaction, acquisition or divestiture, the terminated participant will be made on a life annuity basis.entitled to full vesting of all outstanding unvested options and other equity and incentive compensation awards, unless the plan administrator determines that such termination is not the result of such corporate transaction, acquisition or divestiture. Potential Severance Payments
(As of December 31, 2006) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Early
| | | | Distribution
| | | | | | | | | | | | | | | | | Severance
| | | | Vesting of
| | | | of Deferred
| | | | | | | | Estimated Tax
| | | | | | | | | Amounts
| | | | Stock Options(1)
| | | | Compensation
| | | | Other
| | | | Gross Up
| | | | Total
| | Name | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | Michael B. Targoff(2) | | | $ | 4,275,000 | | | | $ | 984,948 | | | | $ | 757,300 | | | | | | | | | $ | 2,098,119 | | | | $8,115,367 | | Eric J. Zahler | | | $ | 2,158,000 | | | | $ | 1,105,110 | | | | $ | 849,690 | | | | | | | | | | | | | | $4,112,800 | | Richard J. Townsend | | | $ | 1,589,040 | | | | $ | 782,786 | | | | $ | 601,864 | | | | | | | | | | | | | | $2,973,690 | | C. Patrick DeWitt | | | $ | 425,040 | | | | $ | 690,694 | | | | $ | 531,056 | | | | | | | | | | | | | | $1,646,790 | | Avi Katz | | | $ | 809,838 | | | | $ | 460,463 | | | | $ | 354,038 | | | | | | | | | | | | | | $1,624,339 | | Bernard L. Schwartz (retired) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (1) | | Does not include early vesting of options to acquire 825,000 and 20,000 shares of common stock granted to Messrs. Targoff and Townsend, respectively, which options are subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). | | | (2) | | For Mr. Targoff, if the Amended and Restated 2005 Stock Incentive Plan has not been approved (see Proposal 2) and we undergo a change in control, as defined in his employment agreement, Mr. Targoff may terminate employment for good reason and receive a severance payment, which, as of December 31, 2006, would be equal to $8,550,000. In this event, amounts attributable to early vesting of stock options and distribution of deferred compensation would be the same as those in the table above, and the estimated tax gross up to which Mr. Targoff would be entitled would be $4,427,819, bringing the total payments to $14,720,067. |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of beneficial ownership changes in such ownership with the Securities and Exchange Commission. Based solely on a review of the copies of such reports furnished to us and on written representations from certain reporting persons that no Form 5 was required for such person, we believe that during 2002 all officers, directors and persons who own more than 10% of our common stock timely filed all such reports.
OWNERSHIP OF VOTING STOCK COMMON STOCK OWNERSHIPPrincipal Holders of Stock
Common Stock The following table shows, based upon filings made with the Company, certain information as of March 1, 2007 concerning persons who may be deemed beneficial owners of 5% or more of the outstanding shares of ourLoral common stock because they possessed or shared voting or investment power with respect to the shares of ourLoral common stock: | | | | | | | | | | | | | | Amount and Nature
| | | | Percent
| | | | | of Beneficial
| | | | of
| | Name and Address | | | Ownership | | | | Class(1) | | Various funds affiliated with | | | | | | | | | MHR Fund Management LLC and Mark H. Rachesky, M.D.(2) | | | | 17,130,749 | | | | 57.1%(3) | | 40 West 57th Street, 24th Floor, New York, NY 10019 | | | | | | | | | EchoStar Communications Corporation and
Charles W. Ergen(4) | | | | 1,401,485 | | | | 7.0% | | 9601 South Meridian Boulevard, Englewood, CO 80112 | | | | | | | | | BlackRock, Inc.(5) | | | | 1,294,644 | | | | 6.5% | | 40 East 52nd Street, New York, NY 10022 | | | | | | | | | | Various funds affiliated with | | | | | | | | | Highland Capital Management, L.P. and James Dondero(6) | | | | 1,159,676 | | | | 5.8% | Two Galleria Tower, 13455 Noel Road, Suite 800,
Dallas, TX 75420 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Amount and Nature of | | Percent of | | Name and Address | | Beneficial Ownership | | Class(1) | |
| | Lockheed Martin Investments Inc. | | | 45,896,978 | | | | 10.5 | % | | 6801 Rockledge Drive | | | | | | | | | | Bethesda, Maryland 20817 | | | | | | | | | | | | Joseph L. Harrosh | | | 42,166,784 | (2) | | | 9.7 | % | | 40900 Grimmer Boulevard | | | | | | | | | | Fremont, California 94538 | | | | | | | | |
| | | | (1) | | Percent of class refers to percentage of class beneficially owned as the term beneficial ownership is defined inRule 13d-3 under the Securities Exchange Act of 1934 and is based upon the number of20,063,325 shares of ourLoral common stock outstanding as of AprilMarch 1, 2003.2007. | | | | (2) | A | Information based on Amendment Number 4 to Schedule 13G/ A13D filed by Joseph L. Harrosh with the SEC on March 23, 2007 relating to securities held for the accounts of each of MHR Capital Partners Master Account LP (“Master Account”), a limited partnership organized in Anguila, British West Indies, MHR Capital Partners (100) LP (“Capital Partners (100)”), MHR Institutional Partners, LP (“Institutional Partners”), MHRA LP (“MHRA”), MHRM LP (“MHRM”), MHR Institutional Partners II LP (“Institutional Partners II”), MHR Institutional Partners IIA LP (“Institutional Partners IIA”) and MHR Institutional Partners III LP (“Institutional Partners III”), each (other than Master Account), a Delaware limited partnership. MHR Advisors LLC (“Advisors”) is the general partner of each of Master Account and Capital Partners (100), and, in such capacity, may be deemed to beneficially own the shares of common stock held for the accounts of each of Master Account and Capital Partners (100). MHR Institutional Advisors LLC (“Institutional Advisors”) is the general partner of each of Institutional Partners, MHRA and MHRM, and, in such capacity, may be deemed to beneficially own the shares of common stock held for the accounts of each of Institutional Partners, MHRA and MHRM. MHR Institutional Advisors II LLC (“Institutional Advisors II”) is the general partner of each of Institutional Partners II and Institutional Partners IIA, and, in such capacity, may be deemed to beneficially own the shares of common stock held for the accounts of each of Institutional Partners II and Institutional Partners IIA. MHR Institutional Advisors III LLC (“Institutional Advisors III”) is the general partner of Institutional Partners III, and, in such capacity, may be deemed to beneficially own the shares of common stock held for the account of Institutional Partners III. MHR Fund Management is a Delaware limited liability company that is an affiliate of and has an investment management agreement with Master Account, Capital Partners (100), Institutional Partners, MHRA, MHRM, Institutional Partners II, Institutional Partners IIA and Institutional Partners III, and other affiliated entities, pursuant to which it has the power to vote or direct the vote and to dispose or to direct the disposition of the shares of common stock reported herein and, accordingly, MHR Fund Management may be deemed to beneficially own the shares of common stock reported herein which are held for the account of each of Master Account, Capital Partners (100), Institutional Partners, MHRA, MHRM, Institutional Partners II, Institutional Partners IIA and Institutional Partners III. Mark H. Rachesky. M.D. (“Dr. Rachesky”) is the managing member of Advisors, Institutional Advisors, Institutional Advisors II, Institutional Advisors III and MHR Fund Management, and, in such capacity, may be deemed to beneficially own the shares of common stock held for the accounts of each of Master Account, Capital Partners (100), Institutional Partners, MHRA, MHRM, Institutional Partners II, Institutional Partners IIA and Institutional Partners III. | | | | Pursuant to a Securities Purchase Agreement, which was originally executed on October 17, 2006, and Exchange Commissionwhich was amended and restated on February 5, 2003 reported that, as27, 2007 (the “Purchase Agreement”), certain affiliated funds of February 5, 2003, Mr. Harrosh beneficially ownedMHR Fund Management purchased 136,526 shares ofSeries A-1 Cumulative 7.50% Convertible Preferred Stock (the“Series A-1 Preferred Stock”) and had sole voting power and sole investment power over 42,166,784858,486 shares of ourSeries B-1 Cumulative 7.50% Convertible Preferred Stock (the“Series B-1 Preferred Stock” and, together with theSeries A-1 Preferred Stock, the “Preferred Stock”). Each share ofSeries A-1 Preferred Stock is convertible, at the option of the holder, into ten shares of common stock including 3,000at an initial conversion price of $30.1504 per share. Prior to the Majority Ownership Date (as defined below), each share ofSeries B-1 Preferred Stock is convertible, at the option of the holder, into ten shares of our Class B-1 Nonvoting Stock, par value $0.01, of the Company (the“Class B-1 Non-Voting Stock”), at an initial conversion price of $30.1504 per share, which is not currently authorized. After the Majority Ownership Date, each share ofSeries CB-1 Preferred Stock is convertible, at the option of the holder, into 7,500ten shares of our common stock.stock at an initial conversion price of $30.1504 per share. |
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| | | | | The terms of both series of Preferred Stock are designed so that, prior to the Majority Ownership Date, any shares of common stock issuable in the aggregate to MHR Fund Management or any of its affiliates (together, “MHR”) upon conversion of the Preferred Stock, when taken together with MHR’s current holdings of shares of common stock, will not represent more than 39.999% of the aggregate voting power of the securities of the Company (the “Voting Limitation”). The “Majority Ownership Date” means the earlier of the date that (i) MHR’s beneficial ownership of shares of common stock, not including any of the shares of common stock issuable upon the conversion of the Preferred Stock, represents more than 50% of the shares of common stock of the Company, or (ii) a third party has acquired a majority of the shares of common stock on a fully diluted basis other than pursuant to certain prohibited transfers of theSeries A-1 Preferred Stock from MHR. After the Majority Ownership Date, this restriction will no longer apply, and all shares of Preferred Stock will be convertible into shares of common stock. | | | (3) | | In all circumstances, the conversion or exchange of the Preferred Stock reported as being beneficially owned by MHR into shares of common stock will be subject to the Voting Limitation (as described in footnote 2 above). The number of shares that MHR will be entitled to vote at the Annual Meeting will be 7,180,629 shares of common stock and 995,012 shares of preferred stock which have 99 votes and are entitled to vote as a single class with the common stock such that the total number of shares held by MHR will represent, in the aggregate, 35.8% of all shares entitled to vote at the meeting. MHR is contractually obligated to either (i) vote the shares ofSeries A-1 Preferred Stock (representing 13 of the 99 votes) in accordance with the recommendation of our Board of Directors or (ii) abstain from voting such shares. | | | (4) | | Information based solely on a Schedule 13G, filed with the SEC on December 19, 2005, by EchoStar Communications Corporation (“EchoStar”) and Charles W. Ergen. The Schedule 13G provides that Mr. Ergen is the beneficial owner of 1,401,485 shares, of which EchoStar owns 1,350,532 of such shares. According to the Schedule 13G, each reporting person has sole voting and dispositive power with respect to the shares of common stock indicated to be held by such person. | | | (5) | | Information based solely on a Schedule 13G, filed with the SEC on February 13, 2007, by BlackRock, Inc. BlackRock, Inc. is a parent holding company for a number of investment management subsidiaries. BlackRock Advisors LLC, BlackRock Investment Management LLC and BlackRock (Channel Islands) Ltd. are certain investment advisory subsidiaries which hold shares of common stock. | | | (6) | | Information based on Amendment No. 3 to Schedule 13D, filed with the SEC on March 15, 2007 relating to securities held for the accounts of Highland Capital Management, L.P., a Delaware limited partnership (“Highland Capital”), Strand Advisors, Inc., a Delaware corporation (“Strand”), James Dondero, a citizen of the United States, Highland Multi-Strategy Onshore Master SubFund, L.L.C., a Delaware limited liability company (“Multi-Strategy SubFund”), Highland Multi-Strategy Master Fund, L.P., a Bermuda limited partnership (“Master Fund”), Highland Multi-Strategy Fund GP, L.P., a Delaware limited partnership (“Multi-Strategy GP”) and Highland Multi-Strategy Fund GP, L.L.C., a Delaware limited liability company (“Multi-Strategy GP LLC”). Information is also given in the Schedule 13D with respect to Highland Crusader Offshore Partners, L.P., a Bermuda limited partnership (“Crusader”), Highland Crusader Fund GP, L.P., a Delaware limited partnership (“Crusader Fund GP”), Highland Crusader Fund GP, LLC, a Delaware limited liability company (“Crusader Fund GP LLC”), Highland Credit Strategies Master Fund, L.P., a Bermuda limited partnership (“Credit Strategies”), Highland General Partner LP, a Delaware limited partnership (“General Partner”) and Highland GP Holdings LLC, a Delaware limited liability company (“GP Holdings”). According to the Schedule 13D and pursuant to management agreements, Highland Capital exercises all voting and dispositive power with respect to securities held by Crusader and Credit Strategies. |
Preferred Stock The following table shows certain information as of March 1, 2007 concerning persons who may be deemed beneficial owners of 5% or more of the outstanding shares of Loral preferred stock because they possessed or shared voting or investment power with respect to shares of Loral preferred stock: | | | | | | | | | | | | Amount and Nature
| | | | | | | | of Beneficial
| | | Percent
| | Name and Address | | | Ownership | | | of Class | Series A-1 Preferred Stock(1) | | | | | | | Various funds affiliated with
MHR Fund Management LLC and Mark H. Rachesky, M.D. | | | 136,526 | | | 100% | | 40 West 57th Street, 24th Floor, New York, NY 10019 | | | | | | | Series B-1 Preferred Stock(2) | | | | | | | | Various funds affiliated with | | | | | | | | MHR Fund Management LLC and Mark H. Rachesky, M.D. | | | 858,486 | | | 100% | | 40 West 57th Street, 24th Floor, New York, NY 10019 | | | | | | | | | | | | | | |
| | | | (1) | | Each share ofSeries A-1 Cumulative 7.50% Convertible Preferred Stock (the“Series A-1 Preferred Stock”) entitles the holder thereof to vote on all matters voted on by holders of common stock, and the shares ofSeries A-1 Preferred Stock vote together with shares of common stock as a single class. With respect to any such vote, each share ofSeries A-1 Preferred Stock entitles its holder to a number of votes equal to one ten thousandth (1/10,000) of one vote for each share ofSeries A-1 Preferred Stock. Each share ofSeries A-1 Preferred Stock is convertible, at the option of the holder, into ten shares of common stock at an initial conversion price of $30.1504 per share. In all circumstances, the conversion or exchange of theSeries A-1 Preferred Stock reported as being beneficially owned by MHR into shares of common stock will be subject to the Voting Limitation (as described in footnote 2 to “Ownership of Voting Stock — Principal Holders of Stock — Common Stock”). MHR is contractually obligated to either (i) vote the shares ofSeries A-1 Preferred Stock (representing 13 of the 99 votes) in accordance with the recommendation of our Board of Directors or (ii) abstain from voting such shares. |
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| | | | (2) | | Each share ofSeries B-1 Cumulative 7.50% Convertible Preferred Stock (the“Series B-1 Preferred Stock”) entitles the holder thereof to vote on all matters voted on by holders of common stock, and the shares of Series B-1 Preferred Stock vote together with shares of common stock as a single class. With respect to any such vote, each share ofSeries B-1 Preferred Stock entitles its holder to a number of votes equal to one ten thousandth (1/10,000) of one vote for each share ofSeries B-1 Preferred Stock.. Prior to the Majority Ownership Date (as defined above in footnote 2 to “Ownership of Voting Stock — Principal Holders of Stock — Common Stock”), each share ofSeries B-1 Preferred Stock is convertible, at the option of the holder, into ten shares ofClass B-1 Nonvoting Stock, par value $0.01, of the Company (the“Class B-1 Non-Voting Stock”), at an initial conversion price of $30.1504 per share, which is not currently authorized. After the Majority Ownership Date, each share ofSeries B-1 Preferred Stock is convertible, at the option of the holder, into ten shares of common stock at an initial conversion price of $30.1504 per share. In all circumstances, the conversion or exchange of theSeries B-1 Preferred Stock reported as being beneficially owned by MHR into shares of common stock will be subject to the Voting Limitation (as described in footnote 2 to “Ownership of Voting Stock — Principal Holders of Stock — Common Stock”). |
Common Stock Ownership by Directors and Executive Officers The following table presents the number of shares of ourLoral common stock beneficially owned by the directors, and nominees, the NEOs and all directors, nominees, NEOs and all other executive officers as a group as of AprilMarch 1, 2003 (except as otherwise indicated).2007. Individuals have sole voting and investmentdispositive power over the stock unless otherwise indicated in the footnotes.footnotes: | | | | | | | | | | | | | | Amount and Nature
| | | | | | | | | of Beneficial
| | | | Percent of
| | Name of Individual | | | Ownership(1) | | | | Class(2) | | C. Patrick DeWitt | | | | | | | | | | Sai S. Devabhaktuni | | | | | | | | | | Hal Goldstein | | | | | | | | | | John D. Harkey, Jr. | | | | | | | | | | Avi Katz | | | | 12,500 | (3) | | | * | | Dean A. Olmstead | | | | | | | | | | Mark H. Rachesky, M.D. | | | | 17,130,749 | (4) | | | 57.1% | Bernard L. Schwartz(5) | | | | | | | | | | Arthur L. Simon | | | | 72 | | | | * | | John P. Stenbit | | | | | | | | | | Michael B. Targoff | | | | 52,699 | (6) | | | * | | Richard J. Townsend | | | | 21,250 | (7) | | | * | | Eric J. Zahler | | | | 30,000 | (8) | | | * | | All directors, NEOS and other executive officers as a group (15 persons) | | | | 17,269,770 | (9) | | | 57.3% | | | | | | | | | | |
| | | | | | | | | | | | Amount and Nature of | | Percent of | | Name of Individual | | Beneficial Ownership(1)(2) | | Class | |
| | Bernard L. Schwartz | | | 11,114,643 | (3) | | | 2.5 | % | | C. Patrick DeWitt | | | 548,070 | (4) | | | * | | | Howard Gittis | | | 278,860 | (5) | | | * | | | Terry J. Hart | | | 373,136 | (6) | | | * | | | Robert B. Hodes | | | 194,860 | (7) | | | * | | | Gershon Kekst | | | 192,860 | (5) | | | * | | | Charles Lazarus | | | 172,860 | (5) | | | * | | | Sally Minard | | | 16,665 | (8) | | | * | | | Malvin A. Ruderman | | | 204,860 | (5) | | | * | | | E. Donald Shapiro | | | 341,360 | (9) | | | * | | | Arthur L. Simon | | | 216,860 | (10) | | | * | | | Richard J. Townsend | | | 368,564 | (11) | | | * | | | Daniel Yankelovich | | | 243,860 | (5) | | | * | | | Eric J. Zahler | | | 630,080 | (12) | | | * | | All directors, nominees, NEOs and other executive officers as a group (23 persons) | | | 15,752,570 | (13) | | | 3.5 | % |
| | | | * | * | Represents holdings of less than one percent. |
| | | (1) | | Includes shares which, as of AprilMarch 1, 2003,2007, may be acquired within sixty days pursuant to the exercise of options (which shares are treated as outstanding for the purposes of determining beneficial ownership and computing the percentage set forth) and shares held for the benefit of named executive directors as of February 28, 2003 in the Loral Savings Plan (the “Savings Plan”). | | | | (2) | Except | Percent of class refers to percentage of class beneficially owned as noted, allthe term beneficial ownership is defined inRule 13d-3 under the Securities Exchange Act of 1934 and is based upon the 20,063,325 shares are owned directly with sole investment and voting power.of Loral common stock outstanding as of March 1, 2007. | | | | (3) | Includes 160,000 | Consists of options to acquire 12,500 shares owned by Mr. Schwartz’s wife, 7,180,000 shares exercisable under the Company’s 2005 Stock Option Plans and 21,385 shares held in the SavingsIncentive Plan. | | | | (4) | | Includes 7,180,629 shares of common stock, 1,365,260 shares upon conversion of the Company’sSeries A-1 Preferred Stock and 8,584,860 upon conversion of the Company’sSeries B-1 Preferred Stock. In all circumstances, the conversion or exchange of theSeries A-1 Preferred Stock reported as being beneficially owned by MHR into shares of common stock will be subject to the Voting Limitation (as described in footnote 2 to “Ownership of Voting Stock — Principal Holders of Stock — Common Stock”). Dr. Rachesky is deemed to be the beneficial owner of 17,130,749 shares of Loral common stock by virtue of his status as the managing member of Advisors, Institutional Advisors, Institutional Advisors II, Institutional Advisors III and MHR Fund Management. See “Ownership of Voting Stock — Principal Holders of Stock — Common Stock” above. | | | (5) | | Mr. Schwartz retired as Chairman and Chief Executive Officer of the Company effective March 1, 2006. |
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| | | | (6) | | Includes 400,000options to acquire 26,738 shares of restricted stock, 116,471 shares exercisable under the Company’s 2005 Stock Option PlansIncentive Plan. Does not include options to acquire 309,375 shares, which will be vested if stockholders approve the Company’s Amended and 15,599Restated 2005 Stock Incentive Plan (see Proposal 2). | | | (7) | | Consists of options to acquire 21,250 shares held inunder the SavingsCompany’s 2005 Stock Incentive Plan. | | | (5) (8) | Includes 172,860 | Consists of options to acquire 30,000 shares exercisable under the Company’s 2005 Stock Option Plans. | | (6) | Includes 300,000 shares of restricted stock, 56,561 shares exercisable under the Stock Option Plans and 12,575 shares held in the SavingsIncentive Plan. | | | (7) (9) | Consists of 20,000 | Includes options to acquire 112,988 shares held in Mr. Hodes’ IRA account, 2,000 shares held by Mr. Hodes’ minor children and 172,860 shares exercisable under the Company’s 2005 Stock Option Plans. | | (8) | ConsistsIncentive Plan, 1,365,260 shares upon conversion of 16,665 shares exercisable under the Stock Option Plans. | | (9) | Includes 55,000 shares of Company’sSeries CA-1 Preferred Stock convertible into 137,500and 8,584,860 upon conversion of the Company’sSeries B-1 Preferred Stock. “Ownership of Voting Stock — Principal Holders of Stock” above. Does not include options to acquire 309,375 shares, of common stock owned by Mr. Shapiro’s wifewhich will be vested if stockholders approve the Company’s Amended and 172,860 shares exercisable under theRestated 2005 Stock Option Plans.Incentive Plan (see Proposal 2). |
| | (10) | Includes 29,750 shares held in Mr. Simon’s IRA account, 250 shares in his wife’s IRA account, 4,000 shares of Series C Preferred Stock convertible into 10,000 shares of common stock held in Mr. Simon’s IRA account and 172,860 shares exercisable under the Stock Option Plans. | | (11) | Includes 2,500 shares of Series C Preferred Stock convertible into 6,250 shares of common stock, 308,317 shares exercisable under the Stock Option Plans and 13,497 shares held in the Savings Plan. | | (12) | Includes 50,000 shares held in Mr. Zahler’s IRA account, 420,807 shares exercisable under the Stock Option Plans and 28,073 shares held in the Savings Plan. | | (13) | Includes 61,500 shares of Series C Preferred Stock convertible into 153,750 shares of common stock, 9,979,078 shares exercisable under the Stock Option Plans and 289,434 shares held in the Savings Plan. |
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STOCK PERFORMANCE GRAPHThe graph below compares the change in cumulative total return of the Company’s common stock with the cumulative total return of the Standard & Poor’s 500 Composite Stock Index and Satin-30, the Barclays Satellite & Space Index, from December 31, 1997 through March 3, 2003, assuming an investment of $100 in the Company’s common stock and each index.
Comparison of Cumulative Total Return
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We do not have a written policy for review, approval or ratification of related person transactions. Related persons include our major stockholders and directors and officers, as well as immediate family members of directors and officers. Transactions with related persons are, however, generally evaluated and assessed by the independent directors on our Board. If a determination is made that a related person has a material interest in any transaction with the Company, then our independent directors would review, approve or ratify the transaction and it would be disclosed in accordance with applicable SEC rules. If the related person at issue is one of our directors, or a family member of a director, then that director would not participate in discussions concerning the transaction. For example, in 2006, the preferred stock financing transaction with affiliated funds of MHR Fund Management described below was negotiated and recommended to the full board by a special committee of independent directors. Lockheed MartinMHR Fund Management LLCOn February 27, 2007, Loral completed the sale to affiliated funds of MHR Fund Management of $300 million of 7.50% convertible perpetual preferred stock pursuant to an Amended and Restated Securities Purchase Agreement with MHR Fund Management, which was originally executed on October 17, 2006, and which was amended and restated on February 27, 2007 (as so amended and restated, the “Securities Purchase Agreement”). Pursuant to our plan of reorganization, on November 21, 2005, Loral and Loral Skynet entered into a registration rights agreement with affiliated funds of MHR Fund Management. Pursuant to the plan of reorganization, each holder of an Allowed Claim, as that term is used in the plan of reorganization, that receives a distribution pursuant to the plan of ten percent (10%) or greater of any of (i) Loral common stock, (ii) Loral Skynet preferred stock or (iii) Loral Skynet notes (collectively, the “Registrable Securities”) is entitled to receive certain registration rights under the registration rights agreement (each such holder, and any future holder of such securities who becomes a party to the registration rights agreement, a “Registration Rights Holder”). Pursuant to the registration rights agreement, in addition to certain piggy-back registration rights granted to the Registration Rights Holders, certain Registration Rights Holders may also demand, under certain circumstances, that the Registrable Securities be registered under the Securities Act of 1933, as amended, in each case subject to the terms and conditions of the registration rights agreement. On February 27, 2007, in connection with the $300 million preferred stock financing with affiliated funds of MHR Fund Management, the definition of Registrable Securities under this registration rights agreement was amended to include the preferred stock issued in connection with the Securities Purchase Agreement and the equity securities issuable upon conversion thereof or in connection therewith. Pursuant to the plan of reorganization, holders of certain claims at Loral Orion, Inc. were entitled to subscribe for up to $120 million of Loral Skynet notes. MHR Fund Management and P. Schoenfeld Asset Management LLC agreed to backstop 95% and 5%, respectively, of the rights offering, in consideration of a $6 million fee, paid in additional Loral Skynet notes, as well as reimbursement of certain related costs and expenses. In connection with this backstop agreement, MHR Fund Management received $5.7 million principal amount of Loral Skynet notes for its backstop commitment. Affiliated funds of MHR Fund Management own preferred stock convertible currently into approximately 26% of the common stock of Protostar Ltd. (“Protostar”) (13% after conversion of Protostar’s convertible
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notes) and have the right (which has not yet been exercised) to nominate two of nine directors to Protostar’s board of directors. Protostar acquired the Chinasat 8 satellite from China Telecommunications Broadcast Satellite Corporation and China National Postal and Telecommunications Appliances Corporation under an agreement reached in 2006, and, pursuant to a contract with Protostar valued at $24 million, SS/L is modifying the satellite to meet Protostar’s needs. In connection with the $300 million preferred stock financing with affiliated funds of MHR Fund Management, we paid MHR Fund Management a placement fee of $6.75 million and paid $4.45 million in legal and financial advisory fees and out-of-pocket expenses incurred by MHR Fund Management. We also paid $578,000 in 2006 in legal fees andout-of-pocket expenses incurred by MHR Fund Management in connection with our reorganization and other legal matters. Dr. Rachesky and Mr. Goldstein are co-founders and managing principals of MHR Fund Management. Mr. Devabhaktuni is also a managing principal of MHR Fund Management. Dr. Rachesky, Mr. Goldstein and Mr. Devabhaktuni are directors of Loral and, in that capacity, received compensation from Loral. See “Director Compensation” above. At their request, $19,000 of their directors’ fees was paid to MHR Fund Management. Consulting Agreement with Dean A. Olmstead On June 7, 2006, Loral entered into a consulting agreement with our director, Dean A. Olmstead. Pursuant to this agreement, Mr. Olmstead provides consulting services to the Company relating generally to exploration of strategic and growth opportunities for Loral and achievement of efficiencies within the Company’s divisions. Mr. Olmstead reports to Loral’s Chief Executive Officer. Pursuant to the consulting agreement, Mr. Olmstead’s consulting fee is $400,000 annually (payable at 80% until he elects to devote his full time to Loral), and he is eligible for a target bonus of $240,000 annually at the discretion of the Compensation Committee of the Board of Directors based on his performance and achievement of his objectives (payable at 80% until he elects to devote his full time to Loral). The term of the consulting agreement is for one year, commencing as of May 15, 2006, and the agreement is automatically renewable for succeeding one year terms unless either party terminates the agreement. Upon specified termination events (as defined in the agreement), Mr. Olmstead will be paid a termination fee of $300,000 plus any accrued and unpaid bonus. In addition, in connection with his entering into the consulting agreement, the Company granted to Mr. Olmstead seven-year options to purchase 120,000 shares of common stock of the Company, with a per-share exercise price equal to $27.135. This grant is subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement). Subject to earlier vesting upon a change in control as defined in our 2005 Stock Incentive Plan, options covering 20,000 shares will vest over a four-year period, with 25% vesting on each of the first four anniversaries of the grant date, and options covering 100,000 shares will vest based upon closing of a satellite services business transaction with a specified value to Loral subsidiaries acquired services(25,000 options to vest upon closing of a transaction with value of between $100 million and less than $250 million; 50,000 options to vest upon closing of a transaction with a value of between $250 million and less than $500 million; 75,000 options to vest upon closing of a transaction with a value of between $500 million and less than $1,000 million; and 100,000 options to vest upon closing of a transaction with a value of $1,000 million or more), provided, however, that no portion of the options (whether vested or not) will be exercisable prior to the date of stockholder approval of our Amended and Restated 2005 Stock Incentive Plan. It is expected that Mr. Olmstead’s performance based options will vest in full upon the closing of the acquisition by a joint venture company formed by us and our Canadian partner from Lockheed MartinBCE Inc. of Telesat Canada and certain related assets pursuant to an agreement entered into by the joint venture company and BCE on December 16, 2006. Mr. Olmstead is also entitled under the agreement to medical benefits, reimbursement of up to $12,000 annually for life insurance, and $22,500 annually in lieu of retirement benefits (amounts payable at 80% until he elects to devote his full time to Loral).
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During 2006, Mr. Olmstead earned a total amount of $337,250 (consisting of $200,000 in consulting fees, a bonus of $120,000, $6,000 for life insurance premium reimbursement and $11,250 in lieu of retirement benefits). In addition, in 2006, the year ended December 31, 2002. For 2002,Company paid medical insurance premiums on behalf of Mr. Olmstead, the costvalue of services purchased bywhich was $11,969. Other Relationships In the ordinary course of business, SS/L has entered into satellite construction contracts and Loral subsidiaries from Lockheed Martin was $21,675,000,Skynet as entered into telemetry, tracking and such subsidiaries’ net receivable from Lockheed Martin at December 31, 2002 was $72,000.control agreements and transponder lease agreements with affiliates of EchoStar Communications Corporation, a corporation that owns more than 5% of our common stock. Mr. Targoff, our Vice Chairman and Chief Executive Officer, serves on the board of directors and on the compensation committee of Leap Wireless International, Inc., a company of which Dr. Rachesky is Chairman of the Board and a compensation committee member and of which Mr. Harkey is a board member. In 2006, K&F Industries, Inc. Loral SpaceCom Corporation (“Loral SpaceCom”K&F”) has, a management services agreement withsubsidiary of K&F Industries (“K&F”)Holdings, Inc., a company of which Bernard L. Schwartz is chief executive officer and a 50% owner, to providewas Chairman of the Board, provided administrative and certain other services to us. Loral paid K&F which pays Loral SpaceCom a fee based on the cost of such services plus out of pocket expenses. In 2002,For the year ended December 31, 2006, K&F billed us approximately $156,000.
During 2006, we paid BLS Group LLC and BLS Aviation, LLC (companies owned by Mr. Schwartz) and The Air Group (a company commissioned by Mr. Schwartz to handle his corporate jet affairs) approximately $16,000, $9,000 and $162,000, respectively, for our use of Mr. Schwartz’s corporate jet. Additionally, in 2006, Loral SpaceCom $319,000 under this agreement.Other Relationships
reimbursed the BLS Group LLC $6,000. Robert B. Hodes, a Directorformer director and a member of our Compensation Committee until his resignation from the Executive Committee,Board of Directors on February 28, 2006, is counsel to the law firm of Willkie Farr & Gallagher LLP, which acts as counselour counsel. OTHER MATTERS Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who own more than 10% of our common stock, to file reports with the SEC. Based solely on a review of the copies of reports furnished to us and written representations that no other reports were required, Loral believes that, during 2006, all filing requirements were met on a timely basis. Solicitation of Proxies The Company pays all of the costs of soliciting proxies. We will ask banks, brokers and other nominees and fiduciaries to forward the proxy materials to the Company.Forbeneficial owners of our common stock and to obtain the year ended December 31, 2002, the Company paid feesauthority of executed proxies. We will reimburse them for their reasonable expenses. We have also retained W.F. Doring & Co., Inc. to solicit proxies on our behalf and disbursements in the amountwill pay them a fee of approximately $156,000$5,000 for corporate communications consultationssuch services.
Stockholders Proposals for 2008 Any stockholder who intends to Kekst and Company Incorporated, of which company Gershon Kekst,present a Director and member ofproposal at the Executive Committee, is President and the principal stockholder. Kekst and Company continues to render such services to the Company.28
Appendix A
Bye-law 4(c)
(As proposed to be amended)
4.(c) The Board may be authorised by Resolution from time to time to determine the ratio of a consolidation within a range specified by such Resolution of all or any of the Company’s common share capital into shares of larger par value than its existing shares and granted the discretion to implement such consolidation at any time prior to the2008 Annual Meeting of Shareholders immediately followingStockholders must deliver the date of such Resolution. In exercising its power under this provision, the Board shall also have the power set out in Bye-law 43, in dealing with any difficulty which arises in regard to any consolidation under this Bye-law 4(c).
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Appendix B
LORAL SPACE & COMMUNICATIONS
Audit Committee Charter
Organization
There shall be an Audit Committee of the Board of Directors composed of at least three directors, all of whom shall be independent. All of the members of the Audit Committee shall be financially literate, and at least one member must qualify as a financial expert.
The “independence,” “financial literacy” and “financial expertise” of members of the Audit Committee shall be determined by the Board in accordance with all applicable laws and SEC, stock exchange and other applicable regulations. The Board shall determine that each member of the Audit Committee has no material relationship with the Company. If an Audit Committee member simultaneously serves on the audit committee of more than three public companies, the Board must determine that such service will not impair such member’s ability to effectively serve on the Audit Committee and disclose such determination in the Company’s annual proxy statement.
The Audit Committee shall elect a chairperson from its own membership. The Audit Committee may engage independent legal counsel and accounting, financial and other advisors, at the expense of the Company, to help carry out its duties.
No member of the Audit Committee shall receive compensation other than (i) director’s fees for service as a director of the Company, including reasonable compensation for serving on the Audit Committee and regular benefits that other directors receive and (ii) a pension or similar compensation for past performance, provided that such compensation is not conditioned on continued or future serviceproposal to the Company.
Statement of Policy
The Audit Committee shall assist the Board in fulfilling its responsibility relating to the Company’s accounting and reporting practices, the quality and integrity of its financial statements and reports, the Company’s compliance with legal and regulatory requirements, the qualifications and independence of the independent auditors, and the performance of the Company’s internal audit function and its independent auditors. The Audit Committee shall endeavor to maintain free and open communication among the Board, the independent auditors, the internal auditors and the financial management.
Responsibilities
The Audit Committee’s policies and procedures should remain flexible, in order to best react to changing conditions and to help ensure that the Company’s accounting and reporting practices accord with all requirements and are of the highest quality. The Audit Committee shall:
| | • | Be directly responsible for the appointment, termination, and compensation of the Company’s independent auditors and oversight of their services. | | • | Meet at least four times a year, or more often if circumstances so require. | | • | Pre-approve any non-audit services to be performed by the independent auditors and related compensation. The Audit Committee may delegate to one or more members the ability to pre-approve such services, provided that any such pre-approval is presented to the full Committee at its next scheduled meeting. | | • | Meet with the independent auditors and the financial management to review the scope of the audit proposed for the current year and the audit procedures to be utilized and any subsequent changes to |
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| | | such scope and/or procedures, and at its conclusion review the audit, including the comments or recommendations of the independent auditors. | | • | Confirm with the independent auditors that none of their auditing personnel assigned to the audit of the Company’s financial statements earns or receives any compensation based on selling engagements to the Company to provide any services, other than audit, review or attest services, to the extent such compensation would compromise the independence of such auditing personnel or the auditor under the rules promulgated by the SEC. | | • | Ensure that all auditing personnel are rotated in accordance with, and to the extent required by, applicable laws and regulations. | | • | Discuss with the independent auditors the matters required to be discussed or reported on by the independent auditors: |
Corporate Secretary at our principal executive offices, located at Loral Space & Communications Inc., 600 Third Avenue, New York, New York 10016: | | | | | -• | IndependenceNot later than December 24, 2007, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant toRule 14a-8 under the Securities Exchange Act of the relationship between the independent auditors and the Company.1934; or | | | | | - | Independent auditors’ responsibility under auditing standards generally accepted in the United States of America, and under applicable rules and regulations, and any exchange which lists the Company’s securities. | | | - | Significant accounting policies of the Company. | | | - | Management judgments and accounting estimates. | | | - | Audit adjustments proposed by the independent auditors. | | | - | Other information in the Annual Report to shareholders and on Form 10-K. | | | - | Disagreements with management, if any. | | | - | Consultation with other accountants, if any. | | | - | Major issues, if any, regarding accounting principles and financial statement presentation, including any analysis prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements. | | | - | Difficulties encountered in performing the audit, if any, and management’s response. |
| | | • | Discuss withNo earlier than January 23, 2008 but no later than February 22, 2008, if the independent auditors any other communications from them, including:proposal is submitted pursuant to our bylaws, in which case we are not required to include the proposal in our proxy |
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| | | | | - | All critical accounting policiesmaterials. The written notice must satisfy certain requirements specified in our Bylaws, a copy of which will be sent to any stockholder upon written request to the Vice President, General Counsel and practices used. | | | - | All alternative treatments of financial information under generally accepted accounting principles that have been discussed with management, ramifications of such alternative disclosures and treatments, and the treatment preferred by the independent auditors. | | | - | Other material written communications between the independent auditors and management of the Company.Secretary. |
Communications with the Board Stockholders and other interested parties wishing to communicate with the Board of Directors, the non-management directors or with an individual Board member concerning the Company may do so by writing to the Board, to the non-management directors or to the particular Board member and mailing the correspondence to Loral Space & Communications Inc., 600 Third Avenue, New York, New York 10016, Attention: Vice President, General Counsel and Secretary. If from a stockholder, the envelope should indicate that it contains a stockholder communication. All such communication will be forwarded to the director or directors to whom the communications are addressed. Code of Ethics Loral has adopted a Code of Ethics for all of its employees, including all of its executive officers. Any amendments or waivers to this Code of Ethics with respect to Loral’s principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) will be posted on such web site. This Code of Ethics is available on Loral’s web site at www.loral.com. One may also obtain, without charge, a copy of this Code of Ethics by contacting our Investor Relations Department at(212) 338-5347.
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Appendix A LORAL SPACE & COMMUNICATIONS INC.
2005 STOCK INCENTIVE PLAN
(Amended and Restated as of April 16, 2007) | | • 1. | At least annually, obtain and review a report by the independent auditors describing the firm’s internal quality-control procedures and any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues. | | • | Review with the independent auditors, the internal auditor, and the financial and accounting management, the adequacy of the disclosure, accounting and financial controls, and elicit any recommendations for improvement or particular areas where augmented controls are desirable. Particular emphasis should be given to the adequacy of such controls to provide that information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized, and reported in an appropriate and timely manner.PURPOSE. |
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The purpose of the Plan is to assist the Company in attracting, retaining, motivating and rewarding Eligible Persons, and to promote the creation of long-term value for stockholders by closely aligning the interests of Participants with those of stockholders. The Plan authorizes the award of stock-based incentives to Participants to encourage such persons to expend their maximum efforts in the creation of stockholder value. The Plan is also intended to qualify certain compensation awarded under the Plan for tax deductibility under Section 162(m) of the Code to the extent deemed appropriate by the Committee which administers the Plan. | | • 2. | Review the internal audit function, including the independence and authority of its reporting obligations, the audit plans proposed for the coming year, and the coordination of such plans with the work of the independent auditors. | | • | Review periodically a summary of findings from completed internal audits and a progress report on the proposed internal audit plan, with explanations for any deviations from the original plan and review such summary and plan with the internal audit department. | | • | Review the adequacy of the internal audit staff and review and concur in the appointment, replacement or dismissal of the Internal Audit Director. | | • | Review the annual financial statements to be contained in the annual report, and the quarterly financial statements and related disclosures under Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) with management and the independent auditors. Determine that the independent auditors are satisfied with the disclosure and content of such financial statements and MD&A. Any year-to-year changes in accounting principles or practices should be reviewed. | | • | Review annually with management and the independent auditors the effect of regulatory and accounting initiatives, as well as review and approve any off-balance sheet structures on the Company’s financial statements. | | • | Recommend to the Board as to whether the annual financial statements of the Company should be included in the Annual Report on Form 10-K to be filed with the SEC. | | • | Discuss with management, in general terms, earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. | | • | Discuss with management policies with respect to risk assessment and risk-management. | | • | Set clear hiring policies for employees or former employees of the independent auditors in accordance with applicable law and regulations. | | • | Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing matters, or violations of the Company’s Code of Conduct, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. | | • | Periodically meet separately with each of corporate financial management, the Internal Audit Director, and the independent auditors to discuss any appropriate matters. | | • | Review with the Company’s General Counsel legal matters that may have a material impact on the financial statements included in the Company’s periodic reports to the SEC. | | • | Periodically inquire of the Company’s General Counsel as to the Company’s compliance with relevant legal and regulatory requirements and as to the adequacy of the control system in place to assure such compliance. | | • | Annually review the performance of the Audit Committee relative to the Audit Committee’s purpose, duties and responsibilities outlined herein and report to the Board of Directors as to the results of such review. | | • | Review and assess the adequacy of this Charter annually and recommend any changes to the Board for approval. | | • | Report to the Board, the matters discussed at each Audit Committee meeting. A copy of the minutes shall be placed with the Company’s minute books. | | • | Investigate any matter brought to its attention, and considered appropriate, within the scope of its duties, with the power to retain professional advice for this purpose if, in its judgment, that is appropriate.DEFINITIONS. |
For purposes of the Plan, the following terms shall be defined as set forth below: (a) “Affiliate” means, any other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Company. (b) “Award” means any award of an Option, SAR, Restricted Stock, Restricted Stock Unit, Stock granted as a bonus or in lieu of another award, or Other Stock-Based Award. (c) “Board” means the Board of Directors of the Company. (d) “Cause” with respect to any Participant (A) shall have the meaning set forth in the current effective employment or consulting agreement between the Company or an Affiliate, as applicable, and the Participant or (B) in the event that there is no such employment or consulting agreement or if there is no such definition in any such employment or consulting agreement, shall mean, (i) the Participant shall have been after the Effective Date convicted of, or shall have pleaded guilty ornolo contendere to, any felony or any other crime that would have constituted a felony under the laws of the State of New York; (ii) the Participant shall have been indicted for any felony or any other crime that would have constituted a felony under the laws of the State of New York in connection with or arising from the Participant’s employment with the Company; (iii) the Participant shall have breached any material provision of any noncompetition, nonsolicitation or confidentiality agreement with the Company or any Affiliate; (iv) the Participant shall have committed any fraud, embezzlement, misappropriation of funds, or breach of fiduciary duty against the Company or any Affiliate, in each case of a material nature; (v) the Participant shall have engaged in any willful misconduct resulting in or reasonably likely to result in a material loss to the Company or substantial damage to its reputation; or (vi) the Participant willfully breaches in any material respect any material provision of the Company’s Code of Conduct and, to the extent any such breach is curable, the Participant has failed to cure such breach within ten (10) days after written notice of the alleged breach is provided to the Participant. (e) “Change in Control” shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Exchange Act, and as used in Sections 13(d) and 14(d) thereof, including any “group” as defined in Section 13(d)(3) thereof (a “Person”), but excluding the Company, any Affiliate, any employee benefit plan sponsored or maintained by the Company or any Affiliate (including any trustee of such plan acting as trustee), and any Person who owns 20% or more of the total number of votes that may be cast for the election of directors of the Company (the “Voting Shares”) as of the Effective Date, becomes the beneficial owner of 35% of the “Voting Shares”; (ii) the Company undergoes any merger, consolidation, reorganization, recapitalization or other similar business transaction, sale of all or substantially all of the Company’s assets or combination of the foregoing transactions (a “Transaction”), other than a Transaction involving only the Company and one or more Affiliates, and immediately following such Transaction the shareholders of the Company immediately prior to the Transaction do not continue to own at least a
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majority of the voting power in the resulting entity; (iii) the persons who are the original members of the Board pursuant to the Plan of Reorganization (the “Incumbent Directors”) shall cease (for any reason other than death) to constitute at least a majority of members of the Board or the board of directors of any successor to the Company, provided that any director who was not a director as of the Effective Date shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least a majority of the directors who then qualified as Incumbent Directors, either actually or by prior operation of this definition; or (iv) the shareholders of the Company approve a plan of liquidation or dissolution of the Company, or any such plan is actually implemented. (f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto. (g) “Committee” means a committee of two or more directors designated by the Board to administer the Plan; provided, however, that directors appointed as members of the Committee shall not be employees of the Company or any subsidiary. In appointing members of the Committee, the Board will consider whether a member is or will be a Qualified Member, but such members are not required to be Qualified Members at the time of appointment or during their term of service on the Committee, and no action of the Committee shall be void or invalid due to the participation of a member who is not a Qualified Member. If no Committee has been appointed, or if the Committee has been disbanded, or if the Board makes a determination to assume any or all powers of the Committee, any reference herein shall be deemed to be a reference to the Board; provided, however that if the Board acts as the Committee, each member of the Board who is not a an independent member of the Board under the NASDAQ independence requirements shall recuse himself or herself from any such Board action, unless such action is for the purpose of granting awards hereunder to members of the Board who are independent members of the Board not employed by the Company and the Board determines to act as the full Board. (h) “Company” means Loral Space & Communications Inc., a Delaware corporation. (i) “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (j) “Dividend Equivalents” shall have the meaning set forth in Section 9 hereof. (k) “Effective Date” shall have the meaning set forth in Section 21 hereof. (l) “Eligible Person” means each employee of the Company or of any Affiliate, including each such person who may also be a director of the Company, each non-employee director of the Company or an Affiliate, each other person who provides substantial services to the Companyand/or its Affiliates and who is designated as eligible by the Committee, and any person who has been offered employment by the Company or an Affiliate, provided that such prospective employee may not receive any payment or exercise any right relating to an Award until such person has commenced employment with the Company or an Affiliate. An employee on an approved leave of absence may be considered as still in the employ of the Company or an Affiliate for purposes of eligibility for participation in the Plan. (m) “Employer” means either the Company or an Affiliate that the Participant (determined without regard to any transfer of an Award) is employed by or provides services to, as applicable. (n) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto. (o) “Expiration Date” means the date upon which the term of an Option, as determined under 6(b) hereof, or SAR, as determined under Section 7(a)(ii) hereof expires. (p) “Fair Market Value” means on any date (A) if the Stock is listed on a national securities exchange, the closing sale price reported as having occurred on the primary exchange with which the Stock is listed and traded on such date, or, if there is no such sale on that date, then on the last preceding date on which such a sale was reported, (B) if the Stock is not listed on any national securities exchange but is traded in
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theover-the-counter market bulletin board or pink sheets on a last sale basis, the closing sale price reported on such date, or, if there is no such sale on that date then on the last preceding date on which such a sale was reported; provided, however, that for purposes of the Initial Option Grant, the Fair Market Value shall be the weighted average of the aggregate sale prices of the Stock reported for the ten trading days immediately preceding the grant date; and further provided, however, that if such definition of Fair Market Value for Options granted in connection with the Plan of Reorganization does not comply with the definition of fair market value for purposes of Section 409A of the Code or if such definition would give rise to variable accounting treatment of such Options, then Fair Market Value for such Options shall have the meaning attributable thereto in clauses (A) or (B) above, as applicable, or such other meaning which complies with Section 409A and does not give rise to variable accounting treatment. If the Stock is not listed on an exchange or traded in theover-the-counter market, or representative quotes are not otherwise available, the Fair Market Value shall mean the amount determined by the Board in good faith to be the fair market value per share of Stock, on a fully diluted basis. (q) “Good Reason” with respect to any Participant (A) shall have the meaning set forth in the current effective employment or consulting agreement between the Company or an Affiliate, as applicable, and the Participant or (B) in the event that there is no such employment or consulting agreement or if there is no such definition in any such employment or consulting agreement, shall mean, (i) the assignment to the Participant of any duties inconsistent in any substantial respect with the Participant’s position, authority or responsibilities to or with the Company or an Affiliate, as applicable, or any duties which are illegal or unethical or any diminution of any of the Participant’s significant duties; (ii) any reduction in base salary, or to the extent guaranteed by a contract with the Company or an Affiliate, as applicable, the Participant’s target annual bonus or any of the benefits provided for in any such contract to the extent such reduction is not permitted under the terms of any such contract; (iii) the relocation by the Company of the Participant’s primary place of employment with the Company to a location not within a thirty (30) mile radius of such place of employment as of the Effective Date; provided, however, that such relocation shall not be considered Good Reason if such location is closer to the Participant’s home than the Participant’s primary place of employment as of the Effective Date; (iv) any material breach of any employment or consulting agreement with the Participant by the Company, or an Affiliate, as appropriate; or (v) the failure of the Company to obtain the assumption in writing of its obligation to perform any employment or consulting agreement with the Participant by any successor to all or substantially all of the assets of the Company. (r) “Initial Option Grant” shall mean the automatic award of options under the Plan as set forth in Section 6(h). (s) “Mature Shares” means (A) shares of Stock for which the Participant has good title, free and clear of all liens and encumbrances, and which the Participant either (i) has held for at least six months or (ii) has purchased on the open market or (B) such shares as determined by the Committee. (t) “New Skynet” shall have the meaning ascribed thereto in the Plan of Reorganization. (u) “New Skynet Sale Event” means a sale of all or substantially all of the common stock or assets of New Skynet. (v) “New SS/L” shall have the meaning ascribed thereto in the Plan of Reorganization. (w) “New SS/L Sale Event” means a sale of all or substantially all of the common stock or assets of New SS/L. (x) “Option” means a conditional right, granted to a Participant under Section 6 hereof, to purchase Stock at a specified price during specified time periods. (y) “Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. (z) “Other Stock-Based Awards” means Awards granted to a Participant under Section 11 hereof.
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(aa) “Participant” means an Eligible Person who has been granted an Award under the Plan which remains outstanding, or if applicable, such other person or entity who holds an outstanding Award. (bb) “Plan” means this Loral Space & Communications Inc. 2005 Stock Incentive Plan. (cc) “Plan of Reorganization” means the Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Loral Space & Communications Ltd., et al. (dd) “Proprietary Information” with respect to any Participant means all confidential specifications, know-how, strategic or technical data, marketing research data, product research and development data, manufacturing techniques, confidential customer lists, sources of supply and trade secrets, all of which are confidential to the Company, or any of its Affiliates, and may be proprietary and are owned or used by the Company, or any of its Affiliates, including any and all of such enumerated items coming within the scope of the business of the Company, or any of its Affiliates, as to which the Participant may have access, whether conceived or developed by others or by the Participant, alone or with others, during the Participant’s period of service with the Company, and whether or not conceived or developed during regular working hours. However, Proprietary Information shall not include any records, data or information which are in the public domain during the Participant’s service with the Company or after the Participant’s service with the Company has terminated,providedthe same are not in the public domain as a consequence of disclosure by the Participant. (ee) “Qualified Member” means a member of the Committee who is a “Non-Employee Director” within the meaning ofRule 16b-3 and an “outside director” within the meaning ofRegulation 1.162-27(c) under Code Section 162(m). (ff) “Restricted Stock” means Stock granted to a Participant under Section 8 hereof, that is subject to certain restrictions and to a risk of forfeiture. (gg) “Restricted Stock Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Restricted Stock grant. (hh) “Restricted Stock Unit” means a notional unit representing the right to receive one share of Stock on the Settlement Date. (ii) “Restricted Stock Unit Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Restricted Stock Unit grant. (jj) “Rule 16b-3” meansRule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. (kk) “Section 409A” shall mean Section 409A of the Code and the rules and regulations promulgated thereunder. (ll) “Securities Act” means the Securities Act of 1933, as amended from time to time, including rules thereunder and successor provisions and rules thereto. (mm) “Senior Management Employee” means an employee of the Company designated by the Chief Executive Officer of the Company as a Senior Management Employee. (nn) “Settlement Date” shall have the meaning set forth in Section 9 hereof. (oo) “Stock” means the Company’s Common Stock, $.01 par value, and such other securities as may be substituted for Stock pursuant to Section 12 hereof. (pp) “Stock Appreciation Right” or “SAR” means a conditional right granted to a Participant under Section 7 hereof.
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| | • 3. | Prepare an Audit Committee report required to be included in the Company’s annual proxy statement. The report will include at least the following:ADMINISTRATION. |
(a) Authority of the Committee. Except as otherwise provided below, the Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to (i) select Eligible Persons to become Participants; (ii) grant Awards; (iii) determine the type, number, and other terms and conditions of, and all other matters relating to, Awards; (iv) prescribe Award agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan; (v) construe and interpret the Plan and Award agreements and correct defects, supply omissions, or reconcile inconsistencies therein; and (vi) make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. The foregoing notwithstanding, the Board shall perform the functions of the Committee for purposes of granting Awards under the Plan to non-employee directors. In any case in which the Board is performing a function of the Committee under the Plan, each reference to the Committee herein shall be deemed to refer to the Board, except where the context otherwise requires. Any action of the Committee shall be final, conclusive and binding on all persons, including, without limitation, the Company, its Affiliates, Eligible Persons, Participants and beneficiaries of Participants. (b) Manner of Exercise of Committee Authority. At any time that a member of the Committee is not a Qualified Member, (i) any action of the Committee relating to an Award intended by the Committee to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code and regulations thereunder may be taken by a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified Members; and (ii) any action relating to an Award granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company may be taken either by such a subcommittee or by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action, provided that, upon such abstention or recusal, the Committee remains composed of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. (c) Delegation. The Committee may delegate to officers or employees of the Company or any Affiliate, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including but not limited to administrative functions, as the Committee may determine appropriate. The Committee may appoint agents to assist it in administering the Plan. Notwithstanding the foregoing or any other provision of the Plan to the contrary, any Award granted under the Plan to any person or entity who is not an employee of the Company or any of its Affiliates shall be expressly approved by the Committee. | | | | 4. | (a) | A statement that the Committee has reviewed and discussed the audited financial statements with management; | | | (b) | A statement that the Committee has discussed with the independent auditors the matters required by Statement on Auditing Standards No. 61, Required Communications with Audit Committees; | | | (c) | A statement that the Committee has received written disclosures from, and held discussions with, the independent auditors on matters required by Independence Standards Board Statement No. 1, Independence Discussions with Audit Committees; and | | | (d) | A conclusion as to the Committee’s recommendation to the Board of Directors as to the filing of the Annual Report on Form 10-K with the SEC.SHARES AVAILABLE UNDER THE PLAN. |
(a) Number of Shares Available for Delivery. Subject to adjustment as provided in Section 12 hereof, the total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall be 2,972,452. Shares of Stock delivered under the Plan shall consist of authorized and unissued shares or previously issued shares of Stock reacquired by the Company on the open market or by private purchase. (b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award. To the extent that an Award expires or is canceled, forfeited, settled in cash or otherwise terminated or concluded without a delivery to the Participant of the full number of shares to which the Award related, the undelivered shares will again be available for Awards. Shares withheld in payment of the exercise price or taxes relating to an Award and shares equal to the number surrendered in payment of any exercise price or taxes relating to an Award shall be deemed to constitute shares not delivered to the Participant and shall be deemed to again be available for Awards under the Plan; provided, however, that, where shares are withheld or surrendered more than ten years after the date of the most recent
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shareholder approval of the Plan or any other transaction occurs that would result in shares becoming available under this Section 4(b), such shares shall not become available if and to the extent that it would constitute a material revision of the Plan subject to shareholder approval under then applicable rules of the principle stock exchange or automated quotation system on which the shares are then listed or designated for trading. | | | 5. | ELIGIBILITY; LIMITATIONS ON AWARDS. |
(a) Grants to Eligible Persons. Awards may be granted under the Plan only to Eligible Persons. (b) 162(m) Limitation. Subject to Section 12 relating to adjustments, no Employee shall be eligible to be granted Options or Stock Appreciation Rights covering more than 1,000,000 shares of Stock during any calendar year. (a) General. Except as provided in the Initial Option Grant, Options granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The provisions of separate Options shall be set forth in an Option Agreement, which agreements need not be identical. (b) Term. Except as provided in the Initial Option Grant, the term of each Option shall be set by the Committee at the time of grant; provided, however, that no Option granted hereunder shall be exercisable after the expiration of ten (10) years from the date it was granted. (c) Exercise Price. Except as provided in the Initial Option Grant, the exercise price per share of Stock for each Option shall be set by the Committee at the time of grant but shall not be less than the par value of a share of Stock. (d) Payment for Stock. Payment for shares of Stock acquired pursuant to Options granted hereunder shall be made in full, upon exercise of the Options in immediately available funds in United States dollars, by certified or bank cashier’s check or, in the discretion of the Committee, (i) by surrender to the Company of Mature Shares held by the Participant; (ii) by delivering to the Committee a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay the aggregate Option exercise price; (iii) through a net exercise of the Options whereby the Participant instructs the Company to withhold that number of shares of Stock having a Fair Market Value equal to the aggregate exercise price of the Options being exercised and deliver to the Participant the remainder of the shares subject to exercise or (iv) by any other means approved by the Committee. Anything herein to the contrary notwithstanding, the Company shall not directly or indirectly extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or for any director or executive officer of the Company through the Plan in violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402 of SOX”), and to the extent that any form of payment would, in the opinion of the Company’s counsel, result in a violation of Section 402 of SOX, such form of payment shall not be available. (e) Vesting. Except as provided in the Initial Option Grant, Options shall vest and become exercisable in such manner and on such date or dates set forth in the Option Agreement, as may be determined by the Committee; provided, however, that notwithstanding any vesting dates contained herein or otherwise set by the Committee, the Committee may in its sole discretion accelerate the vesting of any Option, which acceleration shall not affect the terms and conditions of any such Option other than with respect to vesting. Unless otherwise specifically determined by the Committee and except for Options that are specifically subject to automatic accelerated vesting upon termination of employment, the vesting of an Option shall occur only while the Participant is employed or rendering services to the Company or an Affiliate and all vesting shall cease upon a Participant’s termination of employment or services for any reason. If an Option is exercisable in installments, such installments or portions thereof which become exercisable shall remain exercisable until the Option expires either on the Expiration Date or earlier following a termination of employment as set forth in the Option Agreement. Unless otherwise determined by the Committee, Options shall vest only as to full shares of Stock, rounded down to the nearest full share, except that the last tranche to vest with respect to any Option Award shall encompass the full number of shares subject to the Option Award.
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LORAL SPACE
(f) Transferability of Options. An Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. Notwithstanding the foregoing, Options shall be transferable to the extent provided in the Option Agreement or as otherwise determined by the Committee. (g) Termination of Employment or Service. Except as provided in the Initial Option Grant or as may otherwise be provided by the Committee in the Option Agreement other than with respect to the Initial Option Grant: (i) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer terminates for any reason other than (A) by the Employer for Cause, or (B) by reason of the Participant’s death or Disability, (1) all vesting with respect to the Options shall cease, (2) any unvested Options shall expire as of the date of such termination, and (3) any vested Options shall remain exercisable until the earlier of the Expiration Date or the date that is three (3) months after the date of such termination. (ii) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer terminates by reason of such Participant’s death or Disability, (A) all vesting with respect to the Options shall cease, (B) any unvested Options shall expire as of the date of such termination, and (C) any vested Options shall expire on the earlier of the Expiration Date or the date that is twelve (12) months after the date of such termination due to death or Disability of the Holder. In the event of a Participant’s death, the Options shall remain exercisable by the person or persons to whom a Participant’s rights under the Options pass by will or the applicable laws of descent and distribution until its expiration, but only to the extent the Options were vested by such Participant at the time of such termination due to death. (iii) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer is terminated by the Employer for Cause, all Options (whether or not vested) shall immediately expire as of the date of such termination. (h) Initial Option Grant. On the date that is thirty days following the Effective Date, the individuals listed on the schedule approved by the Board of Directors of Loral Space & COMMUNICATIONS LTD.Communications Ltd. to be granted Options pursuant to the Plan upon the Company’s emergence from bankruptcy (the ‘‘Approved List”) shall automatically be granted Options with respect to the number of shares listed across from each individuals name on the Approved List. The Options granted to those individuals identified as Senior Management on the Approved List shall have such terms and conditions as set forth in the Option Agreement for Senior Management, attached as Exhibit A to the Plan as in effect on November 21, 2005. The Options granted to those individuals identified as Non-Senior Management on the Approved List shall have such terms and conditions as set forth in the Option Agreement for Non-Senior Management, attached as Exhibit B to the Plan as in effect on November 21, 2005. | | | 7. | STOCK APPRECIATION RIGHTS. |
(a) General. The Committee is authorized to grant SARs to Participants on the following terms and conditions: (i) Right to Payment. A SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise, or if necessary to conform to the requirements of 409A, on each vesting date thereof, the value of the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Committee. (ii) Term. The term of each SAR shall be set by the Committee at the time of grant; provided, however, that no SAR granted hereunder shall be exercisable after the expiration of ten (10) years from the date it was granted. (iii) Grant Price. The grant price per share of Stock for each SAR shall be set by the Committee at the time of grant.
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(iv) Other Terms. The Committee shall determine at the date of grant or thereafter: (A) the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goalsand/or future service requirements); (B) the method of exercise; (C) the method of settlement; (D) whether cash or Stock will be payable to the Participant upon exercise of the SAR; (E) the method by or forms in which Stock will be delivered or deemed to be delivered to Participants; (F) whether or not a SAR shall be alone, in tandem or in combination with any other Award; and (G) and any other terms and conditions of any SAR. (b) Termination of Employment or Service. Except as may otherwise be provided by the Committee in the applicable Award agreement: (i) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer terminates for any reason other than (A) by the Employer for Cause, or (B) by reason of the Participant’s death or Disability, (1) all vesting with respect to the SARs shall cease, (2) any unvested SARs shall expire as of the date of such termination, and (3) any vested SAR shall remain exercisable until the earlier of the Expiration Date or the date that is ninety (90) days after the date of such termination. (ii) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer terminates by reason of such Participant’s death or Disability, (A) all vesting with respect to the SARs shall cease, (B) any unvested SARs shall expire as of the date of such termination, and (C) any vested SARs shall expire on the earlier of the Expiration Date or the date that is twelve (12) months after the date of such termination due to death or Disability of the Holder. In the event of a Participant’s death, the SARs shall remain exercisable by the person or persons to whom a Participant’s rights under the SARs pass by will or the applicable laws of descent and distribution until its expiration, but only to the extent the SARs were vested by such Participant at the time of such termination due to death. (iii) If prior to the Expiration Date, a Participant’s employment or service, as applicable, with the Employer is terminated by the Employer for Cause, all SARs (whether or not vested) shall immediately expire as of the date of such termination, and such Participant shall have no further rights with respect thereto. (a) General. Restricted Stock granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement, which agreements need not be identical. Subject to the restrictions set forth in Section 8(b), except as otherwise set forth in the applicable Restricted Stock Agreement, the Participant shall generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock. The Committee shall determine whether or not dividends shall accrue on shares of Restricted Stock. At the discretion of the Committee, cash dividends and stock dividends, if any, with respect to the Restricted Stock may be either currently paid to the Participant or withheld by the Company for the Participant’s account. A Participant’s Restricted Stock Agreement may provide that cash dividends or stock dividends so withheld shall be subject to forfeiture to the same degree as the shares of Restricted Stock to which they relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld. (b) Restrictions on Transfer. In addition to any other restrictions set forth in a Participant’s Restricted Stock Agreement, until such time that the Restricted Stock has vested pursuant to the terms of the Restricted Stock Agreement, which vesting the Committee may in its sole discretion accelerate at any time, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted Stock. Notwithstanding anything contained herein to the contrary, the Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Stock Award, such action is appropriate.
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(c) Certificates. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that the Restricted Stock shall be held in book entry form rather than delivered to the Participant pending the release of the applicable restrictions. (d) Termination of Employment or Service. Except as may otherwise be provided by the Committee in the Restricted Stock Agreement, if, prior to the time that the Restricted Stock has vested, a Participant’s employment or service, as applicable, terminates for any reason, (i) all vesting with respect to the Restricted Stock shall cease, and (ii) at any time following such termination, and upon written notice to the Participant, the Company shall have the right to repurchase from the Participant any unvested shares of Restricted Stock at a purchase price equal to the original purchase price paid for the Restricted Stock, or if the original purchase price is $0, such unvested shares of Restricted Stock shall be forfeited by the Participant for no consideration. | | | 9. | RESTRICTED STOCK UNITS |
(a) General. Restricted Stock Units granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Restricted Stock Unit grant shall be evidenced by a Restricted Stock Unit Agreement. No shares of Stock shall be issued at the time a Restricted Stock Unit grant is made, and the Company will not be required to set aside a fund for the payment of any such Award; provided, however, that for purposes of Section 4(a) hereof, a share of Stock shall be deemed awarded at the time of grant. The Committee shall determine whether or not dividends shall accrue on Restricted Stock Units. If the Committee so determines, recipients of Restricted Stock Units shall be entitled to an amount equal to the cash dividends paid by the Company upon one share of Stock for each Restricted Stock Unit then credited to such recipient’s account (“Dividend Equivalents”). The Committee shall, in its sole discretion, determine whether to credit to the account of, or to currently pay to, such Participant the Dividend Equivalents. A Participant’s Restricted Stock Unit Agreement may provide that Dividends Equivalents shall be subject to forfeiture to the same degree as the shares of Restricted Stock Units to which they relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on Dividend Equivalents credited to a recipient’s account. (b) Conditions of Grant. Restricted Stock Units awarded to any Eligible Person shall be subject to (i) forfeiture until the expiration of the restricted period, to the extent provided in the Restricted Stock Unit Agreement, and to the extent such Awards are forfeited, all rights of the recipient to such Awards shall terminate without further obligation on the part of the Company, and (ii) such other terms and conditions as may be set forth in the applicable Award agreement. Notwithstanding anything contained herein to the contrary, the Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock Units whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Stock Unit Award, such action is appropriate. (c) Settlement of Restricted Stock Units. Upon a date or dates on or following the expiration of the restricted period as shall be determined by the Committee and set forth in a Participant’s Restricted Stock Unit Agreement (the “Settlement Date(s)”), unless earlier forfeited, the Company shall settle the Restricted Stock Unit by delivering (i) a number of shares of Stock equal to the number of Restricted Stock Units then vested and not otherwise forfeited, and (ii) if applicable, a number of shares of Stock having a value equal to any unpaid Dividend Equivalents accrued with respect to the Restricted Stock Units. The Company may, in the Committee’s sole discretion, settle a Restricted Stock Unit Award in (A) cash, (B) in the delivery of shares of Stock or other property, (C) partially in cash and partially in the delivery of shares of Stockand/or other property, or (D) partially in the delivery of shares of Stock and partially in the delivery of other property. A settlement in cash or other property shall be based on the value of the shares of Stock otherwise to be delivered on the Settlement Date.
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(d) Creditor’s Rights. A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Restricted Stock Unit Agreement. (e) Termination of Employment or Service. Except as may otherwise be provided in by the Committee in the Restricted Stock Unit Agreement, if, prior to the time that the Restricted Stock Unit has vested, a Participant’s employment or service, as applicable, terminates for any reason, all Restricted Stock Units that have not vested on or prior the date of such termination shall be forfeited, and vested Restricted Stock Units shall be settled as soon as practicable following the date of such termination; provided, however, if such Participant’s employment or service, as applicable, was terminated by the Employer for Cause, all Restricted Stock Units, whether or not then vested, shall be forfeited, and such Participant shall have no further rights with respect thereto. | | | 10. | BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. |
The Committee is authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu of obligations of the Company or a subsidiary of the Company under the Plan or under other plans or compensatory arrangements, subject to such terms and conditions as shall be determined by the Committee. | | | 11. | OTHER STOCK-BASED AWARDS. |
The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Committee to be consistent with the purposes of the Plan. | | | 12. | ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC. |
(a) Capitalization Adjustments. In the event of any change in the outstanding Stock or in the capital structure of the Company by reason of stock dividends or extraordinary dividends payable in cash or any other form of consideration, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization or any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, the Committee shall make such substitution or adjustment, if any, as is equitable and proportional (as determined by the Committee in good faith), as to (i) the numberand/or kind of Stock or other securities issued or reserved for issuance (including the maximum numberand/or kind of Stock or other securities with respect to which one person may be granted Options or SARs in any given year) pursuant to the Plan or any outstanding Award,and/or (ii) the exercise price of any Option or SAR. Absent manifest error, any adjustment shall be conclusively determined by the Committee; provided, in each case, the fair value of the Award immediately following any such adjustment shall be equal to the fair value of the Award immediately prior to such adjustment. (b) Fractional Shares. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Award. (a) Change in Control of the Company. In the event of a Change in Control all outstanding Awards shall become immediately vested and exercisable, the restrictions thereon shall lapse and all such Awards shall become immediately payable or subject to settlement. In the event of a Change in Control, it will not be a violation of Section 19 hereunder for the Committee to cancel any or all outstanding Awards in exchange for a cash payment to each Award holder having a value equal to the value of each such Award at the time of such Change in Control. Furthermore, it will not be a violation of Section 19 hereunder for the Committee to cancel, without any such payment, any or all outstanding Awards having no value at the time of such Change in Control.
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(b) New Skynet or New SS/L Sale Event/Subsidiary Employees. In the event of a New Skynet Sale Event, all outstanding Awards held by employees or service providers of New Skynet shall become immediately vested and exercisable, the restrictions thereon shall lapse and all such Awards shall become immediately payable or subject to settlement. In the event of a New SS/L Sale Event, all outstanding Awards held by employees or service providers of New SS/L shall become immediately vested and exercisable, the restrictions thereon shall lapse and all such Awards shall become immediately payable or subject to settlement. Moreover, notwithstanding any limits on the exercisability of any Option following a Participant’s termination of employment with New Skynet or New SS/L, as applicable, as set forth in any Option Agreement, Options held by employees or service providers of New Skynet or New SS/L, as applicable, shall remain exercisable for the shorter of (i) one year following the New Skynet Sale Event or New SS/L Sale Event, as applicable or (ii) the remaining term of the Option as set forth in the Option Agreement. (c) New Skynet or New SS/L Sale Event/Corporate Headquarters Employees. In the event of a New Skynet Sale Event or a New SS/L Sale Event, (i) 50% of all outstanding unvested Awards held by employees of the Company assigned to the Company’s corporate headquarters shall become immediately vested and exercisable, the restrictions thereon shall lapse and all such Awards shall become immediately payable or subject to settlement if the New Skynet Sale Event or a New SS/L Sale Event occurs on or prior to the first anniversary of the Effective Date, or (ii) one-third of all outstanding unvested Awards held by employees of the Company assigned to the Company’s corporate headquarters shall become immediately vested and exercisable, the restrictions thereon shall lapse and all such Awards shall become immediately payable or subject to settlement if the New Skynet Sale Event or a New SS/L Sale Event occurs after the first anniversary but on or prior to the second anniversary of the Effective Date. (d) Change in Control under Section 409A. Notwithstanding anything herein to the contrary, to the extent that any Award hereunder, either in whole or in part, is deemed to provide for the deferral of compensation within the meaning of Section 409A, there shall be no distribution of any such deferred compensation on account of a Change in Control, a New Skynet Sale Event or a New SS/L Sale Event unless such event also constitutes a “Change in Control Event” within the meaning of Section 409A or such distribution is otherwise allowable under Section 409A. The proceeds received from the sale of Stock pursuant to the Plan shall be used for general corporate purposes. | | | 15. | RIGHTS AND PRIVILEGES AS A STOCKHOLDER. |
Except as otherwise specifically provided in the Plan, no person shall be entitled to the rights and privileges of stock ownership in respect of shares of Stock which are subject to Awards hereunder until such shares have been issued to that person. | | | 16. | EMPLOYMENT OR SERVICE RIGHTS. |
No individual shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company or an Affiliate. | | | 17. | COMPLIANCE WITH LAWS. |
The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any shares of Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel,
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satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale or resale under the Securities Act any of the shares of Stock to be offered or sold under the Plan or any shares of Stock issued upon exercise or settlement of Awards. If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption. | | | 18. | WITHHOLDING OBLIGATIONS. |
As a condition to the exercise or vesting, as applicable, of any Award, the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the minimum amount of all Federal, state and local income and other taxes of any kind required to be withheld in connection with such vesting or exercise. The Committee, in its discretion, may permit shares of Stock to be used to satisfy tax withholding requirements and such shares shall be valued at their Fair Market Value as of the settlement date of the Award. | | | 19. | AMENDMENT OF THE PLAN OR AWARDS. |
(a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan; provided, however, that without further stockholder approval the Board shall not make any amendment to the Plan which would increase the maximum number of shares of Stock which may be issued pursuant to Awards under the Plan, except as contemplated by Section 12 hereof, or, which would otherwise violate the shareholder approval requirements of the national securities exchange on which the Stock is listed or Nasdaq, as applicable. (b) No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless the Participant consents in writing. (c) Amendment of Stock Awards. The Committee, at any time, and from time to time, may amend the terms of any one or more Awards; provided, however, that the rights under any Award shall not be impaired by any such amendment unless the Participant consents in writing. | | | 20. | TERMINATION OR SUSPENSION OF THE PLAN. |
The Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board and no Awards may be granted under the Plan after it is terminated; provided, however, that the Plan shall continue to be administered with respect to outstanding Awards until all such Awards have been fully exercised or otherwise expire by their terms. | | | 21. | EFFECTIVE DATE OF THE PLAN. |
The Plan shall become effective as of the effective date of the Plan of Reorganization. (a) Awards to Participants Outside of the United States. The Committee may modify the terms of any Award under the Plan made to or held by a Participant who is then resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to laws, regulations and customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such Award to a Participant who is resident or primarily employed in the United States. An Award may be modified under this Section 22(a) in a manner that is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or
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regulation or result in actual liability under Section 16(b) of the Exchange Act for the Participant whose Award is modified. (b) No Liability of Committee Members. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or willful bad faith;provided,however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. (c) Payments Following Accidents or Illness. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor. (d) Designation and Change of Beneficiary. Each Participant may file with the Company a written designation of one or more persons as the beneficiary who shall be entitled to receive the rights or amounts payable with respect to an Award due under the Plan upon his death. A Participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Company shall be controlling;provided,however, that no designation, or change or revocation thereof, shall be effective unless received by the Company prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by the Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. Any beneficiary of the Participant receiving an Award hereunder shall remain subject to the terms of the Plan and the applicable Award agreement. (e) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of laws thereof. (f) Funding. No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law. (g) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself. (h) Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.
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(i) Section 409A Compliance. To the extent that any payments or benefits provided hereunder are considered deferred compensation subject to Section 409A, the Company intends for this Agreement to comply with the standards for nonqualified deferred compensation established by 409A (the “409A Standards”). To the extent that any terms of the Plan would subject Participants to gross income inclusion, interest or an additional tax pursuant to Section 409A, those terms are to that extent superseded by the 409A Standards. The Company reserves the right to amend Awards granted hereunder to cause such Awards to comply with or be exempt from Section 409A.
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| | | | | | | | | PLEASE MARK VOTES
AS IN THIS EXAMPLE | | REVOCABLE PROXY
LORAL SPACE & COMMUNICATIONS INC. | | |
ANNUAL MEETING OF SHAREHOLDERS, May 29, 2003STOCKHOLDERS
MAY 22, 2007BERNARD L. SCHWARTZ, ERIC J. ZAHLER
Michael B. Targoff, Avi Katz and ROBERT B. HODES,Janet T. Yeung, and each of them, are hereby appointed the proxies of the undersigned, with full power of substitution on behalf of the undersigned to vote, as designated below, all the shares of the undersigned at the Annual Meeting of ShareholdersStockholders of LORAL SPACE & COMMUNICATIONS LTD.INC. (the “Company”), to be held at Baruch College, Vertical Campus Building (Room 14-220), 55 Lexingtonthe Park Central New York, 870 Seventh Avenue (use 25that 56th Street, entrance), New York, New York, at 10:30 A.M., on Thursday,Tuesday, May 29, 200322, 2007 and at all adjournments thereof. The Board of Directors Recommends a Vote FOR the Following Proposals:
| | | | | 1.Please be sure to sign and date this Proxy in the box below. | | ELECTION OF FOUR CLASS I DIRECTORS –Nominees: Class I: Howard Gittis, Gershon Kekst,
Arthur L. Simon and Eric J. Zahler | | | | | | | | o VOTE FOR all nominees listed above | | o WITHHOLD AUTHORITY to vote for all nominees listed above | | | | | | | | o EXCEPTIONS * | | | | | | | | | | (Instruction: To withhold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name in the space provided below.) | | | | | | | | *Exceptions: | | | | |
Date |
| | | | | | | | | | | | | | | 2. | | Acting upon a proposal to amend the Company’s bye-laws to effect a reverse stock split of the Company’s common stock. | | FOR | | oWith- | | AGAINST | | o | | ABSTAIN | | oFor All | | | | | | For | | hold | | Except | | 1. | | ELECTION OF THREE CLASS I
DIRECTORS- Nominees: Class I: | | o | | o | | o |
John D. Harkey, Jr., Arthur L. Simon and John P. Stenbit INSTRUCTION: To withhold authority to vote for any individual nominee, mark “For All Except” and write that nominee’s name in the space provided below. | | | | | | | | | | 3. | | | | For | | Against | | Abstain | | 2. | | Acting upon a proposal to increaseapprove the number of authorized shares of common stockamendment and restatement of the Company from 750,000,000 to 1,250,000,000. | | FORLoral Space & Communications Inc. 2005 Stock Incentive Plan. | | o | | AGAINST | | o | | ABSTAIN | | o | | | | | | | | | | | | | | | | 4.3. | | Acting upon a proposal to ratify the selectionappointment of Deloitte & Touche LLP as our independent auditorsregistered public accounting firm for the year ending December 31, 2003. | | FOR2007. | | o | | AGAINST | | o | | ABSTAIN | | o | | | | | | | | | | | | | | | | 5. | | In their discretion, upon such other matters as may properly come before the meeting. | | FOR | | o | | AGAINST | | o | | ABSTAIN | | o |
(Continued on reverse side)
The Board of Directors Recommends a Vote FOR the Above Proposals. THIS PROXY(Continued from other side)
IS SOLICITED BY THE BOARD OF DIRECTORS. This Proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder.stockholder. If no direction is indicated, this PROXY will be voted FOR the election of nominees listed hereon and FOR Proposals 2 3, 4 and 5.3. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and accompanying Proxy Statement. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Stockholder sign above Co-holder (if any) sign above
| | | |  | | The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and accompanying Proxy Statement. | | | | | | Dated: , 2003
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| | | (Signature of Shareholder) | | | | | | (Please sign exactly as name or names appear hereon. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such; if by a corporation, by an authorized officer; if by a partnership, in partnership name by an authorized person. For joint owners, all co-owners must sign.) |
 Detach above card, sign, date and mail in postage paid envelope provided.LORAL SPACE & COMMUNICATIONS INC. (Please sign exactly as name or names appear hereon. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such; if by a corporation, by an authorized officer; if by a partnership, in partnership name by an authorized person. For joint owners, all co-owners must sign.) PLEASE MARK, ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS
PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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