As Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-73600;
333-73600-01; 333-73600-02
PROSPECTUS AND CONSENT SOLICITATION
LORAL CYBERSTAR, INC.
OFFER TO EXCHANGE
LORAL CYBERSTAR'S 10% SENIOR NOTES DUE 2006 GUARANTEED BY LORAL SPACE &
COMMUNICATIONS LTD. AND WARRANTS TO PURCHASE UP TO 6,657,096 SHARES OF COMMON
STOCK
OF LORAL SPACE & COMMUNICATIONS LTD.
FOR
LORAL CYBERSTAR'S OUTSTANDING
11 1/4% SENIOR NOTES DUE 2007 AND
12 1/2% SENIOR DISCOUNT NOTES DUE 2007
For every $1,000 principal amount of 11 1/4% Senior Notes, plus accrued and
unpaid interest as of October 15, 2001, tendered and accepted for exchange, you
will receive:
- $750.247 principal amount of our 10% Senior Notes due 2006 guaranteed by
Loral Space & Communications Ltd. and our existing and future restricted
subsidiaries; and
- warrants to purchase 7.40 shares of common stock of Loral Space.
For every $1,000 principal amount at maturity of 12 1/2% Senior Discount
Notes tendered and accepted for exchange, you will receive:
- $707.935 principal amount of our 10% Senior Notes due 2006 guaranteed by
Loral Space and our existing and future restricted subsidiaries; and
- warrants to purchase 6.98 shares of common stock of Loral Space.
The warrants will be exercisable for five years at an exercise price equal
to 110% of the average of the daily volume-weighted average trading prices of
Loral Space common stock on the New York Stock Exchange, as reported by
Bloomberg, L.P., for the ten consecutive trading days preceding the second
trading day before the closing of the exchange offer.
We have established a toll free telephone number you can call beginning 12
trading days prior to the closing of the exchange offer to learn the approximate
exercise price of the warrants computed as of the preceding trading day and, on
and after the second trading day preceding the closing, the actual warrant
exercise price. The number is (877) 485-2033.
By tendering your notes, you will be automatically consenting to proposed
amendments to the indenture governing your notes that will remove substantially
all of the operating restrictions and events of default contained therein.
Therefore, the existing notes not tendered and remaining outstanding after the
exchange offer will not have the benefit of those covenants and events of
default.
The new notes, however, will be issued under an indenture containing
covenants and events of default substantially similar to those contained in the
existing indentures.
New notes will be issued in denominations of $1,000 and integral multiples
of $1,000. At the closing of the exchange offer, instead of issuing new notes in
a denomination other than an integral multiple of $1,000, we will issue to
holders tendering notes with an aggregate principal amount of $500,000 or more
cash in the amount of any amount exceeding the next lowest integral multiple of
$1,000. Holders tendering notes with a lesser aggregate principal amount will
receive new notes with an aggregate principal amount rounded down to the nearest
integral multiple of $1,000. The number of Loral Space warrants to be issued in
the exchange offer will be rounded up to the nearest full warrant.
The exchange offer and consent solicitation will expire 12:00 midnight, New
York City time, on December 20, 2001, unless we extend it. Tenders of notes may
be withdrawn any time prior to 12:00 midnight on the expiration date.
As of October 15, 2001, the sum of the aggregate principal amount of the
senior notes and the aggregate accreted value of the senior discount notes
outstanding was $912.5 million. Our offer to exchange your notes is conditioned
upon receiving tenders of notes that represent at least 85% of this aggregate
amount. Under a lock-up agreement, holders of 49.04% of the aggregate principal
amount of the senior notes and 51.43% of the aggregate principal amount at
maturity of the senior discount notes have already agreed to tender their notes.
Currently, Loral SpaceCom Corporation, a subsidiary of Loral Space, holds a
$79.7 million note payable on demand, which ranks equally with all of our
unsubordinated indebtedness. In connection with the completion of the exchange
offer, Loral SpaceCom will cancel the existing note, and we will transfer our
data services business to Loral SpaceCom and issue a new $29.7 million
subordinated note due 2006 to Loral SpaceCom, which note will be guaranteed on a
subordinated basis by Loral Space and our existing and future restricted
subsidiaries.
We will make no separate payment, other than the exchange consideration for
your existing notes, for consents delivered in the consent solicitation.
The new notes that we will issue to you and the warrants Loral Space will
issue to you in exchange for your existing notes are new securities with no
established trading market and will not be listed on any securities exchange or
market. We expect the new notes will be eligible for trading in the PORTAL
market.
If all the conditions to this exchange offer are satisfied, we will exchange
all existing notes that are validly tendered and not validly withdrawn. We will
not receive any proceeds from the exchange offer.
The exchange of notes will be considered a recapitalization with boot for
United States federal income tax purposes. Consequently, all or the major
portion of any loss realized will not be recognized for tax purposes and all or
a portion of any gain realized will be recognized and will be subject to income
tax.
Loral Space's common stock is traded on the New York Stock Exchange under
the symbol "LOR".
---------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 25 OF THIS
PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR THE WARRANTS TO BE
DISTRIBUTED IN THE EXCHANGE OFFER, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lead Dealer Manager for the Exchange Offer and Lead Solicitation Agent for
the Consent Solicitation is:
DRESDNER KLEINWORT WASSERSTEIN
Co-Dealer Managers for the Exchange Offer and Co-Solicitation Agents for the
Consent Solicitation are:
BANC OF AMERICA SECURITIES LLC JPMORGAN LEHMAN BROTHERS
The date of this prospectus and consent solicitation is November 23, 2001.
The exchange offer and consent solicitation are not being made to, nor will
we accept tenders for exchange from, holders of existing notes in any
jurisdiction in which the exchange offer and consent solicitation or the
acceptance of them would not be in compliance with the securities or blue sky
laws of such jurisdiction
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY..................................................... 1
RISK FACTORS................................................ 25
FORWARD-LOOKING STATEMENTS.................................. 38
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES FOR
LORAL CYBERSTAR........................................... 38
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES AND RATIO OF
EARNINGS TO COVER FIXED CHARGES FOR LORAL SPACE........... 38
USE OF PROCEEDS............................................. 38
CAPITALIZATION.............................................. 39
THE EXCHANGE OFFER.......................................... 42
DESCRIPTION OF THE NEW NOTES................................ 56
DESCRIPTION OF LORAL SPACE GUARANTY......................... 88
DESCRIPTION OF THE LORAL SPACE WARRANTS..................... 115
THE PROPOSED AMENDMENTS..................................... 117
FEDERAL INCOME TAX CONSEQUENCES............................. 129
FOREIGN ISSUER CONSIDERATIONS............................... 133
BERMUDA TAX CONSIDERATIONS.................................. 134
LEGAL MATTERS............................................... 134
EXPERTS..................................................... 135
WHERE YOU CAN FIND MORE INFORMATION......................... 135
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 136
INDEX TO FINANCIAL STATEMENTS............................... F-1
</Table>
NOTICE TO CALIFORNIA RESIDENTS ONLY
With respect to a holder of existing notes residing in California, unless
the new notes and the subsidiary guarantee of the new notes are qualified for
sale by the California Department of Corporations, this exchange offer is being
made to such holder only if such holder is:
- a bank, savings and loan association, trust company, insurance company,
investment company registered under the Investment Company Act of 1940,
pension or profit-sharing trust (other than a pension or profit-sharing
trust of the issuer, a self-employed individual retirement plan, or
individual retirement account), in each case, within the meaning of
Section 25102(i) of the California Corporate Securities Law of 1968,
- any organization described in Section 501(c)(3) of the Internal Revenue
Code, as amended on December 29, 1981, which has total assets (including
endowment, annuity and life income funds) of not less than $5,000,000
according to its most recent audited financial statements, as described
in Rule 260.102.10(a) of the Blue Sky Regulations promulgated under the
California Corporate Securities Law of 1968, or
- any corporation which has a net worth on a consolidated basis according
to its most recent audited financial statements of not less than
$14,000,000, as described in Rule 260.102.10(b) of the Blue Sky
Regulations promulgated under the California Corporate Securities Law of
1968,
i
whether such holder is acting for itself or as trustee, provided that such
holder represents that it is purchasing for its own account (or for the trust
account) for investment and not with a view to or for sale in connection with
any distribution of the security.
NOTICE TO ALL RECIPIENTS
This prospectus does not constitute an offer to sell these securities or a
solicitation of an offer to buy these securities in any state where such
solicitation, offer or sale is not permitted. Please refer to the Letter of
Transmittal and the other ancillary documents relating to this prospectus for
instructions relating to your eligibility to tender in the exchange offer.
ii
SUMMARY
The following is a brief summary of the information that is included in
this prospectus. This summary may not contain all the information that may be
important to you. You should read the entire prospectus, including the financial
data and related notes contained in this prospectus, and the financial
statements and reports incorporated by reference in this prospectus, before
making an investment decision. The terms "Loral CyberStar," "the company," "we,"
"us" and "our" as used in this prospectus refer to "Loral CyberStar, Inc." and
its subsidiaries as a combined entity, except where it is made clear that such
term means only Loral CyberStar. The term "Loral Space" as used in this
prospectus refers to "Loral Space & Communications Ltd." and its subsidiaries as
a combined entity, except where it is made clear that such term means only Loral
Space. Throughout this prospectus, we refer to our 11 1/4% Senior Notes due 2007
and our 12 1/2% Senior Discount Notes due 2007 as "senior notes" and "senior
discount notes," respectively, and as the "existing notes," collectively. Our
reference to the existing notes means the senior notes and the senior discount
notes as governed by their respective indentures until the execution of their
respective supplemental indentures, after which, the existing notes means the
senior notes and the senior discount notes as governed by their respective
indentures, each as amended by its respective supplemental indenture. We refer
to our 10% Senior Notes due 2006 as "new notes." We refer to the "new notes,"
the guaranty by Loral Space, or the "Loral Space guaranty," the guaranty of our
restricted subsidiaries, and warrants to purchase shares of common stock of
Loral Space or the "Loral Space warrants" collectively as the "exchange
consideration."
THE EXCHANGE OFFER
We are offering to exchange:
- up to $332.4 million in the aggregate of new 10% Senior Notes due 2006
issued by us and guaranteed by Loral Space and our existing and future
restricted subsidiaries, and warrants to purchase up to 3,277,848 shares
of common stock of Loral Space for our outstanding $443 million 11 1/4%
Senior Notes due 2007; and
- up to $342.6 million in the aggregate of new 10% Senior Notes due 2006
issued by us and guaranteed by Loral Space and our existing and future
restricted subsidiaries, and warrants to purchase up to 3,379,248 shares
of common stock of Loral Space for our outstanding $484 million 12 1/2%
Senior Discount Notes due 2007.
We are also soliciting consents with respect to our existing notes on the
terms and conditions described in this prospectus.
For every $1,000 principal amount of senior notes, plus accrued and unpaid
interest as of October 15, 2001, tendered and accepted for exchange, you will
receive:
- $750.247 principal amount of our new notes; and
- warrants to purchase 7.40 shares of common stock of Loral Space.
For every $1,000 principal amount at maturity of senior discount notes
tendered and accepted for exchange, you will receive:
- $707.935 principal amount of our new notes; and
- warrants to purchase 6.98 shares of common stock of Loral Space.
The warrants will be exercisable for five years at an exercise price equal
to 110% of the average of the daily volume-weighted average trading prices of
Loral Space common stock on the New York Stock Exchange, as reported by
Bloomberg, L.P., for the ten consecutive trading days preceding the second
trading day before the closing of the exchange offer.
We have established a toll-free telephone number you can call beginning 12
trading days prior to the closing of the exchange offer to learn the approximate
exercise price of the warrants computed as of the
preceding day and, on and after the second trading day preceding the closing,
the actual warrant exercise price. The number is (877) 485-2033. The recorded
message on this telephone number will be updated each day during the 10 trading
day period with the average computed exercise price of the warrants through the
previous night. During the two trading days before the closing of the exchange
offer, the recorded message will state the actual warrant exercise price. We
encourage you to call this telephone number. Please be aware, however, that
during the 10 trading day period preceding the two trading days prior to the
closing, the estimated exercise price of the warrants, as provided in this
recorded message, necessarily will be different from the actual exercise price
of the warrants to be issued in connection with the exchange offer. The actual
exercise price of the warrants to be issued in connection with the exchange
offer will not be determined until two trading days prior to the closing of the
exchange offer.
The new notes issued by us will have terms and conditions substantially
similar to the terms of the existing notes except that the covenants in the new
notes indenture with respect to the incurrence of debt and the granting of liens
will be more restrictive in some respects than existing covenants in the senior
notes indenture and the senior discount notes indenture. We will continue to
have rights to use our cash flow to construct or acquire a replacement satellite
and to incur secured indebtedness to construct or acquire a replacement
satellite for Telstar 11.
On October 15, 2001, we, along with Loral Space and Loral SpaceCom
Corporation, entered into a lock-up agreement with holders of existing notes
representing 49.04% of the aggregate principal amount of the senior notes and
51.43% of the aggregate principal amount at maturity of the senior discount
notes in which we agreed to make this exchange offer and those holders agreed to
tender their existing notes and consent to the amendments of the existing
indentures in exchange for the same exchange consideration as described in this
prospectus. Our offer to exchange the existing notes is conditioned upon the
tender of existing notes that represent at least 85% of the sum of the aggregate
principal amount of the senior notes and the aggregate accreted value of the
senior discount notes as of October 15, 2001.
Currently, Loral SpaceCom, a subsidiary of Loral Space, holds a $79.7
million note payable on demand, which ranks equally with all of our
unsubordinated indebtedness. In connection with the completion of the exchange
offer, Loral SpaceCom will cancel the existing note, and we will transfer our
data services business to Loral SpaceCom and issue a new $29.7 million
subordinated note due 2006 to Loral SpaceCom, having an interest rate of 10% per
annum payable at maturity, subordinated to our new 10% senior notes and
guaranteed on a subordinated basis by Loral Space and our existing and future
restricted subsidiaries. Certain of our subsidiaries owning portions of the data
services business that are guarantors of the existing notes will be transferred
to Loral SpaceCom Corporation as part of the transfer. To the extent permitted
by the indentures for the existing notes, such subsidiaries will be released
from their obligations under their guarantees of the existing notes. To the
extent they are not released from their obligations under their guarantees of
the existing notes, we will indemnify them against any liabilities incurred by
any of them as a result of any payments made under such guarantees. For the nine
months ended September 30, 2001 and for the year ended December 31, 2000, EBITDA
of the data services business was a loss of $14.4 million and a loss of $14.8
million and capital expenditures were $4.3 million and $24.4 million,
respectively. Book value of the net assets for the data services business was
approximately $40 million at September 30, 2001.
You should read the discussion under the headings "The Exchange Offer,"
"Description of the New Notes," "Description of Loral Space Guaranty" and
"Description of the Loral Space Warrants" for further information regarding the
new notes, the Loral Space guaranty and the Loral Space warrants.
THE CONSENT SOLICITATION
By properly tendering your existing notes, you will also be consenting to
the proposed amendments to the senior notes indenture and the senior discount
notes indenture, as the case may be, to eliminate substantially all of the
covenants and events of default that may be removed by majority consent of the
holders consistent with the applicable indentures and the requirements of the
Trust Indenture Act of 1939, as amended.
2
The proposed amendments, which will apply to any senior notes and senior
discount notes not tendered in the exchange offer, include, but are not limited
to, removing restrictions on our ability to:
- incur indebtedness;
- make dividend payments;
- sell capital stock of our subsidiaries;
- enter into transactions with shareholders and affiliates;
- incur liens;
- enter into sale-leaseback transactions;
- sell assets;
- consolidate and/or merge; and
- transfer our existing business.
The proposed amendments also remove requirements in connection with:
- repurchasing notes on a change of control;
- paying taxes and other claims;
- maintaining property and insurance coverage; and
- providing SEC reports to holders.
In addition, the proposed amendments will defer (rather than waive)
contribution and other rights available to subsidiary guarantors of the existing
notes and will remove certain events of default, including but not limited, to:
- a default by us on other indebtedness;
- final judgments or orders not paid or discharged; and
- bankruptcy, insolvency or liquidation.
If you withdraw your tender of existing notes, your consent to the proposed
amendments will also be deemed withdrawn. You may not withdraw your consent
without withdrawing your tender of existing notes.
The consent of holders of a majority of the aggregate principal amount of
the senior notes or of the senior discount notes, as the case may be, is
required to effect the proposed amendments to the applicable existing indenture.
WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN
EXCHANGE FOR THE EXISTING NOTES, FOR CONSENTS DELIVERED IN THE CONSENT
SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER.
EFFECT OF THE EXCHANGE OFFER AND CONSENT SOLICITATION ON HOLDERS OF EXISTING
NOTES WHO DO NOT TENDER
If the proposed amendments become effective and you did not tender your
existing notes in the exchange offer, you will be bound by the proposed
amendments to the senior notes indenture or the senior discount notes indenture,
as the case may be, even though you did not consent. You will continue to be
entitled to receive principal and interest payments on your existing notes and
all other remaining rights conferred by the senior notes indenture, as amended,
or the senior discount notes indenture, as amended, as the case may be. See "The
Proposed Amendments" for a description of the proposed amendments to the senior
notes indenture and the senior discount notes indenture.
If you do not tender your existing notes in the exchange offer, you will
not be entitled to receive the exchange consideration that includes new notes
guaranteed by Loral Space and warrants to purchase shares of common stock of
Loral Space.
3
LORAL CYBERSTAR
We own and operate three geosynchronous satellites through which we provide
fixed satellite services, including video distribution and other satellite
transmission services. We also provide data services including managed data
services and Internet services. Upon consummation of the exchange offer and
consent solicitation, we will transfer our data services business to Loral
SpaceCom, as described above.
Telstar 11
Telstar 11, formerly known as Orion 1, is a high power satellite with 48
Ku-band transponders (all references to transponders are in 36 MHz equivalents),
which commenced operations in January 1995, and provides coverage in North
America as far west as Phoenix and Denver and in Europe as far east as Istanbul
and Kiev. Telstar 11 was launched in October 1999 into 37.5 degrees W.L.
Telstar 12
Telstar 12, formerly known as Orion 2, is a high power satellite with 57
Ku-band transponders, which commenced operations in January 2000 and expanded
our European coverage and extended coverage to portions of Russia, Latin
America, the Middle East and South Africa. Telstar 12 was launched in October
1999 into 15 degrees W.L.
Telstar 12 was originally intended to operate at 12 degrees W.L., but as
part of an international coordination process, we agreed with a competing
claimant, Eutelsat, to operate Telstar 12 at 15 degrees W.L. and permit Eutelsat
to use 12.5 degrees W.L. In return, Eutelsat agreed to leave its 14.8 degrees
W.L. orbital slot empty and to assert its priority rights at that location on
our behalf. We also agreed to provide to Eutelsat four 54 MHz transponders on
Telstar 12 for the life of the satellite at no charge, while retaining risk of
loss. In addition, Eutelsat has the right to acquire, at cost, four transponders
on the next replacement satellite for Telstar 12.
As part of an international coordination process, we continue to conduct
discussions with various administrations regarding Telstar 12's operations at 15
degrees W.L. If these discussions are not successful, Telstar 12's useable
capacity may be reduced.
Telstar 10/Apstar IIR
Telstar 10/Apstar IIR, formerly known as Apstar IIR, is a high power
satellite on which we have purchased the right to use 28 C-Band and 24 Ku-band
transponders for the full remaining useful life of the satellite. Apstar IIR
commenced operations in December 1997 at 76.5 degrees E.L. and covers portions
of Asia, Europe, Africa and Australia, accounting for more than 75% of the
world's population.
We purchased all of Apstar IIR's transponder capacity (other than a single,
reserved C-band transponder) from APT Satellite Company in September 1999 to
replace our Orion 3 satellite, which was lost in a launch failure in May 1999.
Insurance proceeds from the launch failure covered most of the $273 million
purchase price. APT has also given us the right to lease replacement satellites
at this orbital location at the end of the satellite's useful life.
Loral Skynet Agreements
We and Loral Skynet, a division of Loral SpaceCom, entered into agreements
effective January 1, 1999, whereby Loral Skynet provides to us:
- marketing and sales of satellite capacity services on our satellite
network and related billing and administration of customer contracts for
those services, and
- telemetry, tracking and control services for our satellite network.
We are charged Loral Skynet's costs for providing these services plus a 5
percent administrative fee.
4
Following the exchange offer, we expect to enter into a management
agreement with Loral SpaceCom pursuant to which we will be charged an allocation
of certain of Loral SpaceCom's corporate overhead expenses, at an anticipated
rate of approximately $3 million to $4 million annually. If implemented, this
fee will represent additional costs that we will incur.
Orion's Indebtedness
Prior to our acquisition by Loral Space in 1998, we were known as Orion
Network Systems. Orion issued the existing notes in 1997. These obligations are
not guaranteed by Loral Space or any subsidiaries of Loral Space. As a result of
our obligations under the existing notes, we have continued to file reports with
the SEC even though the capital stock of Orion ceased to be publicly traded
following our acquisition.
LORAL SPACE & COMMUNICATIONS LTD.
Loral Space is one of the world's leading satellite communications
companies with substantial activities in satellite manufacturing and
satellite-based communications services. Loral Space is organized into three
operating businesses: fixed satellite services, satellite manufacturing and
technology, and data services.
Fixed Satellite Services or FSS: Loral Space leases transponder capacity to
customers for various applications, including broadcasting, news gathering,
internet access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television. Loral Space
operates its business through wholly owned subsidiaries and divisions including
Loral Skynet, Loral CyberStar and Loral Skynet do Brasil Ltda. and joint
ventures such as Satelites Mexicanos, S.A. de C.V. and Europe*Star Limited;
Satellite Manufacturing and Technology: Loral Space designs and
manufactures satellites and space systems and develops satellite technology for
a broad variety of customers and applications through Space Systems/Loral, Inc.
or SS/L; and
Data Services: Loral Space provides managed communications networks and
Internet and intranet services through us and delivers high-speed broadband data
communications and business television and infomedia services through us and
CyberStar, L.P.
In addition, a subsidiary of Loral Space acts as the managing general
partner of Globalstar, L.P., which owns and operates a global telecommunications
network based upon a 52-satellite constellation. Globalstar is financially
troubled and is currently attempting to restructure its financial obligations
and develop a financial strategy to allow it to continue operations. Loral
Space, through its interests in various joint ventures, continues to participate
in and to fund its share of the operations of Globalstar service providers in
Brazil, Canada, Mexico and Russia.
Loral Space regularly engages in discussions with telecommunications
service providers, equipment manufacturers and others about possible strategic
transactions and alliances, including participation in the Loral Global Alliance
and strategic relationships involving its satellite manufacturing operations,
which could involve business combinations.
PRINCIPAL EXECUTIVE OFFICES
Our executive offices are located at 2440 Research Boulevard, Suite 400,
Rockville, Maryland 20850, telephone number (301) 258-8101 and Loral Space's
executive offices are located at c/o Loral SpaceCom Corporation, 600 Third
Avenue, New York, NY 10016, telephone number (212) 697-1105.
5
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
Company....................... Loral CyberStar, Inc.
Securities Offered............ We are offering up to $675 million in aggregate
principal amount of our 10% Senior Notes due
2006 guaranteed by Loral Space and all existing
and future restricted subsidiaries and warrants
to purchase up to 6,657,096 shares of common
stock of Loral Space in exchange for all of our
outstanding 11 1/4% Senior Notes due 2007 and
our 12 1/2% Senior Discount Notes due 2007.
The Exchange Offer............ We are offering to exchange:
- $750.247 principal amount of new notes for
each $1,000 principal amount of your senior
notes, plus accrued and unpaid interest as of
October 15, 2001; and
- $707.935 principal amount of new notes for
each $1,000 principal amount at maturity of
your senior discount notes.
In addition,
- for every $1,000 principal amount of senior
notes you tender, you will receive warrants
to purchase 7.40 shares of common stock of
Loral Space; and
- for every $1,000 principal amount at maturity
of senior discount notes you tender, you will
receive warrants to purchase 6.98 shares of
common stock of Loral Space.
The warrants will be exercisable for five years
at an exercise price equal to 110% of the
average of the daily volume-weighted average
trading prices of Loral Space common stock on
the New York Stock Exchange, as reported by
Bloomberg, L.P., for the ten consecutive
trading days preceding the second trading day
before the closing of the exchange offer.
New notes will be issued in denominations of
$1,000 and integral multiples of $1,000. At the
closing of the exchange offer, instead of
issuing new notes in a denomination other than
an integral multiple of $1,000, we will issue
to holders tendering notes with an aggregate
principal amount of $500,000 or more cash in
the amount of any amount exceeding the next
lowest integral multiple of $1,000. Holders
tendering notes with a lesser aggregate
principal amount will receive new notes with an
aggregate principal amount rounded down to the
nearest integral multiple of $1,000. The number
of Loral Space warrants to be issued in the
exchange offer will be rounded up to the
nearest full warrant.
In order to be exchanged, an existing note must
be properly tendered and accepted. If all the
conditions to this exchange offer are
satisfied, all existing notes which are validly
tendered and not validly withdrawn will be
exchanged. We will issue new notes promptly
after expiration of the exchange offer. As of
October 15, 2001, there were $443 million in
aggregate principal amount of senior notes and
$484 million in aggregate principal
6
amount at maturity of senior discount notes
with an accreted value of $469.5 million.
Proposed Amendments to the
Indentures.................... In order for your tender of existing notes to
be considered valid and, as such, to be
accepted by us, you must deliver a consent to
the proposed amendments to the senior notes
indenture or the senior discount notes
indenture, as the case may be. The amendments
will remove from the indentures substantially
all of the operating covenants and the events
of default that currently limit, for the
benefit of the holders, our ability to engage
in some activities. See "The Exchange
Offer -- The Consent Solicitation" and "The
Proposed Amendments."
Minimum Condition to the
Exchange Offer................ As of October 15, 2001, the sum of the
aggregate principal amount of the senior notes
and the aggregate accreted value of the senior
discount notes was $912.5 million. The exchange
offer is subject to certain conditions
including, among other things, receiving
tenders of notes that represent at least 85% of
this aggregate amount. Under a lock-up
agreement, holders of 49.04% of the aggregate
principal amount of the senior notes and 51.43%
of the aggregate principal amount at maturity
of the senior discount notes have already
agreed to tender their notes in the exchange
offer and to consent to the proposed
amendments, subject to various conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer."
Expiration Date; Withdrawal of
Tender........................ The exchange offer and consent solicitation
will expire at 12:00 midnight, New York City
time, on December 20, 2001, or such later date
and time to which we extend it. A tender of the
existing notes pursuant to the exchange offer
may be withdrawn at any time prior to 12:00
midnight, New York City time, on the expiration
date. Withdrawal of tendered existing notes
will be deemed to be a revocation of the
consent to the proposed amendments to the
indentures. If we elect to provide a subsequent
offering period of three to 20 business days
after the initial offering period has expired,
you will not be entitled to any withdrawal
rights during the extension period. Any
existing notes not accepted for exchange for
any reason will be returned without expense to
the tendering holder promptly after the
expiration or termination of the exchange offer
or, in the case of existing notes tendered by
book-entry transfer, into the exchange agent's
account at The Depository Trust Company.
Interest on the New Notes..... The new notes will bear interest at the rate of
10% per annum from October 15, 2001, payable
semiannually in arrears on January 15 and July
15 of each year in cash, commencing July 15,
2002, to the person in whose name the new note
is registered at the close of business on the
preceding January 1 or July 1, as the case may
be. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
7
Interest on the Existing Notes
Accepted for Exchange......... We will not make any payment with respect to
accrued and unpaid interest on the senior notes
validly tendered and accepted for exchange.
Termination of the Exchange
Offer......................... We may terminate the exchange offer if we
determine that our ability to proceed with the
exchange offer could be materially impaired due
to, among other things, any legal or
governmental action, new law, statute, rule or
regulation or any interpretation of the staff
of the SEC of any existing law, statute, rule
or regulation.
Procedures for Tendering
Existing Notes................ If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a photocopy or
facsimile of the letter of transmittal,
according to the instructions contained in this
prospectus and the letter of transmittal. You
must also mail or otherwise deliver the letter
of transmittal, or a photocopy or facsimile of
the letter of transmittal, together with the
existing notes and any other required documents
to the exchange agent at the address on the
cover page of the letter of transmittal. If you
hold the existing notes through DTC and wish to
participate in the exchange offer, you must
comply with the Automated Tender Offer Program
procedures of DTC, by which you will agree to
be bound by the letter of transmittal.
Special Procedures for
Beneficial Owners............. If you are the beneficial owner of existing
notes and your name does not appear on a
security position listing of DTC as the holder
of such notes, or if you are a beneficial owner
of existing notes that are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee, and you wish to
tender such notes in the exchange offer, you
should promptly contact the person in whose
name your existing notes are registered and
instruct such person to tender on your behalf.
If you wish to tender on your own behalf you
must, prior to executing the letter of
transmittal and delivering your existing notes,
either make appropriate arrangements to
register ownership of the existing notes in
your name or obtain a properly completed bond
power from the registered holder. The transfer
of record ownership may take considerable time.
Guaranteed Delivery
Procedure..................... If you wish to tender your existing notes and
your existing notes are not immediately
available or you cannot deliver your existing
notes, the letter of transmittal or any other
documents required by the letter of transmittal
or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to
the expiration date, you must tender your
existing notes according to the guaranteed
delivery procedures set forth in this
prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedure."
8
Acceptance of Existing Notes
and Delivery of New Notes..... Subject to certain conditions, we will accept
for exchange any and all outstanding notes
which are properly tendered in the exchange
offer prior to 12:00 midnight, New York City
time, on the expiration date. The new notes
issued in the exchange offer will be delivered
promptly following the expiration date.
Accounting Treatment of the
Exchange Offer................ Under U.S. generally accepted accounting
principles applicable to debt restructurings,
we will record the new notes for financial
reporting purposes at a carrying value
substantially in excess of their actual
principal amount. In addition, we will
recognize a gain on the exchange only to the
extent that the historic carrying value reduced
by the value of the warrants issued in the
exchange exceeds the sum of the actual
principal amount of the new notes and the
amount of future interest payments on that
amount. As a result, we will not record
interest expense on the new notes, even though
cash interest will be payable on them.
Certain United States Federal
Income Tax Considerations..... By accepting the exchange offer, you and we
have agreed to treat the transaction for U.S.
federal income tax purposes as an exchange of
your existing Loral CyberStar notes for new
Loral CyberStar notes and Loral Space warrants.
We intend to treat this exchange for tax
purposes as a recapitalization of Loral
CyberStar with boot. In a recapitalization, all
or a major portion of any loss realized in the
exchange will not be recognized for tax
purposes. Any excess of your federal tax basis
in your existing notes over your amount
realized in the recapitalization will be bond
premium that is amortizable over the term of
your new notes.
For purposes of computing gain or loss
realized, unpaid interest and original issue
discount that accrued during the period you
held existing notes will be treated as a
separate item of property.
Some portion of any gain realized will be
recognized. Your gain realized will be the
excess, if any, of the amount you realize over
your tax basis in your existing notes. We
expect that the amount realized in the
transaction will be the face amount of the new
notes you receive plus the fair market value of
the Loral Space warrants you receive. The
portion of your gain that is recognized may be
the greater of the fair market value of the
Loral Space warrants or the amount of market
discount, if any, that accrued during the
period you held your existing notes. The gain
recognized will be ordinary income to the
extent of any accrued market discount.
Your tax consequences may be different from
those described if the new notes are not
classified as securities for tax purposes or if
the existing or new notes become publicly
traded for tax purposes. You may wish to
consult your own tax advisor to determine the
federal, state, local, foreign and other tax
consequences of the exchange offer. See
"Federal Income Tax Consequences."
9
Use of Proceeds............... We will not receive any proceeds from the
issuance of the new notes or the Loral Space
warrants pursuant to the exchange offer. We and
Loral Space will pay all expenses incident to
the exchange offer.
Dealer Managers and
Solicitation Agents........... Dresdner Kleinwort Wasserstein, Inc. is serving
as lead dealer manager and lead solicitation
agent in connection with the exchange offer and
consent solicitation. Banc of America
Securities LLC, J.P. Morgan Securities Inc. and
Lehman Brothers Inc. are serving as co-dealer
managers and as co-solicitation agents in
connection with the exchange offer and consent
solicitation. You can find the addresses and
telephone numbers for the dealer managers and
solicitation agents on the back cover of this
prospectus.
Exchange Agent................ Bankers Trust Company is serving as exchange
agent in connection with the exchange offer.
All tenders of notes and requests for
additional copies of the letter of transmittal
should be directed to the exchange agent at the
following address: BT Services Tennessee, Inc.,
Reorganization Unit, P.O. Box 292737,
Nashville, TN 37229-2737. For more information
with respect to the exchange offer, the
telephone number for the exchange agent is
(800) 735-7777 and the facsimile number for the
exchange agent is (615) 835-3701.
Information Agent............. Morrow & Co., Inc. is serving as information
agent in connection with the exchange offer.
Questions, requests for assistance and requests
for additional copies of this prospectus and
consent solicitation should be directed to the
information agent by calling (800) 607-0088.
International noteholders should call (212)
754-8000 collect. Banks and brokerage firms
should call (800) 654-2468.
Warrant Agent................. The Bank of New York is serving as warrant
agent in connection with the exchange offer.
For more information with respect to the
issuance of the Loral Space warrants, the
telephone number for the warrant agent is (212)
896-7202, the facsimile number is (212)
896-7298, and the address is 101 Barclay
Street, Floor 21 West, New York, NY 10286.
SUMMARY DESCRIPTION OF THE NEW NOTES
Securities Offered............ Up to $675 million aggregate principal amount
of 10% Senior Notes due 2006.
Issuer........................ Loral CyberStar, Inc.
Maturity Date................. July 15, 2006.
Interest Rate................. 10% per annum. Interest on the new notes will
accrue from October 15, 2001 and will be
payable semi-annually in arrears on January 15
and July 15 of each year, commencing on July
15, 2002.
Parent Guarantor.............. Loral Space & Communications Ltd.
10
Parent Guaranty............... Loral Space will guaranty our obligations under
the new notes, including the payment of
principal and interest on a direct, unsecured
and senior basis. See "Description of Loral
Space Guaranty."
Subsidiary Guarantor.......... Loral Asia Pacific Satellite (HK) Limited and
all future restricted subsidiaries.
Subsidiary Guaranty........... Loral Asia Pacific Satellite (HK) Limited and
all future restricted subsidiaries will
guaranty our obligation under the new notes
including the payment of principal and interest
on a direct, unsecured and senior basis.
Optional Redemption........... We may redeem the new notes at any time upon
the payment of a make whole premium, calculated
using a discount rate of 0.50% plus the rate on
treasuries with a comparable maturity. In
addition, at any time, we may redeem up to $100
million aggregate principal amount of new notes
solely out of "excess cash flow" at a
redemption price equal to 101% of the principal
amount of the new notes being redeemed. See
"Description of the New Notes -- Optional
Redemption."
Ranking....................... The new notes:
- will be our direct, unsecured and senior
obligations;
- will be equal in right of payment with any
existing and future unsubordinated
indebtedness we incur;
- will be senior in right of payment to all of
our existing and future subordinated
indebtedness, including the $29.7 million
subordinated intercompany note issued to
Loral SpaceCom in connection with this
exchange offer; and
- will be effectively senior in right of
payment, in so far as our own assets are
concerned, to all indebtedness and
liabilities, including trade payables, of
Loral Space, Loral SpaceCom and Loral
Satellite, Inc.
The parent guaranty:
- will be a direct, unsecured and senior
obligation of Loral Space;
- will be equal in right of payment with any
existing and future unsubordinated
indebtedness Loral Space incurs, including
its indebtedness under its 9 1/2% Senior
Notes due 2006;
- will be senior in right of payment to all of
Loral Space's existing and future
subordinated indebtedness, including its
subordinated guaranty of the $29.7 million
subordinated intercompany note issued by us
to Loral SpaceCom in connection with this
exchange offer; and
- will be effectively junior in right of
payment to all indebtedness and liabilities,
including trade payables, of Loral Space's
subsidiaries, including Loral SpaceCom and
Loral Satellite.
11
The subsidiary guaranty:
- will be a direct, unsecured and senior
obligation of each subsidiary guarantor;
- will be equal in right of payment with any
existing and future unsubordinated
indebtedness each subsidiary guarantor
incurs; and
- will be senior in right of payment to all of
the subsidiary guarantor's existing and
future subordinated indebtedness, including
each subsidiary guarantor's subordinated
guaranty of the $29.7 million subordinated
intercompany note issued to Loral SpaceCom in
connection with this exchange offer.
See "Description of the New Notes -- General."
Market for the New Notes;
Listing....................... Although we expect the new notes will be
eligible for trading in the PORTAL market,
there is no public market for the new notes,
and we do not intend to apply for listing of
the new notes on any national securities
exchange or for quotation through Nasdaq.
Accordingly, there can be no assurance as to
the development or liquidity of any market for
the new notes.
Change of Control............. If an event treated as a change of control
under the new notes indenture occurs, each
holder of new notes will have the right to
require us to purchase all or any part of such
holder's new notes at a purchase price in cash
equal to 101% of the principal amount of the
new notes, plus accrued and unpaid interest, if
any, to the date of purchase. See "Description
of the New Notes -- Repurchase of New Notes
Upon a Change of Control." We may not be able
to fund these repurchase obligations in the
event of a change of control.
Covenants..................... The indenture under which we will issue the new
notes contains covenants substantially similar
to those covenants in the indentures relating
to the existing notes except that it will
impose more limitations on our ability and the
ability of our restricted subsidiaries to incur
additional indebtedness and to grant some types
of liens. We will continue to have rights to
use our cash flow to construct or acquire a
replacement satellite and to incur secured
indebtedness to construct or acquire a
replacement satellite for Telstar 11. See
"Description of the New Notes -- Covenants."
SUMMARY DESCRIPTION OF THE LORAL SPACE WARRANTS
Warrants Offered.............. Warrants to purchase up to 6,657,096 shares of
common stock of Loral Space. See "Description
of the Loral Space Warrants."
For every $1,000 principal amount of senior
notes you tender, you will receive warrants to
purchase 7.40 shares of common stock of Loral
Space.
For every $1,000 principal amount at maturity
of senior discount notes you tender, you will
receive warrants to purchase 6.98 shares of
common stock of Loral Space.
12
Exercise...................... The warrants will be exercisable for five years
at an exercise price equal to 110% of the
average of the daily volume-weighted average
trading prices of Loral Space common stock on
the New York Stock Exchange, as reported by
Bloomberg, L.P., for the ten consecutive
trading days preceding the second trading day
before the closing of the exchange offer. The
Loral Space warrants will be immediately
exercisable and will expire on the fifth
anniversary of the closing of the exchange
offer. We have established a toll-free
telephone number you can call beginning 12
trading days prior to the closing of the
exchange offer to learn the approximate
exercise price of the warrants computed as of
the preceding trading day and, on and after the
second trading day preceding the closing, the
actual warrant exercise price. The number is
(877) 485-2033. See "Description of the Loral
Space Warrants."
Registration Rights........... We will use our commercially reasonable efforts
to maintain the effectiveness of a registration
statement with respect to the issuance of the
Loral Space warrant shares until the earlier of
the fifth anniversary of the exchange date and
the date all Loral Space warrants issued in the
exchange offer have been exercised.
MARKETS AND MARKET PRICES
Loral Space's common stock is traded on the New York Stock Exchange under
the symbol "LOR". The following table shows the intra-day high and low sales
prices for the Loral Space common stock as reported by the NYSE for the periods
indicated.
<Table>
<Caption>
HIGH LOW
------ ------
CALENDAR YEAR 1999
First Quarter............................................. $22.44 $14.44
Second Quarter............................................ 20.75 14.38
Third Quarter............................................. 22.88 16.25
Fourth Quarter............................................ 24.75 13.50
CALENDAR YEAR 2000
First Quarter............................................. $25.75 $ 9.88
Second Quarter............................................ 10.50 6.13
Third Quarter............................................. 8.50 5.00
Fourth Quarter............................................ 6.56 2.69
CALENDAR YEAR 2001
First Quarter............................................. $ 6.34 $ 2.10
Second Quarter............................................ 3.55 1.03
Third Quarter............................................. 2.90 1.25
Fourth Quarter (through November 20, 2001)................ 1.68 1.10
</Table>
We are a wholly owned subsidiary of Loral Space, and none of our securities
are listed on any exchange.
RISK FACTORS
You should carefully consider the specific factors set forth under "Risk
Factors" as well as the other information and data included in this prospectus.
For a discussion of factors that should be considered in evaluating the exchange
offer and consent solicitation, see "Risk Factors" beginning on page 25.
13
LORAL CYBERSTAR SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary consolidated historical financial data as of and for each of
the years in the five-year period ended December 31, 2000, has been derived from
our audited consolidated financial statements and related notes. The summary
consolidated historical financial data as of and for the nine months ended
September 30, 2001 and 2000, has been derived from our unaudited condensed
consolidated financial statements for such periods. Our results for the interim
periods may not be indicative of our results for the year. The following summary
historical consolidated financial data should be read in conjunction with the
consolidated financial statements and notes incorporated by reference in this
prospectus.
<Table>
<Caption>
PREDECESSOR COMPANY
------------------------------------
NINE THREE
NINE MONTHS ENDED YEAR ENDED MONTHS MONTHS
SEPTEMBER 30, DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31,
-------------------- --------------------- DECEMBER 31, MARCH 31, ------------------------
2001(1) 2000(1) 2000(1) 1999(1) 1998(1) 1998(2) 1997 1996
-------- --------- --------- --------- ------------ --------- ----------- ----------
(IN THOUSANDS)
STATEMENT OF
OPERATIONS DATA:
Revenues........... $146,148 $ 126,819 $ 187,190 $ 104,882 $ 64,608 $ 18,790 $ 72,741 $ 41,847
Operating loss..... (17,688) (45,324) (43,492) (62,191) (44,029) (23,639) (43,081) (36,353)
Net loss........... (92,349) (110,157) (137,418) (114,175) (79,969) (39,691) (105,740) (27,195)
Net loss
attributable to
common
stockholders..... (92,349) (110,157) (137,418) (114,175) (79,969) (38,304) (111,774) (28,565)
OTHER DATA:
Deficiency of
earnings to cover
fixed charges.... (91,570) (114,039) (136,288) (145,487) (97,341) (44,300) (116,026) (63,917)
CASH FLOW DATA:
Provided by (used
in) operating
activities....... 3,487 (61,920) (49,579) 7,930 11,844 (31,056) (15,789) (11,915)
Provided by (used
in) investing
activities....... (4,331) 565 (15,634) (154,086) (25,457) 14,360 (450,406) (26,413)
Provided by (used
in) financing
activities....... (29,580) 63,706 78,265 134,412 (4,327) 488 504,016 15,405
</Table>
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------------
2001(1) 2000(1) 1999(1) 1998(1) 1997 1996
------------- ---------- ---------- ---------- -------- --------
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 6,745 $ 37,169 $ 24,117 $ 35,861 $ 70,009 $ 32,188
Restricted and segregated
cash(3).......................... -- -- 187,315 72,855 356,890 10,000
Total assets....................... 1,320,583 1,428,949 1,684,287 1,417,504 896,492 358,264
Debt (including current portion)... 1,108,722 1,108,408 1,039,484 933,495 797,077 253,212
Limited Partners' interest in Orion
Atlantic(4)...................... -- -- -- -- -- 10,130
Redeemable preferred stock......... -- -- -- -- 76,734 20,902
Total stockholders' equity
(deficit)........................ 162,660 255,177 347,404 399,091 (46,849) (436)
</Table>
- ---------------
(1) For accounting purposes, the acquisition of Loral CyberStar by Loral Space
was accounted for as of March 31, 1998, using the purchase method.
Accordingly, the consolidated balance sheets subsequent to March 31, 1998,
reflect the push-down of the purchase price allocations. The purchase price
represented $447.7 million in excess of Loral CyberStar's net book value,
which was primarily allocated to cost in excess of net assets acquired of
the fixed satellite services segment of $620.4 million and a fair value
adjustment of $153.4 million to increase the carrying value of Loral
CyberStar's senior notes and senior discount notes. In addition, in
connection with the acquisition, Loral Space agreed to
14
assume unvested employee stock options, which resulted in a new measurement
date and an unearned compensation charge of $4.3 million, which was
amortized over the vesting period of the options. As a result of the
acquisition, depreciation, amortization and interest charges included in the
accompanying summary consolidated statement of operations data for periods
subsequent to the three months ending March 31, 1998, are not comparable to
those of earlier periods presented.
(2) Includes $12.8 million of merger costs associated with the acquisition of
Loral CyberStar by Loral Space.
(3) Restricted and segregated cash represents amounts to fund interest payments
on Loral CyberStar's senior notes and segregated amounts to make payments
for satellites and certain related costs and amounts held in escrow related
to other satellite agreements.
(4) Represents amounts invested by Limited Partners (net of syndication costs
related to the investments), adjusted for such Limited Partners' share of
net losses.
15
LORAL SPACE SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary consolidated historical financial data as of and for each of
the years in the five-year period ended December 31, 2000, has been derived from
Loral Space's audited consolidated financial statements and related notes. The
summary consolidated historical financial data as of and for the nine months
ended September 30, 2001 and 2000 has been derived from Loral Space's unaudited
condensed consolidated financial statements for such periods. Loral Space's
results for the interim periods may not be indicative of its results for the
year. The following summary consolidated historical financial data should be
read in conjunction with the consolidated financial statements and notes
incorporated by reference in this prospectus.
<Table>
<Caption>
NINE MONTHS
ENDED NINE MONTHS
SEPTEMBER 30, YEARS ENDED DECEMBER 31, ENDED
--------------------- --------------------------------------------------- DECEMBER 31,
2001 2000 2000(1) 1999(2) 1998(3) 1997(3) 1996(3)
--------- --------- ----------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 797,060 $ 934,886 $ 1,224,111 $1,457,720 $1,301,702 $ 1,312,591 $ 5,088
Operating income
(loss)................ 3,775 (26,948) (86,086) (62,263) (33,780) 13,552 (12,201)
Equity in net loss of
affiliates, net of
taxes(4).............. (55,708) (290,312) (1,294,910) (177,819) (120,417) (49,037) (4,709)
Globalstar related
impairment charges,
net of taxes.......... -- -- (112,241) -- -- -- --
Net income (loss)....... (165,993) (297,682) (1,469,678) (201,916) (138,798) 40,004 8,877
Preferred dividends and
accretion(5).......... (68,780) (51,404) (67,528) (44,728) (46,425) (26,315) --
Net income (loss)
applicable to common
shareholders.......... (234,773) (349,086) (1,537,206) (246,644) (185,223) 13,689 8,877
Earnings (loss) per
share -- basic and
diluted............... (0.73) (1.18) (5.20) (0.85) (0.68) 0.06 0.04
Dividends paid per
common share.......... -- -- -- -- -- -- --
OTHER DATA:
Ratio of earnings to
cover fixed charges... -- -- -- -- -- 1.9x 3.7x
Deficiency of earnings
to cover fixed
charges............... $(202,789) $ (52,770) $ (141,453) $ (191,181) $ (132,178) -- --
CASH FLOW DATA:
Provided by (used in)
operating
activities............ 95,137 115,004 258,056 (6,933) 86,795 $ (173,609) $ (3,003)
(Used in) investing
activities............ (183,050) (209,499) (376,740) (679,005) (555,613) (1,079,411) (1,962)
Provided by (used in)
equity transactions... (26,718) 362,896 352,415 (24,633) 589,187 (18,097) 602,413
Provided by (used in)
financing
transactions.......... (98,838) (108,327) (79,551) 403,664 199,856 316,912 583,292
</Table>
16
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------
2001 2000 1999 1998(3) 1997(3) 1996(3)
------------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 180,576 $ 394,045 $ 239,865 $ 546,772 $ 226,547 $1,180,752
Total assets...................... 4,446,697 4,678,318 5,610,421 5,229,215 3,010,447 1,699,326
Debt, including current portion... 2,388,266 2,456,844 1,999,322 1,555,775 435,398 --
Non-current liabilities........... 243,885 251,247 252,052 231,384 230,411 26,834
Convertible preferreds(5)......... -- -- -- -- -- 583,292
Shareholders' equity.............. 1,368,982 1,586,388 2,750,664 2,935,721 1,980,520 1,070,069
</Table>
- ---------------
(1) The results of operations for 2000 includes $77 million of increased costs
relating to manufacturing delays and customer contract issues ($46 million
after taxes) and Loral Space's share of Globalstar's after-tax impairment
charges of $882 million (approximately $1.2 billion on a pre-tax basis),
which is included in equity in net loss of affiliates and after-tax
impairment charges of $112 million ($125 million pre-tax) relating to Loral
Space's investments in and advances to Globalstar service provider
partnerships. Equity in net loss of affiliates for the year ended December
31, 2000, includes a $33 million after-tax gain representing Loral Space's
share of Satmex's net insurance recovery on the loss of a satellite.
(2) The results of operations for 1999 includes a pre-tax charge of $35 million
($21 million after taxes) relating to an agreement reached with a customer
to extend the delivery date of a satellite and other modifications to the
contract in return for providing transponders on another Loral Space
satellite for their remaining lives.
(3) On March 20, 1998, Loral Space acquired all of the outstanding stock of
Loral CyberStar in exchange for common stock of Loral Space. The 1998
financial information includes Loral CyberStar commencing from April 1,
1998. In 1997, Loral Space increased its ownership in SS/L to 100%; prior to
1997, SS/L was accounted for under the equity method of accounting. On March
14, 1997, Loral Space acquired Loral Skynet from AT&T; Loral Space's
financial information includes the results of Loral Skynet from that date.
(4) Loral Space's principal affiliates are Globalstar, Satmex since November 17,
1997 and Europe*Star since December 1998. Loral Space also has investments
in SkyBridge and other ventures, which are accounted for under the equity
method. Loral Space sold its interest in K&F Industries, Inc. in 1997.
(5) Loral Space incurred non-cash dividend charges in 2001 of approximately $29
million, which primarily relates to the difference between the value of the
common stock issued in exchange offers of its preferred stock and the value
of the shares that were issuable under the conversion terms of the preferred
stock. The non-cash dividend charges had no impact on Loral Space's total
shareholders' equity, as the offset was an increase in common stock and
paid-in capital. Convertible preferred equivalent obligations were exchanged
for 6% Series C preferred stock and were reclassified to shareholders'
equity in 1997 upon approval by Loral Space's shareholders.
17
LORAL CYBERSTAR UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following unaudited consolidated pro forma financial statements present
the effects of the exchange offer, assuming that all senior notes and senior
discount notes due 2007 are exchanged for new senior notes due 2006, and the
transfer of Loral CyberStar's data services business to Loral SpaceCom in
exchange for the cancellation of the existing $79.7 million note payable to
Loral SpaceCom and the issuance of a new $29.7 million subordinated note payable
to Loral SpaceCom, as if the exchanges occurred as of the beginning of the
respective periods for the unaudited consolidated pro forma statements of
operations and other data and as if the exchanges occurred as of September 30,
2001 for the unaudited consolidated pro forma balance sheet. Under U.S.
generally accepted accounting principles applicable to debt restructurings, we
will record the new notes for financial reporting purposes at a carrying value
substantially in excess of their actual principal amount. In addition, we will
recognize a gain on the exchange only to the extent that the historic carrying
value reduced by the value of the warrants issued in the exchange exceeds the
sum of the actual principal amount of the new notes and the amount of future
interest payments on that amount. As a result, we will not record interest
expense on the new notes, even though cash interest will be payable on them.
The carrying value of the existing notes, plus accrued interest, at
September 30, 2001 is $1,028 million. Assuming the exchange offer is accepted in
full, this $1,028 million carrying value will be reduced by approximately $5
million (the estimated fair value of the warrants issued in the exchange) and by
approximately $27 million of the estimated pre-tax gain on the exchange offer
before expenses, calculated as described above, resulting in a carrying value
for the new notes of approximately $996 million. We will amortize the excess of
the resulting carrying value over the actual $675 million principal amount of
the new notes over the life of the new notes as a non-cash credit to interest
expense. This credit will fully offset the $67.5 million of annual cash interest
payable on the new notes, so that we will not record interest expense with
respect thereto on our statements of operations.
The estimated after-tax gain on the exchange offer of approximately $15
million, net of expenses, is reflected in the unaudited consolidated pro forma
balance sheet but has not been reflected in the unaudited consolidated pro forma
statements of operations and other data.
18
LORAL CYBERSTAR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
TRANSFER OF
DATA SERVICES EXCHANGE OF
BUSINESS SENIOR NOTES
PRO FORMA PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS(1) SUBTOTAL ADJUSTMENTS AS ADJUSTED(2)
------------- -------------- -------- ------------ ---------------
Revenues...................... $146,148 $(48,767)(3) $ 97,381 $ -- $ 97,381
Operating expenses:
Direct...................... 41,375 (30,027) 11,348 -- 11,348
Sales and marketing......... 15,443 (11,968) 3,475 -- 3,475
Engineering and technical
services................. 9,202 (9,202) -- -- --
General and
administrative........... 15,079 (11,936) 3,143 -- 3,143
Depreciation and
amortization............. 82,737 (15,716) 67,021 -- 67,021
-------- -------- -------- ------- --------
Total operating expenses...... 163,836 (78,849) 84,987 -- 84,987
-------- -------- -------- ------- --------
(Loss) income from
operations.................. (17,688) 30,082 12,394 -- 12,394
Interest income............. 945 (832) 113 -- 113
Interest expense............ (75,121) 2,547(4) (72,574) 67,637(5) (4,937)
Other income................ 294 (7) 287 -- 287
-------- -------- -------- ------- --------
(Loss) income before income
taxes....................... (91,570) 31,790 (59,780) 67,637 7,857
Income tax expense............ (779) 779(7) -- (6,821)(6) (6,821)
-------- -------- -------- ------- --------
Net (loss) income............. $(92,349) $ 32,569 $(59,780) $60,816 $ 1,036
======== ======== ======== ======= ========
OTHER DATA:
Deficiency of earnings to
cover fixed charges...... $(91,570) -- -- -- $(42,768)
EBITDA(8)................... 65,049 -- -- -- 79,415
</Table>
19
LORAL CYBERSTAR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
<Table>
<Caption>
TRANSFER OF EXCHANGE OF
DATA SERVICES BUSINESS SENIOR NOTES
PRO FORMA PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS(1) SUBTOTAL ADJUSTMENTS AS ADJUSTED(2)
------------ ---------------------- -------- ------------ --------------
Revenues...................... $ 187,190 $ (77,807)(3) $109,383 $ -- $109,383
Operating expenses:
Direct...................... 64,887 (46,634) 18,253 -- 18,253
Sales and marketing......... 25,824 (18,835) 6,989 -- 6,989
Engineering and technical
services................. 10,894 (10,894) -- -- --
General and
administrative........... 21,344 (19,118) 2,226 -- 2,226
Depreciation and
amortization............. 107,733 (17,757) 89,976 -- 89,976
--------- --------- -------- ------- --------
Total operating expenses...... 230,682 (113,238) 117,444 -- 117,444
--------- --------- -------- ------- --------
Loss from operations.......... (43,492) 35,431 (8,061) -- (8,061)
Interest income............. 4,157 (1,401) 2,756 -- 2,756
Interest expense............ (97,223) 4,071(4) (93,152) 86,912(5) (6,240)
Other income................ 270 15 285 -- 285
--------- --------- -------- ------- --------
Loss before income taxes...... (136,288) 38,116 (98,172) 86,912 (11,260)
Income tax expense............ (1,130) 1,130(7) -- (1,487)(6) (1,487)
--------- --------- -------- ------- --------
Net loss...................... $(137,418) $ 39,246 $(98,172) $85,425 $(12,747)
========= ========= ======== ======= ========
OTHER DATA:
Deficiency of earnings to
cover fixed charges...... $(136,288) -- -- -- $(78,760)
EBITDA(8)................... 64,241 -- -- -- 81,915
</Table>
20
LORAL CYBERSTAR, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
TRANSFER OF
DATA SERVICES EXCHANGE OF
BUSINESS SENIOR NOTES
PRO FORMA PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS(1) SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------- -------------- ---------- ------------- -------------
Current assets:
Cash and cash equivalents.... $ 6,745 $ (1,000) $ 5,745 $ -- $ 5,745
Accounts receivable, net..... 25,987 (10,262) 15,725 -- 15,725
Other current assets......... 6,727 (2,655) 4,072 -- 4,072
Due from Loral companies..... 8,945 (8,693) 252 -- 252
---------- --------- ---------- -------- ----------
Total current assets........... 48,404 (22,610) 25,794 -- 25,794
Property and equipment, net.... 638,664 (36,403) 602,261 -- 602,261
Costs in excess of net assets
acquired..................... 566,079 -- 566,079 -- 566,079
Deferred income taxes.......... 40,966 -- 40,966 (8,133)(9) 32,833
Other assets, net.............. 26,470 (6,732) 19,738 -- 19,738
---------- --------- ---------- -------- ----------
Total assets................... $1,320,583 $ (65,745) $1,254,838 $ (8,133) $1,246,705
========== ========= ========== ======== ==========
Current liabilities:
Current portion of long-term
debt...................... $ 2,919 $ (47) $ 2,872 $ -- $ 2,872
Accounts payable............. 6,858 (3,256) 3,602 5,000 8,602
Accrued and other current
liabilities............... 13,131 (13,131) -- -- --
Customer deposits............ 5,711 (4,892) 819 -- 819
Deferred revenue............. 6,375 (3,979) 2,396 -- 2,396
Interest payable............. 10,384 (1) 10,383 (10,383) --
Note payable to Loral
SpaceCom.................. 79,669 (79,669) -- -- --
Due to Loral companies....... -- -- -- -- --
---------- --------- ---------- -------- ----------
Total current liabilities...... 125,047 (104,975) 20,072 (5,383) 14,689
Long-term debt(10)............. 1,026,134 -- 1,026,134 (21,854) 1,004,280
Subordinated note payable to
Loral SpaceCom............... -- 29,669 29,669 -- 29,669
Deferred revenue............... 2,154 -- 2,154 -- 2,154
Customer deposits.............. 4,588 -- 4,588 -- 4,588
Stockholders' equity:
Common stock, $.01 par
value..................... -- -- -- -- --
Capital in excess of par
value..................... 588,197 7,935(11) 596,132 4,000 600,132
Accumulated deficit.......... (423,911) -- (423,911) 15,104 (408,807)
Accumulated other
comprehensive (loss)
income.................... (1,626) 1,626 -- -- --
---------- --------- ---------- -------- ----------
Total stockholders' equity..... 162,660 9,561 172,221 19,104 191,325
---------- --------- ---------- -------- ----------
Total liabilities and
stockholders' equity......... $1,320,583 $ (65,745) $1,254,838 $ (8,133) $1,246,705
========== ========= ========== ======== ==========
</Table>
21
NOTES TO LORAL CYBERSTAR UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(1) These pro forma adjustments result from the transfer of Loral CyberStar's
data services segment to Loral SpaceCom in exchange for the cancellation of
the $79.7 million intercompany note payable to Loral SpaceCom and the
issuance of a $29.7 million new subordinated note to Loral SpaceCom, which
bears interest at 10% per annum, in connection with the exchange offer. The
adjustments primarily relate to removing the historical results of
operations of the data services business and the related assets and
liabilities as of and for the respective periods.
(2) The pro forma financial statements do not include the anticipated $3
million to $4 million annual management fee discussed on page 5, which is
expected to be implemented following the exchange offer.
(3) Includes an adjustment to include intercompany sales from Loral CyberStar's
fixed satellite services segment to Loral CyberStar's data services segment
of approximately $16 million and $26 million for the nine months ended
September 30, 2001 and the year ended December 31, 2000, respectively.
(4) Includes an adjustment to reduce interest expense for the cancellation of
the existing intercompany note due to Loral SpaceCom and the issuance of
the new $29.7 million subordinated note to Loral SpaceCom. The reduction
was approximately $3 million and $4 million for the nine months ended
September 30, 2001 and the year ended December 31, 2000, respectively.
(5) Reflects an adjustment to reduce interest expense on the existing notes to
zero in connection with accounting for the exchange of the existing notes
and the new notes.
(6) Represents income taxes at the statutory rate of 35% after adjusting for
the non-deductible amortization of cost in excess of net assets acquired.
(7) Amount determined in accordance with the Company's tax sharing agreement.
(8) EBITDA (which is equivalent to operating income (loss) before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral CyberStar's operating results. However, EBITDA should not be
construed as an alternative to net income as an indicator of a company's
operating performance, or cash flow from operations as a measure of a
company's liquidity. EBITDA may be calculated differently and, therefore,
may not be comparable to similarly titled measures reported by other
companies.
(9) Represents the tax effect of the gain recognized for book purposes on the
exchange. In addition, Loral CyberStar has established a valuation
allowance against its net deferred tax assets in the amount of $175 million
and $199 million at December 31, 2000 and September 30, 2001, respectively.
Upon completion of the exchange, Loral CyberStar will reassess the need for
this valuation allowance. Any change to the valuation allowance upon
reassessment has not been reflected in the unaudited consolidated pro forma
balance sheet.
(10) Principal amount at maturity of $927 million as reported and $675 million
pro forma as adjusted.
(11) Represents the difference between the historical value of the net assets of
the data services segment and the negotiated value of the net assets, in
connection with transfer of the data services business, which has been
presented as a capital contribution by Loral Space to Loral CyberStar.
22
LORAL SPACE UNAUDITED SUMMARY CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited summary consolidated pro forma financial
information presents the effects of the exchange offer, assuming that all senior
notes and senior discount notes due 2007 are exchanged for new notes due 2006,
as if the exchange occurred as of the beginning of the respective periods for
the statement of operations data and other data and as if the exchanges occurred
as of September 30, 2001 for the balance sheet data. Under U.S. generally
accepted accounting principles applicable to debt restructurings, Loral Space
will record the new notes for financial reporting purposes at a carrying value
substantially in excess of their actual principal amount. In addition, Loral
Space will recognize a gain on the exchange only to the extent that the historic
carrying value reduced by the value of the warrants issued in the exchange
exceeds the sum of the actual principal amount of the new notes and the amount
of future interest payments on that amount. As a result, Loral Space will not
record interest expense on the new notes, even though cash interest will be
payable on them.
The carrying value of the existing notes, plus accrued interest, at
September 30, 2001 is $1,028 million. Assuming the exchange offer is accepted in
full, this $1,028 million carrying value will be reduced by approximately $5
million (the estimated fair value of the warrants issued in the exchange) and by
approximately $27 million of the estimated pre-tax gain on the exchange offer
before expenses, calculated as described above, resulting in a carrying value
for the new notes of approximately $996 million. Loral Space will amortize the
excess of the resulting carrying value over the actual $675 million principal
amount of the new notes over the life of the new notes as a non-cash credit to
interest expense. This credit will fully offset the $67.5 million of annual cash
interest payable on the new notes, so that Loral Space will not record interest
expense with respect thereto on its statements of operations.
The estimated after-tax gain on the exchange offer of approximately $15
million, net of expenses, is reflected in the unaudited consolidated pro forma
balance sheet but has not been reflected in the unaudited consolidated pro forma
statements of operations and other data.
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2001(1) DECEMBER 31, 2000
--------------------- ------------------------
PRO PRO
ACTUAL FORMA(2) ACTUAL FORMA(2)
-------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $797,060 $797,060 $1,224,111 $1,224,111
Operating income (loss)................... 3,775 3,775 (86,086) (86,086)
Interest expense.......................... (141,120) (73,483) (170,836) (83,924)
(Loss) income before income taxes, equity
in net loss of affiliates, minority
interest, Globalstar related charges and
cumulative effect of change in
accounting principle.................... (117,071) (49,434) (56,843) 30,069
Income tax benefit (expense).............. 7,799 (15,874) (9,375) (39,794)
Equity in net loss of affiliates, net of
taxes................................... (55,708) (55,708) (1,294,910) (1,294,910)
Globalstar related charges, net of
taxes................................... -- -- (112,241) (112,241)
Net loss.................................. (165,993) (122,029) (1,469,678) (1,413,185)
Preferred dividends....................... (68,780) (68,780) (67,528) (67,528)
Net loss applicable to common
shareholders............................ (234,773) (190,809) (1,537,206) (1,480,713)
Loss per share -- basic and diluted....... (0.73) (0.60) (5.20) (5.01)
OTHER DATA:
Deficiency of earnings to cover fixed
charges................................. (202,789) (185,777) (141,453) (122,041)
EBITDA(3)................................. 169,842 169,842 130,177 130,177
</Table>
23
<Table>
<Caption>
SEPTEMBER 30, 2001
------------------------
ACTUAL PRO FORMA
---------- ----------
BALANCE SHEET DATA:
Total assets................................................ $4,446,697 $4,438,564
Current liabilities......................................... 595,647 590,264
Debt, including current portion............................. 2,388,266 2,366,412
Shareholders' equity........................................ 1,368,982 1,388,086
</Table>
- ---------------
(1) Loral Space incurred non-cash dividend charges in 2001 of approximately $29
million, which primarily relates to the difference between the value of the
common stock issued in exchange offers of its preferred stock and the value
of the shares that were issuable under the conversion terms of the preferred
stock. The non-cash dividend charges had no impact on Loral Space's total
shareholders' equity, as the offset was an increase in common stock and
paid-in capital.
(2) Reflects an adjustment to reduce interest expense on the existing notes to
zero in connection with accounting for the exchange of the existing notes
and the new notes and the related increase in income tax expense.
(3) EBITDA (which is equivalent to operating income (loss) before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral Space's operating results. However, EBITDA should not be construed as
an alternative to net income as an indicator of a company's operating
performance, or cash flow from operations as a measure of a company's
liquidity. EBITDA may be calculated differently and, therefore, may not be
comparable to similarly titled measures reported by other companies.
24
RISK FACTORS
You should consider carefully the following factors, in addition to the
other information contained in this prospectus.
RISK FACTORS RELATED TO HOLDERS OF EXISTING NOTES WHO DO NOT TENDER INTO THE
EXCHANGE OFFER
IF YOU DO NOT TENDER YOUR EXISTING NOTES AND WE COMPLETE THE EXCHANGE
OFFER, YOUR RIGHTS UNDER THE SENIOR NOTES INDENTURE OR THE SENIOR DISCOUNT NOTES
INDENTURE, AS THE CASE MAY BE, WILL BE SUBSTANTIALLY DIMINISHED.
The holders of 50.29% of the outstanding existing notes, including 49.04%
of the aggregate principal amount of the senior notes and 51.43% of the
aggregate principal amount at maturity of the senior discount notes, have agreed
to tender their existing notes in the exchange offer. If you do not exchange
your existing notes in the exchange offer and we complete the exchange offer,
you will continue to hold your existing notes and be subject to the terms of the
senior notes indenture or the senior discount notes indenture, as the case may
be, under which the senior notes or the senior discount notes were issued.
However, in that event, the senior notes indenture and the senior discount notes
indenture, as the case may be, will be amended and supplemented so as to
implement the proposed amendments that will remove substantially all of the
operating restrictions and events of default that may be removed by majority
consent of the holders consistent with the applicable indentures and the
requirements of the Trust Indenture Act of 1939, as amended. As a result, you
will no longer have the benefit of those covenants and events of default. The
supplemental indentures will substantially reduce the covenants with which we
would otherwise have to comply under the senior notes indenture and the senior
discount notes indenture as more fully described under "The Proposed
Amendments." We do not currently intend, nor are we required, to purchase any
existing notes not exchanged in the exchange offer.
THERE WILL BE A LIMITED TRADING MARKET FOR EXISTING NOTES THAT ARE NOT
TENDERED IN THE EXCHANGE OFFER.
The trading market for existing notes not tendered in the exchange offer is
likely to be significantly more limited than it is at present. Therefore, if
your existing notes are not tendered in the exchange offer, it may become more
difficult for you to sell or transfer your unexchanged existing notes. This
reduction in liquidity may in turn increase the volatility of the market price
for the existing notes. We cannot guarantee that the existing notes will
continue to be rated after the closing of the exchange offer. If the existing
notes cease to be rated, their liquidity will be further reduced.
RISK FACTORS RELATED TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE
NEW NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE INDENTURE GOVERNING THE
NEW NOTES.
Upon the occurrence of specific kinds of change of control events, we will
be required to offer to repurchase all outstanding new notes at a purchase price
of 101% of their principal amount. However, it is possible that we will not have
sufficient funds at the time of the change of control to repurchase the notes.
BECAUSE OF THE LACK OF A PUBLIC MARKET FOR THE NEW NOTES, YOU MAY BE UNABLE
TO RESELL YOUR NEW NOTES.
Although the new notes will be eligible for trading in the PORTAL market,
they will not be listed on any securities exchange or automated quotations
system. An active trading market for the new notes may not develop.
In addition, the liquidity of any trading market in the new notes, and any
market price quoted for the new notes, may be adversely affected by the changes
in the overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you may be unable to resell your new notes.
25
YOU MAY BE SUBJECT TO FEDERAL INCOME TAXATION AS A RESULT OF TENDERING YOUR
EXISTING NOTES.
All or a portion of any gain you realize in exchanging your existing notes
in this tender offer will be subject to income tax.
THE EXCHANGE RATIOS FOR THIS EXCHANGE OFFER DO NOT REFLECT ANY VALUATION OF
THE EXISTING NOTES OR THE NEW NOTES.
Our board of directors has made no determination that the exchange ratios
represent a fair valuation of either the existing notes or the new notes. We
have not obtained a fairness opinion from any financial advisor about the
fairness of the exchange ratios to you or to us. If you tender your existing
notes you may not receive more value than if you choose to keep them.
RISK FACTORS RELATED TO OUR BUSINESS AND OUR OPERATIONS
The following risk factors relate to our business and operations after
giving effect to the transfer of the data services business to Loral SpaceCom as
described in this prospectus.
WE HAVE SUBSTANTIAL DEBT.
Upon the consummation of the exchange offer, we will have approximately
$716 million principal amount of debt if holders of all of the existing notes
validly tender and do not withdraw their notes and approximately $754 million
principal amount at maturity of debt if holders of 85% of each class of the
existing notes tender and do not withdraw their notes. In addition, any of our
senior notes and senior discount notes not tendered will remain non-recourse to
Loral Space.
For the nine months ended September 30, 2001, after giving pro forma effect
to the transactions described in this prospectus, we had a deficiency of
earnings to cover fixed charges of approximately $43 million. Our ability to
meet our debt service obligations will be dependent upon our future performance,
including our ability to increase revenues, which will be subject to financial,
business, competitive and other factors, including factors beyond our control.
We will also be required to make cash interest payments on the existing notes
not tendered and the new notes starting in 2002. There can be no assurance that
we will be able to achieve the revenue increases, or otherwise generate
sufficient cash flow to repay our debt obligations with respect to all of our
outstanding indebtedness.
OUR DEBT IMPOSES RESTRICTIONS AND OTHERWISE AFFECTS OUR ABILITY TO
UNDERTAKE CERTAIN ACTIONS.
The indenture relating to the new notes will contain restrictive covenants
substantially similar to the covenants in the senior notes indenture and the
senior discount notes indenture except that the covenants in the new notes
indenture will be more restrictive with respect to the incurrence of debt and
the granting of liens. In addition, the level of our indebtedness adversely
affects:
- our ability to pay expenses and fund capital expenditures, which will be
affected by our need to use a substantial amount of our cash flow to
service existing indebtedness;
- our ability to raise additional debt or equity financing in the future;
and
- our flexibility in planning for, or reacting to, changes to our business
and market conditions.
WE HAVE FURTHER FUNDING REQUIREMENTS.
We currently anticipate that we will have additional funding requirements
beginning in 2003 to fund the cost of construction and launch of a replacement
satellite for Telstar 11. We do not have a revolving credit facility.
Accordingly, we will need to secure funding from Loral Space or raise additional
financing. Sources of additional capital may include public or private debt,
equity financings or strategic investments. We may not be able to obtain such
financing from Loral Space or from outside sources in the amounts and at the
times needed.
26
SATELLITE LAUNCHES ARE SUBJECT TO LAUNCH FAILURES AND AFTER LAUNCH OUR
SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE, WHICH MAY RESULT IN UNINSURED
LOSSES.
Satellite launches are risky, and launch attempts have ended in failure. In
May 1999, our Orion 3 satellite experienced a launch failure. Random failure of
satellite components may result in damage to or loss of a satellite before the
end of its expected life. Satellites are carefully built and tested and have
certain redundant systems in case of failure. However, in-orbit failure may
result from various causes, including component failure, loss of power or fuel,
inability to control positioning of the satellite, solar and other astronomical
events, and space debris. Repair of satellites in space is not feasible. Many
factors affect the useful lives of satellites, including fuel consumption, the
quality of construction, gradual degradation of solar panels and the durability
of components.
We ordinarily insure against launch and in-orbit failures, but at
considerable cost. The cost and the availability of insurance vary depending on
market conditions and other factors. Our insurance typically does not cover
business interruption, so failures result in uninsured economic losses.
Replacement of a lost satellite typically requires up to 24 months from the time
a contract is executed until the launch date of the replacement satellite.
In November 1995, a component on Telstar 11 malfunctioned, resulting in a
2-hour service interruption. The malfunctioning component supported nine
transponders serving the European portion of Telstar 11's footprint. Full
service was restored using a back-up component. If that back-up component fails,
Telstar 11 would lose a significant amount of usable capacity.
Our Telstar 10/Apstar IIR satellite has experienced minor losses of power
from its solar arrays. Space Systems/Loral is currently investigating the cause
of these failures. Although, to date, Telstar 10/Apstar IIR has not experienced
any degradation in performance, there can be no assurance that it will not
experience additional power loss that could result in performance degradation,
including loss of transponder capacity. In the event of additional power loss,
the extent of the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, when in the life of
Telstar 10/Apstar IIR the loss occurred and the number and type of use being
made of transponders then in service. In connection with the renewal of the
insurance for our Telstar 10/Apstar IIR satellite in October 2001, the insurance
underwriters have excluded losses due to solar array failures, since Telstar
10/Apstar IIR was manufactured by SS/L and has the same solar array
configuration as another 1300 class satellite manufactured by SS/L that recently
experienced a solar array failure of a different nature. SS/L believes that this
failure is an isolated event and does not reflect a systemic problem in either
the satellite design or manufacturing process. Accordingly, we do not believe
that this anomaly will affect Telstar 10/Apstar IIR. SS/L is currently providing
the basis for this conclusion to the insurance underwriters. While we anticipate
that this exclusion will be removed upon further review by the insurance
underwriters, there can be no assurance that this exclusion will be removed.
THE SATELLITE INDUSTRY WILL LIKELY BE FACED WITH SIGNIFICANTLY HIGHER
INSURANCE PREMIUMS IN THE FUTURE.
We have received preliminary indications that the satellite industry will
likely be faced with significantly higher premiums on launch and in-orbit
insurance in the future. Any such increase will increase our cost of doing
business, and we may not be able to pass on such increased cost to our
customers.
OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Our business is regulated by authorities in many jurisdictions, including
the Federal Communications Commission, the International Telecommunication Union
and the European Union. As a result, some of the activities which are important
to our strategy are beyond our control. Our international service offerings are
strategically important activities which are regulated by various government and
quasi-government authorities and organizations.
Regulatory authorities in the various jurisdictions in which we operate can
modify, withdraw or impose charges or conditions upon the licenses which we
need, and so increase our cost of doing business.
27
The regulatory process also requires potentially costly negotiations with third
parties operating or intending to operate satellites at or near orbital
locations where we place our satellites so that the frequencies of the
satellites do not interfere. For example, as part of our coordination effort on
Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to
Eutelsat for the life of the satellite and have retained risk of loss. We also
granted Eutelsat the right to acquire, at cost, four transponders on the next
replacement satellite for Telstar 12. Moreover, we, as part of this
international coordination process, continue to conduct discussions with various
administrations regarding Telstar 12's operations at 15 degrees W.L. If these
discussions are not successful, Telstar 12's useable capacity may be reduced.
We cannot guarantee successful frequency coordination for our satellites.
Failure to successfully coordinate our satellites' frequencies or to receive
other required regulatory approvals could have a material adverse effect on our
financial condition and results of operations.
WE HAVE MANY COMPETITORS.
We compete for customers and market share. We face competition from
companies such as PanAmSat Corporation, SES Global and newly privatized
organizations such as Intelstat and Eutelsat. Competition in this market may
cause downward price pressures, which may adversely affect our revenue.
THERE ARE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
We conduct business outside the United States, which imposes more risks. We
could be harmed financially and operationally by changes in foreign regulations
and telecommunications standards, tariffs or taxes and other trade barriers.
Customers outside of the developed world could have difficulty in obtaining the
U.S. dollars they owe to us, including as a result of exchange controls.
Exchange rate fluctuations may adversely affect the ability of our customers to
pay us in U.S. dollars. Moreover, if we were to need to pursue legal remedies
against our foreign customers and business partners, we may have to sue them
abroad, where it could be hard for us to enforce our rights.
RISK FACTORS RELATED TO LORAL SPACE'S BUSINESS AND OPERATIONS
LORAL SPACE HAS SUBSTANTIAL DEBT AND GUARANTY OBLIGATIONS.
Loral Space and its subsidiaries and operating affiliates have a
significant amount of outstanding debt and guaranty obligations. As of September
30, 2001:
- Loral Space's consolidated total debt was $2.4 billion, of which
approximately $647 million is scheduled to mature in 2002. Loral Space
expects to refinance this indebtedness in due course. However, there can
be no guarantee that it will be able to do so.
- Satmex, Loral Space's 49%-owned Mexico affiliate, had total debt of $572
million. In addition, Servicios Corporativos Satelitales, S.A. de C.V.,
the parent company of Satmex, in which Loral Space has a 65% interest,
has an obligation to the government of Mexico with an initial face amount
of $125 million which accretes at 6.03% over a seven-year period,
expiring in December 2004. Loral Space has agreed to maintain its stock
ownership interests in the parent company of Servicios in a trust to
collateralize this obligation.
The indentures and credit agreements relating to this indebtedness impose
restrictions on the ability of Loral Space and its subsidiaries and affiliates
to take various actions, which may limit their ability to plan for, or react to,
changes in their business and market conditions. These limitations include
restrictions on their ability to pay dividends and make capital expenditures or
investments. Moreover, certain of these agreements require that excess cashflow
and insurance proceeds from certain launch or in-orbit failures be used to
prepay debt.
Loral Space intends to use its cash and available credit ($246 million at
September 30, 2001) to help fund the growth and operation of its businesses. If
any of its subsidiaries or affiliates finds itself faced with default, Loral
Space may be faced with a choice between providing additional support to that
company or accepting the loss of some or all of its investment. Loral Space does
not intend to provide any further
28
funding to Globalstar, L.P., which expects to finish 2001 with approximately $45
million of cash, after suspension of debt, interest and dividend payments.
THE LORAL SPACE GUARANTY WILL NOT BE SECURED BY ANY ASSETS OF LORAL SPACE
AND WILL BE EFFECTIVELY SUBORDINATED TO SUBSTANTIAL OUTSTANDING INDEBTEDNESS AND
OTHER LIABILITIES OF LORAL SPACE'S SUBSIDIARIES AND UNCONSOLIDATED AFFILIATES.
Loral Space is a holding company which derives substantially all of its
revenues from its subsidiaries and unconsolidated affiliates.
The Loral Space guaranty is not secured by any assets of Loral Space. Loral
Space's indenture governing its 9 1/2% Senior Notes due 2006 permits Loral Space
to incur substantial indebtedness, including, without limitation, secured
indebtedness, and permits its subsidiaries to incur an unlimited amount of non-
recourse indebtedness, which may be used for any purpose. Holders of any secured
debt of Loral Space will have claims prior to the claims of the holders of the
Loral Space guaranty with respect to the assets securing such debt, and the
Loral Space guaranty will be effectively subordinated to all indebtedness and
other liabilities and commitments (including trade payables) of Loral Space's
subsidiaries and unconsolidated affiliates. The other restrictive covenants
contained in the Loral Space indenture contain similarly broad exceptions and
qualifications.
Loral Space is dependent upon payments from its subsidiaries and
unconsolidated affiliates to generate the funds necessary to meet its
obligations, including any payment on the Loral Space guaranty. The ability of
Loral Space's subsidiaries and its affiliates to make such payments will be
subject to, among other things, the availability of sufficient cash at the
subsidiary or affiliate level, where distribution to Loral Space may be
prohibited by applicable present and future restrictive covenants.
At September 30, 2001, Loral SpaceCom, a wholly owned subsidiary of Loral
Space which owns both SS/L and Loral Skynet, had secured debt and available
credit of approximately $600 million and Loral Satellite, which owns the Telstar
6 and Telstar 7 satellites, had secured debt and available credit of
approximately $494 million. These obligations will be structurally senior to the
Loral Space guaranty with regard to those assets which constitute substantially
all of Loral Space's revenue-producing assets.
THE DATA SERVICES BUSINESS, WHICH WILL BE TRANSFERRED BY US TO LORAL
SPACECOM, IS SUBJECT TO COMPETITION.
Our data services business, which will be transferred to Loral SpaceCom,
faces competition not only from other satellite based providers, but also from
providers of land-based data communications services, such as cable operators,
digital subscriber line, or DSL, providers, wireless local loop providers and
traditional telephone service providers. In addition, Loral SpaceCom may face
competition in the future from proposed satellite systems, including Teledesic
Corporation's proposed system and Hughes' Spaceway's system. The data services
business will face continued price pressures from fiber competitors for its
internet services.
The data services business has been subject to decreasing prices over
recent years due to increased competition. This pricing pressure is expected to
continue (and may accelerate) for the foreseeable future, particularly if, as
expected, capacity continues to increase. The data services business will need
to increase the volume of its sales in order to compensate for such price
reductions.
DUE TO POOR SUBSCRIBER TAKE-UP RATES, GLOBALSTAR IS UNABLE TO PAY ITS DEBT
OBLIGATIONS AS THEY BECOME DUE, AND WILL REQUIRE ADDITIONAL FINANCING TO
CONTINUE ITS OPERATIONS. DURING 2000, LORAL SPACE RECORDED AFTER-TAX CHARGES OF
APPROXIMATELY $1.4 BILLION FOR GLOBALSTAR RELATED ACTIVITIES.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt and dividend payments on its redeemable preferred
partnership interests in order to conserve cash for operations. Globalstar is
currently in default under its $500 million credit facility due to Loral Space,
its vendor financing facility with QUALCOMM, and $1.45 billion of its senior
notes. The aforementioned debt that is currently in default is now subject to
immediate acceleration by its holders. Globalstar has retained The Blackstone
Group as its financial adviser to assist in evaluating its business plan and
29
developing initiatives, including restructuring its debt, identifying funding
opportunities and pursuing other strategic alternatives.
As of September 30, 2001, Loral Space's direct and indirect investment in
connection with Globalstar related activities included about 39% of Globalstar's
common equity, about 27% of its debt, an investment in Globalstar
Telecommunications Limited preferred stock and investments in and advances to
Globalstar service provider partnerships. During 2000, Loral Space recorded
after-tax charges of approximately $1.4 billion related to its investment in and
advances in connection with Globalstar related activities, which included its
after-tax share of Globalstar's impairment charges of approximately $882 million
and after-tax impairment charges of $112 million, resulting from the write-down
of investments in and advances to Globalstar service provider partnerships to
their estimated fair value. After these charges, Loral Space's investment in
Globalstar related activities was approximately $10 million as of September 30,
2001. In addition, Loral Space intends to continue to fund its share of the
operations of those Globalstar service provider ventures in which it
participates as an equity owner. If Globalstar is unable to effectuate a
successful restructuring, Loral Space's remaining investment in Globalstar and
any additional investment in Globalstar service providers would be impaired.
Globalstar has been discussing its new business plan with its principal
creditors with the objective of achieving a negotiated financial restructuring
plan. Globalstar has indicated that if these discussions are successful,
Globalstar will seek confirmation of the negotiated plan through a voluntary
Chapter 11 bankruptcy proceeding. If it is unable to effectuate a restructuring
acceptable to its creditors, Globalstar has indicated that it will likely seek
protection under the federal bankruptcy laws without a pre-negotiated
settlement. Moreover, its creditors may seek to initiate involuntary bankruptcy
proceedings against Globalstar. Loral Space's equity interests in Globalstar may
be eliminated entirely in any such bankruptcy proceeding, as it might in an
out-of-court restructuring. The Globalstar debt obligations Loral Space holds
are senior unsecured obligations that rank equally in right of payments with all
other Globalstar debt obligations. In other situations in the past, challenges
have been initiated seeking subordination or recharacterization of debt held by
an affiliate of an issuer. While Loral Space knows of no reason why such a claim
would prevail with respect to the debt Loral Space holds in Globalstar, there
can be no assurance that such claims will not be made in any restructuring or
bankruptcy proceeding involving Globalstar. Moreover, there can be no assurance
that actions will not be initiated in a Globalstar bankruptcy proceeding to
characterize payments previously made by Globalstar to Loral Space as
preferential payments subject to repayment.
LORAL SPACE HAS BEEN SUED IN A NUMBER OF PURPORTED CLASS ACTIONS BROUGHT BY
ITS STOCKHOLDERS AND SECURITY HOLDERS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED.
Loral Space has been named as a defendant in various lawsuits brought by
shareholders of Globalstar Telecommunications Limited alleging controlling
person liability in respect of certain statements made by GTL and its
representatives. Loral Space shareholders have also initiated various
shareholder lawsuits alleging that material misstatements or omissions were made
about Loral Space's business and prospects as they relate to Globalstar. While
these proceedings are in their early stages, management believes that these
matters will not have a material adverse effect on the consolidated financial
position or results of operations of Loral Space. Loral Space may also find
itself subject to other claims brought by Globalstar creditors and securities
holders, who may seek to impose liabilities on Loral Space as a result of its
relationship with Globalstar.
THE ABILITY OF LORAL SPACE'S SUBSIDIARIES TO PAY DIVIDENDS TO IT OR
OTHERWISE SUPPORT ITS OBLIGATIONS IS LIMITED BY THE TERMS OF THEIR DEBT
INSTRUMENTS.
Loral SpaceCom's credit facility allows dividend payments to Loral Space if
cumulative dividend payments do not exceed 50% of its cumulative consolidated
net income and the ratio of its funded debt to EBITDA is less than 3.0 to 1.0.
For the year ended December 31, 2000, Loral SpaceCom had no capacity under this
covenant to pay Loral Space any dividends.
Loral Satellite, Inc.'s credit agreement also imposes restrictions on its
ability to pay dividends to its parent, which is a wholly owned subsidiary of
Loral Space. Such restrictions specify, for instance, that
30
dividends can be paid only after Loral Satellite has made loans to Loral Space
in an aggregate principal outstanding amount of $100 million or more.
Under the terms of our indenture for the new notes, we will be prevented
from paying dividends and are unlikely to pay any dividends in the foreseeable
future.
IF LORAL SPACE'S BUSINESS PLAN DOES NOT SUCCEED, ITS OPERATIONS MIGHT NOT
GENERATE ENOUGH CASH TO PAY ITS OBLIGATIONS.
For the nine months ended September 30, 2001, Loral Space had a deficiency
of earnings to cover fixed charges of approximately $203 million. In addition to
its debt service requirements, its businesses are capital intensive and need
substantial investment before returns can be realized. For example, Loral Space
will incur significant expenditures to construct and launch new satellites for
its fixed satellite services business. Loral Space is subject to substantial
financial risks from possible delays or reductions in revenue, unforeseen
capital needs or unforeseen expenses. Loral Space's ability to meet its
obligations and execute its business plan could depend upon its ability, and
that of its operating subsidiaries and affiliates, to raise cash in the capital
markets. Loral Space is uncertain whether this source of cash will be available
in the future on favorable terms if at all.
LAUNCH FAILURES HAVE DELAYED SOME OF LORAL SPACE'S OPERATIONS IN THE PAST
AND MAY DO SO AGAIN IN THE FUTURE.
Loral Space depends on third parties, in the United States and abroad, to
launch its satellites. Satellite launches are risky, and launch attempts have
ended in failure. Loral Space ordinarily insures against launch failures, but at
considerable cost. The cost and the availability of insurance vary depending on
market conditions and the launch vehicle used. Loral Space's insurance typically
does not cover business interruption, and so launch failures result in uninsured
economic losses. Replacement of a lost satellite typically requires up to 24
months from the time a contract is executed until the launch date of the
replacement satellite.
AFTER LAUNCH, LORAL SPACE'S SATELLITES REMAIN VULNERABLE TO IN-ORBIT
FAILURES, WHICH MAY RESULT IN UNINSURED LOSSES.
Failure of satellite components in space may result in damage to or loss of
a satellite before the end of its expected life. Satellites are carefully built
and tested and have some redundant systems to save the satellite in case of
failure. However, in-orbit failure may result from various causes, some random,
including component failure, loss of power or fuel, inability to maintain
positioning of the satellite, solar and other astronomical events, and space
debris.
Repair of satellites in space is not feasible. Many factors affect the
useful life of Loral Space satellites including fuel consumption, the quality of
construction, degradation of solar panels and the durability of components.
Although some failures may be covered in part by insurance, they may result
in uninsured losses as well. For example, when Loral Skynet experienced the
total loss of two satellites in 1994 and 1997 while under AT&T's ownership, it
suffered a substantial drop in its profits due to the loss of revenues.
THE SATELLITE INDUSTRY WILL LIKELY BE FACED WITH SIGNIFICANTLY HIGHER
INSURANCE PREMIUMS IN THE FUTURE.
Loral Space has received preliminary indication that the satellite industry
will likely be faced with significantly higher premiums on launch and in-orbit
insurance in the future. Any such increase will increase the cost of doing
business for both Loral Space's satellite manufacturing and fixed satellite
services segments, and Loral Space may not be able to pass on such increased
cost to its customers.
SOME OF THE SATELLITES LORAL SPACE CURRENTLY HAS IN-ORBIT HAVE EXPERIENCED
OPERATIONAL PROBLEMS.
Twelve of the satellites built by SS/L and launched since 1997, five of
which are owned and operated by Loral Space's subsidiaries or affiliates, have
experienced minor losses of power from their solar arrays. Although, to date,
neither Loral Space nor any of the customers using the affected satellites has
experienced any degradation in performance, there can be no assurance that one
or more of the affected satellites will not experience additional power loss
that could result in performance degradation, including
31
loss of transponder capacity. In the event of additional power loss, the extent
of the performance degradation, if any, will depend on numerous factors,
including the amount of the additional power loss, the level of redundancy built
into the affected satellite's design, when in the life of the affected satellite
the loss occurred and the number and type of use being made of transponders then
in service. A complete or partial loss of satellites could result in a loss of
orbital incentive payments and, in the case of satellites owned by Loral Space
subsidiaries and affiliates, a loss of revenues and profits. With respect to
satellites under construction and construction of new satellites, based on its
investigation of the matter, SS/L has identified and is implementing remedial
measures that SS/L believes will prevent newly launched satellites from
experiencing similar anomalies. SS/L does not expect that implementation of
these measures will cause delays in the launch of satellites under construction
or construction of new satellites. Based upon information currently available,
including design redundancies to accommodate small power losses and the fact
that no pattern has been identified as to the timing or specific location within
the solar arrays of the failures, Loral Space believes that this matter will not
have a material adverse effect on the consolidated financial position or results
of operations of Loral Space.
While Loral Space has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, it cannot guarantee
that, upon a policy's expiration, it will be able to renew the insurance on
terms acceptable to it, especially on satellites that have, or that are part of
a family of satellites that have, experienced problems in the past. For example,
in connection with the renewal of the insurance for the Telstar 10/Apstar IIR
satellite in October 2001, the insurance underwriters have excluded losses due
to solar array failures, since Telstar 10/Apstar IIR was manufactured by SS/L
and has the same solar array configuration as another 1300 class satellite
manufactured by SS/L that recently experienced a solar array failure of a
different nature. SS/L believes that this failure is an isolated event and does
not reflect a systemic problem in either the satellite design or manufacturing
process. Accordingly, Loral Space does not believe that this anomaly will affect
Telstar 10/Apstar IIR. SS/L is currently providing the basis for this conclusion
to the insurance underwriters. While Loral Space anticipates that this exclusion
will be removed upon further review by the insurance underwriters, there can be
no assurance that this exclusion will be removed or that future renewals of
insurance on other Loral Space satellites will not be subject to a similar
exclusion. Moreover, the existing insurance policy for Solidaridad 2 expires in
November 2002 and a renewal policy may not insure against in-orbit failure
arising from the loss of the satellite's control processor, the same component
that failed on Solidaridad 1 and other Hughes satellites. An uninsured loss of a
satellite will have a material adverse effect on Loral Space's results of
operations and financial position.
A loss of transponders on a satellite can also hurt Loral Space. Loral
Skynet has in the past entered into prepaid leases and sales contracts relating
to transponders on its satellites. Under the terms of these agreements, Loral
Skynet continues to operate the satellites which carry the transponders and
provides a warranty for a period of 10 to 14 years, in the case of sales
contracts, and the lease term, in the case of the prepaid leases. Depending on
the contract, Loral Skynet may be required under its prepaid leases and sales
contracts to replace transponders which do not meet operating specifications.
All customers are entitled to a refund equal to the reimbursement value if there
is no replacement. In the case of the sales contracts, the reimbursement value
is based on the original purchase price plus an interest factor from the time
the payment was received to acceptance of the transponder by the customer,
reduced on a straight-line basis over the warranty period. In the case of
prepaid leases, the reimbursement value is equal to the unamortized portion of
the lease prepayment made by the customer.
LORAL SPACE DEPENDS ON SPACE SYSTEMS/LORAL FOR A LARGE PORTION OF REVENUE
AND OPERATING INCOME.
SS/L has historically generated a significant part of Loral Space's revenue
and operating income. SS/L, in turn, has historically derived a large part of
its revenue and operating income from a few customers. For example, for the nine
months ended September 30, 2001, one of SS/L's customers accounted for about 13%
of Loral Space's consolidated revenues. As a result, Loral Space's revenue and
operating results would be hurt if completed or canceled contracts are not
promptly replaced with new orders. Some of SS/L's customers are start-up
companies, and there can be no assurance that these companies will be able to
fulfill their payment obligations under their contracts with SS/L.
32
SS/L's accounting for long-term contracts sometimes requires adjustments to
profit and loss based on revised estimates during the performance of the
contract. These adjustments may have a material effect on Loral Space's results
of operations in the period in which they are made. The estimates giving rise to
these risks, which are inherent in long-term, fixed-price contracts, include the
forecasting of costs and schedules, contract revenues related to contract
performance, including revenues from orbital incentives, and the potential for
component obsolescence due to procurements long before assembly.
SS/L's major contracts fall into two categories: firm fixed-price contracts
and cost-plus-award-fee contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price without adjustment
for actual costs incurred in connection with the contract. While cost savings
under these fixed-price contracts would result in gains to SS/L, cost increases
would result in losses borne solely by SS/L. The majority of SS/L's contracts
are fixed-price contracts. Under such contracts, SS/L may receive progress
payments, or it may receive partial payments upon the occurrence of certain
program milestones. Under a cost-plus-award-fee contract, the contractor
recovers its actual allowable costs incurred and receives a fee consisting of a
base amount that is fixed at the inception of the contract (the base amount may
be zero) and an award amount that is based on the customer's subjective
evaluation of the contractor's performance based on criteria stated in the
contract.
Many of SS/L's contracts and subcontracts may be terminated at will by the
customer or the prime contractor. In the event of a termination at will, SS/L is
normally entitled to recover the purchase price for delivered items,
reimbursement for allowable costs for work in process and an allowance for
profit or an adjustment for loss, depending on whether completion of performance
would have resulted in a profit or loss. Such terminations may occur in the
future.
SS/L MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE FAILURES OR
LOSSES AFTER LAUNCH OR BE LIABLE FOR PENALTY PAYMENTS UNDER CERTAIN
CIRCUMSTANCES, AND THESE LOSSES MAY BE UNINSURED.
Some of SS/L's satellite manufacturing contracts provide that some of the
total price is payable as "incentive" payments earned over the life of the
satellite. SS/L has in the past generally not insured for these payments and in
fact may be prohibited from insuring these incentive payments under certain
circumstances. Some of SS/L's contracts call for in-orbit delivery, transferring
the launch risk to SS/L. SS/L generally insures against that exposure.
SS/L records as revenue the present value of incentive payments as the
costs associated with these incentive payments are incurred. SS/L generally
receives the present value of these incentive payments if there is a launch
failure or a failure is caused by customer error. SS/L forfeits these payments,
however, if the loss is caused by satellite failure or as a result of its own
error.
In addition, some of SS/L's contracts provide that SS/L may be liable to a
customer for penalty payments under certain circumstances, including upon late
delivery. These payments are not insured by SS/L.
LORAL SPACE AND SS/L ARE CURRENTLY INVOLVED IN AN ARBITRATION WITH ALCATEL
SPACE INDUSTRIES, WHICH MAY RESULT IN A FINDING AGAINST LORAL SPACE AND SS/L AND
THE PAYMENT OF DAMAGES TO ALCATEL.
SS/L is a party to an Operational Agreement with Alcatel Space Industries
("Alcatel Space") pursuant to which the parties cooperate on certain satellite
programs. In addition, pursuant to an Alliance Agreement with SS/L, for so long
as it continues to hold at least 81.6% of the Loral Space securities that it
acquired in 1997 in exchange for SS/L stock that it previously owned, Alcatel
Space has certain rights, including two representatives on SS/L's seven-member
board of directors, and certain actions require the approval of its board
representatives. Alcatel Space also has certain rights to purchase SS/L shares
at fair market value in the event of a change of control (as defined) of either
Loral Space or SS/L, including the right to use its Loral Space holdings as part
of the SS/L purchase price. These agreements are terminable upon one-year's
notice by either party, and SS/L gave the one-year notice to Alcatel Space on
February 22, 2001. Alcatel Space filed suit on March 16, 2001 in the United
States District Court for the Southern District of New York against Loral Space
and SS/L alleging various breaches of the agreements, seeking declaratory and
injunctive relief to enforce its rights thereunder and challenging the
effectiveness of the termination. On April 26, 2001, the District Court issued
its decision (i) granting on consent the
33
Company's motion to compel arbitration and (ii) granting in part Alcatel's
motion for a preliminary injunction by requiring that the Company continue to
comply with the agreements pending resolution of the arbitration, or the
expiration of the agreements, whichever occurs earlier. The District Court also
held that the issue of the termination of the agreements is a matter that is to
be decided in arbitration, as required by the agreements. The arbitration has
commenced. In the arbitration, in addition to challenging the effectiveness of
the termination, Alcatel has asserted, and is seeking $300 million in damages in
respect of, various alleged breaches of the agreements. Loral Space believes
that it will prevail on the termination issue, that it has meritorious defenses
to the claimed breaches and that this matter will not have a material adverse
effect on the consolidated financial position or results of operations of Loral
Space.
SS/L IS CURRENTLY INVOLVED IN A DISPUTE WITH PANAMSAT REGARDING A SATELLITE
BUILT BY SS/L, WHICH MAY RESULT IN THE PAYMENT OF DAMAGES TO PANAMSAT.
In September 2001, the PAS 7 satellite built by SS/L for PanAmSat
experienced an electrical power failure on its solar arrays that resulted in the
loss of use of certain transponders on the satellite. As a result, PanAmSat has
claimed that under its contract with SS/L it is entitled to be paid $16 million.
SS/L disputes this claim. SS/L believes that this failure is an isolated event
and does not reflect a systemic problem in either the satellite design or
manufacturing process.
LORAL SPACE IS SUBJECT TO EXPORT CONTROLS, WHICH MAY RESULT IN DELAYS,
UNFORESEEN ADDITIONAL COSTS AND UNCERTAINTIES IN CERTAIN MARKETS.
Like other exporters of space-related products and services, SS/L needs
licenses from the U.S. government when it sells a satellite to a foreign
customer or launches abroad. Foreign launches have been politically sensitive
because of the relationship between launch technology and missile technology.
U.S. government policy has limited, and is likely in the future to limit,
launches from the former Soviet Union and China. For example, the U.S.
government delayed a Globalstar launch from Kazakhstan by several months when it
stopped granting case-by-case approval of launches from that location pending an
intergovernmental agreement covering technology security matters. Changes in
governmental policies, political leadership or legislation in the United States,
Russia, Kazakhstan or China could adversely affect Loral Space's ability to
launch from these countries or increase the costs of doing so.
The launch of ChinaSat-8 has been delayed pending SS/L's obtaining the
approvals required for the launch. On December 23, 1998, the Office of Defense
Trade Controls, or ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 satellite. According to ODTC, the
purpose of the temporary suspension was to permit that agency to review the
agreement for conformity with then newly-enacted legislation (Section 74 of the
Arms Export Control Act) with respect to the export of missile equipment and
technology. In addition, SS/L was required to re-apply for new export licenses
from the State Department to permit the launch of ChinaSat-8 on a Long March
launch vehicle when the old export licenses issued by the Commerce Department,
the agency that previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not rejecting these license
applications, notified SS/L that they were being returned without action. SS/L
and the State Department are now in discussions regarding SS/L's obtaining the
approvals required for the launch of ChinaSat-8.
In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for
ChinaSat's use for the life of those transponders. As a result, SS/L recorded a
charge to earnings of $35 million in 1999. If ChinaSat were to terminate its
contract with SS/L as a result of these delays, SS/L may have to refund $134
million in advances received from ChinaSat and may incur penalties of up to $11
million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it can be sold to another customer,
which resale cannot be guaranteed. To the extent that SS/L is able to recover
some or all of its $52 million deposit payment on the Chinese launch vehicle,
this recovery would offset a portion of such payments. There can be no
assurance, however, that SS/L will be able to
34
either obtain a refund from the launch provider or find a replacement customer
for the Chinese launch vehicle.
SS/L IS THE TARGET OF A GRAND JURY INVESTIGATION WHICH MAY ADVERSELY AFFECT
SS/L'S ABILITY TO EXPORT ITS PRODUCTS.
SS/L could be accused of criminal violations of the export control laws
arising out of the participation of its employees in a committee formed to
review the findings of the Chinese regarding the 1996 crash of a Long March
rocket in China. Under the applicable regulations, SS/L could be barred from
export privileges without being convicted of any crime if it is merely indicted
for these alleged violations, and loss of export privileges would harm SS/L's
business. Whether or not SS/L is indicted or convicted, SS/L will remain subject
to the State Department's general statutory authority to prohibit exports of
satellites and related services if it finds that SS/L has violated the Arms
Export Control Act. Further, the State Department can suspend export privileges
whenever it determines that grounds for debarment exist and that suspension "is
reasonably necessary to protect world peace or the security or foreign policy of
the United States." If SS/L were to be indicted and convicted of a criminal
violation of the Arms Export Control Act, it would be subject to a fine of $1
million per violation, could be debarred from certain export privileges, and
could be debarred from participation in government contracts.
Since some of SS/L's satellites are built for foreign customers and/or are
launched on foreign rockets, a debarment would seriously harm SS/L's business,
which in turn would hurt Loral Space.
THE WORLD MARKET SHARE OF U.S. SATELLITE MANUFACTURERS HAS DECLINED,
FOLLOWING RECENT CHANGES IN U.S. EXPORT CONTROL POLICIES.
SS/L is required to obtain licenses and enter into technical assistance
agreements, presently under the jurisdiction of the State Department, in
connection with the export of satellites and related equipment, as well as
disclosure of technical data to foreign persons. Delays in obtaining the
necessary licenses and technical assistance agreements may result in the
cancellation of, or delay SS/L's performance on, existing contracts, and, as a
result, SS/L may incur penalties or lose incentive payments under these
contracts.
In the period 1992 through 1999, satellites ordered from the leading U.S.
satellite manufacturers, including SS/L, accounted for 79% of all commercial
satellite bookings. In 2000, following changes in federal export control
regulations, policies and procedures, this percentage dropped to 47%. For
bookings by non-U.S. customers in those periods, the corresponding percentages
were 21% and 53%, respectively.
If these policies do not change, Loral Space's competitors abroad may
continue to gain both workflow and additional capabilities and expertise. In
such event, it would become increasingly difficult for the U.S. satellite
manufacturing industry to recapture this lost market share.
SS/L COMPETES WITH LARGE MANUFACTURERS THAT HAVE SIGNIFICANT RESOURCES.
In the manufacture of its satellites, Loral Space competes with very large
well-capitalized companies, including several of the world's largest, such as
The Boeing Company, Lockheed Martin, Alcatel Space Industries and Astrium. These
companies have considerable financial resources which they may use to gain
advantages in marketing and in technological innovation. SS/L's success depends
on its ability to innovate on a cost-effective and timely basis.
LORAL SPACE COMPETES FOR MARKET SHARE AND CUSTOMERS; TECHNOLOGICAL
DEVELOPMENTS FROM COMPETITORS OR OTHERS MAY REDUCE DEMAND FOR ITS SERVICES.
Loral Space faces heavy competition in fixed satellite services from
companies such as PanAmSat Corporation, SES Global and newly privatized
organizations such as Intelsat and Eutelsat. Competition in this market may
lower prices, which may adversely affect Loral Space's results.
The data services business also faces competition from providers of
land-based data communications services, such as cable operators, digital
subscriber line (DSL) providers, wireless local loop providers and traditional
telephone service providers. Loral Space cannot assure you that its data
services business will attract enough customers either to compete effectively or
to implement fully its business plan.
35
As land-based telecommunications services expand, demand for some
satellite-based services may be reduced. New technology could render
satellite-based services less competitive by satisfying consumer demand in other
ways or through the use of incompatible standards.
Loral Space also competes for local regulatory approval in places in which
both it and a competitor may want to operate. Loral Space also competes for
scarce frequency assignments and fixed orbital positions.
LORAL SPACE'S BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL
COSTS.
Loral Space's business is regulated by authorities in multiple
jurisdictions, including the Federal Communications Commission, the
International Telecommunication Union, or ITU, and the European Union. As a
result, some of the activities which are important to its strategy are beyond
its control. The following are some strategically important activities which are
regulated:
- the expansion of Loral Skynet's operations beyond the domestic U.S.
market;
- the international service offered by its data services business
operations;
- the manufacture, export and launch of satellites;
- the expansion of Satmex's Latin American business; and
- the implementation of Europe*Star's business plan.
Regulatory authorities in the various jurisdictions in which Loral Space
operates can modify, withdraw or impose charges or conditions upon the licenses
which Loral Space needs, and so increase its costs. The regulatory process also
requires potentially costly negotiations with third parties operating or
intending to operate satellites at or near orbital locations where Loral Space
places its satellites so that the frequencies of those other satellites do not
interfere with its own. For example, as part of its coordination effort on
Telstar 12, Loral Space agreed to provide four 54 MHz transponders on Telstar 12
to Eutelsat for the life of the satellite and has retained risk of loss with
respect to those transponders. Loral Space also granted Eutelsat the right to
acquire, at cost, four transponders on the next replacement satellite for
Telstar 12. Moreover, as part of this international coordination process, Loral
Space continues to conduct discussions with various administrations regarding
Telstar 12's operations at 15 degrees W.L. If these discussions are not
successful, Telstar 12's useable capacity may be reduced. Loral Space cannot
guarantee successful frequency coordination for its satellites.
Failure to successfully coordinate Loral Space's satellites' frequencies or
to resolve other required regulatory approvals could hurt its consolidated
financial position and results of operations.
LORAL SPACE FACES RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
For the year ended December 31, 2000, approximately 23% of Loral Space's
revenue was generated from customers located outside of the United States. Loral
Space could be harmed financially and operationally by changes in foreign
regulations and telecommunications standards, tariffs or taxes and other trade
barriers. Although almost all of its contracts with foreign customers require
payment in U.S. dollars, customers in developing countries could have difficulty
in obtaining the U.S. dollars they owe Loral Space, including as a result of
exchange controls. Exchange rate fluctuations may adversely affect the ability
of Loral Space's customers to pay Loral Space in U.S. dollars. If Loral Space
ever needs to pursue legal remedies against its foreign business partners or
customers, it may have to sue them abroad, where it could be hard for Loral
Space to enforce its rights.
LORAL SPACE SHARES CONTROL OF ITS AFFILIATES WITH THIRD PARTIES.
Third parties have significant ownership, voting and other rights in many
of Loral Space's subsidiaries and affiliates. As a result, Loral Space does not
always have full control over management of these entities. The rights of these
third parties and fiduciary duties under applicable law could result in others
acting or
36
omitting to act in ways which are not in Loral Space's best interest. To the
extent that these entities are or become customers of SS/L, these conflicts
could become acute. For example:
- Primary control of Satmex is vested in Mexican nationals, as required by
Mexican law, subject to certain supermajority rights which Loral Space
retains.
- The Europe*Star joint venture is under control by Alcatel, subject to
Loral Space's supermajority rights.
- Future joint ventures between Alcatel and Loral Space within the Loral
Global Alliance will be controlled by the initiating party, subject to
supermajority rights in favor of the non-initiating party.
- Alcatel is an investor in CyberStar, LP and has supermajority rights in
it.
- Although Loral Space is the managing general partner and largest equity
owner of Globalstar, its control is limited by important supermajority
rights of Globalstar's limited partners, and in light of Globalstar's
current financial position, the rights of Globalstar's creditors.
LORAL SPACE RELIES ON KEY PERSONNEL.
Loral Space needs highly qualified personnel. Except for Mr. Bernard L.
Schwartz, its Chairman and Chief Executive Officer, none of Loral Space's
officers has an employment contract nor does Loral Space maintain "key man" life
insurance. The departure of any of Loral Space's key executives could have an
adverse effect on its business.
RISK FACTORS RELATED TO LORAL SPACE'S COMMON STOCK
THE RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW ARE DIFFERENT FROM RIGHTS OF
SHAREHOLDERS UNDER U.S. LAW.
Since Loral Space is a Bermuda company, the principles of law that govern
shareholder rights, the validity of corporate procedures and other matters are
different from those that would apply if Loral Space were a U.S. company. For
example, it is not certain whether a Bermuda court would enforce liabilities
against Loral Space or its officers and directors based upon United States
securities laws either in an original action in Bermuda or under a United States
judgment. Bermuda law giving shareholders rights to sue directors is less
developed than in the United States and may provide fewer rights.
PRICES OF LORAL SPACE'S COMMON STOCK MAY EXPERIENCE SUDDEN CHANGES.
Many things that Loral Space cannot predict or control may cause sudden
changes in the price of Loral Space's common stock. Risks associated with the
deployment and operation of satellite systems, in particular, may cause sudden
changes in the price. For example, on September 10, 1998, the day following the
loss of twelve Globalstar satellites in Kazakhstan because of a launch failure,
the price of Loral Space's common stock fell by 28%.
THE MARKET FOR LORAL SPACE'S STOCK COULD BE ADVERSELY AFFECTED BY FUTURE
ISSUANCE OF SIGNIFICANT AMOUNTS OF ITS COMMON STOCK.
As of September 30, 2001, 334,839,921 shares of Loral Space's common stock
were outstanding. In addition, there were 34,600,721 stock options outstanding
on such date, of which 15,376,537 were immediately exercisable, warrants
outstanding that were exercisable for 194,404 shares of Loral Space's common
stock, 9,839,874 shares of Loral Space's Series C Preferred Stock convertible by
its terms into 24,599,686 shares of Loral Space's common stock and 6,110,788
shares of Loral Space's Series D Preferred Stock convertible by its terms into
15,407,704 shares of Loral Space's common stock. Sales of significant amounts of
Loral Space's common stock to the public, or the perception that those sales
could happen, could hurt the price of Loral Space's common stock.
On March 31, 2000, Lockheed Martin converted 45,896,978 shares of Loral
Space's Series A Preferred Stock into 45,896,978 shares of Loral Space's common
stock. Because of the large number of shares involved, sales by Lockheed Martin
of all or a substantial part of its position and related hedging transactions
could hurt the market for, and the trading prices of, Loral Space's common
stock.
37
FORWARD-LOOKING STATEMENTS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, from time to time, we,
Loral Space, our representatives or its representatives have made or may make
forward-looking statements, orally or in writing. They can be identified by the
use of forward-looking words such as "believes", "expects", "plans", "may",
"will", "should", or "anticipates" or their negatives or other variations of
these words or other comparable words, or by discussions of strategies that
involve risks and uncertainties. Such forward-looking statements may be included
in, but are not limited to, various filings made by us or Loral Space with the
Securities and Exchange Commission, press releases or oral statements made by or
with the approval of an authorized executive officer of ours or Loral Space.
Forward-looking statements are only predictions. Actual events or results could
differ materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors and conditions, including,
but not limited to, the factors referred to below. We and Loral Space undertake
no obligation to update any forward-looking statements.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in forward-looking statements,
see "Risk Factors." See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for us and Loral Space which are
incorporated by reference in this prospectus.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES FOR LORAL CYBERSTAR
The Deficiency of Earnings to Cover Fixed Charges for each of the periods
indicated is as follows (in thousands):
<Table>
<Caption>
PREDECESSOR COMPANY
-----------------------------------
THREE
NINE MONTHS YEAR ENDED NINE MONTHS MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31, ENDED ENDED DECEMBER 31,
-------------------- --------------------- DECEMBER 31, MARCH 31, --------------------
2001 2000 2000 1999 1998 1998 1997 1996
-------- --------- --------- --------- ------------ ------------ --------- --------
Deficiency of
Earnings to Cover
Fixed Charges...... $(91,570) $(114,039) $(136,288) $(145,487) $(97,341) $(44,300) $(116,026) $(63,197)
</Table>
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
AND RATIO OF EARNINGS TO COVER FIXED CHARGES FOR LORAL SPACE
The Deficiency of Earnings to Cover Fixed Charges (in thousands) and Ratio
of Earnings to Cover Fixed Charges for each of the periods indicated is as
follows:
<Table>
<Caption>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
--------------------- ------------------------------------------- DECEMBER 31,
2001 2000 2000 1999 1998 1997 1996
--------- -------- --------- --------- --------- ---- ------------
Deficiency of
Earnings to Cover
Fixed Charges...... $(202,789) $(52,770) $(141,453) $(191,181) $(132,178) -- --
Ratio of Earnings to
Cover Fixed
Charges............ -- -- -- -- -- 1.9x 3.7x
</Table>
USE OF PROCEEDS
We and Loral Space will receive no cash proceeds from the issuance of the
new notes or the issuance of the warrants, respectively, pursuant to the
exchange offer.
38
CAPITALIZATION
The following tables set forth Loral Space's and Loral CyberStar's
consolidated capitalization as of September 30, 2001, on an actual basis, and as
adjusted to give effect to the issuance of the new notes in the exchange offer
assuming 100% participation. You should read this table in conjunction with
Loral Space's and Loral CyberStar's consolidated financial statements and other
financial information presented in Loral Space's Annual Report on Form 10-K, as
amended on Form 10-K/A, and Loral CyberStar's Annual Report on Form 10-K for the
year ended December 31, 2000, respectively, and their respective Quarterly
Reports on Form 10-Q for the quarter ended September 30, 2001, which are
incorporated into this prospectus by reference. See "Incorporation of Certain
Documents by Reference."
CAPITALIZATION OF LORAL CYBERSTAR
The following table presents the capitalization of Loral CyberStar on an
actual basis and a pro forma basis to give effect to the exchange offer and the
transfer of Loral CyberStar's data services business to Loral SpaceCom
(including the estimated after tax gain of $15 million, after deducting expenses
associated with the exchange offer).
<Table>
<Caption>
SEPTEMBER 30, 2001
---------------------------
ACTUAL PRO FORMA
---------- ----------
(IN THOUSANDS)
Debt, including current portion
10.0% senior notes due 2006 ($675 million principal
amount)(1)............................................. -- $ 995,625
11.25% senior notes due 2007 ($443 million principal
amount)(2)............................................. $ 490,229 --
12.50% senior discount notes due 2007 ($484 million
principal amount at maturity and accreted principal
amount of $467 million)(2)............................. 527,250 --
Note payable to Loral SpaceCom Corporation................ 79,669 29,669
Other(2).................................................. 11,574 11,527
---------- ----------
Total debt, including current portion (accreted
principal amount of $1,001 million actual and $716
million pro forma)................................ 1,108,722 1,036,821
---------- ----------
Stockholders' equity:
Common stock, $.01 par value.............................. -- --
Capital in excess of par value............................ 588,197 600,132
Accumulated deficit....................................... (423,911) (408,807)
Accumulated other comprehensive loss...................... (1,626) --
---------- ----------
Total stockholders' equity........................... 162,660 191,325
---------- ----------
Total capitalization................................. $1,271,382 $1,228,146
========== ==========
</Table>
- ---------------
(1) Under U.S. generally accepted accounting principles applicable to debt
restructurings, Loral CyberStar will record the new notes for financial
reporting purposes at a carrying value substantially in excess of their
actual principal amount. In addition, Loral CyberStar will recognize a gain
on the exchange only to the extent that the historic carrying value reduced
by the value of the warrants issued in the exchange, exceeds the sum of the
actual principal amount of the new notes and the amount of future interest
payments on that amount. As a result, Loral CyberStar will not record
interest expense on the new notes, even though cash interest will be payable
on them.
(2) In connection with the Loral CyberStar acquisition in March 1998, Loral
Space did not assume Loral CyberStar's senior notes, senior discount notes
or Loral CyberStar's other debt. Such debt remains outstanding and is
non-recourse to Loral Space. The carrying value of Loral CyberStar's senior
notes and senior discount notes was increased to reflect a fair value
adjustment of $153.4 million based on quoted market prices at the date of
acquisition.
39
CAPITALIZATION OF LORAL SPACE
The following table presents the capitalization of Loral Space on an actual
basis and a pro forma basis to give effect to the exchange offer (including the
estimated after tax gain of $15 million, after deducting expenses associated
with the exchange offer).
<Table>
<Caption>
SEPTEMBER 30, 2001
-------------------------
ACTUAL PRO FORMA
----------- -----------
(IN THOUSANDS)
Debt, including current portion
Recourse debt
Term loans(1).......................................... $ 394,000 $ 394,000
Revolving credit facilities(1)......................... 605,000 605,000
9.5% senior notes due 2006............................. 350,000 350,000
10.0% senior notes due 2006 ($675 million principal
amount)(2)............................................ -- 995,625
Other.................................................. 10,213 10,213
----------- -----------
Total recourse debt.................................. 1,359,213 2,354,838
----------- -----------
Non-recourse debt of Loral CyberStar(3)
11.25% senior notes due 2007 ($443 million principal
amount)............................................... 490,229 --
12.50% senior discount notes due 2007 ($484 million
principal amount at maturity and accreted principal
amount of $467 million)............................... 527,250 --
Other.................................................. 11,574 11,574
----------- -----------
Total non-recourse debt.............................. 1,029,053 11,574
----------- -----------
Total debt, including current portion (accreted
principal amount of $2,281 million actual and $2,046
million pro forma).................................. 2,388,266 2,366,412
----------- -----------
Shareholders' equity:
6% Series C convertible redeemable preferred stock
(redemption value $491,994); $.01 par value; 20,000,000
shares authorized, 9,839,874 shares issued and
outstanding............................................ 485,371 485,371
6% Series D convertible redeemable preferred stock
(redemption value $305,539); $.01 par value; 20,000,000
shares authorized, 6,110,788 shares issued and
outstanding............................................ 296,529 296,529
Common stock, $.01 par value; 750,000,000 shares
authorized, 333,029,025 shares issued and
outstanding............................................ 3,350 3,350
Paid-in capital........................................... 2,762,327 2,766,327
Treasury stock, at cost; 174,195 shares................... (3,360) (3,360)
Unearned compensation..................................... (52) (52)
Retained deficit.......................................... (2,181,280) (2,166,176)
Accumulated other comprehensive income.................... 6,097 6,097
----------- -----------
Total shareholders' equity........................... 1,368,982 1,388,086
----------- -----------
Total capitalization................................. $ 3,757,248 $ 3,754,498
=========== ===========
</Table>
- ---------------
(1) Includes debt of Loral Space and its subsidiaries, Loral Satellite, Inc. and
Loral SpaceCom Corporation. Loral SpaceCom Corporation has a $600 million
credit facility. The facility consists of a $500 million revolving credit
facility and a $100 million term loan, and matures in November 2002. Loral
Satellite, Inc. has a $494 million credit facility. The facility consists of
a $200 million revolving credit facility and a $294 million term loan and
matures in August 2003.
(2) Under U.S. generally accepted accounting principles applicable to debt
restructurings, Loral Space will record the new notes for financial
reporting purposes at a carrying value substantially in excess of their
actual principal amount. In addition, Loral Space will recognize a gain on
the exchange only to the extent that the historic carrying value reduced by
the value of the warrants issued in the
40
exchange, exceeds the sum of the actual principal amount of the new notes
and the amount of future interest payments on that amount. As a result,
Loral Space will not record interest expense on the new notes, even though
cash interest will be payable on them.
(3) In connection with the Loral CyberStar acquisition in March 1998, Loral
Space did not assume Loral CyberStar's senior notes, senior discount notes
or Loral CyberStar's other debt. Such debt remains outstanding and is
non-recourse to Loral Space. The carrying value of Loral CyberStar's senior
notes and senior discount notes was increased to reflect a fair value
adjustment of $153.4 million based on quoted market prices at the date of
acquisition.
41
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We are making this exchange offer as part of a plan to reduce and refinance
our indebtedness and to create a capital structure that is intended to permit us
to finance anticipated obligations with respect to our fixed satellite services
business. Currently, Loral SpaceCom, a subsidiary of Loral Space, holds a $79.7
million note payable on demand, which ranks equally with all of our
unsubordinated indebtedness. In connection with the completion of the exchange
offer, Loral SpaceCom will cancel the existing note, and we will transfer our
data services business to Loral SpaceCom and issue a new $29.7 million
subordinated note due 2006 to Loral SpaceCom, having an interest rate of 10% per
annum payable at maturity, subordinated to the new notes and guaranteed on a
subordinated basis by Loral Space and our existing and future restricted
subsidiaries. In connection with this transfer, we will indemnify Loral SpaceCom
or its assignee from certain liabilities. For the nine months ended September
30, 2001 and for the year ended December 31, 2000, the EBITDA of the data
services business was a loss of $14.4 million and a loss of $14.8 million and
capital expenditures were $4.3 million and $24.4 million, respectively. The book
value of the net assets for the data services business was approximately $40
million at September 30, 2001.
This prospectus does not constitute an offer to sell these securities or a
solicitation of an offer to buy these securities in any state where such
solicitation, offer or sale is not permitted. Please refer to the Letter of
Transmittal and the other ancillary documents relating to this prospectus for
instructions relating to your eligibility to tender in the exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any existing notes
properly tendered and not withdrawn prior to the expiration date. We are
offering to exchange our new notes, the Loral Space guaranty and the Loral Space
warrants for the existing notes. You are entitled to exchange in the exchange
offer your existing notes for the exchange consideration which consists of the
following:
(1) new notes issued by us which have terms and conditions substantially
similar in most material respects to the terms of the existing notes
except that:
- the aggregate principal amount will be reduced to a maximum of $675
million;
- the interest rate we will pay on the new notes will be 10% per annum;
- covenants in the new notes indenture with respect to the incurrence of
debt and the granting of liens will be more restrictive in some
respects than existing covenants in the senior notes indenture and the
senior discount notes indenture; and
- we will continue to have rights to use our cash flow to construct or
acquire a replacement satellite and to incur secured indebtedness to
construct or acquire a replacement satellite for Telstar 11;
(2) a Loral Space guaranty of the new notes;
(3) a guaranty of the new notes by our Hong Kong subsidiary, Loral Asia
Pacific Satellite (HK) Limited, and all of our future restricted
subsidiaries; and
(4) your pro rata portion of warrants to purchase up to 6,657,096 shares of
common stock of Loral Space exercisable for five years after the
closing date of the exchange offer at an exercise price equal to 110%
of the average of the daily volume-weighted average trading prices of
Loral Space common stock on the New York Stock Exchange (as reported by
Bloomberg, L.P.) for the ten consecutive trading days preceding the
second trading day before the closing of the exchange offer.
42
We have established a toll-free telephone number you can call beginning 12
trading days prior to the closing of the exchange offer to learn the approximate
exercise price of the warrants computed as of the preceding day and, on and
after the second trading day preceding the closing, the actual warrant exercise
price. The number is (877) 485-2033. The recorded message on this telephone
number will be updated each day during the 10 trading day period with the
average computed exercise price of the warrants through the previous night.
During the two trading days before the closing of the exchange offer, the
recorded message will state the final exercise price. We encourage you to call
this telephone number. Please be aware, however, that during the 10 trading day
period preceding the two trading days prior to the closing, the estimated
exercise price of the warrants, as provided in this recorded message, will be
different from the actual exercise price of the warrants to be issued in
connection with the exchange offer. The actual exercise price of the warrants to
be issued in connection with the exchange offer will not be determined until two
trading days prior to the closing of the exchange offer.
In exchange for our outstanding $443 million senior notes plus accrued and
unpaid interest as of October 15, 2001, we are offering in the aggregate up to
$332.4 million new notes issued by us and guaranteed by Loral Space, the Hong
Kong subsidiary and all our future restricted subsidiaries, and warrants to
purchase up to 3,277,848 shares of common stock of Loral Space.
In exchange for our outstanding $484 million at maturity senior discount
notes ($469.5 million aggregate accreted value as of October 15, 2001), we are
offering in the aggregate up to $342.6 million new notes issued by us and
guaranteed by Loral Space, the Hong Kong subsidiary and all our future
restricted subsidiaries, and warrants to purchase up to 3,379,248 shares of
common stock of Loral Space.
For every $1,000 principal amount of senior notes, plus accrued and unpaid
interest as of October 15, 2001, tendered and accepted for exchange, you will
receive:
- $750.247 principal amount of new notes; and
- warrants to purchase 7.40 shares of Loral Space common stock.
For every $1,000 principal amount at maturity of senior discount notes
tendered and accepted for exchange, you will receive:
- $707.935 principal amount of new notes; and
- warrants to purchase 6.98 shares of Loral Space common stock.
New notes will be issued in denominations of $1,000 and integral multiples
of $1,000. At the closing of the exchange offer, instead of issuing new notes in
a denomination other than an integral multiple of $1,000, we will issue to
holders tendering notes with an aggregate principal amount of $500,000 or more
cash in the amount of any amount exceeding the next lowest integral multiple of
$1,000. Holders tendering notes with a lesser aggregate principal amount will
receive new notes with an aggregate principal amount rounded down to the nearest
integral multiple of $1,000. The number of Loral Space warrants to be issued in
the exchange offer will be rounded up to the nearest full warrant.
The new notes will be issued under and entitled to the benefits of an
indenture, to be entered into between us and Bankers Trust Company, as trustee.
For a description of the indenture, see "Description of the New Notes."
The new notes will bear interest at the rate of 10% per annum from October
15, 2001, payable semiannually in arrears on January 15 and July 15 of each year
in cash, commencing July 15, 2002, to the person in whose name the exchange note
is registered at the close of business on the preceding January 1 or July 1, as
the case may be. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
We will not make any payment with respect to accrued and unpaid interest on
the existing notes validly tendered and accepted for exchange by us.
43
This prospectus and the letter of transmittal are being sent to all
registered holders of existing notes. There will be no fixed record date for
determining registered holders of existing notes entitled to participate in the
exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the lock-up agreement that we, along with Loral Space and Loral SpaceCom,
entered into with holders of existing notes representing 49.04% of the aggregate
principal amount of the senior notes and 51.43% of the aggregate principal
amount at maturity of the senior discount notes, the applicable requirements of
the Securities Act, the Exchange Act and the rules and regulations of the SEC.
Existing notes that are not tendered in the exchange offer will remain
outstanding and continue to accrue interest and will be entitled to receive
principal and interest payments and all of the remaining rights conferred by the
senior notes indenture, as amended, or the senior discount notes indenture, as
amended, as the case may be. See "-- The Consent Solicitation" and, for a
description of the proposed amendments to the indentures, see "The Proposed
Amendments."
We will be deemed to have accepted for exchange properly tendered existing
notes when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the new notes from us and delivering the exchange
consideration to such holders. Subject to the terms of the agreement among us,
Loral Space, Loral SpaceCom and certain holders of the existing notes, we
expressly reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any existing notes not previously accepted for exchange,
upon the occurrence of any of the conditions specified under "-- Conditions to
the Exchange Offer."
Holders who tender existing notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
existing notes. We will pay all charges and expenses, other than some applicable
taxes described below, in connection with the exchange offer. You should read
the section entitled "-- Fees and Expenses" for more details regarding fees and
expenses incurred in the exchange offer.
We will:
- distribute a copy of this prospectus to each of the holders of the
existing notes;
- keep the exchange offer open for at least 20 business days after the date
on which the exchange offer is commenced; and
- after the expiration of the exchange offer, accept for exchange all
existing notes properly tendered and not validly withdrawn.
In order to tender your existing notes, you will be required, as a
condition to a valid tender, to give your consent to the proposed amendments to
the indentures. By properly tendering your existing notes, you will also be
consenting to the proposed amendments to the indentures. Furthermore, in order
to give your consent to the proposed amendments, you must validly tender, and
not validly withdraw, your existing notes. If you withdraw your tender of
existing notes, your consent to the amendments will also be deemed withdrawn. If
the proposed amendments become effective, each non-exchanging holder of existing
notes will be bound by the proposed amendments to the indentures even though the
holder did not consent. See "-- The Consent Solicitation" and "The Proposed
Amendments" for a description of the proposed amendments to the indentures.
THE CONSENT SOLICITATION
As part of the exchange offer, we are soliciting consents from the holders
of the senior notes and holders of the senior discount notes to the proposed
amendments to the indentures governing those notes. The purpose of the proposed
amendments is to amend both the senior notes indenture and the senior discount
notes indenture to remove substantially all covenants and events of default that
may be removed by majority consent of the holders consistent with the indentures
and requirements of the Trust Indenture Act, effective upon the closing of the
exchange offer. If you withdraw your tender of existing notes, your
44
consent to the proposed amendments will also be deemed withdrawn. If the
proposed amendments become effective, each non-exchanging holder of outstanding
senior notes or outstanding senior discount notes, as the case may be, will be
bound by the proposed amendments to the senior notes indenture and the senior
discount notes indenture, respectively, even though the holder did not consent.
The proposed amendments, which will apply to any senior notes and senior
discount notes not tendered in the exchange offer upon closing of the exchange
offer, materially reduce our obligations under the indentures.
The proposed amendments include, but are not limited to, removing
restrictions on our ability to:
- incur indebtedness;
- make dividend payments;
- sell capital stock of our subsidiaries;
- enter into transactions with shareholders and affiliates;
- incur liens;
- enter into sale-leaseback transactions;
- sell assets;
- consolidate and/or merge; and
- transfer our existing business.
The proposed amendments also remove requirements in connection with:
- repurchasing notes on a change of control;
- paying taxes and other claims;
- maintaining property and insurance coverage; and
- providing SEC reports to holders.
In addition, the proposed amendments will defer (rather than waive)
contribution and other rights available to subsidiary guarantors of the existing
notes and will remove events of default including but not limited to:
- a default by us on other indebtedness;
- final judgments or orders not paid or discharged; and
- bankruptcy, insolvency or liquidation.
The proposed amendments will make certain other conforming and related
changes to the indentures. For more information about the proposed amendments,
please read the section of this prospectus entitled "The Proposed Amendments."
If holders of at least a majority in aggregate principal amount of senior
notes have consented to the proposed amendments by tendering their notes, the
senior notes indenture will be amended as described in this prospectus at the
completion of the exchange offer. If holders of at least a majority in aggregate
principal amount at maturity of senior discount notes have consented to the
proposed amendments by tendering their notes, the senior discount notes
indenture will be amended as described in this prospectus at the completion of
the exchange offer.
We and the trustee under the indentures will execute a supplemental
indenture for each of the senior notes indenture and the senior discount notes
indenture after certification to the trustee that the required consents have
been received and the satisfaction or waiver of the other conditions to the
execution of the supplemental indentures. We will give oral or written notice to
the exchange agent of our acceptance and shall be deemed to have accepted for
exchange validly tendered existing notes only after such oral or written notice
of acceptance has been given to the exchange agent and the supplemental
indentures have
45
been executed. If the proposed amendments become effective, each non-exchanging
holder of existing notes will be bound by the applicable proposed amendments
even though the holder did not consent to the proposed amendments.
WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN
EXCHANGE FOR THE EXISTING NOTES, FOR CONSENTS DELIVERED IN THE CONSENT
SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer and consent solicitation will expire at 12:00 midnight,
New York City time, on December 20, 2001, unless, in our sole discretion, we
extend it. If we elect to provide one or more subsequent offering periods
totalling between three to 20 business days after the initial offering period
has expired, you will not be entitled to any withdrawal rights during the
extension period. In accordance with Rule 14e-1 under the Exchange Act, if we
elect to increase or decrease the aggregate principal amount of the existing
notes sought, the consideration offered or the dealer managers' soliciting fees,
the exchange offer will remain open for at least 10 business days from the date
that notice of such change is first published or sent or given to holders of the
existing notes. As used in this prospectus, the term "expiration date" refers to
December 20, 2001.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
existing notes of the extension no later than 9:00 a.m., New York City time, on
the first business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any existing notes;
- to extend the exchange offer and consent solicitation or to terminate the
exchange offer and consent solicitation and to refuse to accept existing
notes not previously accepted if any of the conditions set forth below
under "-- Conditions to the Exchange Offer" have not been satisfied or
waived by us, by giving oral or written notice of such delay, extension
or termination to the exchange agent; or
- subject to the terms of the lock-up agreement among us, Loral Space,
Loral SpaceCom and certain holders of the existing notes, to amend the
terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of such delay to
the registered holders of existing notes. If we make a material change in the
terms of the exchange offer, consent solicitation or information concerning the
exchange offer or consent solicitation or waive any condition of the exchange
offer or consent solicitation that results in a material change to the
circumstances of the exchange offer or consent solicitation, we will circulate
additional exchange offer and consent solicitation materials if and to the
extent required by applicable law. In those circumstances, we will also extend
the exchange offer and consent solicitation if and to the extent required by
applicable law in order to permit holders of the existing notes subject to the
exchange offer and consent solicitation adequate time to consider the additional
materials.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
ACCEPTANCE OF CONSENTS AND EXISTING NOTES, DELIVERY OF NEW NOTES AND LORAL SPACE
WARRANTS
The acceptance for exchange and payment of existing notes validly tendered
and not withdrawn and delivery of new notes and Loral Space warrants in exchange
for the tendered existing notes will be made as promptly as practicable after
the expiration date of the exchange offer. This acceptance, payment and delivery
will be made only upon the terms and subject to the conditions of the exchange
offer, the consent solicitation, the terms and conditions of any extension or
amendment and applicable law. For purposes of the exchange offer, we will be
deemed to have accepted for exchange validly tendered existing notes, if, as
46
and when we give oral or written notice of acceptance to the exchange agent. For
purposes of the consent solicitation, consents received by the exchange agent
will be deemed to have been accepted when we have accepted the tendered existing
notes underlying those consents for exchange in the exchange offer. Subject to
the following paragraph and the other terms and conditions of the exchange offer
and consent solicitation, delivery of new notes and Loral Space warrants for
existing notes accepted pursuant to the exchange offer will be made by the
exchange agent as soon as practicable after receipt of such notice. The exchange
agent will act as agent for tendering holders for the purposes of transmitting
to them new notes and Loral Space warrants. We will return any tendered existing
notes not accepted for exchange without expense to the tendering holder as
promptly as practicable following the expiration date of the exchange offer.
Notwithstanding any other provision described in this prospectus, delivery
of exchange consideration for existing notes accepted for exchange pursuant to
the exchange offer will in all cases be made only after timely receipt by the
exchange agent of:
- certificates for, or a timely book-entry confirmation with respect to,
the existing notes;
- a letter of transmittal, properly completed and validly executed, with
any required signature guarantees, or, in the case of a book-entry
transfer, an agent's message; and
- any other documents or payments required by the letter of transmittal and
the instructions to the letter of transmittal.
Holders tendering pursuant to the procedures for guaranteed delivery
discussed under "-- Guaranteed Delivery Procedures" whose certificates for notes
or book-entry confirmation with respect to notes are actually received by the
exchange agent after the expiration date may be paid later than other tendering
holders.
All tendering holders, by execution of the letter of transmittal, waive any
right to receive notice of acceptance of their notes for exchange.
CONDITIONS TO THE EXCHANGE OFFER
As of October 15, 2001, the sum of the aggregate principal amount of the
senior notes outstanding and the aggregate accreted value of the senior discount
notes outstanding was $912.5 million. The exchange offer is conditioned upon:
- tender by the holders of at least 85% of this aggregate amount;
- the consent by the holders of at least a majority of the aggregate
principal amount of the senior notes to the proposed amendments to the
senior note indenture; and
- the consent by the holders of at least a majority of the aggregate
principal amount of the senior discount notes to the proposed amendments
to the senior discount notes indenture.
Despite any other term of the exchange offer and consent solicitation, we
will not be required to accept for exchange, or exchange any new notes and Loral
Space warrants for, any existing notes, and we may terminate the exchange offer
as provided in this prospectus before accepting any existing notes for exchange
if:
- the trustee under the indentures has objected to, or taken any action
that could adversely affect, the consummation of the exchange offer or
the consent solicitation or our ability to effect the proposed amendments
to the indentures;
- the trustee under the indentures has taken any action that challenges the
validity or effectiveness of the procedures we used in the exchange offer
or consent solicitation;
- the exchange offer, or the making of any exchange by a holder of existing
notes, in our reasonable judgment, would violate applicable law or any
applicable interpretation of the staff of the SEC;
47
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency, or any law, statute, rule,
regulation, judgment, order, stay, decree or injunction has been
promulgated, enacted or entered, with respect to the exchange offer that,
in our judgment, could reasonably be expected to impair our ability to
proceed with the exchange offer;
- there shall have occurred a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely
affects the extension of credit;
- there shall have occurred a commencement of a war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the
time of the commencement of the exchange offer, a material acceleration
or worsening thereof; or
- any change (or any development involving a prospective change) shall have
occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects and our subsidiaries taken as a whole that, in our reasonable
judgment, is or may be adverse to us, or we have become aware of facts
that, in our reasonable judgment, have or may have adverse significance
with respect to the existing notes or the exchange consideration.
In addition, we will not be obligated to accept for exchange the existing
notes of any holder that has not made to us the representations described under
"-- Procedures for Tendering."
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any existing notes by giving oral or written notice of the
extension to their holders. During any extension, all existing notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any existing notes that we do not accept for exchange
for any reason without expense to their tendering holders as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any existing notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the existing notes as
promptly as practicable. In the case of any extension, the notice will be issued
no later than 9:00 a.m., New York City time, on the first business day after the
previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any existing notes tendered,
and will not issue exchange consideration in exchange for any such existing
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the new notes indenture under the Trust Indenture
Act of 1939.
We have agreed with the noteholders party to the lock-up agreement not to
consummate the exchange offer if we have failed to make timely disclosure of
material information relevant to the investment decision contemplated hereby as
required by the federal securities laws, including without limitation any
failure to effectuate the cancellation of Loral CyberStar's existing $79.7
million note payable on demand and the issuance of a subordinated note due 2006,
as contemplated by the lock-up agreement.
INTEREST ON THE NEW NOTES
The new notes will bear interest from October 15, 2001, payable
semiannually on January 15 and July 15 of each year commencing on July 15, 2002,
at the rate of 10% per annum. Holders of the senior
48
notes whose notes are accepted for exchange will be deemed to have waived the
right to receive any payment in cash in respect of interest accruing after
October 15, 2001. Holders of senior discount notes whose notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
exchange consideration or other property in respect of interest accruing or
accretions in value after October 15, 2001.
PROCEDURES FOR TENDERING
Only a holder of existing notes may tender existing notes in the exchange
offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent before the
expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
Holders who complete, sign and date the letter of transmittal or comply
with DTC's Automated Tender Offer Program shall be deemed to have made the
representations and warranties to us contained in the letter of transmittal.
In addition, either:
- the exchange agent must receive existing notes along with the letter of
transmittal;
- the exchange agent must receive, before the expiration date, a timely
confirmation of book-entry transfer of the existing notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange Agent and Trustee" prior to the
expiration date.
The tender by a holder that is not withdrawn before the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal, including, but not limited to, the agreement by such
holders to deliver good and marketable title to the tendered existing notes free
and clear of all liens, charges, claims, encumbrances, interests and
restrictions of any kind.
We have established a toll-free telephone number you can call beginning 12
trading days prior to the closing of the exchange offer to learn the approximate
exercise price of the warrants computed as of the preceding trading day and, on
and after the second trading day preceding the closing, the actual warrant
exercise price. The number is (877) 485-2033. The recorded message on this
telephone number will be updated each day during the 10 trading day period with
the average computed exercise price of the warrants through the previous night.
During the two trading days before the closing of the exchange offer, the
recorded message will state the actual warrant exercise price. We encourage you
to call this telephone number. Please be aware, however, that during the 10
trading day period preceding the two trading days prior to the closing, the
estimated exercise price of the warrants, as provided in this recorded message,
necessarily will be different from the actual exercise price of the warrants to
be issued in connection with the exchange offer. The actual exercise price of
the warrants to be issued in connection with the exchange offer will not be
determined until two trading days prior to the closing of the exchange offer.
Delivery of all documents must be made to the exchange agent at its address
set forth in this prospectus. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders.
49
The method of delivery of existing notes and the letters of transmittal and
all other required documents to the exchange agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No letter of transmittal or existing notes
should be sent to us.
Only a holder of existing notes may tender such existing notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name existing notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose existing notes are held of record by DTC who desires
to deliver such existing notes by book-entry transfer at DTC.
Any beneficial holder whose existing notes are registered in the name of
its broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on the beneficial holder's behalf. In
accordance with state securities laws, some beneficial holders will be required
to make representations and warranties about themselves contained in the form of
instruction to be sent to brokers, dealers, commercial banks, trust companies
and other nominees. If such beneficial holder wishes to tender on its own
behalf, such beneficial holder must, prior to completing and executing the
letter of transmittal and delivering its existing notes, either make appropriate
arrangements to register ownership of the existing notes in such holder's name
or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time and may not be capable
of being completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal, described
below, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office of correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act unless the existing notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the
registered holder of any existing notes listed on the existing notes, the
existing notes must be endorsed or accompanied by appropriate bond powers which
authorize such person to tender the existing notes on behalf of the registered
holder, in either case signed as the name of the registered holder or holder
appears on the existing notes with the signatures on the existing notes or bond
powers guaranteed as provided below.
If the letter of transmittal or any existing notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of their authority to so act must be submitted with
the letter of transmittal.
Any financial institution that is a participant in DTC's system may use
DTC's Automated Tender Offer Program to tender. Participants in the program may,
instead of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, transmit their acceptance of the exchange
offer electronically. They may do so by causing DTC to transfer the existing
notes to the exchange agent in accordance with its procedures for transfer. DTC
will then send an agent's message to the exchange agent. The term "agent's
message" means a message transmitted by DTC, received by the exchange agent and
forming part of the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering existing notes that are
the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal, including the representations and warranties
contained in that letter of transmittal (or, in the case
50
of an agent's message relating to guaranteed delivery, that the
participant has received and agrees to be bound by the applicable notice
of guaranteed delivery); and
- the agreement may be enforced against the participant.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered existing notes will be
determined by us in our sole discretion, which determinations will be final and
binding. We reserve the absolute right to reject any and all existing notes not
validly tendered or any existing notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any irregularities or conditions of tender as to particular existing notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of existing notes must be cured within such time as we shall determine. Neither
we, Loral Space, the exchange agent nor any other person shall be under any duty
to give notification of defects or irregularities with respect to tenders of
existing notes nor shall we, Loral Space or the exchange agent incur any
liability for failure to give notification. Tenders of existing notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any existing notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the exchange agent to the
tendering holder unless otherwise provided in the letter of transmittal, as soon
as practicable following the expiration date.
By signing the letter of transmittal, each holder of existing notes will
represent to us that, among other things:
- any new notes that the holder receives will be acquired in the ordinary
course of business;
- neither the holder nor any other person has an arrangement or
understanding with any person to participate in the distribution of the
new notes; and
- neither the holder nor any such other person is our "affiliate" within
the meaning of Rule 405 under the Securities Act or, if the holder is our
affiliate, it will comply with any applicable registration and prospectus
delivery requirements of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the existing notes at DTC for purposes of the exchange offer promptly after
the date of this prospectus, and any financial institution participating in
DTC's system may make book-entry delivery of existing notes by causing DTC to
transfer the existing notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of existing notes who are
unable to deliver confirmation of the book-entry tender of their existing notes
into the exchange agent's account at DTC or all other documents required by the
letter of transmittal to the exchange agent on or prior to the expiration date
must tender their existing notes according to the guaranteed delivery procedures
described below.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their existing notes and (a) whose existing
notes are not immediately available, or (b) who cannot deliver their existing
notes, the letter of transmittal or any other required
51
documents to the exchange agent prior to the expiration date, or (c) who cannot
complete the procedure for book-entry transfer on a timely basis, may effect a
tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from an
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or hand
delivery) or a properly transmitted agent's message and notice of
guaranteed delivery setting forth the name and address of the holder of
the existing notes, the registered number or numbers of the existing
notes and the principal amount of existing notes tendered, stating that
the tender is being made thereby, and guaranteeing that, within three
business days after the expiration date, the letter of transmittal (or
facsimile thereof), together with the existing notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal, will be deposited by the eligible guarantor institution with
the exchange agent; and
- the exchange agent receives a properly completed and executed letter of
transmittal (or facsimile thereof), together with the tendered existing
notes in proper form for transfer (or confirmation of a book-entry
transfer into the exchange agent's account at DTC of existing notes
delivered electronically) and all other documents required by the letter
of transmittal within three business days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of existing notes
may withdraw their tenders at any time prior to 12:00 midnight, New York City
time, on the expiration date. If we elect to provide a subsequent offering
period of three to 20 business days after the initial offering period has
expired, you will not be entitled to any withdrawal rights during the extension
period.
To withdraw a tender of existing notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address set forth in this prospectus prior to 12:00 midnight, New York City
time, on the expiration date; or holders must comply with the appropriate
procedures of DTC's Automated Tender Offer Program System. Any such notice of
withdrawal must:
- specify the name of the person who tendered the existing notes to be
withdrawn;
- identify the existing notes to be withdrawn (including the principal
amount of such existing notes); and
- where certificates for existing notes have been transmitted, specify the
name in which the existing notes were registered, if different from that
of the withdrawing holder.
If certificates for existing notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless the holder is an eligible guarantor
institution.
If certificates for existing notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless the holder is an eligible guarantor
institution.
If the existing notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn existing
notes and otherwise comply with the procedures of the book-entry transfer
52
facility. We will determine all questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices, and our
determination shall be final and binding on all parties. We will deem any
existing notes so withdrawn not to have been validly tendered for purposes of
the exchange offer and no new notes will be issued with respect thereto unless
the existing notes so withdrawn are validly tendered. Any existing notes which
have been tendered but which are not accepted for exchange will be returned to
their holder without cost to the holder or, in the case of existing notes
tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, the existing notes will be credited
to an account maintained with DTC for existing notes as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn existing notes may be tendered by following one of the
procedures described under "-- Procedures for Tendering" at any time prior to
the expiration date.
If you withdraw your tender of existing notes, your consent to the proposed
amendments of the indentures will also be deemed to be withdrawn. You may not
withdraw your consent without withdrawing your tender of the existing notes.
DEALER MANAGERS AND SOLICITATION AGENTS
We and Loral Space have engaged Dresdner Kleinwort Wasserstein, Inc. to act
as lead dealer manager and lead solicitation agent in connection with the
exchange offer and consent solicitation and to provide financial advisory
services to us and Loral Space in connection with the exchange offer.
Banc of America Securities LLC, J.P. Morgan Securities Inc. and Lehman
Brothers Inc. are acting as co-dealer managers and co-solicitation agents in
connection with the exchange offer and consent solicitation.
If you have questions concerning the terms of the exchange offer or consent
solicitation, you may contact the dealer managers at the addresses and telephone
numbers on the back cover page of this document.
We and Loral Space have agreed to pay the dealer managers customary fees
for their services, including reasonable out-of-pocket expenses and fees and
expenses of legal counsel. We and Loral Space have agreed to indemnify the
dealer managers against specified liabilities, including specified liabilities
under the federal securities laws. The dealer managers have provided in the
past, and currently are providing, other investment banking and financial
advisory services to us and our affiliates.
EXCHANGE AGENT AND TRUSTEE
Bankers Trust Company has been appointed as exchange agent for the exchange
offer. Questions as to procedures for tendering and requests for additional
copies of this prospectus or the letter of transmittal should be directed to the
exchange agent addressed as follows:
<Table>
By Mail: BT Services Tennessee, Inc.
Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
By Overnight Carrier: BT Services Tennessee, Inc.
Reorganization Unit
648 Grassmere Park Rd.
Nashville, TN 37211
Facsimile Transmission: (615) 835-3701
Confirm by Telephone: (800) 735-7777
</Table>
You and your broker, dealer, commercial bank, trust company or other
nominee should send letters of transmittal and all correspondence in connection
with the exchange offer to the exchange agent at the address and telephone
number listed above.
53
Bankers Trust Company is also serving as the trustee under the existing
notes indenture and will also serve as the trustee for the new notes. All
deliveries, correspondence and questions sent or presented to the trustee
relating to the exchange offers should be directed to the trustee as follows:
<Table>
By Mail: 4 Albany Street
New York, NY 10006
By Telephone: (800) 735-7777
</Table>
We and Loral Space maintain, or may in the future maintain, normal banking
relationships with Bankers Trust Company in the ordinary course of business.
INFORMATION AGENT
Morrow & Co., Inc. has been appointed as information agent for the exchange
offer. Questions and requests for assistance should be directed to the
information agent addressed as follows:
<Table>
U.S. noteholders call: (800) 607-0088
International noteholders call collect: (212) 754-8000
Banks and brokerage firms call: (800) 654-2468
</Table>
WARRANT AGENT
The Bank of New York has been appointed as warrant agent for the exchange
offer. Questions and requests for assistance should be directed to the warrant
agent as follows:
<Table>
By Mail: 101 Barclay Street
Floor 21-West
New York, NY 10286
By Facsimile: (212) 896-7298
By Telephone: (212) 896-7202
</Table>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
for tenders is being made by mail; however, we may make additional solicitations
by telegraph, facsimile, telephone or in person by our officers and regular
employees and those of our affiliates.
Except as described herein, we will not make any payments to brokers,
dealers or other persons soliciting acceptances of the exchange offer. However,
we will pay the exchange agent reasonable and customary fees for its services
and will reimburse the exchange agent for its reasonable out-of-pocket expenses.
We may also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus, letters of transmittal and related documents to the beneficial
owners of the existing notes and in handling or forwarding tenders for exchange.
We have agreed to pay (i) the fees and expenses (including reasonable fees
and expenses of counsel) of Loral Space in connection with the negotiation,
execution and delivery of the lock-up agreement and the exchange offer, (ii) the
fees and expenses of Wachtell, Lipton, Rosen & Katz, counsel to the consenting
holders under the lock-up agreement, (iii) our expenses, including investment
banking, financial advisory, printing, legal, accounting, solicitation agent,
and information agent fees and expenses, (iv) expenses incurred to obtain a
rating of the new notes and (v) fees and expenses of the trustee for the new
notes; provided that the maximum amount payable by us will not exceed $5
million. We will pay other cash expenses to be incurred in connection with the
exchange offer, including SEC registration fees and related fees and expenses.
54
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
existing notes under the exchange offer. If, however, certificates representing
new notes or existing notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the existing notes tendered,
or if tendered existing notes are registered in the name of any person other
than the person signing the letter of transmittal, or if a transfer tax is
imposed for any reason other than the exchange of existing notes pursuant to the
exchange offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The holders of 49.04% in aggregate principal amount of our senior notes and
51.43% of the aggregate principal amount at maturity of our senior discount
notes have already agreed to tender their existing notes in the exchange offer.
If you do not exchange your existing notes for the exchange consideration in the
exchange offer, you will continue to hold your existing notes subject to the
terms and conditions of the indentures under which the existing notes were
issued. However, if the conditions to the exchange offer are met and the
exchange is consummated, the existing indentures will be amended by the proposed
amendments that will materially reduce the covenants and events of default to
which we are subject under the indentures. For a description of the proposed
amendments to the indentures, see "The Proposed Amendments."
If you do not tender your existing notes in the exchange offer, you will
not be entitled to receive the exchange consideration which includes a guaranty
by Loral Space and the Hong Kong subsidiary and warrants to purchase shares of
common stock of Loral Space.
55
DESCRIPTION OF THE NEW NOTES
The following is a summary of the terms of the new notes that we propose to
issue in this exchange offer. The new notes will be issued under an indenture
between us and the trustee for the holders of the new notes. The terms of the
new notes include those terms stated in the new notes indenture and those terms
made part of the new notes indenture by reference to the Trust Indenture Act of
1939. This section is only a summary of the material provisions of the new notes
indenture. This section, however, does not purport to be complete and does not
restate the new notes indenture in its entirety. A copy of the new notes
indenture has been filed with the SEC as an exhibit to the registration
statement of which this prospectus is a part. We urge you to read the new notes
indenture because the new notes indenture and not this description defines your
rights as holders of the new notes. You may obtain copies of the new notes
indenture from us. See "Where You Can Find More Information." This section uses
defined terms. See "-- Certain Definitions."
The new notes are to be issued under a new notes indenture, to be dated as
of the Closing Date, between us, as issuer, each of our Restricted Subsidiaries,
as Subsidiary Guarantors, Loral Space & Communications Ltd., as Parent
Guarantor, and Bankers Trust Company, as trustee. As used in this Description of
New Notes, the terms "we," "our" and "us" refer to Loral CyberStar, Inc.
GENERAL
The New Notes
- have a maximum aggregate principal amount of $675.0 million;
- mature on July 15, 2006;
- are dated as of October 15, 2001;
- accrue interest at 10% per year, payable semi-annually on each of January
15 and July 15 of each year, beginning July 15, 2002. The initial
interest payment on July 15, 2002 will include interest accrued from
October 15, 2001; and
- are our unsubordinated obligations.
We will pay interest on the new notes semi-annually in arrears on the
interest payment dates. Principal of, premium, if any, and interest on the new
notes will be payable, and the new notes may be exchanged or transferred, at our
office or agency maintained for those purposes. At our option, we may pay
interest by check mailed to the address of the holders as such address appears
in the security register maintained by the trustee, who will initially act as
the paying agent and registrar for the new notes.
We will issue the new notes in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof or
in global form, as appropriate. See "The Exchange Offer -- Book-Entry Transfer."
We will not charge a service fee for any registration of transfer or exchange of
new notes, but we may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
Redemption At Any Time. The new notes will be redeemable, at our option,
in whole or in part, at any time or from time to time prior to maturity (any
such date, the "Redemption Date"), upon not less than 30 nor more than 60 days'
prior notice mailed by first class mail to each holder's last address as it
appears in the security register, at a redemption price equal to (i) the
principal amount of the new notes being redeemed, plus (ii) accrued and unpaid
interest, if any, to the Redemption Date, plus (iii) the Make Whole Premium.
The "Called Principal" means the principal amount of a new note to be
redeemed.
56
The "Make Whole Premium" means, with respect to any new note, an amount
(which in no event may be less than zero) equal to the excess, if any, of (x)
the Discounted Value of the Called Principal over (y) the amount of such Called
Principal.
The "Discounted Value" shall be determined with respect to any Called
Principal of any new note by discounting all Remaining Scheduled Payments with
respect to the Called Principal from their respective scheduled due dates to the
Redemption Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the new notes is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
The "Remaining Scheduled Payments" means, with respect to the Called
Principal of any new note, all payments of such Called Principal and interest
thereon that would be due after the Redemption Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Redemption Date is not a date on which
interest payments are due to be made under the terms of the new notes, then the
amount of the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Redemption Date and required to be paid on
such Redemption Date.
The "Reinvestment Yield" means 50 basis points over the yield to maturity
implied by the Treasury Constant Maturity Series Yields reported, for the latest
day for which such yields have been so reported as of the second Business Day
preceding the Redemption Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such Redemption Date.
Such implied yield will be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the actively
traded U.S. Treasury security having a maturity closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security having
a maturity closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal, the
number of years (calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse between the Redemption Date with
respect to such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
Redemption With Excess Cash Flow. The new notes will also be redeemable,
at our option, in whole or in part, at any time or from time to time prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each holders' last address as it appears in the security
register, in an aggregate principal amount not to exceed $100 million, at a
redemption price equal to (i) 101% of the principal amount of the new notes
being redeemed, plus (ii) accrued and unpaid interest, if any, to the Redemption
Date. Any such redemption shall be payable only out of Excess Cash Flow. The
aggregate cumulative amount of any such redemption(s) shall be called the
"Excess Cash Flow Redemption Payments."
Partial Redemption. In the case of any partial redemption, selection of
the new notes for redemption will be made by the trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
relevant new notes are listed or, if such new notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as such
trustee in its sole discretion shall deem to be fair and appropriate; provided
that no new note of $1,000 in principal amount or less shall be redeemed in
part. If any new note is to be redeemed in part only, the notice of redemption
relating to such new note shall state the portion of the principal amount
thereof to be redeemed. A new note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
57
GUARANTIES
Our obligations under the new notes are fully and unconditionally
guaranteed on a senior, unsecured basis by the Parent Guarantor and the
Subsidiary Guarantors. See "Description of Loral Space Guaranty."
Notwithstanding the foregoing, the Subsidiary Guaranty shall not be
enforceable against any Subsidiary Guarantor in an amount in excess of the net
worth of the Subsidiary Guarantor at the time that determination of the net
worth is, under applicable law, relevant to the enforceability of the Subsidiary
Guaranty. The Subsidiary Guarantor's net worth shall include any claim of the
Subsidiary Guarantor against us or any other Guarantor for reimbursement and any
claim against any other Guarantor for contribution.
RANKING
The indebtedness evidenced by the new notes ranks equal with our existing
and future unsubordinated indebtedness. The new notes rank senior to all our
subordinated indebtedness, including the Subordinated Intercompany Note. If we
default, the holders are entitled to be paid in full before any of our
subordinated debt. In addition, the trustee for the holders will have the right
to block payments on our subordinated debt for certain time periods if there is
a default under the new notes.
The indebtedness evidenced by the Subsidiary Guaranties ranks equal with
the relevant Restricted Subsidiary's existing and future unsubordinated
indebtedness. Each Subsidiary Guaranty ranks senior to all subordinated debt of
such Restricted Subsidiary, including the Subordinated Subsidiary Guarantors
Guaranties. If the Restricted Subsidiary defaults, the holders are entitled to
be paid in full before any subordinated debt of the Restricted Subsidiary. In
addition, the trustee for the holders will have the right to block payments on
the subordinated debt of a Restricted Subsidiary for certain time periods if
there is a default under its Subsidiary Guaranty.
The indebtedness evidenced by the Loral Space Guaranty ranks equal with
Loral Space's existing and future unsubordinated indebtedness, including Loral
Space's indebtedness under its 9 1/2% Senior Notes due 2006. The Loral Space
Guaranty ranks senior to subordinated debt of Loral Space, including Loral
Space's subordinated guaranty of the Subordinated Intercompany Note. If Loral
Space defaults, the holders are entitled to be paid in full before any
subordinated debt of Loral Space. In addition, the trustee for the holders will
have the right to block payments on Loral Space's subordinated debt for certain
time periods if there is a default under the Loral Space Guaranty.
CERTAIN DEFINITIONS
We have set forth below a summary of certain terms used in this description
of the new notes. You should read the new notes indenture for the full
definition of all terms.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, our aggregate net
income (or loss) and the aggregate net income (or loss) of our Subsidiaries for
such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(i) the net income (or loss) of any person (other than net income or loss
attributable to a Restricted Subsidiary) in which any person (other
than us or any of our Restricted Subsidiaries) has a joint interest
and the net income (or loss) of any Unrestricted Subsidiary, except
that Adjusted Consolidated Net Income for any period shall include the
amount of dividends or other distributions actually paid to us or any
of our Restricted Subsidiaries by such other person or such
Unrestricted Subsidiary during such period;
58
(ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of paragraph (a) of
the "Limitation on Restricted Payments" covenant described below (and
in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or
consolidated with us or any of our Restricted Subsidiaries or all or
substantially all of the property and assets of such person are
acquired by us or any of our Restricted Subsidiaries;
(iii) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(iv) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of paragraph (a) of the
"Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on our Preferred Stock or
Preferred Stock of any Restricted Subsidiary owned by persons other
than us and any of our Restricted Subsidiaries;
(v) all extraordinary gains and extraordinary losses;
(vi) any net income (or loss) of any Subsidiary Guarantor that ceases to
be a Subsidiary Guarantor because it is designated an Unrestricted
Subsidiary; and
(vii) the Interest Amortization Credit.
"Adjusted Consolidated Net Tangible Assets" means our total amount of
assets and the total amount of assets of our Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all our current liabilities and the current liabilities
of our Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on our most recent
quarterly or annual consolidated balance sheet and on the most recent quarterly
or annual consolidated balance sheet of our Restricted Subsidiaries, prepared in
conformity with GAAP and filed with the SEC pursuant to the "Commission Reports
and Reports to Holders" covenant.
"Affiliate" means, as applied to any person, any other person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by us or any of our Restricted
Subsidiaries in any other person pursuant to which such person shall become a
Restricted Subsidiary or shall be merged into or consolidated with us or any of
our Restricted Subsidiaries; provided that such person's primary business is
related, ancillary or complementary to our businesses and to the businesses of
our Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by us or any of our Restricted Subsidiaries of the property and
assets of any person other than ourselves or any of our Restricted Subsidiaries
that constitute substantially all of a division or line of business of such
person; provided that the property and assets acquired are related, ancillary or
complementary to our businesses and to the businesses of our Restricted
Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by us or any of our
Restricted Subsidiaries (other than to us or another Restricted Subsidiary) of
(i) all or substantially all of the Capital Stock of any Restricted Subsidiary
or (ii) all or substantially all of the assets that constitute a division or
line of our business or of any Restricted Subsidiaries. Asset Disposition shall
not include the Data Business Transfer.
59
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by us or any of our Restricted Subsidiaries
to any person other than us or any of our Restricted Subsidiaries of:
(i) all or any of the Capital Stock of any Restricted Subsidiary;
(ii) all or substantially all of the property and assets of one of our
operating units or our business or of any of our Restricted
Subsidiaries; or
(iii) any of our other property and assets or of any of our Restricted
Subsidiaries outside the ordinary course of our business or the
business of such Restricted Subsidiary and, in each case, that is not
governed by the provisions of the new notes indenture applicable to
mergers, consolidations and sales of our assets; provided that "Asset
Sale" shall not include the Data Business Transfer.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means our Board of Directors or any committee of such
Board of Directors duly authorized to act with respect to the new notes
indenture from time to time.
"Board Resolution" means a copy of a resolution, certified by any of our
Executive Officers, our Secretary or our Assistant Secretaries to have been duly
adopted by our Board of Directors and to be in full force and effect on the date
of the certification, and delivered to the Trustee.
"Business Day" means a day except Saturday, Sunday or other day on which
commercial banks in the City of New York, or in the city of the corporate trust
office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such person, whether now outstanding or
issued after the Closing Date, including, without limitation, all of such
person's common stock and preferred stock.
"Capitalized Lease" means, as applied to any person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Certificated Note" means a certificated note registered in the name of the
holder thereof and issued in accordance with the new notes indenture.
"Change of Control" means such time as
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of more than 35% of
the total voting power of the issued and outstanding Voting Stock of
Loral Space;
(ii) Loral Space shall not directly or indirectly own all of our Capital
Stock;
(iii) individuals who on the Closing Date constitute the Board of Directors
of Loral Space (together with any new directors whose election by the
Board of Directors of Loral Space or whose nomination for election by
Loral Space's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors of Loral Space then
in office who either were members of the Board of Directors of Loral
Space on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors of
Loral Space then in office; and
60
(iv) any change in control (or similar event, however denominated) with
respect to Loral Space shall occur under and as defined in any
indenture or agreement in respect of Indebtedness in an aggregate
principal amount in excess of $10,000,000 to which Loral Space is a
party, including the indenture relating to Loral Space's 9 1/2%
Senior Notes due 2006.
"Chief Executive Officer" of the Company means the chief executive officer
or, in the event of his termination or inability to perform his duties, such
other of our Executive Officers as we may designate.
"Closing Date" means the date on which the new notes are originally issued
under the new notes indenture.
"Commission" means the United States Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of:
(i) Adjusted Consolidated Net Income,
(ii) Consolidated Interest Expense, to the extent such amount was deducted
in calculating Adjusted Consolidated Net Income,
(iii) income taxes, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring
gains or losses or sales of assets),
(iv) depreciation expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income,
(v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and
(vi) all other non-cash items or impairments reducing Adjusted
Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by
GAAP to be made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis
for us and our Restricted Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (excluding the Interest Amortization
Credit, but including, without limitation, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and interest in respect of
Indebtedness that is Guaranteed or secured by us or any of our Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by us and our Restricted Subsidiaries during such period; excluding,
however, any premiums, fees and expenses (and any amortization thereof) payable
in connection with the offering of the new notes, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate actual amount of our Indebtedness and the Indebtedness of our
Restricted Subsidiaries (excluding the Subordinated Intercompany Note and the
Subordinated Subsidiary Guarantors Guaranties of the Subordinated Intercompany
Note) on a consolidated basis outstanding on such Transaction Date to (ii) the
aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters for which our financial statements have been filed with the Commission
pursuant to the "Commission Reports and Reports to Holders" covenant described
below (such four fiscal quarter period being the "Four Quarter Period");
provided that (A) pro forma effect shall be given to Asset Dispositions and
Asset Acquisitions
61
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur from the beginning of the Four Quarter Period through
the Transaction Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (B) pro
forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that have been made by any person that has become a Restricted
Subsidiary or has been merged with or into us or any Restricted Subsidiary
during such Reference Period and that would have constituted Asset Dispositions
or Asset Acquisitions had such transactions occurred when such person was a
Restricted Subsidiary as if such Asset Dispositions or Asset Acquisitions were
Asset Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; provided that to the extent that clause (A) or (B) of this
sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the person, or
division or line of business of the person, that is acquired or disposed for
which financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on our or our Restricted Subsidiaries' most recently
available quarterly or annual consolidated balance sheet (which shall be as of a
date not more than 90 days prior to the date of such computation), less any
amounts attributable to Disqualified Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of our Capital
Stock or the Capital Stock of any of our Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us or
any Restricted Subsidiary against fluctuations in currency values.
"Data Business Transfer" means the transfer of the data services business
of us and our Subsidiaries to Loral SpaceCom Corporation in exchange for a
portion of the intercompany indebtedness owing by us to Loral SpaceCom
Corporation on the Closing Date as described in this prospectus including under
the caption "Summary -- Loral CyberStar Unaudited Consolidated Pro Forma
Financial Statements."
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Equity Proceeds" means the amount of Net Cash Proceeds received
by Loral Space after the Closing Date from the issuance and sale of Capital
Stock (other than Disqualified Stock) of Loral Space to the extent such Net Cash
Proceeds are ultimately contributed to our capital.
"Disqualified Stock" means any class or series of Capital Stock of any
person that by its terms or otherwise is
(i) required to be redeemed prior to the Stated Maturity of the new notes,
(ii) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the new
notes, or
(iii) convertible into or exchangeable for Capital Stock referred to in
clause (i) or (ii) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the new notes; provided that any
Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such
person to repurchase or redeem such Capital Stock upon the occurrence
of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the new notes shall not constitute Disqualified
Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "Limitation on
Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below and such Capital
62
Stock specifically provides that such person will not repurchase or
redeem any such stock pursuant to such provision prior to our
repurchase of such new notes as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants described below.
"Excess Cash Flow" means, for any period of determination, (i) Consolidated
EBITDA for such period, less (ii) all capital expenditures, all cash taxes, all
cash interest expense and bank fees, and all principal payments on the new
notes, in each case actually made for such period, plus (iii) any non-cash
restructuring or special charges taken during such period.
"Executive Officer" means the Chairman of the Board, Chief Executive
Officer, President, any Vice President or any other officer that is considered
by the Board of Directors to be an executive officer of the Company.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the new notes indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the new
notes indenture shall be made without giving effect to (i) the amortization of
any expenses incurred in connection with the offering of the new notes and (ii)
except as otherwise provided, the amortization or other impairment charges or
writedowns of any amounts required or permitted by Accounting Principles Board
Opinion No. 16 "Business Combinations," APB No. 17 "Intangible Assets,"
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations," SFAS No. 142 "Goodwill and Other Intangible Assets" or SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
"Global Note" means the global notes issued in accordance with the new
notes indenture.
"Guarantors" means, collectively, all Subsidiary Guarantors and the Parent
Guarantor.
"Guaranty" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guaranty" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guaranty" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guaranty or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a person becoming a
Restricted Subsidiary; provided that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
63
"Indebtedness" means, with respect to any person at any date of
determination (without duplication),
(i) all indebtedness of such person for borrowed money,
(ii) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments,
(iii) all obligations of such person in respect of letters of credit or
other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters
of credit (including trade letters of credit) securing obligations
(other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of
such person to the extent such letters of credit are not drawn upon
or, if drawn upon, to the extent such drawing is reimbursed no later
than the third Business Day following receipt by such person of a
demand for reimbursement),
(iv) all obligations of such person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due
more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of
such services, except Trade Payables,
(v) all obligations of such person as lessee under Capitalized Leases,
(vi) all Indebtedness of other persons secured by a Lien on any asset of
such person, whether or not such Indebtedness is assumed by such
person; provided that the amount of such Indebtedness, which is not
so assumed, shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such
Indebtedness,
(vii) all Indebtedness of other persons Guaranteed by such person to the
extent such Indebtedness is Guaranteed by such person, and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided that (A)
the amount outstanding at any time with respect to any Indebtedness issued with
original issue discount is the original issue price of such Indebtedness, (B)
Permitted Customer Advances and Prepayment Supports shall be deemed not to be
"Indebtedness" and (C) Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Independent Financial Advisor" means an investment banking firm,
accounting firm or other financial advisory firm of national standing in the
United States, as the case may be, (i) which, in the judgment of the Board of
Directors, does not, and whose directors, officers or Affiliates do not, have a
material direct or indirect financial interest in us (provided that ownership of
our Capital Stock constituting less than 2% of all our outstanding Capital Stock
shall not constitute a material direct or indirect financial interest), and (ii)
which, in the judgment of the Board of Directors, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Interest Amortization Credit" means the reduction in interest expense
resulting from the amortization of the difference between the carrying value of
the new notes recorded upon issuance less the actual principal amount of the new
notes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect us or any of our Restricted Subsidiaries against fluctuations in
interest rates in respect of Indebtedness to or under which we or any of our
Restricted Subsidiaries is a party or beneficiary on the date of this Indenture
or becomes a party or a beneficiary hereafter; provided that the notional
principal
64
amount thereof does not exceed the principal amount of the Indebtedness of us
and our Restricted Subsidiaries that bears interest at floating rates.
"Investment" in any person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guaranty or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on our or our Restricted Subsidiaries' balance sheet) or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair market
value of the Capital Stock (or any other Investment), held by us or any of our
Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary, including, without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to us or
any of our Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to us or
any of our Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Kingston" means Kingston Communications International Limited, a company
incorporated under the laws of England, and its successors and assigns.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Loral Space" means Loral Space & Communications Ltd.
"Loral Space Guaranty" means the Guaranty by Loral Space in favor of the
trustee for the benefit of the holders of the new notes of our obligations under
the new notes and the new notes indenture.
"Matra" means Matra Marconi Space UK Limited, a company incorporated under
the laws of England that is the parent company of MMS Space Systems, a
subsidiary of Matra Marconi Space N. V. and the manufacturer under the Telstar
12 Satellite Contract.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to us or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash equivalents
(including cash or cash equivalents that are deposited in escrow pending
satisfaction of conditions specified in the relevant sale documents or that
secures Prepayment Supports, in each case when such cash or cash equivalents are
released to us or a Restricted Subsidiary), net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to our or our Restricted Subsidiaries' consolidated results
of operations, taken as a whole, (iii) payments made to repay Indebtedness or
any other obligation outstanding at the time of such Asset Sale that either (A)
is secured by a Lien on the property or assets sold or (B) is required to be
paid as a result of such sale and (iv) appropriate amounts to be provided by us
or any Restricted Subsidiary as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other post-
65
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to us or any Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Notes Guaranties" means the Loral Space Guaranty and the Subsidiary
Guaranties.
"Offer to Purchase" means an offer to purchase new notes by us from the
holders commenced by mailing a notice to the trustee and each holder stating:
(i) the covenant pursuant to which the offer is being made and that all
new notes validly tendered will be accepted for payment on a pro
rata basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Payment Date");
(iii) that any new note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the we default in the payment of the purchase price,
any new note accepted for payment pursuant to the Offer to Purchase
shall cease to accrue interest on and after the Payment Date;
(v) that holders electing to have a new note purchased pursuant to the
Offer to Purchase will be required to surrender the new note,
together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the new note completed, to the
paying agent at the address specified in the notice prior to the
close of business on the third Business Day immediately preceding
the Payment Date;
(vi) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
third Business Day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name of
such holder, the principal amount of new notes delivered for
purchase and a statement that such holder is withdrawing his
election to have such new notes purchased; and
(vii) that holders whose new notes are being purchased only in part will
be issued new notes equal in principal amount to the unpurchased
portion of the new notes surrendered; provided that each new note
purchased and each new note issued shall be in a principal amount of
$1,000 or integral multiples thereof.
On the Payment Date, we shall (i) accept for payment on a pro rata basis
new notes or portions thereof tendered pursuant to an Offer to Purchase; (ii)
deposit with the paying agent money sufficient to pay the purchase price of all
new notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the trustee all new notes or portions thereof so accepted together
with an Officers' Certificate specifying the new notes or portions thereof
accepted for payment by us. The paying agent shall promptly mail to the holders
of new notes so accepted payment in an amount equal to the purchase price, and
the trustee shall promptly authenticate and mail to such holders a new note
equal in principal amount to any unpurchased portion of the new note
surrendered; provided that each new note purchased and each new note issued
shall be in a principal amount of $1,000 or integral multiples thereof. We will
publicly announce the results of an Offer to Purchase as soon as practicable
after the Payment Date. The trustee shall act as the paying agent for an Offer
to Purchase. We will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
66
regulations are applicable, in the event that the we are required to repurchase
new notes pursuant to an Offer to Purchase.
"Officer" means, with respect to us, (i) any of our Executive Officers or
any of our Directors or (ii) our Treasurer or any Assistant Treasurer, or the
Secretary or any Assistant Secretary.
"Opinion of Counsel" means a written opinion signed by legal counsel who
may be our employee or our outside counsel. Each such Opinion of Counsel shall
include the statements provided for in the United States Trust Indenture Act of
1939, as amended, Section 314(e), if applicable.
"Orion Atlantic" means International Private Satellite Partners, L.P., a
Delaware limited partnership.
"Parent Guarantor" means Loral Space & Communications Ltd.
"Permitted Customer Advances" means our obligations or obligations of any
Restricted Subsidiary to repay money received by us or such Restricted
Subsidiary from customers as bona fide prepayment for services to be provided
by, or purchases to be made from, us or such Restricted Subsidiary.
"Permitted Investment" means
(i) an Investment in us or a Restricted Subsidiary or a person which
will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, us or a Restricted
Subsidiary; provided that such person's primary business is related,
ancillary or complementary to our businesses and the businesses of
our Restricted Subsidiaries on the date of such Investment;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP; and
(iv) stock, obligations or securities received in satisfaction of
judgments.
"Permitted Liens" means
(i) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP
shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities
that do not materially interfere with the ordinary course of our
business or the business of any of our Restricted Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Closing Date; provided that (a)
such Lien is created solely for the purpose of
67
securing Indebtedness Incurred in accordance with the "Limitation on
Indebtedness" covenant described below, (1) to finance the cost
(including the cost of improvement, transportation, development and
design, installation, integration or construction) of the item of
property or assets subject thereto and such Lien is created prior
to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of
full operation of such property (or such shorter period as is set
forth in such covenant) or (2) to refinance any Indebtedness
previously so secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost (plus, in the
case of any refinancing Indebtedness referred to in clause
(vi)(a)(2) above, premiums, accrued interest, fees and expenses),
and (c) any Lien permitted by this clause shall not extend to or
cover any property or assets other than such item of property or
assets and any improvements on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of our business or the business
of our Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of ours or of our
Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases permitted pursuant to clause (ix) above;
(xi) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any person existing at the time such person becomes, or such
property becomes a part of, any Restricted Subsidiary; provided that
such Liens (a) do not extend to or cover any of our property or
assets or the property or assets of any Restricted Subsidiary other
than the property or assets so acquired and (b) were not incurred in
contemplation of the acquisition thereof;
(xii) Liens in favor of us or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against us or any Restricted Subsidiary that does not give rise to
an Event of Default; provided that any reserve or other appropriate
provision that shall be required in conformity with GAAP shall have
been made therefor;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with
the importation of goods;
(xvi) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in
each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements
designed solely to protect us or any of our Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of
commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by us or
any of our Restricted Subsidiaries in the ordinary course of
business in accordance with our past practices and the past
practices of our Restricted Subsidiaries prior to the Closing Date;
(xviii) [Intentionally Omitted];
68
(xix) Liens (including Liens securing Prepayment Supports) on amounts of
money or Temporary Cash Investments that each represent bona fide
prepayments of at least $5 million on agreements for the long-term
sale or lease of capacity on any satellite owned by us or a
Restricted Subsidiary, but only to the extent that the amount of
money or Temporary Cash Investments subject to any such Lien does
not exceed the amount of such prepayment and reasonable interest
thereon;
(xx) Liens encumbering contracts between us or any Restricted Subsidiary
and any third party customer relating to use of a VSAT owned by us or
any Restricted Subsidiary but only if, and so long as, the
Indebtedness secured by any such Lien is also secured by a Lien
permitted under clause (vi) of this definition encumbering such VSAT;
and
(xxi) Liens upon a satellite and components thereof during the period in
which such satellite is being constructed, provided that (a) such
Liens (1) are for the benefit of only the manufacturer of such
satellite or components and (2) secure only our obligation or the
obligation of any Restricted Subsidiary to pay the purchase price
for such satellite or components and (b) such Liens are actually
released upon, or prior to, the completion of construction of such
satellite and prior to the launch or commencement of full operations
of such satellite.
"Prepayment Support" means our reimbursement obligations or the
reimbursement obligations of any Restricted Subsidiary in connection with any
fully secured letter of credit or similar credit support issued by any third
party in connection with our obligations or the obligations of such Restricted
Subsidiary to repay amounts received as bona fide prepayments of at least $5
million on agreements for the long-term sale or lease of capacity on a satellite
owned by us or a Restricted Subsidiary.
"Released Indebtedness" means, with respect to any Asset Sale, Indebtedness
(i) which is owed by us or any Restricted Subsidiary (the "Obligors") prior to
such Asset Sale, (ii) which is assumed by the purchaser or any affiliate thereof
in connection with such Asset Sale and (iii) with respect to which the Obligors
receive written, unconditional releases from each creditor, no later than the
closing date of such Asset Sale.
"Replacement Satellite" means the replacement satellite for the satellite
known as Telstar 11.
"Restricted Subsidiary" means any Subsidiary of ours other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for our most
recent fiscal year, accounted for more than 10% of our consolidated revenues and
the consolidated revenues of our Restricted Subsidiaries or (ii) as of the end
of such fiscal year, was the owner of more than 10% of our consolidated assets
and the consolidated assets of our Restricted Subsidiaries, all as set forth on
our most recently available consolidated financial statements for such fiscal
year.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subordinated Intercompany Note" means the 10% subordinated promissory note
due July 30, 2006 to be issued by us on the Closing Date to Loral SpaceCom
Corporation in exchange for a portion of the intercompany indebtedness owed by
us to Loral SpaceCom Corporation on the Closing Date.
"Subordinated Loral Space Guaranty" means the subordinated guaranty of the
Subordinated Intercompany Note executed by Loral Space in favor of the holder of
the Subordinated Intercompany Note.
69
"Subordinated Subsidiary Guarantors Guaranties" means the subordinated
guaranties of the Subordinated Intercompany Note executed by the Subsidiary
Guarantors in favor of the holder of the Subordinated Intercompany Note.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such person
and one or more other Subsidiaries of such person.
"Subsidiary Guarantors" means, collectively, all Restricted Subsidiaries;
provided that any person that becomes an Unrestricted Subsidiary in compliance
with the "Limitation on Restricted Payments" covenant shall not be included in
"Subsidiary Guarantors" after becoming an Unrestricted Subsidiary.
"Subsidiary Guaranty" means the Guaranty by the Subsidiary Guarantors of
the our obligations under the new notes and the new notes indenture, pursuant to
the new notes indenture.
"Successful Launch" means, with respect to any satellite, the placing into
orbit of such satellite in its assigned orbital position with at least 40% of
the transponder capacity fully operational.
"Telstar 10" means the satellite known as Telstar 10/Apstar IIR (formerly
known as Orion 3), and any replacement for such satellite.
"Telstar 11" means the satellite known as Telstar 11 (formerly known as
Orion 1), and any replacement for such satellite.
"Telstar 12" means the satellite known as Telstar 12 (formerly known as
Orion 2), and any replacement for such satellite.
"Telstar 11 Satellite Contract" means the fixed price turnkey contract
originally between British Aerospace Public Limited Company and Orion Atlantic
for the design, construction, launch and delivery in orbit of Telstar 11.
"Telstar 12 Satellite Contract" means the spacecraft purchase agreement
between us and Matra for construction and launch of Telstar 12.
"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the
United States of America or any agency thereof,
(ii) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof)
and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in
clause (ii) above,
(iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of
ours) organized and in existence under the laws of the United States
of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, and
70
(v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or
by any political subdivision or taxing authority thereof, and rated at
least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services, in each case which is required to be paid within one year.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by us or any of our Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"TT&C Financing" means the agreement, dated November 23, 1993, between
General Electric Capital Corporation and International Satellite Partners, L.P.
("Orion Atlantic"), relating to borrowings by Orion Atlantic, which obligations
have been assumed by us.
"Unrestricted Subsidiary" means
(i) any Subsidiary of ours that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary of ours) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, us or any Restricted Subsidiary; provided that (A)
any Guaranty by us or any Restricted Subsidiary of any Indebtedness of the
Subsidiary being so designated shall be deemed an Incurrence of such
Indebtedness and an Investment by us or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below, and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that immediately after giving effect to such
designation (x) we could Incur $1.00 of additional Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant described below and (y)
no Event of Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the trustee by promptly filing
with the trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations of, obligations
fully guaranteed by, or participations in pools consisting solely of obligations
of or obligations guaranteed by, the United States of America for the payment of
which guaranty or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Voting Stock" means with respect to any person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such person.
"Wholly Owned" means, with respect to any Subsidiary of any person, the
ownership, beneficially and of record, of all of the outstanding Capital Stock
of such Subsidiary (other than any director's qualifying shares and Investments
by foreign nationals mandated by applicable law) by such person or one or more
Wholly Owned Subsidiaries of such person.
71
COVENANTS
The new notes indenture contains covenants with which we and our Restricted
Subsidiaries must comply. The new notes indenture will contain, among others,
the following covenants.
LIMITATION ON INDEBTEDNESS
(a) We will not, and will not permit any of our Restricted Subsidiaries to,
Incur any Indebtedness (other than the new notes, the Subsidiary Guaranties and
Indebtedness existing on the Closing Date (including the Existing Notes not
exchanged for new notes, the Subordinated Intercompany Note and the Subordinated
Subsidiary Guarantors Guaranties); provided that we may Incur Indebtedness if,
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Consolidated Leverage Ratio would be
greater than zero and less than 5.0 to 1.0. Notwithstanding the foregoing, we
and our Restricted Subsidiary (except as specified below) may Incur each and all
of the following:
(i) Indebtedness outstanding at any time that is Incurred to finance the
purchase or construction of (and related launch, insurance and other
costs with respect to) the Replacement Satellite; provided, however,
that the amount of any such Indebtedness shall not exceed (x)
$100,000,000 plus (y) the aggregate amount of all Excess Cash Flow
Redemption Payments actually made as of such date plus (z) the amount
of any Designated Equity Proceeds; except to the extent such amount
of Designated Equity Proceeds is used as a basis to Incur
Indebtedness pursuant to clause (viii) of this paragraph, to make
Investments or to make Restricted Payments; provided further, that
any such Indebtedness shall be Incurred contemporaneously with the
purchase of the Replacement Satellite or within 60 days thereafter
(or Incurred to refinance, renew or replace such Indebtedness); and
provided further that, if such Indebtedness is Incurred to finance
the construction of the Replacement Satellite, any such indebtedness
shall be Incurred within 60 days after the completion of
construction;
(ii) Indebtedness owed (A) to us or (B) to any of our Restricted
Subsidiaries; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to us or another
Restricted Subsidiary) shall be deemed, in each case, to constitute
an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness,
other than Indebtedness Incurred under clause (ii), (iv), (vi) or
(viii) of this paragraph, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the new notes, the
Subsidiary Guaranties or Indebtedness that is pari passu with, or
subordinated in right of payment to, the new notes shall only be
permitted under this clause (iii) if (A) in case the new notes or
the Subsidiary Guaranties are refinanced in part or the Indebtedness
to be refinanced is pari passu with the new notes or the Subsidiary
Guaranties, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made pari passu with, or subordinate in
right of payment to, the remaining new notes or the Subsidiary
Guaranties, as the case may be, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the new notes or
the Subsidiary Guaranties, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the new notes or the Subsidiary
Guaranties at least to the extent that the Indebtedness to be
refinanced is subordinated to the new notes or the Subsidiary
Guaranties, as the case may be, and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness,
does not mature prior to the Stated Maturity of the Indebtedness to
be refinanced or refunded, and the
72
Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or
refunded;
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such
agreements (a) are designed solely to protect us or our Subsidiaries
against fluctuations in foreign currency exchange rates or interest
rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of
fees, indemnities and compensation payable thereunder, and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guaranties or letters
of credit, surety bonds or performance bonds securing any of our
obligations or the obligations of any of our Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with
the disposition of any business, assets or Restricted Subsidiary
(other than Guaranties of Indebtedness Incurred by any person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received
by us or any Restricted Subsidiary in connection with such
disposition;
(v) our Indebtedness, to the extent the net proceeds thereof are promptly
(A) used to purchase new notes tendered in an Offer to Purchase made
as a result of a Change in Control or (B) deposited to defease the
new notes as described below under "Defeasance";
(vi) Guaranties of the new notes and Guaranties of our Indebtedness by any
Restricted Subsidiary provided the Guaranty of such Indebtedness is
permitted by and made in accordance with the "Issuance of Guaranties
by New Restricted Subsidiaries" covenant described below;
(vii) Indebtedness not to exceed $5,000,000 at any time outstanding
Incurred to finance the cost (including the cost of design,
development, construction, installation, improvement, transportation
or integration) of equipment (other than satellites) or inventory
acquired by us or any Restricted Subsidiary after the Closing Date;
(viii) our Indebtedness not to exceed, at any one time outstanding, the
amount of Net Cash Proceeds received by us after the Closing Date
from Designated Equity Proceeds, except to the extent such amount of
Designated Equity Proceeds is used as a basis to Incur Indebtedness
pursuant to clause (i) of this paragraph or to make Investments or
to make Restricted Payments provided that such Indebtedness does not
mature prior to Stated Maturity of the new notes and has an Average
Life longer than the new notes; and
(ix) indemnification obligations by us and our Restricted Subsidiaries in
favor of former Subsidiaries ("Transferred Subsidiaries") of us
transferred pursuant to the Data Business Transfer against amounts
(including guarantee payments) paid or expenses incurred by such
Transferred Subsidiaries under their Guaranties of the existing
notes.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the (i) maximum amount of Indebtedness that we or a
Restricted Subsidiary may incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies and (ii) we and each Subsidiary
Guarantor may not Incur any Indebtedness other than Acquired Indebtedness that
is expressly subordinated to any of our other Indebtedness or Indebtedness of
such Subsidiary Guarantor, as the case may be, unless such Indebtedness, by its
terms or the terms of any agreement or instrument pursuant to which such
Indebtedness is outstanding, is also expressly made subordinate to the new notes
or the Subsidiary Guaranty of such Subsidiary Guarantor, as the case may be, at
least to the extent that such Indebtedness is subordinated to such other
Indebtedness; provided that the limitation in this clause (ii) shall not apply
to distinctions between categories of unsubordinated Indebtedness which exist by
reason of (a) any liens or other encumbrances arising or created in respect of
some but not all
73
unsubordinated Indebtedness, (b) intercreditor agreements between holders of
different classes of unsubordinated Indebtedness or (c) different maturities or
prepayment provisions.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guaranties, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this "Limitation on Indebtedness" covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, we, in our sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
(d) In the event that we or any Restricted Subsidiary shall repay any
Indebtedness (other than the new notes) pursuant to clause (i)(A) of the
"Limitation on Asset Sales" covenant, the aggregate amount of Indebtedness which
may otherwise be Incurred under clause (viii) of paragraph (a) of this covenant
shall be reduced by the amount of such repayment. We shall designate how much of
such reduction shall be applied to each such clause.
LIMITATION ON RESTRICTED PAYMENTS
(a) We will not, and will not permit any Restricted Subsidiary, directly or
indirectly, to:
(i) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Capital Stock and (y) pro rata dividends or
distributions on Common Stock of Restricted Subsidiaries held by
minority stockholders, provided that such dividends do not in the
aggregate exceed the minority stockholders' pro rata share of such
Restricted Subsidiaries' net income from the first day of the fiscal
quarter beginning immediately following the Closing Date) held by
persons other than us or any of our Restricted Subsidiaries,
(ii) purchase, redeem, retire or otherwise acquire for value any shares of
our Capital Stock or the Capital Stock of any Guarantor or any
Unrestricted Subsidiary (including options, warrants or other rights
to acquire such shares of Capital Stock) held by persons other than
us and our Wholly Owned Subsidiaries,
(iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of our Indebtedness that is subordinated in
right of payment to the new notes or Indebtedness of any Subsidiary
Guarantor that is subordinated to the Subsidiary Guaranties (other
than, in each case, the purchase, repurchase or the acquisition of
Indebtedness in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in any case due within one
year of the date of acquisition), or
(iv) make any Investment, other than a Permitted Investment, in any
person;
(such payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) an Event of Default shall have occurred
and be continuing, (B) except with respect to Investments in Restricted
Subsidiaries and dividends on the Common Stock of any Subsidiary Guarantor paid
to us or a Restricted Subsidiary, we could not Incur at least $1.00 of
Indebtedness under the first sentence of paragraph (a) of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date (after giving pro forma effect to the
proposed Restricted Payment) shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by us or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a
74
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to the "Commission Reports and
Reports to Holders" covenant plus (2) the aggregate Designated Equity Proceeds
received by us after the Closing Date; except to the extent such amount of
Designated Equity Proceeds is used as a basis to Incur Indebtedness pursuant to
clause (i) or (viii) of paragraph (a) under the "Limitation on Indebtedness"
covenant described above, plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by us or any Restricted
Subsidiary in such person or Unrestricted Subsidiary.
(b) The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph (a);
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the new notes including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of paragraph (a) of the
"Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of our Capital Stock
(or options, warrants or other rights to acquire such Capital Stock)
in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of our Capital Stock (other than
Disqualified Stock);
(iv) [intentionally omitted];
(v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
new notes indenture applicable to mergers, consolidations and
transfers of all or substantially all of our property and assets;
(vi) [intentionally omitted]; and
(vii) Investments to the extent the amount invested consists solely of an
amount of Designated Equity Proceeds received within six months of
the Investment, except to the extent such amount of Designated
Equity Proceeds was used as a basis to Incur Indebtedness pursuant
to clause (i) or (viii) of paragraph (a) under the "Limitation on
Indebtedness" covenant described above or to make Restricted
Payments;
provided that, except in the case of clauses (i) and (iii), no Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (b)
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) thereof) and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (iii) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments.
Any Restricted Payments made other than in cash shall be valued at fair
market value. The amount of any Investment "outstanding" at any time shall be
deemed to be equal to the amount of such
75
Investment on the date made, less the return of capital to us and our Restricted
Subsidiaries with respect to such Investment (up to the amount of such
Investment on the date made).
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
We will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except:
(i) to us or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary, provided any Investment in such person remaining after
giving effect to such issuance or sale would have been permitted to
be made under the "Limitation on Restricted Payments" covenant, if
made on the date of such issuance or sale; and
(iv) issuances or sales of Common Stock of any Restricted Subsidiary, the
Net Cash Proceeds of which are promptly applied pursuant to clause
(A) or (B) of the "Limitation on Asset Sales" covenant described
below; provided that at no time may a Restricted Subsidiary, the
Common Stock of which has been issued or sold pursuant to this clause
(iv), be the owner of a satellite.
ISSUANCES OF GUARANTIES BY NEW RESTRICTED SUBSIDIARIES
We will provide to the trustee, on the date that any person becomes a
Restricted Subsidiary, a supplemental indenture to the new notes indenture,
executed by such new Restricted Subsidiary, providing for a full and
unconditional guaranty on a senior basis by such new Restricted Subsidiary of
our obligations under the new notes and the new notes indenture to the same
extent as that set forth in the new notes indenture; provided that, in the case
of any new Restricted Subsidiary that becomes a Restricted Subsidiary through
the acquisition of a majority of its voting Capital Stock by us or any other
Restricted Subsidiary, such guaranty may be subordinated to the extent required
by the obligations of such new Restricted Subsidiary existing on the date of
such acquisition that were not incurred in contemplation of such acquisition. A
Subsidiary Guarantor shall be released from its Subsidiary Guaranty in the event
all the Capital Stock of such Subsidiary Guarantor is sold in compliance with
the provisions of the new notes indenture to a person other than us or another
Restricted Subsidiary.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of our Capital Stock or with any Affiliate of ours or
any Restricted Subsidiary, except upon fair and reasonable terms no less
favorable to us or such Restricted Subsidiary than could be obtained, at the
time of such transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing therefor, in
a comparable arm's-length transaction with a person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the disinterested members
of the Board of Directors or (B) for which we or a Restricted
Subsidiary delivers to the trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is
fair to us or such Restricted Subsidiary from a financial point of
view;
76
(ii) any transaction solely between us and any of our Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries;
(iii) the payment of reasonable and customary regular fees to our
directors who are not employees of ours;
(iv) any payments or other transactions pursuant to any tax-sharing
agreement between us and any other person with which we file a
consolidated tax return or with which we are part of a consolidated
group for tax purposes;
(v) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(vi) Kingston's and Matra's rights to commissions and other payments under
sales representation or ground operations agreements; Matra's rights
to payments, including without limitation incentive payments, under
the Telstar 11 Satellite Contract and Telstar 12 Satellite Contract;
and Kingston's rights to payments for services under network
monitoring contracts, in each case as in effect on the Closing Date
and with such extensions, amendments and renewals that may be entered
into on terms at least as favorable to us or our Restricted
Subsidiaries, as the case may be, as the terms of agreements in
effect on the Closing Date; or
(vii) the Data Business Transfer or the issuance of the Subordinated
Intercompany Note.
Notwithstanding the foregoing, any transaction covered by the first paragraph of
this "Limitation on Transactions with Shareholders and Affiliates" covenant and
not covered by clauses (ii) through (vii) of this paragraph, the aggregate
amount of which exceeds $5 million in value, must be approved or determined to
be fair in the manner provided for in clause (i)(A) or (B) above.
LIMITATION ON LIENS
We will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character, or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary, without making effective provision for all of the new notes and all
other amounts due under the new notes indenture to be directly secured equally
and ratably with (or, if the obligation or liability to be secured by such Lien
is subordinated in right of payment to the new notes, prior to) the obligation
or liability secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens existing on the Closing Date; provided that such Liens shall
secure only those obligations which they secure on the Closing Date;
(ii) Liens granted after the Closing Date on any of our assets or our
Capital Stock or on our Restricted Subsidiaries created in favor of
the holders of the new notes;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to us or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to us or such other
Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of
paragraph (a) of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any of our property or
assets or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced; or
(v) Permitted Liens.
We will not, and will not permit any Restricted Subsidiary to, create, incur,
assume or suffer to exist any Lien on Telstar 11, Telstar 12 or Telstar 10 that
secures Indebtedness, other than pursuant to clauses (vi) or (xxi) of the
definition of Permitted Liens.
77
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any sale-leaseback transaction involving any of its
assets or properties whether now owned or hereafter acquired, whereby we or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which we or such Restricted Subsidiary, as the case may be,
intends to use for substantially the same purpose or purposes as the assets or
properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease constitutes Indebtedness and secures or relates to
industrial revenue or pollution control bonds; (iii) the transaction is solely
between us and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) we or such Restricted Subsidiary, within
twelve months after the sale or transfer of any assets or properties is
completed, applies an amount not less than the net proceeds received from such
sale in accordance with clause (A) or (B) of the first paragraph of the
"Limitation on Asset Sales" covenant described below.
LIMITATION ON ASSET SALES
We will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale unless (i) such sale is made on an arms-length basis and the
consideration received by us or such Restricted Subsidiary (including the amount
of any Released Indebtedness) is at least equal to the fair market value of the
assets sold or disposed of, as determined (a) by the Board of Directors of the
seller thereof or (b) if the purchase price for such Asset Sale equals or
exceeds $10,000,000, a fairness opinion by a nationally recognized appraisal,
accounting or investment banking firm addressed to us and delivered by us to the
trustee and (ii) at least 85% of the consideration received (excluding the
amount of any Released Indebtedness) consists of cash or Temporary Cash
Investments or any property or assets that are referred to in clause (B) of this
paragraph. In the event and to the extent that the Net Cash Proceeds received by
us or any of our Restricted Subsidiaries from one or more Asset Sales occurring
on or after the Closing Date in any period of 12 consecutive months exceed 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date closest
to the commencement of such 12-month period for which a consolidated balance
sheet of ours and our subsidiaries has been filed pursuant to the "Commission
Reports and Reports to Holders" covenant), then we shall or shall cause the
relevant Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount equal to such excess Net Cash Proceeds to permanently repay our
unsubordinated Indebtedness or the unsubordinated Indebtedness of any Restricted
Subsidiary owing to a person other than us or any of our Restricted Subsidiaries
or (B) invest an equal amount, or the amount not so applied pursuant to clause
(A) (or enter into a definitive agreement committing to so invest within twelve
months after the date of such agreement), in property or assets (other than
current assets) of a nature or type or that are used in a business (or in a
company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, ours and our Restricted Subsidiaries existing on the
date of such investment and (ii) apply (no later than the end of the 12-month
period referred to in clause (i)) such excess Net Cash Proceeds (to the extent
not applied pursuant to clause (i)) as provided in the following paragraph of
this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, we must
commence, not later than the 15th Business Day of such month, and consummate an
Offer to Purchase from the holders on a pro rata basis an aggregate principal
amount of new notes equal
78
to the Excess Proceeds on such date, at a purchase price equal to 101% of the
principal amount of the new notes, plus accrued interest (if any) to the Payment
Date.
INSURANCE
The new notes indenture will provide that we will maintain (a) in-orbit
insurance with respect to Telstar 11, Telstar 12 and Telstar 10 in an amount at
least equal to the cost to replace such satellite with a satellite of comparable
or superior technological capability (as estimated by the Board of Directors)
and having at least as much transmission capacity as such satellite, and (b)
with respect to each other satellite to be launched by us or any Restricted
Subsidiary and each replacement satellite therefor, (i) launch insurance with
respect to each such satellite covering the period from the launch of such
satellite to 180 days following such launch in an amount equal to or greater
than the sum of (A) the cost to replace such satellite pursuant to the contract
pursuant to which a replacement satellite will be constructed, (B) the cost to
launch a replacement satellite pursuant to the contract pursuant to which a
replacement satellite will be launched and (C) the cost of launch insurance for
such satellite or, in the event that we have reason to believe that the cost of
obtaining comparable insurance for a replacement satellite would be materially
higher, our best estimate of the cost of such comparable insurance and (ii) at
all times subsequent to 180 days after the launch (if it is a Successful Launch)
of each such satellite, in-orbit insurance in an amount at least equal to the
cost to replace such satellite with a satellite of comparable or superior
technological capability (as estimated by the Board of Directors) and having at
least as much transmission capacity as such satellite was designed to have. The
in-orbit insurance required by this paragraph shall provide that, if 50% or more
of a satellite's initial capacity is lost, the full amount of insurance will
become due and payable, and that, if a satellite is able to maintain more than
50% but less than 90% of its initial capacity, a pro-rata portion of such
insurance will become due and payable. The insurance required by this paragraph
shall name us and/or any Subsidiary Guarantor as the sole loss payee or payees,
as the case may be, thereof.
In the event that we (or a Subsidiary Guarantor) receive proceeds from
insurance relating to any satellite, we (or a Subsidiary Guarantor) may use a
portion of such proceeds to repay any vendor or third-party purchase money
financing pertaining to such satellite (other than Telstar 11) that is required
to be repaid by reason of the loss giving rise to such insurance proceeds. We
(or a Subsidiary Guarantor) may use the remainder of such proceeds to acquire,
develop, construct, launch and insure a replacement satellite (including
components for a related ground spare) if (i) such replacement satellite is of
comparable or superior technological capability as compared with the satellite
being replaced and has at least as much transmission capacity as the satellite
being replaced and (ii) we will have sufficient funds to service our projected
debt service requirements until the scheduled launch of such replacement
satellite and for one year thereafter and to acquire, develop, construct, launch
and insure (in the amounts required by the preceding paragraph) such replacement
satellite, provided that such replacement satellite is scheduled to be launched
within 26 months of the receipt of such proceeds. Any such proceeds not used as
permitted by this paragraph shall be applied, within 90 days, to reduce our
Indebtedness or shall constitute Excess Proceeds for purposes of the "Limitation
on Asset Sales" covenant.
REPURCHASE OF NEW NOTES UPON A CHANGE OF CONTROL
We must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all new notes then outstanding, at a
purchase price equal to 101% of the outstanding principal amount of the new
notes, plus accrued interest (if any) to the Payment Date.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment (including
repurchases of new notes) required by the foregoing covenant (as well as may be
contained in other securities of ours which might be outstanding at the time).
The above covenant requiring us to repurchase the new notes will, unless
consents are obtained, require us to repay all indebtedness then outstanding
which by its terms would prohibit such new note repurchase, either prior to or
concurrently with such new note repurchase.
79
REPLACEMENT SATELLITE
Prior to the purchase or construction of the Replacement Satellite, we
shall provide to the trustee, a written opinion from an independent party
qualified in making such determination that the purchase price or construction
cost, as the case may be, of the Replacement Satellite is consistent with then
prevailing market prices for comparable satellites.
BUSINESS ACTIVITIES
We will not, and we will not permit any Restricted Subsidiary to, engage in
any business other than (i) any of the lines of business conducted by us and our
Restricted Subsidiaries on the Closing Date, including the ownership and
operation of geosynchronous satellites through which we and our Restricted
Subsidiaries provide fixed satellite services such as video distribution and
other satellite transmission services such as transmission capacity for cable
and television programmers, news and information networks, telecommunications
companies, internet service providers and other carriers for a variety of
applications, and (ii) any business reasonably related thereto.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of the new notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Loral Space
Guaranty or the new notes unless such consideration is offered to be paid and is
paid to all holders of the new notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
RATING
We shall use our best efforts from the Closing Date to obtain a rating from
Moody's or, if no such rating can be so obtained from Moody's, S&P, with respect
to the new notes.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not we are required to file reports with the Commission, we
shall file with the Commission all such reports and other information as it
would be required to file with the Commission by Sections 13(a) or 15(d) under
the Securities Exchange Act of 1934 if it were subject thereto. We shall supply
the trustee and each holder or shall supply to the trustee for forwarding to
each such holder, without cost to such holder, copies of such reports and other
information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the new
notes indenture:
(a) default in the payment of principal of (or premium, if any, on) any
new note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any new note when the same
becomes due and payable, and such default continues for a period of 30
days;
(c) default in the performance or breach of the provisions of the new
notes indenture applicable to mergers, consolidations and transfers of
all or substantially all of our assets or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on
Asset Sales" or "Repurchase of New Notes Upon a Change of Control"
covenant;
(d) we default in the performance of or breach any other covenant or
agreement of ours in the new notes indenture or under the new notes
(other than a default specified in clause (a), (b) or (c) above) and
such default or breach continues for a period of 30 consecutive days
after written
80
notice by the trustee or the holders of 25% or more in aggregate
principal amount of the new notes;
(e) there occurs with respect to (A) any issue or issues of our
Indebtedness, any Subsidiary Guarantor or any Significant Subsidiary
having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such persons, whether such
Indebtedness now exists or shall hereafter be created or (B) the TT&C
Financing or any refinancing thereof which is secured by substantially
the same collateral, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure
to make a principal payment at the fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of
such payment default;
(f) any final judgment or order (not covered by insurance) for the payment
of money in excess of $10 million in the aggregate for all such final
judgments or orders against all such persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against us, any Subsidiary Guarantor or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any
period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such persons
to exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(g) a court having jurisdiction in the premises enters a decree or order
for (A) relief in respect us, any Subsidiary Guarantor or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of ours, any Subsidiary
Guarantor or any Significant Subsidiary or for all or substantially all
of our property and assets, any Subsidiary Guarantor or any Significant
Subsidiary or (C) the winding up or liquidation of our affairs or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days;
(h) we, any Subsidiary Guarantor or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law,
(B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of ours, any Subsidiary Guarantor or any Significant
Subsidiary or for all or substantially all of our property and assets,
any Subsidiary Guarantor or any Significant Subsidiary or (C) effects
any general assignment for the benefit of creditors;
(i) any Notes Guaranty shall cease to be, or shall be asserted in writing
by us or any Guarantor not to be, in full force and effect or
enforceable in accordance with their respective terms; or
(j) the occurrence of an Event of Default described under "Description of
Loral Space Guaranty -- Events of Default."
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to us or an Event of Default of the
type described in clause (g) under "Description of Loral Space
Guaranty -- Events of Default" with respect to Loral Space) occurs and is
continuing under the new notes indenture, the trustee or the holders of at least
25% in aggregate principal amount of the new notes then outstanding, by written
notice to us (and to the trustee if such notice is given by the holders), may,
and the trustee at the request of such holders shall, declare the principal
amount of, premium, if any, and accrued interest on such new notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
amount, premium, if any, and accrued interest shall be
81
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by us or the relevant Guarantor or
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to us
or an Event of Default of the type described in clause (g) under "Description of
Loral Space Guaranty -- Events of Default" occurs with respect to Loral Space,
the principal amount of, premium, if any, and accrued interest on the new notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the trustee or any holder.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on our behalf with the intention of
avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the new notes pursuant to the optional redemption provisions
of the new notes indenture, an equivalent Make Whole Premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the new notes.
The holders of at least a majority in principal amount of the outstanding
new notes by written notice to us and to the trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the new notes that have
become due solely by such declaration of acceleration, have been cured or waived
and (ii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction. For information as to the waiver of defaults,
see "Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding new notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the new notes indenture, that may involve
the trustee in personal liability, or that the trustee determines in good faith
may be unduly prejudicial to the rights of holders of new notes not joining in
the giving of such direction and may take any other action it deems proper that
is not inconsistent with any such direction received from holders of such new
notes. A holder may not pursue any remedy with respect to the new notes
indenture or the new notes unless: (i) the holder gives the trustee written
notice of a continuing Event of Default; (ii) the holders of at least 25% in
aggregate principal amount of outstanding new notes make a written request to
the trustee to pursue the remedy; (iii) such holder or holders offer the trustee
indemnity satisfactory to such trustee against any costs, liability or expense;
(iv) the trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) during such 60-day period,
the holders of a majority in aggregate principal amount of the outstanding new
notes do not give the trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of a new note
to receive payment of the principal of, premium, if any, or interest on, such
new note or to bring suit for the enforcement of any such payment, on or after
the due date expressed in the new notes, which right shall not be impaired or
affected without the consent of the holder.
The new notes indenture will require certain of our officers to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of our activities and of the activities of our
Restricted Subsidiaries and our and our Restricted Subsidiaries' performance
under the new notes indenture and that we have fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. We
will also be obligated to notify the trustee of any default or defaults in the
performance of any covenants or agreements under the new notes indenture.
82
MERGER, CONSOLIDATION AND SALE OF ASSETS
Each of us and each Subsidiary Guarantor will not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any person
or permit any person to merge with or into us or any Subsidiary Guarantor
unless:
(i) we or any Subsidiary Guarantor, as the case may be, shall be the
continuing person, or the person (if other than us or any Subsidiary
Guarantor) formed by such consolidation or into which we or any
Subsidiary Guarantor, as the case may be, is merged or that acquired
or leased such property and assets of ours or any Subsidiary
Guarantor, as the case may be, shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the trustee, all of our
obligations or the obligations of any Subsidiary Guarantor, as the
case may be, on all of the new notes and under the new notes
indenture;
(ii) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing;
(iii) if such transaction involves us or any Significant Subsidiary
thereof, immediately after giving effect to such transaction on a pro
forma basis, we, or any person becoming the successor obligor on the
new notes shall have a Consolidated Net Worth equal to or greater
than our Consolidated Net Worth immediately prior to such
transaction;
(iv) if such transaction involves us or any Significant Subsidiary thereof,
immediately after giving effect to such transaction on a pro forma
basis, we, or any person becoming the successor obligor of the new
notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first sentence of paragraph (a) of the "Limitation on
Indebtedness" covenant; provided that this clause (iv) shall not apply
to a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; provided that, in connection
with any such merger or consolidation, no consideration (other than
Common Stock in the surviving person or us) shall be issued or
distributed to our stockholders; and
(v) We or the Subsidiary Guarantor, as the case may be, deliver to the
trustee an Officers' Certificate (attaching the arithmetic computations
to demonstrate compliance with clauses (iii) and (iv)) and Opinion of
Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision
and that all conditions precedent provided for herein relating to such
transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of our Board of Directors, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is to
change the state of our incorporation; and provided further that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations.
Upon any consolidation or merger, or any sale, conveyance, transfer or
other disposition of all or substantially all of the property and assets of us
or any Subsidiary Guarantor, as the case may be, in accordance with the
foregoing requirements, the successor person formed by such consolidation or
into which we or such Subsidiary Guarantor is merged or to which such sale,
conveyance, transfer or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, us or such
Subsidiary Guarantor under the new notes indenture with the same effect as if
such successor person had been named as us or such Subsidiary Guarantor in the
new notes indenture, except in the case of a lease, the predecessor person shall
be relieved of all obligations and covenants under the new notes indenture and
the new notes.
83
DEFEASANCE
Defeasance and Discharge. The new notes indenture will provide that we
will be deemed to have paid and will be discharged from any and all obligations
in respect of the new notes, on the 123rd day after the deposit referred to
below, and the provisions of the new notes indenture will no longer be in effect
with respect to such new notes (except for, among other matters, certain
obligations to register the transfer or exchange of such new notes, to replace
stolen, lost or mutilated new notes, to maintain paying agencies and to hold
monies for payment in trust) if, among other things, (A) we have deposited with
the trustee, in trust, money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the relevant new notes on the Stated
Maturity of such payments in accordance with the terms of the new notes
indenture and new notes, (B) we have delivered to the trustee (i) either (x) an
Opinion of Counsel to the effect that holders will not recognize income, gain or
loss for federal income tax purposes as a result of our exercise of our option
under this "Defeasance" provision and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of
the Internal Revenue Service to the same effect unless there has been a change
in applicable federal income tax law after the Closing Date such that a ruling
is no longer required or (y) a ruling directed to the trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and, after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which we, any of our
Subsidiaries or Loral Space is a party or by which we, or any of our
Subsidiaries is bound, and (D) if at such time the new notes are listed on a
national securities exchange, we have delivered to the trustee an Opinion of
Counsel to the effect that the new notes will not be delisted as a result of
such deposit, defeasance and discharge. If our obligations are discharged as
provided above, the obligations of all Guarantors will also be discharged.
Defeasance of Certain Covenants and Certain Events of Default. The new
notes indenture further will provide that its provisions will no longer be in
effect with respect to clauses (iii) and (iv) under "Merger, Consolidation and
Sale of Assets" and all the covenants described herein under "Covenants,"
clauses (c) and (d) under "Events of Default" with respect to such clauses (iii)
and (iv) under "Merger, Consolidation and Sale of Assets" and such covenants and
clauses (e) and (f) under "Events of Default" shall be deemed not to be Events
of Default, upon, among other things, the deposit with the trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the new notes on the Stated Maturity of such payments in
accordance with the terms of the new indenture and new notes, the satisfaction
of the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by us to the trustee of an Opinion of Counsel to the
effect that, among other things, the holders will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and defeasance
of certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred. If the
foregoing occurs, the analogous provisions of the Loral Space Guaranty will no
longer be in effect or constitute Loral Space Events of Default.
Defeasance and Certain Other Events of Default. In the event we exercise
our option to omit compliance with certain covenants and provisions of the new
notes indenture with respect to the new notes
84
as described in the immediately preceding paragraph and such new notes are
declared due and payable because of the occurrence of an Event of Default that
remains applicable, the amount of money and/or U.S. Government Obligations on
deposit with the trustee will be sufficient to pay amounts due on such new notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on such new notes at the time of the acceleration resulting from such Event
of Default. However, we will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the new notes indenture, including the
Loral Space Guaranty may be made by us, the Guarantors and the trustee with the
consent of the holders of not less than a majority in aggregate principal amount
of the outstanding new notes; provided, however, that no such modification or
amendment may, without the consent of each holder affected thereby, (i) change
the Stated Maturity of the principal of, or any installment of interest on, any
new note, (ii) reduce the principal amount of, or premium, if any, or interest
on, any new note, (iii) change the place or currency of payment of principal of,
or premium, if any, or interest on, any new note, (iv) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity (or, in the case of a redemption, on or after the Redemption Date) of
any new note, (v) reduce the above-stated percentage of outstanding new notes
the consent of whose holders is necessary to modify or amend the new notes
indenture, (vi) waive a default in the payment of principal of, premium, if any,
or interest on the new notes, (vii) release the Guarantors from the Notes
Guaranties, except pursuant to the express provisions of the new notes indenture
(see "Covenants -- Issuances of Guaranties by New Restricted Subsidiaries") or
(viii) reduce the percentage or aggregate principal amount of outstanding new
notes, the consent of whose holders is necessary for waiver of compliance with
certain provisions of the new notes indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The new notes indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the new notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of ours in the new notes indenture or
in any of the new notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of ours or any Guarantor or of
any successor person thereof. Each holder, by accepting the new notes, waives
and releases all such liability.
CONCERNING THE TRUSTEE
The new notes indenture provides that, except during the continuance of a
Default, the trustee will not be liable, except for the performance of such
duties as are specifically set forth in the new notes indenture. If an Event of
Default has occurred and is continuing, the trustee will use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The new notes indenture and provisions of the Trust Indenture Act of 1939,
as amended, incorporated by reference therein contain limitations on the rights
of the trustee, should they become creditors of ours, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The trustee are permitted
to engage in other transactions; provided, however, that, if they acquire any
conflicting interest, they must eliminate such conflict or resign.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of The Depository Trust
Company ("DTC") set forth below are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the DTC
settlement system and are subject to change by DTC from time to time.
85
Neither we nor the exchange agent take any responsibility for these operations
or procedures, and investors are urged to contact the DTC system or its
Participants directly to discuss these matters.
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code, as
amended, and a "clearing agency" registered pursuant to Section 17A of the
Exchange Act. DTC was created to hold securities for its Participants
(collectively, the "Participants") and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates.
DTC's Participants include securities brokers and dealers (including the
Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Indirect access to DTC's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Investors who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
We expect that under the procedures established by DTC upon deposit of each
Global Note, DTC will credit the accounts of Participants designated by the
Initial Purchasers with portions of the principal amount of the Global Note and
ownership of such Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of Participants) and the records of Participants and the
Indirect Participants (with respect to the interests of persons other than
Participants).
The laws of some jurisdictions may require that in order to effectively
transfer interests in securities to certain persons, such persons must take
physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the new notes represented by a Global Note to
such persons may be limited. In addition, because DTC can act only on behalf of
its Participants, who in turn act on behalf of persons who hold interests
through Participants, the ability of a person having an interest in new notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system, or to otherwise take actions
in respect of such interest, may be affected by the lack of a physical
definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the new notes represented by the Global Note for all purposes under the new
notes indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have new notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Notes, and will not be considered the owners
or holders thereof under the new notes indenture for any purpose, including with
respect to the giving of any direction, instruction or approval to the trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest, to exercise any rights of a holder of new notes
under the new notes indenture with respect to such Global Note. We understand
that under existing industry practice, in the event that we request any action
of holders of new notes, or a holder that is an owner of a beneficial interest
in a Global Note desires to take any action that DTC, as the holder of such
Global Note, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. DTC has advised us that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the
86
relevant security as shown on the records of DTC. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of new notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such new notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any new notes represented by a Global Note registered in the name
of DTC or its nominee on the applicable record date will be payable by our
paying agent to or at the direction of DTC or its nominee in its capacity as the
registered holder of the Global Note representing such new notes under the new
notes indenture. Initially, the trustee will act as paying agent and Registrar.
Under the terms of the new notes indenture, we and our paying agent may treat
the persons in whose names the new notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we, nor the
trustee, nor any paying agent has or will have any responsibility or liability
for the payment of such amounts to owners of beneficial interests in a Global
Note (including principal, premium, if any, liquidated damages, if any, and
interest). Payments by the Participants and the Indirect Participants to the
owners of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures. Neither the company nor the trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their obligations under the rules and procedures governing DTC's
operations.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and interest with respect to the new notes will
be made by wire transfer immediately available funds to the accounts specified
by the Global Note Holder.
Secondary trading in long-term notes and notes of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Global
Notes are expected to trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Global Notes will
therefore be required by DTC to settle in immediately available funds. Secondary
trading in Certificated Notes will also be required to be settled in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the new notes.
CERTIFICATED NOTES
The Global Notes will be exchanged for new notes of like tenor and an equal
aggregate principal amount, in authorized denominations and in definitive form,
if (A) (i) DTC notifies us that it is unwilling or unable to continue as
Depositary or (ii) we determine that DTC is unable to continue as Depositary
and, in either case, we fail to appoint a successor Depositary within 90 days,
(B) we determine that such new notes shall no longer be represented by Global
Notes and we execute and deliver to the trustee instructions to such effect or
(C) an Event of Default or event which, with notice or lapse of time or both,
would constitute an Event of Default with respect to the new notes, and which
entitles the holders of the new notes to accelerate the new notes' maturity,
shall have occurred and be continuing.
Certificated Notes issued in exchange for a Global Note shall be registered
upon prior written notice given to the trustee by or on behalf of DTC in
accordance with the new notes indenture. It is expected that such instructions
may be based upon directions received by DTC from Participants or Indirect
Participants with respect to ownership of beneficial interests in Global Notes.
Upon any such issuance, the trustee is required to register such definitive new
notes in the name of such person or persons (or the nominee of any thereof) and
cause the same to be delivered thereto. Neither we nor the trustee shall be
liable for any delay by DTC or any Participant or Indirect Participant in
identifying the beneficial owners of the related new notes and each such person
may conclusively rely on, and shall be protected in relying on, instructions
from DTC for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the new notes to be issued).
87
DESCRIPTION OF LORAL SPACE GUARANTY
The following is a summary of the terms of the Loral Space Guaranty that
Loral Space proposes to provide in this exchange offer. The terms of the Loral
Space Guaranty will be contained in either the new notes indenture or a separate
guaranty agreement.
Loral Space will guaranty our obligations under the new notes, including
the payment of principal and interest on a direct, unsecured and senior basis.
The Loral Space Guaranty:
- will be equal in right of payment with any existing and future
unsubordinated indebtedness Loral Space incurs, including indebtedness
under its 9 1/2% Senior Notes due 2006;
- will be effectively junior in right of payment to all indebtedness and
liabilities (including trade payables) of Loral Space's subsidiaries,
including Loral SpaceCom and Loral Satellite; and
- will be senior in right of payment to all of Loral Space's existing and
future subordinated indebtedness, including Loral Space's subordinated
guaranty of the $29.7 million subordinated intercompany note issued to
Loral SpaceCom in connection with this exchange offer.
This section is only a summary of the material provisions of the Loral
Space Guaranty. This section, however, does not purport to be complete and does
not restate the Loral Space Guaranty in its entirety. A copy of the Loral Space
Guaranty has been filed with the SEC as an exhibit to the registration statement
of which this prospectus is a part. We urge you to read the Loral Space Guaranty
because the Loral Space Guaranty and not this description defines your rights as
holders of the Loral Space Guaranty. You may obtain copies of the Loral Space
guaranty agreement from us. See "Where You Can Find More Information." This
section uses defined terms. See "Certain Definitions."
As used in this Description of Loral Space Guaranty, the term "Loral Space"
refers to Loral Space & Communications Ltd. and the term "Loral Space Guaranty"
refers to the Guaranty, pursuant to the new notes indenture by Loral Space of
our obligations under the new notes indenture and the new notes.
COVENANTS
In the Loral Space Guaranty, Loral Space will be subject to certain
restrictions that limit its and its Restricted Subsidiaries' ability to:
(1) pay dividends;
(2) acquire Equity Interests of Loral Space or any of its Restricted
Subsidiaries;
(3) redeem Indebtedness of Loral Space which is junior in right of payment
to the notes;
(4) make Restricted Investments;
(5) incur Indebtedness;
(6) issue Preferred Stock of its Restricted Subsidiaries;
(7) create Liens;
(8) engage in sale and leaseback transactions;
(9) with respect to its Restricted Subsidiaries, pay dividends, make loans
or advances to Loral Space or any other Restricted Subsidiary or
transfer any of its property or assets to Loral Space or any other
Restricted Subsidiary;
(10) make Asset Sales;
(11) with respect to Loral Space, consolidate or merge with or into another
Person or sell all or substantially all of the properties or assets of
Loral Space and its Restricted Subsidiaries, taken as a whole, to
another Person;
(12) enter into transactions with Affiliates; and
88
(13) with respect to any of its Restricted Subsidiaries, guarantee or
pledge any assets to secure the payment of any other Indebtedness of
Loral Space.
The above limitations are "restrictive covenants" that are promises that
Loral Space makes to you about how Loral Space will run its business, or
business actions that Loral Space promises not to take. A more detailed
description of the restrictive covenants and the exceptions to them follows
below.
ASSET SALES
Loral Space will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless:
(1) Loral Space (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is (a) determined by two officers of Loral Space
if the fair market value is less than $25 million or (b) determined by
Loral Space's Board of Directors and evidenced by a resolution of the
Board of Directors if the fair market value is $25 million or greater,
and, in each case, such fair market value is set forth in an Officers'
Certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Loral Space or
such Restricted Subsidiary is in the form of cash or Cash Equivalents.
Only for purposes of this clause (3), each of the following shall be
deemed to be cash:
(a) any liabilities (as shown on Loral Space's or such Restricted
Subsidiary's most recent balance sheet), of Loral Space or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms junior in right of payment to
the Loral Space Guaranty of the new notes) that are assumed by the
transferee of any such assets pursuant to a customary novation
agreement that releases Loral Space or such Restricted Subsidiary
from further liability;
(b) any securities, notes or other obligations received by Loral Space
or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by Loral Space or such Restricted Subsidiary into cash (to the
extent of the cash received in that conversion);
(c) any assets described in clause (2)or (4) of the next succeeding
paragraph;
(d) Marketable Securities; and
(e) Designated Other Permitted Consideration; provided that the
aggregate fair market value (as determined above) of such
Designated Other Permitted Consideration, taken together with the
fair market value at the time of receipt of all other Designated
Other Permitted Consideration received pursuant to this clause (e),
less the amount of net cash proceeds previously realized in cash
from prior Designated Other Permitted Consideration is less than 5%
of Loral Space's Consolidated Tangible Assets at the time of the
receipt of such Designated Other Permitted Consideration (with the
fair market value of each item of Designated Other Permitted
Consideration being measured at the time received and without
giving effect to subsequent changes in value).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Loral Space may apply (or, in the case of clause (2), (3) or (4) below, enter
into a binding commitment to apply) such Net Proceeds:
(1) to repay Indebtedness of Loral Space or any Restricted Subsidiary which
is not junior in right of payment to the Loral Space Guaranty of the
new notes;
89
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business or to purchase Equity
Interests of a Restricted Subsidiary from another Person;
(3) to make a capital expenditure in a Permitted Business or to make an
Investment in a Permitted Venture; or
(4) to acquire or to acquire the right to use other long-term assets that
are used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, Loral Space may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Loral Space Guaranty.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the second preceding paragraph will constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15 million, Loral Space
will make, or cause Loral CyberStar to make, an Offer to Purchase to all holders
of new notes and all holders of other Indebtedness that is equal in right of
payment with the Loral Space Guaranty of the new notes containing provisions
similar to those set forth in the Loral Space Guaranty with respect to offers to
purchase or redeem with the proceeds of sales of assets to purchase the maximum
principal amount of new notes and such other Indebtedness which is equal in
right of payment to the Loral Space Guaranty of the new notes that may be
purchased out of the Excess Proceeds. The offer price in any Offer to Purchase
to the holders of the new notes will be equal to 101% of principal amount plus
accrued and unpaid interest, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Offer to Purchase,
Loral Space may use such Excess Proceeds for any purpose not otherwise
prohibited by the Loral Space Guaranty. If the aggregate principal amount of new
notes and such other Indebtedness which is equal in right of payment to the
Loral Space Guaranty of the new notes tendered into such Offer to Purchase
exceeds the amount of Excess Proceeds, the trustee shall select the new notes
and such other Indebtedness which is equal in right of payment to the Loral
Space Guaranty of the new notes to be purchased on a proportional basis based on
the principal amount of new notes and such other Indebtedness which is equal in
right of payment to the Loral Space Guaranty of the new notes tendered. Upon
completion of each Offer to Purchase, the amount of Excess Proceeds shall be
reset at zero.
Loral Space will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of new notes pursuant to an Offer to Purchase. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Loral Space Guaranty, Loral Space will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Asset Sale provisions of the Loral Space
Guaranty by virtue of such conflict.
RESTRICTED PAYMENTS
Loral Space will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Loral Space's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any distribution,
dividend or payment in connection with any merger or consolidation
involving Loral Space or any of its Restricted Subsidiaries) or to the
direct or indirect holders of Loral Space's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Loral Space or to Loral Space or a Restricted
Subsidiary of Loral Space);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Loral Space) any Equity Interests of Loral Space, any
Restricted Subsidiary of Loral Space or any direct or indirect parent
of Loral Space;
90
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is junior
in right of payment to the Loral Space Guaranty of the new notes,
except the scheduled payment of interest or principal at the Stated
Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4)
above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Loral Space Default or Loral Space Event of Default shall have
occurred and be continuing or would occur as a consequence thereof; and
(2) Loral Space would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to either test set forth in the first paragraph of the covenant
described under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Loral Space and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (2), (3), (4) and (6) of the next succeeding
paragraph) is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Loral Space for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date to the end of Loral
Space's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds received by Loral Space
since the Issue Date as a contribution to its common equity capital
or from the issue or sale of Equity Interests of Loral Space (other
than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of Loral Space that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities)
sold to a Subsidiary of Loral Space), except to the extent such net
cash proceeds are used to increase the amount of dividends on
Preferred Stock of Loral Space or the amount of Restricted
Investments that may be made pursuant to clause (7) of the next
succeeding paragraph; plus
(c) 100% of the fair market value (as determined by Loral Space's Board
of Directors and evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the trustee) of
assets used or useful in a Permitted Business received by Loral
Space since the Issue Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Loral Space
(other than Disqualified Stock); plus
(d) to the extent not already included in Consolidated Net Income of
Loral Space for such period, if any Restricted Investment that was
made by Loral Space or any Restricted Subsidiary after the Issue
Date is sold for cash or otherwise liquidated or repaid for cash,
the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment or designated
amount of Unrestricted Subsidiary; plus
91
(e) to the extent that any Unrestricted Subsidiary is designated by
Loral Space as a Restricted Subsidiary after the Issue Date, an
amount equal to the lesser of
(A) the net book value of Loral Space's Investment in such
Unrestricted Subsidiary at the time of such designation; and
(B) the fair market value of Loral Space's Investment in such
Unrestricted Subsidiary at the time of such designation.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the foregoing paragraph;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness junior in right of payment to the
Loral Space Guaranty or of any Equity Interests of Loral Space or any
Restricted Subsidiary in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a subsidiary of
Loral Space) of, Equity Interests of Loral Space (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness of Loral Space junior by its terms in right of payment to
senior Indebtedness of Loral Space with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or distribution by a Restricted Subsidiary
of Loral Space to the holders of its common Equity Interests so long
as Loral Space or such Restricted Subsidiary receives at least its
proportional share (and in like form) of such dividend or distribution
in accordance with its common Equity Interests;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Loral Space or any Restricted
Subsidiary of Loral Space held by any employee of Loral Space or a
Restricted Subsidiary or member of Loral Space's (or any of its
Restricted Subsidiaries') management pursuant to any equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $10 million;
(6) the purchase by a Restricted Subsidiary of shares of Capital Stock of
Loral Space from Loral Space or the deemed repurchase of Capital Stock
by Loral Space or a Restricted Subsidiary on the exercise of stock
options;
(7) payments of dividends by Loral Space on Preferred Stock of Loral Space
or the making of Restricted Investments by Loral Space or any
Restricted Subsidiary in an aggregate amount not to exceed 100% of the
aggregate net cash proceeds received by Loral Space since the Issue
Date from the issue or sale of Equity Interests of Loral Space (other
than Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such dividend payment or
Restricted Investment shall be excluded from clause (3)(b) of the
immediately preceding paragraph;
(8) the purchase by Loral Space or a Restricted Subsidiary of Equity
Interests in a Restricted Subsidiary from another Person;
(9) scheduled dividends payable on the Series C Preferred Stock;
(10) payment of dividends on Preferred Stock of a Restricted Subsidiary;
and
(11) other Restricted Payments in an aggregate principal amount not to
exceed $25 million;
92
provided that Loral Space will not and will not permit any of its Restricted
Subsidiaries to make any Restricted Payment contemplated by clauses (2) through
(10) above so long as a Loral Space Default has occurred and is continuing.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or by Loral Space or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be either
(a) determined by the Board of Directors whose resolution with respect
thereto shall be delivered to the trustee, or
(b) based upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of international standing if the fair market
value exceeds $25 million. Not later than the date of making any
Restricted Payment, Loral Space shall deliver to the trustee an
Officers' Certificate stating that such Restricted Payment is permitted
and setting forth the basis upon which the calculations required by
this "Restricted Payments" covenant were computed, together with a copy
of any fairness opinion or appraisal required by the Loral Space
Guaranty.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and Loral Space will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of Preferred Stock;
provided, however, that Loral Space or any Restricted Subsidiary may incur
Indebtedness (including Acquired Debt), and Loral Space may issue Disqualified
Stock, and any Restricted Subsidiary may issue Preferred Stock, if, after giving
effect to the incurrence of such Indebtedness or the issuance of such
Disqualified Stock or Preferred Stock and the application of the proceeds
thereof, no Loral Space Default would occur as a consequence of such incurrence
or issuance or be continuing following such incurrence or issuance and either
(1) the Consolidated Leverage Ratio of Loral Space would be less than 5.0
to 1.0, or
(2) Loral Space's Consolidated Capital Ratio as of the most recent
available quarterly or annual balance sheet is less than 2.0 to 1.0.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Loral Space and its Restricted Subsidiaries of
additional Indebtedness and letters of credit pursuant to Credit
Facilities in an aggregate principal amount at any one time outstanding
under this clause (1) not to exceed $850 million as of such date of
incurrence less the aggregate amount of all Net Proceeds of Asset Sales
applied to repay term Indebtedness outstanding under one or more Credit
Facilities pursuant to clause (1) of the second paragraph of the
covenant described under "Asset Sales";
(2) the incurrence by Loral Space and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by Loral Space of Indebtedness represented by the Loral
Space Guaranty of the new notes to be issued on the Issue Date and
Loral Space's 9 1/2% Senior Notes due 2006;
(4) the issuance by a Subsidiary of Preferred Stock or the incurrence by
Loral Space's Subsidiaries of Non-Recourse Debt (including Acquired
Debt that constitutes Non-Recourse Debt); provided, however, that if
any such Indebtedness ceases to be Non-Recourse Debt of a Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness
by a Restricted Subsidiary of Loral Space that was not permitted by
this clause (4);
93
(5) the incurrence by Loral Space or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the Loral Space
Guaranty to be incurred under the first paragraph of this covenant or
clause (2), (3) or (5) of this paragraph;
(6) the incurrence by Loral Space or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Loral Space and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Loral Space is the obligor on such Indebtedness, such
Indebtedness must be expressly junior in right of payment to all
Obligations with respect to the Loral Space Guaranty of the new
notes; and
(b)(1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than Loral Space or a Restricted Subsidiary thereof, and
(2) any sale or other transfer of any such Indebtedness to a Person
that is not either Loral Space or a Restricted Subsidiary thereof
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by Loral Space or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the incurrence by Loral Space or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk or currency exchange rate risk;
(8) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment
of dividends on Disqualified Stock or Preferred Stock in the form of
additional shares of the same class of Disqualified Stock or Preferred
Stock, as the case may be, will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock or Preferred Stock
for purposes of this covenant;
(9) the incurrence by Loral Space or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (9), not to exceed $50
million; or
(10) the incurrence by Restricted Subsidiaries of Guarantees of
Indebtedness of Loral Space or any Restricted Subsidiary that is not
junior in right of payment to the Loral Space Guaranty of the new
notes.
Loral Space will not incur any Indebtedness (including Permitted Debt) that
is contractually junior in right of payment to any other Indebtedness of Loral
Space unless such Indebtedness is also contractually junior in right of payment
to the Loral Space Guaranty of the new notes on substantially identical terms;
provided, however, that no Indebtedness of Loral Space shall be deemed to be
contractually junior in right of payment to any other Indebtedness of Loral
Space solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (10) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, Loral
Space will be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
94
LIENS
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind on any asset now owned or hereafter acquired, except
Permitted Liens.
SALE AND LEASEBACK TRANSACTIONS
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Loral Space or any Restricted Subsidiary may enter into a sale and leaseback
transaction if:
(1) Loral Space or such Restricted Subsidiary, as applicable, could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the covenant
described above under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described under "-- Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an Officers' Certificate
delivered to the trustee, of the property that is the subject of such
sale and leaseback transaction; and
(3) the transaction complies with the covenant described above under the
caption "Asset Sales."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Loral Space or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Loral Space or any of its Restricted Subsidiaries;
(2) make loans or advances to Loral Space or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Loral Space or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing
Indebtedness, as in effect on the Issue Date;
(2) any customary (as conclusively determined in good faith by the Chief
Financial Officer of Loral Space) encumbrance or restriction applicable
to Loral Space or a Restricted Subsidiary that is contained in an
agreement or instrument governing or relating to Indebtedness of Loral
Space or Indebtedness contained in any Credit Facilities or
Indebtedness incurred pursuant to clause (4) of the second paragraph of
the covenant entitled "-- Incurrence of Indebtedness and Issuance of
Preferred Stock", provided that, other than with respect to Preferred
Stock of a Subsidiary or Non-Recourse Debt of a Subsidiary (including
Non-Recourse Debt that is Acquired Debt), such encumbrances and
restrictions permit the distribution of funds to Loral
95
Space in an amount sufficient for Loral Space to make the timely
payment of interest, premium (if any), Liquidated Damages (if any) and
principal (whether at stated maturity, by way of a sinking fund
applicable thereto, by way of any mandatory redemption, defeasance,
retirement or repurchase thereof, including upon the occurrence of
designated events or circumstances or by virtue of acceleration upon an
event of default, or by way of redemption or retirement at the option
of the holder of the Indebtedness, including pursuant to offers to
purchase) according to the terms of the Loral Space Guaranty and other
Indebtedness that is solely an obligation of Loral Space, but provided
further that such agreement may nevertheless contain customary (as so
determined) net worth, leverage, invested capital and other financial
covenants, customary (as so determined) covenants regarding the merger
of or sale of all or any substantial part of the assets of Loral Space
or any Restricted Subsidiary, customary (as so determined) restrictions
on transactions with affiliates and customary (as so determined)
subordination provisions governing Indebtedness owed to Loral Space or
any Restricted Subsidiary;
(3) the Credit Agreement as in effect on the Issue Date and any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Credit Agreement, as
in effect on the Issue Date;
(4) the Loral Space Indenture and the notes issued thereunder;
(5) applicable law;
(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Loral Space or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Loral Space Guaranty to be incurred;
(7) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(8) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
(9) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(10) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(11) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(12) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
96
MERGER, CONSOLIDATION OR SALE OF ASSETS
Loral Space will not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not Loral
Space is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of Loral Space and its
Restricted Subsidiaries, taken as a whole, in one or more related
transactions, to another Person, unless:
(1) either: (a) Loral Space is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if
other than Loral Space) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of Bermuda, the
United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Loral Space) or the Person to which such sale,
assignment, transfer, conveyance or other disposition shall have
been made assumes all the obligations of Loral Space under the Loral
Space Guaranty pursuant to agreements reasonably satisfactory to the
trustee;
(3) immediately after such transaction no Loral Space Default exists;
and
(4) Loral Space or the Person formed by or surviving any such
consolidation or merger or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made (if other than
Loral Space):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth
of Loral Space immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period or balance sheet date, as applicable, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to at
least one of the tests set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
In addition, Loral Space may not, directly or indirectly, lease all or
substantially all of its properties or assets in one or more related
transactions, to any other Person.
When a successor corporation assumes all of the obligations of its
predecessor under the Loral Space Guaranty, the predecessor will be released
from those obligations.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets between or
among Loral Space and any of its Restricted Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Loral Space
Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary,
the aggregate fair market value of all outstanding Investments owned by Loral
Space and its Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be an Investment made as of the time of such designation and will
reduce the amount available for Restricted Payments under the first paragraph of
the covenant described under "-- Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as Loral Space shall determine. That designation will
only be permitted if such Investment would be
97
permitted at that time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Loral Space Default.
Loral SpaceCom Corporation, Space Systems/Loral, Loral Orion and Loral
CyberStar will initially be Restricted Subsidiaries under the Loral Space
Guaranty; SatMex, Europe*Star, Globalstar and Globalstar Telecommunications
Limited will initially be Permitted Ventures under the Loral Space Guaranty.
TRANSACTIONS WITH AFFILIATES
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Loral Space or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Loral Space or such
Restricted Subsidiary with an unrelated Person; and
(2) Loral Space delivers to the trustee with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $15 million, either
(a) a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
this covenant and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors
or
(b) an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of international standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject, except as set forth below, to the provisions of
the prior paragraph:
(1) any employment agreement entered into by Loral Space or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of Loral Space or such Restricted
Subsidiary, as the case may be;
(2) transactions between or among Loral Space and/or its Restricted
Subsidiaries;
(3) any sale or other issuance of Equity Interests (other than Disqualified
Stock) of Loral Space;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of Loral Space;
(5) Restricted Payments that are permitted by, and Permitted Investments
that are not prohibited by, the provisions of the Loral Space Guaranty
described under "-- Restricted Payments"; and
(6) transactions between Loral Space and/or its Restricted Subsidiaries, on
the one hand, and a Permitted Venture, on the other hand, provided that
the condition set forth in clause (1) of the prior paragraph is
satisfied.
LIMITATIONS ON ISSUANCES OF GUARANTIES OF INDEBTEDNESS
Loral Space will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guaranty or pledge any assets to secure the payment of any other
Indebtedness of Loral Space unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture or other agreement providing for
the Guaranty of the payment of the new notes by such Restricted Subsidiary (a
"Guarantor"), which Guaranty shall
(1) be senior to or equal to in right of payment with such Restricted
Subsidiary's Guaranty of or pledge to secure such other Indebtedness
and
98
(2) remain in effect for so long as the Guaranty or pledge to secure such
other Indebtedness remains in effect.
No Guarantor will incur any Indebtedness (including Permitted Debt) that is
contractually junior in right of payment to any other Indebtedness of such
Guarantor unless such Indebtedness is also contractually junior in right of
payment to such Guarantor's Guaranty of the new notes on substantially identical
terms; provided, however, that no Indebtedness of a Guarantor shall be deemed to
be contractually junior in right of payment to any other Indebtedness of such
Guarantor solely by virtue of being unsecured.
BUSINESS ACTIVITIES
Loral Space will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to the extent as
would not be material to Loral Space and its Restricted Subsidiaries, taken as a
whole.
PAYMENTS FOR CONSENT
Loral Space will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of the new notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Loral Space Guaranty or the new notes unless such consideration is
offered to be paid and is paid to all holders of the new notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any new notes are
outstanding, Loral Space will furnish to the holders of new notes, within the
time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K (or any
successor forms) if Loral Space were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial
condition and results of operations of Loral Space and its subsidiaries
and, with respect to the annual information only, a report on the
annual financial statements by Loral Space's certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K (or any successor form) if Loral Space were required to file
such reports.
If Loral Space has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
this covenant shall include selected financial information, either on the face
of the financial statements or in the footnotes thereto, regarding the financial
condition and results of operations of Loral Space and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of Loral Space.
In addition, whether or not required by the SEC, Loral Space will file a
copy of all information and reports referred to in clauses (1) and (2) above
with the SEC for public availability within the time periods specified in the
SEC's rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request.
ADDITIONAL AMOUNTS
All payments in respect of the Loral Space Guaranty will be made free and
clear of, and without withholding or deduction for, any present or future taxes,
duties, assessments or governmental charges of whatever nature (collectively,
"Taxes") imposed, levied, collected, withheld or assessed by or within any
jurisdiction in which Loral Space is then incorporated (or the jurisdiction of
incorporation of any successor
99
of Loral Space) or any other jurisdiction in which Loral Space (or Loral Space's
successor) are resident for tax purposes or any political subdivision or taxing
authority thereof or therein (the "relevant jurisdiction"), unless such
withholding or deduction is required by law or by regulation or governmental
policy having the force of law. In the event that any such withholding or
deduction in respect of such payment is so required, Loral Space, or any
successor, will pay those Additional Amounts as will result in receipt by each
holder of the new notes of the gross amount as would have been received by the
holder or the beneficial owner with respect to the new notes, as applicable, had
no such withholding or deduction (including any withholding or deduction
applicable to Additional Amounts payable) been required, except that no
Additional Amounts will be payable for or on account of:
(1) Taxes that would not have been imposed but for:
(a) the existence of any present or former connection between a
holder or a beneficial owner (or between a fiduciary, settler,
beneficiary, member or shareholder of, or possessor of a power
over, a holder, if the holder is an estate, trust, partnership or
corporation) and the relevant jurisdiction, including if this
holder (or such fiduciary, settler, beneficiary, member,
shareholder or possessor) is or has been a national, domiciliary
or resident of or treated as a resident thereof or having been
present or engaged in a trade or business therein or having had a
permanent establishment therein; or
(b) Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended (or any successor provision);
(2) any estate, inheritance, gift, sale, transfer or similar tax,
assessment or other governmental charge;
(3) any Tax that is imposed or withheld by reason of a holder's failure or
a beneficial owner's failure to timely comply with Loral Space's
request, addressed to the holder (a) to provide reasonably required or
requested information concerning the holder's nationality, residence
or identity or those of a beneficial owner or (b) to make any
reasonably required or requested declaration, filing or claim or
satisfy any reasonably required or requested information or reporting
requirement, which, in the case of (a) or (b), is required or imposed
by statute, treaty, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of
such tax; provided, however, that (i) providing information required
by IRS Form W-9 and the appropriate Form W-8, and any successors
thereto and (ii) the execution and delivery of such forms is deemed to
be reasonably required or requested; or
(4) any combination of (1),(2) and (3);
nor shall Additional Amounts be paid with respect to payment of the principal of
or any premium or interest on any such new note, to any holder (including any
fiduciary or partnership) to the extent that the beneficial owner would not have
been entitled to such Additional Amounts had it been the holder of the new note.
Where required by applicable law, Loral Space or any paying agent, as the
case may be, will also
(a) make such withholding or deduction in respect of any Taxes and
(b) remit the full amount withheld or deducted to the relevant
authority in accordance with applicable law.
Loral Space will furnish to each holder, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, certified copies of tax
receipts satisfactory to the Trustee evidencing such payment by Loral Space.
Whenever there is mentioned in any context the payment of principal of or
any premium or interest on, or in respect of, a new note, or the net proceeds
received from Loral Space on the sale or exchange of any new note, such mention
shall be deemed to include mention of the payment of Additional Amounts
100
provided for in the new notes indenture to the extent that, in such context,
Additional Amounts are, were, or would be payable in respect thereof pursuant to
the Loral Space Guaranty.
Loral Space will pay any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges, or similar levies that
arise in any jurisdiction from the execution, delivery, enforcement or
registration of the Loral Space Guaranty or any other document or instrument
relating thereto, or the receipt of any payments with respect to the new notes,
excluding such taxes, charges, or similar levies imposed by any jurisdiction
outside of any jurisdiction in which Loral Space or the paying agent are located
or incorporated (except those resulting from or required to be paid in
connection with, the enforcement of the notes or any other such document or
instrument following the occurrence of any event of default with respect to the
new notes), and has agreed to indemnify each holder for any such taxes paid by
the holder.
The foregoing obligations shall survive any termination, defeasance or
discharge of the Loral Space Guaranty.
EVENTS OF DEFAULT
Each of the following is a Loral Space Event of Default:
(1) [intentionally omitted]
(2) [intentionally omitted]
(3) failure by Loral Space to comply with the provisions described under
"Merger, Consolidation or Sale of Assets";
(4) failure by Loral Space for 30 days after notice to comply with the
provisions described under "-- Asset Sales," "-- Restricted Payments"
or "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(5) failure by Loral Space or any of its Restricted Subsidiaries for 60
days after notice to comply with any of the other agreements in the
Loral Space Guaranty;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Loral Space or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Loral Space or
any of its Restricted Subsidiaries) whether such Indebtedness or
guaranty now exists, or is created after the Issue Date, if that
default:
(a) is caused by a failure to pay principal at maturity of such
Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default");
or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $25
million or more;
(7) failure by Loral Space or any of its Subsidiaries to pay final
judgments aggregating in excess of $25 million, which judgments are not
paid, discharged or stayed for a period of 60 days; and
(8) certain events of bankruptcy or insolvency with respect to Loral Space
or any of its Significant Subsidiaries.
Loral Space is required to deliver to the trustee annually a statement
regarding compliance with the Loral Space Guaranty. Upon becoming aware of any
Loral Space Default, Loral Space is required to deliver to the trustee a
statement specifying such Loral Space Default.
101
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Loral Space,
as such, shall have any liability for any obligations of Loral Space under the
Loral Space Guaranty of the new notes, the new notes indenture, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of new notes by accepting a new note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the new notes. The waiver may not be effective to waive liabilities under the
U.S. federal securities laws.
MODIFICATION AND WAIVER
See "Description of the New Notes -- Modification and Waiver."
DEFEASANCE
The Loral Space Guaranty will contain provisions providing for defeasance
of obligation of Loral Space under the Loral Space Guaranty. See "Description of
the New Notes -- Defeasance."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in Loral Space Guaranty.
Reference is made to the Loral Space Guaranty for a full statement of all such
terms, as well as any other capitalized terms used herein for which no
definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, transfer, conveyance or other disposition of any
assets or rights, other than sales of inventory in the ordinary course
of business consistent with past practices; provided that the sale,
lease, transfer, conveyance or other disposition of all or
substantially all of the assets of Loral Space and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Loral Space Guaranty described under "-- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of Loral Space's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $5 million; or
(b) results in net proceeds to Loral Space and its Restricted
Subsidiaries of less than $5 million;
102
(2) a transfer of assets between or among Loral Space and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to Loral
Space or to another Restricted Subsidiary;
(4) the sale or lease of satellites, transponders or other equipment,
inventory, accounts receivable or other assets in the ordinary course
of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described under "-- Restricted Payments"; and
(7) the issuance of partnership interests by CyberStar, L.P. pursuant to
participation bonuses in accordance with Section 4.3 of the CyberStar
partnership agreement.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The term
"beneficially owns" shall have a corresponding meaning.
"BOARD OF DIRECTORS" means the Board of Directors of Loral Space.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than one year
from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances
with maturities not exceeding one year and overnight
103
bank deposits, in each case, with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Rating Services
and in each case maturing within six months after the date of
acquisition;
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition; and
(7) the Goldman Sachs US$ Liquid Reserves Fund and other funds with
substantially similar investment policies.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED CAPITAL RATIO" of any Person as of any date means the ratio
of
(1) the Total Indebtedness of such Person then outstanding to
(2) the stockholders' equity as of such date as shown on the consolidated
balance sheet of such Person in accordance with GAAP (which, in the
case of Loral Space, shall include the Series C Preferred Stock) after
giving pro forma effect to
(a) the incurrence of any Indebtedness proposed to be incurred or the
issuance of any Disqualified Stock proposed to be issued and the
receipt and application of the proceeds thereof,
(b) any other Indebtedness incurred, Disqualified Stock issued or
preferred stock of any Subsidiary issued or the repayment or
retirement of any of the foregoing since such balance sheet date
and the receipt and application of the proceeds thereof,
(c) any asset dispositions or asset acquisitions (including giving pro
forma effect to the application of proceeds of any asset
disposition) that has occurred since such balance sheet date, in
each case as if they had occurred and such proceeds had been
applied on the date of such balance sheet.
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant
104
to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period)
of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, amounts in respect of items (1), (2) and (4)
for a Restricted Subsidiary of Loral Space shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of Loral Space only to the extent that
a corresponding percentage of the Consolidated Net Income of such Restricted
Subsidiary would be permitted at the date of determination to be dividended to
Loral Space by such Restricted Subsidiary without prior approval (that has not
been obtained) pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED LEVERAGE RATIO" means the ratio of
(1) the Total Indebtedness of Loral Space outstanding as of the most recent
available quarterly or annual balance sheet to
(2) the Consolidated Cash Flow of Loral Space for the four full fiscal
quarters next preceding the incurrence of such Indebtedness or the
issuance of such Disqualified Stock for which consolidated financial
statements are available; provided that pro forma effect shall be given
to
(a) the incurrence of any Indebtedness proposed to be incurred or the
issuance of any Disqualified Stock proposed to be issued and the
receipt and application of the proceeds thereof,
(b) any other Indebtedness incurred, Disqualified Stock issued or
preferred stock of any Subsidiary issued or the repayment or
retirement of any of the foregoing since the beginning of such four
fiscal quarter period and the receipt and application of the
proceeds thereof and
(c) any asset dispositions or asset acquisitions (including giving pro
forma effect to the application of proceeds of any asset
disposition) that has occurred during such four fiscal quarter
period, in each case as if they had occurred and such proceeds had
been applied on the first day of such four fiscal quarter period.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any
105
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified person or one of
its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles shall be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment,
but only to the extent of any cash received by such Person upon
issuance of such Preferred Stock.
"CONSOLIDATED TANGIBLE ASSETS" of any Person means the total amount of
assets (less applicable reserves and any other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Subsidiaries after deducting therefrom all goodwill (but not any other
intangible assets) which under GAAP would be included on such consolidated
balance sheet.
"CREDIT AGREEMENT" means that certain Amended and Restated Credit and
Participation Agreement among Loral SpaceCom Corporation, Space Systems/Loral,
Inc., certain lending banks, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario San Paolo Di Torino
S.P.A., individually and as Italian Export Financing Arranger and as Selling
Bank, dated as of November 14, 1997, providing for up to $850 million of credit
extensions, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"CREDIT FACILITIES" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"DESIGNATED OTHER PERMITTED CONSIDERATION" means the fair market value of
non-cash consideration received by Loral Space or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Other Permitted Consideration pursuant to an Officers' Certificate,
setting forth the basis of such valuation, less the amount of cash or Cash
Equivalents received in connection with a sale of such Designated Other
Permitted Consideration.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Loral Space to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that Loral Space may not repurchase or redeem any such Capital Stock
pursuant to such
106
provisions unless such repurchase or redemption complies with the covenant
described under "-- Restricted Payments."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"GLOBALSTAR" means Globalstar, L.P., a Delaware limited partnership.
"GTL" means Globalstar Telecommunications Limited, a Bermuda limited
partnership.
"EXISTING INDEBTEDNESS" means Indebtedness of Loral Space and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the Issue Date, until such amounts are repaid.
"EQUITY OFFERING" means any public or private sale of Equity Interests
(other than Disqualified Stock) of Loral Space, other than private sales of
Equity Interests to an Affiliate of Loral Space.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by any such other entity as have been approved by a significant
segment of the accounting profession, which are in effect from time to time.
"GUARANTY" means a guaranty other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements entered into in the ordinary course of
business and consistent with past practices designed to protect such
Person against fluctuations in interest rates or currency exchange
rates.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit, excluding letters of credit supporting obligations under
customer contracts until such letters of credit are drawn;
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
107
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount;
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness;
and
(3) in the case of an obligation under a Hedging Obligation
(a) zero if such obligation has been incurred pursuant to clause (7) of
the second paragraph of the covenant described under "-- Incurrence
of Indebtedness and Issuance of Preferred Stock" or
(b) the notional amount of such obligation if not incurred pursuant to
such clause.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided,
however, that Investments shall not include any commercially reasonable (as
determined in good faith by either the Board of Directors of Loral Space or
senior management of Loral Space) extensions of credit to, or Investments made
in, any Person in connection with the purchase or sale of satellites or
satellite services. If Loral Space or any Restricted Subsidiary of Loral Space
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of Loral Space such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of Loral
Space and is not a Permitted Venture, Loral Space shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described under "-- Restricted Payments."
"ISSUE DATE" means the date on which notes under the Loral Space Indenture
were originally issued, which was January 21, 1999.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"LIQUIDATED DAMAGES" means liquidated damages payable under the terms of
the Loral Space Indenture.
"LORAL SPACE DEFAULT" means any event that is, or with the passage of time
or the giving of notice or both would be, a Loral Space Event of Default.
"LORAL SPACE INDENTURE" means the indenture dated as of January 15, 1999
between Loral Space and The Bank of New York, as trustee, relating to Loral
Space's 9 1/2% Senior Notes due 2006.
"MARKETABLE SECURITIES" means, with respect to any Asset Sale, any readily
marketable equity securities that are
(1) traded on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market and
108
(2) issued by a corporation having a total equity market capitalization of
not less than $250 million; provided that the excess of
(a) the aggregate amount of securities of any one such corporation held
by Loral Space and any Restricted Subsidiary over
(b) ten times the average daily trading volume of such securities during
the 20 immediately preceding trading days shall be deemed not to be
Marketable Securities, as determined on the date of the contract
relating to such Asset Sale.
"NET INCOME" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of Preferred Stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with:
(a) any Asset Sale or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Loral Space or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
Indebtedness (other than Indebtedness under any one or more Credit Facilities)
secured by a lien on the asset or assets that were the subject of such Asset
Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness as to which neither Loral Space nor
any of its Restricted Subsidiaries (other than the Restricted Subsidiary that is
the primary obligor and its Subsidiaries so long as no Capital Stock of such
Subsidiaries is owned by Loral Space or any other Restricted Subsidiary),
(1) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(2) is directly or indirectly liable as a guarantor or otherwise, or
(3) constitutes the lender.
"OBLIGATIONS" means any principal, premium if any, interest, penalties,
fees, indemnifications, guarantees, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any of the lines of business conducted by Loral
Space and its Restricted Subsidiaries or its existing Permitted Ventures on the
Issue Date and any other space or communication businesses and any business
reasonably related thereto.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by Loral Space
by first class mail, postage prepaid, to each holder of new notes at its address
appearing in the register for the new notes on the date of the Offer offering to
purchase up to the principal amount of new notes specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to the Loral
Space Guaranty).
109
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer and a settlement date for
purchase of Securities within five Business Days after the Expiration Date.
Loral Space shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of
Loral Space's obligation to make an Offer to Purchase, and the Offer shall be
mailed by Loral Space or, at Loral Space's request, by the Trustee in the name
and at the expense of Loral Space. The Offer shall contain information
concerning the business of Loral Space and its Subsidiaries which Loral Space in
good faith believes will enable such holders of new notes to make an informed
decision with respect to the Offer to Purchase (which at a minimum shall include
(1) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee pursuant to the
Loral Space Guaranty (which requirements may be satisfied by delivery of such
documents together with the Offer), (2) a description of material developments
in Loral Space's business subsequent to the date of the latest of such financial
statements referred to in clause (1) (including a description of the events
requiring Loral Space to make the Offer to Purchase), (3) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring Loral Space to make the Offer to Purchase and (4) any other
information required by applicable law to be included therein). The Offer shall
contain all instructions and materials necessary to enable such holders to
tender new notes pursuant to the Offer to Purchase.
"OFFICER" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Loral Space.
"OFFICER'S CERTIFICATE" means a certificate signed by two Officers.
"OPINION OF COUNSEL" means an opinion from legal counsel who is acceptable
to the Trustee. The counsel may be an employee of, or counsel to, us, Loral
Space, or the Trustee.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Loral Space or in a Restricted Subsidiary of Loral
Space;
(2) any Investment in Cash Equivalents;
(3) any Investment by Loral Space or any Restricted Subsidiary of Loral
Space in a Person engaged in a Permitted Business, if as a result of
such Investment:
(a) such Person becomes a Restricted Subsidiary of Loral Space; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Loral Space or a Restricted Subsidiary of Loral
Space;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described under "-- Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Loral Space;
(6) Hedging Obligations;
(7) Investments in Permitted Ventures;
(8) Investments existing on the Issue Date;
110
(9) Investments in Skybridge, L.P. that are either
(a) required pursuant to the partnership agreement in existence on the
Issue Date, or
(b) required to avoid disproportionate dilution to Loral Space's equity
interest therein pursuant to such partnership agreement or to avoid
financial penalties; and
(10) other Investments in any Person principally engaged in Permitted
Businesses having an aggregate fair market value (measured on the date
each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made
pursuant to this clause (10) at any time outstanding not to exceed 5%
of Loral Space's Consolidated Tangible Assets.
"PERMITTED LIENS" means:
(1) Liens on assets of Loral Space or its Restricted Subsidiaries securing
Indebtedness and other Obligations under Credit Facilities that were
permitted by the Loral Space Guaranty to be incurred;
(2) Liens in favor of Loral Space or any of its Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Loral Space or any Restricted
Subsidiary of Loral Space; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or
consolidated with Loral Space or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by Loral
Space or any Restricted Subsidiary of Loral Space; provided that such
Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant
entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock";
(7) Liens existing on the Issue Date and Liens Loral Space or any
Restricted Subsidiary are or may be obligated to create pursuant to
agreements in existence on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens incurred in the ordinary course of business of Loral Space or
any Restricted Subsidiary of Loral Space with respect to obligations
that do not exceed $50 million at any one time outstanding;
(10) other Liens incidental to the conduct of Loral Space's and its
Restricted Subsidiaries' businesses or the ownership of their
respective property not securing any Indebtedness, and which do not in
the aggregate materially detract from the value of Loral Space's and
its Restricted Subsidiaries' property when taken as a whole, or
materially impair the use thereof in the operation of their respective
businesses; and
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Loral Space
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend,
111
refinance, renew, replace, defease or refund other Indebtedness of Loral Space
or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable), of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all customary expenses incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is junior in right of payment to the Loral Space
Guaranty of the new notes, such Permitted Refinancing Indebtedness has
a final maturity date later than the final maturity date of, and is
junior in right of payment to, the Loral Space Guaranty of the new
notes on terms at least as favorable to the Holders of the Loral Space
Guaranty of the new notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Loral Space or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERMITTED VENTURE" means:
(1) a corporation, partnership or other entity other than a Subsidiary
engaged in one or more Permitted Businesses in respect of which Loral
Space or a Restricted Subsidiary
(a) beneficially owns at least 20% of the Capital Stock of such
entity, and
(b) either is a party to an agreement providing for one or more
parties to such agreement (which may or may not be Loral Space or
a Subsidiary), or is a member of a group that, pursuant to the
constituent documents of the applicable corporation, partnership
or other entity, has the power, to direct the policies, management
and affairs of such entity; or
(2) Globalstar Telecommunications Limited ("Globalstar Telecommunications
Limited"), so long as Globalstar, L.P. is a Permitted Venture and
Globalstar Telecommunications Limited's principal asset consists of
Equity Interests in Globalstar.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"SERIES C PREFERRED STOCK" means Loral Space's 6% Series C Convertible
Redeemable Preferred Stock due 2007.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated by
the SEC, as such Regulation is in
112
effect on the Issue Date, using a percentage of 5% for such calculations instead
of the percentage set forth therein.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person, any corporation,
partnership, association or other business entity that would be required under
GAAP to be consolidated in the financial statements of such Person or one or
more of the other Subsidiaries of that Person (or a combination thereof).
"TOTAL INDEBTEDNESS" means, at any time of determination, without
duplication, the sum of
(1) all Indebtedness of Loral Space and its Restricted Subsidiaries at such
time,
(2) the aggregate redemption price of any Disqualified Stock, and
(3) the aggregate liquidation preference of any Preferred Stock of Loral
Space's Restricted Subsidiaries, in each case as determined on a
consolidated basis in accordance with GAAP.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Loral Space that is
designated by the Board of Directors of Loral Space as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Loral Space or any Restricted Subsidiary of Loral Space unless the
terms of any such agreement, contract, arrangement or understanding are
no less favorable to Loral Space or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of Loral Space;
(3) is a Person with respect to which neither Loral Space nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests, or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Loral Space or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Loral Space or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Loral Space or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Loral Space as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described under
"-- Restricted Payments." If, at any time, any Unrestricted Subsidiary would
fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Loral
Space Guaranty and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of Loral Space as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
Loral Space shall be in default of such covenant. The Board of Directors of
Loral Space may at any time designate any
113
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Loral Space of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if
(1) such Indebtedness is permitted to be incurred under the covenant
described under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period or balance sheet date, as applicable, and
(2) no Loral Space Default would be in existence following such
designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
114
DESCRIPTION OF THE LORAL SPACE WARRANTS
The Loral Space warrants will be issued by Loral Space and will be governed
by a warrant agreement to be entered into between Loral Space and The Bank of
New York, as warrant agent, dated as of the closing date. The summary of the
material provisions of the warrant agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the warrant
agreement, including the definition of certain terms therein. A copy of the form
of warrant agreement has been filed with the Commission as an exhibit to the
registration statement of which this prospectus is a part.
GENERAL
Tendering holders of existing notes tendered and accepted for exchange in
the exchange offer will receive a pro rata share of warrants to purchase up to
an aggregate of 6,657,096 shares of Loral Space common stock, par value $.01 per
share. For every $1,000 principal amount of senior notes you tender, you will
receive warrants to purchase 7.40 shares of common stock of Loral Space at the
exercise price described below. For every $1,000 principal amount at maturity of
senior discount notes you tender, you will receive warrants to purchase 6.98
shares of common stock of Loral Space at the exercise price described below. The
number of warrants of Loral Space to be issued in the exchange offer to any
holder will be rounded up to the nearest full warrant. The Loral Space warrants
will be exercisable immediately and will expire on the fifth anniversary of the
closing date. The exercise price of the Loral Space warrants will equal 110% of
the average of the daily volume-weighted average trading prices of Loral Space
common stock on the New York Stock Exchange (as reported by Bloomberg, L.P.) for
the ten consecutive trading days preceding the second trading day before the
closing of the exchange offer. The exercise price and the number of shares of
Loral Space common stock issuable upon exercise of a Loral Space warrant are
both subject to adjustments as described below. The Loral Space warrants will be
publicly traded, and may be traded separately from the new notes.
The Loral Space warrants may be exercised by surrendering to Loral Space
the certificates evidencing the Loral Space warrants to be exercised together
with the accompanying form of election to purchase, properly completed and
executed, and with payment of the exercise price. Payment of the exercise price
by a holder may be made in the form of cash or a certified or official bank
check payable to the order of Loral Space. In the alternative, each warrant
holder may exercise its right to receive warrant shares on a net basis, such
that, without the exchange of funds, the holder of the warrants may receive the
number of warrant shares otherwise issuable (or payable) upon exercise of its
warrants less that number of warrant shares having an aggregate market price at
the time of exercise equal to the aggregate exercise price that would otherwise
have been paid by the holder of the warrant shares upon such exercise. Upon
surrender of the Loral Space warrant certificate and payment of the exercise
price, the warrant agent will deliver or cause to be delivered, to or upon the
written order of such holder, stock certificates representing the number of
shares of Loral Space common stock or other securities or property to which such
holder is entitled under the Loral Space warrants and warrant agreement,
including, without limitation, at Loral Space's option, cash payable to adjust
for fractional interests in warrant shares issuable upon such exercise in an
amount equal to the current market price (as defined in the warrant agreement)
per share of Loral Space common stock, as determined on the day immediately
preceding the date the Loral Space warrant is presented for exercise, multiplied
by such fraction, computed to the nearest whole cent. If less than all of the
Loral Space warrants evidenced by a warrant certificate are to be exercised, a
new warrant certificate will be issued for the remaining number of Loral Space
warrants.
No service charge will be made for registration of transfer or exchange
upon surrender of any warrant certificate at the office of the warrant agent
maintained for that purpose. Loral Space may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of warrant certificates.
Until exercise, the holders of the Loral Space warrants have no right to
vote on matters submitted to the stockholders of Loral Space or to receive
notice of meetings of stockholders or any other rights of stockholders of Loral
Space, including any right to receive cash dividends. The holders of the Loral
Space
115
warrants have no preemptive rights and are not entitled to share in the assets
of Loral Space in the event of the liquidation, dissolution or winding up of
Loral Space's affairs.
ADJUSTMENTS
The number of shares of Loral Space common stock that may be purchased upon
the exercise of the Loral Space warrants and the exercise price will both be
subject to adjustment in certain events including (i) the payment by Loral Space
of dividends (or other distributions) on common stock payable in shares of such
common stock or other shares of Loral Space's capital stock, (ii) subdivisions,
combinations and certain reclassifications of common stock, (iii) the issuance
of common stock or of rights, options or warrants entitling the holder to
subscribe for shares of common stock, or of securities convertible into or
exchangeable for shares of common stock, for a consideration per share which is
less than current market price, except in the case of bona fide public offerings
and similar transactions, (iv) the distribution to all holders of common stock
of any of Loral Space's assets, debt securities or any rights or warrants to
purchase securities (excluding cash dividends or other cash distributions from
current or retained earnings) (v) certain pro rata repurchases of common stock
at prices in excess of current market prices and (vi) at the discretion of Loral
Space's Board of Directors. In addition, the exercise price may be reduced in
the event of purchase of shares of common stock pursuant to a tender or exchange
offer made by Loral Space or any subsidiary thereof at a price greater than the
current market price of the common stock at the time such tender or exchange
offer expires.
In the event of a taxable distribution to holders of common stock which
results in an adjustment to the number of shares of common stock or other
consideration for which a Loral Space warrant may be exercised, the holders of
the Loral Space warrants may, in certain circumstances, be deemed to have
received a distribution subject to United States Federal income tax as a
dividend. See "Federal Income Tax Consequences."
No adjustment in the exercise price will be required unless such adjustment
would require an increase or decrease of at least $0.01 or one-hundredth
( 1/100) of a share, as the case may be; provided, however, that any adjustment
which is not made will be carried forward and taken into account in any
subsequent adjustment.
In the case of certain stock splits, subdivisions, reclassifications,
redesignations, reorganizations or changes in the number of outstanding shares
of common stock and in the case of consolidations, mergers or share exchanges of
Loral Space or the sale of all or substantially all of the assets of Loral
Space, each Loral Space warrant shall thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such transactions
had the Loral Space warrants been exercised immediately prior thereto.
RESERVATION OF SHARES
At the time of issuance of the Loral Space warrants, Loral Space will have
authorized and reserved for issuance such number of shares of common stock as
shall be initially issuable upon the exercise of the Loral Space warrants. Such
shares of common stock, when paid for and issued must be duly and validly
issued, fully paid and non-assessable, and not subject to any preemptive rights.
AMENDMENT
From time to time, Loral Space and the warrant agent, without the consent
of the holders of the Loral Space warrants, may amend or supplement the warrant
agreement for certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not, in the good faith opinion of
Loral Space's Board of Directors, have an adverse effect on the rights of any
holder. Other amendments or supplements to the warrant agreement generally
require the written consent of the holders of a majority of the then outstanding
Loral Space warrants. The consent of each holder of the Loral Space warrants
affected shall be required for any amendment pursuant to which the exercise
price would be increased or the number of warrant shares purchasable upon
exercise of Loral Space warrants would be decreased.
116
REGISTRATION REQUIREMENTS
Loral Space will use its commercially reasonable efforts to maintain the
effectiveness of a registration statement with respect to the issuance of the
shares of Loral Space common stock until the earlier of (i) such time as all
Loral Space warrants have been exercised and (ii) the fifth anniversary of the
closing date. During any consecutive 365-day period in which the Loral Space
warrants are exercisable, Loral Space will have the ability to suspend the
availability of such registration statement for up to two 30-consecutive-day
periods (except during the 30 days immediately prior to the expiration of the
Loral Space warrants) if Loral Space's Board of Directors determines in good
faith that there is a valid purpose for the suspension and provides notice of
such determination to the holders at their addresses appearing in the register
of Loral Space warrants maintained by the warrant agent.
REPORTS
So long as any Loral Space warrants remain outstanding, and whether or not
any new notes remain outstanding, Loral Space will cause copies of the reports
and other documents described under "Description of Notes -- Commission Reports
and Reports to Holders" to be filed with the warrant agent.
THE PROPOSED AMENDMENTS
The following is a description of the proposed amendments to certain
restrictive covenants and certain events of default in provisions of the
indentures governing the senior notes and senior discount notes, as amended to
be made effective in accordance with Article Nine of the indentures. Holders of
existing notes who desire to participate in the exchange offer must consent to
the proposed amendments prior to 12:00 midnight, New York City time, on the
expiration date. No holder of existing notes may participate in the exchange
offer without consenting to the proposed amendments, either affirmatively or in
the form of a consent to the proposed amendments contained in the letter of
transmittal and consent. The proposed amendments, if approved, will be contained
and reflected in a supplemental indenture.
IF YOU TENDER YOUR EXISTING NOTES IN THE EXCHANGE OFFER, YOU ARE ALSO
CONSENTING TO THE PROPOSED AMENDMENTS TO THE EXISTING NOTES INDENTURES DESCRIBED
BELOW.
IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, THE PROVISIONS SET FORTH IN
THE FORM OF ITALICIZED CLAUSES BELOW WILL BE DELETED FROM THE INDENTURES. THE
PROPOSED AMENDMENTS ALSO WOULD DELETE THOSE DEFINITIONS FROM THE INDENTURES THAT
ARE USED ONLY IN PROVISIONS THAT WOULD BE ELIMINATED AS A RESULT OF THE
PROVISIONS IN THE INDENTURES THAT HAVE BEEN DELETED AS A RESULT OF THE PROPOSED
AMENDMENTS. THE INDENTURES WILL BE REVISED TO REFLECT SUCH DELETIONS. IN
ADDITION, CERTAIN OTHER PROVISIONS IN THE INDENTURES WILL BE AMENDED, DELETED OR
RENUMBERED AS IS APPROPRIATE IN LIGHT OF THE DELETIONS DESCRIBED BELOW.
The provisions of the indentures, reprinted below, are qualified in their
entirety by reference to the indentures. Capitalized terms that are used but not
otherwise defined in this section have the same meanings as set forth in the
indentures.
SECTION 4.02. Issuances of Guaranties by New Restricted Subsidiaries.
[delete: The Company will provide to the Trustee, on the date that any
Person becomes a Restricted Subsidiary, a supplemental indenture to this
Indenture, executed by such new Restricted Subsidiary, providing for a full and
unconditional guarantee on a senior basis by such new Restricted Subsidiary of
the Company's obligations under the Notes and this Indenture; provided that, in
the case of any new Restricted Subsidiary that becomes a Restricted Subsidiary
through the acquisition of a majority of its voting Capital Stock by the Company
or any other Restricted Subsidiary, such guaranty may be subordinated to the
extent required by the obligations of such new Restricted Subsidiary existing on
the date of such acquisition that were not incurred in contemplation of such
acquisition.]
117
SECTION 4.03. Limitation on Indebtedness.
[delete: (a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes and
Indebtedness existing on the Closing Date); provided that the Company may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6 to 1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time that is (A) Incurred to
finance the purchase, construction, launch, insurance for and other costs
with respect to Orion 2 and Orion 3 or (B) in an aggregate principal amount
not to exceed (1) until Orion 2 or Orion 3 has been successfully delivered
in orbit, $50 million, (2) after the first of Orion 2 or Orion 3 has been
successfully delivered in orbit, $100 million and (3) after the second of
Orion 2 or Orion 3 has been successfully delivered in orbit, $150 million,
in each case under this clause (i)(B);
(ii) Indebtedness owed (A) to the Company or (B) to any of its
Restricted Subsidiaries; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness, other
than Indebtedness Incurred under clause (i)(B), (ii), (iv), (vi) or (viii)
of this paragraph, and any refinancings thereof in an amount not to exceed
the amount so refinanced or refunded (plus premiums, accrued interest, fees
and expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes, the Note Guaranty or Indebtedness that is
pari passu with, or subordinated in right of payment to, the Notes shall
only be permitted under this clause (iii) if (A) in case the Notes or the
Note Guaranty is refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes or the Note Guaranty, such new Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Notes or the Note
Guaranty, as the case may be, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes or the Note Guaranty, such
new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes
or the Note Guaranty at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes or the Note Guaranty, as the case
may be, and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded;
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a)
are designed solely to protect the Company or its Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b)
do not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation
payable thereunder and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guaranties or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guaranties of Indebtedness Incurred
by any Person acquiring all or any portion
118
of such business, assets or Restricted Subsidiary of the Company for the
purpose of financing such acquisition), in a principal amount not to exceed
the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as described in Section 8.02 of this Indenture;
(vi) Guaranties of the Notes or the Senior Discount Notes and
Guaranties of Indebtedness of the Company by any Restricted Subsidiary;
(vii) Indebtedness Incurred to finance the cost (including the cost of
design. development, construction, installation, improvement,
transportation or integration) of equipment (other than Orion 2 or Orion 3)
or inventory acquired by the Company or a Restricted Subsidiary after the
Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the Net Cash Proceeds received by the Company after
the Closing Date from the issuance and sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the
Company (less the amount of such proceeds applied as provided in clause
(C)(2) of the first paragraph or clause (iii) or (iv) of the second
paragraph of Section 4.04 of this Indenture); provided that such
Indebtedness does not mature prior to the Stated Maturity of the Notes and
has an Average Life longer than the Notes; and
(ix) Redemption Indebtedness.
(b) For purposes of determining any particular amount of Indebtedness under
this Section 4.03, (1) Guaranties, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included and (2) any Liens granted pursuant
to the equal and ratable provisions referred to in Section 4.08 of this
Indenture shall not be treated as Indebtedness. For purposes of determining
compliance with this Section 4.03, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses, the Company, in its sole discretion, shall classify such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
(c) In the event that the Company or any Restricted Subsidiary shall repay
any Indebtedness (other than the Notes) pursuant to clause (i)(A) of Section
4.11 of this Indenture, the aggregate amount of Indebtedness which may otherwise
be Incurred under clauses (i)(B) and (viii) of the second paragraph of paragraph
(a) of this Section 4.03 shall be reduced by the amount of such repayment. The
Company shall designate how much of such reduction shall be applied to each such
clause.
(d) Notwithstanding any other provision of this Section 4.03, (i) the
maximum amount of Indebtedness that the Company or any Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded due
solely to fluctuations in the exchange rates of currencies and (ii) the Company
and each Guarantor may not Incur any Indebtedness other than Acquired
Indebtedness that is expressly subordinated to any other Indebtedness of the
Company or such Guarantor, as the case may be, unless such Indebtedness, by its
terms or the terms of any agreement or instrument pursuant to which such
Indebtedness is outstanding, is also expressly made subordinate to the Notes or
the Note Guaranty of such Guarantor, as the case may be, at least to the extent
that such Indebtedness is subordinated to such other Indebtedness; provided that
the limitation in this clause (ii) shall not apply to distinctions between
categories of unsubordinated Indebtedness which exist by reason of (a) any liens
or other encumbrances arising or created in respect of some but not all
unsubordinated Indebtedness, (b) intercreditor agreements between holders of
different classes of unsubordinated Indebtedness or (c) different maturities or
prepayment provisions.]
119
SECTION 4.04. Limitation on Restricted Payments.
[delete: The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or with respect to its Capital Stock (other than (x)
dividends or distributions payable solely in shares of its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to acquire
shares of such Capital Stock and (y) pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries held by minority stockholders, provided
that such dividends do not in the aggregate exceed the minority stockholders'
pro rata share of such Restricted Subsidiaries' net income from the first day of
the fiscal quarter beginning immediately following the Closing Date) held by
Persons other than the Company or any of its Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company, any Guarantor or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by Persons other than the Company and its Wholly Owned Subsidiaries, (iii) make
any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes or of any Guarantor that is subordinated to the Note Guaranty
(other than, in each case, the purchase, repurchase or the acquisition of
Indebtedness in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in any case due within one year of the date of
acquisition) or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i) through
(iv) being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) an Event of Default shall
have occurred and be continuing, (B) except with respect to Investments and
dividends on the Common Stock of any Guarantor, the Company could not Incur at
least $1.00 of Indebtedness under the first paragraph of Section 4.03 or (C) the
aggregate amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) made after the Closing
Date shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss,
minus 100% of the amount of such loss) (determined by excluding income resulting
from transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed
pursuant to Section 4.18 plus (2) the aggregate Net Cash Proceeds received by
the Company or any Guarantor after the Closing Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Disqualified Stock)
to a Person who is not a Subsidiary of the Company or any Guarantor or from the
issuance to a Person who is not a Subsidiary of the Company or any Guarantor of
any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any Disqualified Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes), in each case except to
the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to
clause (viii) of the second paragraph under Section 4.03, plus (3) an amount
equal to the net reduction in Investments (other than reductions in Permitted
Investments) in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at such date of declaration, such payment would
comply with the foregoing paragraph;
120
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (ix) of part (a) of Section 4.03;
(iii) the repurchase, redemption or other acquisition of Capital Stock
of the Company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified
Stock) of the Company;
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock of the Company (other
than Disqualified Stock);
(v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger
or transfer of assets that complies with the Article Five;
(vi) the repurchase, redemption or other acquisition of (A) shares of
Series A Preferred Stock or Series B Preferred Stock which were outstanding
on the Closing Date and (B) shares of Preferred Stock issued pursuant to
options that were outstanding on the Closing Date, in exchange for, or out
of the proceeds of, an issuance of Indebtedness Incurred under clause (iii)
of Section 4.03;
(vii) Investments to the extent the amount invested consists solely of
Net Cash Proceeds received by the Company or any Guarantor, within six
months of the making of such Investment, from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary of the Company or any Guarantor;
(viii) Investments, the sum of which does not exceed $5 million at any
one time outstanding;
(ix) cash payments, not to exceed $3 million, in lieu of the issuance
of fractional shares of Capital Stock of the Company upon the exercise of
the Warrants or any other warrants to buy, or upon the conversion of any
securities convertible into, Capital Stock of the Company;
(x) a one-time cash payment of up to $3 million to the holders of the
Junior Subordinated Convertible Debentures in connection with the
disposition of the Junior Subordinated Convertible Debentures in an
underwritten public offering or private placement pursuant to Section 11.4
of the Debenture Purchase Agreement; and
(xi) the purchase, redemption, retirement or other acquisition for
value of Warrants pursuant to a Repurchase Offer; provided that, if the
circumstances resulting in such Repurchase Offer constitute a Change of
Control, the Company shall first have made the Offer to Purchase related to
such Change of Control and shall have accepted and paid for all Notes
tendered pursuant thereto;
provided that, except in the case of clauses (i) and (iii), no Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof) and the Net Cash Proceeds from any issuance of
Capital Stock referred to in clauses (iii) and (iv) shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
Section 4.04 have been met with respect to any subsequent Restricted Payments.
In the event the proceeds of an issuance of Capital Stock of the Company are
used for the redemption, repurchase or other acquisition of the Notes, or
Indebtedness that is pari passu with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
Section 4.04 only to the extent such proceeds are not, within six months, used
for such redemption, repurchase or other acquisition of Indebtedness. Any
Restricted Payments made other than in cash shall be valued at fair market
value. The amount of any Investment "outstanding" at any time shall
121
be deemed to be equal to the amount of such Investment on the date made, less
the return of capital to the Company and its Restricted Subsidiaries with
respect to such Investment (up to the amount of such Investment on the date
made).]
SECTION 4.05. Limitation on the Use of Segregated Proceeds.
[delete: On the Closing Date the Company shall segregate $272.9 million
(the "Segregated Proceeds") of the aggregate proceeds from the issuance of the
Notes and the Senior Discount Notes. If and for so long as the Notes or the
Senior Discount Notes are rated below Baa3 by Moody's or below BBB- by Standard
& Poors, the Company and its Restricted Subsidiaries will use the Segregated
Proceeds (and any proceeds therefrom or return thereon) only to (i) invest in
Temporary Cash Investments, (ii) make payments with respect to the purchase,
construction, launch, insurance for and other costs related to additional
satellites and (iii) to make payments of principal and interest on the Notes and
the Senior Discount Notes.]
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries.
[delete: The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except:
(i) to the Company or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary,
provided any Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under Section 4.04, if
made on the date of such issuance or sale; and
(iv) issuances or sales of Common Stock of any Restricted Subsidiary, the
Net Cash Proceeds of which are promptly applied pursuant to clause (i)(A) or
(i)(B) of the second paragraph of Section 4.10 of this Indenture; provided that
at no time may a Restricted Subsidiary, the Common Stock of which has been
issued or sold pursuant to this clause (iv), be the owner of a satellite.]
SECTION 4.07. Limitation on Transactions with Shareholders and Affiliates.
[delete: The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustees a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view, (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries, (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company, (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes, (v) any Restricted Payments not
prohibited by Section 4.04 or (vi) Kingston's and Matra's rights to commissions
and other payments under sales representation agreements, Matra's rights to
payments, including without limitation incentive payments,
122
under the Orion 1 Satellite Contract and Orion 2 Satellite Contract, and
Kingston's rights to payments for services under network monitoring contracts,
in each case as in effect on the Closing Date and with such extensions,
amendments and renewals that may be entered into on terms at least as favorable
to the Company or its Restricted Subsidiaries, as the case may be, as the terms
of agreements in effect on the Closing Date. Notwithstanding the foregoing, any
transaction covered by the first paragraph of this Section 4.07 and not covered
by clauses (ii) through (v) of this paragraph, the aggregate amount of which
exceeds $5 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.]
SECTION 4.08. Limitation on Liens.
[delete: The Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its
assets or properties of any character, or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, without making effective provision
for all of the Notes and all other amounts due under the Indenture to be
directly secured equally and ratably with (or, if the obligation or liability to
be secured by such Lien is subordinated in right of payment to the Notes, prior
to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to the following:
(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iii)
of the second paragraph of Section 4.03 of this Indenture; provided that
such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; or
(v) Permitted Liens.
The Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on Orion 1, Orion 2 or Orion 3 that
secures Indebtedness, other than pursuant to clause (xxi) of the definition of
Permitted Liens.]
SECTION 4.09. Limitation on Sale-Leaseback Transactions.
[delete: The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into any sale-leaseback transaction
involving any of its assets or properties whether now owned or hereafter
acquired, whereby the Company or a Restricted Subsidiary sells or transfers such
assets or properties and then or thereafter leases such assets or properties or
any part thereof or any other assets or properties which the Company or such
Restricted Subsidiary, as the case may be. intends to use for substantially the
same purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within twelve
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale or
transfer in accordance with clause (i)(A) or (i)(B) of the second paragraph of
Section 4.10 of this Indenture.]
123
SECTION 4.10. Limitation on Asset Sales.
[delete: The Company will not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sale unless (i) the consideration received
by the Company or such Restricted Subsidiary (including the amount of any
Released Indebtedness) is at least equal to the fair market value of the assets
sold or disposed of and (ii) at least 85% of the consideration received
(excluding the amount of any Released Indebtedness) consists of cash or
Temporary Cash investments.
In the event and to the extent that the Net Cash Proceeds received by the
Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its subsidiaries has been filed
pursuant to Section 4.18, then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within 12 months after the date Net Cash Proceeds
so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or any Restricted Subsidiary owing to
a Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within 12 months after
the date of such agreement), in property or assets (other than current assets)
of a nature or type or that are used in a business (or in a company having
property and assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the business of,
the Company and its Restricted Subsidiaries existing on the date of such
investment and (ii) apply (no later than the end of the 12-month period referred
to in clause (i) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i) as provided in the following paragraph of this Section
4.11. The amount of such excess Net Cash Proceeds required to be applied (or to
be committed to be applied) during such 12-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.10 totals at least $10 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
101% of the principal amount of the Notes, plus accrued interest (if any) to the
Payment Date.]
SECTION 4.12. Repurchase of Notes upon a Change of Control.
[delete: The Company shall commence, within 30 days of the occurrence of a
Change of Control, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount of the
Notes, plus accrued interest (if any) to the Payment Date.]
SECTION 4.13. Existence.
[delete: Subject to Articles Four and Five of this Indenture, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence and the existence of each Restricted Subsidiary
in accordance with the respective organizational documents of the Company and
each such Restricted Subsidiary and the rights (whether pursuant to charter,
partnership certificate, agreement, statute or otherwise), licenses and
franchises of the Company and each such Restricted Subsidiary, provided that the
Company shall not be required to preserve any such right, license or franchise,
or the existence of any Restricted Subsidiary (other than of the Company), if,
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole;
and provided further that any Restricted Subsidiary may consolidate with, merge
into, or sell, convey, transfer, lease or otherwise dispose of all or part of
its property and assets to the Company or any Wholly Owned Restricted
Subsidiary.]
124
SECTION 4.14. Payment of Taxes and Other Claims.
[delete: The Company will pay or discharge and shall cause each Restricted
Subsidiary to pay or discharge, or cause to be paid or discharged, before the
same shall become delinquent (i) all material taxes, assessments and
governmental charges levied or imposed upon (a) the Company or any such
Restricted Subsidiary, (b) the income or profits of any such Restricted
Subsidiary which is a corporation or (c) the property of the Company or any such
Restricted Subsidiary and (ii) all material lawful claims for labor, materials
and supplies that, if unpaid, might by law become a Lien upon the property of
the Company or any such Restricted Subsidiary, provided that the Company shall
not be required to pay or discharge, or cause to be paid or discharged, any such
tax, assessment, charge or claim the amount, applicability or validity of which
is being contested in good faith by appropriate proceedings or by the Company
and its Restricted Subsidiaries where the failure to effect such payment is not
adverse in any material respect to the Holders.]
SECTION 4.15. Maintenance of Properties and Insurance.
[delete: The Company shall maintain (a) in-orbit insurance with respect to
Orion 1 in an amount at least equal to the cost to replace such satellite with a
satellite of comparable or superior technological capability (as estimated by
the Board of Directors) and having at least as much transmission capacity as
such satellite, and (b) with respect to Orion 2, Orion 3, each other satellite
to be launched by the Company or any Restricted Subsidiary and each replacement
satellite therefor, (i) launch insurance with respect to each such satellite
covering the period from the launch of such satellite to 180 days following such
launch in an amount equal to or greater than the sum of (A) the cost to replace
such satellite pursuant to the contract pursuant to which a replacement
satellite will be constructed, (B) the cost to launch a replacement satellite
pursuant to the contract pursuant to which a replacement satellite will be
launched and (C) the cost of launch insurance for such satellite or, in the
event that the Company has reason to believe that the cost of obtaining
comparable insurance for a replacement satellite would be materially higher, the
Company's best estimate of the cost of such comparable insurance and (ii) at all
times subsequent to 180 days after the launch (if it is a Successful Launch) of,
each such satellite, in-orbit insurance in an amount at least equal to the cost
to replace such satellite with a satellite of comparable or superior
technological capability (as estimated by the Board of Directors) and having at
least as much transmission capacity as such satellite was designed to have. The
in-orbit insurance required by this Section 4.15 shall provide that, if 50% or
more of a satellite's initial capacity is lost, the full amount of insurance
will become due and payable, and that, if a satellite is able to maintain more
than 50% but less than 90% of its initial capacity, a pro rata portion of such
insurance will become due and payable. The insurance required by this Section
4.15 shall name the Company and/or any Guarantor as the sole loss payee or
payees, as the case may be, thereof.
In the event that the Company (or a Guarantor) receives proceeds from
insurance relating to any satellite, the Company (or a Guarantor) may use a
portion of such proceeds to repay any vendor or third-party purchase money
financing pertaining to such satellite (other than Orion 1) that is required to
be repaid by reason of the loss giving rise to such insurance proceeds. The
Company (or a Guarantor) may use the remainder of such proceeds to develop,
construct, launch and insure a replacement satellite (including components for a
related ground spare) if (i) such replacement satellite is of comparable or
superior technological capability as compared with the satellite being replaced
and has at least as much transmission capacity as the satellite being replaced
and (ii) the Company will have sufficient funds to service the Company's
projected debt service requirements until the scheduled launch of such
replacement satellite and for one year thereafter and to develop, construct,
launch and insure (in the amounts required by the preceding paragraph) such
replacement satellite, provided that such replacement satellite is scheduled to
be launched within 15 months of the receipt of such proceeds. Any such proceeds
not used as permitted by this Section 4.15 shall be applied, within 90 days, to
reduce Indebtedness of the Company or shall constitute "Excess Proceeds" for
purposes of Section 4.10.
125
The Company shall further provide or cause to be provided, for itself and
its Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds considered reasonable by the Company in the
conduct of its business.
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 4.15
shall prevent the Company from discontinuing the maintenance of any of such
properties if such discontinuance is not disadvantageous in any material respect
to the Holders.]
SECTION 4.18. SEC Reports and Reports to Holders.
[delete: Whether or not the Company is required to file reports with the
SEC, the Company shall file with the SEC all such reports and other information
as it would be required to file with the SEC by Sections 13(a) or 15(d) under
the Exchange Act if it were subject thereto. The Company shall, at the Company's
expense, supply the Trustee and each Holder, or shall supply to the Trustees for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.]
SECTION 4.19. Waiver of Stay, Extension or Usury Laws.
[delete: The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of, premium, if any, or interest on the
Notes as contemplated herein, wherever enacted, now or at any time hereafter in
force, or that may affect the covenants or the performance of this Indenture,
and (to the extent that it may lawfully do so) the Company hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.]
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. CONSOLIDATION, MERGER AND SALE OF ASSETS.
Each of the Company and each Guarantor will not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into the Company or any Guarantor unless:
(i) the Company or any Guarantor, as the case may be, shall be the
continuing Person, or the Person (if other than the Company or Guarantor)
formed by such consolidation or into which the Company or any Guarantor, as
the case may be, is merged or that acquired or leased such property and
assets of the Company or any Guarantor, as the case may be, shall be a
corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and shall expressly assume,
by a supplemental indenture, executed and delivered to the Trustees, all of
the obligations of the Company or any Guarantor, as the case may be, on all
of the Notes and under the Indenture;
[delete: (ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) if such transaction involves the Company or any Significant
Subsidiary thereof, immediately after giving effect to such transaction on
a pro forma basis, the Company, or any Person becoming the
126
successor to the Company as obligor on the Notes shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction;
(iv) if such transaction involves the Company or any Significant
Subsidiary thereof, immediately after giving effect to such transaction on
a pro forma basis, the Company, or any Person becoming the successor
obligor of the Notes, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.03; provided that this
clause (iv) shall not apply to a consolidation or merger with or into a
Wholly Owned Restricted Subsidiary with a positive net worth; provided
that, in connection with any such merger or consolidation, no consideration
(other than Common Stock in the surviving Person or the Company) shall be
issued or distributed to the stockholders of the Company; and]
(v) the Company or Guarantor, as the case may be, delivers to the
Trustee an Officers' Certificate [delete: (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv), if
applicable)] and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; [delete: provided,
however, that clauses (iii) and (iv) above do not apply if, in the good
faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and provided further that any such transaction shall not have as
one of its purposes the evasion of the foregoing limitations.
Notwithstanding the foregoing, the provisions of this Section 5.01 shall
not apply to the Merger.]
SECTION 5.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, conveyance, transfer or
other disposition of all or substantially all of the property and assets of the
Company or any Guarantor, as the case may be, in accordance with Section 5.01 of
this Indenture, the successor Person formed by such consolidation or into which
the Company or such Guarantor is merged or to which such sale, conveyance,
transfer or other disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or such Guarantor under
this Indenture with the same effect as if such successor Person had been named
as the Company or such Guarantor herein and thereafter, except in the case of a
lease, the predecessor Person shall [delete: not] be relieved of all obligations
and covenants under this Indenture and the Notes.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
[delete: (c) the Company defaults in the performance of or breaches
Section 5.01 of this Indenture or fails to make or consummate an Offer to
Purchase in accordance with Section 4.10 or Section 4.12 of this Indenture;
(e) there occurs with respect to (A) any issue or issues of
Indebtedness of the Company, any Guarantor or any Significant Subsidiary
having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created or (B) the TT&C
Financing or any refinancing thereof which is secured by substantially the
same collateral, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment
default;
127
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company, any Guarantor or any Significant Subsidiary
and shall not be paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or, otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company, any Guarantor or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, any Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Guarantor or any Significant Subsidiary or (C)
the winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days;
(h) the Company, any Guarantor or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of
an order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking, possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar, official of the
Company, any Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, any Guarantor
or any Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or
(i) the occurrence of an "Event of Default" described in paragraph
(i), (j), (k), (1), (m) or (n) of Section 18.1 of the Debenture Purchase
Agreement.]
The penultimate paragraph of Section 10.10 or 11.01, as applicable, of the
existing notes indentures will be amended and restated in its entirety to read
as follows:
Each Guarantor hereby irrevocably defers, until the principal of, premium,
if any, and interest on the Notes shall have been paid in full, any claim or
other rights which it may now or hereafter acquire against the Company that
arise from the existence, payment, performance or enforcement of its obligations
under its Guarantee and this Indenture, including, without limitation, any right
of subrogation, reimbursement, exoneration, contribution, indemnification, any
right to participate in any claim or remedy of the Holders against the Company
or any collateral which any such Holder or the Trustee on behalf of such Holder
hereafter acquires, whether or not such claim, remedy or right arises in equity,
or under contract, statute or common law, including, without limitation, the
right to take or receive from the Company, directly or indirectly, in cash or
other property or by set-off of in any other manner, payment or security on
account of such claim or other rights, except (a) each Transferred Guarantor
shall not be subject to the foregoing limitations and (b) the Company and the
Guarantors (other than Transferred Guarantors) shall, at the request of any
Transferred Guarantor, indemnify such Transferred Guarantor for any amount
(including guarantee payments) or expense incurred by such Transferred Guarantor
under its Guarantee. If any amount shall be paid to any Guarantor (other than a
Transferred Guarantor) in violation of the preceding sentence and the principal
of, premium, if any, and accrued interests on the Notes shall not have been paid
in full, such amount shall be deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Holders, and shall
forthwith be paid to the Trustee for the benefit of the Holders to be credited
and applied upon the principal of, premium, if any, and accrued interest on the
Notes. Each Guarantor acknowledges that it will receive direct and indirect
benefits from the issuance of the Notes pursuant to this Indenture and that the
waivers set forth in this Section [10.01/11.01] are knowingly made in
contemplation of such benefits. As used herein, the term "Transferred Guarantor"
refers to any Guarantor engaged in the data business the stock of which (or the
stock of any direct or indirect owner of such stock) is transferred to a Person
other than the Company or another Guarantor.
128
FEDERAL INCOME TAX CONSEQUENCES
This summary of the federal income tax consequences of the exchange offer
is based on the opinion of Willkie Farr & Gallagher, our counsel, as to material
federal income tax consequences expected to result from the exchange offer. An
opinion of counsel is not binding on the Internal Revenue Service (the "IRS") or
the courts and is based on current law and legal authority that may change
retroactively. This is not comprehensive tax advice and does not consider all
the facts that might affect your tax consequences. You should consult with your
own tax advisor as to federal income tax consequences of the exchange offer as
well as any tax consequences to you under foreign, state, or local law.
By accepting the tender offer, you have agreed to treat the transaction as
an exchange under Section 1001 of the Internal Revenue Code of 1986, as amended
(the "Code"), of Loral CyberStar's existing notes for Loral CyberStar's new
notes and Loral Space warrants. There is an exchange of notes for tax purposes
if the new notes represent a significant modification of the existing notes.
We believe that the new notes are properly classified as securities for
purposes of Sections 354 and 356 of the Code, and therefore, the exchange will
be treated as a recapitalization with boot within the meaning of Section
368(a)(1)(E) of the Code.
GAIN OR LOSS REALIZED
Determining the gain or loss recognized in the exchange offer is a two step
process. The first is to determine the gain realized, which is the amount by
which your "amount realized" in the exchange exceeds your tax basis in your
existing notes. The second is to compute the portion of the gain or loss
realized that is recognized for tax purposes.
Gain or Loss Realized
Gain or loss realized in the exchange generally will be determined by the
difference between your "amount realized" and your tax basis in your existing
notes. We believe that neither the existing notes nor the new notes will be
considered to be publicly traded for purposes of Section 1273 of the Code. They
would be so considered if they were traded on an established market at any time
during the 60 day period ending 30 days after the date of the exchange. Being
traded on an established market includes appearing in a quotation medium of
general circulation that provides a reasonable basis for determining their fair
market value. Whether or not this will occur cannot be determined at this time.
Because we believe that neither the existing nor the new notes will become
publicly traded during the relevant time period, we believe that your amount
realized will be the sum of (a) the principal amount of the new notes you
receive plus (b) the fair market value of the Loral Space warrants you receive.
If the new notes are publicly traded, then your amount realized would be the sum
of (a) the fair market value of your new notes determined by reference to the
prices at which they publicly trade and (b) the fair market value of the Loral
Space warrants you receive. The calculation would be slightly different if the
existing new notes were publicly traded and the new notes were not. We believe
that this situation is unlikely to occur.
We do not expect that it will be possible to determine the fair market
value of the Loral Space warrants on the basis of public trading. We expect that
the value of each warrant will be between $0.60 and $0.90 and will inform you of
the value we intend to use for federal income tax purposes.
For purposes of these calculations, unpaid interest that accrued during the
period you held your senior notes is treated as a separate item of property.
Further, based on the advice of counsel, we believe that it is likely that the
increase in the accreted value of senior discount notes while you held them is
also treated as a separate item.
If you are a cash basis taxpayer, you would recognize ordinary interest
income with respect to your senior notes to the extent that any of your amount
realized was allocable to unpaid interest that accrued during the period you
held them. As set forth above under "Exchange Offer -- Interest on the New
129
Notes," you will be deemed to have waived your right to any payments with
respect to interest accruing after October 15, 2001. We believe that this waiver
is probably effective for tax purposes and, in such event, none of your amount
realized would be allocable to post-October 15th interest and you will not
realize or recognize ordinary income with respect to waived interest. The IRS,
however, may take a contrary view.
If you are an accrual basis holder of senior notes and if you were
considered to accrue interest income after July 15, 2001, such accrual should be
considered to exceed your allocable amount realized. Such excess would be a
realized and recognized loss. It is possible that any such loss would be a short
term capital loss rather than an ordinary loss.
The difference between the issue price of the senior discount notes and
their principal amount represents original issue discount that is recognized by
both cash and accrual basis holders over the term of those notes. Although it is
not free from doubt, we believe that the original issue discount that accrued
and was taken into taxable income over the period you held your senior discount
notes is treated in generally the same manner as an accrual basis taxpayer would
treat accrued interest. One difference would be that if the loss is capital, it
would be short-term or long-term depending upon when you recognized the original
issue discount as income.
While the legislative history of the applicable provision clearly indicated
that you would have a realized and recognized loss from the original issue
discount you have taken into income, the IRS issued a Technical Advice
Memorandum in 1995 that reached a contrary position. Such memoranda are not
binding precedent for either the IRS or for taxpayers and are not as fully
reviewed as more binding pronouncements. Our counsel has advised us that they
believe that the Technical Advice Memorandum should not overcome contrary
legislative history.
As set forth above under "Exchange Offer -- Interest on the New Notes," you
will be deemed to have waived your right to any payments with respect to
accretions in value of your senior discount notes after October 15, 2001. We
believe that this waiver is probably effective for tax purposes and, in such
event, none of your amount realized would be allocable to post-October 15th
accretions. The IRS, however, may take a contrary view.
Under these rules you could have a realized and recognized loss with
respect to your accrued interest or original issue discount and a realized gain
with respect to the balance of your interest in your existing notes. Similarly,
a cash basis holder could have interest income with respect to accrued but
unpaid interest and a realized loss on his senior notes.
Loss Recognized
The recognition of loss with respect to accrued interest and original issue
discount is discussed above. Any loss realized on the balance of your interest
in your existing notes will not be recognized for tax purposes. Any unrecognized
loss will be bond premium which you may amortize over the term of your new notes
as provided in Section 171 of the Code.
Gain Recognized
Except to the extent that you choose to take the position described in the
following paragraph, the portion of your realized gain that will be recognized
for tax purposes is the greater of: (a) the fair market value of the Loral Space
warrants you receive or (b) the amount of market discount that has accrued under
Section 1276 of the Code during the period you held your existing notes and that
has not yet been recognized as income. The gain will be ordinary income to the
extent of the previously unrecognized market discount. For those who hold their
existing notes as capital assets, any remaining gain will be capital and
long-term or short-term depending on your holding period for the existing notes.
Congress inserted a provision to Section 1276 of the Code, intending that
the Treasury would write regulations under which the market discount recognized
as income in a recapitalization would be limited to the value of the Loral Space
warrants with any balance of the accrued market discount carrying over to
130
the new notes. The amount of the market discount carried over would be limited
by the excess of the issue price of your new notes over your tax basis in such
notes. To date, the Treasury has not written these regulations and you may wish
to consult with your own tax advisor as to whether it is possible to take the
position that the provision in the statute is self executing in the absence of
Treasury Regulations.
BASIS AND HOLDING PERIOD
Your basis in your existing notes generally will equal the amount you paid
for them, plus any market discount you may have elected to accrue and plus, in
the case of senior discount notes, the amount of original issue discount that
accrued during the period you held them. Your basis in an amount equal to the
accrued interest and accrued original issue discount is allocated to those items
if they are taxed differently, as described above, from the remainder of your
interest in your existing notes. The balance of your basis is allocated to your
remaining interest those notes.
Your basis in any exchange consideration allocable to any such specially
taxed item will be its allocable share of your amount realized in the exchange
offer. Your holding period for such exchange consideration will begin its
receipt.
If you do not recognize gain on the balance of your interest in existing
notes, your holding period and allocable tax basis in your existing notes will
carry over to the new notes and the Loral Space warrants that are deemed to be
received in the exchange. Basis will be apportioned between the new notes and
the warrants based on their relative fair market values.
If you do recognize gain on the balance of your interest in the existing
notes received in the exchange, your allocable basis in your new notes received
in the exchange will be your basis in your existing notes increased by the
amount of the gain recognized and reduced by the fair market value of the Loral
Space warrants you receive. Your holding period in such existing notes will
carry over to such new notes. You will have a fair market value basis in your
warrants, and your holding period for them will start on the exchange date.
IF THE NOTES ARE NOT SECURITIES
Whether a debt instrument is a "security" depends on the terms, conditions
and other facts and circumstances relating to the instrument. We believe the new
notes will be securities based on their bullet maturity of over four and one
half years, their rating, their interest rate and the yield at which they are
expected to be bought and sold.
If the new notes do not qualify as securities under Sections 354 and 356,
the exchange will be a taxable event for U.S. federal income tax purposes. You
will recognize gain or loss. You would hold your new notes and Loral Space
warrants with a basis equal to the amount realized on the exchange and would
commence a new holding period for them.
CASH RECEIVED IN LIEU OF LESS THAN $1,000 IN NEW NOTES
The tax treatment of this payment will be determined as if you had received
new notes with a principal amount equal to your cash payment and such notes had
been immediately redeemed. This deemed redemption will be a taxable transaction
in which any gain or loss will be recognized.
ORIGINAL ISSUE DISCOUNT
If neither the existing nor the new notes are considered to be publicly
traded, the issue price of the new notes will be their stated principal amount
and, except as provided below on pre-issuance accrued interest, there will be no
original issue discount. However, if either of the notes are publicly traded,
the issue price will be determined by their trading value. It is then likely
that their principal amount will exceed their issue price and the new notes will
be issued with original issue discount equal to such excess.
131
The new notes will be issued with pre-issuance accrued interest from
October 15, 2001. We intend to treat this accrued interest, which is payable on
July 15, 2002, not as an interest payment but as an amount taken into account in
determining original issue discount. As a consequence, you will recognize this
pre-issuance accrued interest over the term of the new notes.
The holder of a note issued with original issue discount is required to
include original issue discount in income as ordinary interest as it accrues
under a constant yield method in advance of receipt of cash payments
attributable to that income. In general, the amount of original issue discount
included in income by a holder is the sum of the daily portions of original
issue discount for each day during the taxable year, or portion thereof, on
which the holder held the new note. The daily portion is determined by
allocating the original issue discount for an accrual period equally to each day
in the accrual period. Your accrual period for the new notes may be of any
length and may vary in length over the term of the new note. However, no accrual
period may exceed one year, and each scheduled payment of principal or interest
must occur on either the first or final day of the accrual period.
The amount of original issue discount attributable to an accrual period is
generally equal to the product of the new note's adjusted issue price at the
beginning of that accrual period and its yield to maturity, i.e., the discount
rate that, when applied to all payments under the new notes, results in a
present value equal to the issue price. The adjusted issue price of a new note
at the beginning of any accrual period is the issue price of the new note, plus
the amount of original issue discount allocable to all prior accrual periods,
minus the amount of any prior payments in respect of the new notes, including
payments of stated interest. Under these rules, the holder must generally
include in income an increasingly greater amount of original issue discount in
each successive accrual period.
We will annually send a Form 1099-OID, setting forth the accrual for the
taxable year, for each non-corporate holder of record not otherwise exempt from
such reporting requirements.
MARKET DISCOUNT
If your basis in your new notes is less than their issue price, the
difference is market discount. You may elect to include market discount in
income currently. Unless you make this election, you will recognize ordinary
gain upon the sale or disposition of the notes, even if the transaction was one
in which gain or loss would not ordinarily be recognized. Market discount will
accrue under a ratable method unless you elect to use a constant interest
method. The ratable method is more easily applied but it provides for marginally
faster accrual of market discount. The greater the amount of market discount,
the greater the difference in the two methods.
Additionally, if the new notes are considered to be market discount notes,
a portion of your deductions for interest incurred that is attributable holding
your new notes will be deferred until you dispose of the notes.
CONSTRUCTIVE DIVIDENDS ON ADJUSTMENTS TO WARRANT EXERCISE PRICE
If at any time a distribution of cash or property is made to Loral Space
shareholders that would be taxable to them as a dividend for United States
federal income tax purposes and, in accordance with the anti-dilution provisions
of your Loral Space warrants, the conversion rate of the Loral Space warrants is
increased, such increase may be deemed to be a distribution taxable as a
dividend to the extent of Loral Space's accumulated earnings and profits. This
result will follow even if we did not actually distribute any cash or other
property to you.
In the event that an adjustment to the warrants occurs and is treated as a
taxable dividend, the amount of the taxable dividend will be the fair market
value of the number of additional shares (or reduction in price of shares) that
results from the warrant adjustment.
132
RETENTION OF THE EXISTING NOTES
The modification of the existing notes in connection with the exchange
offer will not be a taxable event to non-tendering holders of the existing
notes.
BACKUP WITHHOLDING
Backup withholding and information reporting requirements may apply to
certain payments of principal and interest, including original issue discount,
on a note and to certain payments of proceeds of the sale or retirement of a
note. We, our agent, a broker or any paying agent, as the case may be, will be
required to withhold tax from any payment that is subject to backup withholding
at a current rate of 30.5% (or 30% for payments made during the calendar year
2002) of such payment if the holder fails to furnish his taxpayer identification
number, to certify that such holder is not subject to backup withholding or to
otherwise comply with the applicable requirements of the backup withholding
rules. Certain holders (including, among others, all corporations) are not
subject to the backup withholding and reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by us or any agent thereof to a holder
of a note who has provided the required certification under penalties of perjury
that it is not a U.S. holder or has otherwise established an exemption, provided
that neither we nor our agent has actual knowledge that the holder is a U.S.
holder or that the conditions of any other exemption are not satisfied.
Any amount withheld from a payment to a holder under the backup withholding
rules will be allowed as a refund or credit against the holder's federal income
tax liability, so long as the required information is provided to the IRS.
Generally, we are required to report to the holder of the note and to the IRS
the amount of the tax withheld, if any, relating to these payments, and we will
report such payments to the holder and IRS annually.
Treasury Regulations that generally are effective for payments made after
December 31, 2000, subject to certain transition rules, generally expand the
circumstances under which the information reporting and backup withholding may
apply. Holders should consult their tax advisors regarding the application of
the information reporting and backup withholding rules, including these Treasury
Regulations.
FOREIGN ISSUER CONSIDERATIONS
The following discussion is based on the advice of Appleby, Spurling &
Kempe, Bermuda counsel to Loral Space.
Loral Space has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority.
Under Bermuda law, Loral Space is an exempted company (that is, it is
exempted from the provisions of Bermuda law which stipulate that at least 60% of
its equity must be beneficially owned by Bermudians). As an exempted company,
Loral Space is exempt from Bermuda laws which restrict the percentage of share
capital that may be held by non-Bermudians, but as an exempted company Loral
Space may not participate in certain business transactions, including:
(1) the acquisition or holding of land in Bermuda, except that required for
its business and held by way of lease or tenancy for terms of not more
than 21 years, without the express authorization of the Bermuda
legislature;
(2) the taking of mortgages on land in Bermuda to secure an amount in
excess of $50,000 without the consent of the Bermuda Minister of
Finance;
(3) the acquisition of securities created or issued by, or any interest in,
any local company or business, other than certain types of Bermuda
government securities or securities of another
133
exempted company, partnership or other corporation resident in Bermuda
but incorporated abroad; or
(4) the carrying on of business of any kind in Bermuda, except in
furtherance of Loral Space's business carried on outside Bermuda or
under a license granted by the Bermuda Minister of Finance.
The Bermuda government actively encourages foreign investment in exempted
entities like Loral Space that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, Loral Space is subject neither to taxes on its
income or dividends nor to any foreign exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and Loral Space can
accumulate profits, as required, without limitation.
BERMUDA TAX CONSIDERATIONS
At the date of this prospectus, there is no Bermuda income tax, corporation
or profits tax, withholding tax, capital gains tax, capital transfer tax, estate
or stamp duty or inheritance tax payable by us or the holders, other than
holders ordinarily resident in Bermuda, in respect of their investment in the
Loral Space warrants.
Loral Space has obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966, as amended, a certificate confirming that,
in the event of there being enacted in Bermuda any legislation imposing tax
computed on profits or income, or computed on any capital asset, gain or
appreciation or any tax in the nature of estate duty or inheritance tax, such
tax shall not until March 28, 2016 be applicable to Loral Space or to any of its
operations, or other obligations of Loral Space except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such new notes or
other obligations, or to any land in Bermuda leased or rented to Loral Space.
Loral Space is liable to pay the Bermuda government an annual registration
fee calculated on a sliding scale based upon its assessable capital, which fee
will not exceed BD$27,825.
Loral Space has been classified as a non-resident of the Bermuda exchange
control area by the Bermuda Monetary Authority, whose permission for the issue
of the Loral Space warrants has been obtained. The transfer of Loral Space
warrants between persons regarded as non-resident of Bermuda for exchange
control purposes and the issue and exercise of the Loral Space warrants to and
by such persons may be effective without specific consents under the Exchange
Control Act 1972 of Bermuda and Regulations made thereunder. Transfers involving
any person regarded as resident in Bermuda for exchange control purposes
requires specific authorization under that Act. By virtue of being a
non-resident of Bermuda for exchange control purposes, Loral Space is free to
acquire, hold and sell any foreign currency, securities and other investments
without restrictions.
Purchasers of the Loral Space warrants may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase. Prospective purchasers should consult their tax advisers as to the tax
laws of applicable jurisdictions and the specific tax consequences of acquiring,
holding and disposing of the Loral Space warrants.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the new notes and the
warrants will be passed upon for us by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York. In addition, Willkie Farr & Gallagher will deliver
its opinion to us as to certain federal income tax consequences of the exchange
offer and consent solicitation. Mr. Robert Hodes is of counsel to the law firm
of Willkie Farr & Gallagher, a director of Loral Space and a member of the
executive and audit committees of the board of directors of Loral Space. As of
September 30, 2001, Mr. Hodes beneficially owned 69,484 shares of the common
stock of Loral Space, including 49,284 shares exercisable under Loral Space's
stock option plan. The validity of the warrants and the warrant shares will be
passed upon for us by Appleby, Spurling &
134
Kempe, Hamilton, Bermuda. In addition, Appleby, Spurling & Kempe will provide
certain legal conclusions regarding Bermuda tax law.
EXPERTS
The annual consolidated financial statements of Loral CyberStar, and the
annual consolidated financial statements and related consolidated financial
statement schedule of Loral Space incorporated in this prospectus by reference
from the annual report on Form 10-K of Loral CyberStar for the year ended
December 31, 2000 and the annual report on Form 10-K, as amended on Form 10-K/A,
of Loral Space for the year ended December 31, 2000, respectively, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The annual consolidated financial statements of Globalstar, L.P. for the
years ended December 31, 2000, 1999 and 1998 incorporated in this prospectus by
reference from the annual report on Form 10-K/A of Loral Space for the year
ended December 31, 2000, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Loral Asia Pacific Satellite (HK) Limited as of
December 31, 2000 and 1999, and for the year ended December 31, 2000 and the
period from August 6, 1999 (inception) to December 31, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and accordingly we file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy reports, proxy statements and other information at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. You may obtain information on the operation of
the SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. You
also may obtain copies of periodic reports, proxy statements and other
information at prescribed rates by writing to the SEC, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. You also may access this
information electronically through the SEC's web site on the Internet at
http://www.sec.gov. This web site contains reports, proxy statements and other
information regarding registrants such as ourselves that have filed
electronically with the SEC.
This prospectus is a part of a registration statement filed by us with the
SEC under the Securities Act of 1933. As permitted by the rules and regulations
of the SEC, this prospectus does not contain all of the information contained in
the registration statement and the exhibits and schedules thereto. As such we
make reference in this prospectus to the registration statement and to the
exhibits and schedules thereto. For further information about us and about the
securities we hereby offer, you should consult the registration statement and
the exhibits and schedules thereto. You should be aware that statements
contained in this prospectus concerning the provisions of any documents filed as
an exhibit to the registration statement or otherwise filed with the SEC are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
We will file with Bankers Trust Company, which acts as trustee under each
of the indentures under which the new notes will be issued, within 15 days after
we file with the SEC, copies of all of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the
135
foregoing as the SEC may prescribe) which we are required to file with the SEC
pursuant to Section 13(a) and Section 15(d) of the Exchange Act. We will also
provide such other information as is required pursuant to Section 314(a) of the
Trust Indenture Act of 1939.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We hereby incorporate by reference into this prospectus the following
documents or information filed with the SEC (File No. 1-12744):
(1) our Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
(2) our Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2001;
(3) our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2001;
(4) our Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2001;
(5) our Current Report on Form 8-K filed on October 26, 2001;
(6) Loral Space's Annual Report on Form 10-K and, as amended on Form
10-K/A, for the fiscal year ended December 31, 2000;
(7) Loral Space's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2001;
(8) Loral Space's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2001;
(9) Loral Space's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2001;
(10) Loral Space's Current Reports on Form 8-K filed on January 22, 2001,
February 22, 2001, May 25, 2001 and October 26, 2001;
(11) Description of Capital Stock contained in Loral Space's Form 10, dated
April 12, 1996; and
(12) all documents filed by us or Loral Space under Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the
registration statement of which this prospectus is part and prior to
the effectiveness thereof or subsequent to the date of this prospectus
and prior to the termination of the offering made hereby.
For purposes of this prospectus, statements contained herein (or documents
incorporated or deemed to be incorporated herein) will be considered modified or
superseded to the extent that a subsequent statement contained herein (or a
subsequently filed document incorporated or deemed to be incorporated herein)
modifies them. Statements or documents that are so modified or superseded will
not be considered part of this prospectus, except as so modified or superseded.
This prospectus incorporates important business and financial information
about us and Loral Space that is not included in or delivered with the document.
This information is available to you without charge upon written or oral request
to Loral SpaceCom Corporation, 600 Third Avenue, New York, New York 10016,
Attention: Secretary, telephone (212) 697-1105. To obtain timely delivery, you
must request the information no later than five business days before the date
the exchange offer expires. YOU MUST REQUEST THIS INFORMATION BY DECEMBER 13,
2001.
136
INDEX TO FINANCIAL STATEMENTS
<Table>
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR,
INC., A SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS LTD., A
BERMUDA COMPANY)*
Independent Auditors' Report................................ F-2
Balance Sheets as of September 30, 2001(unaudited), December
31, 2000 and December 31, 1999............................ F-3
Statements of Operations for the nine months ended September
30, 2001 (unaudited) and 2000 (unaudited), the year ended
December 31, 2000, and the period from August 6, 1999
(inception) to December 31, 1999.......................... F-4
Statements of Shareholder's Equity for the nine months ended
September 30, 2001 (unaudited), the year ended December
31, 2000 and the period from August 6, 1999 (inception) to
December 31, 1999......................................... F-5
Statements of Cash Flows for the nine months ended September
30, 2001 (unaudited) and 2000 (unaudited), the year ended
December 31, 2000 and the period from August 6, 1999
(inception) to December 31, 1999.......................... F-6
Notes to Financial Statements............................... F-7
</Table>
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholder of Loral Asia Pacific Satellite (HK) Limited
We have audited the accompanying balance sheets of Loral Asia Pacific
Satellite (HK) Limited (a wholly owned Hong Kong subsidiary of Loral CyberStar,
Inc., a subsidiary of Loral Space & Communications Ltd., a Bermuda company) (the
"Company") as of December 31, 2000 and 1999 and the related statements of
operations, shareholder's equity and cash flows for the year ended December 31,
2000 and the period from August 6, 1999 (inception) to December 31, 1999,
respectively. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2000 and
1999, and the results of its operations and its cash flows for the periods
referred to above, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
November 13, 2001
F-2
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, --------------------
2001 2000 1999
------------- -------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............................. $ -- $ -- $ 3,855
Accounts receivable, net of allowances of $63 in 2001,
$309 in 2000 and $126 in 1999....................... 940 1,702 1,673
Due from Loral CyberStar............................... 65,769 33,388 --
Other current assets................................... 298 2,395 2,786
-------- -------- --------
Total current assets................................ 67,007 37,485 8,314
Satellite in-orbit, net.................................. 230,966 246,726 267,739
Other assets............................................. 933 503 98
Deferred taxes........................................... -- 2,098 2,562
-------- -------- --------
Total Assets............................................. $298,906 $286,812 $278,713
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Satellite purchase price payable....................... $ -- $ -- $180,755
Customer advances...................................... 217 226 1,133
Other current liabilities.............................. 1,398 3,114 1,229
Due to Loral CyberStar................................. -- -- 3,241
-------- -------- --------
Total current liabilities........................... 1,615 3,340 186,358
Deferred taxes........................................... 715 -- --
Customer deposits........................................ 2,337 2,395 2,285
Commitments and contingencies (Note 8)...................
Shareholder's Equity:
Common stock, $.10 par value; 100,000 shares
authorized, issued and outstanding.................. 10 10 10
Capital contributions from Loral CyberStar............. 271,688 271,688 90,933
Retained earnings (deficit)............................ 22,541 9,379 (873)
-------- -------- --------
Total shareholder's equity.......................... 294,239 281,077 90,070
-------- -------- --------
Total Liabilities and Shareholder's Equity............... $298,906 $286,812 $278,713
======== ======== ========
</Table>
See notes to financial statements.
F-3
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
FOR THE FOR THE PERIOD
NINE MONTHS ENDED FOR THE AUGUST 6, 1999
SEPTEMBER 30, YEAR ENDED (INCEPTION) TO
------------------ DECEMBER 31, DECEMBER 31,
2001 2000 2000 1999
------- ------- ------------ --------------
(UNAUDITED)
Revenues from satellite services............. $39,502 $31,971 $42,084 $5,611
------- ------- ------- ------
Costs of satellite services.................. 19,233 19,489 25,989 6,686
Selling, general and administrative
expenses................................... -- 626 390 268
------- ------- ------- ------
Operating income (loss)...................... 20,269 11,856 15,705 (1,343)
Interest income.............................. 8 89 80 --
Interest expense............................. 27 6 9 --
------- ------- ------- ------
Income (loss) before income taxes............ 20,250 11,939 15,776 (1,343)
Income tax (provision) benefit............... (7,088) (4,178) (5,524) 470
------- ------- ------- ------
Net income (loss)............................ $13,162 $ 7,761 $10,252 $ (873)
======= ======= ======= ======
</Table>
See notes to financial statements.
F-4
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
STATEMENTS OF SHAREHOLDER'S EQUITY
PERIOD FROM AUGUST 6, 1999 (INCEPTION) TO SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
COMMON STOCK
---------------- CAPITAL RETAINED TOTAL
SHARES CONTRIBUTIONS EARNINGS SHAREHOLDER'S
ISSUED AMOUNT FROM PARENT (DEFICIT) EQUITY
------ ------- ------------- --------- -------------
Capital Contributions from Loral 100 $ 10 $ 90,933 $ -- $ 90,943
CyberStar.............................
Net Loss................................ -- -- -- (873) (873)
--- ------- -------- -------- --------
Balance December 31, 1999............... 100 10 90,933 (873) 90,070
Capital Contribution from Loral -- -- 180,755 -- 180,755
CyberStar.............................
Net Income.............................. -- -- -- 10,252 10,252
--- ------- -------- -------- --------
Balance December 31, 2000............... 100 10 271,688 9,379 281,077
Net Income.............................. -- -- -- 13,162 13,162
--- ------- -------- -------- --------
Balance September 30, 2001*............. 100 $ 10 $271,688 $ 22,541 $294,239
=== ======= ======== ======== ========
</Table>
- ---------------
* Unaudited
See notes to financial statements
F-5
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD
NINE MONTHS ENDED AUGUST 6, 1999
SEPTEMBER 30, FOR THE YEAR ENDED (INCEPTION)
-------------------- DECEMBER 31, TO DECEMBER 31,
2001 2000 2000 1999
------- --------- ------------------ -------------------
(UNAUDITED)
Operating activities:
Net income (loss)................. $13,162 $ 7,761 $ 10,252 $ (873)
Non-cash items:
Deferred taxes................. 2,813 389 364 (2,570)
Depreciation and
amortization................. 15,760 15,759 21,013 5,428
Changes in operating assets and
liabilities:
Accounts receivable, net....... 762 (2,246) (29) (1,673)
Due from Loral CyberStar....... (32,381) (22,160) (33,388) --
Other current assets........... 2,097 (1,237) 491 (2,778)
Other assets................... (430) (407) (405) (98)
Satellite purchase price
payable...................... -- (180,755) (180,755) 180,755
Customer advances.............. (9) (1,045) (907) 1,133
Other current liabilities...... (1,716) 2,312 1,885 1,229
Due to Loral CyberStar......... -- (3,241) (3,241) 3,241
Customer deposits.............. (58) 260 110 2,285
------- --------- --------- --------
Net cash (used in) provided by
operating activities.............. -- (184,610) (184,610) 186,079
------- --------- --------- --------
Investing activities:
Purchase of satellite in orbit.... -- -- -- (273,167)
Net cash used in investing
activities........................ -- -- -- (273,167)
------- --------- --------- --------
Financing activities:
Capital contributions from Loral
CyberStar...................... -- 180,755 180,755 90,943
------- --------- --------- --------
Net cash provided by financing
activities........................ -- 180,755 180,755 90,943
------- --------- --------- --------
(Decrease) increase in cash and cash
equivalents....................... -- (3,855) (3,855) 3,855
Cash and cash
equivalents -- beginning of
period............................ -- 3,855 3,855 --
------- --------- --------- --------
Cash and cash equivalents -- end of
period............................ $ -- $ -- $ -- $ 3,855
======= ========= ========= ========
</Table>
See notes to financial statements
F-6
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000, PERIOD FROM AUGUST 6, 1999 (INCEPTION) TO DECEMBER
31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 2001 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND PRINCIPAL BUSINESS
Loral Asia Pacific Satellite (HK) Limited, a Hong Kong company, (the
"Company") is a wholly owned subsidiary of Loral CyberStar, Inc., a Delaware
corporation, ("Loral CyberStar") which in turn is a wholly owned U.S. subsidiary
of Loral Space & Communications Ltd., a Bermuda company, ("Loral Space"). The
Company was formed August 6, 1999, ("Inception") in connection with the purchase
of the Apstar IIR satellite as described below.
On September 28, 1999, the Company purchased from APT Satellite Company
Limited ("APT"), for approximately $273 million, the rights to all transponder
capacity (except for one C-band transponder retained by APT) and existing
customer leases on the Apstar IIR satellite, and renamed the satellite Telstar
10/Apstar IIR. The Company has full use of the transponders for the remaining
life of Telstar 10/ Apstar IIR. Under the purchase agreement, the Company also
has the option to lease from APT replacement satellites upon the end of life of
Telstar 10/Apstar IIR. In March 2000, the Company made the final payment of
approximately $181 million to APT, representing the unpaid satellite purchase
price payable at December 31, 1999.
The Company operates in one segment, the leasing of transponder capacity to
customers for various applications, including broadcasting, Internet access and
transmission, private voice and data networks, business television and
direct-to-home television.
2. BASIS OF PRESENTATION
The Company has a December 31 year-end. The accompanying financial
statements include the accounts of the Company and have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
The interim financial information as of September 30, 2001 and for the nine
months ended September 30, 2001 and 2000 is unaudited and has been prepared on
the same basis as the audited financial statements. In the opinion of the
Company, such unaudited financial information includes all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the results of operations, financial position and cash flows as of and for such
interim periods presented. The results of operations for the nine months ended
September 30, 2001 are not necessarily indicative of the results to be expected
for the full year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues
and expenses reported for the period. Actual results could differ from
estimates. Significant estimates include the estimated useful life of the
Company's satellite.
F-7
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates fair value because of the short
maturity of those instruments. Cash collected directly by the Company is
transferred to Loral CyberStar and applied to the due to/from Loral CyberStar
balance.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents
and accounts receivable. The Company believes that its credit evaluation,
approval and monitoring processes combined with negotiated billing arrangements
mitigate potential credit risks with regard to its current customer base. The
Company's cash and cash equivalents are maintained with high-credit-quality
financial institutions.
Satellite In-Orbit
The Company's sole fixed asset consists of the transponder rights on the
Telstar 10/Apstar IIR satellite, which is stated at cost. Depreciation is
provided on the straight-line method over its estimated useful life of 13 years
from the date of purchase, which was based on engineering analyses performed at
the in-service date of the satellite. The satellite life is reevaluated
periodically. Losses from an in-orbit failure of the satellite, net of insurance
proceeds, would be recorded in the period a loss occurs.
The carrying value of the satellite is reviewed for impairment whenever
events or changes in circumstances indicate that it may not be recoverable. The
Company looks to current and future profitability, as well as current and future
undiscounted cash flows, excluding financing costs, as primary indicators of
recoverability. If an impairment would be determined to exist, any related
impairment loss would be calculated based on fair value, as determined based on
quoted market values, discounted cash flows or appraisals, as appropriate in the
circumstance.
Revenue Recognition
The Company provides satellite capacity under lease agreements that provide
for the use of satellite transponders for periods generally ranging from one
year to the end of life of the satellite. Revenue under transponder lease
agreements is recognized as services are performed, provided that a contract
exists, the price is fixed or determinable and collectibility is reasonably
assured. Revenues under contracts that include fixed lease payment increases are
recognized on a straight line basis over the life of the lease. Customer
contracts are cancelable in the event of loss of the Company's satellite (see
Note 7).
Functional Currency
The Company's functional currency is the U.S. dollar. As substantially all
transactions are denominated in U.S. dollars, no transaction gains or losses are
reflected in the accompanying financial statements and no translation
adjustments are required.
Income Taxes
The Company is subject to Hong Kong corporate income tax on the portion of
its net income derived from Hong Kong sources. The Company is also subject to
U.S. corporate income tax on its worldwide income and is included in the
consolidated U.S. federal income tax return and certain combined state and
F-8
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
local income tax returns of Loral Space & Communications Corporation (a
subsidiary of Loral Space). Pursuant to a tax sharing agreement with Loral Space
& Communications Corporation, the Company is entitled to reimbursement for the
use of its tax losses, when such losses are utilized by the consolidated group;
otherwise, the Company, in combination with Loral CyberStar, is required to pay
their separate company income tax liability to Loral Space and Communications
Corporation. For purposes of these financial statements, the provision for
income taxes is computed as if the Company was a separate taxpayer; accordingly,
the provision for income taxes is based upon reported income before income taxes
and the corresponding tax obligation has been recorded through the due to/from
Loral CyberStar balance.
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial and income
tax reporting and are measured by applying tax rates in effect at the end of
each year.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The Company
adopted SFAS No. 133, as amended, on January 1, 2001. There was no effect on the
Company's financial position or results of operations from the adoption of this
standard.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101, as amended, was effective for the Company in the
fourth quarter of 2000 and clarified the SEC's views on U.S. GAAP relating to
revenue recognition in financial statements. The requirements of SAB No. 101 did
not have an impact on the Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The Company has adopted the
applicable disclosure requirements of SFAS No. 140 in its financial statements.
The Company has determined that there was no effect on the Company's financial
position or results of operations relating to the adoption of the other
provisions of SFAS No. 140.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and the normal operation of a long-lived asset, except
for certain obligations of lessees. The Company is required to adopt SFAS 143 on
January 1, 2003. The Company has not yet determined the impact that the adoption
of SFAS 143 will have on its results of operations or its financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and amends the accounting and reporting
provisions of
F-9
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
APB 30, Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
The Company is required to adopt SFAS 144 on January 1, 2002. The Company has
not yet determined the impact that the adoption of SFAS 144 will have on its
results of operations or its financial position.
4. COMPREHENSIVE INCOME (LOSS)
During the periods presented, the Company's comprehensive income (loss) is
the same as net income (loss).
5. SATELLITE IN-ORBIT
Satellite in-orbit is comprised of (in thousands):
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, --------------------
2001 2000 1999
------------- -------- --------
(UNAUDITED)
Transponder rights on satellite in-orbit......... $273,167 $273,167 $273,167
Accumulated depreciation......................... (42,201) (26,441) (5,428)
-------- -------- --------
$230,966 $246,726 $267,739
======== ======== ========
</Table>
Depreciation expense was $15.8 million, $21.0 million and $5.4 million for
the nine months ended September 30, 2001, the year ended December 31, 2000 and
from Inception to December 31, 1999, respectively.
As of December 31, 2000, approximately 60% of the transponder capacity on
the satellite was leased under non-cancelable operating leases with terms
averaging approximately 39 months and the remaining transponder capacity was
available for future lease. The aggregate future minimum lease receipts due
under non-cancelable operating leases for transponder capacity to the Company
was approximately $280 million.
6. INCOME TAXES
The (provision) benefit for income taxes consists of the following (in
thousands):
<Table>
<Caption>
NINE MONTHS PERIOD FROM
ENDED YEAR ENDED INCEPTION TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------------------- ------------ ------------
2001 2000 2000 1999
------------- ------- ------------ ------------
(UNAUDITED)
U.S. federal:
Current.............................. $(4,275) $(3,789) $(5,160) $(2,100)
Deferred............................. (2,813) (389) (364) 2,570
------- ------- -------
Total (provision) benefit for income
taxes.............................. $(7,088) $(4,178) $(5,524) $ 470
======= ======= ======= =======
Effective tax rate (federal tax
rate)........................... (35)% (35)% (35)% (35)%
</Table>
The Company is subject to Hong Kong corporate income tax on the portion of
its net income derived from Hong Kong sources, which for all periods presented
was zero.
F-10
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
The Company is also subject to U.S. federal income taxation at regular
corporate rates on its worldwide income and is included in the consolidated U.S.
federal income tax return of Loral Space & Communications Corporation. Under the
tax sharing agreement with Loral CyberStar, the provision for income taxes is
computed as if the Company was a separate taxpayer, based upon the reported
income before income taxes. The corresponding tax obligation has been recorded
for each year through the due to/from Loral CyberStar balance. Further, pursuant
to the tax sharing agreement for 1999, 2000 and 2001, the Company is entitled to
reimbursement for the use of its tax losses, if such losses are utilized by the
consolidated group. However, since the Company generated taxable income in 1999,
2000 and 2001, no reimbursement was received by the Company during any of these
periods.
The Company recognizes deferred tax assets and liabilities for the expected
future consequences of temporary differences between the carrying amount of
assets and liabilities for financial and income tax reporting which are measured
by applying enacted tax rates at the end of the period.
The significant components of the net deferred income tax asset (liability)
are as follows (in thousands):
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, ----------------
2001 2000 1999
------------- ------ ------
(UNAUDITED)
Depreciation......................................... $(771) $2,042 $2,562
Other................................................ 164 164 8
----- ------ ------
Net deferred income tax asset (liability)............ $(607) $2,206 $2,570
===== ====== ======
</Table>
The net deferred income tax asset (liability) is classified as follows (in
thousands):
<Table>
<Caption>
DECEMBER 31,
SEPTEMBER 30, ----------------
2001 2000 1999
------------- ------ ------
(UNAUDITED)
Other current assets................................. $ 108 $ 108 $ 8
===== ====== ======
Long-term deferred tax asset......................... -- $2,098 $2,562
====== ======
Long-term deferred tax liability..................... $(715) -- --
=====
</Table>
7. RELATED PARTY TRANSACTIONS
Concurrent with the acquisition of the Telstar 10/Apstar IIR satellite, the
Company entered into a lease agreement with Loral CyberStar. Pursuant to the
terms of this lease agreement, the Company agreed to lease transponder capacity
to Loral CyberStar on an as-needed basis at a rate equal to 90% of the retail
price charged by Loral CyberStar to its end customers. The 10% retained by Loral
CyberStar represents a management fee as compensation for estimated costs in
support of the Company's operations. Revenues recorded by the Company pursuant
to such lease agreement, excluding the 10% retention by Loral CyberStar, totaled
$28.6 million, $25.3 million and $0.3 million for the nine months ended
September 30, 2001, the year ended December 31, 2000 and from Inception to
December 31, 1999, respectively.
Loral CyberStar leases transponder capacity to Space Systems/Loral
("SS/L"), a wholly owned subsidiary of Loral Space. Revenues recognized by the
Company on sales to SS/L totaled $5 million and $4 million for the nine months
ended September 30, 2001 and the year ended December 31, 2000, respectively.
F-11
LORAL ASIA PACIFIC SATELLITE (HK) LIMITED
(A WHOLLY OWNED HONG KONG SUBSIDIARY OF LORAL CYBERSTAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS -- (CONTINUED)
In addition to the above transactions, the Company is required to reimburse
Loral CyberStar for certain direct costs incurred on its behalf. For each of the
respective dates, the balance due to/from Loral CyberStar in the accompanying
balance sheets includes the unpaid balance due under the above lease agreement
net of taxes payable and the reimbursement for certain direct costs and other
amounts advanced to Loral CyberStar.
8. COMMITMENTS AND CONTINGENCIES
The Company's Telstar 10/Apstar IIR satellite has experienced minor losses
of power from its solar arrays. Although to date Telstar 10/Apstar IIR has not
experienced any degradation in performance, there can be no assurance that it
will not experience additional power loss that could result in performance
degradation, including loss of transponder capacity. In the event of additional
power loss, the extent of the performance degradation, if any, will depend on
numerous factors, including the amount of the additional power loss, when in the
life of Telstar 10/Apstar IIR the loss occurred and the number and type of use
being made of transponders then in service. In connection with the renewal of
the insurance for the Company's Telstar 10/Apstar IIR satellite in October 2001,
the insurance underwriters have excluded losses due to solar array failures,
since Telstar 10/Apstar IIR was manufactured by SS/L and has the same solar
array configuration as another 1300 class satellite manufactured by SS/L that
recently experienced a solar array failure of a different nature. SS/L believes
that this failure is an isolated event and does not reflect a systemic problem
in either the satellite design or manufacturing process. Accordingly, the
Company does not believe that this anomaly will affect Telstar 10/Apstar IIR.
SS/L is currently providing the basis for this conclusion to the insurance
underwriters. While the Company anticipates that this exclusion will be removed
upon further review by the insurance underwriters, there can be no assurance
that this exclusion will be removed.
In connection with the acquisition of Telstar 10/Apstar IIR the Company
entered into a satellite services agreement with APT, pursuant to which APT
provides telemetry, tracking and control and associated services for the
Company's satellite in exchange for $1,000,000 per annum.
In October 2001, Loral CyberStar announced that it will conduct a
debt-for-debt exchange offer for its 11 1/4% Senior Notes due 2007 and its
12 1/2% Senior Discount Notes due 2007 (collectively, the Senior Notes), that
would substantially reduce the principal amount of Loral CyberStar's outstanding
debt obligations. CyberStar has an aggregate of $927 million principal amount
Senior Notes outstanding as of September 30, 2001. The Company has provided a
guarantee of the Senior Notes. The exchange offer is conditioned upon receiving
tenders of at least 85% of the principal amount of the Senior Notes. If the
exchange offer is accepted in full, the Company will issue new notes with an
aggregate principal amount of $675 million which will also be fully and
unconditionally guaranteed by the Company.
F-12
Copies of the consent and letter of transmittal will be accepted. The
consent and letter of transmittal, Existing Notes and any required documents
should be sent by each holder or his broker, dealer, commercial bank, trust
company or nominee to the Exchange Agent at the address set forth below.
The Exchange Agent for the Exchange Offer and Consent Solicitation is:
BANKERS TRUST COMPANY
<Table>
By Mail: By Facsimile: By Overnight Carrier:
(615) 835-3701
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Reorganization Unit Confirm by Telephone: Reorganization Unit
P.O. Box 292737 (800) 735-7777 648 Grassmere Park Rd.
Nashville, TN 37229-2737 Nashville, TN 37211
</Table>
DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
Any questions or requests for assistance or additional copies of this
prospectus or the consent and letter of transmittal may be directed to the
Information Agent or the Dealer Managers and Solicitation Agents at their
respective telephone numbers and addresses listed below. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Exchange Offer and the Consent Solicitation.
The Information Agent for the Exchange Offer and Consent Solicitation is:
MORROW & CO., INC.
<Table>
Banks and Brokers Call Toll Free: U.S. Noteholders Call Toll Free: International Noteholders Call Collect:
(800) 654-2468 (800) 607-0088 (212) 754-8000
</Table>
The Lead Dealer Manager for the Exchange Offer and the Lead Solicitation Agent
for the Consent Solicitation is:
DRESDNER KLEINWORT WASSERSTEIN, INC.
1301 Avenue of the Americas
New York, NY 10019
Attention: Steve Lam
(212) 969-2615
The Co-Dealer Managers for the Exchange Offer and the Co-Solicitation Agents for
the Consent Solicitation are:
<Table>
BANC OF AMERICA SECURITIES LLC J.P. MORGAN SECURITIES INC. LEHMAN BROTHERS INC.
100 North Tryon Street, 7th Floor 270 Park Avenue 101 Hudson Street, 31st Floor
Charlotte, NC 28255 New York, NY 10017 Jersey City, NJ 07302
Attn: Henk Bouhuys Attn: Laura Yachimski Attn: Emily E. Shanks
(888) 292-0070 (toll free) (212) 270-1100 (collect) (212) 681-2265 (collect)
(704) 388-2842 (collect) (800) 245-8812 (toll free) (212) 455-3327
</Table>