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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Loral Space & Communications Ltd.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[LORAL logo]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
MAY 23, 2001
------------------------
The Annual Meeting of Shareholders of Loral Space & Communications Ltd.
("Loral" or the "Company") will be held in Ballroom A, Grand Hyatt Hotel, Park
Avenue at Grand Central Station, New York, New York 10017, at 10:30 A.M, on
Wednesday, May 23, 2001 for the purpose of:
1. Electing to the Board three Class II Directors whose terms have
expired;
2. Acting upon a proposal to ratify the appointment of Deloitte &
Touche LLP as independent auditors for the year ending December
31, 2001; and
3. Transacting any other business which may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 30, 2001
as the date for determining shareholders of record entitled to receive notice
of, and to vote at, the Annual Meeting.
This Proxy Statement and accompanying proxy card will be first mailed to
you and to other shareholders of record on or about April 18, 2001.
All shareholders are cordially invited to attend the Annual Meeting.
Whether or not you plan to attend, I hope that you will vote as soon as
possible. Please review the instructions on the proxy card regarding your voting
options.
By Order of the Board of Directors
/s/ BERNARD L. SCHWARTZ
BERNARD L. SCHWARTZ
Chairman of the Board of Directors
April 17, 2001
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QUESTIONS & ANSWERS
WHY DID I RECEIVE THIS
PROXY? We have sent you this Notice of Annual Meeting and
Proxy Statement and proxy card because our Board of
Directors is soliciting your proxy to vote at our
Annual Meeting of Shareholders on May 23, 2001 (the
"Annual Meeting"). This Proxy Statement contains
information about the items being voted on at the
Annual Meeting and information about us.
WHO IS ENTITLED TO VOTE? You may vote if you owned common stock as of the
close of business on March 30, 2001. On March 30,
2001, there were 299,552,088 shares of our common
stock, par value $.01 per share, outstanding and
entitled to vote at the Annual Meeting.
WHAT AM I VOTING ON? You will be voting on the following:
- To elect three Class II Directors;
- To ratify Deloitte & Touche LLP as our independent
auditors; and
- To transact any other business which may properly
come before the Annual Meeting.
HOW DO I VOTE? All shareholders may vote by mail. To vote by mail,
please sign, date and mail the enclosed proxy card in
the postage prepaid envelope provided.
If you hold your shares in the name of a bank or
broker, you may be able to vote by telephone or over
the Internet. Please follow the directions on your
proxy card.
IF YOU ARE PLANNING TO ATTEND THE ANNUAL MEETING AND
WISH TO VOTE YOUR SHARES IN PERSON, WE WILL GIVE YOU
A BALLOT. IF YOUR SHARES ARE HELD IN THE NAME OF YOUR
BROKER, BANK OR OTHER NOMINEE, YOU NEED TO BRING AN
ACCOUNT STATEMENT OR LETTER FROM THE NOMINEE
INDICATING THAT YOU WERE THE BENEFICIAL OWNER OF THE
SHARES ON MARCH 30, 2001, THE RECORD DATE FOR VOTING.
EVEN IF YOU PLAN TO BE PRESENT AT THE MEETING, WE
ENCOURAGE YOU TO VOTE YOUR SHARES BY PROXY.
HOW MANY VOTES DO I
HAVE? Each share of our common stock that you own entitles
you to one vote.
WHAT IS A PROXY? A proxy is a person you appoint to vote on your
behalf. We are soliciting proxies so that all shares
of our common stock may be voted at the Annual
Meeting.
BY COMPLETING AND
RETURNING THE PROXY
CARD,
WHO AM I DESIGNATING AS
MY PROXY? You will be designating Bernard L. Schwartz, our
Chairman of the Board and Chief Executive Officer,
Eric J. Zahler, our President and Chief Operating
Officer, and Robert B. Hodes, a member of our Board
of Directors, as your proxies.
HOW WILL MY PROXY VOTE
MY
SHARES? Your proxy card, when properly executed, will be
voted according to the instructions you have
indicated.
WHAT IF I RETURN MY
PROXY
CARD BUT DO NOT MARK IT
TO
SHOW HOW I AM VOTING? If no direction is indicated, your proxy will be
voted "FOR" the election of all Class II nominees to
the Board of Directors and "FOR" proposal 2 and in
the discretion of the proxy with respect to any other
matter which may properly come before the Annual
Meeting.
CAN I CHANGE MY VOTE
AFTER
I RETURN MY PROXY CARD? You can change your vote at any time before it is
exercised by revoking your proxy in one of three
ways:
- Notify our Corporate Secretary in writing before
the Annual Meeting that you are revoking your
proxy;
- Submit another proxy with a later date; or
- Vote in person at the Annual Meeting.
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WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD? It means you have multiple accounts at the transfer
agent and/or with banks and stock brokers. Please
vote all of your shares.
WHAT CONSTITUTES A
QUORUM? The presence of the holders of a majority of the
shares entitled to vote at the Annual Meeting
constitutes a quorum. Presence may be in person or by
proxy. Therefore, you will be considered part of the
quorum if you return a signed and dated proxy card,
if you vote by telephone or Internet or if you attend
the Annual Meeting.
Abstentions and broker "non-votes" are counted as
"shares present" at the meeting for purposes of
determining whether a quorum exists but will not be
voted for election of directors or on other
proposals. Because abstentions and broker "non-votes"
are not treated as shares voted, they would have no
impact on proposals 1 and 2.
WHAT VOTE IS REQUIRED IN
ORDER TO APPROVE EACH
PROPOSAL? ELECTION OF DIRECTORS: The election of the three
Class II nominees requires the affirmative vote of a
majority of the shares cast at the Annual Meeting.
Persons designated as proxies reserve full discretion
to cast their votes for other persons in the
unanticipated event that any of such nominees is
unable or declines to serve. If you do not want to
vote your shares for a particular nominee, you may
indicate that in the space provided on this proxy
card or withhold authority as prompted during
telephone or Internet voting.
RATIFICATION OF INDEPENDENT AUDITORS: Ratification of
Deloitte & Touche LLP as our independent auditors
requires the affirmative vote of a majority of the
shares cast at the Annual Meeting. If the
shareholders do not ratify the appointment of
Deloitte & Touche LLP, the appointment will be
reconsidered by our Board of Directors.
HOW WILL VOTING ON ANY
OTHER BUSINESS BE
CONDUCTED? The signed proxies received from our shareholders
give the persons voting the proxies the authority to
vote on the matters according to their best judgment.
We do not know of any business or proposal to be
considered at the Annual Meeting other than that
described in this proxy statement. See "Other Action
at Meeting and Voting of Proxies."
WHO WILL COUNT THE
VOTES? The Bank of New York will act as the inspector of
election and will tabulate the votes.
WHO PAYS TO PREPARE,
MAIL
AND SOLICIT THE PROXIES? We will pay all of the costs of soliciting these
proxies. We will ask banks, brokers and other
nominees and fiduciaries to forward the proxy
materials to the beneficial owners of our common
stock and to obtain the authority of executed
proxies. We will reimburse them for their reasonable
expenses. We have also retained W.F. Doring & Co.,
Inc. to solicit proxies on our behalf and will pay
them a fee, not to exceed $7,500, for such services.
HOW DO I SUBMIT A
SHAREHOLDER PROPOSAL FOR
NEXT YEAR'S ANNUAL
MEETING? Proposals for inclusion in our 2002 Proxy Statement
must be submitted by shareholders and received by us
no later than December 17, 2001. In addition,
according to our bye-laws, shareholder proposals
intended to be presented at the 2002 Annual Meeting
must be received by us no later than April 11, 2002
but no earlier than March 14, 2002. All proposals
must be submitted in writing and sent to our
principal executive offices, located c/o Loral
SpaceCom Corporation at 600 Third Avenue, New York,
New York 10016, Attention: Secretary. Your proposal
must comply with the proxy rules of the Securities
and Exchange Commission and the requirements of
Bermuda law.
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PROPOSAL #1: ELECTION OF DIRECTORS
The Company has three classes of directors serving staggered three-year terms,
each class consisting of three directors. The terms of the Class I, II and III
directors expire on the date of the Annual Meeting in 2003, 2001 and 2002,
respectively.
Shareholders will elect three Class II directors at the Annual Meeting. Of the
directors named below, Messrs. Robert B. Hodes, Charles Lazarus and Daniel
Yankelovich are the nominees to serve as Class II directors. Each director will
serve for a period of three years, until their respective successors are duly
elected, until a qualified successor director has been elected, or until he
resigns or is removed by the Board. ELECTION OF EACH OF THE CLASS II NOMINEES
WILL REQUIRE THE AFFIRMATIVE VOTE IN PERSON OR BY PROXY OF A MAJORITY OF THE
VOTES CAST AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR EACH DIRECTOR NOMINEE.
The following are brief biographical sketches for each of our directors and
nominees:
BERNARD L. SCHWARTZ
Age: 75
Director Since: 1996
Class: Class III
Business Experience: Mr. Schwartz is Chairman of the Board of Directors and Chief
Executive Officer of the Company. In addition, he is Chief
Executive Officer of Globalstar, L.P.
Other Directorships: First Data Corp., K&F Industries, Inc., Reliance Group
Holdings, Inc. and certain of its subsidiaries, Globalstar
Telecommunications Limited, Loral CyberStar, Inc. and
Satelites Mexicanos, S.A. de C.V. Trustee of Mount
Sinai -- NYU Medical Center and Health System and
Thirteen/WNET Educational Broadcasting Corporation.
HOWARD GITTIS
Age: 67
Director Since: 1996
Class: Class I
Business Experience: Mr. Gittis is Director, Vice Chairman and Chief
Administrative Officer of MacAndrews & Forbes Holdings Inc.
and its various affiliates.
Other Directorships: Golden State Bancorp Inc., Golden State Holdings Inc., Jones
Apparel Group, Inc., M & F Worldwide Corp., REV Holdings
Inc., Revlon Consumer Products Corporation, Revlon, Inc. and
Sunbeam Corporation.
ROBERT B. HODES
Age: 75
Director Since: 1996
Class: Class II Nominee
Business Experience: Mr. Hodes is counsel to Willkie Farr & Gallagher, a law firm
in New York, N.Y. and, until 1996, was a partner in and
co-chairman of that firm.
Other Directorships: Globalstar Telecommunications Limited, K&F Industries, Inc.,
LCH Investments, N.V., Mueller Industries, Inc.,
Restructured Capital Holdings, Ltd., R.V.I. Guaranty Ltd.
and W.R. Berkley Corporation.
GERSHON KEKST
Age: 66
Director Since: 1996
Class: Class I
Business Experience: Mr. Kekst is President of Kekst and Company Incorporated,
corporate and financial communications consultants in New
York, N.Y.
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CHARLES LAZARUS
Age: 77
Director Since: 1996
Class: Class II Nominee
Business Experience: Mr. Lazarus is Chairman Emeritus of Toys "R" Us, Inc.
MALVIN A. RUDERMAN
Age: 74
Director Since: 1996
Class: Class III
Business Experience: Dr. Ruderman is the Centennial Professor of Physics at
Columbia University in New York, N.Y. He has been a member
of the Board of Trustees of the Institute for Advanced Study
and of Associated Universities, Inc.
E. DONALD SHAPIRO
Age: 69
Director Since: 1996
Class: Class III
Business Experience: Professor Shapiro has been The Joseph Solomon Distinguished
Professor of Law at New York Law School since 1983 and Dean
Emeritus since 2000 and was previously Dean/Professor of Law
(1973-1983).
Other Directorships: Frequency Electronics, Inc., Kramont Realty Trust, United
Industrial Corporation and Vasomedical, Inc.
ARTHUR L. SIMON
Age: 69
Director Since: 1996
Class: Class I
Business Experience: Mr. Simon is an independent consultant. Previously, he was a
partner at Coopers & Lybrand L.L.P., Certified Public
Accountants, from 1968 to 1994.
Other Directorships: Globalstar Telecommunications Limited, L-3 Communications
Corporation
DANIEL YANKELOVICH
Age: 76
Director Since: 1996
Class: Class II Nominee
Business Experience: Mr. Yankelovich is Chairman of DYG, Inc., a market, consumer
and opinion research firm in New York, N.Y. He is also
Chairman of Viewpoint Learning, Inc., a consulting firm
based in San Diego, CA.
Other Directorships: Director Emeritus of Arkla, Inc., CBS, Inc., Meredith
Corporation and U S West, Inc.
Directors are paid a fixed fee of $25,000 per year. Non-employee directors are
also paid $6,000 for personal attendance at each meeting. Audit Committee
members are paid $2,000 per year and $1,000 per meeting. Compensation and Stock
Option Committee members are paid $500 per year.
On July 18, 2000, Messrs. Gittis, Hodes, Kekst, Lazarus, Ruderman, Shapiro,
Simon and Yankelovich each received options to purchase 71,300 shares of our
common stock at an exercise price of $8.00 per share.
The Company provides certain life insurance and medical benefits to
certain-non-employee directors. For 2000, the value of the life insurance
benefits was $13,565 for Mr. Gittis, $14,553 for Mr. Kekst, $14,223 for Mr.
Ruderman, $15,000 for Mr. Shapiro and $14,170 for Mr. Yankelovich, and the cost
of life insurance and medical benefits was $35,819 for Mr. Hodes.
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The Company has purchased insurance from various insurance companies insuring
the Company against obligations it might incur as a result of its
indemnification of officers and directors for certain liabilities they might
incur, and insuring such officers and directors for additional liabilities
against which they might not be indemnified by the Company. The policy also
provides insurance for the Company's own liabilities in certain circumstances.
The cost to the Company in fiscal year 2000 for this insurance was approximately
$744,000. Pursuant to Bermuda law, the Company has entered into indemnity
agreements with its directors and executive officers. These indemnity agreements
are intended to provide the full indemnity protection authorized by Bermuda law.
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PROPOSAL #2: INDEPENDENT AUDITORS
Shareholders will act upon a proposal to ratify the appointment of Deloitte &
Touche LLP as the independent auditors of the Company. IF THE SHAREHOLDERS, BY
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES REPRESENTED IN
PERSON OR BY PROXY AND VOTING AT THE MEETING DO NOT RATIFY THE APPOINTMENT OF
DELOITTE & TOUCHE LLP, THE APPOINTMENT OF THE INDEPENDENT AUDITORS WILL BE
RECONSIDERED BY THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THIS PROPOSAL.
BACKGROUND
The Board of Directors has appointed Deloitte & Touche LLP, certified public
accountants, as the independent auditors of the Company for the fiscal year
ending December 31, 2001. Deloitte & Touche LLP has advised the Company that it
has no direct or indirect financial interest in the Company or any of its
subsidiaries, and that it has had, during the last three years, no connection
with the Company or any of its subsidiaries other than as independent auditors
and related activities.
FINANCIAL STATEMENTS AND REPORTS
The financial statements of the Company for the year ended December 31, 2000,
and reports of the auditors will be presented at the Annual Meeting. Deloitte &
Touche LLP will have a representative present at the meeting who will have an
opportunity to make a statement if he or she so desires and to respond to
appropriate questions from shareholders.
SERVICES
During 2000, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu
and their respective affiliates (collectively, "Deloitte") provided services
consisting of the audit of the annual consolidated financial statements of the
Company, consultations with respect to the quarterly financial statements,
reports and registration statements filed by the Company with the Securities and
Exchange Commission and other pertinent matters. Deloitte also provided certain
consulting services to the Company in 2000.
AUDIT FEES
The aggregate fees billed or expected to be billed by Deloitte for professional
services rendered for the audit of the Company's annual consolidated financial
statements for the fiscal year ended December 31, 2000 and for the reviews of
the condensed consolidated financial statements included in the Company's
Quarterly Reports on Form 10-Q for the fiscal year totaled approximately
$955,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Deloitte did not perform any financial information systems design and
implementation services for the Company for the fiscal year ended December 31,
2000.
ALL OTHER FEES
The aggregate fees billed or expected to be billed by Deloitte for services
rendered to the Company, other than the services described above under "Audit
Fees" and "Financial Information Systems Design and Implementation Fees", for
the fiscal year ended December 31, 2000 totaled approximately $704,000.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining Deloitte's independence.
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OTHER ACTION AT MEETING AND VOTING OF PROXIES
The Company has received a request from a shareholder to submit a proposal at
the Annual Meeting. The verbatim text of this shareholder proposal is set forth
below:
"Loral Space & Communications, at its discretion and on its own expense,
should immediately hire an Investment Banking firm to solicit and accept
proposals from entities interested in merging, acquiring, partnering with
the Businesses owned by Loral Space, individually, or in its entirety, with
the sole purpose of reporting back to the Loral Space shareholders what
type of consideration, if any, may be available to Loral shareholders. Upon
any proposals put forth under the guidelines of the Investment Banking
firm, Loral Space will reconvene shareholders to vote upon acceptance of
any proposed plan after considering any plans that present management might
provide as an alternative."
In connection with this proposal, management has provided the following
comments. In furtherance of its objective to restore and enhance shareholder
value, the Company has engaged in discussions that may lead to possible
strategic transactions. In the course of these discussions, the Company consults
with, and seeks advice from, its advisers, including investment banking firms,
legal counsel and others. As such, the Company believes that implementation of
the shareholder proposal described above is redundant, and, if this proposal is
presented at the Annual Meeting, we intend to vote discretionary proxies against
it and recommend that shareholders present do the same. Approval of this
proposal, if presented, will require the affirmative vote of a majority of the
shares cast at the Annual Meeting.
We do not know of any business or proposals to be considered at the Annual
Meeting other than the above. If any other business is proposed and we decide to
allow it to be presented at the Annual Meeting, the signed proxies received from
our shareholders give the persons voting the proxies the authority to vote on
the matter according to their best judgment.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met nine times during 2000. Each director attended at
least 75% of the meetings of the Board and of the meetings of the Board
committees on which he served as a member in 2000.
The Board of Directors has standing audit, compensation and stock option and
executive committees. The following shows the membership and functions of the
various committees:
AUDIT COMMITTEE
Members: Robert B. Hodes, Malvin A. Ruderman, E. Donald Shapiro,
Arthur L. Simon
Number of Meetings in 2000: 3
Functions: Reviews and acts or reports to the Board of Directors with
respect to various auditing and accounting matters,
including the review of Loral's audited financial
statements, the selection of Loral's independent auditors,
the accounting and financial practices and controls of
Loral, audit procedures and findings and the nature of
services performed for Loral by, and the fees paid to, the
independent auditors.
COMPENSATION AND STOCK OPTION COMMITTEE
Members: E. Donald Shapiro, Arthur L. Simon
Number of Meetings in 2000: 2
Functions: Reviews and provides recommendations to the Board of
Directors regarding executive compensation matters and is
responsible for the administration of Loral's Stock Option
Plans.
EXECUTIVE COMMITTEE
Members: Bernard L. Schwartz, Robert B. Hodes, Gershon Kekst
Number of Meetings in 2000: 5
Functions: The Executive Committee, between meetings of the Board of
Directors, exercises all powers and authority of the Board
of Directors in the management of Loral's business affairs
that may be lawfully delegated.
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REPORT OF THE AUDIT COMMITTEE
The Directors who serve on the Audit Committee are all "independent" for
purposes of the New York Stock Exchange listing standards. That is, the Board of
Directors has determined that none of us has a relationship to the Company that
may interfere with our independence from the Company and its management.
The Audit Committee operates under a written charter adopted by the Board of
Directors, which is included as Appendix A to this Proxy Statement. All of the
responsibilities enumerated in such charter were fulfilled for the year ended
December 31, 2000.
We have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2000.
We have discussed with the independent auditors, Deloitte & Touche LLP, the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants (see Appendix A for a
listing of such matters).
We have received and reviewed the written disclosures and the letter from
Deloitte & Touche LLP, required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors' independence.
Based on the activities referred to above, we recommended to the Board of
Directors that the financial statements referred to above be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The report of the Audit Committee shall not be deemed incorporated by reference
by any general statements incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent it shall be specifically incorporated and shall
not otherwise be deemed filed under such acts.
MEMBERS OF THE AUDIT COMMITTEE
Arthur L. Simon, Chairman
Robert B. Hodes
Malvin A. Ruderman
E. Donald Shapiro
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The goals of the compensation program established by the Compensation and Stock
Option Committee (the "Compensation Committee") are to align compensation with
business objectives and corporate performance and to enable the Company and its
subsidiaries (collectively, the "Loral Group") to attract, retain and reward
executive officers who contribute to the long-term success of the Loral Group
and thereby create value for shareholders. In order to attain these goals, the
Compensation Committee's compensation policies link compensation to corporate
performance.
The principal components of the Compensation Committee's compensation program
are annual cash compensation consisting of base salary and an annual incentive
bonus, as well as long-term incentive compensation using stock options. In
determining the amount and form of executive compensation, the Compensation
Committee has considered the competitive market for senior executives, the
executive's role in achieving the business objectives of the Loral Group and the
overall performance of the Loral Group. The type and amount of discretionary
compensation granted is based upon the subjective judgment of the Compensation
Committee and Chief Executive Officer ("CEO"), respectively; nevertheless, in
the exercise of their discretion, the Compensation Committee and CEO consider a
number of objective criteria which are discussed below in the context of the
components of compensation to which they apply.
The Compensation Committee believes that its compensation policies, which have
been instrumental in attracting and retaining highly qualified and dedicated
personnel, will be an important factor in the growth and success of the Loral
Group.
SECTION 162(m) OF THE CODE
The Company's 1996 Stock Option Plan, which was adopted by the Company's Board
of Directors and approved by the Company's then sole shareholder on March 13,
1996, has been designed to comply with the requirements for "performance-based
compensation" under Internal Revenue Code Section 162(m). The Compensation
Committee, however, does not have a policy precluding the payment of
nondeductible compensation. Compensation attributable to option grants made to
certain executive officers under the Company's 2000 Stock Option Plan (described
below) will not be exempt from the deduction limits of Section 162(m).
2000 STOCK OPTION PLAN
On April 18, 2000, the Board of Directors approved a new stock option plan (the
"2000 Plan") in order to provide an inducement to attract and retain the
services of qualified employees. The 2000 Plan is intended to constitute a
"broadly based plan" as defined in Section 312.04(h) of the New York Stock
Exchange Listed Company Manual, which provides that during any three-year period
at least 50% of grants thereunder exclude senior management. The 2000 Plan
provides for the grant of non-qualified stock options only. Employees of Loral,
its subsidiaries and affiliates are eligible to participate in the 2000 Plan.
The 2000 Plan (but not outstanding options) will terminate on the tenth
anniversary of its adoption. The total number of shares of Common Stock which
may be issued under this Plan is 27,000,000.
CEO COMPENSATION
The Company's CEO, Bernard L. Schwartz, is paid pursuant to a long-term
employment contract. This contract provides for a minimum annual base salary, to
be increased each year by the percentage change in the Consumer Price Index,
plus such other annual increases as the Board of Directors or the Compensation
Committee may grant from time to time. Effective April 23, 2000, Mr. Schwartz's
annual base salary increased to $1,669,500 in accordance with his contractual
formula. The Compensation Committee sets annual incentive compensation for Mr.
Schwartz by assessing a number of factors, including his individual effort,
performance and contribution toward achieving the business plan and growth
objectives of the Loral Group. The Compensation Committee, at Mr. Schwartz's
request, has deferred consideration of his bonus payment for 2000.
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COMPENSATION FOR OTHER EXECUTIVE OFFICERS
Base salaries for the named executive officers in this Proxy Statement ("NEOs")
other than Mr. Schwartz and other executive officers have been set at
competitive levels by the CEO in consultation with the Compensation Committee,
giving due regard to individual performance and time in position. Incentive
compensation for NEOs other than Mr. Schwartz and other executive officers is
set by the CEO, in consultation with the Compensation Committee, based on
factors similar to those used for establishing incentive compensation for the
CEO. Incentive compensation for corporate officers with line responsibility for
division operations is generally tied to performance targets for the businesses
under their authority. These performance targets are set as part of the annual
budgeting process for the Company and its subsidiaries. Bonus compensation for
2000 has been awarded in accordance with these factors.
LONG-TERM COMPENSATION
It is the Compensation Committee's belief that shareholders' interests are best
served by encouraging key employees of the Loral Group to develop ownership
interests in the Company. To that end, the Compensation Committee primarily
relies upon fair market value employee stock options granted in accordance with
the provisions of the 1996 and 2000 Stock Option Plans. During 2000, 4,399,900
options were granted to employees under the 1996 Stock Option Plan, of which
3,508,800 were granted to NEOs, and 16,364,797 options were granted to employees
under the 2000 Stock Option Plan, of which 4,021,300 were granted to NEOs.
The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statements incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent it shall be specifically
incorporated and shall not otherwise be deemed filed under such acts.
MEMBERS OF THE COMPENSATION AND STOCK OPTION
COMMITTEE
E. Donald Shapiro
Arthur L. Simon
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
None of the members of the Compensation Committee are present or former officers
or employed by the Company and its subsidiaries.
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EXECUTIVE COMPENSATION
The Company has entered into a management agreement with Loral SpaceCom
Corporation ("Loral SpaceCom") pursuant to which Loral SpaceCom provides certain
services to the Company. In accordance with this agreement, compensation for the
NEOs and other executive officers and employees of the Company is paid by Loral
SpaceCom. The following table summarizes the compensation paid to the NEOs.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
OTHER UNDERLYING
ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(a) BONUS(b) COMPENSATION OPTIONS(c) COMPENSATION(d)
------------------------------------------------------------------------------------------------------------------------------
Bernard L. Schwartz 2000 $1,655,844 -- -- 1,812,500 $320,506
Chairman of the Board of Directors 1999 $1,617,786 -- -- 300,000 $419,735
and Chief Executive Officer 1998 $1,498,017 $600,000 -- 312,500 $463,919
------------------------------------------------------------------------------------------------------------------------------
Eric J. Zahler 2000 $ 975,962 $325,000 -- 1,550,000 $ 11,436
President and 1999 $ 524,038 $600,000 -- 150,000 $ 11,076
Chief Operating Officer 1998 $ 500,000 $350,000 -- 125,000 $ 11,076
------------------------------------------------------------------------------------------------------------------------------
Michael P. DeBlasio 2000 $ 750,000 $275,000 -- 1,842,600 $ 18,565
First Senior 1999 $ 750,000 $550,000 -- 125,000 $ 19,725
Vice President 1998 $ 750,000 $500,000 -- 156,300 $ 19,898
------------------------------------------------------------------------------------------------------------------------------
Nicholas C. Moren 2000 $ 550,000 $300,000 -- 1,500,000 $ 12,996
Senior Vice President 1999 $ 460,577 $400,000 -- 125,000 $ 12,636
and Treasurer 1998 $ 450,000 $350,000 -- 125,000 $ 12,636
------------------------------------------------------------------------------------------------------------------------------
Richard J. Townsend 2000 $ 475,000 $300,000 -- 825,000 $ 12,140
Senior Vice President and 1999 $ 362,404 $400,000 -- 125,000 $ 11,780
Chief Financial Officer 1998 $ 88,846 $ 50,000 -- 116,500 $ 240
(a) For 1998 for Mr. Townsend, amount reflects the actual salary earned during
the period of October 1, 1998 to December 31, 1998, not the annual base
salary of $350,000.
(b) The Compensation Committee, at Mr. Schwartz's request, has deferred
consideration of his bonus payments for 1999 and 2000.
(c) Does not include grants made in January 2000 by Globalstar
Telecommunications Limited ("GTL") to Messrs. Schwartz, DeBlasio, Moren and
Townsend to acquire 75,000, 25,000, 25,000 and 25,000 shares of GTL common
stock, respectively, at an exercise price of $31.40625 per share. These
options are exercisable over a five-year period as follows: 25% on each of
the second, third, fourth and fifth anniversary from the date of grant.
Also, does not include grants made in May 2000 by GTL to Messrs. Schwartz,
Zahler, DeBlasio, Moren and Townsend to acquire 75,000, 80,000, 55,000,
55,000 and 75,000 shares of GTL common stock, respectively, at an exercise
price of $8.70310. These options vest in thirds over a three-year period
commencing one year from the date of grant.
Does not include the June 1999 grant by GTL to Mr. Townsend of stock options
to acquire 20,000 shares of GTL common stock at an exercise price of
$17.1563 per share or a December 1999 grant by GTL to Mr. Zahler of stock
options to acquire 50,000 shares of GTL common stock at an exercise price of
$20.7813 per share. Also, does not include grants made in August 1999 by GTL
to Messrs. Zahler, DeBlasio, Moren and Townsend of stock options to acquire
30,000 shares each of GTL common stock at an exercise price of $24.0625 per
share. These options are exercisable over a five-year period as follows: 25%
on each of the second, third, fourth and fifth anniversary from the date of
grant.
Includes a restricted stock option grant in 1998 to Mr. Townsend to acquire
16,500 shares of Loral common stock at an exercise price of $.01, which
vests in one-third increments. Upon exercise, dividends, if any, paid with
respect to such restricted stock will be retained by the Company until
vesting.
(d) For 2000, includes annual Board of Directors fee in the amount of $25,000 to
Mr. Schwartz and Company matching contributions to the Savings Plan for each
of the NEOS in the amount of $6,120 and the value of supplemental life
insurance premiums in the amount of $289,386, $5,316, $12,445, $6,876 and
$6,020 for Messrs. Schwartz, Zahler, DeBlasio, Moren and Townsend,
respectively.
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OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
% OF
TOTAL
NUMBER OPTIONS EXERCISE
OF GRANTED OR
SECURITIES TO BASE
UNDERLYING EMPLOYEES PRICE GRANT DATE
OPTIONS IN (PER EXPIRATION PRESENT
NAME GRANTED(a) FISCAL YEAR SHARE) DATE VALUE(b)
Bernard L. Schwartz 1,812,500 8.73% $ 8.00 07/18/2010 $8,631,125
Eric J. Zahler 775,000 3.73% $ 8.00 07/18/2010 $3,690,550
775,000 3.73% $2.9688 12/22/2010 $1,493,425
Michael P. DeBlasio 921,300 4.44% $ 8.00 07/18/2010 $4,387,231
921,300 4.44% $2.9688 12/22/2010 $1,775,345
Nicholas C. Moren 750,000 3.61% $ 8.00 07/18/2010 $3,571,500
750,000 3.61% $2.9688 12/22/2010 $1,445,250
Richard J. Townsend 225,000 1.08% $ 8.00 07/18/2010 $1,071,450
600,000 2.89% $2.9688 12/22/2010 $1,156,200
(a) Except with respect to Mr. Schwartz, whose options are exercisable
immediately, these options vest in thirds over a three-year period
commencing one year from the date of grant. Options for each of the current
NEOs, except for Mr. Schwartz who received only one option grant, were
granted on July 18, 2000 with an exercise price of $8.00 and on December 22,
2000 with an exercise price of $2.9688.
(b) The Black-Scholes model of option valuation was used to determine grant date
present value. The Company does not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option. The
present value calculation is based on a ten-year option term, a risk-free
interest rate assumption of 5.50%, stock price volatility of 45% over a
ten-year period and a dividend rate of $0 per share. However, there were no
adjustments made for non-transferability or risk of forfeiture. The actual
value realized, if any, will depend on the amount by which the stock price
at the time of exercise exceeds the exercise price. There is no assurance
that the amount estimated by the Black-Scholes model will be realized.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN 2000 AND
YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END YEAR END(a)
NUMBER
OF
SHARES
ACQUIRED
ON REALIZED
NAME EXERCISE VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Bernard L. Schwartz 3,625,000 0 0 0
Eric J. Zahler 480,000 1,845,000 0 $169,531
Michael P. DeBlasio 567,520 2,196,380 0 $201,534
Nicholas C. Moren 475,000 1,775,000 0 $164,063
Richard J. Townsend 11,000 $39,765 70,500 985,000 $17,476 $131,250
(a) Market value of underlying securities at year-end, minus the exercise price.
14
16
EMPLOYMENT AND OTHER RELATED ARRANGEMENTS
Mr. Schwartz is compensated pursuant to an employment agreement with Loral
SpaceCom, which was amended on July 18, 2000. This agreement, which expires on
April 5, 2006, provides for a minimum annual base salary, to be increased each
year by the percentage change in a specified consumer price index, plus such
other annual increases as the Board of Directors or the Compensation Committee
may grant from time to time.
Pursuant to the amended employment agreement, if Mr. Schwartz is removed as
Chairman of the Board of Directors or as Chief Executive Officer other than for
cause, or if his duties, authorities or responsibilities are diminished, or if
there is a change of control of the Company, Mr. Schwartz may elect to terminate
the agreement. A change of control of the Company is defined generally to mean:
(1) the acquisition by any person of 35% or more of either (i) the then
outstanding common stock or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors; (2) the incumbent directors cease for any reason to
constitute at least a majority of the Board of Directors; (3) subject to certain
exceptions, consummation of a reorganization, consolidation, merger or sale of
substantially all of the assets of the Company; or (4) approval by the
shareholders of the Company of a liquidation or dissolution of the Company. In
any such event, or upon his death or disability, Mr. Schwartz will be entitled
to receive a lump sum payment discounted at 9% per annum, in an amount equal to
his base salary as adjusted for defined Consumer Price Index changes for the
remainder of the term, an amount of incentive bonus equal to the highest
received by Mr. Schwartz in any of the prior three years, times the number of
years (including partial fiscal years) remaining during the term, and an amount
calculated to approximate the annual compensation elements reflected in the
difference between fair market value and exercise price of stock options granted
to Mr. Schwartz. All such sums are further increased to offset any tax due by
Mr. Schwartz under the excise tax and related provisions of Section 4999 of the
Internal Revenue Code.
Loral SpaceCom has established Supplemental Life Insurance Programs for certain
key employees including the NEOs. For Messrs. Schwartz, Zahler, DeBlasio, Moren
and Townsend, the Plans are funded with "split-dollar" or "universal" life
insurance policies in the face amounts of $20,500,000, $500,000, $1,115,000,
$500,000 and $500,000, respectively. In the event of death of the covered
executive under the "split-dollar" policies, Loral SpaceCom will be entitled to
receive an amount not less than Loral SpaceCom's cumulative contributions. If
any of the officers covered under the "split-dollar" program terminates his
employment prior to the time that Loral SpaceCom's contributions equal the cash
value of the insurance policy, he will be responsible for repayment of the
remainder of Loral SpaceCom's contribution to the extent cash becomes available
in the policy. Such officers contribute to the payment for this program. Messrs.
Schwartz and DeBlasio are covered under the "split-dollar" program.
On July 18, 2000, the Board of Directors approved the entry by the Company into
employment protection agreements with the NEOs that would provide them with
certain protections in the event of a change of control of the Company. A change
of control of the Company is defined generally to mean: (1) the acquisition by
any person of 35% or more of either (i) the then outstanding common stock or
(ii) the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors; (2) the
incumbent directors cease for any reason to constitute at least a majority of
the Board of Directors; (3) subject to certain exceptions, consummation of a
reorganization, consolidation, merger or sale of substantially all of the assets
of the Company; or (4) approval by the shareholders of the Company of a
liquidation or dissolution of the Company. These agreements provide that, after
a change of control, the NEO would be entitled to certain protections relating
to his responsibilities and duties, as well as compensation and benefits. In the
event of a termination by the Company other than for "cause" or "disability" or
a termination by the NEO for "good reason," in each case as such terms are
defined therein, the agreements provide for a severance package consisting of:
(i) the NEO's base salary through the date of termination; (ii) a cash amount
equal to three times the sum of the NEO's base salary, annual bonus, the present
value amount of the cost of certain benefit plans and programs in which the NEO
participates and the annualized value of the NEO's vacation and fringe benefits;
and (iii) any deferred compensation and any other amounts or benefits then owing
to the NEO.
15
17
PENSION PLAN
Loral SpaceCom maintains a defined benefit pension plan and trust (the "Pension
Plan") that is qualified under Section 401(a) of the Code. The Pension Plan
provides retirement benefits for eligible employees of Loral SpaceCom and Loral
SpaceCom's operating affiliates, including executive officers. The benefit
formula for executive officers for the period ending December 31, 1996 will
generally provide an annual benefit equal to the greater of (A) or (B), where
(A) equals (i) 1.2% of compensation up to the Social Security Wage Base and
1.45% of compensation in excess of the Social Security Wage Base for each year
prior to the calendar year in which a participant completes 15 years of
employment, plus (ii) 1.5% of compensation up to the Social Security Wage Base
and 1.75% of compensation in excess of the Social Security Wage Base for the
calendar year in which the participant has completed 15 years of employment and
for each year thereafter; and (B) equals (i) 1.2% of average annual compensation
paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.45% of
average annual compensation paid during 1992-1996 in excess of the 1996 Social
Security Wage Base for each year prior to the calendar year in which a
participant completes 15 years of employment, plus (ii) 1.5% of average annual
compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and
1.75% of average annual compensation paid during 1992-1996 in excess of the 1996
Social Security Wage Base for the calendar year in which the participant has
completed 15 years of employment and for each year thereafter. The benefit for
periods subsequent to December 31, 1996 will be based on (A) above. Executive
officers also participate in a supplemental executive retirement plan (the
"SERP") which provides supplemental retirement benefits due to certain
reductions in retirement benefits under the Pension Plan that are caused by
various limitations imposed by the Internal Revenue Code. Compensation used in
determining benefits under the Pension Plan and SERP includes salary and bonus.
Effective April 1, 1997, under the minimum distribution rules prescribed by the
Code, Mr. Schwartz began receiving an annual benefit under the Pension Plan and
SERP of $2,165,700, determined on a joint and 50% survivor basis. The estimated
annual benefit under the Pension Plan and SERP is $465,000 for Mr. Zahler,
$519,000 for Mr. DeBlasio, $246,000 for Mr. Moren and $202,000 for Mr. Townsend.
This projected benefit has been computed assuming that (i) employment with Loral
SpaceCom will be continued until normal retirement, (ii) current levels of
creditable compensation and the Social Security Wage Base will continue without
increases or adjustments throughout the remainder of the computation period and
(iii) payments will be made on a life annuity basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe that during 2000 all reports for our executive officers and directors
and the beneficial owners of more than 10% of our common stock that were
required to be filed under Section 16(a) of the Securities Exchange Act of 1934
were timely filed, except three reports were not timely filed by Thomas B. Ross
to report purchases of common stock by his wife.
16
18
COMMON STOCK OWNERSHIP
The following table shows, based upon filings made with the Company, certain
information concerning persons who may be deemed beneficial owners of 5% or more
of the outstanding shares of our common stock because they possessed or shared
voting or investing power with respect to the shares of our common stock:
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP CLASS(1)
Lockheed Martin Investments Inc. 45,896,978 15.3%
6801 Rockledge Drive
Bethesda, Maryland 20817
AXA Financial, Inc. 28,938,894(2) 9.7%
(formerly known as The Equitable Companies Incorporated)
1290 Avenue of the Americas
New York, New York 10104
(1) Percent of class refers to percentage of class beneficially owned as the
term beneficial ownership is defined in Rule 13d-3 under the Securities
Exchange Act of 1934 and is based upon the number of shares of our common
stock outstanding as of March 30, 2001.
(2) A Schedule 13G filed by AXA Financial, Inc. and certain of its affiliated
persons ("AXA") with the Securities and Exchange Commission on February 12,
2001 reported that, as of December 31, 2000, AXA beneficially owned
28,938,894 shares of our common stock. Of such shares, AXA reported sole
voting power over 935,443 shares, shared voting power over 27,990,440 shares
and sole investment power over 28,938,894 shares.
17
19
The following table presents the number of shares of our common stock
beneficially owned by the directors and nominees, the NEOs and all directors,
nominees, NEOs and all other executive officers as a group as of March 30, 2001
(except as otherwise indicated). Individuals have sole voting and investment
power over the stock unless otherwise indicated in the footnotes.
AMOUNT AND NATURE OF PERCENT OF
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1)(2) CLASS
Bernard L. Schwartz 7,540,631(3) 2.5%
Michael P. DeBlasio 853,081(4) *
Howard Gittis 31,520(5) *
Robert B. Hodes 45,520(5) *
Gershon Kekst 45,520(5) *
Charles Lazarus 55,520(6) *
Nicholas C. Moren 689,389(7) *
Malvin A. Ruderman 57,520(5) *
E. Donald Shapiro 55,520(8) *
Arthur L. Simon 43,520(9) *
Richard J. Townsend 103,392(10) *
Daniel Yankelovich 66,520(5) *
Eric J. Zahler 754,891(11) *
ALL DIRECTORS, NOMINEES, NEOS AND OTHER EXECUTIVE OFFICERS
AS A GROUP (26 PERSONS) 11,852,672(12) 3.9%
* Represents holdings of less than one percent.
(1) Includes shares which, as of March 30, 2001, may be acquired within sixty
days pursuant to the exercise of options (which shares are treated as
outstanding for the purposes of determining beneficial ownership and
computing the percentage set forth) and shares held for the benefit of
named executive directors as of March 15, 2001 in the Loral Savings Plan
(the "Savings Plan).
(2) Except as noted, all shares are owned directly with sole investment and
voting power.
(3) Includes 160,000 shares held by Mr. Schwartz's wife, 3,625,000 shares
exercisable under the Stock Option Plans and 2,373 shares held in the
Savings Plan.
(4) Includes 762,520 shares exercisable under the Stock Option Plans and 10,561
shares held in the Savings Plan.
(5) Includes 25,520 shares exercisable under the Stock Option Plans.
(6) Includes 10,000 shares owned by Mr. Lazarus's wife and 25,520 shares
exercisable under the Stock Option Plans.
(7) Includes 605,000 shares exercisable under the Stock Option Plans and 3,989
shares held in the Savings Plan.
(8) Includes 3,000 shares owned by Mr. Shapiro's wife and 25,520 shares
exercisable under the Stock Option Plans.
(9) Includes 9,750 shares held in Mr. Simon's IRA account, 250 shares in his
wife's IRA account, 4,000 shares of Series C Preferred Stock held in Mr.
Simon's IRA account and 25,520 shares exercisable under the Stock Option
Plans.
(10) Includes 75,000 shares exercisable under the Stock Option Plans and 1,892
shares held in the Savings Plan.
(11) Includes 610,000 shares exercisable under the Stock Option Plans and 13,691
shares held in the Savings Plan.
(12) Includes 7,171,175 shares exercisable under the Stock Option Plans and
88,576 shares held in the Savings Plan.
18
20
STOCK PERFORMANCE GRAPH
The graph below compares the change in cumulative total return of the Company's
common stock with the cumulative total return of the Standard & Poor's 500
Composite Stock Index and Satin-30, the Barclays Satellite & Space Index, from
January 8, 1996 through March 15, 2001, assuming an investment of $100 in the
Company's common stock and each index. On January 7, 1996, Loral Corporation
entered into a Merger Agreement with Lockheed Martin pursuant to which Loral
Corporation agreed to merge (the "Merger") with a subsidiary of Lockheed Martin
Corporation and Loral Corporation stockholders would receive in the merger $38
in cash and one share of common stock of the Company (the "Distribution"). "When
issued" trading in the Company's common stock commenced on April 15, 1996, and
the Distribution and Merger were completed on April 23, 1996. The share price
for the Company's common stock in the graph below for the period from January 8,
1996, the day after the announcement of the Merger, through April 15, 1996, the
day on which "when issued" trading commenced, represents the value of a share of
common stock of the Company inherent in value of the common stock of Loral
Corporation as represented by the share price of Loral Corporation common stock
for each period less $38, the fixed portion of the merger consideration.
The graph below shall not be deemed incorporated by reference by any general
statements incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent it shall be specifically incorporated and shall not otherwise be
deemed filed under such acts.
COMPARISON OF CUMULATIVE TOTAL RETURN
LORAL SATIN-30 S & P 500
----- -------- ---------
8-Jan-96 100.00 100.00 100.00
30-Jun-96 212.00 115.00 109.00
31-Dec-96 283.00 110.00 120.00
30-Jun-97 231.00 107.00 143.00
31-Dec-97 330.00 116.00 157.00
30-Jun-98 435.00 132.00 183.00
31-Dec-98 274.00 128.00 199.00
30-Jun-99 277.00 205.00 222.00
31-Dec-99 374.00 550.00 238.00
30-Jun-00 107.00 491.00 235.00
31-Dec-00 49.00 370.00 213.00
15-Mar-01 47.00 320.00 190.00
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21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GLOBALSTAR
On December 15, 1995, Globalstar, L.P. ("Globalstar") entered into a credit
agreement providing for a $250 million credit facility. Following the
consummation of the merger between Loral Corporation and a subsidiary of
Lockheed Martin, Lockheed Martin guaranteed $206.3 million of Globalstar's
obligation under the credit agreement, and Space Systems/Loral, Inc., a Loral
subsidiary, and certain other Globalstar strategic partners guaranteed $11.7
million and $32 million, respectively, of Globalstar's obligation. In addition,
Loral agreed to indemnify Lockheed Martin for liability in excess of $150
million under Lockheed Martin's guarantee.
On June 30, 2000, this credit facility matured and was thereupon paid in full by
its guarantors, including Lockheed Martin. Pursuant to the relevant agreements
entered into in 1996, Globalstar issued to all the guarantors three-year notes
in proportion to the principal amount of the credit facility guaranteed. On June
30, 2000, Loral paid $56.3 million on a net basis to Lockheed Martin in
satisfaction of its indemnity obligation. Accordingly, Loral is entitled to
receive notes in respect thereof.
On August 5, 1999, Globalstar entered into a $500 million credit agreement with
a group of banks, which credit agreement was guaranteed by Loral SatCom Ltd. and
Loral Satellite, Inc. (the "Guarantees"). In November 2000, the assets of Loral
SatCom Ltd. were transferred into Loral Satellite, Inc. and Loral Satellite,
Inc. entered into a $500 million credit agreement with a group of banks. The
proceeds of this credit agreement were used by Loral Satellite, Inc. to acquire
the outstanding loans under Globalstar's $500 million credit agreement, at which
time the Guarantees were released.
LOCKHEED MARTIN
In February 2000, Loral and Lockheed Martin entered into an agreement pursuant
to which Lockheed Martin agreed that it would not sell any of the Company's
Series A Convertible Preferred Stock or the Loral common stock into which such
preferred stock was convertible before May 19, 2000. Loral in turn agreed to use
its best efforts to cause a registration statement relating to the common stock
issuable upon conversion of the Series A Convertible Preferred Stock to be
effective on or before May 19, 2000 and to maintain its effectiveness for at
least twelve months thereafter. Loral also agreed that it would refrain from
selling equity securities in the public markets for its own account until the
sixth month anniversary of the effective date of such registration. In March
2000, Loral and Lockheed Martin entered into an amended shareholders agreement
which, among other things, formalized the arrangements described above. On March
31, 2000, Lockheed Martin converted all of the Series A Convertible Preferred
Stock to common stock.
In connection with contract performance, Loral subsidiaries provided services to
and acquired services from Lockheed Martin for the year ended December 31, 2000.
For 2000, the cost of services purchased was $155.5 million, and such
subsidiaries' net payable to Lockheed Martin at December 31, 2000 was $2.0
million.
K&F INDUSTRIES, INC.
Loral SpaceCom Corporation has entered into a management agreement with K&F
Industries ("K&F"), a company in which Bernard L. Schwartz is chief executive
officer and a 50% owner, to provide certain financial, commercial and
administrative services to K&F. Under this agreement, K&F pays Loral a fee that
is based on the cost of such services and reimburses Loral for all reasonable
out of pocket expenses. In 2000, K&F paid Loral $563,000 under this agreement
and to reimburse Loral for certain costs relating to the grant of stock options
previously made by Loral to employees of K&F.
20
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OTHER RELATIONSHIPS
Robert B. Hodes, a Director and a member of the Audit and Executive Committees,
is counsel to the law firm of Willkie Farr & Gallagher, which acts as counsel to
the Company.
For the year ended December 31, 2000, the Company paid fees and disbursements in
the amount of approximately $230,000 for corporate communications consultations
to Kekst and Company Incorporated, of which company Gershon Kekst, a Director
and member of the Executive Committee, is President and the principal
stockholder. Kekst and Company continues to render such services to the Company.
21
23
APPENDIX A
LORAL SPACE & COMMUNICATIONS
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be an Audit Committee of the Board of Directors composed of
directors, a majority of whom are independent of management and free of any
relationship that, in the opinion of the Board, would interfere with their
exercise of independent judgment. The Audit Committee shall elect a chairperson
from its own membership.
STATEMENT OF POLICY
The Audit Committee shall assist the Board in fulfilling its responsibility
relating to the corporation's accounting, reporting practices, and the quality
and integrity of its financial reports. The Audit Committee shall endeavor to
maintain free and open communication between the Board, the independent
auditors, the internal auditors, and the financial management.
RESPONSIBILITIES
The Audit Committee's policies and procedures should remain flexible, in order
to best react to changing conditions and to help ensure that the corporation's
accounting and reporting practices accord with all requirements and are of the
highest quality:
- Meet at least three times a year, or more often if circumstances so require.
- Review and recommend to the Board the independent auditors to be selected to
audit the financial statements.
- Meet with the independent auditors and the financial management to review
the scope of the audit proposed for the current year and the audit
procedures to be utilized, and at its conclusion review the audit, including
the comments or recommendations of the independent auditors.
- Discuss with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61, including the following subjects
to be reported on by the independent auditors:
- Independence of the relationship between the independent auditors and
the Company.
- Independent auditors' responsibility under auditing standards generally
accepted in the United States of America.
- Significant accounting policies.
- Management judgments and accounting estimates.
- Audit adjustments.
- Other information in the Annual Reports to shareholders and on Form
10-K.
- Disagreements with management.
- Consultation with other accountants.
- Major issues discussed with management.
- Difficulties encountered in performing the audit.
- Management advisory services.
- Review with the independent auditors, the internal auditor, and the
financial and accounting personnel, the adequacy of the accounting and
financial controls, and elicit any recommendations for
A-1
24
improvement or particular areas where augmented controls are desirable.
Particular emphasis should be given to the adequacy of such internal
controls to expose any activity that might be unethical or otherwise
improper.
- Review the internal audit function including the independence and authority
of its reporting obligations, the audit plans proposed for the coming year,
and the coordination of such plans with the work of the independent
auditors.
- Receive before each meeting a summary of findings from completed internal
audits and a progress report on the proposed internal audit plan, with
explanations for any deviations from the original plan and review such
summary and plan with the internal audit department.
- Review the financial statements to be contained in the annual report with
management and the independent auditors to determine that the independent
auditors are satisfied with the disclosure and content of the financial
statements. Any year-to-year changes in accounting principles or practices
should be reviewed.
- Provide sufficient opportunity at each meeting for the internal and
independent auditors to meet with the committee without management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the financial, accounting, and auditing personnel,
and their cooperation during the audit.
- Submit the minutes of its meetings to, or discuss the matters discussed at
each meeting with, the Board.
- Investigate any matter brought to its attention, or considered appropriate,
within the scope of its duties, with the power to retain professional advice
for this purpose if, in its judgment, that is appropriate.
A-2
25
LORAL SPACE & COMMUNICATIONS LTD.
PROXY - ANNUAL MEETING OF SHAREHOLDERS, MAY 23, 2001
BERNARD L. SCHWARTZ, ERIC J. ZAHLER and ROBERT B. HODES, and each of them, are
hereby appointed the proxies of the undersigned, with full power of substitution
on behalf of the undersigned to vote, as designated below, all the shares of the
undersigned at the Annual Meeting of Shareholders of LORAL SPACE &
COMMUNICATIONS LTD., to be held in Ballroom A, Grand Hyatt Hotel, Park Avenue at
Grand Central Station, New York, New York, at 10:30 A.M., on Wednesday, May 23,
2001 and at all adjournments thereof.
The Board of Directors Recommends a Vote FOR the Following Proposals:
1. ELECTION OF THREE CLASS II DIRECTORS - Nominees: Class II: R. Hodes,
C. Lazarus, D. Yankelovich
[ ] VOTE FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
all nominees listed below
[ ] EXCEPTIONS *
(Instruction: To withhold authority to vote for any
individual nominee, mark the "Exceptions" box and write that
nominee's name in the space provided below.)
*Exceptions:_________________________________________________________________
2. Acting upon a proposal to ratify FOR [ ] AGAINST [ ] ABSTAIN [ ]
the appointment of Deloitte &
Touche LLP as independent
auditors for the year ending
December 31, 2001.
3. In their discretion, upon such FOR [ ] AGAINST [ ] ABSTAIN [ ]
other matters as may properly
come before the meeting.
(Continued on reverse side)
26
(Continued from other side)
PROXY
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF NOMINEES LISTED HEREON AND FOR
PROPOSALS 2 AND 3.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and accompanying Proxy Statement.
Dated:____________________________________________, 2001
________________________________________________________
________________________________________________________
(Signature of Shareholder)
(Please sign exactly as name or names appear hereon.
When signing as an attorney, executor, administrator,
trustee or guardian, please give your full title as
such; if by a corporation, by an authorized officer; if
by a partnership, in partnership name by an authorized
person. For joint owners, all co-owners must sign.)
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY IN THE ENVELOPE PROVIDED.