AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 2002
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LORAL SPACE & COMMUNICATIONS LTD.
(Exact Name of Registrant as Specified in Its Charter)
BERMUDA 3663 13-3867424
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(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1105
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
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AVI KATZ, ESQ.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1105
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
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With Copies to:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SHARE (3) PRICE (3) FEE
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Common Stock, par value $.01 per
share, issuable upon exercise of
warrants (1) (2) 6,042,986 shares $2.37(4) $14,321,877 $1,318
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Total 6,042,986 shares $2.37(4) $14,321,877 $1,318
===========================================================================================================
(1) Represents shares issuable upon exercise of warrants to purchase up to
6,042,986 shares of common stock, such warrants to expire on December 27,
2006, which warrants were issued in connection with an exchange offer for
all of the issued and outstanding principal amount of 11 1/4% Senior Notes
due 2007 and 12 1/2% Senior Discount Notes due 2007 of Loral Orion, Inc.
(formerly known as Loral CyberStar, Inc.) in exchange for 10% Senior Notes
due 2006 of Loral Orion, Inc. (formerly known as Loral CyberStar, Inc.) as
set forth in registration statement no. 333-73600.
(2) Pursuant to Rule 416, the common stock offered hereby shall be deemed to
cover additional securities to be offered or issued to prevent dilution
resulting from stock splits, stock dividends or similar transactions.
(3) Estimated pursuant to Rule 457 under the Securities Act solely for the
purposes of calculating the registration fee.
(4) Based upon exercise price of the warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 5, 2002
6,042,986 SHARES OF COMMON STOCK
LORAL SPACE & COMMUNICATIONS LTD.
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We are offering up to 6,042,986 shares of our common stock issuable by
us from time to time upon exercise of warrants that we offered in our exchange
offer with Loral Orion, Inc. (formerly known as Loral CyberStar, Inc.) in which
holders of Loral Orion's 11 1/4% Senior Notes due 2007 and its 12 1/2% Senior
Discount Notes due 2007 exchanged their notes for Loral Orion's new 10% Senior
Notes due 2006 guaranteed by us and Loral Asia Pacific Satellite (HK) Limited,
and warrants to purchase up to 6,042,986 shares of our common stock. The
exchange offer was completed on December 21, 2001. The warrants expire on
December 27, 2006 and may be traded separately from Loral Orion's new senior
notes.
Each warrant entitles the holder thereof to purchase, prior to the
expiration date, one share of our common stock at the exercise price of $2.37
per share. Assuming all the warrants are exercised, the maximum aggregate
offering price for all of the shares of common stock shall be $14,321,877. As of
April 4, 2002, warrants to purchase up to 6,042,986 shares of common stock were
issued and outstanding.
The actual number of shares of common stock offered under this
prospectus may be subject to adjustment to prevent dilution of the warrant
value. This prospectus includes such additional shares of common stock, which as
of this date is indeterminable, that we may have to issue and sell to avoid
dilution of the warrants.
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Our common stock is listed on the NYSE under the symbol "LOR". The
closing price of our shares of common stock on the NYSE was $2.07 per share on
April 4, 2002.
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THE SECURITIES WE MAY OFFER INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 6 FOR A DISCUSSION OF MATTERS THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN THESE SECURITIES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _________ [___], 2002.
You should rely on the information contained in or incorporated by reference in
this prospectus. We have not authorized anyone to provide you with information
different from that contained in or incorporated by reference in this
prospectus. We are offering shares of our common stock and seeking offers to buy
such securities only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
The Bermuda Monetary Authority has classified us as a non-resident of
Bermuda for exchange control purposes. Accordingly, the Bermuda Monetary
Authority does not restrict our ability to convert currency, other than Bermuda
dollars, held for our account to any other currency, to transfer funds in and
out of Bermuda or to pay dividends or other forms of payment to non-Bermuda
residents who are shareholders or holders of our other securities, other than in
Bermuda dollars. The permission of the Bermuda Monetary Authority is required
for the issue and transfer of our shares and other securities under the Exchange
Control Act 1972 of Bermuda and regulations under it.
We have obtained the permission of the Bermuda Monetary authority for
the issuance of our common shares that we may offer as described in this
document. In addition, we have obtained the permission of the Bermuda Monetary
Authority for the free issue and transferability of our common shares. Approvals
or permissions received from the Bermuda Monetary Authority do not constitute a
guaranty by the Bermuda Monetary Authority as to our performance or our
creditworthiness. Accordingly, in giving those approvals or permissions, the
Bermuda Monetary Authority will not be liable for our performance or default or
for the correctness of any opinions or statements expressed in this document.
TABLE OF CONTENTS
Page
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SUMMARY...........................................................................................................3
RISK FACTORS......................................................................................................6
CAUTION AS TO FORWARD-LOOKING STATEMENTS.........................................................................16
USE OF PROCEEDS..................................................................................................16
DESCRIPTION OF THE COMMON STOCK..................................................................................17
PLAN OF DISTRIBUTION.............................................................................................19
LEGAL MATTERS....................................................................................................20
EXPERTS..........................................................................................................20
WHERE YOU CAN FIND MORE INFORMATION..............................................................................20
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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
statements and reports incorporated by reference in this prospectus, before
making an investment decision. The terms "Loral," "the company," "we," "us" and
"our" as used in this prospectus refer to Loral Space & Communications Ltd. and
its subsidiaries as a combined entity, except where it is made clear that such
term means only Loral. The term "Loral Orion" as used in this prospectus refers
to Loral Orion, Inc. (formerly known as Loral CyberStar, Inc.) and its
subsidiaries as a combined entity, except where it is made clear that such term
means only Loral Orion. The term "Loral CyberStar" as used in this prospectus
refers to Loral CyberStar, Inc. (formerly known as Loral Cyberstar Data Services
Corporation) and its subsidiaries as a combined entity, except where it is made
clear that such term means only Loral CyberStar. The term "Loral SpaceCom" as
used in this prospectus refers to Loral SpaceCom Corporation and its
subsidiaries as a combined entity, except where it is made clear that such term
means only Loral SpaceCom. The term "SS/L" as used in this prospectus refers to
Space Systems/Loral, Inc. and its subsidiaries as a combined entity, except
where it is made clear that such term means only SS/L. Loral Orion, Loral
CyberStar, Loral SpaceCom and SS/L are all wholly owned subsidiaries of the
company. Throughout this prospectus, we refer to Loral Orion's 11 1/4% Senior
Notes due 2007 and Loral Orion's 12 1/2% Senior Discount Notes due 2007 as
"senior notes" and "senior discount notes," respectively, and as the "old
notes," collectively. Our reference to the old notes means the senior notes and
the senior discount notes as governed by their respective indenture, each as
amended by its respective supplemental indenture. We refer to Loral Orion's 10%
Senior Notes due 2006 as "new senior notes."
ABOUT LORAL
We are one of the world's leading satellite communications companies
with substantial activities in satellite manufacturing and satellite-based
communications services. We are organized into three operating businesses: fixed
satellite services, satellite manufacturing and technology, and data services.
Fixed Satellite Services or FSS: We lease 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, and we provide
telemetry, tracking and control services and network services to customers. We
operate our business through wholly owned subsidiaries including Loral Skynet,
Loral Orion and Loral Skynet do Brasil Ltda. and affiliates such as Satelites
Mexicanos, S.A. de C.V. and Europe*Star Limited;
Satellite Manufacturing and Technology: We design and manufacture
satellites and space systems and develop satellite technology for a broad
variety of customers and applications through SS/L; and
Data Services: We provide managed communications networks and Internet
and intranet services through Loral CyberStar and deliver high-speed broadband
data communications, business television and business media services through
Loral CyberStar and CyberStar, L.P.
We intend to capitalize on our innovative capabilities, market position
and advanced technologies to offer value-added, satellite-based services as part
of the evolving worldwide communications networks. We regularly engage in
discussions with telecommunications service providers, equipment manufacturers
and others regarding possible strategic transactions and alliances such as joint
ventures; strategic relationships involving our fixed satellite services
operations and satellite manufacturing operations, which could involve business
combinations; participation in the Loral Global Alliance; and dispositions of
non-core assets.
-3-
PRINCIPAL EXECUTIVE OFFICES
We were incorporated on January 12, 1996 as a Bermuda exempt company
and have our registered and principal executive offices at Cedar House, 41 Cedar
Avenue, Hamilton, HM 12, Bermuda. The executive office of Loral SpaceCom, our
principal U.S. subsidiary, is located at 600 Third Avenue, New York, NY 10016
and its telephone number is (212) 697-1105.
THE OFFERING
Issuer................................. Loral Space & Communications
Ltd.
Common stock offered by
us..................................... Up to 6,042,986 shares of common
stock issuable upon exercise of
warrants initially held by
holders of Loral Orion Inc.'s
new senior notes. The holders
acquired Loral Orion's new
senior notes through an exchange
offer which was completed on
December 21, 2001. The warrants
may be traded separately from
Loral Orion's new senior notes.
Common stock to be outstanding after
this offering.......................... Up to 342,658,307 shares of our
common stock based on shares
outstanding as of December 31,
2001 and including up to
6,042,986 shares of our common
stock to be issued upon exercise
of the warrants described in
this prospectus. In calculating
the number of shares of common
stock to be outstanding after
this offering, we did not
include approximately 47,660,663
shares of our common stock
issuable upon exercise of
options, 194,404 shares of our
common stock issuable upon
exercise of warrants, 24,599,686
shares of our common stock
issuable upon conversion of our
Series C Preferred Stock and
15,407,704 shares of our common
stock issuable upon conversion
of our Series D Preferred Stock,
in each case outstanding as of
December 31, 2001.
Use of proceeds........................ We intend to use the proceeds
for general corporate purposes
which may include investments in
our core businesses. Until we
use the net proceeds in this
manner, we may temporarily use
them to make short-term
investments.
Registration Rights.................... We have agreed to use our
commercially reasonable efforts
to keep this registration
statement, of which this
prospectus forms a part,
effective until the earlier of
December 27, 2006 and the date
all warrants issued in the
exchange offer have been
exercised.
New York Stock Exchange
symbol................................. "LOR"
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RISK FACTORS
You should carefully consider all the information contained or incorporated by
reference in this prospectus before making an investment in our common shares.
In particular, you should consider the risk factors described under "Risk
Factors" beginning on page 6.
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RISK FACTORS
You should carefully consider the risks described below, in addition to
the other information in this prospectus, before making an investment decision.
Each of these risk factors could adversely affect our business, financial
condition and operating results as well as adversely affect the value of an
investment in our common stock.
FINANCIAL STRUCTURE
WE HAVE SUBSTANTIAL DEBT AND GUARANTY OBLIGATIONS.
We and our subsidiaries and operating affiliates have a significant
amount of outstanding debt and guaranty obligations. As of December 31, 2001,
our consolidated total debt was $2.4 billion.
The indentures and credit agreements relating to this indebtedness
impose restrictions on our and our subsidiaries' and affiliates' ability to take
various actions, which may limit our and their ability to plan for, or react to,
changes in their business and market conditions. These limitations include
restrictions on the ability to pay dividends, or to make loans, 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. As part of the bank amendments that were entered into in
December 2001 relating to the credit facilities for Loral SpaceCom and Loral
Satellite, our principal operating subsidiaries, substantially all of the assets
of Loral SpaceCom and Loral Satellite have been pledged in favor of the bank
lenders, which further reduces our flexibility to take certain actions.
We intend to use our cash and available credit ($229 million at
December 31, 2001) to help fund the growth and operation of our businesses. If
any of our subsidiaries or affiliates finds itself faced with default, we may be
faced with a choice between providing additional support to that company or
accepting the loss of some or all of its investment. In certain cases we have
also guaranteed the debt of our subsidiaries. For example, the $613 million
principal amount of new senior notes issued by Loral Orion in December 2001 in
connection with its exchange offer, are guaranteed by us. None of Globalstar,
L.P.'s debt is guaranteed by us and we do not intend to provide any further
funding to Globalstar. We do, however, have contingent liabilities of
approximately $14 million in connection with Globalstar service provider
partnerships.
Satmex, our 49%-owned Mexico affiliate, had total debt of $556 million.
In addition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios" ),
the parent company of Satmex, in which we have 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. We have
agreed to maintain our stock ownership interests in the parent company of
Servicios in a trust to collateralize this obligation. This debt is non-recourse
to Loral.
Recent accounting guidance could impact the accounting treatment for
our preferred stock. This accounting guidance could cause us to reclassify a
portion or all of our preferred stock, which is currently treated as equity, to
outside of equity, depending on the price of our common stock and the number of
shares of our common stock available for issuance, as determined at the end of
each fiscal quarter.
We have the ability to make the mandatory redemption payments due on
our Series C and Series D Preferred Stock in cash, common stock, or a
combination of the two. However, to the extent that we fail to have sufficient
authorized shares of common stock on the mandatory redemption dates in 2006 and
2007 to effect payment in full of the related preferred stock in common stock,
we will have to cover any such shortfall with cash.
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IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT
GENERATE ENOUGH CASH TO PAY OUR OBLIGATIONS.
For the year ended December 31, 2001, we had a deficiency of earnings
to cover fixed charges of approximately $264 million. In addition to our debt
service requirements, our businesses are capital intensive and need substantial
investment before returns can be realized. For example, we will incur
significant expenditures to construct and launch new satellites for our fixed
satellite services business. We are subject to substantial financial risks from
possible delays or reductions in revenue, unforeseen capital needs or unforeseen
expenses. If this were to occur, our ability to meet our obligations and execute
our business plan could depend upon our ability, and that of our operating
subsidiaries and affiliates, to raise cash in the capital markets. We are
uncertain whether this source of cash will be available in the future on
favorable terms if at all.
THE ABILITY OF OUR SUBSIDIARIES TO PAY DIVIDENDS TO US OR OTHERWISE
SUPPORT OUR OBLIGATIONS IS LIMITED BY THE TERMS OF THEIR DEBT INSTRUMENTS.
Loral SpaceCom's credit facility allows dividend payments to us 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, 2001, Loral SpaceCom had no capacity under this
covenant to pay us any dividends.
Loral Satellite, Inc.'s credit agreement also imposes restrictions on
its ability to pay dividends to its parent. Such restrictions specify, for
instance, that dividends can be paid only after Loral Satellite has made loans
to us in an aggregate principal outstanding amount of $100 million or more.
Under the terms of the indenture for Loral Orion's new senior notes,
Loral Orion will be prevented from paying dividends to us and is unlikely to pay
any dividends in the foreseeable future.
GLOBALSTAR MATTERS
WE HAVE BEEN SUED IN A NUMBER OF PURPORTED CLASS ACTIONS BROUGHT BY OUR
STOCKHOLDERS AND SECURITY HOLDERS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED AND
GLOBALSTAR.
We have been named as a defendant in various lawsuits brought by
securityholders of Globalstar Telecommunications Limited and Globalstar alleging
controlling person liability in respect of certain statements made by GTL,
Globalstar and their representatives. Our shareholders have also initiated
various shareholder lawsuits alleging that material misstatements or omissions
were made about our business and prospects as they relate to Globalstar. We will
vigorously defend against any such claims or proceedings and may be responsible
for damages awarded against us resulting from these proceedings and claims. Even
if such claims are unsuccessful, such claims and proceedings could require us to
spend money on litigation, divert management's time, damage our reputation and
depress the value of our equity.
We may also find ourselves subject to other claims brought by
Globalstar creditors and securities holders, who may seek to impose liabilities
on us as a result of our relationship with Globalstar. For instance,
Globalstar's creditors may seek to pierce the corporate veil in an attempt to
recover Globalstar obligations owed to them that are recourse to our
subsidiaries, which are general partners in Globalstar and have filed for
bankruptcy protection. Globalstar's cumulative partners deficit at September 30,
2001, was $2.81 billion. Globalstar's proposed restructuring plan contemplates
that mutual releases of claims related to Globalstar would be granted to and by
various persons, including, among others, Loral and its affiliates, Globalstar,
Globalstar's officers and directors, Globalstar partners, service providers
acquired by Globalstar and the members of any official and informal committee of
creditors. There can be no
-7-
assurance that these releases will be approved by the bankruptcy court or, if
approved, as to the scope of any releases finally obtained.
GLOBALSTAR AND CERTAIN OF ITS GENERAL PARTNER ENTITIES, INCLUDING TWO
OF OUR SUBSIDIARIES, HAVE FILED FOR BANKRUPTCY PROTECTION.
On February 15, 2002, Globalstar and certain of its direct subsidiaries
filed voluntary petitions under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware. In connection
with this filing, Loral/Qualcomm Satellite Services, L.P., the managing general
partner of Globalstar, its general partner, Loral/Qualcomm Partnership, L.P.,
and certain of our subsidiaries that serve as general partners of Loral/Qualcomm
Partnership, L.P. also filed voluntary petitions with the Delaware bankruptcy
court. Globalstar's proposed restructuring plan, which will be submitted to and
subject to bankruptcy court approval, calls for the cancellation of all existing
partnership interests in Globalstar. This proposed restructuring plan also
contemplates the creation of a new Globalstar company, which will initially be
owned by Globalstar's existing noteholders and other unsecured creditors,
including us. In other situations in the past, challenges have been initiated
seeking subordination or recharacterization of debt held by an affiliate of an
issuer. While we know of no reason why such a claim would prevail with respect
to the debt we hold in Globalstar, there can be no assurance that such claims
will not be made in Globalstar's bankruptcy proceeding. If such claims were to
prove successful, it will jeopardize the amount of equity interest we will
ultimately receive in the new Globalstar company. Moreover, actions may be
initiated in Globalstar's bankruptcy proceeding seeking to characterize payments
made by Globalstar to us prior to the filing date as preferential payments
subject to repayment.
LITIGATION AND DISPUTES
WE AND SS/L ARE CURRENTLY INVOLVED IN AN ARBITRATION PROCEEDING WITH
ALCATEL, WHICH MAY RESULT IN THE PAYMENT OF DAMAGES TO ALCATEL.
SS/L was a party to an Operational Agreement with Alcatel Space
Industries, pursuant to which the parties had agreed to cooperate on certain
satellite programs, and an Alliance Agreement with Alcatel Space together with
Alcatel Space Industries, Alcatel, pursuant to which Alcatel had certain rights
with respect to SS/L, including the right to appoint two representatives to
SS/L's seven-member board of directors, rights to approve certain extraordinary
actions and certain rights to purchase SS/L shares at fair market value in the
event of a change of control (as defined) of either Loral or SS/L. The
agreements between Alcatel and SS/L were terminable on one year's notice, and,
on February 22, 2001, Loral gave notice to Alcatel that they would expire on
February 22, 2002. In April 2001, Alcatel commenced an arbitration proceeding
challenging the effectiveness of Loral's notice of termination and asserting
various alleged breaches of the agreements by SS/L relating to the exchange of
information and other procedural or administrative matters. In February 2002,
the arbitral tribunal upheld the validity of Loral's termination effective
February 22, 2002 and Alcatel's claims as to certain breaches. The arbitral
tribunal has provided both parties with an opportunity to file any additional
claims or counterclaims they may have. In March 2002, Alcatel submitted
additional claims against Loral and SS/L and is seeking at least $330 million in
damages in respect of all of its claims. We believe that Alcatel's claims for
damages are without merit and have been asserted for competitive reasons to
disadvantage SS/L and that this matter will not have a material adverse effect
on our consolidated financial position or results of operations. Loral and SS/L
will have the opportunity and intend to assert counterclaims against Alcatel in
April 2002. The arbitral tribunal will decide at a later date whether any of
Alcatel's claims or Loral's or SS/L's counterclaims give rise to damages.
-8-
SS/L IS CURRENTLY INVOLVED IN DISPUTES WITH CERTAIN CUSTOMERS REGARDING
SATELLITES BUILT OR UNDER CONSTRUCTION BY SS/L, WHICH MAY RESULT IN THE PAYMENT
OF DAMAGES OR REFUNDS.
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. In addition, the PAS 8 satellite has experienced minor
losses of power from its solar arrays, the cause of which is unrelated to the
loss of power on the PAS 7 satellite. PanAmSat has claimed that under its
contract with SS/L it is entitled to be paid $7.5 million as a result of
these minor power losses. SS/L disputes this claim. SS/L and PanAmSat are in
discussions to resolve these matters.
SS/L has contracted to build a spot beam, Ka-band satellite for a
customer planning to offer broadband data services directly to the consumer. The
customer has failed to make certain payments due to SS/L under the contract and
has asserted that SS/L is not able to meet the contractual delivery date for the
satellite. As of December 31, 2001, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $47 million with this customer.
SS/L and the customer have entered into an agreement that provides that, until
May 1, 2002, neither party will assert that the other party is in default under
the contract, and the parties are currently engaged in discussions to resolve
their outstanding issues. In addition, SS/L and the customer have agreed to
suspend work on the satellite during these discussions, pending the outcome of
the discussions. If the parties do not resolve their issues, it is likely that
each party would assert that the other is in default. The contract provides that
SS/L may terminate the contract for a customer default 90 days after serving a
notice of default if the default is not cured by the customer; upon such a
default, SS/L would be entitled to recover the contractually agreed price of
items delivered and accepted prior to termination and 115% of its actual costs
incurred for items not delivered prior to termination. The contract also
provides that the customer may terminate the contract for an SS/L default 133
days after serving a notice of default if the default is not cured by SS/L; upon
such a default, SS/L would be obligated to refund all amounts previously paid by
the customer, $78 million as of December 31, 2001, plus interest. Based on the
discussions currently in progress with the customer and other parties who may be
interested in the satellite, management's assessment of the market opportunities
for the satellite and consideration of the satellite's estimated value,
management does not believe that this matter will have a material adverse effect
on our consolidated financial position or results of operations. No assurance
can be provided, however, that this matter will be resolved by the parties, will
not result in SS/L's being involved in protracted litigation, or will not result
in substantial liability on the part of SS/L to the customer.
OPERATIONAL MATTERS
SS/L IS STILL AWAITING APPROVAL FROM THE STATE DEPARTMENT FOR THE
LAUNCH OF CHINASAT-8.
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. 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. On January 9, 2002, we, SS/L and
the United States Department of State entered into a consent agreement settling
and disposing of all civil charges, penalties and sanctions associated with
alleged violations by SS/L of the export control laws arising out of the
participation of certain SS/L's employees in a committee formed to review the
findings of the Chinese regarding the 1996 crash of a Long March
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rocket in China. The consent agreement provides that the State Department
agrees, assuming our and SS/L's faithful adherence to the terms of the consent
agreement, and the Arms Export Control Act and its implementing regulations,
that decisions concerning export licenses for the ChinaSat-8 spacecraft will be
made on the basis of the security and foreign policy interests of the United
States, including matters relating to U.S. relations with the People's Republic
of China, without reference to the State Department's previously expressed
concerns regarding SS/L's reliability, which concerns are considered to be
appropriately mitigated through the operation of various provisions of the
consent agreement. Discussions between SS/L and the State Department regarding
SS/L's obtaining the approvals required for the launch of ChinaSat-8 are
continuing.
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 three transponders on Telstar 10/Apstar IIR for ChinaSat's use for the
life of those transponders. As a result, we 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 either obtain a refund from the launch provider or find a
replacement customer for the Chinese launch vehicle.
LAUNCH FAILURES HAVE DELAYED SOME OF OUR OPERATIONS IN THE PAST AND MAY
DO SO AGAIN IN THE FUTURE.
We depend on third parties, in the United States and abroad, to launch
our satellites. Satellite launches are risky, and some launch attempts have
ended in failure. We ordinarily insure against launch failures, but at
considerable cost. The cost and the availability of insurance vary depending on
market conditions and the launch vehicle used. Our insurance typically does not
cover business interruption, and launch failures may therefore result in
uninsured economic losses. Replacement of a lost satellite typically requires at
least 24 months from the time a contract is executed until the launch date of
the replacement satellite.
AFTER LAUNCH, OUR 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. 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. Satellites are carefully built and
tested and have some redundant components to save the satellite in case of a
component failure. Due to the failure of primary components, certain of our
satellites are currently operating using back-up components. If these back-up
components fail and the primary components cannot be restored, these satellites
could lose a significant amount of capacity or be total losses which, until
replacement satellites are placed in-orbit, would result in lost revenues and
lost profits to the Company.
Repair of satellites in space is not feasible. Many factors affect the
useful life of our 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.
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A loss of transponders on a satellite may have an adverse effect on us.
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 originally provided a warranty for a period of 10 to 14 years, in the case
of sales contracts (twelve transponders), and the lease term, in the case of the
prepaid leases (nine transponders). 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, which is
normally covered by insurance. 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.
SOME OF THE SATELLITES BUILT BY SS/L, INCLUDING FIVE SATELLITES
OPERATED BY SUBSIDIARIES OR AFFILIATES OF LORAL, HAVE EXPERIENCED OPERATIONAL
PROBLEMS WITH THEIR SOLAR ARRAYS.
Twelve of the satellites built by SS/L and launched since 1997, five of
which are owned and operated by our subsidiaries or affiliates, have experienced
minor losses of power from their solar arrays. Although, to date, neither we nor
any of the customers using the affected satellites have 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 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 uses 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 our 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 has implemented 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 any significant
delay 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, we believe that this matter will not have a material adverse
effect on our consolidated financial position or our results of operations.
IT MAY BE DIFFICULT TO OBTAIN FULL INSURANCE COVERAGE FOR SATELLITES
THAT HAVE EXPERIENCED PROBLEMS IN THE PAST.
While we have in the past, consistent with industry practice, typically
obtained in-orbit insurance for our satellites, we cannot guarantee that, upon a
policy's expiration, we will be able to renew the insurance on terms acceptable
to us, 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. 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. We are
currently in discussions with our insurers to remove this exclusion from the
Telstar 10/ Apstar IIR policy, in return for a deductible for losses arising
from electrical problems on the satellite's solar arrays. There can be no
assurance that these discussions will be successful. Three other satellites
operated by Loral Skynet have the same solar array configuration as Telstar
10/Apstar IIR. There can be no assurance that the insurers will not require
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similar exclusions in connection with renewals of insurance for these satellites
in 2003 and 2004. 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 Boeing satellites. An uninsured
loss of a satellite will have a material adverse effect on our consolidated
financial position and our results of operations.
WE ARE FACED WITH INCREASED COSTS DUE TO THE RECENT TREND IN THE
INSURANCE INDUSTRY TOWARDS HIGHER INSURANCE PREMIUMS AND SHORTER TERMS.
We, like others in the satellite industry, are faced with significantly
higher premiums on launch and in-orbit insurance and significantly shorter
coverage periods than those that have been available in the past, which was due
in part to the events of September 11, 2001. This development in the insurance
industry will increase the cost of doing business for both our satellite
manufacturing and fixed satellite services segments. We intend to pass on such
increased cost to our customers, although we cannot guarantee that we will be
able to do so. Insurance market conditions have historically been cyclical in
nature. While we anticipate that these conditions will improve in the future,
there can be no assurance that they will do so.
SPACE SYSTEMS/LORAL'S CONTRACTS ARE SUBJECT TO ADJUSTMENTS, COST
OVERRUNS AND TERMINATION.
SS/L's accounting for long-term contracts requires adjustments to
profit and loss based on revised estimates during the performance of the
contract. These adjustments may have a material effect on our consolidated
financial position and our results of operations in the period in which they are
made. The estimates giving rise to these risks, which are inherent in long-term,
fixed-price contracts, include the forecasting of costs and schedules, contract
revenues related to contract performance, including revenues from orbital
incentives, and the potential for component obsolescence due to procurements
long before assembly.
SS/L's major contracts are primarily firm fixed-price 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.
Under such contracts, SS/L may receive progress payments, or it may receive
partial payments upon the occurrence of certain program milestones.
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.
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.
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.
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SS/L records the present value of incentive payments as revenue during
the construction period of the related satellite. 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.
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. 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.
SS/L COMPETES WITH LARGE SATELLITE MANUFACTURERS THAT HAVE SIGNIFICANT
RESOURCES.
In the manufacture of our satellites, we compete with very large
well-capitalized companies, including several of the world's largest satellite
manufacturers, such as The Boeing Company, Lockheed Martin, Alcatel Space 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 perform on a cost-effective and timely basis.
OUR SATELLITE SERVICES BUSINESSES COMPETE FOR MARKET SHARE AND
CUSTOMERS; TECHNOLOGICAL DEVELOPMENTS FROM COMPETITORS OR OTHERS MAY REDUCE
DEMAND FOR OUR SERVICES.
We face 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 or result
in reduced satellite fleet utilization, which may have an adverse effect on our
consolidated financial position and our results of operations.
The data services business, provided through Loral CyberStar, Inc. and
CyberStar, L.P., 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. The data
services business will face continued price pressures from fiber companies
competing for its Internet services.
As land-based telecommunications services expand, demand for some
satellite-based services may be reduced. New technology could render
satellite-based services less competitive by satisfying consumer demand in other
ways or through the use of incompatible standards. We also compete for local
regulatory approval in places in which both we and a competitor may want to
operate. We also compete for scarce frequency assignments and fixed orbital
positions.
WE ARE SUBJECT TO EXPORT CONTROLS, WHICH MAY RESULT IN DELAYS AND
ADDITIONAL COSTS.
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. Due to the relationship between
launch technology and missile technology, the U.S. government has limited, and
is likely in the future to limit, launches from China and other foreign
countries. 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 additional costs or
penalties or lose incentive payments under these contracts.
Some of our customers and potential customers, as well as insurance
underwriters and brokers have raised concerns that U.S. export control laws and
regulations excessively restrict their access to information about the satellite
during satellite construction and on-orbit satellite operation. To the extent
that our non-U.S. competitors are not subject to these export control laws and
regulations, they may
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enjoy a competitive advantage with foreign customers, and, to the extent that
our foreign competitors continue to gain market share, it could become
increasingly difficult for the U.S. satellite manufacturing industry, including
SS/L, to recapture this lost market share.
OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Our business is regulated by authorities in multiple jurisdictions,
including the Federal Communications Commission, the International
Telecommunication Union, or ITU, and the European Union. The following are some
strategically important activities which are regulated and could be adversely
affected by regulatory policies:
o the expansion of Loral Skynet's operations in the U.S. and
foreign markets;
o the manufacture, export and launch of satellites;
o the expansion of Satmex's Latin American business;
o the operation of Europe*Star; - the international service
offered by our data services business operations; and
o the implementation of the business plan of XTAR, our joint
venture with Hisdesat, which proposes to offer X-band services
to government users.
Regulatory authorities in the various jurisdictions in which we operate
can modify, withdraw or impose charges or conditions upon, or deny or delay
action on applications for, the licenses which we need, and so increase our
costs. For example, the FCC may deny or fail to timely grant our pending
application to use C-band capacity in the U.S. (Telstar 13) via a non-U.S. ITU
filing at 121 degrees W.L. 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 those other satellites do not interfere with our own. 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 with respect to those transponders. We also
granted Eutelsat the right to acquire, at cost, four transponders on the next
replacement satellite for Telstar 12. Moreover, as part of this international
coordination process, we continue to conduct discussions with various
administrations regarding Telstar 12's operations at 15 degrees west longitude.
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
resolve other required regulatory approvals could have an adverse effect on our
consolidated financial position and our results of operations.
WE FACE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
For the year ended December 31, 2001, approximately 35% of our revenue
was generated from customers located outside of the United States. We could be
harmed financially and operationally by changes in foreign regulations and
telecommunications standards, tariffs or taxes and other trade barriers. Almost
all of our contracts with foreign customers require payment in U.S. dollars, and
customers in developing countries could have difficulty obtaining U.S. dollars
to pay us due to currency exchange controls and other factors. Exchange rate
fluctuations may adversely affect the ability of our customers to pay us in U.S.
dollars. If we need to pursue legal remedies against our foreign business
partners or customers, we may have to sue them abroad where it could be
difficult for us to enforce our rights.
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WE SHARE CONTROL OF OUR SUBSIDIARIES AND AFFILIATES WITH THIRD PARTIES.
Third parties have significant ownership, voting and other rights in
many of our subsidiaries and affiliates. As a result, we do not always have full
control over management of these entities. The rights of these third parties and
fiduciary duties under applicable law could result in others acting or omitting
to act in ways that are not in our best interest. To the extent that these
entities are or become customers of SS/L, these conflicts could become acute.
For example:
o Primary control of Satmex is vested in Mexican nationals, as
required by Mexican law, subject to certain approval rights
which we retain.
o The Europe*Star joint venture is under the control of Alcatel,
subject to our right to approve certain matters, and any
future joint ventures between Alcatel and us within the Loral
Global Alliance will be controlled by the initiating party,
subject to certain rights in favor of the non-initiating
party.
o Alcatel is an investor in CyberStar, LP and has certain
minority protection rights in it.
o Hisdesat enjoys certain approval rights in XTAR, our newly
formed X-band venture.
o Globalstar has filed for Chapter 11 bankruptcy protection, and
is subject to the supervision of the bankruptcy court.
WE RELY ON KEY PERSONNEL.
We need highly qualified personnel. Except for Mr. Bernard L. Schwartz,
our Chairman and Chief Executive Officer, none of our officers has an employment
contract nor do we maintain "key man" life insurance. The departure of any of
our key executives could have an adverse effect on our business.
OTHER MATTERS
THE RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW ARE DIFFERENT FROM RIGHTS
OF SHAREHOLDERS UNDER U.S. LAW.
Since we are a Bermuda company, the principles of law that govern
shareholder rights, the validity of corporate procedures and other matters are
different from those that would apply if we were a U.S. company. For example, it
is not certain whether a Bermuda court would enforce liabilities against us or
our officers and directors based upon United States securities laws either in an
original action in Bermuda or under a United States judgment. Bermuda law giving
shareholders the right to sue directors is less developed than in the United
States and may provide fewer rights.
PRICES OF OUR COMMON STOCK MAY EXPERIENCE SUDDEN CHANGES.
Many things that we cannot predict or control may cause sudden changes
in the price of our common stock. Risks associated with the deployment and
operation of satellite systems, in particular, may cause sudden changes in the
price.
THE MARKET FOR OUR STOCK COULD BE ADVERSELY AFFECTED BY FUTURE ISSUANCE
OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK.
As of December 31, 2001, 336,615,321 shares of our common stock were
outstanding. In addition, there were 47,660,663 stock options outstanding on
such date, of which 15,541,766 were immediately exercisable (none of which had a
strike price below the fair market value), warrants
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outstanding that were exercisable for 6,237,404 shares of our common stock,
9,839,874 shares of our Series C Preferred Stock convertible by its terms into
24,599,686 shares of our common stock and 6,110,788 shares of our Series D
Preferred Stock convertible by its terms into 15,407,704 shares of our common
stock. Moreover, we have the ability to make the mandatory redemption payments
due on our Series C and Series D Preferred Stock in cash, common stock, or a
combination of the two. The mandatory redemption payments are due in 2006 for
the Series C Preferred Stock and in 2007 for the Series D Preferred Stock. The
exact number of shares of our common stock that may be issued on a mandatory
redemption date cannot be determined at this time, but may involve the issuance
of a significant number of shares of our common stock. That number will depend
on a number of factors not known today, such as the price of our common stock
and the number of shares of our preferred stock outstanding at that time. We
have in the past from time to time effected voluntary exchanges of our preferred
stock for common stock. To the extent that we make such additional exchanges in
the future, we will reduce the number of shares of our preferred stock subject
to redemption in 2006 and 2007. However, there is no guarantee that these
exchanges will or can be made in the future.
On March 31, 2000, Lockheed Martin converted 45,896,978 shares of our
Series A Preferred Stock into 45,896,978 shares of our common stock,
representing approximately 14% of our common stock. Because of the large number
of shares involved, sales by Lockheed Martin of all or a substantial part of its
position and any related hedging transactions could adversely affect the market
for, and the trading prices of, our common stock.
Sales of significant amounts of our common stock to the public, or the
perception that those sales could happen, could adversely affect the market for,
and the trading price of, our common stock.
CAUTION AS TO 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
or our representatives have made or may make forward-looking statements, orally
or in writing. They can be identified by the use of forward-looking words such
as "believes", "expects", "plans", "may", "will", "would", "could", "should",
"anticipates", "estimates", "projects", "intends" or "outlook" 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 with the Securities and Exchange Commission, press releases
or oral statements made by or with the approval of an authorized executive
officer. 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 in the
section titled "Risk Factors" in this prospectus. We 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 Results of Operations and Financial Condition" found in our Annual Report on
Form 10-K for the year ended December 31, 2001 which is incorporated by
reference in this prospectus.
USE OF PROCEEDS
We will use the proceeds from the exercise of the warrants for general
corporate purposes, including investments in our core businesses. Until we use
the net proceeds in this manner, we may
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temporarily use them to make short-term investments. The maximum aggregate
offering price for the shares of common stock issuable upon exercise of the
warrants is $14,321,877.
DESCRIPTION OF THE COMMON STOCK
We have summarized some of the terms and provisions of our common
shares in this section. The following is a summary of certain provisions of
Bermuda law and our organizational documents. You should note that this summary
is not a comprehensive description of such laws and documents and that it is
qualified in its entirety by appropriate reference to Bermuda law and to our
organizational documents.
BERMUDA LAW
The following discussion is based upon the advice of Appleby, Spurling
& Kempe, our Bermuda counsel.
We were incorporated as an exempted company under The Companies Act
1981 of Bermuda (the "Act"). Accordingly, the rights of our shareholders are
governed by Bermuda law and our memorandum of association and bye-laws.
Dividends. Under Bermuda law, a company may pay such dividends as are
declared from time to time by its board of directors unless there are reasonable
grounds for believing that the company is or would, after the payment, be unable
to pay its liabilities as they become due or that the realizable value of its
assets would thereby be less than the aggregate of its liabilities and issued
share capital and share premium accounts.
Voting rights. Under Bermuda law, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders present
at the meeting (or by such majority as the Act or our bye-laws prescribe). Our
bye-laws provide that, subject to the provisions of the Act, any questions
proposed for the consideration of the shareholders will be decided by a simple
majority of the votes cast and that voting will be by poll vote. Each
shareholder present, or person holding proxies for any shareholder, is entitled
to one vote for each common share held.
Rights in liquidation. Under Bermuda law, in the event of liquidation,
dissolution or winding-up of a company, the proceeds of such liquidation,
dissolution or winding-up are distributed pro rata among the holders of common
shares. However, such distribution may only be effected after satisfaction in
full of all claims of creditors and subject to the preferential rights accorded
to any series of issued preferred shares.
Meetings of shareholders. Under Bermuda law, a company is required to
convene at least one general shareholders' meeting per calendar year. Bermuda
law provides that a special general meeting may be called by the board of
directors and must be called upon the request of shareholders holding not less
than 10% of such of the paid-up capital of the company carrying the right to
vote. Bermuda law also requires that shareholders be given at least five days'
advance notice of a general meeting, although the accidental omission of notice
to any person does not invalidate the proceedings at a meeting. Under our
bye-laws, at least twenty days' notice of the annual general meeting and thirty
days' notice of any special general meeting must be given to each shareholder.
Under Bermuda law, the number of shareholders constituting a quorum at
any general meeting of shareholders is determined by the bye-laws of the
company. Our bye-laws provide that the presence in person or by proxy of the
holders of more than 50% of our voting capital shares constitutes a quorum.
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Access to books and records and dissemination of information. Members
of the general public have the right to inspect the public documents of a
company available at the office of the Registrar of Companies in Bermuda. These
documents include the company's certificate of incorporation, its memorandum of
association (including its objects and powers) and any alteration to the
company's memorandum of association.
The shareholders have the additional right to inspect the bye-laws of
the company, minutes of general meetings and the company's audited financial
statements, which must be presented at the annual general meeting. The register
of shareholders of a company is also open to inspection by shareholders without
charge and by members of the general public on the payment of a fee. A company
is required to maintain its share register in Bermuda but may, subject to the
provisions of the Act, establish a branch register outside Bermuda.
A company is required to keep at its registered office a register of
its directors and officers which is open for inspection for not less than two
hours in each day by members of the public without charge. Bermuda law does not,
however, provide a general right for shareholders to inspect or obtain copies of
any other corporate records.
Election or removal of directors. Under our bye-laws our board is
divided into three classes. Each class of directors holds office, unless they
are earlier removed or resign, for a term expiring at the Annual General Meeting
held in the third year of their election. Directors are appointed by majority
vote of shareholders of Annual General Meetings.
Under Bermuda law and our bye-laws, a director may be removed at a
special general meeting of shareholders specifically called for that purpose,
provided that the director was served with at least 14 days' notice. The
resolution for removal must be voted for by shareholders holding not less than
80% of the shares then in issue and entitled to vote on election of directors.
The director has a right to be heard at the meeting. Any vacancy created by the
removal of a director at a special general meeting may be filled at such meeting
by the election of another director in his or her place or, in the absence of
any such election, by the board of directors.
Amendment of memorandum of association and bye-laws. Bermuda law
provides that the memorandum of association of a company may be amended by a
resolution passed at a general meeting of shareholders of which due notice has
been given. An amendment to the memorandum of association also requires the
approval of the Bermuda Minister of Finance, who may grant or withhold approval
at his discretion. However, such approval of the Bermuda Minister of Finance is
not required for an amendment which alters or reduces a company's share capital
as provided in the Act. Except in the case of certain amendments which require a
higher level of shareholder approval, the bye-laws may be amended by a
resolution passed by a majority of shares cast at a general meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in
par value of a company's issued share capital have the right to apply to the
Bermuda Court for an annulment of any amendment of the memorandum of association
adopted by shareholders at any general meeting. This does not apply to an
amendment which alters or reduces a company's share capital as provided in the
Act. Where such an application is made, the amendment becomes effective only to
the extent that it is confirmed by the Bermuda Court. An application for
amendment of the memorandum of association must be made within 21 days after the
date on which the resolution altering the company's memorandum is passed. Such
application may be made on behalf of the persons entitled to make the
application by one or more of their number as they may appoint in writing for
the purpose. No such application may be made by persons voting in favor of the
amendment.
Appraisal rights and shareholder suits. Under Bermuda law, in the event
of an amalgamation of a Bermuda company with another company or corporation, a
shareholder of the Bermuda company who is
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not satisfied that fair value has been paid for his shares may apply to the
Bermuda Court to appraise the fair value of his shares. The amalgamation of a
company with another company or corporation requires the amalgamation agreement
to be approved by:
o a meeting of the holders of shares of each of the amalgamating
Bermuda companies; and
o in certain circumstances, a meeting of the holders of each
class of such shares.
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of:
o is alleged to be beyond the corporate power of the company;
o is illegal; or
o would result in the violation of the company's memorandum of
association or bye-laws.
Furthermore, consideration would be given by the Court to acts that are
alleged to constitute a fraud against the minority shareholders or, for
instance, where an act requires the approval of a greater percentage of the
company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner
oppressive or prejudicial to the interests of some part of the shareholders, one
or more shareholders may apply to the Bermuda Court for an order regulating the
company's conduct of affairs in the future or ordering the purchase of the
shares of any shareholder, by other shareholders or by the company.
Bermuda is neither a state nor a country for purposes of U.S. diversity
jurisdiction
WARRANT AGENT AND REGISTRAR
The warrant agent and registrar for our common shares is The Bank of
New York.
PLAN OF DISTRIBUTION
All of our common stock offered by this prospectus shall be delivered
upon exercise of the warrants by the applicable holder. The applicable holder
may exercise his warrant(s) at any time at the applicable per share exercise
price. The costs of registering, issuing and maintaining an effective
registration statement for the shares of our common stock underlying the
warrants have been and will be borne by us. The subsequent sale of the shares of
common stock underlying the warrants may be effected by the holder thereof in
several ways, including:
o on the New York Stock Exchange;
o in negotiated transactions;
o through put or call options transactions relating to our
shares of common stock; and
o through short sales or a combination of such methods of sale.
These transactions may be made at market prices prevailing at the time
of sale or at negotiated prices, and may or may not involve brokers or dealers.
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LEGAL MATTERS
Appleby, Spurling & Kempe, Hamilton, Bermuda will issue an opinion as
to the validity of the common stock offered by this prospectus under Bermuda
law.
EXPERTS
The annual consolidated financial statements of Loral Space &
Communications Ltd., incorporated in this prospectus by reference from the
annual report on Form 10-K of Loral Space & Communications Ltd. for the year
ended December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which expresses an unqualified opinion and
includes an explanatory paragraph concerning the adoption of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities), which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The annual consolidated financial statements of Globalstar, L.P. as of
December 31, 2000 and for the years ended December 31, 2000 and 1999
incorporated in this prospectus by reference from the annual report on Form 10-K
of Loral Space & Communications Ltd. for the year ended December 31, 2001, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes explanatory
paragraphs concerning Globalstar L.P.'s filing for bankruptcy and an uncertainty
about Globalstar L.P.'s ability to continue as an ongoing concern), which is
incorporated herein by reference, and have been so incorporated 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 file reports, proxy statements and other information with the SEC
which you can read at the SEC's Web site at http://www.sec.gov. You can also
read these documents at the SEC's public reference room, Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C., 20549. Please call the SEC toll
free at 1-800-SEC-0330 for information about its public reference rooms.
We have filed a registration statement with the SEC on Form S-3 under
the Securities Act of 1933. This prospectus does not contain all of the
information in the registration statement. We have omitted certain parts of the
registration statement, as permitted by the rules and regulations of the SEC.
You may inspect and copy the registration statement, including exhibits, at the
SEC's Web site and public reference facilities. Our statements in this
prospectus about the contents of any contract or other document are not
necessarily complete. You should refer to the copy of each contract or other
document we have filed as an exhibit to the registration statement for complete
information.
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can satisfy our legal obligations to disclose important
information contained in those documents by referring you to them. The
information included in the following documents is incorporated by reference and
is considered to be a part of this prospectus. More recent information that we
file with the SEC automatically updates and supersedes any inconsistent
information contained in prior filings.
The documents listed below have been filed pursuant to the rules and
regulations of the Securities Exchange Act of 1934 with the SEC and are
incorporated herein by reference:
o Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001;
o Our Proxy Statement relating to the 2000 Annual Meeting of
Shareholders;
o Our Current Reports on Form 8-K, filed on January 7, 2002,
January 9, 2002, January 10, 2002 and February 27, 2002; and
o Description of Capital Stock contained in our Form 10/A, dated
April 12, 1996.
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We also incorporate by reference all documents subsequently filed by us
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the offering
of the securities under this prospectus is completed.
We will provide without charge to each person, including any person
having a control relationship with that person, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in this prospectus but not delivered with this prospectus. If you
would like to obtain this information from us, please direct your request,
either in writing or by telephone, to Loral Space & Communications Ltd., c/o
Loral SpaceCom Corporation, 600 Third Avenue, New York, New York 10016, Attn:
Investor Relations, (212) 697-1105.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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6,042,986 Common Shares
LORAL SPACE & COMMUNICATIONS LTD.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the
Registrant in connection with this offering, other than underwriting discounts
and commissions. All the amounts shown are estimates, except the SEC
registration fee:
SEC registration fee $1,318.00
Warrant agent and registration fee $1,000*
Printing fees $3,000*
Legal fees and expenses $85,000*
Accounting fees and expenses $30,000*
Miscellaneous fees and expenses $10,000*
---------
Total $130,318*
=========
* Estimated and subject to future contingencies.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bermuda law permits a company to indemnify its directors and officers,
except for any act of fraud or dishonesty. Loral has provided in its Bye-Laws
that its directors and officers will be indemnified and held harmless against
any expenses, judgments, fines, settlements and other amounts incurred by reason
of any act or omission in the discharge of their duty, other than in the case of
fraud or dishonesty.
Bermuda law and the Bye-Laws of Loral also permit Loral to purchase
insurance for the benefit of its directors and officers against any liability
incurred by them for failure to exercise the requisite care, diligence and skill
in the exercise of their powers and the discharge of their duties, or
indemnifying them in respect of any loss arising or liability incurred by them
by reason of negligence, default, breach of duty or breach of trust.
Loral has entered into indemnification agreements with its officers and
directors. To the extent permitted by law, the indemnification agreements may
require Loral, among other things, to indemnify such officers and directors
against certain liabilities that may arise by reason of their status or service
as directors (other than liabilities arising from fraud or dishonesty) and to
advance their expenses incurred as a result of any proceedings against them as
to which they could be indemnified.
Loral maintains a directors' and officers' liability insurance policy.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
II-1
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
provided, however, that these undertakings contained in paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of offering.
(b) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and
the Registrant will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 5th day of April,
2002.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Bernard L. Schwartz
--------------------------------------
Name: Bernard L. Schwartz
Title: Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of Loral Space & Communications,
Ltd., hereby severally constitute and appoint Bernard L. Schwartz, Eric J.
Zahler, Nicholas C. Moren, Richard J. Townsend and Avi Katz, and each of them
(with full power to each of them to act alone), attorneys-in-fact for the
undersigned, in any and all capacities, with the power of substitution, to sign
any amendments to this Registration Statement (including post-effective
amendments) and any subsequent registration statement for the same offering
which may be filed under Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all interests and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of
Loral Space & Communications Ltd. in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bernard L. Schwartz Chairman of the Board and Chief Executive April 5, 2002
--------------------------- Officer (Principal Executive Officer)
Bernard L. Schwartz
/s/ Eric J. Zahler President, Chief Operating Officer and April 5, 2002
--------------------------- Director
Eric J. Zahler
/s/ Richard J. Townsend Chief Financial Officer and Senior Vice April 5, 2002
--------------------------- President (Principal Financial Officer)
Richard J. Townsend
/s/ Harvey B. Rein Vice President and Controller (Principal April 5, 2002
--------------------------- Accounting Officer)
Harvey B. Rein
II-3
/s/ Howard Gittis Director April 5, 2002
---------------------------
Howard Gittis
/s/ Robert B. Hodes Director April 5, 2002
---------------------------
Robert B. Hodes
/s/ Gershon Kekst Director April 5, 2002
---------------------------
Gershon Kekst
/s/ Charles Lazarus Director April 5, 2002
---------------------------
Charles Lazarus
/s/ Malvin A. Ruderman Director April 5, 2002
---------------------------
Malvin A. Ruderman
/s/ E. Donald Shapiro Director April 5, 2002
---------------------------
E. Donald Shapiro
/s/ Arthur L. Simon Director April 5, 2002
---------------------------
Arthur L. Simon
/s/ Daniel Yankelovich Director April 5, 2002
---------------------------
Daniel Yankelovich
/s/ Sally Minard Director April 5, 2002
---------------------------
Sally Minard
II-4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.4* Warrant Agreement by and between the Company and the Bank of New
York, as warrant agent, dated as of December 21, 2001
5.1+ Opinion of Appleby, Spurling & Kempe
23.1+ Consent of Deloitte & Touche LLP
23.2+ Consent of Deloitte & Touche LLP
23.3+ Consent of Appleby, Spurling & Kempe (included in Exhibit 5.1)
24+ Power of Attorney (included on the signature page hereto)
----------
* Incorporated by reference to the Company's current report on Form 8-K
filed on January 7, 2002.
+ Filed herewith.
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