SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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(LORAL LOGO)
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SPACE & COMMUNICATIONS LTD.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
MAY 29, 2003
--------------------
The Annual Meeting of Shareholders of Loral Space & Communications Ltd.
("Loral" or the "Company") will be held at BARUCH COLLEGE, VERTICAL CAMPUS
BUILDING (ROOM 14-220), 55 LEXINGTON AVENUE (USE 25TH STREET ENTRANCE), New
York, New York 10010, at 10:30 A.M., on Thursday, May 29, 2003 for the purpose
of:
1. Electing to the Board four Class I Directors whose terms have
expired;
2. Acting upon a proposal to amend the Company's bye-laws to
allow the shareholders to grant discretionary authority to the
Company's Board of Directors to determine the ratio to be
employed in a reverse split of the Company's common stock and
to grant such authority to the Company's Board of Directors to
effect a reverse stock split at a ratio within the range from
one-for-five to one-for-twenty;
3. Acting upon a proposal to increase the number of authorized
shares of common stock of the Company from 750,000,000 to
1,250,000,000;
4. Acting upon a proposal to ratify the selection of Deloitte &
Touche LLP as independent auditors for the year ending
December 31, 2003; and
5. Transacting any other business which may properly come before
the meeting.
The Board of Directors has fixed the close of business on April 1, 2003
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 or voting instruction card
will be first mailed to you and to other shareholders of record commencing on or
about April _____, 2003.
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 or voting instruction card
regarding your voting options.
By Order of the Board of Directors
BERNARD L. SCHWARTZ
CHAIRMAN OF THE BOARD OF DIRECTORS
April _____, 2003
QUESTIONS & ANSWERS
WHY DID I RECEIVE THIS PROXY We have sent you this Notice of Annual
STATEMENT? Meeting and Proxy Statement and proxy or
voting instruction card because Loral's
Board of Directors is soliciting your proxy
to vote at our Annual Meeting of
Shareholders on May 29, 2003 (the "Annual
Meeting"). This Proxy Statement contains
information about the items being voted on
at the Annual Meeting and information about
us.
WHO IS ENTITLED TO VOTE? You may vote if you owned common stock
as of the close of business on April 1,
2003. On April 1, 2003, there were
____________________ shares of our common
stock, par value $.01 per share,
outstanding and entitled to vote at the
Annual Meeting.
HOW MANY VOTES DO I HAVE? Each share of our common stock that you own
entitles you to one vote.
WHAT AM I VOTING ON? You will be voting on the following:
o To elect four Class I Directors;
o To amend the Company's bye-laws to allow
the shareholders to grant discretionary
authority to the Company's Board of
Directors to determine the ratio to be
employed in a reverse split of the
Company's common stock and to grant such
authority to the Company's Board of
Directors to effect a reverse stock
split at a ratio within the range from
one-for-five to one-for-twenty;
o To increase the number of authorized
shares of common stock of the Company
from 750,000,000 to 1,250,000,000;
o To ratify the selection of Deloitte &
Touche LLP as our independent auditors;
and
o To transact any other business which may
properly come before the Annual Meeting.
HOW DO I VOTE? You can vote in the following ways:
o BY MAIL: If you are a holder of record,
you can vote by marking, dating and
signing your proxy card and returning it
by mail in the enclosed postage-paid
envelope. If you hold your shares in
street name, please complete and mail
the voting instruction card.
o BY TELEPHONE OR INTERNET: If you hold
your shares in street name, you may be
able to vote by telephone or over the
Internet. Please follow the instructions
on your voting instruction card.
o AT THE ANNUAL MEETING: If you are
planning to attend the Annual Meeting
and wish to vote your shares in person,
we will give you a ballot at the
meeting. If your shares are held in
street name, you need to bring an
account statement or letter from your
broker, bank or other nominee indicating
that you were the beneficial owner of
the shares on April 1, 2003, the record
date for voting. EVEN IF YOU PLAN TO BE
PRESENT AT THE MEETING, WE ENCOURAGE YOU
TO COMPLETE AND MAIL THE ENCLOSED CARD
TO VOTE YOUR SHARES BY PROXY.
2
WHAT IF I RETURN MY PROXY Your shares will be voted according to the
OR VOTING INSTRUCTION CARD instructions you have indicated on your
BUT DO NOT MARK IT TO SHOW proxy or voting instruction card. If no
HOW I AM VOTING? direction is indicated, your shares will be
voted "FOR" the election of all Class I
nominees to the Board of Directors, "FOR"
proposals 2, 3 and 4 and, with respect to
any other matter which may properly come
before the Annual Meeting, at the discretion
of the proxy holders.
MAY I CHANGE MY VOTE AFTER You may change your vote at any time before
I RETURN MY PROXY OR VOTING your proxy is cast at the Annual Meeting in
INSTRUCTION CARD? one of three ways:
o Notify our Corporate Secretary in writing
before the Annual Meeting that you are
revoking your proxy;
o Submit another proxy card (or voting
instruction card if you hold your shares in
street name) with a later date; or
o Vote in person at the Annual Meeting.
WHAT DOES IT MEAN IF I it means you have multiple accounts at the
RECEIVE MORE THAN ONE transfer agent and/or with banks and stock
PROXY OR VOTING brokers. Please vote all of your shares.
INSTRUCTION CARD?
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 or voting
instruction 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 not as "shares cast" for any
proposal. Because abstentions and broker
"non-votes" are not treated as shares cast,
they would have no impact on proposals that
require the approval of a majority of the
votes cast (such as proposals 1, 3 or 4),
but would be treated as a vote against any
proposal that requires the approval of a
majority of the shares outstanding (such as
proposal 2).
WHAT VOTE IS REQUIRED IN ELECTION OF DIRECTORS: The election of the
ORDER TO APPROVE EACH four Class I nominees requires the
PROPOSAL? affirmative vote of a majority of the votes
cast at the Annual Meeting. If you do not
want to vote your shares for a particular
nominee, you may indicate that in the space
provided on the proxy card or the voting
instruction card or withhold authority as
prompted during telephone or Internet
voting. In the unanticipated event that any
of such nominees is unable or declines to
serve, the proxy will be voted for such
other person as shall be designated by the
Board of Directors to replace such nominee,
or in lieu thereof, the Board may reduce the
number of directors.
AMENDMENT OF THE COMPANY'S BYE-LAWS TO
EFFECT A REVERSE STOCK SPLIT: Amending our
bye-laws to effect a reverse stock split in
the manner described in proposal 2 requires
the affirmative vote of a majority of our
outstanding shares of common stock.
INCREASING THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK: Increasing the number of
authorized shares of our common stock
requires the affirmative vote of a majority
of the votes cast at the Annual Meeting.
3
RATIFICATION OF INDEPENDENT AUDITORS:
Ratification of the selection of Deloitte &
Touche LLP as our independent auditors
requires the affirmative vote of a majority
of the votes cast at the Annual Meeting. If
the shareholders do not ratify the selection
of Deloitte & Touche LLP, the selection will
be reconsidered by our Audit Committee for
the fiscal year ending December 31, 2004.
HOW WILL VOTING ON ANY We do not know of any business or proposals
OTHER BUSINESS BE to be considered at the Annual Meeting other
CONDUCTED? than those set forth in this Proxy
Statement. If any other business is proposed
and we decide to allow it to be presented at
the Annual Meeting, the proxies received
from our shareholders give the proxy holders
the authority to vote on the matter
according to their best judgement.
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 We will pay all of the costs of soliciting
AND SOLICIT THE PROXIES? 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 Any shareholder who intends to present a
SHAREHOLDER PROPOSAL FOR proposal at the 2004 Annual Meeting of
NEXT YEAR'S ANNUAL Shareholders must deliver the proposal to
MEETING? the Corporate Secretary at our principal
executive offices, located c/o Loral
SpaceCom Corporation, 600 Third Avenue, New
York, New York 10016:
o Not later than December _____, 2003, if
the proposal is submitted for inclusion
in our proxy materials for that meeting
pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934; or
o No earlier than March 20, 2004 but no
later than April 17, 2004, if the
proposal is submitted pursuant to our
bye-laws, in which case we are not
required to include the proposal in our
proxy materials.
4
PROPOSAL #1: ELECTION OF DIRECTORS
The Company has three classes of directors serving staggered three-year terms,
with Classes I and II each consisting of four directors and Class III consisting
of three directors. The terms of the Class I, II and III directors expire on the
date of the Annual Meeting in 2003, 2004 and 2005, respectively.
Shareholders will elect four Class I directors at the Annual Meeting. Of the
directors named below, Messrs. Howard Gittis, Gershon Kekst, Arthur L. Simon and
Eric J. Zahler are the nominees to serve as Class I directors. Each director
will serve for a period of three years, until a qualified successor director has
been elected, or until he resigns or is removed by the Board. ELECTION OF EACH
OF THE CLASS I NOMINEES WILL REQUIRE THE AFFIRMATIVE VOTE IN PERSON OR BY PROXY
OF A 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 of each of our directors and
nominees:
BERNARD L. SCHWARTZ
-------------------
Age: 77
Director Since: 1996
Class: Class III
Business Experience: Mr. Schwartz is Chairman of the Board of Directors
and Chief Executive Officer of the Company.
Other Directorships: First Data Corp., K&F Industries, 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
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Age: 69
Director Since: 1996
Class: Class I Nominee
Business Experience: Mr. Gittis is Director, Vice Chairman and Chief
Administrative Officer of MacAndrews & Forbes
Holdings Inc. and its various affiliates.
Other Directorships: Jones Apparel Group, Inc., M & F Worldwide Corp., REV
Holdings Inc., Revlon Consumer Products Corporation
and Revlon, Inc.
ROBERT B. HODES
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Age: 77
Director Since: 1996
Class: Class II
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: K&F Industries, Inc., LCH Investments, N.V., Mueller
Industries, Inc., Restructured Capital Holdings, Ltd.
and R.V.I. Guaranty Ltd.
GERSHON KEKST
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Age: 68
Director Since: 1996
Class: Class I Nominee
Business Experience: Mr. Kekst is President of Kekst and Company
Incorporated, corporate and financial communications
consultants in New York, N.Y.
5
CHARLES LAZARUS
---------------
Age: 79
Director Since: 1996
Class: Class II
Business Experience: Mr. Lazarus is Chairman Emeritus of Toys "R" Us, Inc.
SALLY MINARD
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Age: 60
Director Since: 2002
Class: Class II
Business Experience: Ms. Minard is co-chair of the Women's Leadership
Forum of the Democratic National Committee, NY State
chapter. Previously, she was co-founder of Lotas
Minard Patton McIver, an advertising communications
firm in New York, N.Y., from 1986-1999. Ms. Minard
also served as President of the New York Women's
Agenda and Treasurer of the American Association of
Advertising Agencies.
Other Directorships: American Red Cross (NY) and member of the Board of
Governors of New School University (NY)
MALVIN A. RUDERMAN
------------------
Age: 76
Director Since: 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: 71
Director Since: 1996
Class: Class III
Business Experience: Professor Shapiro has been The Joseph
Solomon Distinguished Professor of Law at New York
Law School since 1983 and Dean Emeritus since 2000
and was previously Dean/Professor of Law (1973-1983).
Other Directorships: Frequency Electronics, Inc., Group Health
Incorporated, Kramont Realty Trust and Vasomedical,
Inc.
ARTHUR L. SIMON
---------------
Age: 71
Director Since: 1996
Class: Class I Nominee
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: L-3 Communications Corporation
6
DANIEL YANKELOVICH
------------------
Age: 78
Director Since: 1996
Class: Class II
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.
ERIC J. ZAHLER
--------------
Age: 52
Director Since: 2001
Class: Class I Nominee
Business Experience: Mr. Zahler has been President and Chief Operating
Officer of the Company since February 2000.
Previously, he was Executive Vice President of the
Company since October 1999, Senior Vice President,
General Counsel and Secretary of the Company since
February 1998 and Vice President, General Counsel and
Secretary of the Company since 1996.
Other Directorships: Satelites Mexicanos, S.A. de C.V.
On February 15, 2002, Globalstar, L.P. ("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. Messrs. Schwartz and Zahler and/or certain other
of our executive officers either currently serve or have previously served as
executive officers of these general partner entities and Globalstar and certain
of its subsidiaries.
Directors are paid a fixed fee of $25,000 per year. Non-employee directors are
also paid $6,000 for personal attendance or $2,000 for telephone participation
at each meeting. In addition, the Chairman of the Audit Committee is paid
$12,000 per year, and Audit Committee members are paid $4,000 per year. Audit
Committee members are also paid $2,000 for personal attendance or $1,000 for
telephone participation at each meeting. Compensation and Stock Option Committee
members are paid an additional $2,000 per year and $1,000 for personal
attendance or $500 for telephone participation at each meeting.
The Company provides certain life insurance and medical benefits to certain
non-employee directors. For 2002, the cost of the life insurance benefits was
$13,565 for Mr. Gittis, $14,553 for Mr. Kekst, $14,223 for Mr. Ruderman, $15,000
for Mr. Shapiro, $12,500 for Mr. Simon and $14,170 for Mr. Yankelovich, and the
cost of life insurance and medical benefits was $40,283 for Mr. Hodes.
The Company has purchased insurance from various insurance companies insuring
the Company against obligations 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 for the annual insurance premiums covering the period
ending April 2003 was approximately $2,163,100. 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.
7
PROPOSAL #2: AMENDMENT OF THE COMPANY'S BYE-LAWS TO EFFECT A
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REVERSE STOCK SPLIT
-------------------
Shareholders will act upon a proposal to amend the Company's bye-laws to allow
the shareholders to grant discretionary authority to the Company's Board of
Directors to determine the ratio to be employed in a reverse stock split of the
Company's common stock and to grant such authority to the Company's Board of
Directors to effect a reverse stock split at a ratio within the range from
one-for-five to one-for-twenty. APPROVAL OF THIS PROPOSAL WILL REQUIRE THE
AFFIRMATIVE VOTE, IN PERSON OR BY PROXY, OF A MAJORITY OF OUR OUTSTANDING SHARES
OF COMMON STOCK. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS
PROPOSAL.
INTRODUCTION
------------
The Board of Directors of the Company previously approved, subject to
shareholder approval at the Annual Meeting: (a) a proposal to effect a reverse
stock split (the "Reverse Stock Split") of the Company's common stock, at a
ratio to be determined by the Board, from one-for-five to one-for-twenty (the
"Specified Range"); and (b) an amendment (the "Amendment") to the Company's
Third Amended and Restated Bye-Laws (the "Bye-Laws") to allow the shareholders
to give the Board authority to implement the Reverse Stock Split, at a ratio
within the Specified Range and on a date prior to the 2004 Annual Meeting of
Shareholders, as selected by the Board in its discretion. The form of the
Amendment is attached as Appendix A to this Proxy Statement.
The Board has proposed to amend the Bye-Laws to allow the shareholders to give
the Board the authority to effectuate the Reverse Stock Split. If, for example,
the Board were to select a ratio of one-for-five, for every five shares of
common stock held by a shareholder prior to the Reverse Stock Split, that
shareholder would hold one share of common stock immediately after the Reverse
Stock Split. If the Board were to select a ratio of one-for-ten, for every ten
shares of common stock held by a shareholder prior to the Reverse Stock Split,
that shareholder would hold one share of common stock immediately after the
Reverse Stock Split. If the Board were to select a ratio of one-for-twenty, for
every twenty shares of common stock held by a shareholder prior to the Reverse
Stock Split, that shareholder would hold one share of common stock immediately
after the Reverse Stock Split. Any fractional shares resulting from a Reverse
Stock Split would be rounded up to a whole share as provided below, and
outstanding options and warrants to purchase common stock, and the conversion
rights of outstanding preferred stock, would be adjusted accordingly.
The purpose of the Reverse Stock Split is to increase the per share market value
of the Company's common stock. If the Reverse Stock Split and the Amendment are
authorized by the shareholders, the Board will implement the Reverse Stock Split
on a date prior to the 2004 Annual Meeting of Shareholders, as selected by the
Board in its discretion. The Board has submitted the proposed Reverse Stock
Split with the Specified Range in order to give it the flexibility at time of
implementation to determine the ratio within that range that it believes will
provide for the greatest marketability of the common stock. The Amendment will
give the Board the authority to effect only a single Reverse Stock Split. No
further action on the part of the shareholders would be required to effect the
Reverse Stock Split at the ratio within the Specified Range selected by the
Board.
Adjustments to the Company's financial statements to reflect the Reverse Stock
Split are expected to be minimal. The expected immediate effect in the market
would be an increase in the trading price per share, although not necessarily on
a proportional basis. The Reverse Stock Split will proportionately reduce both
the issued and outstanding shares of the Company's common stock and the
authorized but unissued shares, depending upon the Reverse Stock Split ratio
selected by Board of Directors. As of March 31, 2003, the Company had
750,000,000 shares of authorized common stock, of which __________ were
outstanding. If the Amendment and the Reverse Stock Split are approved by the
shareholders, the Company would have had as of that date after giving effect to
the Reverse Stock Split, 150,000,000 shares of authorized common stock and
approximately __________ outstanding if, for example, the Board of Directors
chooses a Reverse Stock Split of one-for-five; 75,000,000 shares of authorized
common stock and approximately __________ outstanding if the Board of Directors
chooses a Reverse Stock Split of one-for-ten; or 37,500,000 shares of authorized
common stock and approximately __________ outstanding if the Board of Directors
chooses a Reverse Stock Split of one-for-twenty. However, if the increase in the
number of the Company's authorized shares of common stock described in proposal
3 is approved by the shareholders, it will become effective immediately, and
therefore the number of authorized shares of the Company's common stock will be
increased prior to the Reverse Stock Split being effected.
8
Under the New York Stock Exchange ("NYSE") criteria for continued listing, the
NYSE will normally give consideration to de-listing a company's stock when the
average closing price of the stock is less than $1.00 over a consecutive
30-trading day period. The average closing price of the Company's common stock
on the NYSE was less than $1.00 for 30 consecutive trading days and, on August
22, 2002, the Company received notice from the NYSE that its stock price was
below the NYSE's price criteria. If the Company is unable to cure this
deficiency, the common stock could be de-listed from the NYSE. De-listing of the
Company's common stock by the NYSE could result in a material adverse effect on
the liquidity of its shares, have an adverse effect on the trading value and
impair its ability to raise funds in the capital markets.
The NYSE has informed the Company that price is the only criteria for listing
that it does not currently meet. The NYSE's rules provide for a six-month period
from receipt of notice from the NYSE to cure this deficiency. In the event the
actions the Company takes to cure the deficiency require shareholder approval
such as the Reverse Stock Split, the six-month cure period is extended until
this Annual Meeting of Shareholders. The Company believes that, if the Reverse
Stock Split and the Amendment are approved and a Reverse Stock Split is
implemented, there is a greater likelihood that the price of the common stock
will be maintained at a level over $1.00 per share. The Company can give no
assurances, however, that approval of the Reverse Stock Split and the Amendment
and the implementation of the Reverse Stock Split will succeed in raising the
average closing price of the Company's common stock above $1.00 per share, or
that such minimum price, if achieved, would be maintained.
Even though a reverse stock split, by itself, does not affect a company's assets
or prospects, reverse stock splits can result in a decrease in the aggregate
market value of a company's equity capital. The Board of Directors, however,
believes that this risk is offset by the prospect that the Reverse Stock Split
will improve the likelihood that the Company will be able to maintain its NYSE
listing and may, by increasing the per share price, make an investment in the
Company's common stock more attractive for certain investors. If the Company's
common stock is delisted from the NYSE, trading, if any, of the Company's common
stock would thereafter have to be conducted in a non-NYSE exchange, subject to
listing requirements, or in the over-the-counter market. In such event, an
investor could find it more difficult to dispose of the common stock, or to
obtain accurate quotations as to the market value of the Company's common stock.
PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT
--------------------------------------------
The proposed Reverse Stock Split will not affect any shareholder's proportionate
equity interest in the Company or the rights, preferences, privileges or
priorities of any shareholder, other than an adjustment which may occur due to
the rounding up of fractional shares to whole shares. A shareholder may hold
less than 100 shares of the Company's common stock after the Reverse Stock Split
and as a consequence may incur greater costs associated with trading. Likewise,
the Reverse Stock Split will not affect the total shareholders' equity of the
Company or any components of shareholders' equity as reflected on the financial
statements of the Company except (i) to reduce the number of authorized and
issued and outstanding shares of common stock, (ii) to increase the par value
per share of the common stock, and (iii) for an adjustment which will occur due
to the costs incurred by the Company in connection with this Proxy Statement and
the implementation of this proposal.
The following table illustrates the principal effects on the Company's common
stock of the Reverse Stock Split using three different ratios within the
Specified Range without giving effect to the proposal to increase the number of
the Company's authorized shares of common stock described in proposal 3.
Accordingly, your attention is directed to the table set forth on page 14 of
this Proxy Statement, which describes the impact on the Company's authorized
shares of common stock and the shares available for future issuance if the
proposal to increase the number of the Company's authorized shares of common
stock is approved.
9
NUMBER OF SHARES OF COMMON STOCK
-----------------------------------------------------------------------------------------
One-for-Twenty
Prior to Reverse One-for-Five Reverse One-for-Ten Reverse Reverse Stock Split
Stock Split Stock Split (1:5) Stock Split (1:10) (1:20)
-----------------------------------------------------------------------------------------
Authorized 750,000,000 150,000,000 75,000,000 37,500,000
Issued and outstanding
as of March 31, 2003 [ ] [ ] [ ] [ ]
Available for future
issuance as of March
31, 2003 [ ] [ ] [ ] [ ]
The $0.01 per share par value of the common stock would be proportionately
increased as a result of the Reverse Stock Split. For example, it would be
changed to $0.05 in a one-for-five Reverse Stock Split, $0.10 in a one-for-ten
Reverse Stock Split and $0.20 in a one-for-twenty Reverse Stock Split.
EFFECT ON OUTSTANDING OPTIONS AND WARRANTS
------------------------------------------
In its recently completed exchange offer for certain of its outstanding stock
options, the Company accepted and cancelled existing stock options to purchase
an aggregate of 14,884,403 shares of common stock that were tendered in the
exchange offer and agreed to grant in exchange new stock options to purchase an
aggregate of 6,021,488 shares of common stock. The new options will be granted,
subject to the terms and conditions of the exchange offer, on September 8, 2003,
and will have an exercise price per share equal to the fair market value of the
common stock on the date of grant. As of March 31, 2003, the Company had
outstanding employee stock options to purchase an aggregate of __________ shares
of common stock (excluding the new options that it has agreed to grant as a
result of the exchange offer), with exercise prices per share ranging from
$__________ to $__________ per share, and warrants to purchase an aggregate of
6,172,255 shares of common stock with an exercise price per share equal to
$2.37. Under the terms of the options and warrants, when the Reverse Stock Split
becomes effective, the number of shares underlying the options and warrants will
be proportionately reduced and the exercise price per share will be
proportionately increased depending on the Reverse Stock Split ratio selected
by the Board of Directors. For example: with a one-for-five Reverse Stock
Split, the number of shares underlying the options and warrants will be reduced
to one-fifth of the number currently underlying them and the exercise price per
share will be increased by five times; with a one-for-ten Reverse Stock Split,
the number of shares underlying the options and warrants will be reduced to
one-tenth of the number currently underlying them and the exercise price per
share will be increased by ten times; and with a one-for-twenty Reverse Stock
Split, the number of shares underlying the options and warrants will be reduced
to one-twentieth of the number currently underlying them and the exercise price
per share will be increased by twenty times.
EFFECT ON SERIES C PREFERRED SHARES
-----------------------------------
As of March 31, 2003, the Company had outstanding 3,745,485 shares of Series C
Convertible Redeemable Preferred Stock due 2006 (the "Series C Preferred
Shares"). The Series C Preferred Shares are convertible at the option of the
holder into the Company's common stock. The current conversion price is $20.00
per share, which results in a conversion ratio of 2.5 shares of the Company's
common stock for the $50.00 liquidation preference per share of Series C
Preferred Stock. At this conversion price the outstanding shares of the Series C
Preferred Stock are convertible into an aggregate of 9,363,713 shares of the
Company's common stock. Under the terms of the Series C Preferred Shares, the
outstanding Series C Preferred Shares will, for example, become convertible at:
a conversion price of $100, into an aggregate of 1,872,743 shares of the
Company's common stock if a Reverse Stock Split of one-for-five is selected by
the Board of Directors; a conversion price of $200, into an aggregate of 936,372
shares of the Company's common stock if a Reverse Stock Split of one-for-ten is
selected by the Board of Directors; or a conversion price of $400, into an
aggregate of 468,186 shares of the Company's common stock if a Reverse Stock
Split of one-for-twenty is selected by the Board of Directors.
10
The approval of the holders of the Series C Preferred Shares is not required for
the Amendment or the Reverse Stock Split.
EFFECT ON SERIES D PREFERRED SHARES
-----------------------------------
As of March 31, 2003, the Company had outstanding 734,135 shares of Series D
Convertible Redeemable Preferred Stock due 2007 (the "Series D Preferred
Shares"). The Series D Preferred Shares are convertible at the option of the
holder into the Company's common stock. The current conversion price is $19.8303
per share, which results in a conversion ratio of 2.5214 shares of the Company's
common stock for the $50.00 liquidation preference per share of Series D
Preferred Stock. At this conversion price the outstanding shares of the Series D
Preferred Stock are convertible into an aggregate of 1,851,044 shares of the
Company's common stock. Under the terms of the Series D Preferred Shares, the
outstanding Series D Preferred Shares will, for example, become convertible at:
a conversion price of $99.1515, into an aggregate of 370,209 shares of the
Company's common stock if a Reverse Stock Split of one-for-five is selected by
the Board of Directors; a conversion price of $198.303, into an aggregate of
185,105 shares of the Company's common stock if a Reverse Stock Split of
one-for-ten is selected by the Board of Directors; or a conversion price of
$396.606, into an aggregate of 92,553 shares of the Company's common stock if a
Reverse Stock Split of one-for-twenty is selected by the Board of Directors. The
approval of the holders of the Series D Preferred Shares is not required for the
Amendment or the Reverse Stock Split.
EXCHANGE OF SHARES; ROUNDING UP OF FRACTIONAL SHARES
----------------------------------------------------
Depending on the ratio within the Specified Range selected by the Board of
Directors, a specified number of shares of the Company's issued common stock
would be converted and reclassified though a Reverse Stock Split into one share
of common stock. No certificates or scrip representing fractional share
interests in the Company's common stock will be issued, and no such fractional
share interest will entitle the holder thereof to any rights as a stockholder of
the Company. In lieu of any such fractional share interest, upon surrender of
the certificates representing a holder's common stock, such holder will receive
a single whole share. All shares of the Company's common stock held by a
shareholder will be aggregated, and one new stock certificate will be issued,
unless The Bank of New York (the "Transfer Agent") is otherwise notified by the
shareholder. Shareholders will be notified on or after the date the Reverse
Stock Split becomes effective (the "Effective Date"), that the Reverse Stock
Split has been effected. The Transfer Agent will act as the Company's exchange
agent (the "Exchange Agent") for shareholders in implementing the exchange of
their certificates.
As soon as practicable after the Effective Date, shareholders will be notified
and provided the opportunity (but will not be obligated) to surrender their
certificates representing pre-Reverse Stock Split shares of common stock to the
Exchange Agent in exchange for certificates representing post-Reverse Stock
Split shares of common stock. Shareholders will not receive certificates
representing post-Reverse Stock Split shares of common stock unless and until
the certificates representing their pre-Reverse Stock Split shares of common
stock are surrendered and they provide such evidence of ownership of such shares
as the Company or the Exchange Agent may require. Shareholders should not
forward their certificates to the Exchange Agent until they have received notice
from the Company that the Reverse Stock Split has become effective. Beginning on
the Effective Date, each certificate representing pre-Reverse Stock Split shares
of common stock will be deemed for all corporate purposes to evidence ownership
of the appropriate number of post-Reverse Stock Split shares of common stock.
No service charge shall be payable by shareholders in connection with the
exchange of certificates, all costs of which will be borne and paid by the
Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
---------------------------------------
A summary of the United States federal income tax consequences of the Reverse
Stock Split is set forth below. The discussion is based on present United States
federal income tax law. The discussion is not intended to be, nor should it be
relied on as, a comprehensive analysis of the tax issues arising from or
relating to the Reverse Stock Split. Income tax consequences to particular
shareholders may vary from the United States federal tax consequences described
generally below.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF THE
CONTEMPLATED REVERSE STOCK SPLIT UNDER APPLICABLE UNITED STATES FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
11
The Reverse Stock Split will constitute a "recapitalization" to the Company and
its shareholders to the extent that issued shares of the Company's common stock
are exchanged for a reduced number of shares of the Company's common stock.
Therefore, neither the Company nor its shareholders will recognize any gain or
loss for federal income tax purposes as a result thereof.
The shares of the Company's common stock to be issued to each shareholder will
have an aggregate basis equal to the aggregate basis of the shares of such
stock held by such shareholder immediately prior to the Effective Date. A
shareholder's holding period for the shares of the Company's common stock to be
issued as a result of the Reverse Stock Split will include the holding period
for the shares of the Company's common stock held thereby immediately prior to
the Effective Date provided that such shares of common stock were held by the
shareholder as capital assets on the Effective Date.
12
PROPOSAL #3: INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF
-----------------------------------------------------------
COMMON STOCK
------------
The shareholders will act upon a proposal to increase the number of authorized
shares of common stock from 750,000,000 to 1,250,000,000. APPROVAL OF THIS
PROPOSAL WILL REQUIRE THE AFFIRMATIVE VOTE, IN PERSON OR BY PROXY, OF A MAJORITY
OF THE SHARES REPRESENTED IN PERSON OR BY PROXY AND VOTING AT THE ANNUAL
MEETING. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
INTRODUCTION
------------
The Board of Directors of the Company previously approved, subject to
shareholder approval at the Annual Meeting, a proposal to increase the number of
authorized shares of common stock from 750,000,000 to 1,250,000,000. The Board
of Directors believes that it would be in the Company's best interests to
increase the number of shares of the Company's common stock that the Company is
authorized to issue. The Board of Directors believes that the availability of
additional authorized but unissued shares will provide the Company with the
flexibility to issue common stock for proper corporate purposes which may be
identified in the future, such as to make mandatory redemption payments in the
form of common stock on the Company's Series C Convertible Redeemable Preferred
Stock due 2006 (the "Series C Preferred Shares") and Series D Convertible
Redeemable Preferred Stock due 2007 (the "Series D Preferred Shares," and
together with the Series C Preferred Shares, the "Preferred Shares"), to raise
equity capital, to make acquisitions through the use of stock, to establish
strategic relationships with other companies, to repurchase issued and
outstanding debt obligations, to adopt additional employee benefit plans or
reserve additional shares for issuance under such plans where the Board of
Directors determines it advisable to do so, without the necessity of soliciting
further shareholder approval (except as may be required by applicable laws and
the NYSE with respect to such transactions or issuances).
PRINCIPAL EFFECTS OF THE AUTHORIZED SHARE INCREASE
--------------------------------------------------
The additional 500,000,000 shares of common stock for which authorization is
sought would be identical to the Company's existing shares of common stock. The
increase in the number of authorized shares and any future issuances of common
stock would not affect the rights of holders of currently outstanding common
stock, except for effects incidental to increasing the number of shares of
common stock outstanding. Holders of common stock do not have preemptive rights
to subscribe to additional securities that may be issued by the Company, which
means that current holders of common stock do not have a prior right to purchase
any new issue of capital stock of the Company in order to maintain their
proportionate ownership thereof. In addition, if the Board of Directors elects
to issue additional shares of common stock, such issuance could have a dilutive
effect on earnings per share and would have a dilutive effect on voting power
and share holdings of current shareholders. If the increase in the number of
authorized shares is approved by the shareholders, the increase will become
effective immediately. Therefore, the increase in the number of authorized
shares will be effected prior to the date on which the Reverse Stock Split is
effected and, as result of the Reverse Stock Split, the number of authorized
shares of common stock will then be proportionately reduced from 1,250,000,000,
depending on the Reverse Stock Split ratio selected by the Board of Directors.
The following table illustrates the proposed effects on the Company's common
stock if proposal 3 is approved and the Reverse Stock Split effected, using
three different ratios within the Specified Range:
13
NUMBER OF SHARES OF COMMON STOCK
-----------------------------------------------------------------------------------------
One-for-Twenty
Prior to Reverse One-for-Five Reverse One-for-Ten Reverse Reverse Stock Split
Stock Split Stock Split (1:5) Stock Split (1:10) (1:20)
-----------------------------------------------------------------------------------------
Authorized 1,250,000,000 250,000,000 125,000,000 62,500,000
Issued and outstanding
as of March 31, 2003 [ ] [ ] [ ] [ ]
Available for future
issuance as of March
31, 2003 [ ] [ ] [ ] [ ]
The Board is required to make any determination to issue common stock based upon
its judgment as to the best interests of the Company. The increase in the number
of authorized shares of common stock could render more difficult any attempted
takeover of the Company that is opposed by the Board of Directors. The Board of
Directors may issue, without further action or approval of the shareholders,
additional shares of common stock to the public (except as may be required by
applicable laws and the NYSE with respect to such issuances), thereby increasing
the number of shares that would have to be acquired to effect a change of
control of the Company. This proposal to increase the number of authorized
shares of common stock has not been prompted by any effort by anyone to gain
control of the Company, and the Company is not aware of any such effort. In
addition, this proposal is not part of any plan by the Company to recommend a
series of anti-takeover measures and the Company does not currently contemplate
recommending the adoption of other measures that could be construed to affect
the ability of third parties to take over or change control of the Company.
The Series C Preferred Shares and Series D Preferred Shares have mandatory
redemption dates in 2006 and 2007, respectively. The Company has the right to
make mandatory redemption payments to the holders of Preferred Shares in either
cash or common stock, or a combination of the two. If the Company elects to make
the mandatory redemption payments in whole or in part in common stock, the
shares of common stock delivered will be valued at the then current market value
of the common stock, which is defined under the terms of the Preferred Shares as
the average volume-weighted daily trading price of the common stock for the ten
business days ending on the second business day prior to the date of the
mandatory redemption payment. Based upon the fair market value of the Company's
common stock at December 31, 2002 (approximately $0.38 per share), the Company
did not have available a sufficient number of authorized shares of its common
stock to effect payment of the total mandatory redemptions in common stock in
2006 and 2007. Accordingly, as of December 31, 2002, the Company classified an
aggregate of $125 million of the Preferred Shares outside the shareholders'
(deficit) equity section of the Company's balance sheet. Had the proposed
increase in the number of shares of authorized common stock been effected as of
December 31, 2002, none of the Preferred Shares would have been classified
outside the shareholders' equity section of the balance sheet. The Company
believes that if all of the Preferred Shares were classified as equity as of
December 31, 2002, the Company's shareholder deficit would have been reduced by
$__________. The exact number of shares of the Company's common stock that may
be issued on a mandatory redemption date cannot be determined at this time. That
number will depend on a number of factors not known today, such as the price of
the Company's common stock and the number of Preferred Shares outstanding at
that time. The amount, if any, of the Preferred Shares classified outside the
shareholders' (deficit) equity section will vary in future periods depending on
these factors. Therefore, even if the share increase proposal is approved by
shareholders and effected, there can be no assurance that some or all of the
Preferred Shares will not be classified outside the shareholders (deficit)
equity section of the Company's balance sheet in future periods or that the
Company will have a sufficient number of shares of common stock to make all or a
substantial portion of the mandatory redemption payments in common stock.
The approval of the holders of the Series C Preferred Shares or the Series D
Preferred Shares is not required for this proposal.
14
PROPOSAL #4: INDEPENDENT AUDITORS
---------------------------------
Shareholders will act upon a proposal to ratify the selection 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 ANNUAL MEETING, DO NOT RATIFY THE SELECTION
OF DELOITTE & TOUCHE LLP, THE SELECTION OF THE INDEPENDENT AUDITORS WILL BE
RECONSIDERED BY THE AUDIT COMMITTEE FOR THE YEAR ENDING DECEMBER 31, 2004. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
BACKGROUND
----------
The Audit Committee has selected Deloitte & Touche LLP, certified public
accountants, as the independent auditors of the Company for the fiscal year
ending December 31, 2003. 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 certain other activities as described below.
FINANCIAL STATEMENTS AND REPORTS
--------------------------------
The financial statements of the Company for the year ended December 31, 2002,
and report 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 2002 and 2001, 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, review of the quarterly financial statements of the Company,
stand-alone audits of subsidiaries, foreign statutory reports, accounting
consultations and consents and other services related to SEC filings and
registration statements filed by the Company and its subsidiaries and other
pertinent matters. Deloitte also provided other consulting services to the
Company in 2002 and 2001 consisting primarily of tax consultation and related
services.
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 years ended December 31, 2002 and 2001 and for the
reviews of the condensed consolidated financial statements included in the
Company's Quarterly Reports on Form 10-Q for the 2002 and 2001 fiscal years
totaled approximately $1,347,000 and $1,105,000, respectively.
AUDIT RELATED FEES
------------------
The aggregate fees billed by Deloitte for audit-related services for the fiscal
years ended December 31, 2002 and 2001 were $200,000 and $277,000. These fees
related to the fees for stand-alone audits of the Company's subsidiaries.
TAX FEES
--------
The aggregate fees billed by Deloitte for tax-related services for the fiscal
years ended December 31, 2002 and 2001 were $231,000 and $115,000. These fees
related to tax consultation and related services.
15
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," "Audit-Related Fees" and "Tax Fees" for the fiscal years ended December
31, 2002 and 2001 totaled approximately $171,000 and $0, respectively. These
fees related to the design and implementation of tax system software.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining Deloitte's independence.
16
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
-------------------------------------------------
The Board of Directors met seven times during 2002. Each director attended at
least 75% of the meetings of the Board and of the meetings of the Board
committees on which he or she served as a member in 2002.
The Board of Directors has standing audit, compensation and stock option and
executive committees. The following shows the membership and functions of the
various committees:
AUDIT COMMITTEE
---------------
Members: Malvin A. Ruderman, E. Donald Shapiro, Arthur L.
Simon (Robert B. Hodes resigned from the Audit
Committee on July 16, 2002)
Number of Meetings in 2002: 7
Functions: Reviews and acts or reports to the Board of
Directors with respect to various auditing
and accounting matters, including the review
of Loral's audited financial statements,
review of Loral's interim financial results,
the selection of Loral's independent
auditors, the accounting and financial
practices and controls of Loral, audit
procedures and findings and the nature of
services performed for Loral by, and the
fees paid to, the independent auditors.
COMPENSATION AND STOCK OPTION COMMITTEE
---------------------------------------
Members: Sally Minard, E. Donald Shapiro, Arthur L. Simon
Number of Meetings in 2002: 1
Functions: Reviews and provides recommendations to the Board
of Directors regarding executive
compensation matters and is responsible for
the administration of Loral's Stock Option
Plans.
EXECUTIVE COMMITTEE
-------------------
Members: Bernard L. Schwartz, Robert B. Hodes, Gershon
Kekst
Number of Meetings in 2002: 6
Functions: The Executive Committee, between meetings of the
Board of Directors, exercises all powers and
authority of the Board of Directors in the
management of Loral's business affairs that may
be lawfully delegated.
17
REPORT OF THE AUDIT COMMITTEE
-----------------------------
The Directors who serve on the Audit Committee are all "independent" for
purposes of NYSE 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.
For 2002, the Audit Committee operated under a written charter adopted by the
Board of Directors which was included in last year's proxy statement. All of the
responsibilities enumerated in such charter were fulfilled for the year ended
December 31, 2002. On March 27, 2003, in order to comply with the Sarbanes-Oxley
Act of 2002 and requirements of the NYSE, the Board of Directors adopted a
revised charter which is included in Appendix B to this Proxy Statement.
We have reviewed and discussed with management and the independent auditors,
Deloitte & Touche LLP, the Company's audited financial statements as of and for
the year ended December 31, 2002.
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 B 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, 2002.
Members of the Audit Committee
Arthur L. Simon, Chairman
Malvin A. Ruderman
E. Donald Shapiro
18
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 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"); 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, are 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 will not
be exempt from the deduction limits of Section 162(m).
CEO COMPENSATION
----------------
The Company's CEO, Bernard L. Schwartz, is paid pursuant to a long-term
employment contract. This contract provides for a minimum 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, 2002, Mr. Schwartz's
annual base salary increased to $1,752,900 in accordance with his contractual
formula. The Compensation Committee sets annual incentive compensation for Mr.
Schwartz by assessing a number of factors, including his individual effort,
performance and contribution toward achieving the business plan and growth
objectives of the Loral Group. At Mr. Schwartz's request, the Compensation
Committee agreed to amend his employment agreement to provide for no base
salary for the twelve-month period commencing March 1, 2003. Consistent with
this request, the Compensation Committee determined not to pay a bonus to Mr.
Schwartz for 2002.
COMPENSATION FOR OTHER EXECUTIVE OFFICERS
-----------------------------------------
Other than Mr. Schwartz, base salaries for the named executive officers in this
Proxy Statement (the "NEOs") and other executive officers have been set at
competitive levels by the CEO in consultation with the Compensation Committee,
giving due regard to individual performance and time in position. Incentive
compensation for NEOs (other than Mr. Schwartz) and other executive officers is
set by the CEO, in consultation with the Compensation Committee, based on
factors similar to those used for establishing incentive compensation for the
CEO. Incentive compensation for corporate officers with line 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
2002 has been awarded in accordance with these factors.
19
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. In determining the level
of option grants to executive officers, the Compensation Committee relies on
recommendations by the CEO. The CEO considers factors similar to those described
above in determining compensation level and makes subjective determinations with
respect to individual grant recommendations. During 2002, 712,500 options were
granted to employees under the 1996 Stock Option Plan, of which 562,500 were
granted to NEOs; and 227,000 options were granted to employees under the 2000
Stock Option Plan, none of which were granted to NEOs. In 2003, the Compensation
Committee approved a stock option exchange offer pursuant to which eligible
employees (including the NEOs other than Mr. Schwartz) could exchange certain of
their existing stock options for new options at certain specified exchange
ratios. Under this offer, the NEOs tendered in the aggregate 4,383,000 options
for cancellation, entitling them to receive 1,865,700 new options on September
8, 2003, which new options will have an exercise price equal to the fair market
value of the common stock on the grant date.
MEMBERS OF THE COMPENSATION AND STOCK OPTION COMMITTEE
E. Donald Shapiro, Chairman
Sally Minard
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.
20
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.
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS (b) COMPENSATION (c)
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
Bernard L. Schwartz
Chairman of the Board of 2002 $1,744,576 ---- ---- ---- 250,000 $ 261,648
Directors and Chief 2001 $1,708,581 ---- ---- ---- 3,305,000 $ 219,713
Executive Officer (a) 2000 $1,655,844 ---- ---- ---- 1,812,500 $ 320,506
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
Eric J. Zahler 2002 $1,000,000 $ 225,000 ---- ---- 162,500 $ 53,346
President and 2001 $1,000,000 ---- ---- ---- 775,000 $ 27,866
Chief Operating Officer 2000 $ 975,962 $ 325,000 ---- ---- 1,550,000 $ 11,436
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
Richard J. Townsend 2002 $ 640,673 $ 150,000 ---- ---- 150,000 $ 20,835
Senior Vice President and 2001 $ 552,212 ---- ---- ---- 475,000 $ 20,355
Chief Financial Officer 2000 $ 475,000 $ 300,000 ---- ---- 825,000 $ 12,140
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
Terry J. Hart 2002 $ 378,154 $ 275,000(d) ---- 300,000 (g) 0 $ 12,022
Vice President and 2001 $ 351,461 $ 198,000 ---- ---- 169,700 $ 11,689
President of Loral Skynet 2000 $ 294,346 $ 180,230 ---- ---- 339,400 $ 11,689
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
C. Patrick DeWitt 2002 $ 363,462 $ 250,000 $146,150 (e) 400,000 (f) 0 $ 7,194
Vice President and 2001 $ 311,558 $ 75,057 ---- ---- 349,450 $ 6,118
President of Space 2000 $ 266,346 $ 26,654 ---- ---- 332,600 $ 6,115
Systems/Loral, Inc.
------------------------- ------ ---------- ---------- ------------- -------------- ---------- ----------
(a) At Mr. Schwartz's request, the Compensation Committee agreed to amend
his employment agreement to provide for no base salary for the
twelve-month period commencing March 1, 2003. Consistent with this
request, the Compensation Committee determined not to pay a bonus
to Mr. Schwartz for 2002.
(b) Does not include grants made in January 2000 by Globalstar
Telecommunications Limited ("GTL") to Messrs. Schwartz and Townsend to
acquire 75,000 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 and
Townsend to acquire 75,000, 80,000 and 75,000 shares of GTL common
stock, respectively, at an exercise price of $8.7031 per share. These
options vest in thirds over a three-year period commencing one year
from the date of grant. As of April 1, 2003, the closing price of GTL's
common stock was $________ per share.
Excludes the effect of the stock option exchange offer completed in
March 2003 pursuant to which Messrs. Zahler, Townsend, Hart and DeWitt
tendered 2,325,000, 1,050,000, 509,100 and 498,900 options,
respectively, for cancellation. In exchange for such tendered stock
options, Messrs. Zahler, Townsend, Hart and DeWitt will receive a grant
of 930,000, 532,500, 203,640 and 199,560 options, respectively, on
September 8, 2003, which new options will have an exercise price equal
to the fair market value of the common stock on the grant date.
(c) For 2002, includes annual Board of Directors fee in the amount of
$25,000 to Messrs. Schwartz and Zahler and Company matching
contributions to the Savings Plan in the amount of $6,600 for Messrs.
Schwartz, Zahler and Townsend and $7,333 and $7,184 for Messrs. Hart
and DeWitt, respectively, and the value of supplemental life insurance
premiums in the amounts of $230,048, $21,746, $14,235 and $4,689 for
Messrs. Schwartz, Zahler, Townsend and Hart, respectively.
(d) For 2002, represents a $275,000 one-time cash bonus payment to Mr. Hart
on the fifth anniversary of the closing date of the purchase by Loral
of Loral Skynet from AT&T.
(e) Consists of $146,150 for Mr. DeWitt for a tax gross-up on his
restricted stock award.
(f) At year-end, Mr. DeWitt held 400,000 shares of restricted stock which
had a market value of $168,000 based on the closing price of our common
stock at year-end. The restrictions lapse on the third anniversary of
the date of grant.
(g) Represents 300,000 shares of restricted stock granted to Mr. Hart on
March 6, 2003 for performance in 2002. As of March 6, 2003, such shares
had a market value of $96,000. The restrictions lapse on the third
anniversary of date of grant.
21
OPTION GRANTS TABLE
-------------------
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE GRANT DATE
NAME GRANTED (a) FISCAL YEAR PRICE EXPIRATION DATE PRESENT VALUE (b)
(PER SHARE)
---------------------- ---------------- -------------- -------------- ------------------- -------------------
---------------------- ---------------- -------------- -------------- ------------------- -------------------
Bernard L. Schwartz 250,000 26.61% $1.885 03/04/2012 $415,000
---------------------- ---------------- -------------- -------------- ------------------- -------------------
Eric J. Zahler 162,500 17.30% $1.885 03/04/2012 $269,750
---------------------- ---------------- -------------- -------------- ------------------- -------------------
Richard J. Townsend 150,000 15.97% $1.885 03/04/2012 $249,000
---------------------- ---------------- -------------- -------------- ------------------- -------------------
Terry J. Hart 0
---------------------- ---------------- -------------- -------------- ------------------- -------------------
C. Patrick DeWitt 0
---------------------- ---------------- -------------- -------------- ------------------- -------------------
(a) These options were granted on March 4, 2002 and are fully vested and
exercisable.
(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%, stock price
volatility of 90% over a ten-year period and a dividend rate of $0 per
share. However, there were no adjustments made for non-transferability
or risk of forfeiture. The actual value realized, if any, will depend
on the amount by which the stock price at the time of exercise exceeds
the exercise price. There is no assurance that the amount estimated by
the Black-Scholes model will be realized.
OPTION EXERCISES AND YEAR-END VALUE TABLE
-----------------------------------------
AGGREGATED OPTION EXERCISES IN 2002 AND
YEAR-END OPTION VALUES
-------------------------------- -----------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL IN-THE-MONEY
YEAR-END (a) OPTIONS AT FISCAL YEAR-END (b)
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
NUMBER OF
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
Bernard L. Schwartz 7,180,000 0 0 0
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
Eric J. Zahler 1,885,728 1,376,772 0 0
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
Richard J. Townsend 813,281 861,719 0 0
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
Terry J. Hart 348,004 330,796 0 0
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
C. Patrick DeWitt 412,792 435,558 0 0
------------------------ ------------ --------------- --------------- -------------- -------------- ---------------
(a) Excludes the effect of the stock option exchange offer completed in
March 2003 pursuant to which Messrs. Zahler, Townsend, Hart and DeWitt
tendered 2,325,000, 1,050,000, 509,100 and 498,900 options,
respectively, for cancellation. In exchange for such tendered stock
options, Messrs. Zahler, Townsend, Hart and DeWitt will receive a grant
of 930,000, 532,500, 203,640 and 199,560 options, respectively, on
September 8, 2003, which new options will have an exercise price equal
to the fair market value of the common stock on the grant date.
(b) Market value of underlying securities at year-end, minus the exercise
price.
22
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. At Mr. Schwartz's request, the Compensation
Committee agreed to amend his employment agreement to provide for no base
salary for the twelve-month period commencing March 1, 2003. Consistent with
this request, the Compensation Committee determined not to pay a bonus to Mr.
Schwartz for 2002.
Pursuant to the amended employment agreement, if Mr. Schwartz is removed as
Chairman of the Board of Directors or as Chief Executive Officer other than for
cause, or if his duties, authorities or responsibilities are diminished, or if
there is a change of control of the Company, Mr. Schwartz may elect to terminate
the agreement. A change of control of the Company is defined generally to mean:
(1) the acquisition by any person of 35% or more of either (i) the then
outstanding common stock or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors; (2) the incumbent directors cease for any reason to
constitute at least a majority of the Board of Directors; (3) subject to
certain exceptions, consummation of a reorganization, consolidation, merger or
sale of substantially all of the assets of the Company; or (4) approval by the
shareholders of the Company of a liquidation or dissolution of the Company. In
any such event, or upon his death or disability, Mr. Schwartz will be entitled
to receive a lump sum payment discounted at 3% per annum, in an amount equal to
his highest annual base salary during the five years prior to his termination
for a five-year period, an amount of incentive bonus equal to the highest bonus
received by Mr. Schwartz during the term of the agreement for a five-year
period, and an amount calculated to approximate the annual compensation
elements reflected in the difference between fair market value and exercise
price of stock options granted to Mr. Schwartz. All such sums are further
increased to offset any tax due by Mr. Schwartz under the excise tax and
related provisions of Section 4999 of the Internal Revenue Code.
Loral SpaceCom has established Supplemental Life Insurance Programs for certain
key employees including Messrs. Schwartz, Zahler, Townsend and Hart. For Messrs.
Zahler, Townsend and Hart, the Plans are funded with "universal" life insurance
policies with death benefit amounts of $1,500,000, $1,000,000 and $250,000,
respectively. For Mr. Schwartz, the Plan is funded with two "universal" life
insurance policies, one with a death benefit of $20,000,000 and one with a death
benefit of $500,000. The $20,000,000 policy (the "Policy") is subject to a
split-dollar agreement between Loral SpaceCom and the trustees of a life
insurance trust established by Mr. Schwartz (the "Life Insurance Trust").
Pursuant to the split-dollar agreement, in the event of the death of Mr.
Schwartz, the sponsor, currently Loral SpaceCom, will be entitled to receive an
amount equal to the sponsor's cumulative contributions to the Policy. If the
split-dollar agreement is terminated prior to Mr. Schwartz's death, the sponsor
will be entitled to an amount equal to the available cash value of the Policy on
the date of the termination. The split-dollar agreement is terminated prior to
Mr. Schwartz's death if (i) Mr. Schwartz's employment with Loral SpaceCom is
terminated for cause or (ii) the trustees of the Life Insurance Trust terminate
the split-dollar agreement. No payments were made by Loral SpaceCom under the
Policy in 2002 as a result of uncertainty as to whether such payments might be
prohibited by the terms of the Sarbanes-Oxley Act. Loral SpaceCom and Mr.
Schwartz have agreed that no further payments under the Policy will be made in
2003, and it is expected that the Policy will lapse in July 2003. At that time,
there will be no available cash remaining in the Policy.
On July 18, 2000, the Board of Directors approved the entry by the Company into
employment protection agreements with the NEOs and other officers that would
provide them with certain protections in the event of a change of control of the
Company. A change of control of the Company is defined generally to mean: (1)
the acquisition by any person of 35% or more of either (i) the then outstanding
common stock or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors; (2) the incumbent directors cease for any reason to constitute at
least a majority of the Board of Directors; (3) subject to certain exceptions,
consummation of a 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
23
consisting of: (i) the NEO's base salary through the date of termination; (ii) a
cash amount equal to three times the sum of the NEO's base salary, annual bonus,
the present value amount of the cost of certain benefit plans and programs in
which the NEO participates and the annualized value of the NEO's vacation and
fringe benefits; and (iii) any deferred compensation and any other amounts or
benefits then owing to the NEO. The employment protection agreements were
amended on January 22, 2002 to clarify that the value of certain special stock
or stock option grants would be included for purposes of determining the amount
of any such severance package.
PENSION PLAN
------------
Loral maintains a defined benefit pension plan and trust (the "Pension Plan")
that is qualified under Section 401(a) of the Internal Revenue Code. The Pension
Plan provides retirement benefits for eligible employees of Loral SpaceCom and
Loral SpaceCom's operating affiliates, including executive officers. Executive
officers also participate in a supplemental executive retirement plan (the
"SERP") which provides supplemental retirement benefits due to certain
reductions in retirement benefits under the Pension Plan that are caused by
various limitations imposed by the Internal Revenue Code. The benefit formulas
differ by operating affiliate. Compensation used in determining benefits under
the Pension Plan and SERP includes salary and bonus for employees of Loral
SpaceCom and Loral Skynet and salary only for employees of Space Systems/Loral
(calculated as set forth in the pension plan table below).
The benefit formula for executive officers employed by Loral SpaceCom, such as
Messrs. Schwartz, Zahler and Townsend, for the period ending December 31, 1996
will generally provide an annual benefit equal to the greater of (A) or (B),
where (A) equals (i) 1.2% of compensation up to the Social Security Wage Base
and 1.45% of compensation in excess of the Social Security Wage Base for each
year prior to the calendar year in which a participant completes 15 years of
employment, plus (ii) 1.5% of compensation up to the Social Security Wage Base
and 1.75% of compensation in excess of the Social Security Wage Base for the
calendar year in which the participant has completed 15 years of employment and
for each year thereafter; and (B) equals (i) 1.2% of average annual compensation
paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.45% of
average annual compensation paid during 1992-1996 in excess of the 1996 Social
Security Wage Base for each year prior to the calendar year in which a
participant completes 15 years of employment, plus (ii) 1.5% of average annual
compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and
1.75% of average annual compensation paid during 1992-1996 in excess of the 1996
Social Security Wage Base for the calendar year in which the participant has
completed 15 years of employment and for each year thereafter. The benefit for
periods subsequent to December 31, 1996 will be based on (A) above. The
estimated credited years of service for Messrs. Schwartz, Zahler and Townsend
are 30.75, 10.75 and 4.25, respectively.
Effective with the sale of Loral Skynet from AT&T to Loral on March 15, 1997,
the benefit formula for executive officers employed by Loral Skynet, such as Mr.
Hart, provides an annual benefit equal to 1.6% of compensation for each year of
service. Service with AT&T preceding March 15, 1997 is recognized for
eligibility and vesting purposes but not for benefit accrual. Mr. Hart's
estimated credited years of service with Loral Skynet is 5.75.
For executive officers employed by Space Systems/Loral, such as Mr. DeWitt, the
benefit formula for contributory service (in which a 1% post-tax contribution is
required) provides an annual benefit equal to 1.3% of the final five year
average salary times years of contributory service plus 0.45% of final five year
average salary over 150% of the Social Security Covered Compensation for each
year up to 35 years. The benefit formula for non-contributory service provides
an annual benefit of $252 for each year of credited service. (See also the
explanation and table below.) The estimated credited years of service for Mr.
DeWitt is 29.25. The following table shows the amounts of annual retirement
benefits that would be payable at normal retirement for executives who are
employed by Space Systems/Loral. Benefits are shown for various rates of final
average salary, assuming that employee contributions were made for the periods
indicated.
24
Years of Contributory Service
--------------------------------------------------------------------------------
Final Average Salary 15 20 25 30 35 40
--------------------------------------------------------------------------------
$100,000 $22,270 $29,690 $37,110 $44,540 $51,960 $58,460
--------------------------------------------------------------------------------
125,000 28,830 38,440 48,050 57,660 67,270 75,400
--------------------------------------------------------------------------------
150,000 35,390 47,190 58,990 70,790 82,580 92,330
--------------------------------------------------------------------------------
175,000 41,960 55,940 69,930 83,910 97,900 109,270
--------------------------------------------------------------------------------
200,000 48,520 64,690 80,860 97,040 113,210 126,210
--------------------------------------------------------------------------------
225,000 55,080 73,440 91,800 110,160 128,520 143,150
--------------------------------------------------------------------------------
250,000 61,640 82,190 102,740 123,290 143,830 160,080
--------------------------------------------------------------------------------
275,000 68,210 90,940 113,680 136,410 159,150 177,020
--------------------------------------------------------------------------------
300,000 74,770 99,690 124,610 149,540 174,460 193,960
--------------------------------------------------------------------------------
350,000 87,890 117,190 146,490 175,790 205,080 227,830
--------------------------------------------------------------------------------
400,000 101,020 134,690 168,360 202,040 235,710 261,710
--------------------------------------------------------------------------------
The table above shows estimated benefits payable under the Plan and SERP
including amounts attributable to employee contributions, determined on a
straight life annuity basis. Such estimated benefits shown have been offset by
Social Security Covered Compensation. Compensation for the NEOs is the same
salary and bonus as disclosed in the Executive Compensation table.
ANNUAL BENEFITS
---------------
Effective April 1, 1997, under the minimum distribution rules prescribed by the
Internal Revenue 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 projected annual benefit under the Pension Plan and SERP is $322,109
for Mr. Zahler, $152,685 for Mr. Townsend, $87,406 for Mr. Hart and $112,186 for
Mr. DeWitt. These projected benefits have been computed assuming that (i)
employment 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,
(iii) contributions will continue to be made toward a contributory benefit and
(iv) payments will be made on a life annuity basis.
25
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers and persons who own more than 10% of our common
stock to file reports of beneficial ownership changes in such ownership with the
Securities and Exchange Commission. Based solely on a review of the copies of
such reports furnished to us and on written representations from certain
reporting persons that no Form 5 was required for such person, we believe that
during 2002 all officers, directors and persons who own more than 10% of our
common stock timely filed all such reports.
26
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 BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP CLASS (1)
--------------------------------------------------------------------------------
Lockheed Martin Investments Inc. 45,896,978 %
6801 Rockledge Drive
Bethesda, Maryland 20817
--------------------------------------------------------------------------------
Joseph L. Harrosh 42,166,784 (2) %
40900 Grimmer Boulevard
Fremont, California 94538
--------------------------------------------------------------------------------
(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 April 1, 2003.
(2) A Schedule 13G/A filed by Joseph L. Harrosh with the Securities and
Exchange Commission on February 5, 2003 reported that, as of February
5, 2003, Mr. Harrosh beneficially owned and had sole voting power and
sole investment power over 42,166,784 shares of our common stock,
including 3,000 shares of our Series C Preferred Stock convertible into
7,500 shares of our common stock.
27
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 14, 2003
(except as otherwise indicated). Individuals have sole voting and investment
power over the stock unless otherwise indicated in the footnotes.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF
NAME OF INDIVIDUAL OWNERSHIP (1) (2) CLASS
----------------------------------------------------------- --------------------------------- ---------------------
Bernard L. Schwartz 11,114,643 (3) 2.5%
----------------------------------------------------------- --------------------------------- ---------------------
C. Patrick DeWitt 548,070 (4) *
----------------------------------------------------------- --------------------------------- ---------------------
Howard Gittis 278,860 (5) *
----------------------------------------------------------- --------------------------------- ---------------------
Terry J. Hart 373,136 (6) *
----------------------------------------------------------- --------------------------------- ---------------------
Robert B. Hodes 194,860 (7) *
----------------------------------------------------------- --------------------------------- ---------------------
Gershon Kekst 192,860 (5) *
----------------------------------------------------------- --------------------------------- ---------------------
Charles Lazarus 172,860 (5) *
----------------------------------------------------------- --------------------------------- ---------------------
Sally Minard 16,665 (8) *
----------------------------------------------------------- --------------------------------- ---------------------
Malvin A. Ruderman 204,860 (5) *
----------------------------------------------------------- --------------------------------- ---------------------
E. Donald Shapiro 341,360 (9) *
----------------------------------------------------------- --------------------------------- ---------------------
Arthur L. Simon 216,860 (10) *
----------------------------------------------------------- --------------------------------- ---------------------
Richard J. Townsend 368,564 (11) *
----------------------------------------------------------- --------------------------------- ---------------------
Daniel Yankelovich 243,860 (5) *
----------------------------------------------------------- --------------------------------- ---------------------
Eric J. Zahler 630,080 (12) *
----------------------------------------------------------- --------------------------------- ---------------------
ALL DIRECTORS, NOMINEES, NEOS AND OTHER EXECUTIVE
OFFICERS AS A GROUP (23 PERSONS) 15,752,570 (13) 3.5%
----------------------------------------------------------- --------------------------------- ---------------------
* Represents holdings of less than one percent.
(1) Includes shares which, as of March 14, 2003, may be acquired within
sixty days pursuant to the exercise of options (which shares are
treated as outstanding for the purposes of determining beneficial
ownership and computing the percentage set forth) and shares held for
the benefit of named executive directors as of February 28, 2003 in the
Loral Savings Plan (the "Savings Plan").
(2) Except as noted, all shares are owned directly with sole investment and
voting power.
(3) Includes 160,000 shares owned by Mr. Schwartz's wife, 7,180,000 shares
exercisable under the Stock Option Plans and 21,385 shares held in the
Savings Plan.
(4) Includes 400,000 shares of restricted stock, 116,471 shares exercisable
under the Stock Option Plans and 15,599 shares held in the Savings
Plan.
(5) Includes 172,860 shares exercisable under the Stock Option Plans.
(6) Includes 300,000 shares of restricted stock, 56,561 shares exercisable
under the Stock Option Plans and 12,575 shares held in the Savings
Plan.
(7) Consists of 20,000 shares held in Mr. Hodes' IRA account, 2,000 shares
held by Mr. Hodes' minor children and 172,860 shares exercisable under
the Stock Option Plans.
(8) Consists of 16,665 shares exercisable under the Stock Option Plans.
(9) Includes 55,000 shares of Series C Preferred Stock convertible into
137,500 shares of common stock owned by Mr. Shapiro's wife and 172,860
shares exercisable under the Stock Option Plans.
(10) Includes 29,750 shares held in Mr. Simon's IRA account, 250 shares in
his wife's IRA account, 4,000 shares of Series C Preferred Stock
convertible into 10,000 shares of common stock held in Mr. Simon's IRA
account and 172,860 shares exercisable under the Stock Option Plans.
(11) Includes 2,500 shares of Series C Preferred Stock convertible into
6,250 shares of common stock, 308,317 shares exercisable under the
Stock Option Plans and 13,497 shares held in the Savings Plan.
(12) Includes 50,000 shares held in Mr. Zahler's IRA account, 420,807 shares
exercisable under the Stock Option Plans and 28,073 shares held in the
Savings Plan.
(13) Includes 61,500 shares of Series C Preferred Stock convertible into
153,750 shares of common stock, 9,979,078 shares exercisable under the
Stock Option Plans and 289,434 shares held in the Savings Plan.
28
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
December 31, 1997 through March 3, 2003, assuming an investment of $100 in the
Company's common stock and each index.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH OMITTED]
COMPARATIVE PERFOMANCE VALUE
---------------------------------------------------------
DATE LORAL SATIN-30 S&P 500
---- ----- -------- -------
31-DEC-1997 $100 $100 $100
30-JUN-1998 $132 $114 $117
31-DEC-1998 $83 $110 $127
30-JUN-1999 $84 $176 $141
31-DEC-1999 $113 $473 $151
30-JUN-2000 $33 $422 $150
31-DEC-2000 $15 $318 $136
29-JUN-2001 $13 $256 $126
31-DEC-2001 $14 $224 $118
30-JUN-2002 $5 $226 $102
31-DEC-2002 $2 $236 $91
3-MAR-2003 $2 $183 $86
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
LOCKHEED MARTIN
---------------
In connection with contract performance, Loral subsidiaries provided services to
and acquired services from Lockheed Martin for the year ended December 31, 2002.
For 2002, the cost of services purchased by Loral subsidiaries from Lockheed
Martin was $21,675,000, and such subsidiaries' net receivable from Lockheed
Martin at December 31, 2002 was $72,000.
K&F INDUSTRIES, INC.
--------------------
Loral SpaceCom Corporation ("Loral SpaceCom") has a management services
agreement with K&F Industries ("K&F"), a company of which Bernard L. Schwartz is
chief executive officer and a 50% owner, to provide administrative and certain
other services to K&F, which pays Loral SpaceCom a fee based on the cost of such
services plus out of pocket expenses. In 2002, K&F paid Loral SpaceCom $319,000
under this agreement.
OTHER RELATIONSHIPS
-------------------
Robert B. Hodes, a Director and a member of the Executive Committee, is counsel
to the law firm of Willkie Farr & Gallagher, which acts as counsel to the
Company.
For the year ended December 31, 2002, the Company paid fees and disbursements in
the amount of approximately $156,000 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.
30
APPENDIX A
----------
BYE-LAW 4 (C)
-------------
(AS PROPOSED TO BE AMENDED)
4. (c) The Board may be authorised by Resolution from time to time to
determine the ratio of a consolidation within a range specified by such
Resolution of all or any of the Company's common share capital into shares of
larger par value than its existing shares and granted the discretion to
implement such consolidation at any time prior to the Annual Meeting of
Shareholders immediately following the date of such Resolution. In exercising
its power under this provision, the Board shall also have the power set out in
Bye-law 43, in dealing with any difficulty which arises in regard to any
consolidation under this Bye-law 4 (c).
31
APPENDIX B
----------
LORAL SPACE & COMMUNICATIONS
AUDIT COMMITTEE CHARTER
ORGANIZATION
------------
There shall be an Audit Committee of the Board of Directors composed of at least
three directors, all of whom shall be independent. All of the members of the
Audit Committee shall be financially literate, and at least one member must
qualify as a financial expert.
The "independence," "financial literacy" and "financial expertise" of members of
the Audit Committee shall be determined by the Board in accordance with all
applicable laws and SEC, stock exchange and other applicable regulations. The
Board shall determine that each member of the Audit Committee has no material
relationship with the Company. If an Audit Committee member simultaneously
serves on the audit committee of more than three public companies, the Board
must determine that such service will not impair such member's ability to
effectively serve on the Audit Committee and disclose such determination in the
Company's annual proxy statement.
The Audit Committee shall elect a chairperson from its own membership. The Audit
Committee may engage independent legal counsel and accounting, financial and
other advisors, at the expense of the Company, to help carry out its duties.
No member of the Audit Committee shall receive compensation other than (i)
director's fees for service as a director of the Company, including reasonable
compensation for serving on the Audit Committee and regular benefits that other
directors receive and (ii) a pension or similar compensation for past
performance, provided that such compensation is not conditioned on continued or
future service to the Company.
STATEMENT OF POLICY
-------------------
The Audit Committee shall assist the Board in fulfilling its responsibility
relating to the Company's accounting and reporting practices, the quality and
integrity of its financial statements and reports, the Company's compliance with
legal and regulatory requirements, the qualifications and independence of the
independent auditors, and the performance of the Company's internal audit
function and its independent auditors. The Audit Committee shall endeavor to
maintain free and open communication among the Board, the independent auditors,
the internal auditors and the financial management.
RESPONSIBILITIES
----------------
The Audit Committee's policies and procedures should remain flexible, in order
to best react to changing conditions and to help ensure that the Company's
accounting and reporting practices accord with all requirements and are of the
highest quality. The Audit Committee shall:
o Be directly responsible for the appointment, termination, and
compensation of the Company's independent auditors and oversight of
their services.
o Meet at least four times a year, or more often if circumstances so
require.
32
o Pre-approve any non-audit services to be performed by the independent
auditors and related compensation. The Audit Committee may delegate to one
or more members the ability to pre-approve such services, provided that any
such pre-approval is presented to the full Committee at its next scheduled
meeting.
o Meet with the independent auditors and the financial management to review
the scope of the audit proposed for the current year and the audit
procedures to be utilized and any subsequent changes to such scope and/or
procedures, and at its conclusion review the audit, including the comments
or recommendations of the independent auditors.
o Confirm with the independent auditors that none of their auditing personnel
assigned to the audit of the Company's financial statements earns or
receives any compensation based on selling engagements to the Company to
provide any services, other than audit, review or attest services, to the
extent such compensation would compromise the independence of such auditing
personnel or the auditor under the rules promulgated by the SEC.
o Ensure that all auditing personnel are rotated in accordance with, and to
the extent required by, applicable laws and regulations.
o Discuss with the independent auditors the matters required to be discussed
or 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, and under applicable rules
and regulations, and any exchange which lists the Company's securities.
- Significant accounting policies of the Company.
- Management judgments and accounting estimates.
- Audit adjustments proposed by the independent auditors.
- Other information in the Annual Report to shareholders and on Form 10-K.
- Disagreements with management, if any.
- Consultation with other accountants, if any.
- Major issues, if any, regarding accounting principles and financial
statement presentation, including any analysis prepared by management
and/or the independent auditor setting forth significant financial
reporting issues and judgments made in connection with the preparation
of the financial statements.
- Difficulties encountered in performing the audit, if any, and
management's response.
o Discuss with the independent auditors any other communications from them,
including:
- All critical accounting policies and practices used.
- All alternative treatments of financial information under
generally accepted accounting principles that have been
discussed with management, ramifications of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditors.
- Other material written communications between the independent
auditors and management of the Company.
o At least annually, obtain and review a report by the independent auditors
describing the firm's internal quality-control procedures and any material
issues raised by the most recent internal quality control review, or peer
review, of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the firm, and any steps taken to
deal with any such issues.
o Review with the independent auditors, the internal auditor, and the
financial and accounting management, the adequacy of the disclosure,
accounting and financial controls, and elicit any recommendations for
improvement or particular areas where augmented controls are desirable.
Particular emphasis should be given to the adequacy of such controls to
provide that information required to be disclosed by the Company in its
periodic reports is recorded, processed, summarized, and reported in an
appropriate and timely manner.
33
o 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.
o Review periodically a summary of findings from completed internal audits
and a progress report on the proposed internal audit plan, with
explanations for any deviations from the original plan and review such
summary and plan with the internal audit department.
o Review the adequacy of the internal audit staff and review and concur in
the appointment, replacement or dismissal of the Internal Audit Director.
o Review the annual financial statements to be contained in the annual
report, and the quarterly financial statements and related disclosures
under Management's Discussion and Analysis of Results of Operations and
Financial Condition ("MD&A") with management and the independent auditors.
Determine that the independent auditors are satisfied with the disclosure
and content of such financial statements and MD&A. Any year-to-year changes
in accounting principles or practices should be reviewed.
o Review annually with management and the independent auditors the effect of
regulatory and accounting initiatives, as well as review and approve any
off-balance sheet structures on the Company's financial statements.
o Recommend to the Board as to whether the annual financial statements of the
Company should be included in the Annual Report on Form 10-K to be filed
with the SEC.
o Discuss with management, in general terms, earnings press releases, as well
as financial information and earnings guidance provided to analysts and
rating agencies.
o Discuss with management policies with respect to risk assessment and
risk-management.
o Set clear hiring policies for employees or former employees of the
independent auditors in accordance with applicable law and regulations.
o Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, auditing matters, or violations of the Company's Code
of Conduct, and (ii) the confidential, anonymous submission by employees of
the Company of concerns regarding questionable accounting or auditing
matters.
o Periodically meet separately with each of corporate financial management,
the Internal Audit Director, and the independent auditors to discuss any
appropriate matters.
o Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements included in the Company's
periodic reports to the SEC.
o Periodically inquire of the Company's General Counsel as to the Company's
compliance with relevant legal and regulatory requirements and as to the
adequacy of the control system in place to assure such compliance.
o Annually review the performance of the Audit Committee relative to the
Audit Committee's purpose, duties and responsibilities outlined herein and
report to the Board of Directors as to the results of such review.
o Review and assess the adequacy of this Charter annually and recommend any
changes to the Board for approval.
o Report to the Board, the matters discussed at each Audit Committee meeting.
A copy of the minutes shall be placed with the Company's minute books.
34
o Investigate any matter brought to its attention, and considered
appropriate, within the scope of its duties, with the power to retain
professional advice for this purpose if, in its judgment, that is
appropriate.
o Prepare an Audit Committee report required to be included in the Company's
annual proxy statement. The report will include at least the following:
(a) A statement that the Committee has reviewed and discussed the
audited financial statements with management;
(b) A statement that the Committee has discussed with the
independent auditors the matters required by Statement on
Auditing Standards No. 61, Required Communications with Audit
Committees;
(c) A statement that the Committee has received written
disclosures from, and held discussions with, the independent
auditors on matters required by Independence Standards Board
Statement No. 1, Independence Discussions with Audit
Committees; and
(d) A conclusion as to the Committee's recommendation to the Board
of Directors as to the filing of the Annual Report on Form
10-K with the SEC.
35
LORAL SPACE & COMMUNICATIONS LTD.
PROXY - ANNUAL MEETING OF SHAREHOLDERS, May 29, 2003
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. (the "Company"), to be held at Baruch College, Vertical
Campus Building (Room 14-220), 55 Lexington Avenue (use 25th Street entrance),
New York, New York, at 10:30 A.M., on Thursday, May 29, 2003 and at all
adjournments thereof.
The Board of Directors Recommends a Vote FOR the Following Proposals:
1. ELECTION OF FOUR CLASS I DIRECTORS - Nominees: Class I: Howard Gittis,
Gershon Kekst, Arthur L. Simon and Eric J. Zahler
[ ] VOTE FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote for
all nominees listed above
[ ] 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 amend the FOR [ ] AGAINST [ ] ABSTAIN [ ]
Company's bye-laws to allow the
shareholders to grant discretionary
authority to the Company's Board of
Directors to determine the ratio to
be employed in a reverse split of
the Company's common stock and to
grant such authority to the
Company's Board of Directors to
effect a reverse stock split at a
ratio within the range from
one-for-five to one-for-twenty.
3. Acting upon a proposal to increase FOR [ ] AGAINST [ ] ABSTAIN [ ]
the number of authorized shares of
common stock of the Company from
750,000,000 to 1,250,000,000.
4. Acting upon a proposal to ratify the FOR [ ] AGAINST [ ] ABSTAIN [ ]
selection of Deloitte & Touche LLP as
independent auditors for the year
ending December 31, 2003.
5. In their discretion, upon such other FOR [ ] AGAINST [ ] ABSTAIN [ ]
matters as may properly come before
the meeting.
(Continued on reverse side)
(Continued from other side)
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, 3, 4 and 5.
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R The undersigned hereby acknowledges
receipt of the Notice of Annual
O Meeting and accompanying Proxy
Statement.
X
Dated:__________________________, 2003
Y
--------------------------------------
--------------------------------------
(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.