-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BkoApLB2XyP06zctQlZ3ip/ZG8qmg5FepQvpCYvyasCKI8iays4dpmarro6hwENI L2LlvCeRdvXmY9CC2CgBQw== 0000950123-99-003019.txt : 19990406 0000950123-99-003019.hdr.sgml : 19990406 ACCESSION NUMBER: 0000950123-99-003019 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORAL SPACE & COMMUNICATIONS LTD CENTRAL INDEX KEY: 0001006269 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133867424 STATE OF INCORPORATION: D0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-75655 FILM NUMBER: 99586992 BUSINESS ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126971105 MAIL ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 S-4 1 LORAL SPACE & COMMUNICATIONS LTD. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1999 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ LORAL SPACE & COMMUNICATIONS LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BERMUDA 4812 13-3867424 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
C/O LORAL SPACECOM CORPORATION, 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, (212) 697-1105 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ERIC J. ZAHLER, ESQ. 600 THIRD AVENUE NEW YORK, NY 10016 (212) 697-1105 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: BRUCE R. KRAUS, ESQ. ROBERT ROSENMAN, ESQ. WILLKIE FARR & GALLAGHER CRAVATH, SWAINE & MOORE 787 SEVENTH AVENUE WORLDWIDE PLAZA NEW YORK, NEW YORK 10019 825 EIGHTH AVENUE (212) 728-8000 NEW YORK, NEW YORK 10019 (212) 474-1000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED OFFERING PRICE PRICE REGISTRATION FEE(1)(2) - --------------------------------------------------------------------------------------------------------------------------------- 9 1/2% Senior Notes due 2006... $350,000,000 95.875% $335,562,500 $93,287 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rules 457(f)(1) and 457(c), and solely for the purpose of calculating the registration fee, the registration fee was computed on the basis of the average of the closing high bid and low ask prices for the notes on March 30, 1999, which was 95.875%. (2) $93,287 was wired to the SEC's account at Mellon Bank in payment of the required registration fee due in connection with this Registration Statement. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION APRIL 2, 1999. LORAL SPACE & COMMUNICATIONS LTD. EXCHANGE OFFER FOR 9 1/2% SENIOR NOTES DUE 2006 This is an offer to exchange the outstanding, unregistered 9 1/2% Senior Notes you now hold for new, substantially identical 9 1/2% Senior Notes that will be free of the transfer restrictions that apply to the old notes. This offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it. You must tender your old, unregistered notes by the deadline to obtain new, registered notes and the liquidity benefits they offer. We agreed with the initial purchasers of the old notes to make this offer and register the issuance of the new notes following the closing. This offer applies to any and all old notes tendered by the deadline. The new notes will not trade on any established exchange. The new notes have the same financial terms and covenants as the old notes, and are subject to the same business and financial risks. A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 10. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. , 1999 3 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 1 Risk Factors................................................ 10 Use of Proceeds............................................. 21 Capitalization.............................................. 22 Business.................................................... 23 The Exchange Offer.......................................... 26 Description of the Notes.................................... 40 Book-Entry; Delivery and Form............................... 89 Description of Other Indebtedness........................... 90 Material United States Federal Income Tax Consequences...... 95 Plan of Distribution........................................ 99 Incorporation of Material Documents by Reference............ 101 Where You Can Find More Information......................... 101 Legal Matters............................................... 102 Experts..................................................... 102
4 PROSPECTUS SUMMARY This summary highlights selected information from this prospectus, but does not contain all information that may be important to you. We encourage you to read the entire prospectus. ABOUT LORAL We are one of the world's leading satellite communications companies, with substantial activities in satellite manufacturing and satellite-based communications services. In 1998, we organized into four operating business segments: - Satellite Manufacturing and Technology. We design and build satellite systems and develop satellite technology for a broad variety of customers and applications through our subsidiary, Space Systems/Loral. - Fixed Satellite Services. We lease transmission capacity on satellites and provide additional services to customers for a variety of applications, including the distribution of broadcast, data, cable, direct-to-home and Internet applications. We offer one-stop convenience for our customers through the Loral Global Alliance, a network managed by our subsidiary Loral Skynet and that includes Loral Skynet's Telstar fleet and Loral Orion's satellites along with those of our 49% owned affiliate, Satelites Mexicanos, and in the future, those of Europe*Star, a joint venture with Alcatel, in which we own a 47% interest. - Data Services. Our business in development, we provide managed communications networks and Internet and intranet services through our subsidiary, Loral Orion, and deliver high-speed broadband data communications through our 82% owned subsidiary, CyberStar. - Global Mobile Telephony. Our 43% owned affiliate, Globalstar, is preparing to provide worldwide wireless mobile telephone service and narrow- band data communication commencing in September 1999. Loral was incorporated on January 12, 1996 as a Bermuda exempt company and has its registered and principal executive offices at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda. The executive office of Loral Spacecom Corporation, our principal U.S. subsidiary, is located at 600 Third Avenue, New York, New York 10016, and its telephone number is (212) 697-1105. 5 THE EXCHANGE OFFER The Exchange Offer.............. This is an offer to exchange our unregistered 9 1/2% senior notes due 2006 that you now hold for new notes of equal principal amount whose issuance has been registered with the SEC. The old notes were issued on January 21, 1999 in a private offering. In order to exchange your unregistered notes, you must follow the instructions contained in this prospectus and the accompanying letter of transmittal. The new notes have the same financial terms and covenants as the old notes, and are subject to the same business and financial risks, but will not bear legends restricting their transfer. Expiration and Exchange Dates... This offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it, and we will consummate the exchange on the next business day. Conditions of the Exchange Offer........................ This offer is unconditional, as long as it does not violate the securities laws. The offer applies to any and all old notes tendered by the deadline. Withdrawal Rights............... You may withdraw your tender of old notes at any time before the offer expires. Federal Income Tax Consequences................. The exchange will not be a taxable event for U.S. federal income tax purposes or for Bermuda tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of this exchange. Representations................. If you desire to participate in the exchange offer, you will be required to make the following representations: - You are not one of our "affiliates"; - You are not engaged in, do not intend to engage in, and have no arrangement or 2 6 understanding with any person to participate in, a distribution of the new notes; and - You are acquiring the new notes in the ordinary course of your business. Transfer Restrictions on New Notes........................ If you can make the above representations, you should be able to resell your new notes freely without having to deliver a copy of this prospectus to the purchaser. Otherwise, prospectus delivery requirements under the securities laws may apply, and we will not be responsible if you violate those requirements. Broker-dealers who exchange old notes they acquired for their own account through market-making or other trading activities must agree to deliver a copy of this prospectus in connection with any resale of the new notes. Failure to Exchange Will Affect You Adversely................ We agreed with the initial purchasers of the old notes to make this exchange offer in order to provide noteholders with the opportunity to obtain registered securities. Once the exchange offer is over, you will no longer have any registration or exchange rights, and, if you have failed to tender any of your old notes, the untendered notes will remain subject to significant restrictions on transfer. If there is any trading market for old notes after the exchange offer, old notes are likely to trade at a discount from the new notes, due to these restrictions. 3 7 THE NEW NOTES Issuer.......................... Loral Space & Communications Ltd. Maturity........................ January 15, 2006. Interest........................ Interest accrues from January 21, 1999 at the rate of 9 1/2% per year, payable semi- annually in arrears on each January 15 and July 15, beginning on July 15, 1999. Ranking......................... The new notes will be unsecured and will not be guaranteed by us or any of our operating subsidiaries. As such, they will be: - equal in right of payment with any future senior indebtedness we incur; - senior in right of payment to any of our future debt which is junior in right of payment by its terms to senior Loral indebtedness; and - effectively junior in right of payment to all indebtedness and liabilities (including trade payables) of our subsidiaries and future secured indebtedness at the Loral level. Optional Redemption............. From and after January 15, 2003, we will have the right to redeem any or all of the new notes at their principal amount plus accrued interest and a premium, initially equal to 4.75% and declining thereafter. In addition, prior to January 15, 2002, we have the right to use the net cash proceeds of certain kinds of equity offerings to redeem up to 35% of the new notes originally outstanding at their principal amount plus accrued interest and a premium of 9.5%. Change of Control............... If an event treated as a change of control under the indenture occurs, we must make an offer to purchase any and all of the new notes then outstanding at 101% of their aggregate principal amount, plus accrued and unpaid interest, if any, to the date of purchase. 4 8 Covenants....................... The indenture under which the old notes have been and the new notes are being issued contains covenants which, subject to numerous and significant exceptions, restrict our ability and the ability of our subsidiaries to: - borrow money; - pay dividends on stock or purchase stock; - make investments; - use assets as security in other transactions; and - sell certain assets or merge with or into other companies. The indenture allows modification and amendment of these and other covenants by a vote of holders of a majority in aggregate principal amount of the notes, subject to certain exceptions described in the indenture. Also, holders of a majority in aggregate principal amount of the notes may waive our compliance with certain other restrictive covenants in the indenture. No Withholding Tax Expected; Special Tax Redemption....... We expect to make payments with respect to the new notes without any tax withholding. If withholding is required as a result of a change to current law or policy, we will generally pay enough additional interest so that the net amount received by the affected noteholders will not be reduced. If that occurs, however, we will have the right to redeem the affected notes at 100% of their principal amount plus accrued interest. Mandatory Offer to Repurchase... If we sell certain assets or experience certain kinds of changes in control, we must offer to repurchase the new notes at the prices listed in this prospectus under the heading "Description of the Notes -- Mandatory Redemption." 5 9 For additional information regarding the notes, see "Description of the Notes" and "Material United States Federal Income Tax Consequences." RISK FACTORS See "Risk Factors" immediately following this summary beginning on page 10 for a discussion of risks relating to the new notes, all of which apply to the old notes as well. 6 10 SELECTED FINANCIAL DATA The following summary historical financial information of Loral has been derived from, and should be read in conjunction with, the related financial statements and other financial information incorporated by reference herein. Financial information as of and for the years ended March 31, 1996 and 1995 represents the space and communications operations of Loral Corporation and has been derived from financial statements not included or otherwise incorporated by reference in this prospectus. On March 20, 1998, Loral acquired all of the outstanding stock of Loral Orion in exchange for Loral common stock. The 1998 financial information includes Loral Orion from April 1, 1998. In 1997, Loral increased its ownership in SS/L to 100% and, accordingly, the 1997 financial information includes the results of SS/L. In prior years SS/L was accounted for under the equity method of accounting. On March 14, 1997, Loral acquired Loral Skynet from AT&T; Loral's financial information includes the results of Loral Skynet from that date. LORAL SPACE & COMMUNICATIONS LTD. (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
YEARS ENDED NINE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31,(1) ------------------------- DECEMBER 31, ------------------- 1998 1997 1996 1996 1995 ---------- ------------ ------------ -------- -------- STATEMENT OF OPERATIONS DATA: Revenues................................................ $1,301,702 $1,312,591 Management fee from affiliate........................... $ 5,088 $ 5,608 $ 3,169 Operating income (loss)................................. (33,780) 13,552 (12,201) 2,587 (33) Equity in net loss of affiliates(2)..................... (120,417) (49,037) (4,709) (8,628) (8,988) Net income (loss)....................................... (138,798) 40,004 8,877 (13,785) (7,873) Preferred dividends and accretion(3).................... (46,425) (26,315) Net income (loss) applicable to common stockholders..... (185,223) 13,689 8,877 (13,785) (7,873) Earnings (loss) per share -- basic and diluted.......... (.68) .06 .04 (.08) N/A CASH FLOW DATA: Provided by (used in) operating activities.............. $ 4,417 $ (230,248) $ (3,003) $ (1,319) $ (8,439) Used in investing activities............................ 473,235 1,022,772 1,962 115,031 92,055 Provided by (used in) equity transactions............... 589,187 (18,097) 602,413 116,362 100,494 Provided by financing transactions...................... 199,856 316,912 583,292 Dividends paid per common share......................... N/A N/A OTHER DATA: EBITDA from operating segments before development and start-up costs and affiliate and intercompany eliminations(4)....................................... $ 233,027 $ 135,825 $ 66,103 EBITDA(4)............................................... 101,249 76,316 (11,150) Depreciation and amortization........................... 135,029 62,764 1,051 Capital expenditures.................................... 489,448 255,340 (540) Ratio of earnings to fixed charges...................... 1.9x 3.7x Deficiency of earnings to cover fixed charges........... 140,438
7 11
DECEMBER 31, MARCH 31,(1) -------------------------------------- -------------------- 1998 1997 1996 1996 1995 ---------- ---------- ---------- -------- -------- BALANCE SHEET DATA: Cash and cash equivalents...................... $ 546,772 $ 226,547 $1,180,752 $ 12 Total assets................................... 5,229,215 3,010,447 1,699,326 354,396 $251,819 Recourse debt(5)............................... 622,280 435,398 Non-recourse debt of Loral Orion............... 933,495 Total debt..................................... 1,555,775 435,398 Non-current liabilities........................ 236,160 221,211 26,834 Convertible preferreds(3)...................... 583,292 Shareholders' equity(6)/Invested equity........ 2,935,721 1,980,520 1,070,069 354,396 251,819
- ------------------------- (1) Financial information as of and for the two years in the period ended March 31, 1996 represents the space and communications operations of Loral Corporation and includes allocations and estimates of certain expenses of Loral based upon estimates of actual services performed by Loral Corporation on behalf of Loral. Interest expense was allocated to Loral based on Loral Corporation's historical weighted average interest rate applied to the average investment in affiliates. (2) Loral's principal affiliates are Globalstar, Satelites Mexicanos ("SatMex") since November 17, 1997 and Europe*Star since December 1998. Loral also has an investment in SkyBridge Limited Partnership which is accounted for under the equity method. Loral sold its interest in K&F Industries, Inc. in 1997. (3) Convertible preferred equivalent obligations were exchanged for 6% Series C Preferred Stock and were reclassified to shareholders' equity in 1997 upon approval by Loral's shareholders. (4) EBITDA, which is equivalent to operating income (loss) before depreciation and amortization, is provided because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of Loral's operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company's operating performance, or cash flow from operations as a measure of a company's liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies and may not be the same as "Consolidated Cash Flow" as defined in the indenture. EBITDA for operating segments before development and start-up costs and affiliate and intercompany eliminations includes EBITDA for Loral's affiliates SatMex and Europe*Star, and excludes CyberStar's development costs. See Note 15 of Loral's 1998 consolidated financial statements incorporated by reference herein. (5) Includes the debt of Loral SpaceCom Corporation and its subsidiaries. (6) As of December 31, 1998, the book value per share of the Series A Preferred Stock and the common stock (which Loral is required to disclose herein in accordance with applicable Bermuda law) was $7.57 and $7.56, respectively. Book value per share represents the quotient obtained by dividing shareholders' equity, reduced by the Series C Preferred Stock redemption value, by the number of outstanding shares of common stock, giving effect to the conversion of the Series A Preferred Stock, plus, in the case of such preferred stock, the $.01 liquidation preference thereof. 8 12 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma statement of operations data reflects the acquisition of Loral Orion on March 20, 1998, as if the acquisition had occurred on January 1, 1998. Such unaudited pro forma statement of operations data may not be indicative of the results that actually would have occurred if the acquisition had taken place on January 1, 1998, or future results. This unaudited pro forma information has been derived from and should be read in conjunction with Loral's audited consolidated financial statements, which are incorporated by reference herein.
YEAR ENDED DECEMBER 31, 1998 ------------------------ ACTUAL PRO FORMA ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues.................................................... $1,301,702 $1,320,492 Operating loss.............................................. (33,780) (48,929) Equity in net loss of affiliates............................ (120,417) (120,417) Net loss.................................................... (138,798) (162,644) Preferred dividends and accretion........................... (46,425) (46,425) Net loss applicable to common shareholders.................. (185,223) (209,069) Loss per share -- basic and diluted......................... (.68) (.75)
The following unaudited as adjusted balance sheet data presents the effects of the offering of the old notes and Loral's purchase of $150 million face amount of convertible preferred stock of Globalstar Telecommunications Limited, which occurred in January 1999, as if such transactions had occurred as of December 31, 1998.
AS OF DECEMBER 31, 1998 ------------------------- ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $ 546,772 $ 743,772 Total assets................................................ 5,229,215 5,572,215 Investments in affiliates................................... 707,917 853,917 Recourse debt(1)............................................ 622,280 965,280 Non-recourse debt of Orion.................................. 933,495 933,495 Total debt.................................................. 1,555,775 1,898,775 Shareholders' equity........................................ 2,935,721 2,935,721
- ------------------------- (1) Includes the debt of Loral SpaceCom Corporation and its subsidiaries. 9 13 RISK FACTORS The new notes, like the old notes, entail the following risks: LAUNCH FAILURES HAVE DELAYED SOME OF OUR OPERATIONS IN THE PAST, AND MAY DO SO AGAIN IN THE FUTURE. Satellite launches are risky. About 15% of launch attempts end in failure. We ordinarily insure against launch failures, but at considerable cost. The cost and the availability of insurance vary depending on market conditions and the launch vehicle used. Our insurance typically does not cover business interruption, and so both launch failures and in-orbit satellite failures result in uninsured losses. Replacement of a lost satellite typically requires up to 18 months from the time a contract is executed until the launch date of the replacement satellite. - LORAL ORION. Orion 3 is currently scheduled to be launched on the second flight of a Delta 3 rocket in April 1999. A Delta 3 rocket failed in August 1998 on its maiden flight. Although the manufacturer has assured us that the cause of that failure has been identified and corrected, we can't be certain that the second flight will succeed. - LORAL SKYNET. Loral Skynet's Telestar 7 is currently scheduled to be launched on the maiden flight of an Atlas IIIA. We cannot be certain that the maiden flight will succeed. - GLOBALSTAR. As of March 15, 1999, Globalstar needs to launch 16 more satellites aboard four launch vehicles before commercial operations can begin. Although Globalstar has contracted for the necessary launch vehicles and developed contingency plans, launch failures could delay Globalstar's start of commercial operations. In September 1998, a malfunction of a Zenit 2 rocket resulted in the loss of 12 Globalstar satellites shortly after lift-off from Kazakhstan and resulted in a delay in Globalstar's program schedule. GOVERNMENT POLICIES AND REGULATIONS MAY LIMIT OR DELAY LAUNCHES AND/OR INCREASE LAUNCH-RELATED COSTS. We depend on third parties, in the United States and abroad, to launch our satellites. Foreign launches have been politically sensitive because of the relationship between launch technology and missile technology. In the U.S., government policy has limited, and is likely in the future to limit, launches from the former Soviet Union and China. For example, the most recent Globalstar launch from Kazakhstan was delayed when the U.S. government stopped granting case-by-case approval of launches from that location pending an intergovernmental agreement covering technology security matters. Changes in governmental policies, political leadership or legislation in the United States, 10 14 Russia, Kazakhstan or China could adversely affect our ability to launch from these countries or materially increase the costs of doing so. AFTER LAUNCH, OUR SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE. Random failure of satellite components may result in damage to or loss of a satellite before the end of its expected life. Satellites are carefully built and tested and have certain redundant systems in case of failure. However, in-orbit failure may result from various causes including: - component failure; - loss of power or fuel; - inability to control positioning of the satellite; - solar and other astronomical events; and - space debris. Repair of satellites in space is not feasible. Many factors affect the useful lives of our satellites. These factors include: - the quality of construction; - gradual degradation of solar panels; and - the durability of components. Although some failures may be covered in part by insurance, they may result in uninsured losses as well. For example, when Skynet experienced the total loss of two satellites in 1994 and 1997 while under AT&T's ownership, it suffered a substantial drop in its profits. Our geosynchronous satellites generally have an expected life of between 15 to 20 years. Some of the satellites we currently have in orbit have experienced operational problems: - In November 1995, a component on Orion 1 malfunctioned, resulting in a two-hour service interruption. Full service was restored using a back-up component. If the back-up component fails, Orion 1 would lose a significant amount of usable capacity. - SatMex's Solidaridad 1 satellite has experienced problems and mechanical difficulties that could shorten its operational life. GLOBALSTAR SATELLITES HAVE A SHORTER DESIGN LIFE AND GLOBALSTAR MAY NOT BE ABLE TO REPLACE ITS SATELLITES AT THE END OF THEIR USEFUL LIVES. Globalstar's satellites have a minimum life-span of seven and one-half years. Globalstar plans to use funds from operations and possibly, proceeds from additional financings, to deploy a second generation of satellites to replace its first generation satellite constellation. However, enough money might not be 11 15 available when needed, leaving Globalstar without a second-generation constellation. SPACESYSTEMS/LORAL MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE FAILURES OR LOSSES AFTER LAUNCH, AND THESE LOSSES MAY BE UNINSURED. Some of Space Systems/Loral's satellite manufacturing contracts provide that some of the total price is payable as "incentive" payments earned throughout the life of the satellite. While insurance against loss of these payments has been available in the past, the cost and availability of such insurance are subject to wide fluctuations. In addition, Space Systems/Loral is sometimes prohibited from insuring orbital incentive payments. Some of Space Systems/Loral's contracts call for in-orbit delivery, transferring the launch risk to Space Systems/Loral. Space Systems/Loral generally insures against this exposure. Space Systems/Loral records as revenue the present value of incentive payments as the costs associated with these incentive payments are incurred. Space Systems/Loral generally receives the present value of these incentive payments if there is a launch failure or a failure is caused by customer error. However, Space Systems/Loral forfeits these payments if the loss is caused by satellite failure or as a result of its own error. For example, in 1998, a satellite built by Space Systems/Loral experienced problems with two of its antennae. Space Systems/Loral currently estimates that this degradation could result in the loss of about 25% of the incentive payments under that contract. Further warranty claims by the customer may also be possible. WE ARE A HOLDING COMPANY WITH SUBSTANTIAL DEBT AND COMMITMENTS AT OUR OPERATING LEVELS AND THIS FACT INCREASES THE RISK OF NONPAYMENT OF THE NOTES. We and our subsidiaries and operating affiliates have a significant amount of outstanding debt and commitments, including those described below. This fact creates a risk that the holders of the notes will not be paid on time or at all if we do not have sufficient funds to repay our debts. Since we are only a holding company, we depend on the ability of our operating subsidiaries and affiliates to provide us with the necessary funds to repay our debt obligations. However, our operating subsidiaries and affiliates are obligated to repay their own creditors before any of their funds can be dividended up to us for the repayment of our obligations to you or to our other creditors. The notes, therefore, are junior in right of repayment to all of the debt of our subsidiaries and affiliates by virtue of our corporate structure. - As of December 31, 1998, our outstanding consolidated debt, including the current portion, was $1.6 billion, all of which represents obligations 12 16 of our subsidiaries to their creditors. In addition, we issued $350 million of the notes in January 1999. - As of December 31, 1998, our unconsolidated affiliates, SatMex and Globalstar, had outstanding debt, including the current portion, of $2.0 billion, and Globalstar had vendor financing of $371 million, both which are also senior to the notes by virtue of our structure. - We have a $115 million secured standby bank credit facility, which was undrawn as of December 31, 1998, supporting a guarantee of a $115 million term loan. - Space Systems/Loral has guaranteed $11.7 million under Globalstar's $250 million credit facility. In addition, we have a contingent liability of up to $56 million to Lockheed Martin Corporation under its guarantee of the Globalstar credit facility. - We have agreed to maintain certain assets in a trust to collateralize a $129.9 million obligation of Servicios Corporativos Satelitales, S.A. de C.V., in which we have a 65% economic interest. This obligation has a seven-year term and bears interest at 6.03%. We are allowed to incur substantial additional debt. This debt would be repaid on a proportional basis with the notes and therefore your risk of non- reimbursement would increase. Further, if we granted a security interest in any of our assets against any newly-incurred debt, the new debt would have priority of repayment over the notes, to the extent of the value of the assets granted as collateral, in a liquidation scenario. The ability of our subsidiaries and affiliates to pay dividends to us or otherwise support our obligations is limited by the terms of our debt instruments. We intend to use our available cash to help pay for the growth and operation of our businesses. If any of our subsidiaries or affiliates finds itself faced with an imminent payment default, we might be faced with a choice between making additional equity investments in a troubled company or accepting the loss of some or all of our equity investment. IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT GENERATE ENOUGH CASH TO PAY OUR OBLIGATIONS, INCLUDING THE NOTES. For the year ended December 31, 1998, we had a deficiency of earnings to cover fixed charges of $140 million, before taking into account the $350 million of notes we issued in January 1999. Our core businesses are capital intensive and need substantial investment before returns on investment can be realized. We are subject to substantial financial risks from possible delays or reductions in revenue, unforeseen capital needs or unforeseen expenses. Our ability to meet our obligations and execute our business plan could depend upon our ability and that of our operating subsidiaries and affiliates to raise cash in the 13 17 capital markets. We can't be certain that this source of cash would be available in the future on favorable terms, if at all. Our ability to satisfy our obligations will depend upon our future financial performance which is subject to: - the successful execution of our business plan and those of our affiliates; - general economic conditions; and - financial, business, regulatory and other factors, including international conditions. These factors are to some extent beyond our control, and as a result, we cannot guarantee that we will be able to repay or refinance the notes or our other indebtedness at their maturity. WE CURRENTLY DEPEND HEAVILY ON SPACE SYSTEMS/LORAL FOR A LARGE PORTION OF OUR REVENUE AND OPERATING INCOME. Currently, Space Systems/Loral generates a significant part of our revenue and operating income. Space Systems/Loral, in turn, has historically derived a large part of its revenues from a few customers. As a result, its revenues and operating results would be hurt if completed or canceled contracts are not promptly replaced with new orders. Space Systems/Loral's accounting for long-term contracts sometimes requires adjustments to profit and loss based on revised estimates during the performance of the contract. These adjustments may have a material effect on our results of operations in the period they are made. The estimates giving rise to these risks, which are inherent in long-term, fixed-price contracts, include the forecasting of costs and schedules, contract revenues related to contract performance, including revenues from orbital incentives, and the potential for component obsolescence due to procurements long ahead of assembly. GLOBALSTAR IS A DEVELOPMENT STAGE COMPANY THAT HAS NOT BEGUN COMMERCIAL OPERATIONS. Until the Globalstar System is fully deployed and tested, we cannot be certain that it will perform as designed. Even if the system operates as it should, we can't be certain that the market will develop as we anticipate. The Globalstar System is still being deployed, and cannot begin commercial operations until: - at least 32 satellites are working in orbit; - the necessary ground equipment and user terminals are in place; and - the service provider is fully licensed in each country to be served. The cost of building the Globalstar system has been revised upward from original estimates, and further increases are possible. 14 18 Barring unexpected adverse developments, Globalstar will need approximately $600 million more in capital before it can begin commercial service in September 1999 as planned. As of December 31, 1998, and including the effect of a preliminary revision to Qualcomm's cost estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar system to commence commercial service and $340 million for budgeted financing costs. More money will be needed if Globalstar experiences delays in beginning commercial service, and in any event, after the commencement of commercial service and before positive cash flow is achieved. Although Globalstar believes it will be able to obtain the money it needs, we cannot be certain that it will be available on favorable terms or on a timely basis, if at all. Globalstar depends on independent service providers to supply the ground equipment and user terminals and market Globalstar service in each country where they plan to operate. We don't know whether these service providers will be successful. We expect that Globalstar service providers will operate in more than 100 countries, many of which have developing economies. Globalstar's strategy of focusing on areas which lack basic telephone service exposes it to the risk that customers in these economies will not be able to afford the service. THERE ARE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY. Some of our business is conducted outside the United States, which imposes more risks. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Customers in developing countries could have difficulties in obtaining the U.S. dollars they owe us, including as a result of exchange controls. Additionally, exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. Moreover, if we ever need to pursue legal remedies against our foreign business partners or customers, we may have to sue them abroad, where it could be hard for us to enforce our rights. WE ARE SUBJECT TO EXPORT CONTROLS, WHICH MAY RESULT IN DELAYS, UNFORESEEN ADDITIONAL COSTS AND UNCERTAINTIES TO SELL IN CERTAIN MARKETS. Like other exporters of space-related products and services, Space Systems/Loral needs licenses from the U.S. government whenever it sells a satellite to a foreign customer or launches a satellite abroad. Satellite export licensing has lately been politically controversial, resulting in delays of some approvals, and creating uncertainties about the continuing ability of U.S. satellite manufacturers to sell in certain markets. On December 23, 1998, the Office of Defense Trade Controls of the U.S. Department of State temporarily suspended the previously approved technical 15 19 assistance agreement under which Space Systems/Loral had been preparing for the launch of the ChinaSat-8 satellite. According to the agency, the purpose of the temporary suspension is to permit it to review the agreement for conformity with newly-enacted legislation (Section 74 of the Arms Export Control Act) as to the export of missile equipment or technology. This suspension has delayed Space Systems/Loral's performance of its contractual obligations. If our customer terminates the ChinaSat-8 contract because of this delay, Space Systems/Loral will have to refund advances it has received from ChinaSat. These advances totaled $124 million as of December 31, 1998. In addition, Space Systems/Loral may incur penalties of up to $12 million upon such termination. Space Systems/Loral believes that it would cost about $38 million to refurbish and retrofit the satellite so that it could be sold to another customer. We cannot guarantee that Space Systems/Loral would find a replacement customer. The U.S. government recently announced that it will not grant an export license to Hughes Space & Communications, Inc. for a telecommunications satellite it is building for Asia Pacific Mobile Telecommunications. We do not know what this denial may mean for future applications of export licenses to Chinese customers or the resolution of the ChinaSat-8 suspension. If the U.S. government continues to deny export licenses for satellites sold to the Chinese or other markets, Space Systems/Loral's business could be hurt. SPACE SYSTEMS/LORAL IS THE TARGET OF A GRAND JURY INVESTIGATION; CONGRESS HAS HELD RELATED HEARINGS. Space Systems/Loral could be accused of criminal violations of the export control laws arising out of the participation of its employees in a committee formed to review the findings of the Chinese regarding the 1996 crash of a Long March rocket in China. Whether or not Space Systems/Loral is indicted or convicted, Space Systems/Loral will remain subject to the State Department's general statutory authority to prohibit exports of satellites and related services if it finds that Space Systems/Loral has violated the Arms Export Control Act. Further, the State Department can suspend export privileges whenever it determines that grounds for debarment exist and that suspension "is reasonably necessary to protect world peace or the security or foreign policy of the United States." If Space Systems/Loral were to be indicted and convicted of a criminal violation of the Arms Export Control Act, it: - would be subject to a fine of up to $1 million per violation; - could be debarred from certain export privileges; and - could be debarred from participation in government contracts. Since many of Space Systems/Loral's satellites are built for foreign customers and/or launched on foreign rockets, a debarment would have a material adverse effect on Space Systems/Loral's business, which in turn would affect us. 16 20 A committee of the U.S. House of Representatives, chaired by Representative Cox, is investigating U.S. satellite export policy toward China. The committee recently issued a report which has been declassified in part. The other portions of the report, which could be issued shortly, could contain negative comments about Space System/Loral's compliance with the export control laws. Further, we can't assure you that future licenses for satellites will be granted in the same manner and time frame, if at all, as in the past after the State Department takes over the licensing from the Commerce Department in March 1999. WE SHARE CONTROL OF OUR AFFILIATES WITH THIRD PARTIES. Third parties have significant ownership, voting and other rights in many of our subsidiaries and affiliates. As a result, we do not always have full control over management of these entities and the rights of these third parties and fiduciary duties under applicable law could result in these entities taking actions not in our best interests or in refraining to take actions that we deem advisable. To the extent that these entities are or become customers of Space Systems/ Loral, these conflicts could become acute. For example: - Although we are the managing general partner and largest equity owner of Globalstar, our control is limited by the supermajority rights of Globalstar's limited partners. - Primary operational control of SatMex is vested in Mexican nationals, as required by Mexican law, subject to certain supermajority rights which we retain. - The Europe*Star joint venture, initiated by Alcatel, is under its control, subject to our supermajority rights. - Future joint ventures between Alcatel and us within the Loral Global Alliance will be controlled by the initiating party, subject to supermajority rights in favor of the non-initiating party. - Alcatel is an investor in CyberStar, and has supermajority rights in it. THERE ARE POTENTIAL CONFLICTING COMMERCIAL INTERESTS AMONG OUR SUBSIDIARIES AND AFFILIATES. Loral Skynet, SatMex, Loral Orion and Europe*Star have adopted a marketing policy that provides for collaboration and cross-selling of capacity among the Loral Global Alliance members. If, however, the members of the Loral Global Alliance do not collaborate but rather compete in areas of overlapping capacity, conflicting commercial interests among our subsidiaries and affiliates may arise. Both Loral Skynet and Loral Orion own or are building satellites whose coverage areas overlap with those of SatMex and Europe*Star. If Loral Skynet and Loral Orion do not collaborate with SatMex and 17 21 Europe*Star, or vice versa, under the Loral Global Alliance, Loral Skynet and Loral Orion might compete directly with Europe*Star and SatMex for customers. Partners and affiliates of Globalstar, including companies affiliated with us, will be among Globalstar's service providers and may, therefore, have conflicts with Globalstar and/or us over service provider agreements. OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS. Our business is regulated by authorities in more than 100 jurisdictions, including the Federal Communications Commission, the International Telecommunications Union and the European Union. As a result, some of the activities which are important to our strategy are beyond our control. The following are some strategically important activities which are regulated by various government authorities: - the expansion of Loral Skynet's operations beyond the domestic U.S. market; - the proposed launch and operation of Orion 2 and Orion 3; - the international service offered by Loral Orion; - the manufacture and export of satellites; - the launch of Globalstar satellites; and - the expansion of SatMex's Latin American presence. Regulatory authorities in the various jurisdictions in which we operate can modify, withdraw or impose charges or conditions upon the licenses which we need, and so increase our cost of doing business. The regulatory process also requires that we negotiate with third parties operating or intending to operate satellites at or near orbital locations where we place our satellites so that the frequencies of the satellites do not interfere. Because we cannot guarantee the results of negotiations with third parties, "frequency coordination" is an additional source of uncertainty. We cannot guarantee successful frequency coordination for our satellites. In particular, we have learned that Eutelsat, which may claim a priority filing with the International Telecommunications Union, has recently placed a satellite that is beyond its useful life at 12.5 degrees W.L., near the 12 degrees W.L. orbital location intended for Orion 2. If Eutelsat launches a replacement satellite into the 12.5 degrees W.L. orbital location, it would interfere with the Orion 2 satellite at 12 degrees W.L. We have entered into discussions with Eutelsat to resolve the issues relating to this orbital location; however, we cannot guarantee a successful resolution. 18 22 Failure to successfully coordinate our satellites' frequencies or to resolve other required regulatory approvals could have a material adverse effect on our financial condition and on our results of operations. SPACE SYSTEMS/LORAL COMPETES WITH LARGE MANUFACTURERS WITH SIGNIFICANT RESOURCES. In the manufacture of our satellites, we compete with very large well- capitalized companies, including several of the world's largest corporations, such as Hughes Space & Communications, Inc., a subsidiary of General Motors Corporation, and Lockheed Martin Corporation. These companies have considerable financial resources which they may use to gain advantages in marketing and in technological innovation. Space Systems/Loral's success will depend on its ability to innovate on a cost-effective and timely basis. WE COMPETE WITH A NUMBER OF SERVICE PROVIDERS FOR MARKET SHARE AND CUSTOMERS; TECHNICAL DEVELOPMENTS FROM COMPETITORS OR OTHERS MAY REDUCE DEMAND FOR SATELLITE-BASED SERVICES. When Globalstar enters the satellite-based mobile phone business, it will face intense competition for customers from various companies, and in particular Iridium LLC, ICO Global and providers of land-based mobile phone services. We cannot assure you that Globalstar will attract enough subscribers either to compete effectively or to implement its current business plan. We face competition in the provision of fixed-satellite services from companies such as PamAmSat Corporation, GE Americom, SES Astra and quasi-governmental organizations such as Intelsat. Because this market is mature, competition may cause downward price pressures, which may adversely affect our profits. We, through Loral Orion and our affiliate CyberStar, also face competition in the provision of high-speed data communications, such as Internet applications, from providers of land-based data communications services, such as cable operators and traditional telephone service providers. In addition, Loral Orion and CyberStar may face competition in the future from Teledesic Corporation's proposed system and Hughes's Spaceway system. We cannot assure you that Loral Orion or CyberStar will attract enough customers either to compete effectively or to implement their business plans. As land-based telecommunications services expand, demand for some satellite-based services may be reduced. New technology could render satellite- 19 23 based services less competitive by satisfying consumer demand in other ways or through the use of incompatible standards. We also compete for local regulatory approval in places in which both we and a competitor may want to operate. We also compete for scarce frequency assignments and fixed orbital positions. THE YEAR 2000 PROBLEM. Many computer systems and software programs may not function properly in the year 2000 and beyond because of a once common programming standard which used two digits instead of four digits to signify a year. These computer systems and software programs read the year 1999 as "99" and not "1999". Because of this, the year 2000 may appear as the year 1900, which could result in system failures or disruptions. This problem is often referred to as the "Year 2000" issue. If we are unable to fix a material Year 2000 problem, we could experience an interruption or failure of our business operations. Likewise, if our suppliers are unable to fix a material Year 2000 problem, a resulting interruption or failure of their business could hurt us. WE RELY ON KEY PERSONNEL. We need highly qualified personnel. Except for Mr. Bernard L. Schwartz, our Chairman and Chief Executive Officer, none of our officers has an employment contract, and we do not maintain "key man" life insurance on any of our personnel. The departure of any of our key executives could have an adverse effect on our business. THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS. Some statements or information contained in this prospectus are not historical facts but are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). They can be identified by the use of forward-looking words such as "believes", "expects", "plans", "may", "will", "should", or "anticipates" or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Some of the factors which may cause future results and performance to differ from what we may imply here are: - the space environment, where our satellites operate, is a harsh environment; - governments may change regulations or institute new rules, which could have an impact on our operations; - we need to be able to have access to scarce rockets to launch our satellites; 20 24 - Globalstar is a development-stage company that may continue to lose money, have negative cash flow, require additional money and suffer delays in meeting its targets; - we depend on Space Systems/Loral for operating income; - there is severe competition in our business; and - our subsidiaries and affiliates owe significant amounts of money. We warn you that forward-looking statements are only predictions. Actual events or results may differ materially as a result of risks that we face, including those presented above. These are representative of factors that could affect the outcome of the forward-looking statements. USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the new notes as described in this prospectus. The proceeds from the old notes were used to purchase $150 million face amount of convertible preferred stock of Globalstar Telecommunications Limited and to pursue satellite service opportunities worldwide. You will receive in exchange for the old notes new notes in like principal amount. The old notes surrendered in exchange for new notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any change in the indebtedness of Loral. 21 25 CAPITALIZATION The following table presents, as of December 31, 1998, the actual cash and cash equivalents and capitalization of Loral and as adjusted to give effect to the net proceeds of the offering of the old notes and Loral's purchase of $150 million face amount of convertible preferred stock of Globalstar Telecommunications Limited.
AS OF DECEMBER 31, 1998 ------------------------- ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Cash and cash equivalents............................. $ 546,772 $ 743,772 ========== ========== Debt Recourse debt(1) Term loan(2)(3).................................. $ 275,000 $ 275,000 Revolving credit facility(2)(3).................. 205,000 205,000 Note purchase facility(3)........................ 126,657 126,657 Other(3)(4)...................................... 15,623 15,623 9 1/2% senior notes due 2006 ($350 million principal amount).............................. -- 343,000 ---------- ---------- Total recourse debt............................ 622,280 965,280 ---------- ---------- Non-recourse debt(5) Loral Orion 11 1/4% senior notes due 2007 ($443 million principal amount)...................... 507,573 507,573 Loral Orion 12 1/2% senior discount notes due 2007 ($484 million principal amount)........... 408,812 408,812 Loral Orion -- other............................. 17,110 17,110 ---------- ---------- Total non-recourse debt........................ 933,495 933,495 ---------- ---------- Total debt, including current portion....... 1,555,775 1,898,775 Shareholders' equity.................................. 2,935,721 2,935,721 ---------- ---------- Total capitalization.................................. $4,491,496 $4,834,496 ========== ==========
- ------------------------- (1) Includes debt of Loral SpaceCom Corporation and its subsidiaries. (2) Loral SpaceCom Corporation has an $850 million credit facility. The facility consists of a $500 million revolving credit facility, a $275 million term loan facility and a $75 million letter of credit facility. (3) See Note 7 of Loral's 1998 annual consolidated financial statements incorporated by reference in this prospectus. (4) In addition, Loral has a $115 million secured standby credit facility, which was undrawn as of December 31, 1998, supporting a guarantee of a $115 million term loan. (5) In connection with the Loral Orion acquisition, Loral did not assume Loral Orion's senior notes and senior discount notes or Loral Orion's other debt. Such debt remains outstanding and is non-recourse to Loral. The carrying value of the Loral Orion senior notes and senior discount notes was increased to reflect a fair value adjustment aggregating $153 million based on quoted market prices at the date of acquisition. 22 26 BUSINESS Loral is one of the world's leading satellite communications companies operating in four business segments: SATELLITE MANUFACTURING AND TECHNOLOGY Space Systems/Loral, our wholly-owned subsidiary is a worldwide leader in the design, manufacture and integration of satellites and space systems. Space Systems/Loral draws on a 40-year history, during which satellites manufactured by Space Systems/Loral have achieved more than 650 years of cumulative on-orbit experience. Space Systems/Loral manufactures satellites that provide telecommunications, weather forecasting, and direct broadcast services. Space Systems/Loral is the leading supplier of satellites to Intelsat, an international consortium of 135 member nations which is currently the world's largest operator of communications satellites. Space Systems/Loral has a reputation for technical excellence, a long record of reliable performance and offers its customers competitive pricing and on-orbit delivery packages. We believe that Space Systems/Loral's advanced manufacturing and testing facilities and long-term customer relationships have enabled it to compete effectively in the commercial space systems marketplace. FIXED SATELLITE SERVICES We provide fixed satellite services through our wholly-owned subsidiaries, Loral Skynet and Loral Orion, Inc., and our affiliate, Satelites Mexicanos, S.A. de C.V., which together with the newly founded Europe*Star joint venture between us and Alcatel, comprise the Loral Global Alliance. The Loral Global Alliance provides for cross-selling arrangements among its members' respective sales forces and for cooperative marketing and promotional activities to offer customers "one stop shopping" for their local, regional and global needs. Loral Global Alliance members currently have seven satellites in orbit. In addition, Loral Skynet and Loral Orion expect to launch three additional satellites in the next six months. Together, these satellites will have footprints covering virtually all of the world's population. Customers in the developed world use our geosynchronous satellites (satellites whose high orbits enable them to remain fixed over a single point over the earth's equator) primarily to distribute television programming and to collect live video feeds from breaking news and sporting events. In the developing world a large portion of geosynchronous satellite capacity is also dedicated to long-distance telephone service. Geosynchronous satellites are increasingly used for international Internet communications, high-speed data services and for business and educational television. 23 27 DATA SERVICES Through our data services segment, which is a business in development, we intend to capitalize on the increasing worldwide demand for information and Internet access by providing satellite-based end-to-end customer solutions through Loral Orion and CyberStar. Loral Orion is a leading provider of satellite-based data transport services in Europe, providing multinational corporations with managed communications networks capable of carrying high- speed data, fax, video teleconferencing, voice and other specialized services. Loral Orion also provides the fast growing Internet service provider market with Internet access via its satellites. With the launch of Orion 3 and Orion 2, which is expected to occur in the second and third quarters of 1999, respectively, Loral Orion will expand its service offering into Asia and Latin America. Our subsidiary, CyberStar, provides a high-speed data communications system. CyberStar will offer its customers a variety of services that enhance corporate communications and provide for the efficient, secure and timely exchange of information. We own approximately 82% of CyberStar and act as its managing general partner. GLOBAL MOBILE TELEPHONY Globalstar has begun to launch and is preparing to operate an innovative satellite constellation that will create a wireless digital telephone system serving most of the populated areas of the world. The Globalstar(TM) System has now launched 16 of the 52 satellites (including four in-orbit spares) that will complete its full constellation, and is scheduled to commence service in September 1999 with at least 32 satellites. We own approximately 43% of Globalstar and act as its managing general partner. Globalstar service will be marketed through service providers which Globalstar expects will focus their efforts on extending service to the millions of people who currently lack basic telephone service. Accordingly, Globalstar plans to keep its wholesale price for capacity low and to provide service both to mobile handsets and fixed terminals in remote locations. Globalstar satellites orbit the earth at much lower altitudes than geosynchronous satellites and move relative to the earth's surface. Consequently, the low orbit satellites in Globalstar's constellation are designed with the ability to hand calls off from one satellite to another to provide continuous coverage. BUSINESS STRATEGY Our goal is to assemble the building blocks essential to the creation of a seamless, global networking capability for the information age. Our strategy is to capitalize on our innovative capabilities, market position and advanced technologies to offer value-added satellite-based services as part of the evolving worldwide communications networks. In addition, we plan to form strategic 24 28 alliances with major telecommunications service providers and equipment manufacturers in order to enhance and expand our satellite communications service opportunities. We believe that demand for satellite-based communications services will continue to grow due to: - growing demand for Internet and intranet services, especially outside the United States; - increased size and scope of television programming distribution; - worldwide deregulation of telecommunications markets; - continuing technological advancement; and - accelerating demand for high speed data services. 25 29 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER We sold the old notes on January 21, 1999 to the initial purchasers, who placed the old notes with certain institutional investors. In connection with this sale, we entered into a registration rights agreement with the initial purchasers. Under this registration rights agreement we agreed, for the benefit of the holders of the old notes, that we would, at our sole cost, within 90 days following the original issuance of the old notes, file with the SEC an exchange offer registration statement -- of which this prospectus is a part -- under the Securities Act. This exchange offer registration statement is filed with respect to an issue of a series of our new notes identical in all material respects to the series of old notes. We agreed further that we would use our reasonable best efforts to cause the exchange offer registration statement to become effective under the Securities Act at the earliest possible time, but in no event later than 210 days following the original issuance of the old notes. Upon the effectiveness of the exchange offer registration statement, we will offer to the holders of the old notes the opportunity to exchange their old notes for a like principal amount of new notes. The new notes will be issued without a restrictive legend and may, subject to certain exceptions described below, be reoffered and resold by their holders without restrictions or limitations under the Securities Act. RESALE OF THE NEW NOTES Each holder desiring to participate in the exchange offer will be required to represent, among other things, that (1) it is not an "affiliate" (as defined in Rule 405 of the Securities Act) of ours; (2) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the new notes; and (3) it is acquiring the new notes in the ordinary course of its business. A holder unable to make the above representations is referred to as a restricted holder. A restricted holder will not be able to participate in the exchange offer, and may only sell its old notes under a registration statement containing the selling securityholder information required by Item 507 of Regulation S-K of the Securities Act, or under an exemption from the registration requirement of the Securities Act. Each participating broker-dealer is required to acknowledge in the letter of transmittal that it acquired the old notes as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with the resale of the new notes. Based upon interpretations by the staff of the SEC, we believe that new notes issued under the exchange offer to 26 30 participating broker-dealers may be offered for resale, resold, and otherwise transferred by a participating broker-dealer upon compliance with the prospectus delivery requirements, but without compliance with the registration requirements of the Securities Act. We have agreed that for a period of 180 days following completion of the exchange offer we will make this prospectus available to participating broker- dealers for use in connection with any such resale. During the period, delivery of this prospectus, as it may be amended or supplemented, will satisfy the prospectus delivery requirements of a participating broker-dealer engaged in market-making or other trading activities. Based upon interpretations by the staff of the SEC, we believe that new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by a holder of the new notes -- other than a participating broker-dealer -- without compliance with the registration and prospectus delivery requirements of the Securities Act. If prior to the completion of the exchange offer, existing SEC interpretations are changed in such a way that the new notes received by holders other than restricted holders in the exchange offer are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, we could file with the SEC a shelf registration statement. We are further required under the exchange offer registration rights agreement to use our reasonable best efforts to cause the shelf registration statement to be declared effective at the earliest possible time, but in no event later than 210 days after such obligation arises and to keep such shelf registration continuously effective for a period ending on the earlier of the second anniversary of the issuance of the old notes or when there are no longer any registrable securities outstanding. Registrable securities means the old notes, unless - the old notes are sold pursuant to Rule 144 -- or any successor provision -- under the Securities Act under circumstances in which any legend borne by such notes relating to restrictions on their transferability, under the Securities Act or otherwise, is removed by us, - or in accordance with the indenture, - or if the notes are eligible to be sold pursuant to paragraph (k) of Rule 144, or - or when these notes shall cease to be outstanding. SHELF REGISTRATION STATEMENT If the shelf registration statement is filed, we will provide to each holder of registrable securities covered by the shelf registration statement copies of any shelf registration statement or any prospectus which is a part of the shelf 27 31 registration statement. We will further notify each holder when the shelf registration statement has become effective and take other actions as are required to permit unrestricted resales of registrable securities. A holder of registrable securities that sells those registrable securities pursuant to the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to the purchaser. This holder will also be subject to some of the civil liability provisions under the Securities Act in connection with these sales and will be bound by the provisions of the exhange offer registration rights agreement which are applicable to it, including some indemnification obligations. In addition, holders of registrable securities will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the exchange offer registration rights agreement in order to have their registrable securities included in the shelf registration statement and benefit from the provisions regarding liquidated damages, if any, set forth in the following paragraph. If (1) we are required to file the shelf registration statement and (2) the shelf registration has not become effective or been declared effective by the SEC on or before the 210th day after the obligation to file a shelf registration statement arises, or (3) the shelf registration statement is filed and declared effective but shall thereafter cease to be effective -- except as specifically permitted in the exchange offer registration rights agreement -- without being succeeded promptly by an additional registration statement filed and declared effective, then interest referred to as Liquidated Damages will accrue in addition to any stated interest on the Securities. We call each of the events referred to in clauses (1) through (3) a "Registration Default." Liquidated Damages will accrue at the rate of $.05 per week per $1,000 principal amount of the notes. It will accrue for the period from the occurrence of the Registration Default until such time as no Registration Default is in effect, after which time no Liquidated Damages will accrue. After the first 90-day period during which Liquidated Damages accrue, Liquidated Damages will increase by an additional $.05 per week per $1,000 of principal amount of the notes, provided that Liquidated Damages will not exceed a maximum of $.50 per week per $1,000 principal amount of the notes. The Liquidated Damages will be payable in cash semi-annually in arrears on each March 15 and September 15 in accordance with the exchange offer registration rights agreement. Liquidated Damages will be paid at the increased rate until the shelf registration has become or has been declared effective. 28 32 Payment of Liquidated Damages is the sole remedy available to the holders of registrable securities in the event that we do not comply with the deadlines set forth in the exchange offer registration rights agreement with respect to the registration of registrable securities for resale under the shelf registration statement. BERMUDA REGULATORY REQUIREMENTS The exchange offer will be subject to the filing of a copy of this prospectus with the Registrar of Companies in Bermuda, together with confirmation from our Bermuda attorneys that the SEC, as a competent regulatory authority under section 26(2)(b) of the Companies Act 1981, has received or otherwise accepted this prospectus as a basis for offering the new notes to the public. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will issue $1,000 principal amount at stated maturity of new notes in exchange for each $1,000 principal amount at stated maturity of outstanding old notes accepted in the exchange offer. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000 at stated maturity. The form and terms of the new notes will be identical in all material respects (including principal amount, interest rate, maturity and ranking) to the terms of the old notes for which they may be exchanged pursuant to the exchange offer, except that the new notes will have been registered under the Securities Act. Therefore, they will not bear legends restricting their transfer and will not contain terms providing for an increase in the interest rate on the old notes under circumstances described in the exchange offer registration rights agreement. The new notes will evidence the same debt as the old notes and will be entitled to the benefits of the indenture under which the old notes were, and the new notes will be, issued. As of the date of this prospectus, $350 million aggregate principal amount of the old notes is outstanding. We have fixed the close of business on , 1999 as the record date for the exchange offer for purposes of determining the persons to whom this prospectus, together with the letter of transmittal, will initially be sent. As of the date of this prospectus, there were registered holders of the old notes. Holders of the old notes do not have any appraisal or dissenters' rights under law or the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC. 29 33 Holders who tender old notes in the exchange offer will not be required to pay a brokerage commission or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of old notes pursuant to the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, in connection with the exchange offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "expiration date" shall mean 5:00 p.m., New York City time, on , 1999, unless we will, in our reasonable discretion, extend the exchange offer, in which case the term expiration date will mean the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, we will notify the exchange agent of any extension by oral or written notice and will make a public announcement of this fact prior to 9:00 a.m., New York City time, on the next business day after each previously scheduled expiration date, unless otherwise required by applicable law or regulation. We reserve the right, in our reasonable discretion, (1) to delay accepting any old notes, to extend the exchange offer or, if in our reasonable judgment, any of the conditions described below under the caption "-- Conditions" are not satisfied, to terminate the exchange offer, by giving oral or written notice of this delay, extension or termination to the exchange agent, or (2) to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders. In addition, we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five to ten business day period. Without limiting the manner in which we may choose to make a public announcement of any delay, extension, termination or amendment of the exchange offer, we have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. PROCEDURES FOR TENDERING Only a holder of old notes may tender such old notes in the exchange offer. A holder who wishes to tender old notes for exchange pursuant to the 30 34 exchange offer must transmit a properly completed and duly executed letter of transmittal, or a facsimile thereof, together with any required signature guarantees, or, in the case of a book-entry transfer, agent's message, and any other required documents, to the exchange agent prior to midnight, New York City time, on the expiration date. In addition, either (1) certificates for such old notes must be received by the exchange agent prior to the expiration date, along with the letter of transmittal, (2) a timely confirmation of a book-entry transfer of these old notes into the exchange agent's account at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the exchange agent prior to the expiration date or (3) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the old notes, or the book-entry confirmation, as the case may be, the letter of transmittal and other required documents must be received by the exchange agent at the address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. DTC has authorized DTC participants that hold old notes on behalf of beneficial owners of old notes through DTC to tender their old notes as if they were holders. To effect a tender of old notes, DTC participants should either (1) complete and sign the letter of transmittal (or a manually signed facsimile thereof), have the signature thereon guaranteed if required by the instructions to the letter of transmittal and mail or deliver the letter of transmittal (or the manually signed facsimile) to the exchange agent pursuant to the procedures set forth in "Procedures for Tendering" or (2) transmit their acceptance to DTC through the DTC Automated Tender Offer Program for which the transaction will be eligible and follow the procedures for book-entry transfer set forth in "-- Book-Entry Transfer." The tender by a holder will constitute an agreement between this holder and us in accordance with the terms and subject to the conditions contained in this prospectus and in the letter of transmittal. The method of delivery of the old notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holder. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be 31 35 allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or old notes, or book-entry confirmation, as the case may be, should be sent to us. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and who wishes to tender, should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on his own behalf, the owner must, prior to completing and executing the letter of transmittal and delivering the beneficial owner's old notes, either make appropriate arrangements to register ownership of the old notes in this owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. If the letter of transmittal is signed by a person other than the registered holder of any old notes listed therein, these old notes must be endorsed or accompanied by a properly completed bond power and signed by the registered holder as the registered holder's name appears on the old notes. If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing unless waived by us. Evidence satisfactory to us of their authority so to act must be submitted with the letter of transmittal. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution unless the old notes tendered pursuant thereto are tendered (1) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal, or (2) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-5 under the Exchange Act (an "Eligible Institution"). We will determine all questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered old notes in our sole discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be 32 36 unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tender of old notes must be cured within the time as we shall determine. Neither we, the exchange agent nor any other person shall incur any liability for failure to give notice of any defect or irregularity with respect to any tender of old notes. Tenders of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will not be deemed to have been properly tendered. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. By tendering, each holder will represent to us, among other things, that it is not a restricted holder. Each participating broker-dealer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. See "Plan of Distribution." ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES For each old note accepted for exchange, the holder of this old note will receive a new note having a principal amount equal to that of the surrendered old note. For purposes of the exchange offer, we shall be deemed to have accepted properly tendered old notes for exchange when, as and if we have given oral or written notice thereof to the exchange agent. In all cases, the issuance of new notes for old notes that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of certificates for the old notes or a timely book-entry confirmation of these old notes into the exchange agent's account at the book- entry transfer facility, a properly completed and duly executed letter of transmittal or agent's message and all other required documents. If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer, or if old notes are submitted for a greater principal amount than the holder desires to exchange, these unaccepted or non-exchanged old notes will be returned without expense to the tendering holder of these notes (or, in the case of old notes tendered by book-entry transfer into the exchange agent's account at the book-entry transfer facility, pursuant to the book-entry transfer procedures described below. These non-exchanged old notes will be credited to an account maintained with such book-entry transfer facility as promptly as practicable after the expiration date. 33 37 BOOK-ENTRY TRANSFER The exchange agent will establish a new account or utilize an existing account with respect to the old notes at DTC promptly after the date of this prospectus. Any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of old notes may make a book-entry tender of old notes by causing DTC to transfer such old notes into the exchange agent's account in accordance with DTC's procedures for such transfer. However, although the tender of old notes may be effected through book-entry transfer into the exchange agent's account at DTC, the letter of transmittal, or a manually signed facsimile thereof, properly completed and validly executed, with any required signature guarantees, or an agent's message in lieu of the letter of transmittal, and any other required documents, must, in any case, be received by the exchange agent at its address set forth below under the caption "Exchange Agent" on or prior to the expiration date, or the guaranteed delivery procedures described below must be complied with. The confirmation of a book-entry transfer of old notes into the exchange agent's account at DTC as described above is referred to herein as a "Book-Entry Confirmation." Delivery of documents to DTC in accordance with DTC's procedures does not constitute delivery to the exchange agent. The term "agent's message" means a message transmitted by DTC to, and received by, the exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant in DTC tendering the old notes stating (1) the aggregate principal amount of old notes which have been tendered by the participant, (2) that this participant has received and agrees to be bound by the term of the letter of transmittal and (3) that we may enforce such agreement against the participant. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their old notes and (1) whose old notes are not immediately available, (2) who cannot deliver their old notes, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date or (3) who cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: (a) the tender is made through an eligible institution; 34 38 (b) prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder, the certificate number(s) of the old notes and the principal amount of old notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an agent's message, together with the certificate(s) representing the old notes, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and (c) such properly completed and executed letter of transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an agent's message, as well as the certificate(s) representing all tendered old notes in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of old notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must (1) specify the name of the person having deposited the old notes to be withdrawn (the "Depositor"), (2) identify the old notes to be withdrawn (including the certificate number or numbers and principal amount of such old notes), (3) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such old notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the trustee with respect to the old notes register the transfer of these old notes into the name of the person withdrawing the tender and (4) specify the name in which any of the old notes are to be registered, if different from that of the Depositor. 35 39 If certificates for old notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless the holder is an eligible institution. If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn old notes and otherwise comply with the procedures of the book-entry transfer facility. We will determine in our sole discretion all questions as to the validity, form and eligibility (including time of receipt) of those notices, which determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued with respect thereto unless the old notes so withdrawn are validly retendered. Properly withdrawn old notes may be retendered by following one of the procedures described above. Any old notes which have been tendered but which are not accepted for payment due to withdrawal, rejection of tender or termination of the exchange offer will be returned as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer to the holder of the old notes, without cost to the holder. In the case of old notes tendered by book-entry transfer into the exchange agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, the old notes will be credited to an account maintained with such book-entry transfer facility for the old notes. CONDITIONS Notwithstanding any other term of the exchange offer, we are not required to accept for exchange, or exchange new notes for, any old notes, and may terminate the exchange offer as provided herein before the acceptance of such old notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our reasonable judgment, might materially impair our ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer to us, or any material adverse development has occurred in any existing action or proceeding with respect to us or any of our subsidiaries; (b) any change or any development involving a prospective change in our business or our financial affairs or in that of any of our subsidiaries has occurred which, in our reasonable judgment, might materially impair our ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer to us; 36 40 (c) any law, statute, rule or regulation is proposed, adopted or enacted, which, in our reasonable judgment, might materially impair our ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer to us; or (d) any governmental approval has not been obtained, which approval we, in our reasonable discretion, shall deem necessary for the consummation of the exchange offer as contemplated hereby. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of the respective right and each of these rights shall be deemed an ongoing right which may be asserted at any time and from time to time. If we determine in our reasonable discretion that any of the conditions are not satisfied, we may (1) refuse to accept any old notes and return all tendered old notes to the tendering holders, (2) extend the exchange offer and retain all old notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw their tendered old notes (see "-- Withdrawal of Tenders" above) or (3) waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered old notes which have not been withdrawn. If such waiver constitutes a material change to the exchange offer, we will promptly disclose this waiver by means of a prospectus supplement that will be distributed to the registered holders. We will also extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five to ten business day period. 37 41 EXCHANGE AGENT The Bank of New York has been appointed as exchange agent for the exchange offer. Requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent, addressed as follows: To: The Bank of New York By Hand/Overnight Courier: The Bank of New York 101 Barclay Street Corporate Trust Window Ground Level New York, NY 10286 Attn: Reorganization Section Facsimile Transmission (Eligible Institutions Only) (212) 571-3080 Confirm by Telephone: (212) 815-6333 FEES AND EXPENSES We will bear the expenses of soliciting tenders. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. We will also pay the cash expenses to be incurred in connection with the exchange offer. These expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others. We will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. If, however, certificates representing new notes or old notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old notes tendered, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. The same applies if tendered old notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer. If satisfactory evidence of payment of these taxes or exemption from these taxes is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder. 38 42 ACCOUNTING TREATMENT The new notes will be recorded at the same carrying value as the old notes, which is the principal amount as reflected in our accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the exchange offer and the unamortized expenses related to the issuance of the old notes will be amortized over the term of the notes. REGULATORY APPROVALS We do not believe that the receipt of any material federal or state regulatory approvals will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act. OTHER Participation in the exchange offer is voluntary and holders of old notes should carefully consider whether to accept the terms and conditions of the exchange offer. Holders of the old notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer. 39 43 DESCRIPTION OF THE NOTES The new notes are issued pursuant to the indenture, dated as of January 15, 1999, between Loral and The Bank of New York, as trustee. The terms of the new notes are identical in all material respects to the terms of the old notes, except that the new notes have been registered under the Securities Act and, therefore, - will not bear legends restricting their transfer and - will not contain certain terms providing for an increase in the interest rate under the circumstances described in the registration rights agreement. The indenture and its associated documents contain the full legal text of the matters described in this section. A copy of the indenture has been filed with the SEC as part of our registration statement. See "Where You Can Find More Information" on page ii on how to obtain a copy. The following description is a summary of the material provisions of the indenture. It does not restate that agreement in its entirety. In this section, capitalized words signify defined terms that have been given special meaning in the indenture. We describe the meaning only for the most important terms under "Certain Definitions." For purposes of this section, "Loral" refers to Loral Space & Communications Ltd. and does not include its subsidiaries except for purposes of financial data on a consolidated basis. BRIEF DESCRIPTION OF THE NOTES These notes: - are general unsecured obligations of Loral; - will mature on January 15, 2006; - are structurally junior in right of payment to all existing and future Indebtedness of Loral's subsidiaries, including Indebtedness incurred under the Credit Agreement; - are equal in right of payment with all existing and future senior Indebtedness of Loral (except as to assets pledged to secure such Indebtedness); and - are senior in right of payment to any future Indebtedness which is by its terms junior in right of payment to any senior Indebtedness of Loral. As of the date of this prospectus, all of Loral's subsidiaries are "Restricted Subsidiaries." However, under the circumstances described below under the caption "-- Covenants -- Designation of Restricted and Unrestricted Subsidiaries," Loral is permitted to designate certain of its subsidiaries as 40 44 "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. The indenture under which the notes are issued permits Loral and its Restricted Subsidiaries (based on Loral's December 31, 1998 financial condition) to incur at least $3.5 billion of additional Indebtedness, and does not limit the amount of debt Loral's Restricted Subsidiaries may incur which is without legal recourse to Loral. Indebtedness incurred by Loral's subsidiaries will be effectively senior to the notes as to the assets of the borrowing subsidiary. Such Indebtedness may also be secured, in which case it will be effectively senior to the notes as to these assets. The other restrictive covenants contained in the indenture contain similarly broad exceptions and qualifications. For example, the indenture permits Loral to make investments in affiliates that it does not control. PRINCIPAL, MATURITY AND INTEREST The indenture permits Loral to issue notes in a maximum aggregate principal amount of $500 million. $350 million were issued in the offering on January 21, 1999. Loral has and will issue notes in denominations of $1,000 and integral multiples of $1,000. The issued notes will mature on January 15, 2006. Interest on the notes will accrue at the rate of 9 1/2% per annum and will be payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 1999. Loral will make each interest payment to the holders of record on the immediately preceding January 1 and July 1. Interest on the notes will accrue from the Issue Date or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES If the holder has given wire transfer instructions to Loral, it will pay all principal, interest and premium payments on the holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless Loral elects to make interest payments by check mailed to each holder at the holder's address set forth in the register of holders. PAYING AGENT AND REGISTRAR FOR THE NOTES The trustee will initially act as paying agent and registrar. Loral may change the paying agent or registrar without prior notice to the holders, and Loral or any of its subsidiaries may act as paying agent or registrar. 41 45 TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require the holders, among other things, to furnish appropriate endorsements and transfer documents and Loral may require the holders to pay any taxes and fees required by law or permitted by the indenture. Loral is not required to transfer or exchange any note selected for redemption. Also, Loral is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. The registered holder of a note will be treated as the owner of it for all purposes. OPTIONAL REDEMPTION Before January 15, 2002, Loral may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes originally issued under the indenture at a redemption price of 109.500% of the principal amount thereof, plus accrued and unpaid interest, Additional Amounts and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more equity offerings; provided that: (1) at least 65% of the aggregate principal amount of notes originally issued remain outstanding immediately after each such redemption, excluding notes held by Loral and its subsidiaries; and (2) the redemption must occur within 60 days of the date of the closing of such equity offering. Except according to the preceding paragraph and as described in "-- Special Tax Redemption," the notes will not be redeemable at our option before January 15, 2003. On or after January 15, 2003, Loral may redeem all or part of the notes upon not less than 30 nor more than 60 days' notice, at the redemption prices described in the table below plus accrued and unpaid interest, Additional Amounts and Liquidated Damages, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on January 15 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2003........................................................ 104.750% 2004........................................................ 102.375% 2005 and thereafter......................................... 100.000%
Redemption prices are expressed as percentages of principal amount. 42 46 SPECIAL TAX REDEMPTION If Loral determines, based upon an opinion of counsel, that it has become or would become obligated to pay, on the next date on which any amount would be payable with respect to a note, any Additional Amounts as a result of a change in or an amendment to the laws (including any regulations promulgated under these laws) of any relevant jurisdiction, or any change in or amendment to any official position regarding the application or interpretation of these laws or regulations, which change or amendment becomes effective on or after the date of this prospectus and which change shall not have been disclosed to the public before the date of this prospectus, and that this obligation cannot be avoided by us taking reasonable measures Loral may redeem, at its option, all the affected notes -- but, except pursuant to clause (c) below, not less than all the affected notes -- on not less than 30 nor more than 60 days' notice, at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, and Liquidated Damages, if any, to the date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, (such optional redemption, a "Special Tax Redemption"); provided, however, that (a) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which Loral would be obligated to pay such Additional Amounts were a payment in respect of the notes then due, (b) at the time any such Special Tax Redemption notice is given, the obligation to pay such Additional Amounts must remain in effect; and (c) Loral may redeem the affected notes in part if it redeems all affected notes held by holders in respect of which, as a result of the foregoing, Loral is or would be obligated to pay Additional Amounts based on a withholding tax rate in excess of 10%. Notwithstanding the foregoing, Loral may not redeem the affected notes if it is obligated to pay any Additional Amounts as a result of a change in or an amendment to the laws, including regulations promulgated thereunder, or any change in or amendment to any official position regarding the application or interpretation of those laws or regulations, of a relevant jurisdiction that occurs or is disclosed on or before the six month anniversary of the date on which the relevant jurisdiction became a relevant jurisdiction. However, if Loral reincorporates in the United States and Additional Amounts are payable with respect to taxes imposed by the United States or any political subdivision or taxing authority thereof or therein, this restriction on the Loral's ability to redeem the affected notes shall not apply. 43 47 Unless the change of law occurs or is disclosed before the date of such reincorporation and shall not apply if, absent such reincorporation, (a) Loral would nonetheless have been required to pay Additional Amounts with respect to such affected notes in respect of such United States taxes and (b) without regard to this proviso, Loral would have been entitled to redeem such affected notes under a Special Tax Redemption as a result of such payment of Additional Amounts. MANDATORY REDEMPTION Loral is not required to make mandatory redemption or sinking fund payments with respect to these notes. ADDITIONAL AMOUNTS All payments of principal of, premium, if any, Liquidated Damages, if any, and interest on each note will be made free and clear of, and without withholding or deduction for, any present or future taxes, duties, assessments or governmental charges of whatever nature (collectively, "Taxes") imposed, levied, collected, withheld or assessed by or within any jurisdiction in which Loral is then incorporated (or the jurisdiction of incorporation of any successor of Loral) or any other jurisdiction in which Loral (or Loral's successor) are resident for tax purposes or any political subdivision or taxing authority thereof or therein, unless such withholding or deduction is required by law or by regulation or governmental policy having the force of law. In the event that any such withholding or deduction in respect of principal, premium, if any, liquidated damages, if any, or interest is so required, Loral, or any successor, will pay those Additional Amounts as will result in receipt by each holder of the notes of the gross amount as would have been received by the holder or the beneficial owner with respect to this note, as applicable, had no such withholding or deduction (including any withholding or deduction applicable to Additional Amounts payable) been required, except that no Additional Amounts will be payable for or on account of: (1) Taxes that would not have been imposed but for (a) the existence of any present or former connection between a holder or a beneficial owner (or between a fiduciary, settler, beneficiary, member or shareholder of, or possessor of a power over, a holder, if the holder is an estate, trust, partnership or corporation) and the relevant jurisdiction, including if this holder (or such fiduciary, settler, beneficiary, member, shareholder or possessor) is or has been a national, domiciliary or resident of or treated as a resident thereof or having been present or engaged in a trade or business therein or having had a permanent establishment therein; or 44 48 (b) Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (or any successor provision); (2) any estate, inheritance, gift, sale, transfer or similar tax, assessment or other governmental charge; (3) any tax that is imposed or withheld by reason of a holder's failure or a beneficial owner's failure to timely comply with Loral's request, addressed to the holders (a) to provide reasonably required or requested information concerning a holder's nationality, residence or identity or those of a beneficial owner or (b) to make any reasonably required or requested declaration, filing or claim or satisfy any reasonably required or requested information or reporting requirement, which, in the case of (a) or (b), is required or imposed by statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax; provided, however, that (i) providing information required by IRS Forms W-8, 1001 and 4224 and any successors thereto and (ii) the execution and delivery of such forms is deemed to be reasonably required or requested; or (4) any combination of (1), (2) and (3); nor shall Additional Amounts be paid with respect to payment of the principal of or any premium or interest on any such note, to any holder (including any fiduciary or partnership) to the extent that the beneficial owner would not have been entitled to such Additional Amounts had it been the holder of the note. Where required by applicable law, Loral or any paying agent, as the case may be, will also (a) make such withholding or deduction in respect of any taxes and (b) remit the full amount withheld or deducted to the relevant authority in accordance with applicable law. Loral will furnish to each holder, within 30 days after the date the payment of any taxes is due pursuant to applicable law, certified copies of tax receipts satisfactory to the trustee evidencing such payment by Loral. Whenever there is mentioned in any context the payment of principal of or any premium or interest on, or in respect of, a note, or the net proceeds received from Loral on the sale or exchange of any note, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in the indenture to the extent that, in such context, Additional Amounts are, were, or would be payable in respect thereof pursuant to the indenture. Loral will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges, or similar levies that arise in any jurisdiction from the execution, delivery, enforcement or registration of the 45 49 notes or any other document or instrument relating thereto, or the receipt of any payments with respect to the notes, excluding such taxes, charges, or similar levies imposed by any jurisdiction outside of any jurisdiction in which Loral or the paying agent are located or incorporated (except those resulting from or required to be paid in connection with, the enforcement of the notes or any other such document or instrument following the occurrence of any event of default with respect to the notes), and has agreed to indemnify each holder for any such taxes paid by the holder. The foregoing obligations shall survive any termination, defeasance or discharge of the indenture. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL If a Change of Control occurs, each holder will have the right to require Loral to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of the holder's notes pursuant to a Change of Control Offer. In the Change of Control Offer, Loral will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes to be repurchased plus accrued and unpaid interest thereon and Liquidated Damages (if any), to the date of purchase. Within ten days following any Change of Control, Loral will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in such notice, pursuant to the procedures required by the indenture and described in such notice. Loral will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, Loral shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict. On the Change of Control Payment Date, Loral will, to the extent lawful: (1) accept for payment all notes or portions thereof properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the trustee the notes so accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions thereof being purchased by Loral. 46 50 The paying agent will promptly mail to each holder so tendered the Change of Control Payment for these notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple thereof. Loral will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require Loral to make a Change of Control Offer following a Change of Control will be applicable regardless of whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit Loral to require that Loral repurchases or redeems the notes in the event of a takeover, recapitalization or similar transaction. Loral's other indebtedness may contain prohibitions of certain events that would constitute a Change of Control. In addition, the exercise of a holder's right to require Loral to repurchase the notes upon a Change of Control could cause a default under or be restricted by other indebtedness, including the Credit Agreement, even if the Change of Control itself does not, due to the financial effect of such repurchases on Loral. Finally, Loral's ability to pay cash to holders of notes upon a repurchase may be limited by Loral's then existing financial resources. Loral will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by Loral and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of Loral and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require Loral to repurchase such notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Loral and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. 47 51 ASSET SALES Loral will not, and will not permit any Restricted Subsidiary to, consummate an Asset Sale unless: (1) Loral (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) such fair market value is (a) determined by two Officers of Loral if the fair market value is less than $25 million or (b) determined by Loral's Board of Directors and evidenced by a resolution of the Board of Directors if the fair market value is $25 million or greater, and, in each case, such fair market value is set forth in an Officers' Certificate delivered to the trustee; and (3) at least 75% of the consideration therefor received by Loral or such Restricted Subsidiary is in the form of cash or Cash Equivalents. Only for purposes of this clause (3), each of the following shall be deemed to be cash: (a) any liabilities (as shown on Loral's or such Restricted Subsidiary's most recent balance sheet), of Loral or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms junior in right of payment to the notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Loral or such Restricted Subsidiary from further liability; (b) any securities, notes or other obligations received by Loral or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by Loral or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion); (c) any assets described in clause (2) or (4) of the next succeeding paragraph; (d) Marketable Securities; and (e) Designated Other Permitted Consideration; provided that the aggregate fair market value (as determined above) of such Designated Other Permitted Consideration, taken together with the fair market value at the time of receipt of all other Designated Other Permitted Consideration received pursuant to this clause (e), less the amount of net cash proceeds previously realized in cash from prior Designated Other Permitted Consideration is less than 5% of Loral's Consolidated Tangible Assets at the time of the receipt of such Designated Other Permitted 48 52 Consideration (with the fair market value of each item of Designated Other Permitted Consideration being measured at the time received and without giving effect to subsequent changes in value). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, Loral may apply (or, in the case of clause (2), (3) or (4) below, enter into a binding commitment to apply) such Net Proceeds: (1) to repay Indebtedness of Loral or any Restricted Subsidiary which is not junior in right of payment to the notes; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business or to purchase Equity Interests of a Restricted Subsidiary from another Person; (3) to make a capital expenditure in a Permitted Business or to make an Investment in a Permitted Venture; or (4) to acquire or to acquire the right to use other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, Loral may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, Loral will make an Asset Sale Offer to all holders of notes and all holders of other Indebtedness that is equal in right of payment with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other Indebtedness which is equal in right of payment to the notes that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages (if any) to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, Loral may use such Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and such other Indebtedness which is equal in right of payment to the notes tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select the notes and such other Indebtedness which is equal in right of payment to the notes to be purchased on a proportional basis based on the principal amount of notes and such other Indebtedness which is equal in right of payment to the notes tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 49 53 Loral will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the indenture, Loral will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict. SELECTION AND NOTICE If less than all of the notes are to be redeemed at any time (other than as permitted by the provisions of the indenture described under "-- Special Tax Redemption"), the trustee will select notes for redemption as follows: (1) if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not so listed, on a proportional basis, by lot or by such other method as the trustee shall deem fair and appropriate. No notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of the note upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. COVENANTS In the indenture, Loral agreed to certain restrictions that limit its and its Restricted Subsidiaries' ability to: (1) pay dividends; (2) acquire Equity Interests of Loral or any of its Restricted Subsidiaries; (3) redeem Indebtedness of Loral which is junior in right of payment to the notes; (4) make Restricted Investments; (5) incur Indebtedness; (6) issue Preferred Stock of our Restricted Subsidiaries; 50 54 (7) create Liens; (8) engage in sale and leaseback transactions; (9) with respect to its Restricted Subsidiaries, pay dividends, make loans or advances to Loral or any other Restricted Subsidiary or transfer any of its property or assets to Loral or any other Restricted Subsidiary; (10) make Asset Sales; (11) with respect to Loral, consolidate or merge with or into another Person or sell all or substantially all of the properties or assets of Loral and its Restricted Subsidiaries, taken as a whole, to another Person; (12) enter into transactions with Affiliates; and (13) with respect to any of our Restricted Subsidiaries, guarantee or pledge any assets to secure the payment of any other Indebtedness of Loral. In addition, if a change of Control occurs, each holder of notes will have the right to require Loral to repurchase all or part of the holder's notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of purchase. The above limitations are "restrictive covenants" that are promises that Loral makes to you about how Loral will run its business, or business actions that Loral promises not to take. A more detailed description of the restrictive covenants and the exception to them follows below. RESTRICTED PAYMENTS Loral will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of Loral's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any distribution, dividend or payment in connection with any merger or consolidation involving Loral or any of its Restricted Subsidiaries) or to the direct or indirect holders of Loral's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Loral or to Loral or a Restricted Subsidiary of Loral); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Loral) any Equity Interests of Loral, any Restricted Subsidiary of Loral or any direct or indirect parent of Loral; 51 55 (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is junior in right of payment to the notes, except the scheduled payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (2) Loral would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to either test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Loral and its Restricted Subsidiaries after the date of this prospectus (excluding Restricted Payments permitted by clauses (2), (3), (4) and (6) of the next succeeding paragraph) is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of Loral for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of Loral's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus (b) 100% of the aggregate net cash proceeds received by Loral since the Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of Loral (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of Loral that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of Loral), except to the extent such net cash proceeds are used to increase the amount of dividends on Preferred Stock of Loral or the amount of Restricted Investments that may be made pursuant to clause (7) of the next succeeding paragraph; plus 52 56 (c) 100% of the fair market value (as determined by Loral's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the trustee) of assets used or useful in a Permitted Business received by Loral since the Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of Loral (other than Disqualified Stock); plus (d) to the extent not already included in Consolidated Net Income of Loral for such period, if any Restricted Investment that was made by Loral or any Restricted Subsidiary after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment or designated amount of Unrestricted Subsidiary; plus (e) to the extent that any Unrestricted Subsidiary is designated by Loral as a Restricted Subsidiary after the Issue Date, an amount equal to the lesser of (A) the net book value of Loral's Investment in such Unrestricted Subsidiary at the time of such designation and (B) the fair market value of Loral's Investment in such Unrestricted Subsidiary at the time of such designation. The preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness junior in right of payment of Loral or of any Equity Interests of Loral or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a subsidiary of Loral) of, Equity Interests of Loral (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of Loral junior by its terms in right of payment to senior Indebtedness of Loral with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; 53 57 (4) the payment of any dividend or distribution by a Restricted Subsidiary of Loral to the holders of its common Equity Interests so long as Loral or such Restricted Subsidiary receives at least its proportional share (and in like form) of such dividend or distribution in accordance with its common Equity Interests; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Loral or any Restricted Subsidiary of Loral held by any employee of Loral or a Restricted Subsidiary or member of Loral's (or any of its Restricted Subsidiaries') management pursuant to any equity subscription agreement or stock option agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $10 million; (6) the purchase by a Restricted Subsidiary of shares of Capital Stock of Loral from Loral or the deemed repurchase of Capital Stock by Loral or a Restricted Subsidiary on the exercise of stock options; (7) payments of dividends by Loral on Preferred Stock of Loral or the making of Restricted Investments by Loral or any Restricted Subsidiary in an aggregate amount not to exceed 100% of the aggregate net cash proceeds received by Loral since the Issue Date from the issue or sale of Equity Interests of Loral (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such dividend payment or Restricted Investment shall be excluded from clause (3)(b) of the immediately preceding paragraph; (8) the purchase by Loral or a Restricted Subsidiary of Equity Interests in a Restricted Subsidiary from another Person; (9) scheduled dividends payable on the Series C Preferred Stock; (10) payment of dividends on Preferred Stock of a Restricted Subsidiary; and (11) other Restricted Payments in an aggregate principal amount not to exceed $25 million; provided that Loral will not and will not permit any of its Restricted Subsidiaries to make any Restricted Payment contemplated by clauses (2) through (10) above so long as a Default has occurred and is continuing. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the assets or securities proposed to be transferred or issued to or by Loral or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair 54 58 market value of any assets or securities that are required to be valued by this covenant shall be either (a) determined by the Board of Directors whose resolution with respect thereto shall be delivered to the trustee or (b) based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of international standing if the fair market value exceeds $25 million. Not later than the date of making any Restricted Payment, Loral shall deliver to the trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK Loral will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and Loral will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that Loral or any Restricted Subsidiary may incur Indebtedness (including Acquired Debt), and Loral may issue Disqualified Stock, and any Restricted Subsidiary may issue Preferred Stock, if, after giving effect to the incurrence of such Indebtedness or the issuance of such Disqualified Stock or Preferred Stock and the application of the proceeds thereof, no Default would occur as a consequence of such incurrence or issuance or be continuing following such incurrence or issuance and either (1) the Consolidated Leverage Ratio of Loral would be less than 5.0 to 1.0, or (2) Loral's Consolidated Capital Ratio as of the most recent available quarterly or annual balance sheet is less than 2.0 to 1.0. As of December 31, 1998, on a pro forma basis after giving effect to this offering of the notes and the use of proceeds therefrom, Loral's Consolidated Capital Ratio would have been approximately 0.8 to 1.0. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by Loral and its Restricted Subsidiaries of additional Indebtedness and letters of credit pursuant to Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed $850 million as of such date of incurrence less the aggregate amount of all Net Proceeds of Asset Sales applied to repay term Indebtedness outstanding under one or more Credit 55 59 Facilities pursuant to clause (1) of the second paragraph of the covenant described under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (2) the incurrence by Loral and its Restricted Subsidiaries of Existing Indebtedness; (3) the incurrence by Loral of Indebtedness represented by the notes to be issued on the Issue Date; (4) the issuance by a Subsidiary of Preferred Stock or the incurrence by Loral's Subsidiaries of Non-Recourse Debt (including Acquired Debt that constitutes Non-Recourse Debt); provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of a Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of Loral that was not permitted by this clause (4); (5) the incurrence by Loral or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3) or (5) of this paragraph; (6) the incurrence by Loral or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Loral and any of its Restricted Subsidiaries; provided, however, that: (a) if Loral is the obligor on such Indebtedness, such Indebtedness must be expressly junior in right of payment to all Obligations with respect to the notes and the indenture; and (b) (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Loral or a Restricted Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either Loral or a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by Loral or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by Loral or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk or currency exchange rate risk; 56 60 (8) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock or Preferred Stock in the form of additional shares of the same class of Disqualified Stock or Preferred Stock, as the case may be, will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock or Preferred Stock for purposes of this covenant; (9) the incurrence by Loral or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (9), not to exceed $50 million; or (10) the incurrence by Restricted Subsidiaries of Guarantees of Indebtedness of Loral or any Restricted Subsidiary that is not junior in right of payment to the notes. Loral will not incur any Indebtedness (including Permitted Debt) that is contractually junior in right of payment to any other Indebtedness of Loral unless such Indebtedness is also contractually junior in right of payment to the notes on substantially identical terms; provided, however, that no Indebtedness of Loral shall be deemed to be contractually junior in right of payment to any other Indebtedness of Loral solely by virtue of being unsecured. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Loral will be permitted to classify such item of Indebtedness on the date of its incurrence in any manner that complies with this covenant. LIENS Loral will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. 57 61 SALE AND LEASEBACK TRANSACTIONS Loral will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that Loral or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) Loral or such Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "-- Liens"; (2) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the trustee, of the property that is the subject of such sale and leaseback transaction; and (3) the transaction complies with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales." DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES Loral will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to Loral or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to Loral or any of its Restricted Subsidiaries; (2) make loans or advances to Loral or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to Loral or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness as in effect on the Issue Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, 58 62 renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, as in effect on the Issue Date; (2) any customary (as conclusively determined in good faith by the Chief Financial Officer of Loral) encumbrance or restriction applicable to Loral or a Restricted Subsidiary that is contained in an agreement or instrument governing or relating to Indebtedness of Loral or Indebtedness contained in any Credit Facilities or Indebtedness incurred pursuant to clause (4) of the second paragraph of the covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred Stock", provided that, other than with respect to Preferred Stock of a Subsidiary or Non-Recourse Debt of a Subsidiary (including Non-Recourse Debt that is Acquired Debt), such encumbrances and restrictions permit the distribution of funds to Loral in an amount sufficient for Loral to make the timely payment of interest, premium (if any), Liquidated Damages (if any) and principal (whether at stated maturity, by way of a sinking fund applicable thereto, by way of any mandatory redemption, defeasance, retirement or repurchase thereof, including upon the occurrence of designated events or circumstances or by virtue of acceleration upon an event of default, or by way of redemption or retirement at the option of the holder of the Indebtedness, including pursuant to offers to purchase) according to the terms of the indenture and the notes and other Indebtedness that is solely an obligation of Loral, but provided further that such agreement may nevertheless contain customary (as so determined) net worth, leverage, invested capital and other financial covenants, customary (as so determined) covenants regarding the merger of or sale of all or any substantial part of the assets of Loral or any Restricted Subsidiary, customary (as so determined) restrictions on transactions with affiliates and customary (as so determined) subordination provisions governing Indebtedness owed to Loral or any Restricted Subsidiary; (3) the Credit Agreement as in effect on the Issue Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Credit Agreement, as in effect on the Issue Date; (4) the indenture and the notes; (5) applicable law; 59 63 (6) any instrument governing Indebtedness or Capital Stock of a Person acquired by Loral or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (7) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (8) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; (9) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (10) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (11) Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien; (12) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; and (13) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. MERGER, CONSOLIDATION OR SALE OF ASSETS Loral will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not Loral is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of Loral and its Restricted 60 64 Subsidiaries, taken as a whole, in one or more related transactions, to another Person, unless: (1) either: (a) Loral is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than Loral) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of Bermuda, the United States, any state thereof or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than Loral) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of Loral under the notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; (3) immediately after such transaction no Default exists; and (4) Loral or the Person formed by or surviving any such consolidation or merger or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (if other than Loral): (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of Loral immediately preceding the transaction; and (b) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period or balance sheet date, as applicable, be permitted to incur at least $1.00 of additional Indebtedness pursuant to at least one of the tests set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." In addition, Loral may not, directly or indirectly, lease all or substantially all of its properties or assets in one or more related transactions, to any other Person. When a successor corporation, trustee, paying agent or registrar assumes all of the obligations of its predecessor under the notes and the indenture, the predecessor will be released from those obligations. This "Merger, Consolidation or Sale of Assets" covenant will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among Loral and any of its Restricted Subsidiaries. 61 65 DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by Loral and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "-- Restricted Payments" or reduce the amount available for future Investments under one or more clauses of the definition of Permitted Investments, as Loral shall determine. That designation will only be permitted if such Investment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Loral SpaceCom Corporation, Space Systems/Loral, Loral Orion and CyberStar will initially be "Restricted Subsidiaries" under the indenture; SatMex, Europe*Star, Globalstar and Globalstar Telecommunications Limited will initially be "Permitted Ventures" under the indenture. TRANSACTIONS WITH AFFILIATES Loral will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to Loral or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Loral or such Restricted Subsidiary with an unrelated Person; and (2) Loral delivers to the trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15 million, either (a) a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or (b) an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of international standing. 62 66 The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject, except as set forth below, to the provisions of the prior paragraph: (1) any employment agreement entered into by Loral or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of Loral or such Restricted Subsidiary, as the case may be; (2) transactions between or among Loral and/or its Restricted Subsidiaries; (3) any sale or other issuance of Equity Interests (other than Disqualified Stock) of Loral; (4) payment of reasonable directors fees to Persons who are not otherwise Affiliates of Loral; (5) Restricted Payments that are permitted by, and Permitted Investments that are not prohibited by, the provisions of the indenture described above under the caption "-- Restricted Payments;" and (6) transactions between Loral and/or its Restricted Subsidiaries, on the one hand, and a Permitted Venture, on the other hand, provided that the condition set forth in clause (1) of the prior paragraph is satisfied. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS Loral will not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of Loral unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture providing for the Guarantee of the payment of the notes by such Restricted Subsidiary (a "Guarantor"), which Guarantee shall (1) be senior to or equal to in right of payment with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness and (2) remain in effect for so long as the Guarantee or pledge to secure such other Indebtedness remains in effect. No Guarantor will incur any Indebtedness (including Permitted Debt) that is contractually junior in right of payment to any other Indebtedness of such Guarantor unless such Indebtedness is also contractually junior in right of payment to such Guarantor's Guarantee of the notes on substantially identical terms; provided, however, that no Indebtedness of a Guarantor shall be deemed to be contractually junior in right of payment to any other Indebtedness of such Guarantor solely by virtue of being unsecured. 63 67 BUSINESS ACTIVITIES Loral will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to the extent as would not be material to Loral and its Restricted Subsidiaries, taken as a whole. PAYMENTS FOR CONSENT Loral will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS Whether or not required by the SEC, so long as any notes are outstanding, Loral will furnish to the holders of notes, within the time periods specified in the SEC's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K (or any successor forms) if Loral were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of Loral and its subsidiaries and, with respect to the annual information only, a report on the annual financial statements by Loral's certified independent accountants; and (2) all current reports that would be required to be filed with the SEC on Form 8-K (or any successor form) if Loral were required to file such reports. If Loral has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by this covenant shall include selected financial information, either on the face of the financial statements or in the footnotes thereto, regarding the financial condition and results of operations of Loral and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of Loral. In addition, whether or not required by the SEC, Loral will file a copy of all information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. 64 68 EVENTS OF DEFAULT AND REMEDIES Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest or Liquidated Damages on the notes; (2) default in payment when due of the principal of, or premium, if any, on the notes; (3) failure by Loral to comply with the provisions described under the caption "-- Covenants -- Merger, Consolidation or Sale of Assets;" (4) failure by Loral for 30 days after notice to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control," "-- Repurchase at the Option of Holders -- Asset Sales," "-- Covenants -- Restricted Payments" or "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;" (5) failure by Loral or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in the indenture; (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Loral or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Loral or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the Issue Date, if that default: (a) is caused by a failure to pay principal at maturity of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25 million or more; (7) failure by Loral or any of its Subsidiaries to pay final judgments aggregating in excess of $25 million, which judgments are not paid, discharged or stayed for a period of 60 days; and (8) certain events of bankruptcy or insolvency with respect to Loral or any of its Significant Subsidiaries. 65 69 In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to Loral, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default and its consequences under the indenture except a continuing Default in the payment of interest on, or the principal of, the notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of Loral with the intention of avoiding payment of the premium that Loral would have had to pay if Loral then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. Loral is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default, Loral is required to deliver to the trustee a statement specifying such Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of Loral, as such, shall have any liability for any obligations of Loral under the notes, the indenture, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the U.S. federal securities laws. 66 70 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Loral may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes ("Legal Defeasance") except for: (1) the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest, Liquidated Damages or premium, if any, on such notes when such payments are due from the trust referred to below; (2) Loral's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the trustee, and Loral's obligations in connection therewith; and (4) the Legal Defeasance provisions of the indenture. In addition, Loral may, at its option and at any time, elect to have the obligations of Loral released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) Loral must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable U.S. Government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of an internationally recognized firm of independent public accountants, to pay the principal of, or interest and premium, if any, on the outstanding notes on the stated maturity; (2) in the case of Legal Defeasance, Loral shall have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that (a) Loral has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain 67 71 or loss for United States federal income tax purposes as a result of such Legal Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, Loral shall have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such Covenant Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) in the case of Legal Defeasance or Covenant Defeasance, Loral shall have delivered to the trustee an Opinion of Counsel in Loral's jurisdiction of incorporation reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for income tax purposes in such jurisdiction as a result of such Legal Defeasance or Covenant Defeasance and will be subject to income tax in such jurisdiction on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance or Covenant Defeasance had not occurred; (5) no Default shall have occurred and be continuing either: (a) on the date of such deposit (other than a Default resulting from the borrowing of funds to be applied to such deposit); or (b) insofar as Defaults from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (6) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which Loral or any of its Subsidiaries is a party or by which Loral or any of its Subsidiaries is bound; (7) Loral must have delivered to the trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of Loral between the date of deposit and the 91st day following the deposit and, assuming that no holder is an "insider" of Loral under applicable bankruptcy law, after the 91st day following the deposit, the transfer of the trust funds will not be characterizable as a preference under Section 547 of the United States Federal bankruptcy code; 68 72 (8) Loral must deliver to the trustee an Officers' Certificate stating that the deposit was not made by Loral with the intent of preferring the holders of notes over the other creditors of Loral or with the intent of defeating, hindering, delaying or defrauding creditors of Loral or others; and (9) Loral must deliver to the trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the indenture or the notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder): (1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest or Liquidated Damages on any note; (4) waive a Default in the payment of principal of, or interest, Liquidated Damages or premium, if any, on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest, Liquidated Damages or premium, if any, on the notes; 69 73 (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders"); or (8) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any holder of notes, Loral and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of Loral's obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of Loral's assets; (4) to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder; (5) to provide for the issuance of additional notes in accordance with the provisions set forth in the indenture; or (6) to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust indenture Act. CONCERNING THE TRUSTEE If the trustee becomes a creditor of Loral, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee is permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign. The holders of a majority in principal amount of the then outstanding notes have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default shall occur and be continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. 70 74 GOVERNING LAW AND SUBMISSION TO JURISDICTION The indenture provides that it and the notes governed by the indenture are governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Loral submits to the jurisdiction of the U.S. Federal and New York State courts located in the Borough of Manhattan, City and State of New York for purposes of all legal actions and proceedings instituted in connection with the notes and the indenture. Loral has appointed an authorized agent upon which process may be served in any such actions. ADDITIONAL INFORMATION Anyone who receives this prospectus may obtain a copy of the indenture and the registration rights agreement without charge by writing to Loral Space & Communications Ltd., Cedar House, 41 Cedar Avenue, Hamilton HM21, Bermuda, Attention: Secretary. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full statement of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED DEBT" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. 71 75 "ASSET SALE" means: (1) the sale, lease, transfer, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of Loral and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of Loral's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that: (a) involves assets having a fair market value of less than $5 million; or (b) results in net proceeds to Loral and its Restricted Subsidiaries of less than $5 million; (2) a transfer of assets between or among Loral and its Restricted Subsidiaries; (3) an issuance of Equity Interests by a Restricted Subsidiary to Loral or to another Restricted Subsidiary; (4) the sale or lease of satellites, transponders or other equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "-- Covenants -- Restricted Payments"; and (7) the issuance of partnership interests by CyberStar, L.P. pursuant to participation bonuses in accordance with Section 4.3 of the CyberStar partnership agreement. "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present 72 76 value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The term "beneficially owns" shall have a corresponding meaning. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and 73 77 (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition; and (7) the Goldman Sachs US$ Liquid Reserves Fund and other funds with substantially similar investment policies. "CHANGE OF CONTROL" means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Loral and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of Loral; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 35% of the Voting Stock of Loral, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of Loral are not Continuing Directors; or (5) Loral consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, Loral, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of Loral or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of Loral outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). 74 78 "CONSOLIDATED CAPITAL RATIO" of any Person as of any date means the ratio of (1) the Total Indebtedness of such Person then outstanding to (2) the stockholders' equity as of such date as shown on the consolidated balance sheet of such Person in accordance with GAAP (which, in the case of Loral, shall include the Series C Preferred Stock) after giving pro forma effect to (a) the incurrence of any Indebtedness proposed to be incurred or the issuance of any Disqualified Stock proposed to be issued and the receipt and application of the proceeds thereof, (b) any other Indebtedness incurred, Disqualified Stock issued or preferred stock of any Subsidiary issued or the repayment or retirement of any of the foregoing since such balance sheet date and the receipt and application of the proceeds thereof, (c) any asset dispositions or asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that has occurred since such balance sheet date, in each case as if they had occurred and such proceeds had been applied on the date of such balance sheet. "CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus 75 79 (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the preceding, amounts in respect of items (1), (2) and (4) for a Restricted Subsidiary of Loral shall be added to Consolidated Net Income to compute Consolidated Cash Flow of Loral only to the extent that a corresponding percentage of the Consolidated Net Income of such Restricted Subsidiary would be permitted at the date of determination to be dividended to Loral by such Restricted Subsidiary without prior approval (that has not been obtained) pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED LEVERAGE RATIO" means the ratio of (1) the Total Indebtedness of Loral outstanding as of the most recent available quarterly or annual balance sheet to (2) the Consolidated Cash Flow of Loral for the four full fiscal quarters next preceding the incurrence of such Indebtedness or the issuance of such Disqualified Stock for which consolidated financial statements are available; provided that pro forma effect shall be given to (a) the incurrence of any Indebtedness proposed to be incurred or the issuance of any Disqualified Stock proposed to be issued and the receipt and application of the proceeds thereof, (b) any other Indebtedness incurred, Disqualified Stock issued or preferred stock of any Subsidiary issued or the repayment or retirement of any of the foregoing since the beginning of such four fiscal quarter period and the receipt and application of the proceeds thereof and (c) any asset dispositions or asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that has occurred during such four fiscal quarter 76 80 period, in each case as if they had occurred and such proceeds had been applied on the first day of such four fiscal quarter period. "CONSOLIDATED NET INCOME" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified person or one of its Subsidiaries; and (5) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of Preferred Stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such Preferred Stock. 77 81 "CONSOLIDATED TANGIBLE ASSETS" of any Person means the total amount of assets (less applicable reserves and any other properly deductible items) which under GAAP would be included on a consolidated balance sheet of such Person and its Subsidiaries after deducting therefrom all goodwill (but not any other intangible assets) which under GAAP would be included on such consolidated balance sheet. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of Loral who: (1) was a member of such Board of Directors on the Issue Date; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CREDIT AGREEMENT" means that certain Amended and Restated Credit and Participation Agreement among Loral SpaceCom Corporation, Space Systems/ Loral, Inc., certain lending banks, Bank of America National Trust and Savings Association, as Administrative Agent, and Istituto Bancario San Paolo Di Torino S.P.A., individually and as Italian Export Financing Arranger and as Selling Bank, dated as of November 14, 1997, providing for up to $850 million of credit extensions, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "CREDIT FACILITIES" means one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "DEFAULT" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "DESIGNATED OTHER PERMITTED CONSIDERATION" means the fair market value of non-cash consideration received by Loral or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Other Permitted Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Other Permitted Consideration. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is 78 82 exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require Loral to repurchase such Capital Stock upon the occurrence of a Change of Control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that Loral may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "-- Covenants -- Restricted Payments." "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXISTING INDEBTEDNESS" means Indebtedness of Loral and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the Issue Date, until such amounts are repaid. "EQUITY OFFERING" means any public or private sale of Equity Interests (other than Disqualified Stock) of Loral, other than private sales of Equity Interests to an Affiliate of Loral. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by any such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "GUARANTEE" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements entered into in the ordinary course of business and consistent with past practices designed to protect such 79 83 Person against fluctuations in interest rates or currency exchange rates. "INDEBTEDNESS" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit, excluding letters of credit supporting obligations under customer contracts until such letters of credit are drawn; (3) banker's acceptances; (4) Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness; and (3) in the case of an obligation under a Hedging Obligation (a) zero if such obligation has been incurred pursuant to clause (7) of the second paragraph of the covenant described under "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" or (b) the notional amount of such obligation if not incurred pursuant to such clause. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and 80 84 employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided, however, that Investments shall not include any commercially reasonable (as determined in good faith by either the Board of Directors of Loral or senior management of Loral) extensions of credit to, or Investments made in, any Person in connection with the purchase or sale of satellites or satellite services. If Loral or any Restricted Subsidiary of Loral sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Loral such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of Loral and is not a Permitted Venture, Loral shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Covenants -- Restricted Payments." "ISSUE DATE" means the date on which the old notes were originally issued. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "MARKETABLE SECURITIES" means, with respect to any Asset Sale, any readily marketable equity securities that are (1) traded on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market and (2) issued by a corporation having a total equity market capitalization of not less than $250 million; provided that the excess of (a) the aggregate amount of securities of any one such corporation held by Loral and any Restricted Subsidiary over (b) ten times the average daily trading volume of such securities during the 20 immediately preceding trading days shall be deemed not to be Marketable Securities, as determined on the date of the contract relating to such Asset Sale. 81 85 "NET INCOME" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds received by Loral or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any one or more Credit Facilities) secured by a lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NON-RECOURSE DEBT" means Indebtedness as to which neither Loral nor any of its Restricted Subsidiaries (other than the Restricted Subsidiary that is the primary obligor and its Subsidiaries so long as no Capital Stock of such Subsidiaries is owned by Loral or any other Restricted Subsidiary), (1) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (2) is directly or indirectly liable as a guarantor or otherwise, or (3) constitutes the lender. "OBLIGATIONS" means any principal, premium if any, interest, penalties, fees, indemnifications, guarantees, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PERMITTED BUSINESS" means any of the lines of business conducted by Loral and its Restricted Subsidiaries or its existing Permitted Ventures on the Issue Date and any other space or communication businesses and any business reasonably related thereto. 82 86 "PERMITTED INVESTMENTS" means: (1) any Investment in Loral or in a Restricted Subsidiary of Loral; (2) any Investment in Cash Equivalents; (3) any Investment by Loral or any Restricted Subsidiary of Loral in a Person engaged in a Permitted Business, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of Loral; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Loral or a Restricted Subsidiary of Loral; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales;" (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Loral; (6) Hedging Obligations; (7) Investments in Permitted Ventures; (8) Investments existing on the Issue Date; (9) Investments in Skybridge, L.P. that are either (a) required pursuant to the partnership agreement in existence on the Issue Date or (b) required to avoid disproportionate dilution to Loral's equity interest therein pursuant to such partnership agreement or to avoid financial penalties; and (10) other Investments in any Person principally engaged in Permitted Businesses having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) at any time outstanding not to exceed 5% of Loral's Consolidated Tangible Assets. "PERMITTED LIENS" means: (1) Liens on assets of Loral or its Restricted Subsidiaries securing Indebtedness and other Obligations under Credit Facilities that were permitted by the terms of the indenture to be incurred; (2) Liens in favor of Loral or any of its Restricted Subsidiaries; 83 87 (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Loral or any Restricted Subsidiary of Loral; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Loral or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition thereof by Loral or any Restricted Subsidiary of Loral; provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (7) Liens existing on the Issue Date and Liens Loral or any Restricted Subsidiary are or may be obligated to create pursuant to agreements in existence on the Issue Date; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) Liens incurred in the ordinary course of business of Loral or any Restricted Subsidiary of Loral with respect to obligations that do not exceed $50 million at any one time outstanding; (10) other Liens incidental to the conduct of Loral's and its Restricted Subsidiaries' businesses or the ownership of their respective property not securing any Indebtedness, and which do not in the aggregate materially detract from the value of Loral's and its Restricted Subsidiaries' property when taken as a whole, or materially impair the use thereof in the operation of their respective businesses; and (11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Loral or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other 84 88 Indebtedness of Loral or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable), of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all customary expenses incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is junior in right of payment to the notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is junior in right of payment to, the notes on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by Loral or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERMITTED VENTURE" means: (1) a corporation, partnership or other entity other than a Subsidiary engaged in one or more Permitted Businesses in respect of which Loral or a Restricted Subsidiary (a) beneficially owns at least 20% of the Capital Stock of such entity and (b) either is a party to an agreement providing for one or more parties to such agreement (which may or may not be Loral or a Subsidiary), or is a member of a group that, pursuant to the constituent documents of the applicable corporation, partnership or other entity, has the power, to direct the policies, management and affairs of such entity; or (2) Globalstar Telecommunications Limited ("Globalstar Telecommunications Limited"), so long as Globalstar, L.P. is a Permitted Venture and Globalstar Telecommunications Limited's principal asset consists of Equity Interests in Globalstar. 85 89 "PERSON" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof or any other entity. "PREFERRED STOCK" of any Person means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary. "SERIES C PREFERRED STOCK" means Loral's 6% Series C Convertible Redeemable Preferred Stock due 2007. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated by the SEC, as such Regulation is in effect on the date hereof, using a percentage of 5% for such calculations instead of the percentage set forth therein. "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "SUBSIDIARY" means, with respect to any specified Person, any corporation, partnership, association or other business entity that would be required under GAAP to be consolidated in the financial statements of such Person or one or more of the other Subsidiaries of that Person (or a combination thereof). "TANGIBLE NET WORTH" of any Person as of any date means the Consolidated Tangible Assets of such Person less the Total Indebtedness of such Person. "TOTAL INDEBTEDNESS" means, at any time of determination, without duplication, the sum of (1) all Indebtedness of Loral and its Restricted Subsidiaries at such time, (2) the aggregate redemption price of any Disqualified Stock and (3) the aggregate liquidation preference of any Preferred Stock of Loral's Restricted Subsidiaries, in each case as determined on a consolidated basis in accordance with GAAP. 86 90 "UNRESTRICTED SUBSIDIARY" means any Subsidiary of Loral that is designated by the Board of Directors of Loral as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with Loral or any Restricted Subsidiary of Loral unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Loral or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Loral; (3) is a Person with respect to which neither Loral nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Loral or any of its Restricted Subsidiaries; and (5) has at least one director on its board of directors that is not a director or executive officer of Loral or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of Loral or any of its Restricted Subsidiaries. Any designation of a Subsidiary of Loral as an Unrestricted Subsidiary shall be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "-- Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of Loral as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," Loral shall be in default of such covenant. The Board of Directors of Loral may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a 87 91 Restricted Subsidiary of Loral of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted to be incurred under the covenant described under the caption "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period or balance sheet date, as applicable, and (2) no Default would be in existence following such designation. "VOTING STOCK" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. 88 92 BOOK-ENTRY; DELIVERY AND FORM The new notes initially will be represented by one or more permanent global certificates in definitive, fully registered form, called a "global note." The global note will be deposited upon issuance with DTC and registered in the name of DTC. THE GLOBAL NOTE. We expect that pursuant to procedures established by DTC (a) upon issuance of the global note, DTC or its custodian will credit, on its internal system, the principal amount of the individual beneficial interests represented by the global note to the respective accounts of persons who have accounts with such depositary and (b) ownership of beneficial interests in the global note will be shown on, and the transfer of ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Ownership of beneficial interests in the global notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. So long as DTC or its nominee is the registered owner or holder of the new notes, DTC or the nominee will be considered the sole owner or holder of the new notes represented by the global note for all purposes under the indenture. No beneficial owner of an interest in the global note will be able to transfer that interest except in accordance with DTC's procedures. Payments of interest, principal and other amounts due on the global note will be made to DTC or its nominee as the registered owner. Neither we, the trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. We expect that DTC or its nominee, upon receipt of any payment of interest, principal or other amounts due on the global note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the global note as shown on the records of DTC. We also expect that payments by participants to owners of beneficial interests in the global note held through such participants will be governed by standing instructions and customary practice, as is the case with securities held for the accounts of customers registered in the names of nominees for those customers. Such payments will be the responsibility of the participants. 89 93 Transfers between participants in DTC will be effected in the ordinary way through DTC's settlement system in accordance with DTC rules and will be settled in same day funds. DTC has advised us that it will take any action permitted to be taken by a holder of new notes only at the direction of a participant to whose account the DTC interests in the global note are credited and only as to such portion of the notes as to which the participant has given such direction. However, if there is an event of default under the indenture, DTC will exchange the global note for certificated notes, which it will distribute to its participants. DTC has advised as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the global note among participants of DTC, it is under no obligation to perform those procedures, and those procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC or its participants or indirect participants of our respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to continue as a depositary for the global note and a successor depositary is not appointed by us within 90 days, certificated notes will be issued in exchange for the global note. 90 94 DESCRIPTION OF OTHER INDEBTEDNESS LORAL SPACECOM CORPORATION AND SPACE SYSTEMS/LORAL CREDIT AGREEMENT The Credit Agreement provides for borrowing availability of $500 million of revolving loans, including letters of credit, $275 million of term loans and $75 million of additional letters of credit. Both the term loan facility and revolving credit facility are for a period of five years from the date of the Credit Agreement, November 14, 1997. The separate letter of credit facility runs for a two-year period. The term loan facility requires repayment in twelve consecutive quarterly installments beginning December 31, 1999. The first four installments are $18.75 million each and the final eight installments are $25 million each. Obligations under the Credit Agreement are secured by the stock of Loral SpaceCom Corporation and Space Systems/Loral and bear interest, at Loral SpaceCom Corporation's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate for periods of one to six months. Loral SpaceCom Corporation pays a commitment fee on the unused portion of the facilities. The Credit Agreement contains customary covenants including an interest coverage ratio and debt to capitalization ratios. In addition, the Credit Agreement contains limitations on indebtedness, liens, guarantee obligations, asset sales, dividends, investments and transactions with affiliates. Under the terms of the Credit Agreement, Loral SpaceCom may pay dividends to its parent if the cumulative dividend payments do not exceed 50% of cumulative net income, as defined, and the ratio of funded debt to EBITDA, as defined, is less than three to one. Notwithstanding this dividend payment limitation, as of December 31, 1998 Loral SpaceCom could pay a dividend to its parent of up to $70 million. Loral SpaceCom has an intercompany note payable outstanding with its parent in the amount of $347 million at December 31, 1998. This note requires semi-annual interest payments of $31.5 million to be made on the first day of April and October. This note, however, can be prepaid down to $200 million under the terms of the Credit Agreement. As of December 31, 1998 Loral SpaceCom could borrow an additional $151 million under the Credit Agreement. As of December 31, 1998, approximately $622 million, excluding letters of credit, was outstanding under the Credit Agreement and other credit facilities. LORAL SECURED STANDBY CREDIT FACILITY Loral has a $115 million secured standby credit facility to support its guarantee of a $115 million term loan obligation. This facility was undrawn as of December 31, 1998. 91 95 LORAL ORION NOTES Loral Orion has outstanding $443 million in principal amount of 11 1/4% senior notes due 2007 and $484 million in principal amount of 12 1/2% senior discount notes due 2007. This indebtedness of Loral Orion is non-recourse to us. SATMEX In connection with the privatization by the Federal Government of Mexico (the "Mexican Government") of its fixed satellite services business, Loral and Principia, S.A. de C.V. ("Principia"), formerly known as Telefonica Autrey, S.A. de C.V., formed a joint venture, Firmamento Mexicano, S.A. de R.L. de C.V. ("Holdings"). On November 17, 1997, Holdings acquired 75% of the outstanding capital stock of SatMex for $646.8 million. The purchase price was financed by a Loral equity contribution of $94.6 million, a Principia equity contribution of $50.9 million and debt issued by a subsidiary of Holdings. As part of the acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a wholly owned subsidiary of Holdings, agreed to issue a $129.9 million seven year obligation bearing interest at 6.03% to the Mexican Government (the "Government Obligation") in consideration for the assumption by SatMex of the debt incurred by Servicios in connection with the acquisition. The debt of SatMex and Servicios is non-recourse to Loral and Principia. However, Loral and Principia have agreed to maintain assets in a collateral trust in an amount equal to the value of the Government Obligation through December 30, 2000 and, thereafter, in an amount equal to 1.2 times the value of the Government Obligation until maturity. As of December 31, 1998, Loral and Principia have pledged their respective shares in Holdings in such trust. Loral has a 65% economic interest in Holdings and a 49% indirect economic interest in SatMex. Loral and Principia have committed to make an equity investment in SatMex of up to $35 million prior to March 31, 1999. As of December 31, 1998, SatMex had total indebtedness of $644 million. GLOBALSTAR As of December 31, 1998, Globalstar had senior notes in an aggregate principal amount of $1.45 billion outstanding. In addition, Globalstar had vendor financing of $371 million outstanding as of December 31, 1998. Globalstar's indebtedness is non-recourse to us; however, we are contingently liable with respect to approximately $68 million of Globalstar's $250 million revolving line of credit, which was undrawn as of December 31, 1998. 92 96 FOREIGN ISSUER CONSIDERATIONS The following discussion is based on the advice of Appleby, Spurling & Kempe, Bermuda counsel to Loral. We have been designated as a non-resident for exchange control purposes by the Bermuda Monetary Authority. Under Bermuda law, we are an exempted company (that is, we are exempted from the provisions of Bermuda law which stipulate that at least 60% of our equity must be beneficially owned by Bermudians). As an exempted company, we are exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company we may not participate in certain business transactions, including: (1) the acquisition or holding of land in Bermuda, except that required for its business and held by way of lease or tenancy for terms of not more than 21 years, without the express authorization of the Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Bermuda Minister of Finance; (3) the acquisition of securities created or issued by, or any interest in, any local company or business, other than certain types of Bermuda government securities or securities of another exempted company, partnership or other corporation resident in Bermuda but incorporated abroad; or (4) the carrying on of business of any kind in Bermuda, except in furtherance of our business carried on outside Bermuda or under a license granted by the Bermuda Minister of Finance. The Bermuda government actively encourages foreign investment in exempted entities like Loral that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, we are subject neither to taxes on our income or dividends nor to any foreign exchange controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and we can accumulate profits, as required, without limitation. BERMUDA TAX CONSIDERATIONS At the date of this prospectus, there is no Bermuda income tax, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, estate or stamp duty or inheritance tax payable by us or the holders, other than holders ordinarily resident in Bermuda, in respect of their investment in the new notes. Accordingly, the exchange of the old notes for the new notes will not be subject to taxes in Bermuda. 93 97 We have obtained from the Minister of Finance under the Exempted Undertakings Tax Protection Act 1966, as amended, a certificate confirming that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not until March 28, 2016 be applicable to us or to any of our operations, or other obligations of us except insofar as such tax applies to persons ordinarily resident in Bermuda and holding such new notes or other obligations, or to any land in Bermuda leased or rented to us. We are liable to pay the Bermuda government an annual registration fee calculated on a sliding scale based upon our assessable capital, which fee will not exceed BD$26,500. We have been classified as non-resident of the Bermuda exchange control area by the Bermuda Monetary Authority, whose permission for the issue of the new notes has been obtained. The transfer of new notes between persons regarded as non-resident of Bermuda for exchange control purposes and the issue and redemption of new notes to and by such persons may be effective without specific consents under the Exchange Control Act 1972 of Bermuda and Regulations made thereunder. Transfers involving any person regarded as resident in Bermuda for exchange control purposes requires specific authorization under that Act. By virtue of being a non-resident of Bermuda for exchange control purposes, we are free to acquire, hold and sell any foreign currency, securities and other investments without restrictions. Purchasers of new notes may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase. Prospective purchasers should consult their tax advisers as to the tax laws of applicable jurisdictions and the specific tax consequences of acquiring, holding and disposing of the new notes. 94 98 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of certain United States federal income tax consequences associated with the exchange of the old notes for the new notes pursuant to the exchange offer and the ownership and disposition of the new notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based on review of the Internal Revenue Code of 1986, as amended, U.S. Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions, all in effect as of the date hereof and all of which are subject to change at any time, and any such change may be applied retroactively in a manner that could adversely affect a holder of the notes. The discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holder's particular circumstances or to holders subject to special rules, such as certain financial institutions, insurance companies, dealers in securities, tax-exempt organizations and persons holding the notes as part of a "straddle", "hedge" or "conversion transaction." In addition, this discussion is limited to persons purchasing the old notes at the issue price. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed. The discussion deals only with notes held as "capital assets" within the meaning of Section 1221 of the IRS Code. We have not sought and will not seek any rulings from the IRS with respect to the position of Loral discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the exchange of old notes for new notes and the ownership or disposition of the new notes. PROSPECTIVE HOLDERS OF NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS. THE EXCHANGE OFFER The exchange of old notes for new notes pursuant to the exchange offer will not be treated as an exchange or other taxable event for United States federal income tax purposes because, under the IRS Code and applicable regulations, the new notes do not differ materially in kind or extent from the old notes. Rather, the exchange of old notes for new notes pursuant to the exchange offer should be treated as a continuation of the corresponding old notes because the terms of the new notes are not materially different from the terms of the old notes. Accordingly, (1) no gain or loss should be realized, (2) the holding period of the new note should include the holding period of the old note exchanged for the new note and 95 99 (3) the adjusted tax basis of the new note should be the same as the adjusted tax basis of the old note exchanged for the new note immediately before the exchange. U.S. HOLDERS This section discusses the rules applicable to the following U.S. holders: (1) a citizen or resident of the United States for United States federal income tax purposes, (2) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (3) an estate the income of which is subject to United States federal income taxation regardless of its source or a trust if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (4) any other person whose worldwide income or gain is otherwise subject to United States federal income taxation on a net income basis. STATED INTEREST Stated interest on the notes will be taxable to a U.S. holder as ordinary interest income in accordance with the U.S. holder's method of tax accounting at the time that the stated interest is accrued or actually or constructively received. We believe that under applicable regulations, all of the stated interest on the notes should be treated as foreign source income for United States federal income tax purposes. For United States foreign tax credit purposes, interest generally will be foreign source "passive income" or "financial services income." Therefore, only foreign tax credits from sources that also generate "passive income" or "financial services income" can offset United States federal income tax imposed on the stated interest on the notes. SALE, EXCHANGE AND RETIREMENT OF NOTES A U.S. Holder of a note will recognize gain or loss upon the sale, retirement or other taxable disposition of his/her notes. This gain or loss will generally be equal to the difference between (1) the amount of cash and the fair market value of property received for the notes, other than amounts representing accrued but unpaid stated interest, and (2) the holder's adjusted tax basis in the notes. The adjusted tax basis of the notes in the hands of an original holder generally will be equal to the notes' purchase price. Gain or loss generally will 96 100 be capital gain or loss and will be long-term capital gain or loss, generally taxed at a preferential rate, if the holder has held his/her notes for more than one year. There are limits on the deductibility of capital losses. Any amounts paid with respect to accrued but unpaid stated interest generally will be taxable as ordinary interest income. Gain or loss realized on the sale, retirement or other taxable disposition of a note derived by a U.S. holder generally will treated as U.S. source income or loss for foreign tax credit purposes. LIQUIDATED DAMAGES We intend to take the position that the liquidated damages described in the registration rights agreement will be taxable to a U.S. holder as ordinary income in accordance with the holder's method of accounting for United States federal income tax purposes. It is possible, however, that the IRS may take a different position, in which case a U.S. holder might be required to include such liquidated damages in income as the liquidated damages accrue or become fixed. The source of such liquidated damages is unclear; we believe that the liquidated damages should be treated as foreign source income for foreign tax credit purposes. NON-U.S. HOLDERS For purposes of this discussion, a Non-U.S. holder is any holder of notes who is (1) a nonresident alien individual or (2) a foreign corporation, partnership or estate or trust which is not subject to United States federal income tax on a net income basis. Under present United States federal income and estate tax law, and subject to the discussion of backup withholding below: (1) payments of principal, premium, if any, and interest by us or any of our paying agents to a Non-U.S. holder will not be subject to United States federal withholding tax if, in the case of interest, (a) the beneficial owner of the notes does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock, (b) the beneficial owner of notes is not a controlled foreign corporation that is related to us through stock ownership, and (c) either (A) the beneficial owner of the notes certifies to us or our agent, under penalties of perjury, that it is not a U.S. holder and provides its name and address or 97 101 (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and holds the notes certifies to us or our agent, under penalties of perjury, that a statement that the beneficial owner is not a U.S. holder has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof; (2) a non-U.S. holder of notes will not be subject to United States federal withholding tax on any gain realized on the sale or exchange of notes; and (3) notes held by an individual who at death is not a citizen or resident of the United States will not be includible in the individual's gross estate for purposes of the United States federal estate tax as a result of the individual's death if (a) the individual did not actually or constructively own 10% or more of the total combined voting power of all classes of our stock and (b) the income on the note would not have been effectively connected with a United States trade or business of the individual at the individual's death. Recently finalized regulations (the "Final Withholding Regulations"), that are generally effective with respect to payments after December 31, 1999, provide alternative methods for satisfying the certification requirement described in clause (1)(c) above. The Final Withholding Regulations also require, in the case of notes held by a foreign partnership, that (1) the certification described in clause (1)(c) above be provided by the partners rather than by the foreign partnership and (2) the partnership provide certain information, including a United States taxpayer identification number. A look-through rule will apply in the case of tiered partnerships. BACKUP WITHHOLDING AND INFORMATION REPORTING U.S. HOLDERS In general, information reporting requirements will apply to certain payments of principal, premium, if any, and interest and to the proceeds of sale of notes made to holders other than certain exempt recipients, such as corporations. Backup withholding and information reporting generally will not apply to payments of principal, premium, if any, and interest on notes made outside the United States, other than payments made to an address in the United Sates or by transfer to an account maintained by the holder with a bank in the United States, by us or any paying agent, acting in its capacity as such, to a holder. A 31% backup withholding tax may apply to such payments if the U.S. holder fails to provide a taxpayer identification number or certification of 98 102 foreign or other exempt status or is notified by the IRS that it has failed to report in full dividend and interest income. NON-U.S. HOLDERS Under current law, information reporting on Internal Revenue Service Form 1099 and backup withholding will not apply to payments of principal, premium, if any, and interest made by us or a paying agent to a Non-U.S. holder on notes; provided, the certification described in clause (1)(c) under "Non-United States Holders" above is received, and provided further that the payor does not have actual knowledge that the holder is a U.S. person. We or a paying agent, however, may report (on Internal Revenue Service Form 1042S) payments of interest on notes. Payments of the proceeds from the sale by a Non-U.S. holder of a note made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that if the broker is a U.S. person, a controlled foreign corporation for United States tax purposes or a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, information reporting may apply to such payments. Payments of the proceeds from the sale of notes to or through the United States office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. See the discussion above with respect to the rules under the Final Withholding Regulations. PLAN OF DISTRIBUTION Each holder desiring to participate in the exchange offer will be required to represent, among other things, that (1) it is not an "affiliate" (as defined in Rule 405 of the Securities Act) of us, (2) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in a distribution of the new notes, and (3) it is acquiring the new notes in the ordinary course of its business. A holder unable to make the foregoing representations is referred to herein as a "restricted holder". A restricted holder will not be able to participate in the exchange offer, and may only sell its old notes pursuant to a registration statement containing the selling securityholder information required by Item 507 of Regulation S-K of the Securities Act, or pursuant to an exemption from the registration requirement of the Securities Act. 99 103 Each participating broker-dealer is required to acknowledge in the letter of transmittal that it acquired the old notes as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with the resale of such new notes. Based upon interpretations by the staff of the SEC, we believe that new notes issued pursuant to the exchange offer to participating broker-dealers may be offered for resale, resold, and otherwise transferred by a participating broker-dealer upon compliance with the prospectus delivery requirements, but without compliance with the registration requirements, of the Securities Act. We have agreed that for a period of 180 days following consummation of the exchange offer, we will make this prospectus available to participating broker-dealers for use in connection with any such resale. During such period of time, delivery of this prospectus, as it may be amended or supplemented, will satisfy the prospectus delivery requirements of a participating broker-dealer engaged in market making or other trading activities. Based upon interpretations by the staff of the SEC, we believe that new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by a holder thereof, other than a participating broker-dealer, without compliance with the registration and prospectus delivery requirements of the Securities Act. We will not receive any proceeds from any sale of new notes by broker- dealers. New notes received by participating broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such participating broker-dealer and/or the purchasers of any such new notes. Any participating broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to pay all expenses incidental to the exchange offer other than commissions and concessions of any brokers or dealers and will indemnify holders of the notes, including any broker-dealers, against certain liabilities, 100 104 including liabilities under the Securities Act, as set forth in the registration rights agreement. INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means we can disclose important information to you by referring you to those documents. The information included in the following documents is incorporated by reference and is considered to be a part of this prospectus. The most recent information that we file with the SEC automatically updates and supersedes more dated information. We have previously filed (File No. 1-14180) the following documents with the SEC and are incorporating them by reference into this prospectus. (a) Our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and Globalstar's consolidated financial statements included in Globalstar Telecommunications Limited and Globalstar's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, all filed pursuant to the Exchange Act; (b) Our Current Report on Form 8-K, filed on January 19, 1999 pursuant to the Exchange Act; and (c) Our Proxy Statement relating to the 1999 annual meeting of stockholders. We also incorporate by reference all documents subsequently filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of the old notes are exchanged for new notes. We will provide, upon request, without charge to each person, including any person having a control relationship with that person, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in this prospectus but not delivered with this prospectus. If you would like to obtain this information from us, please direct your request, either in writing or by telephone, to Eric J. Zahler, Esq., General Counsel, 600 Third Avenue, New York, New York 10016, Telephone: (212) 697-1105. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC and have filed a registration statement with the SEC on Form S-4 to register this exchange offer. Since this prospectus does not contain all of the important business and financial information included in the registration statement, you may wish to refer to the registration statement and its exhibits for further information about us, the exchange offer and the new notes. This information is also available without charge upon written or oral request. Call or write us at Loral SpaceCom Corporation, 600 Third Avenue, 101 105 New York, New York, Attention: Secretary (Telephone (212) 697-1105) to request your free copies. To obtain timely delivery, you should request the information at least five days before you make your decision as to whether or not to exchange your notes. You can access our SEC filings electronically at www.sec.gov, and can read and copy our filings at the SEC's Public Reference Room (800-SEC-0330) at 450 Fifth Street, N.W., Washington, D.C. 20549 and at regional public reference facilities maintained by the SEC located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain more information about us by visiting our web site at http://www.loral.com. We remind professional securities dealers of their obligation under the securities laws to deliver a copy of this prospectus to anyone who buys new notes from them until , 1999, which is the 90th day after the date of this prospectus. Securities dealers who were initial purchasers of the old notes and are acting as underwriters of unsold allotments have additional prospectus delivery requirements. LEGAL MATTERS The validity of the new notes will be passed upon for us by Appleby, Spurling & Kempe, Hamilton, Bermuda. Mr. Robert Hodes is of counsel to the law firm of Willkie Farr & Gallagher, a Director of Loral and Globalstar Telecommunications Limited and a member of the Executive and Audit Committees of the Boards of Directors of both Loral and Globalstar Telecommunications Limited. As of March 15, 1999, Mr. Hodes beneficially owned 25,000 shares of the common stock of Loral, including 5,000 shares exercisable under Loral's stock option plan. Mr. Bruce R. Kraus, partner of the law firm of Willkie Farr & Gallagher and counsel to Loral, beneficially owned 6,700 shares of common stock of Loral. EXPERTS The annual consolidated financial statements of Loral, Space Systems/Loral and the financial statement schedule of Loral incorporated in this prospectus by reference from Loral's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and the consolidated financial statements of Globalstar, incorporated in this prospectus by reference from the Annual Report on Form 10-K of Globalstar Telecommunications Limited and Globalstar for the fiscal year ended December 31, 1998, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in auditing and accounting. 102 106 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $350,000,000 OFFER TO EXCHANGE 9 1/2% SENIOR NOTES DUE 2006 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR OUTSTANDING 9 1/2% SENIOR NOTES DUE 2006 ------------------------------ P R O S P E C T U S DATED , 1999 ------------------------------ LORAL SPACE & COMMUNICATIONS LTD. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 107 PART II ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Bermuda law permits a company to indemnify its directors and officers, except for any act of fraud or dishonesty. Loral has provided in its Bye-Laws that its directors and officers will be indemnified and held harmless against any expenses, judgments, fines, settlements and other amounts incurred by reason of any act or omission in the discharge of their duty, other than in the case of fraud or dishonesty. Bermuda law and the Bye-Laws of Loral also permit Loral to purchase insurance for the benefit of its directors and officers against any liability incurred by them for failure to exercise the requisite care, diligence and skill in the exercise of their powers and the discharge of their duties, or indemnifying them in respect of any loss arising or liability incurred by them by reason of negligence, default, breach of duty or breach of trust. Loral has entered into indemnification agreements with its officers and directors. To the extent permitted by law, the indemnification agreements may require Loral, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors (other than liabilities arising from fraud or dishonesty) and to advance their expenses incurred as a result of any proceedings against them as to which they could be indemnified. The Registrant maintains a directors' and officers' liability insurance policy. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 1 Purchase Agreement, by and among Loral and the Initial Purchasers, dated January 15, 1999. 3.1 Memorandum of Association of Loral.* 3.2 Bye-Laws of Loral.* 4 Indenture, dated January 15, 1999, by and between Loral and The Bank of New York, as trustee.** 5 Opinion of Appleby, Spurling & Kempe regarding the legality of the securities being registered. 8.1 Opinion of Appleby, Spurling & Kempe regarding certain Bermuda tax considerations (included in Exhibit 5). 8.2. Opinion of Willkie Farr & Gallagher regarding certain federal income tax considerations. 10.. Registration Rights Agreement, dated January 21, 1999, between Loral and the Initial Purchasers.**
II-1 108 12 Statement re: computation of ratio of earnings to fixed charges.** 23.1 Consent of Appleby, Spurling & Kempe (included in Exhibit 5). 23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 8.2). 23.3 Consent of Deloitte & Touche LLP. 24 Powers of Attorney. 25 Statement on Form T-1 of Eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Nominees.
- ------------------------- * Incorporated by reference to Loral's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-14180) ** Incorporated by reference to Loral's Annual Report on Form 10-K for the fiscal year ended on December 31, 1998 (File No. 1-14180). All other schedules have been omitted because they are not applicable or are not required or the required information is included in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act; II-2 109 (b) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that these undertakings contained in paragraphs l(a) and 1(b) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement. (2) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (3) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of offering. The undersigned Registrant hereby undertakes: (1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 110 (3) That, for purposes of determining any liability under the Securities Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (5) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 111 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on April 1, 1999. LORAL SPACE & COMMUNICATIONS LTD. By: * ------------------------------------ Name: Bernard L. Schwartz Title: Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board and Chief April 1, 1999 - --------------------------------------------------- Executive Officer (Principal Bernard L. Schwartz Executive Officer) * Director April 1, 1999 - --------------------------------------------------- Howard Gittis * Director April 1, 1999 - --------------------------------------------------- Robert B. Hodes * Director April 1, 1999 - --------------------------------------------------- Gershon Kekst * Director April 1, 1999 - --------------------------------------------------- Charles Lazarus * Director April 1, 1999 - --------------------------------------------------- Malvin A. Ruderman * Director April 1, 1999 - --------------------------------------------------- E. Donald Shapiro * Director April 1, 1999 - --------------------------------------------------- Arthur L. Simon * Director April 1, 1999 - --------------------------------------------------- Daniel Yankelovich * Senior Vice President and Chief April 1, 1999 - --------------------------------------------------- Financial Officer (Principal Richard J. Townsend Financial Officer) * Vice President and Controller April 1, 1999 - --------------------------------------------------- (Principal Accounting Harvey B. Rein Officer)
*By: /s/ ERIC J. ZAHLER -------------------------------------------------- Eric J. Zahler Attorney-in-Fact II-5 112 EXHIBIT INDEX
PAGE ---- 1 Purchase Agreement, by and among Loral and the Initial Purchasers, dated January 15, 1999.......................... 3.1 Memorandum of Association of Loral.*........................ 3.2 Bye-Laws of Loral.*......................................... 4 Indenture, dated January 15, 1999, by and between Loral and The Bank of New York, as trustee.**......................... 5 Opinion of Appleby, Spurling & Kempe regarding the legality of the securities being registered.......................... 8.1 Opinion of Appleby, Spurling & Kempe regarding certain Bermuda tax considerations (included in Exhibit 5).......... 8.2. Opinion of Willkie Farr & Gallagher regarding certain federal income tax considerations........................... 10.. Registration Rights Agreement, dated January 21, 1999, between Loral and the Initial Purchasers.**................. 12 Statement re: computation of ratio of earnings to fixed charges.**.................................................. 23.1 Consent of Appleby, Spurling & Kempe (included in Exhibit 5).......................................................... 23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 8.2)........................................................ 23.3 Consent of Deloitte & Touche LLP............................ 24 Powers of Attorney.......................................... 25 Statement on Form T-1 of Eligibility of Trustee............. 99.1 Form of Letter of Transmittal............................... 99.2 Form of Notice of Guaranteed Delivery....................... 99.3 Form of Letter to Clients................................... 99.4 Form of Letter to Nominees..................................
- ------------------------- * Incorporated by reference to Loral's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-14180) ** Incorporated by reference to Loral's Annual Report on Form 10-K for the fiscal year ended on December 31, 1998 (File No. 1-14180). All other schedules have been omitted because they are not applicable or are not required or the required information is included in the financial statements or notes thereto. II-6 EX-1 2 PURCHASE AGREEMENT 1 EXECUTION COPY LORAL SPACE & COMMUNICATIONS LTD. $350,000,000 9-1/2% Senior Notes due 2006 PURCHASE AGREEMENT New York, New York January 15, 1999 LEHMAN BROTHERS INC. and the other Initial Purchasers named in Schedule I hereto c/o LEHMAN BROTHERS INC. 3 World Financial Center 200 Vesey Street New York, New York 10285 Ladies and Gentlemen: Loral Space & Communications Ltd., a Bermuda company (the "Company"), proposes to sell to the several initial purchasers named in Schedule I hereto (the "Initial Purchasers") $350,000,000 aggregate principal amount of 9-1/2% Senior Notes due 2006 of the Company (the "Securities"). The Securities will be issued under an Indenture (as defined herein). Holders (including subsequent transferees) of the Securities will have the registration rights set forth in the Registration Rights Agreement (the "Registration Rights Agreement") between the Company and the Initial Purchasers. Pursuant to the Registration Rights Agreement, the Company has agreed to file with the Securities and Exchange Commission (the "Commission") (i) a registration statement (the "Exchange Offer Registration Statement") under the Securities Act of 1933 (the "Securities Act"), registering an issue of a series of senior notes (the "Exchange 2 2 Securities") identical in all material respects to the Securities (except that the Exchange Securities will not contain terms with respect to transfer restrictions) to be offered in exchange for the Securities (the "Exchange Offer") and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). The following terms as used in this Agreement shall have the following meanings: "Affiliates" shall have the meaning ascribed thereto in Rule 501(b) of Regulation D under the Securities Act ("Regulation D"). "Business Day" shall mean any day on which the trading is conducted on the NYSE. "Closing Date" shall have the meaning set forth in Section 3(b). "Common Stock" shall mean the common stock, par value $0.01 per share, of the Company. "Convertible Preferred Offering" shall mean the proposed offering of up to 8,400,000 shares of convertible preferred stock (the "GTL Convertible Preferred") of GTL and the concurrent sale to GTL of preferred partnership interests (the "Globalstar Preferred Interests") contemplated in connection therewith. "DTC" shall mean The Depository Trust Company. "Exchange Act" shall mean the Securities Exchange Act of 1934. "Exchange Act Reports" shall have the meaning set forth in Section 1(a). "Exchange Offer" shall have the meaning set forth in the second paragraph of this Agreement. 3 3 "Exchange Offer Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "FCC" shall mean the Federal Communications Commission. "Final Memorandum" shall mean the final offering memorandum dated January 15, 1999, including any information incorporated by reference therein. "Globalstar" shall mean Globalstar, L.P., a Delaware limited partnership. "Globalstar Credit Agreement" shall mean the Revolving Credit Agreement dated as of December 15, 1995, as amended by the First Amendment dated March 25, 1996, the Second Amendment dated July 31, 1997 and the Third Amendment dated October 15, 1997, among Globalstar, the several financial institutions named therein and The Chase Manhattan Bank (as successor to Chemical Bank), as administrative agent. "GTL" shall mean Globalstar Telecommunications Limited, a Bermuda company. "Indenture" shall mean the Indenture dated as of January 15, 1999 between the Company and The Bank of New York, as trustee, pursuant to which the Securities will be issued. "Initial Purchasers" shall mean the parties named in Schedule I hereto. "Investment Company Act" shall mean the Investment Company Act of 1940 and the rules and regulations thereunder. 4 4 "Loral Affiliates" shall mean each of GTL, Globalstar, SS/L, Orion and SatMex, and any other subsidiary (as defined in Rule 405 under the Securities Act) of the Company. "LQP" shall mean Loral/QUALCOMM Partnership, L.P., a Delaware limited partnership and the general partner of LQSS. "LQSS" shall mean Loral/QUALCOMM Satellite Services, L.P., a Delaware limited partnership and the managing general partner of Globalstar. "NASD" shall mean the National Association of Securities Dealers, Inc. "Operative Documents" shall mean, collectively, this Agreement, the Indenture and the Registration Rights Agreement. "Orion" shall mean Loral Orion, Inc., a Delaware corporation. "Partnership Agreement" shall mean the Amended and Restated Agreement of Limited Partnership of Globalstar, L.P. dated as of March 6, 1996, as amended April 8, 1998, among LQSS, GTL, the Company and certain limited partners named therein. "PORTAL" shall mean the Private Offerings, Resale and Trading through Automated Linkages market operated by the NASD. "Preliminary Memorandum" shall mean the preliminary offering memorandum, dated January 7, 1999, including any information incorporated by reference therein. "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of the Closing Date between the Company and the Initial Purchasers. 5 5 "Rules and Regulations" shall mean the rules and regulations in effect at any relevant time adopted by the Commission under the Securities Act or the Exchange Act, as applicable. "SatMex" shall mean Satelites Mexicanos, S.A. de C.V., a company organized under the laws of Mexico. "Securities Act" shall mean the Securities Act of 1933. "Shelf Registration Statement" shall have the meaning set forth in the second paragraph of this Agreement. "Skynet" shall mean Loral Skynet, a Delaware corporation. "SpaceCom Credit Agreement" shall mean that certain Amended and Restated Credit and Participation Agreement among Loral SpaceCom Corporation, Space Systems/Loral, Inc., certain lending banks, Bank of America National Trust and Savings Association, as Administrative Agent, and Istituto Bancario San Paolo Di Torino S.P.A., individually and as Italian Export Financing Arranger and as Selling Bank, dated as of November 14, 1997, providing for up to $850 million of credit extensions, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, as amended on May 7, 1998. "SS/L" shall mean Space Systems/Loral, Inc., a Delaware corporation. "Trustee" shall mean The Bank of New York, as trustee under the Indenture. The sale of the Securities to you will be made without registration of the Securities under the Securities Act, in reliance upon exemptions from the registration requirements of the Securities Act. You have advised the Company that the Initial Purchasers will offer and sell the 6 6 Securities purchased by them hereunder in accordance with Section 3 hereof as soon as you deem advisable. In connection with the sale of the Securities, the Company has prepared the Preliminary Memorandum and the Final Memorandum. Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company, the Loral Affiliates and the Securities. The Company hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum in connection with the offer and sale of the Securities by the Initial Purchasers. Unless stated to the contrary, all references herein to the Final Memorandum are to the Final Memorandum at the Execution Time and are not meant to include any amendment or supplement thereto, or any information incorporated by reference therein, subsequent to the Execution Time, and any references herein to the terms "amend", "amendment" or "supplement" with respect to the Final Memorandum shall be deemed to refer to and include any information filed under the Exchange Act, subsequent to the Execution Time which is incorporated by reference therein. 1. Representations and Warranties of the Company. The Company represents and warrants to each Initial Purchaser as set forth below in this Section 1 that: (a) The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Final Memorandum, at the date hereof, does not, and at the Closing Date will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date, will not), contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final 7 7 Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Initial Purchasers specifically for inclusion therein. (b) It is not required by applicable law or regulation in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act, provided that neither the Initial Purchasers or any person acting on their behalf (i) has or will directly, or through an agent, sell, offer for sale, solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Securities Act and (ii) has or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer and sale of any of the Securities, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (c) Prior to the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, it is not necessary to qualify the Indenture in respect of the Securities under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (d) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act and the Company has been advised by the NASD that the Securities have or will be designated PORTAL eligible securities in accordance with the rules and regulations of the NASD. (e) Each of the Company and GTL has been duly incorporated as an exempted company and is validly existing as an exempted company in good standing under the laws of Bermuda, with all requisite power and authority and, except 8 8 as disclosed in the Final Memorandum, has all necessary material government authorizations, licenses, certificates, franchises, permits and approvals required to own its properties and to conduct its business as described in the Final Memorandum; Globalstar has been duly formed and is validly existing as a limited partnership under the laws of the State of Delaware, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases property, or conducts any business, so as to require such qualification (except where the failure to so qualify would not have a material adverse effect on the Company); and Globalstar has all requisite power and authority and, except as disclosed in the Final Memorandum, has all necessary material government authorizations, licenses, certificates, franchises, permits and approvals required to own its properties and to conduct its business as described in the Final Memorandum; SS/L and Orion have been duly incorporated and are validly existing in good standing under the laws of the State of Delaware, with all requisite power and authority and, except as disclosed in the Final Memorandum, have all necessary material government authorizations, licenses, certificates, franchises, permits and approvals required to own their properties and to conduct their businesses as described in the Final Memorandum; SatMex has been duly formed and is validly existing as a company under the laws of Mexico, with all requisite power and authority and, except as disclosed in the Final Memorandum, has all necessary material government authorizations, licenses, certificates, franchises, permits and approvals required to own its properties and conduct its business as described in the Final Memorandum; each other Loral Affiliate that is a corporation has been duly incorporated and is validly existing in good standing under the laws of its jurisdiction of incorporation; each Loral Affiliate that is a partnership has been duly formed and is validly existing under the laws of its jurisdiction of formation. Since the respective dates as of which information is given in the Final Memorandum, and except as otherwise disclosed in the Final Memorandum, there has not been, and (other than as contemplated in the Convertible Preferred Offering) prior to the Closing Date there will not be, any material change in 9 9 the capital stock or partnership interests of the Company or short-term debt or long-term consolidated debt of the Company or any Loral Affiliate, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and the Loral Affiliates, taken as a whole, otherwise than as set forth or contemplated, or under arrangements referred to, in the Final Memorandum (as amended or supplemented). (f) Neither the Company nor any Loral Affiliate is an "investment company" within the meaning of such term under the United States Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (g) The Company has authorized capital stock as set forth in its Memorandum of Association, and all the issued shares of Common Stock have been duly and validly authorized and issued, are fully paid and not subject to any preemptive or similar rights. (h) The Indenture has been duly authorized by the Company and, when executed by the proper officers of the Company (assuming due execution and delivery by the Trustee) and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as enforcement of rights to indemnity or contribution may be limited by Federal or state securities laws or principles of public policy; and the Securities will conform in all material respects to the description of the Securities in the Final Memorandum and the Indenture. (i) The Securities to be issued and sold by the Company to the Initial Purchasers hereunder have been duly and validly authorized and, when duly executed, 10 10 authenticated, issued and delivered as contemplated by the Indenture against payment therefor as provided herein, will be duly and validly issued, fully paid and not subject to further calls, and will constitute the valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as enforcement of rights to indemnity or contribution may be limited by Federal or state securities laws or principles of public policy; and the Securities will conform in all material respects to the description of the Securities in the Final Memorandum and the Indenture. (j) The Registration Rights Agreement has been duly authorized by the Company and, when executed by the proper officers of the Company (assuming due execution and delivery by the Initial Purchasers) and delivered by the Company, will constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as enforcement of rights to indemnity or contribution may be limited by Federal or state securities laws or principles of public policy; and the Registration Rights Agreement conforms in all material respects to the description thereof contained in the Final Memorandum. (k) This Agreement has been duly authorized, executed and delivered by the Company. (l) The execution, delivery and performance of the Operative Documents by the Company and the consummation of the transactions contemplated hereby will not conflict with or result in a breach or violation of any of the terms 11 11 or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Loral Affiliate is a party or by which the Company or any Loral Affiliate is bound or to which any of the property or assets of the Company or any Loral Affiliate is subject, nor will such actions result in any violation of the provisions of the charter or by-laws (or other constitutive documents) of the Company or any Loral Affiliate, or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Loral Affiliate or any of their properties or assets; no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the issue and sale of Securities by the Company and the consummation of the transactions contemplated by the Operative Documents, except as may be required under the various state securities or Blue Sky Laws or as may be required by the laws of any country other than the United States in connection with the resale of the Securities by the Initial Purchasers or as may be required under the Securities Act pursuant to the terms of the Registration Rights Agreement. (m) Except as may otherwise be disclosed in or contemplated by the Final Memorandum or as part of the Convertible Preferred Offering, since September 30, 1998, none of the Company or the Loral Affiliates have issued or granted any securities or partnership interests, including any sales pursuant to Rule 144A, Regulation D or Regulation S under the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (n) Except as disclosed in the Final Memorandum, neither the Company nor any Loral Affiliate has sustained, since the date of the latest audited financial statements included in the Final Memorandum, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, 12 12 order or decree; and, since such date, there has not been any prospective change in the capital stock, partnership interests or long-term debt of the Company or any Loral Affiliate (other than as part of the Convertible Preferred Offering) or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and the Loral Affiliates, otherwise than as set forth or contemplated in the Final Memorandum. (o) Deloitte & Touche LLP, whose report appears in the Final Memorandum, are independent public accountants with respect to each of the Company and certain of the Loral Affiliate. The financial statements (including the related notes) included or incorporated by reference in the Final Memorandum or Preliminary Memorandum present fairly the financial condition, results of operations and changes in financial condition of the entities purported to be shown thereby at the dates and for the periods indicated and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be noted therein) throughout the periods indicated. (p) Except as described in the Final Memorandum, the Company and each of the Loral Affiliates carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (q) Each of the Company and the Loral Affiliates and their respective equipment suppliers owns or possesses adequate patent rights or licenses or other rights to use patent rights, inventions, trademarks, service marks, trade names and copyrights (except as otherwise described in the Final Memorandum) necessary to conduct the general business proposed to be operated by the Company and the Loral Affiliates as described in the Final Memorandum, and none of the Company or the Loral Affiliates or, to the knowledge of the Company, any of their respective equipment suppliers, 13 13 has received any notice of infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, could materially adversely affect the business, operations, financial condition, income or business prospects of the Company and the Loral Affiliates, taken as a whole. (r) Except as described or contemplated in the Final Memorandum, there are no legal or governmental proceedings pending to which the Company or any Loral Affiliate is a party or of which any property or assets of the Company or any Loral Affiliate is the subject which, if determined adversely to the Company or any Loral Affiliate, would have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and the Loral Affiliates, taken as a whole, and to the best of the Company's knowledge, except as described in the Final Memorandum, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (s) Other than as disclosed in the Final Memorandum, (i) no default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, loan or credit agreement, lease or other agreement or instrument to which the Company or any Loral Affiliate is a party or by which the Company or any Loral Affiliate is bound, except any such default or event as would not singly or in the aggregate have a material adverse effect on the Company and the Loral Affiliates, taken as a whole, and (ii) neither the Company nor any Loral Affiliate is in violation in any material respect of any applicable law. (t) (i) The FCC has authorized LQP to construct a mobile satellite system capable of operating in the 1610- 1626.5/2483.5-2500 MHz frequency bands, consistent with the technical specifications set forth in its application, the FCC's rules and the conditions set forth in the FCC's Order 14 14 and Authorization (DA 95-128), released January 31, 1995, as affirmed and modified by the Memorandum Opinion and Order, FCC 96 279 (released June 27, 1996), as modified by the FCC's Order and Authorization, DA 96 1924 (released November 19, 1996); however, such authorization is presently subject to modification, stay or revocation through judicial appeals. (ii) Participation by Globalstar in the development and operation of the Globalstar System as described in the Final Memorandum does not violate the Communications Act of 1934, as amended (the "Communications Act"), or the rules and regulations thereunder. (iii) The construction, launch and operation by Globalstar of the Globalstar satellite constellation authorized by the Order and Authorization (DA 95-128), released January 31, 1995 as modified by the Erratum, DA 95 373 (released February 29, 1995), as affirmed and modified by the Memorandum Opinion and Order, FCC 96 279 (released June 27, 1996), as modified by the FCC's Order and Authorization, DA 96 1924 (released November 19, 1996), would not violate provisions of the Communications Act or the FCC's rules and policies thereunder relating to control of FCC authorizations, provided that L/Q Licensee, Inc. remains in ultimate control of the authorized facilities as defined by the rules and policies of the FCC and that there is no transfer of control of L/Q Licensee, Inc. without prior approval of the FCC. (u) Neither the Company nor any Loral Affiliate, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any Loral Affiliate, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, 15 15 payoff, influence payment, kickback or other unlawful payment. (v) Except as disclosed in the Final Memorandum, there has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by any of the Company or the Loral Affiliates (or, to the knowledge of the Company, any predecessors in interest of any of them) at, upon or from any of the property now or previously owned or leased by the Company or any Loral Affiliate, as the case may be, in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or would not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, shareholders' equity or results of operations of the Company and the Loral Affiliates, taken as a whole; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company, any Loral Affiliate or any of their respective predecessors or with respect to which the Company has knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material adverse effect on the general affairs, management, financial position, shareholders' equity or results of operations of the Company and the Loral Affiliates, taken as a whole; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, Federal and 16 16 foreign laws or regulations with respect to environmental protection. (w) The partnership interests in Globalstar held by the Company and GTL pursuant to the Partnership Agreement are duly and validly authorized, executed, issued and delivered in accordance with the terms of the Partnership Agreement, are fully paid and constitute the valid and binding obligations of Globalstar; all the issued and outstanding capital stock of each other Loral Affiliate has been duly authorized and validly issued and is fully paid and nonassessable; and, except as disclosed in the Final Memorandum and except for the stock of GTL that is owned by the Company and has been pledged to Lockheed Martin, common stock of GTL owned by the Company that is subject to outstanding options, shares of Loral SpaceCom Corporation and SS/L pledged as security for borrowings under the SpaceCom Credit Agreement, partnership interests in Globalstar owned by the Company, some of which are subject to a pledge in the event of a drawing by the Company under a credit agreement, dated as of June 30, 1998, among the Company, the lenders party thereto from time to time and Bank of America National Trust and Savings Association, as administrative agent, interests in Firmanento Mexicano, S. de R.L. de C.V. that have been pledged to the Mexican government and shares of SatMex pledged in favor of certain banks in connection with the SatMex Credit Agreement dated as of February 23, 1998 and the Indenture dated March 4, 1998 relating to the Senior Secured Floating Rate Notes, the capital stock of such Loral Affiliate owned by the Company, directly or indirectly, is owned free from liens, encumbrances, equities, claims and defects. (x) For U.S. Federal income tax purposes, the Company is not, and does not expect to become, a "passive foreign investment company" within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended. (y) The proceeds from the offering of Securities will be used as contemplated in the Final Memorandum. 17 17 2. Purchase and Sale of the Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and not jointly, to purchase from the Company, at a purchase price of 98.25% of the principal amount thereof plus accrued interest, if any, from January 21, 1999 to the Closing Date, the principal amount of Firm Securities set forth opposite such Initial Purchaser's name in Schedule I hereto. 3. Delivery and Payment for Securities. (a) Delivery of and payment for the Securities shall be made at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019 (or such other place as mutually may be agreed upon), at 10:00 a.m., New York City time, on January 21, 1999 or such later date as the Initial Purchasers and the Company shall agree (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). (b) The Securities to be purchased by the Initial Purchasers hereunder shall be delivered by or on behalf of the Company to you against payment of the purchase price therefor by wire transfer in immediately available funds. On the Closing Date, payment will be made against delivery of a single global Securities certificate to be deposited with, or on behalf of, DTC, and registered in the name of Cede & Co., as DTC's nominee. Time shall be of the essence, and delivery of certificates for the Securities at the time and place specified in this Agreement is a further condition to the obligations of each Initial Purchaser. 4. Representations by Initial Purchasers; Sale and Resale of the Securities by Initial Purchasers. Each 18 18 Initial Purchaser represents and warrants to and agrees with the Company that: (a) it has offered and will offer to sell the Securities only to, and has solicited and will solicit offers to buy the Securities only from, persons that in purchasing such Securities will be deemed to have represented and agreed as provided under "Investor Representations and Restrictions on Resale" in Exhibit A hereto; (b) none of it or any of its affiliates has entered into or will enter into any contractual arrangement with respect to the distribution of the Securities except for any such arrangements with any other Initial Purchaser or affiliates of any other Initial Purchaser or with the prior written consent of the Company; (c) with respect to resales made in reliance on Rule 144A of any of the Securities, it will deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A; (d) with respect to offers and sales outside the United States in reliance on Regulation S: (i) the Securities have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act; and (ii) such Initial Purchaser has not offered the Securities and will not offer, sell or deliver the Securities in the United States or to, or for the account or benefit of, U.S. persons, (A) as part of its distribution at any time or (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S. Accordingly, neither such Initial Purchaser, its affiliates nor any 19 19 persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and such Initial Purchaser, its affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; and (e) it has not offered or sold, and will not offer or sell, in the United Kingdom, by means of any document, any Securities other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as a principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Public Offers of Securities Regulations 1995; it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the document may otherwise lawfully be issued or passed on. 5. Covenants of the Company. The Company agrees with each Initial Purchaser that: (a) The Company will furnish to each Initial Purchaser and to counsel for the Initial Purchasers, without charge, during the period referred to in paragraph (c) of this Section 5, as many copies of the Final Memorandum, including any documents incorporated by reference therein and any amendments and supplements thereto, as it may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering. (b) The Company will not amend or supplement the Final Memorandum without the prior written consent of the 20 20 Initial Purchasers, which consent shall not be unreasonably withheld or delayed. (c) If at any time prior to the completion of the sale of the Securities by the Initial Purchasers (as determined by the Initial Purchasers), any event occurs as a result of which the Final Memorandum, as then amended or supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it should be necessary to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchasers of the same and, subject to the requirements of paragraph (b) of this Section 5, will promptly prepare and provide to the Initial Purchasers pursuant to paragraph (a) of this Section 5 an amendment or supplement which will correct such statement or omission or effect such compliance. (d) The Company will arrange for the qualification of the Securities for sale by the Initial Purchasers under the laws of such jurisdictions as the Initial Purchasers may reasonably designate and will maintain such qualifications in effect so long as required for the sale of the Securities; provided that in connection therewith the Company shall not be required to qualify as a foreign corporation, to file a general consent to service of process, or become subject to taxation in any jurisdiction. The Company will promptly advise the Initial Purchasers of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. (e) Neither the Company, nor any of the Loral Affiliates, nor any person acting on either of their behalf will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Securities under the Securities Act. Neither the Company, nor any of the Loral Affiliates, nor any person acting on 21 21 either of or their behalf will engage in any form of general solicitation or general advertising (within the meaning of Regulation D), in any "directed selling efforts" (as defined in Regulation S) within the United States or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act in the United States. (f) So long as any of the Securities are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act (or has not otherwise provided such information to the Commission), provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities. (g) During the period of two years after the First Closing Date, the Company will not, without the prior written consent of the Initial Purchasers, resell any of the Securities that have been reacquired by them, and the Company will not permit any of its directors nor will the Company permit any of the Loral Affiliates to resell any of the Securities that have been reacquired by any of them, except for Securities purchased by the Company or the Loral Affiliates and resold in a transaction registered under the Securities Act. (h) The Company agrees to pay (i) all expenses (including transfer taxes) incurred in connection with the delivery to the Initial Purchasers of the Securities, (ii) all reasonable fees and expenses (including, without limitation, fees and expenses of the Company's accountants and counsel, but excluding fees and expenses of counsel for the Initial Purchasers) in connection with the preparation, printing, delivery and shipping of the Final Memorandum (including the Exchange Act Reports and all amendments and 22 22 exhibits thereto), the Preliminary Memorandum, and any amendments or supplements of the foregoing, and the reproduction, delivery and shipping of this Agreement, (iii) all filing fees and reasonable fees and disbursements of counsel to the Initial Purchasers incurred in connection with the qualification of the Securities under state securities laws as provided in Section 5(d) hereof, (iv) any applicable listing, rating agency or similar fees, (v) the cost of printing certificates representing the Securities, (vi) the cost and charges of the Trustee, any transfer agent or registrar (including, without limitation, fees and expenses of counsel thereto) and (vii) all other reasonable costs and expenses incident to the performance of its obligations hereunder for which provision is not otherwise made in this Section 5. It is understood, however, that, except as provided in this Section 5 and Section 7 hereof, the Initial Purchasers shall pay all their own costs and expenses, including the fees of their counsel, transfer taxes due upon resale of any of the Securities by them and any advertising expenses incurred in connection with any offers they may make (such costs and expenses to be borne in equal proportions by the Initial Purchasers). If the sale of the Securities provided for herein is not consummated by reason of acts of the Company or any of the Loral Affiliates pursuant to Section 8 hereof which prevent this Agreement from becoming effective, or by reason of any failure, refusal or inability on the part of the Company or the Loral Affiliates to perform in all material respects any agreement on their part to be performed or because any condition of the Initial Purchasers' obligations hereunder to be performed by the Company or any of the Loral Affiliates is not fulfilled or if the Initial Purchasers shall decline to purchase the Securities for any reason permitted under this Agreement (except termination of this Agreement pursuant to paragraphs (c)-(f) of Section 8), the Company shall reimburse the Initial Purchasers for all reasonable out-of-pocket disbursements (including reasonable fees and disbursements of counsel) incurred by the Initial Purchasers in connection with any investigation or preparation made by it in respect of the marketing of the Securities or in contemplation of the performance by them of their obligations hereunder. If this Agreement is terminated 23 23 pursuant to Section 8 hereof by reason of the default of one or more Initial Purchasers, the Company shall not be obligated to reimburse any defaulting Initial Purchasers on account of these expenses. (i) In connection with the offering, until Lehman Brothers Inc. shall have notified the Company of the completion of the initial resale of the Securities, neither the Company, nor any Loral Affiliate nor anyone acting on their behalf has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its directors or partners, as the case may be, has a beneficial interest, any Securities or attempt to induce any person to purchase any Securities for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Securities. (j) The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act or the safe harbor of Regulation S thereunder to cease to be applicable to the offer and sale of the Securities. (k) The Company will use its reasonable efforts to permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the PORTAL market and to cause the Securities to be eligible for clearance and settlement through DTC. (l) The Company will not, until 90 days following the Closing Date, without the prior written consent of Lehman Brothers Inc., agree to offer to sell, sell or otherwise dispose of, directly or indirectly, any United States dollar denominated debt securities issued or guaranteed by the Company and having a maturity of more than one year from the date of issue, other than (i) Securities issued in connection with the Exchange Offer or the Shelf Registration Statement, (ii) strategically driven private placements of debt securities with strategic investors and 24 24 (iii) debt securities which are offered, sold or disposed of pursuant to obligations in existence on the date of this Agreement. (m) In connection with any disposition of Securities pursuant to a transaction made in compliance with applicable state securities laws and (i) satisfying the requirements of Rule 144(k) under the Securities Act, (ii) satisfying the requirements of Rule 904 of Regulation S, (iii) made pursuant to an effective registration statement under the Securities Act or (iv) disposed of in any other transaction that does not require registration under the Securities Act (and the Company has received an opinion of counsel or other documentation satisfactory to them to such effect), the Company will reissue certificates evidencing such Securities without the legend set forth under the heading "Notice to Investors" in the Final Memorandum (provided, in the case of a transaction specified in clause (iv) above, that the legal opinion referred to therein so permits). 6. Conditions of Initial Purchasers' Obligations. The respective obligations of the Initial Purchasers hereunder to purchase the Securities are subject to there not being any material breach, as of the date hereof and the Closing Date (as if made at the Closing Date), of the representations and warranties of the Company contained herein, to the performance in all material respects by the Company of its obligations hereunder and to the following additional conditions: (a) No Initial Purchaser shall have been advised by the Company or discovered and disclosed to the Company that the Final Memorandum, as of the date thereof, or as of the Closing Date, contained or contains an untrue statement of fact which, in your opinion or in the opinion of counsel to the Initial Purchasers, is material, or omitted or omits to state a fact which, in your opinion or in the opinion of counsel to the Initial Purchasers, is material and is required to be stated therein or is necessary to make the statements therein not misleading. 25 25 (b) On or prior to the Closing Date, you shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, such opinions or letters with respect to such matters as you may reasonably request, and such counsel shall have received such documents and information as they reasonably request to enable them to pass upon such matters. (c) On the Closing Date there shall have been furnished to you the opinion (addressed to the Initial Purchasers) of Willkie Farr & Gallagher, counsel to the Company, dated such Closing Date and in form and substance satisfactory to counsel for the Initial Purchasers, to the effect that: (i) Globalstar has been duly formed and is validly existing as a limited partnership in good standing under the laws of the State of Delaware; SS/L, Skynet and Orion have been duly incorporated and are validly existing as corporations in good standing under the laws of the State of Delaware; each of Globalstar, SS/L, Skynet and Orion has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in the United States in which it owns or leases property, or conducts any business, so as to require such qualification (except where the failure to so qualify would not have a material adverse effect on the Company, Globalstar, SS/L, Skynet and Orion, taken as a whole; and each of Globalstar, SS/L, Skynet and Orion has all requisite power and authority and, except as disclosed in the Final Memorandum, all material governmental authorizations, licenses, certificates, franchises, permits and approvals required to own its properties and to conduct its business as described in the Final Memorandum; (ii) The Securities conform in all material respects to the description thereof contained in the Final Memorandum; (iii) To such counsel's knowledge, other than as set forth in the Final Memorandum, no litigation or 26 26 governmental proceedings are pending or threatened against the Company or the Loral Affiliates which would adversely affect the Company's ability to perform its obligations under this Agreement or is required to be disclosed in the Final Memorandum and which is not disclosed and correctly summarized therein; (iv) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due execution and delivery by the Trustee, the Indenture constitutes a valid and legally binding obligation of the Company; and is enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law)(except that no opinion need be expressed with respect to the indemnification or construction provisions contained therein); (v) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company and conforms in all material respects to the description thereof contained in the Final Memorandum, and, assuming due execution and delivery thereof by the Initial Purchasers, constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) (except that no opinion need be expressed with respect to the indemnification or construction provisions contained therein); (vi) The Purchase Agreement has been duly authorized, executed and delivered by the Company; 27 27 (vii) The Securities have been duly executed, and assuming the Securities have been duly authorized, when authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to this Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law)(except that no opinion need be expressed with respect to the indemnification or construction provisions contained therein); and the offer and sale of the Securities has been duly authorized by the Company; (viii) The execution, delivery and performance by the Company of the Operative Documents, and the consummation of the transactions therein contemplated, will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument known to such counsel to which the Company or any Loral Affiliate is a party or by which the Company or any Loral Affiliate is bound or to which any of the property or assets of the Company or any Loral Affiliate is subject (except such breaches or events of default with respect thereto as are disclosed in the Final Memorandum), nor will such actions result in any violation of the provisions of the charter or by-laws (or other constitutive documents) of the Company or any Loral Affiliate or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any Loral Affiliate or any of their properties or assets; 28 28 (ix) No consent, approval, authorization or order of any court, regulatory body, administrative agency or other governmental body is required to be obtained for the execution and delivery of any of the Operative Documents, the consummation of the transactions contemplated hereby and thereby and the sale of the Securities as contemplated in the Final Memorandum, under any provision of law or regulation applicable to the Company of the State of New York or the United States of America, except as may be required under the various state securities or Blue Sky laws or as may be required by the laws of any country other than the United States in connection with the resale of the Securities by the Initial Purchasers or as may be required under the Securities Act pursuant to the terms of the Registration Rights Agreement; (x) Such counsel has read (i) all contracts referred to in the Final Memorandum and all other loan agreements to which the Company is a party of which such counsel has knowledge and (ii) the SpaceCom Credit Agreement, the Globalstar Credit Agreement and the indenture for each series of notes issued by Globalstar and Globalstar Capital Corporation, and to the extent material such contracts are fairly summarized as disclosed therein, conform in all material respects to the descriptions thereof contained therein, and such counsel does not know of any contracts or other documents required to be so summarized or disclosed, which have not been so summarized or disclosed; (xi) The statements set forth in the Final Memorandum under "Certain Federal Income Tax Considerations", insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein fairly present the information referred to therein with respect to such legal matters, documents and proceedings; the statements set forth under the heading "Description of Notes" in the Final Memorandum, insofar as such statements purport to summarize provisions of the 29 29 Securities and the Indenture, provide a fair summary of such provisions; (xii) The Partnership Agreement has been duly and validly authorized, executed and delivered by LQSS, Globalstar and the Company and, to the knowledge of such counsel, the other parties to such agreement have authorized, executed and delivered such agreement and assuming such authorization, execution and delivery by such other parties, such agreement is valid and binding and enforceable against the parties thereto, except as enforceability may be limited by (I) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (II) Federal or state securities laws or principles of public policy with regard to rights to indemnity; provided, however, that no opinion is given with respect to the enforceability of any provisions contained in the Partnership Agreement or the Service Provider Agreements which state that the parties thereto have agreed to further negotiate with respect to certain matters as specified therein; (xiii) LQP (or its subsidiary) has agreed to use the license to operate mobile satellite services in the 1610-1626.5 MHz L-band and the 2483.5-2500 MHz S-band granted by the FCC for the exclusive benefit of Globalstar; (xiv) After giving effect to the sale of the Securities by the Initial Purchasers as contemplated in the Final Memorandum, the Company will not be an "investment company" under the Investment Company Act; and (xvii) Assuming the accuracy of the representations and warranties and compliance with the agreements contained herein, no registration of the Securities under the Securities Act is required for the offer and 30 30 sale by the Initial Purchasers of the Securities in the manner contemplated by this Agreement prior to the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, and no qualification of the Indenture under the Trust Indenture Act of 1939 prior to the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration with respect to the Securities is required for the offer and sale by the Initial Purchasers of the Securities in the manner contemplated by this Agreement. In rendering such opinion, such counsel may limit its opinion to the laws of the State of New York, the laws of the United States and the Delaware Revised Uniform Limited Partnership Act and as to matters of fact, such counsel may rely to the extent deemed proper, on certificates of responsible officers of the Company and public officials. Such counsel shall also state that in connection with the preparation of the Preliminary Memorandum and Final Memorandum, no facts have come to its attention which lead it to believe that the Final Memorandum, as of the Execution Time and the Closing Date, contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that such counsel will express no opinion or belief with respect to the financial data contained in the Final Memorandum or with respect to any matters addressed by the opinion of Crowell & Moring set forth in Section 6(d) hereof or the opinion of Appleby, Spurling & Kempe set forth in Section 6(e) hereof with respect to Bermuda law matters. (d) On the Closing Date there shall have been furnished to you the opinion (addressed to the Initial Purchasers) of Crowell & Moring, special communications counsel to the Company, dated the Closing Date and in form 31 31 and substance satisfactory to counsel for the Initial Purchasers to the effect that: (i) The statements set forth in the Final Memorandum under the heading "Risk Factors--Regulations," insofar as such statements constitute a summary of the FCC's regulatory framework relating to Globalstar referred to therein, fairly present the information referred to therein with respect to such regulatory framework. The statements set forth in the Final Memorandum under the heading "Risks Relating to Globalstar--Globalstar FCC License," insofar as such statements constitute a summary of the proceedings related to the validity of the authorization for construction, launch and operation of the Globalstar satellite constellation, fairly present the information referred to therein with respect to such proceedings, and to our knowledge, there are no other pending or threatened proceedings which could have a material adverse effect on the validity of such authorization. (ii) The FCC has authorized LQP to construct a mobile satellite system capable of operating in the 1610-1626.5/2483.5-2500 MHz frequency bands, consistent with the technical specifications set forth in its application, the FCC's rules and the conditions set forth in the FCC's Order and Authorization (DA 95-128), released January 31, 1995 as modified by the Erratum, DA 95 373 (released February 29, 1995), as affirmed and modified by the Memorandum Opinion and Order, FCC 96 279 (released June 27, 1996), as modified by the FCC's Order and Authorization, DA 96 1924 (released November 19, 1996); and pursuant to FCC approval, LQP has assigned such authorization to L/Q Licensee, Inc.; however, such authorization is presently subject to modification, stay or revocation as a result of pending judicial appeals. (iii) The construction, launch and operation by Globalstar, of the Globalstar satellite constellation authorized by the Order and Authorization, DA 95-128 32 32 (released Jan. 31, 1995) as modified by the Erratum, DA 95 373 (released February 28, 1995), as affirmed and modified by the Memorandum Opinion and Order, FCC 96 279 (released June 27, 1996) , as modified by the FCC's Order and Authorization, DA 96 1924 (released November 19, 1996), would not violate provisions of the Communications Act or the FCC's rules and policies thereunder relating to control of FCC authorizations, provided that L/Q Licensee, Inc. remains in ultimate control of the authorized facilities as defined by the rules and policies of the FCC and that there is no transfer of control of L/Q Licensee, Inc. without prior approval of the FCC. (e) On the Closing Date there shall have been furnished to you the opinion (addressed to the Initial Purchasers) of Appleby, Spurling & Kempe, counsel to the Company, dated the Closing Date and in form and substance satisfactory to counsel for the Initial Purchasers to the effect that: (i) each of the Company and GTL has been duly incorporated as an exempted company and is validly existing as an exempted company in good standing under the laws of Bermuda; and has full power and authority and has obtained all Bermuda governmental authorizations, licenses, certificates, franchises, permits and approvals required to own its properties and to conduct its business as described in the Final Memorandum; (ii) the Company has authorized share capital as set forth in the Final Memorandum, and all the issued shares of Common Stock of the Company and common stock of GTL have been duly and validly authorized and issued and are fully paid and not subject to further calls; (iii) the Indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms except as enforceability may be limited by 33 33 bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); the Securities to be issued and sold by the Company to the Initial Purchasers hereunder have been duly and validly authorized and, when duly executed, authenticated issued and delivered as contemplated by the Indenture against payment therefor as provided herein, will be duly and validly issued, and will constitute the valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); the issuance of the Securities is not subject to any preemptive or similar rights under the Company's Memorandum of Association or Bye-Laws, in each case as amended; the Securities and the Indenture conform to the descriptions thereof in the Final Memorandum; (iv) to such counsel's knowledge, no litigation or governmental proceeding is pending or threatened against the Company or GTL in Bermuda which would adversely affect the Company's ability to perform its obligations under this Agreement; (v) the execution, delivery and performance by the Company of each of the Operative Documents have been duly authorized by the Company and the consummation by the Company of the sale of the Securities in accordance therewith will not (A) conflict with the Company's Memorandum of Association or Bye-Laws, in each case as amended, or (B) violate or conflict with any provision of law or regulation of Bermuda applicable to the Company or GTL; 34 34 (vi) no consent, approval, authorization or order of any court, regulatory body, administrative agency or other governmental body is required to be obtained for the sale of Securities under any provision of law or regulation of Bermuda applicable to the Company or GTL or for the consummation of the transactions contemplated by this Agreement, the Indenture and Registration Rights Agreement, except for the consent of the Bermuda Monetary Authority which has been obtained; (vii) there is no restriction upon the transfer of any Securities pursuant to (A) the law of Bermuda or (B) the Company's Memorandum of Association or By-laws, in each case as amended; (viii) the statements set forth in the Final Memorandum under the headings "Certain Foreign Issuer Considerations", insofar as such statements constitute a summary of the legal matters referred to therein, fairly present the information referred to therein with respect to such legal and other matters; (ix) a final and conclusive judgment of a New York court under which a sum of money is payable (not being a sum payable in respect of taxes or other charges of a like nature, in respect of a fine or other penalty or in respect of multiple damages as defined in The Protection of Trading Interests Act, 1981) may be the subject of enforcement proceedings in the Supreme Court of Bermuda under the common law doctrine of obligation by action for the debt evidenced by the New York court's judgment; assuming that (1) the court that gave such judgment was competent to hear the action in accordance with private international law principles as applied to courts in Bermuda and (2) such judgment is not contrary to public policy in Bermuda, has not been obtained by fraud or in proceedings contrary to natural justice and is not based on an error in Bermuda law, such counsel believes that, on general principles, such a judgment would be enforceable in the Supreme Court of Bermuda; and enforcement of such a judgment against 35 35 assets in Bermuda may involve the conversion of the judgment into Bermuda dollars, but the Bermuda Monetary Authority's policy is to give the consents necessary to enable recovery in the currency of the obligation; (x) the submission by the Company to the jurisdiction of the State and federal courts sitting in the City of New York contained in the Operative Agreements constitutes a legal, valid and binding obligation of the Company, provided that such submission is valid under the laws of New York; and (xi) the choice of the laws of the State of New York to govern the Notes and the Operative Agreements is a valid choice of law under Bermuda law assuming that such choice is valid under the laws of the state of New York. (f) There shall have been furnished to you certificates, dated the Closing Date and addressed to you, signed by the Chief Executive Officer or President and by the Chief Financial Officer or Treasurer of the Company, in each case, to the effect that: (i) the representations and warranties of the Company contained in this Agreement are true and correct in all material respects, as if made at and as of the Closing Date, and the Company has in all material respects complied with all the agreements and satisfied all the conditions on its part to be complied with or satisfied at or prior to the Closing Date; and (ii) the signers of said certificates have carefully examined the Final Memorandum and the Exchange Act Reports and each of the Final Memorandum and the Exchange Act Reports (A) as of the date of the Final Memorandum, does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the date of the Final Memorandum there has occurred no event required to be set forth in an amendment or supplement to the Final Memorandum which has not been so set forth. (g) Since the date of the Final Memorandum, none of the Company and the Loral Affiliates shall have sustained 36 36 any loss or interference with its business by fire, explosion, flood, accident or other calamity, whether or not covered by insurance, or shall have been subject to any labor dispute, or shall have become a party to or the subject of any action, suit or proceeding before any court or governmental agency, authority or body or arbitrator, that is likely to have a material adverse effect on, nor shall there have been a material adverse change in, the general affairs, management, financial position, stockholders' equity or results of operations of the Company and the Loral Affiliates, taken as a whole, whether or not arising in the ordinary course of business, which loss, action, suit, proceeding or change is in the Initial Purchasers' judgment so material and adverse as to render it impracticable or inadvisable to proceed with the payment for and delivery of the Securities. (h) On the Closing Date, you shall have received a letter of Deloitte & Touche LLP dated the Closing Date and addressed to you, confirming that they are independent certified public accountants within the meaning of the Securities Act and the applicable published Rules and Regulations with respect to the Company and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Final Memorandum, as of a date not more than five Business Days prior to the date of such letter), the conclusions and findings of such firm with respect to the financial information included in the Final Memorandum in form and substance satisfactory to you. (i) You shall have been furnished such additional documents and certificates as you or counsel for the Initial Purchasers may reasonably request. All references in paragraphs (b)-(h) of this Section 6 to the Final Memorandum shall be deemed to include any amendment or supplement thereto at the Closing Date. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof 37 37 only if they are reasonably satisfactory in form and sub stance to you and to counsel for the Initial Purchasers. The Company shall furnish to you conformed copies of such opinions, certificates, letters and other documents in such number as you shall reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, this Agreement and all obligations of the Initial Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date, by you. Any such cancelation shall be without liability of the Initial Purchasers to the Company. Notice of such cancelation shall be given to the Company in writing, or by telecopy or telephone and confirmed in writing. 7. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Initial Purchaser from and against any loss, claim, damage or liability (or any action in respect thereof), joint or several, to which such Initial Purchaser may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Final Memorandum (as amended or supplemented) or any Preliminary Memorandum (as amended or supplemented) or (ii) the omission or alleged omission to state in the Final Memorandum (as amended or supplemented) or any Preliminary Memorandum (as amended or supplemented) a material fact required to be stated therein or necessary to make the statements therein not misleading; and shall reimburse each Initial Purchaser promptly upon demand for any legal or other expenses reasonably incurred by such Initial Purchaser in connection with investigating, preparing to defend or defending against any such loss, claim, damage, liability or action, as such expenses are incurred; provided, however, that the Company shall not be liable under this Section 7(a) in any such case to the extent, but only to the extent, that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Memorandum (as amended or supplemented) or the 38 38 Final Memorandum (as amended or supplemented) in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser specifically for inclusion therein; and provided further that as to any Preliminary Memorandum this indemnity agreement shall not inure to the benefit of any Initial Purchaser on account of any loss, claim, damage, liability or action arising from the sale of Securities to any person by that Initial Purchaser if such loss, claim, damage, liability or action is a result of the fact that both (i) to the extent required by applicable law, a copy of the Final Memorandum, as the same may be amended or supplemented, was not sent or given to such person at or prior to the written confirmation of the sale of such Securities and (ii) the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Memorandum was corrected in the Final Memorandum, unless such failure resulted from non-compliance by the Company with Section 5(a) herein. (b) Each Initial Purchaser severally, but not jointly, shall indemnify and hold harmless the Company from and against any loss, claim, damage or liability (or any action in respect thereof) to which the Company may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Final Memorandum or any Preliminary Memorandum, each as amended or supplemented, or (ii) the omission or alleged omission to state in the Final Memorandum or any Preliminary Memorandum, each as amended or supplemented, a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company promptly for any legal or other expenses reasonably incurred by the Company in connection with investigating, preparing to defend or defending against any such loss, claim, damage, liability or action, as such expenses are incurred; provided, however, that such indemnification or reimbursement shall be available in each such case to the extent, but only to the extent, that such untrue statement or alleged untrue 39 39 statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through the Initial Purchasers by or on behalf of such Initial Purchaser specifically for inclusion therein. (c) Promptly after receipt by any indemnified party under subsection (a) or (b) above of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure so to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 7 unless the indemnifying party is materially prejudiced thereby. If any such claim or action shall be brought against any indemnified party and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under such subsection for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has 40 40 failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Initial Purchasers, if the indemnified party under this Section 7 consist of any Initial Purchaser, or the Company, if the indemnified parties under this Section 7 consists of the Company. No indemnifying party shall be liable for any settlement of any such action effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Initial Purchasers from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Initial Purchasers in connection with the statements or omissions that resulted in such losses, 41 41 claims, damages or liabilities, or actions in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Initial Purchasers shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by the Company, on the one hand, and the total discounts and commissions received by the Initial Purchasers, on the other hand, bear to the total gross proceeds from the offering of Securities, in each case as set forth on the cover page of the Final Memorandum. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in this subsection (d) shall be deemed to include, for purposes of this subsection (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by it exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' 42 42 obligations in this subsection (d) to contribute are several in proportion to their respective purchasing obligations and not joint. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it shall promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought for any obligation it may have hereunder or otherwise. (e) The obligations of the Company under this Section 7 shall be in addition to any liability which the Indemnitor may otherwise have, and shall extend, upon the same terms and conditions, to each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section 7 shall be in addition to any liability that the respective Initial Purchasers may otherwise have, and shall extend, upon the same terms and conditions, to each director of the Company, and to each person, if any, who controls the Company within the meaning of the Securities Act or Exchange Act. 8. Effective Date and Termination. Until the Closing Date, this Agreement may be terminated by you by giving notice as hereinafter provided to the Company if (a) the Company shall have failed, refused or been unable, at or prior to the Closing Date, to perform in all material respects any agreement on its part to be performed hereunder, (b) any other condition to the Initial Purchasers' obligations hereunder is not fulfilled, (c) trading in securities generally on the New York Stock Exchange, the American Stock Exchange, Nasdaq National Market or the over-the-counter market shall have been suspended or limited (which shall not include any limitation on program trading pursuant to the rules of the New York Stock Exchange) or minimum prices shall have been established on either of such exchanges or such markets by the Commission or such exchange or other regulatory body or governmental authority having jurisdiction, (d) a banking 43 43 moratorium is declared by either Federal or state authorities, (e) the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (f) there shall have been such a material adverse change in general economic, political or financial conditions, or the effect of international conditions on the financial markets in the United States shall be such, as to, in the judgment of the Initial Purchasers, make it inadvisable or impracticable to proceed with the delivery of the Securities. Any termination of this Agreement pursuant to this Section 8 shall be without liability on the part of the Company or any Initial Purchaser, except as otherwise provided in Sections 5(h) and 7 hereof. Any notice referred to above may be given at the address specified in Section 10 hereof in writing or by telecopy or telephone, and if by telecopy or telephone, shall be immediately confirmed in writing. 9. Survival of Certain Representations and Provisions. The agreements contained in Section 7 hereof and the representations, warranties and agreements of the Company and the Initial Purchasers contained in this Agreement shall survive the delivery of the Securities to the Initial Purchasers hereunder and shall remain in full force and effect, regardless of any termination or cancelation of this Agreement or any investigation made by or on behalf of any indemnified party. 10. Notices. Except as otherwise provided in the Agreement, whenever notice is required by the provisions of this Agreement to be given to the following parties, such notice shall be in writing to the following addresses: (a) to the Company: 600 Third Avenue New York, New York 10016 Attention: Eric J. Zahler 44 44 (b) to the several Initial Purchasers: c/o Lehman Brothers Inc. 3 World Financial Center 200 Vesey Street New York, New York 10285 Attention: Syndicate Department 11. Information Furnished by Initial Purchasers. The Company and the Initial Purchasers severally confirm that the statements set forth in "Plan of Distribution" in the Final Memorandum or any Preliminary Memorandum constitute the written information furnished by or on behalf of any Initial Purchaser referred to in paragraphs (a) and (b) of Section 7 hereof. The Initial Purchasers severally agree that such information is correct. 12. Parties. This Agreement shall inure to the benefit of and be binding upon the several Initial Purchasers, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Initial Purchaser within the meaning of Section 15 of the Securities Act and (b) the indemnity agreement of the Initial Purchasers contained in Section 7 hereof shall be deemed to be for the benefit of officers and directors of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended to confer or shall be construed to give any person, other than the persons referred to in this paragraph, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. 45 45 14. Jurisdiction; Consent to Service of Process. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY LAWSUITS, CLAIMS OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES NOT TO COMMENCE ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY HAS APPOINTED ERIC J. ZAHLER AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A. (HEREINAFTER REFERRED TO IN SUCH CAPACITY AS THE "PROCESS AGENT"), AS ITS AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN ANY SUCH SUIT OR PROCEEDING. THE COMPANY REPRESENTS TO YOU THAT IT HAS NOTIFIED THE PROCESS AGENT OF SUCH DESIGNATION AND APPOINTMENT AND THAT THE PROCESS AGENT HAS ACCEPTED THE SAME IN WRITING. THE COMPANY HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT SUCH SERVICE. IF THE PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S AGENT FOR SERVICE OF PROCESS, THE COMPANY SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND NOTIFY YOU OF SUCH APPOINTMENT. THE COMPANY FURTHER AGREES THAT SERVICE OF PROCESS UPON THE PROCESS AGENT AND WRITTEN NOTICE OF SAID SERVICE TO THE COMPANY MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS AGENT SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT YOUR RIGHT OR THE RIGHT OF ANY PERSON CONTROLLING ANY OF YOU TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER LAWFUL MANNER. 46 46 15. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement. 47 47 Please confirm, by signing and returning to us counterparts of this Agreement, that the foregoing correctly sets forth the agreement among the Company and the several Initial Purchasers. Very truly yours, LORAL SPACE & COMMUNICATIONS LTD., By: ----------------------------------- Name: Title: Confirmed and accepted as of the date first above mentioned: LEHMAN BROTHERS INC. BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CIBC OPPENHEIMER CORP. ING BARING FURMAN SELZ LLC C.E. UNTERBERG, TOWBIN By: LEHMAN BROTHERS INC. By: ----------------------------------- Name: Title: 48 SCHEDULE I
Principal Amount Initial Purchasers of Securities to be Purchased Lehman Brothers Inc........................................... $157,500,000 Bear, Stearns & Co., Inc...................................... 70,000,000 Donaldson, Lufkin & Jenrette Securities Corporation...................................... 70,000,000 CIBC Oppenheimer Corp......................................... 17,500,000 Ing Baring Furman Selz LLC.................................... 17,500,000 C.E. Unterberg, Towbin........................................ 17,500,000 ------------ Total................................................... $350,000,000 ============
49 EXHIBIT A Offers and Sales by the Initial Purchasers The Securities have not been registered under the Securities Act and may not be offered or sold except in accordance with an applicable exemption from the registration requirements thereof. Accordingly, the Securities are being offered and sold only (1) in the United states to qualified institutional buyers (each, a "Qualified Institutional Buyer" or "QIB") under Rule 144A under the Securities Act in a private sale exempt from the registration requirements of the Securities Act, and (2) outside the United States to non-U.S. persons ("foreign purchasers") in reliance upon Regulation S under the Securities Act. Investor Representations and Restrictions on Resale Each purchaser of the Securities, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with the Initial Purchasers and the Company as follows (terms used in this paragraph that are defined in Rule 144A or Regulation S are used herein as defined therein): (1) It understands and acknowledges that the Securities have not been registered under the Securities Act or any other applicable securities law, and are being offered for resale in transactions not requiring registration under the Securities Act or any other applicable securities law, including sales pursuant to Rule 144A and Regulation S under the Securities Act, that the Securities (the Securities are referred to herein as the "Restricted Securities") have not been registered under the Securities Act or any other applicable securities law and, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case, in compliance with the conditions for transfer set forth in paragraph (4) below. 50 2 (2) It is either (A) a "qualified institutional buyer" (QIB") within the meaning of Rule 144A under the Securities Act, is aware that any sale of the Notes to it will be made in reliance on Rule 144A and such acquisition will be for its own account or for the account of another QIB or (B) a non-U.S. person (a "foreign purchaser", which term shall include dealers or other professional fiduciaries in the U.S. acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)). (3) It acknowledges that none of the Company nor the Initial Purchasers, or any person representing the Company or the Initial Purchasers, has made any representation to it with respect to the Company or the offering of the Securities, other than in this Offering Memorandum, which has been delivered to it and upon which it is relying in making its investment decision with respect to the Securities. Accordingly, it acknowledges that no representation or warranty is made by the Initial Purchasers as to the accuracy or completeness of such materials. It has had access to such financial and other information concerning the Company and the Securities as it deemed necessary in connection with its decision to purchase any of the Securities, including an opportunity to ask questions and request information from the Company and the Initial Purchasers. (4) It is purchasing the Securities for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such Securities pursuant to Rule 144A, Regulation S or any exemption from registration available under the Securities Act. It agrees on its own behalf and on behalf of any investor account for which it is 51 3 purchasing the Restricted Securities, and each subsequent holder of the Restricted Securities by its acceptance thereof will agree, to offer, sell or otherwise transfer such Restricted Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Restricted Securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Securities are eligible for resale pursuant to Rule 144A, to a person it reasonably believes is a QIB that purchases for its own account or for the account of a QIB to which notice is given that the transfer is being made in reliance on Rule 144A, (d) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S, or (e) pursuant to another available exemption from the registration requirements of the Securities Act, and in each case, in accordance with the applicable securities laws of any state of the United States or any other applicable jurisdiction and, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control. The foregoing restrictions on resale will not apply subject to the Resale Restriction Termination Date. Each purchaser acknowledges that the Company and the Trustee or the transfer agent reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Restricted Securities pursuant to clauses (d) or (e) above to require the delivery of an opinion, certifications or other information acceptable to the Company and the Trustee or the transfer agent in form and substance. Each purchaser acknowledges that each Restricted Security will contain a legend substantially to the following effect: "THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION 52 4 HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHEN THIS SECURITY NO LONGER CONSTITUTES A "RESTRICTED" SECURITY UNDER RULE 144(K) OF THE SECURITIES ACT EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELL REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(D) AND (E) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE TRUSTEE OR TRANSFER AGENT FOR SUCH SECURITIES TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM IN FORM AND SUBSTANCE." (5) It acknowledges that the Company, the Initial Purchaser and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agrees that, if any of 53 5 the acknowledgments, representations and agreements deemed to have been made by purchase of the Securities are no longer accurate, it shall promptly notify the Initial Purchasers. If it is acquiring any Securities as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account. EX-5 3 OPINION OF APPLEBY, SPURLING & KEMPE 1 EXHIBIT 5,8.1 [LETTERHEAD OF APPLEBY SPURLING & KEMPE] 30 March 1999 Loral Space & Communications Limited 600 Third Avenue New York NY 10016 Ladies and Gentlemen We have acted as Bermuda counsel for Loral Space & Communications Limited, a Bermuda company, (the "Company"), in connection with the filing by the Company with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form S-4 under the Securities Act of 1933, as amended (the "Securities Act") relating to the proposed issuance, in exchange for $350,000,000 aggregate principal amount of the Company's 9 1/2% Senior Notes due 2006 (the "Old Notes"), of $350,000,000 aggregate principal amount of the Company's 9 1/2% Notes due 2006 (the "New Notes", and collectively with the Old Notes, the "Notes"). The New Notes are to be issued pursuant to an indenture dated as of 15 January 1999 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in the Indenture. In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and such corporate records, agreements, documents and other instruments, as we have deemed necessary for the purpose of this opinion, and we have relied on statements and certificates of officers and representatives of the Company and public officials. We have assumed: (i) the truth, accuracy and completeness as the date hereof of all representations as to factual matters made in the documents which we have examined; (ii) the genuineness of all signatures on the documents which we have examined; and (iii) The conformity to original documents of all documents produced to us as copies and the authenticity of all original documents which, or copies of which, have been submitted to us. Based upon and subject to the foregoing and subject to the reservations mentioned below and to any matters not disclosed to us, we are of the opinion that: (i) the Company is an exempted company duly incorporated and validly existing under Bermuda law and is in good standing under the laws of Bermuda; (ii) the Company has full power and authority, and has obtained all Bermuda governmental authorisations, licenses, permits, certificates and approvals as are necessary to own its properties and to conduct its business as described in the Registration Statement; (iii) all the Shares have been duly and validly authorised, issued, fully paid and non-assessable; and (iv) the legal conclusions set forth in the discussion of Bermuda tax law under the headings "Foreign Issuer Considerations -- Bermuda Tax Considerations" and "The Exchange Offer" 2 are our opinions, and it is our opinion that this discussion addresses the material Bermuda tax consequences of an investment in the Notes. Our reservations are as follows: (A) We express no opinion as to any law other than Bermuda law and none of the opinions expressed herein relates to compliance with or matters governed by the laws of any jurisdiction other than Bermuda. Where an obligation is to be performed in a jurisdiction other than Bermuda, a Bermuda court may decline to enforce it to the extent that such performance would be illegal or contrary to public policy under the laws of such other jurisdiction. (B) We express no opinion as to the availability of equitable remedies, such as specific performance or injunctive relief, or as to any matters which are within the discretion of the Bermuda courts, such as the award of costs or questions related to jurisdiction. Further, we express no opinion as to the validity or binding effect in Bermuda of any waiver of or obligation to waive any provision of law (whether substantive or procedural) or any right or remedy arising through circumstances not known at the time of the filing of the Registration Statement. (C) Section 9 of the Interest and Credit Charges (Regulation) Act, 1975 provides that the Bermuda courts have discretion as to the amount of interest if any payable on the amount of a judgment after date of judgment. If the court does not exercise that discretion, then interest will accrue at the statutory rate which is currently seven per cent per annum. (D) Where a party is vested with a discretion or may determine a matter in its opinion, such discretion may have to be exercised reasonably or such an opinion may have to be based on reasonable grounds. (E) For the purposes of this opinion: (a) the term "fully paid" means, in relation to the issued shares of a company limited by shares (that is to say, a company having the liability of its members limited by its Memorandum of Association to the amount, if any, unpaid on the shares held by them), that members holding such shares have no liability to make any contribution or other payment to the company in respect of those shares; and (b) the term "non-assessable" means, in relation to fully-paid shares of a company, that such member shall not be bound by an alteration to the Memorandum of Association or to the Bye-laws of that company after the date upon which he became a member, if and so far as the alteration requires him to take, or subscribe for additional shares, or in any way increases his liability to contribute to the share capital of, or otherwise to, pay money to the company. This opinion is issued on the basis that it will be construed in accordance with the provisions of Bermuda law. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus included as part of the Registration Statement. In giving such consent, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act, or the Rules and Regulations of the Securities and Exchange Commission thereunder. Yours faithfully /s/ APPLEBY SPURLING & KEMPE 2 EX-8.2 4 OPINION OF WILLKIE FARR & GALLAGHER 1 EXHIBIT 8.2 [LETTERHEAD OF WILLKIE FARR & GALLAGHER] March 31, 1999 Loral Space & Communications Ltd. 600 Third Avenue New York, NY 10016 Ladies and Gentlemen: We have acted as counsel for Loral Space & Communications Ltd., a Bermuda company (the "Company"), in connection with the filing by the Company with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form S-4 under the Securities Act of 1933, as amended (the "Securities Act"), relating to the proposed issuance, in exchange for $350,000,000 aggregate principal amount of the Company's 9 1/2% Senior Notes due 2006 (the "Old Notes"), of $350,000,000 aggregate principal amount of the Company's 9 1/2% Senior Notes due 2006 (the "New Notes") and collectively with the Old Notes, the "Notes"). The New Notes are to be issued pursuant to an indenture dated as of January 15, 1999 (the "Indenture"), between the Company and The Bank of New York, as trustee. Capitalized terms used herein and not otherwise defined have the meanings ascribed thereto in the Indenture. In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and such corporate records, agreements, documents and other instruments as we have deemed necessary for the purpose of this opinion. We have also examined such other documents, papers, statutes and authorities as we have deemed necessary to form a basis for the opinion hereinafter expressed. In our examination, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to our opinion, we have relied on statements and certificates of officers and representatives of the Company and public officials. Based upon the foregoing and having regard for such legal questions as we have deemed relevant, the legal conclusions set forth in the discussion of U.S. Federal tax law in the Registration Statement under the heading "Material United States Federal Income Tax Consequences" accurately describe the material U.S. Federal income tax consequences to holders of the New Notes issued pursuant to the Indenture. We call to your attention that we are members of the Bar of the State of New York and do not purport to be experts in, or to render any opinions with respect to, the laws of jurisdictions other than the State of New York, except for the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus included as part of the Registration Statement. Very truly yours, /s/ WILLKIE FARR & GALLAGHER EX-23.3 5 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.3 CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in this Registration Statement of Loral Space & Communications Ltd. (a Bermuda company) on Form S-4 of our reports with respect to (i) the consolidated financial statements of Loral Space & Communications Ltd., Space Systems/Loral, Inc., and the financial statement schedule of Loral Space & Communications Ltd., appearing in the Annual Report on Form 10-K of Loral Space & Communications Ltd., for the year ended December 31, 1998 and (ii) the consolidated financial statements of Globalstar, L.P. appearing in the Annual Report on Form 10-K of Globalstar Telecommunications Limited and Globalstar, L.P. for the year ended December 31, 1998 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. Deloitte & Touche LLP New York, New York April 1, 1999 EX-24 6 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY Each of the undersigned officers and directors of Loral Space & Communications Ltd. hereby severally constitutes and appoints Bernard L. Schwartz, Gregory J. Clark, Richard Townsend, Eric J. Zahler, Nicholas C. Moren and Harvey B. Rein, and each of them as the attorneys-in-fact for the undersigned, in any and all capacities, with full power of substitution, to sign this Registration Statement on Form S-4 covering the Senior Notes due 2006 of Loral Space & Communications Ltd. and any and all pre- or post-effective amendments to this Registration Statement, any subsequent Registration Statement for the same offering which may be filed pursuant to Rule 462(b) under the Securities Act of 1933 and any and all pre- or post effective amendments thereto, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or either of them, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE --------- ----- ---- /s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief March 30, 1999 - ------------------------------------------------ Executive Officer and Director Bernard L. Schwartz (Principal Executive Officer) /s/ HOWARD GITTIS Director March 30, 1999 - ------------------------------------------------ Howard Gittis /s/ ROBERT B. HODES Director March 30, 1999 - ------------------------------------------------ Robert B. Hodes /s/ GERSHON KEKST Director March 30, 1999 - ------------------------------------------------ Gershon Kekst /s/ CHARLES LAZARUS Director March 30, 1999 - ------------------------------------------------ Charles Lazarus /s/ MALVIN A. RUDERMAN Director March 30, 1999 - ------------------------------------------------ Malvin A. Ruderman /s/ E. DONALD SHAPIRO Director March 30, 1999 - ------------------------------------------------ E. Donald Shapiro /s/ ARTHUR L. SIMON Director March 30, 1999 - ------------------------------------------------ Arthur L. Simon /s/ DANIEL YANKELOVICH Director March 30, 1999 - ------------------------------------------------ Daniel Yankelovich /s/ RICHARD J. TOWNSEND Senior Vice President and Chief March 30, 1999 - ------------------------------------------------ Financial Officer (Principal Richard J. Townsend Financial Officer) /s/ HARVEY B. REIN Vice President and Controller March 30, 1999 - ------------------------------------------------ (Principal Accounting Officer) Harvey B. Rein
EX-25 7 T-1 1 EXHIBIT 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM T-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ] ------------------------ THE BANK OF NEW YORK (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) NEW YORK 13-5160382 (STATE OF INCORPORATION (I.R.S. EMPLOYER IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.) ONE WALL STREET, NEW YORK, N.Y. 10286 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
LORAL SPACE & COMMUNICATIONS LTD. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) BERMUDA 13-3867424 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) C/O LORAL SPACECOM CORPORATION 10016 600 THIRD AVENUE (ZIP CODE) NEW YORK, NEW YORK (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------ 9 1/2% SENIOR NOTES DUE 2006 (TITLE OF THE INDENTURE SECURITIES) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
NAME ADDRESS ---- ------- Superintendent of Banks of the State 2 Rector Street, New York, N.Y. 10006, of New York and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 3 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 26th day of March, 1999. THE BANK OF NEW YORK By: /s/ MICHELE L. RUSSO --------------------------------------- Name: MICHELE L. RUSSO Title: ASSISTANT TREASURER EX-99.1 8 LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL FOR OFFER FOR ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2006 IN EXCHANGE FOR UP TO $350,000,000 PRINCIPAL AMOUNT OF 9 1/2% SENIOR NOTES DUE 2006 OF LORAL SPACE & COMMUNICATIONS, INC. PURSUANT TO THE PROSPECTUS DATED MARCH , 1999 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE"). The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK By Hand or Overnight Delivery: Facsimile Transmissions By Registered Or Certified Mail: (Eligible Institutions Only) The Bank of New York The Bank of New York 101 Barclay Street (212) 815-3080 101 Barclay Street, 7E New York, New York 10286 New York, New York 10286 Corporate Trust Services To Confirm by Telephone Attn: Reorganization Section Window or for Information Call: Ground Level Attn: Reorganization Section (212) 852-6333
DELIVERY OF THIS LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL") TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID TENDER OF 9 1/2% SENIOR NOTES DUE 2006 (THE "OLD NOTES"). The Instructions contained herein should be read carefully before this Letter of Transmittal is completed and signed. This Letter of Transmittal is to be used by registered holders of Old Notes ("Holders") if: (i) certificates representing Old Notes are to be physically delivered to the Exchange Agent by such Holders; (ii) tender of Old Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depositary Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus, dated , 1999 (as the same may be amended from time to time, the "Prospectus") under the caption "The Exchange Offer -- Book-Entry Transfer" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Old Notes or (iii) delivery of Old Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures," and, in each case, instructions are not being transmitted through the DTC Automated Tender Program ("ATOP"). DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. In order to properly complete this Letter of Transmittal, a Holder must (i) complete the box entitled "Method of Delivery" by checking one of the three boxes therein and supplying the appropriate information, (ii) complete the box entitled "Description of Old Notes," (iii) if such Holder is a Participating Broker Dealer (as defined below) and wishes to receive additional copies of the Prospectus for delivery in connection with resales of New Notes, check the applicable box, (iv) sign this Letter of Transmittal by completing the box entitled "Please Sign Here", (v) if appropriate, check and complete the boxes relating to the "Special Issuance Instructions" and "Special Delivery Instructions," and (vi) complete the Substitute Form W-9. Each Holder should carefully read the detailed 2 Instructions below prior to completing this Letter of Transmittal. See "The Exchange Offer -- Procedures For Tendering" in the Prospectus. Holders of Old Notes that are tendering by book-entry transfer to the Exchange Agent's account at DTC can execute the tender through ATOP for which the transaction will be eligible. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will then send an Agent's Message to the Exchange Agent for its acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. DTC participants may also accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through ATOP. If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i) certificates representing such Old Notes are not lost but are not immediately available, (ii) time will not permit this Letter of Transmittal, certificates representing such Holder's Old Notes and all other required documents to reach the Exchange Agent prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Old Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2 below. A Holder having Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to accept the Exchange Offer with respect to the Old Notes so registered. THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Prospectus. Your bank or broker can assist you in completing this form. The instructions included with this Letter of Transmittal must be followed. Questions and requests for assistance or for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent, whose address and telephone number appear on the front cover of this Letter of Transmittal. See Instruction 11 below. 2 3 METHOD OF DELIVERY [ ] CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE BEING DELIVERED HEREWITH. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: Account Number: Transaction Code Number: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT PURSUANT TO INSTRUCTION 2 BELOW AND COMPLETE THE FOLLOWING: Name of Registered Holder(s): Window Ticket No. (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Eligible Institution that Guaranteed Delivery: If Delivered by Book-Entry Transfer (yes or no): Account Number: Transaction Code Number: List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately signed schedule and affix the schedule to this Letter of Transmittal. - -------------------------------------------------------------------------------- DESCRIPTION OF OLD NOTES
- --------------------------------------------------------------------------------------------------------------------------------- AGGREGATE NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* REPRESENTED** TENDERED - --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- TOTAL PRINCIPAL AMOUNT OF OLD NOTES - ---------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer (see below). ** Unless otherwise indicated in the column labeled "Principal Amount Tendered" and subject to the terms and conditions of the Prospectus, a Holder will be deemed to have tendered the entire aggregate principal amount represented by the Old Notes indicated in the column labeled "Aggregate Principal Amount Represented." See Instruction 3. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 4 FOR PARTICIPATING BROKER-DEALERS ONLY: [ ] CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND, DURING THE 30-DAY PERIOD FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS NEW NOTES. (IF NO PARTICIPATING BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR NEW NOTES HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY NOTICES TO ANY HOLDERS TO SUSPEND OR RESUME USE OF THE PROSPECTUS.) Provide the name of the individual who should receive, on behalf of the Holder, additional copies of the Prospectus, and amendments and supplements thereto, and any notices to suspend and resume use of the Prospectus: Name: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone No.: - --------------------------------------------- Facsimile No.: - ---------------------------------------------- NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 4 5 Ladies and Gentlemen: By execution hereof, the undersigned acknowledges receipt of the Prospectus, dated , 1999 (as the same may be amended from time to time, the "Prospectus" and, together with the Letter of Transmittal, the "Exchange Offer"), of Loral Space & Communications Ltd. a Bermuda company (the "Company"), and this Letter of Transmittal and instructions hereto, which together constitute the Company's offer to exchange $1,000 principal amount of 9 1/2% Senior Notes due 2006 (the "New Notes") of the Company, upon the terms and subject to the conditions set forth in the Exchange Offer, for each $1,000 principal amount of outstanding 9 1/2% Senior Notes due 2006 (the "Old Notes") of the Company. Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered herewith, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to such Old Notes with full power of substitution (such power-of-attorney being deemed to be an irrevocable power coupled with an interest) to (i) present such Old Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Old Notes on the account books maintained by the Book-Entry Transfer Facility to, or upon the order of, the Company, (ii) present such Old Notes for transfer of ownership on the books of the Company or the trustee under the Indenture (the "Trustee"), and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms of and conditions of the Exchange Offer as described in the Prospectus. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and to acquire New Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Old Notes tendered hereby or transfer ownership of such Old Notes on the account books maintained by the book-entry transfer facility. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned recognizes that as a result of these conditions (which may be waived by the Company, in whole or in part, in the reasonable discretion of the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Old Notes tendered hereby and, in such event, the Old Notes not exchanged will be returned to the undersigned at the address shown above. THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED OLD NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT OR TO ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVE THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINE, IN THEIR REASONABLE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS. The undersigned, if the undersigned is a beneficial holder, represents, or, if the undersigned is a broker, dealer, commercial bank, trust company or other nominee, represents that it has received representations from the beneficial owners of the Old Notes (the "Beneficial Owner") stating that (i) the New Notes to be acquired in connection with the Exchange Offer by the Holder and each Beneficial Owner of the Old Notes are being acquired by the Holder and each such Beneficial Owner in the ordinary course of business of the Holder and each such 5 6 Beneficial Owner, (ii) the Holder and each such Beneficial Owner are not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the New Notes, (iii) the Holder and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in the no-action letters that are discussed in the Prospectus under the caption "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and may only sell the New Notes acquired by such person pursuant to a registration statement containing the selling security holder information required by Item 507 of Regulation S-K under the Securities Act, (iv) if the Holder is a broker-dealer that acquired Old Notes as a result of market-making or other trading activities, it will deliver a prospectus in connection with any resale of New Notes acquired in the Exchange Offer (but by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act) and (v) neither the Holder nor any such Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company or is a broker-dealer who purchased Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act. In addition, if the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO A STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OR CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE CAPTION "FOR PARTICIPATING BROKER-DEALERS ONLY" IN ORDER TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO, FOR USE IN CONNECTION WITH RESALES OF THE NEW NOTES, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS NEW NOTES. IF NO PARTICIPATING BROKER-DEALERS CHECK SUCH BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR NEW NOTES HAVE BEEN SOLD, THE 6 7 COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE PROSPECTUS. The undersigned understands that tenders of the Old Notes pursuant to any one of the procedures described under "The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. All authority herein conferred or agreed to be conferred by this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the heirs, legal representatives, successors and assigns, executors, administrators and trustees in bankruptcy of the undersigned and shall survive the death or incapacity of the undersigned. Tendered Old Notes may be withdrawn at any time prior to the Expiration Date in accordance with the terms of the Exchange Offer. The undersigned also understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date in the open market, in privately negotiated transactions, through subsequent exchange offers or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. The undersigned understands that the delivery and surrender of the Old Notes is not effective, and the risk of loss of the Old Notes does not pass to the Exchange Agent, until receipt by the Exchange Agent of this Letter of Transmittal, or a manually signed facsimile hereof, properly completed and duly executed, with any required signature guarantees, together with all accompanying evidences of authority and any other required documents in form satisfactory to the Company. All questions as to form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Old Notes will be determined by the Company, in their sole discretion, which determination shall be final and binding. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions," the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange be issued in the name(s) of the undersigned and that New Notes be issued in the name(s) of the undersigned (or, in the case of Old Notes delivered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated herein in the box entitled "Special Delivery Instructions," the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange and certificates for New Notes be delivered to the undersigned at the address(es) shown above. In the event that the "Special Issuance Instructions" box or the "Special Delivery Instructions" box is, or both are, completed, the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange be issued in the name(s) of, certificates for such Old Notes be delivered to, and certificates for New Notes be issued in the name(s) of, and be delivered to, the person(s) at the address(es) so indicated, as applicable. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" box or "Special Delivery Instructions" box to transfer any Old Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the principal amount of such Old Notes so tendered. 7 8 PLEASE SIGN HERE (TO BE COMPLETED BY ALL HOLDERS OF OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH) This Letter of Transmittal must be signed by the Holder(s) of Old Notes exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if delivered by a participant in the Book-Entry Transfer Facility, exactly as such participant's name appears on a security position listing as the owner of Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to the Company of such person's authority to so act. See Instruction 4 below. If the signature appearing below is not of the record holder(s) of the Old Notes, then the record holder(s) must sign a valid bond power. X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY Date: - ------------------------, 1999 Name(s): - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) - -------------------------------------------------------------------------------- Area Code and Telephone No.: - -------------------------------------------------------------------------------- PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN [ ] CHECK HERE IF YOU ARE A BROKER DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ---------------------------------------------------------------------------- Address: ---------------------------------------------------------------------------- MEDALLION SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (PRINTED NAME) - -------------------------------------------------------------------------------- (TITLE) Dated: - ------------------------, 1999 8 9 ------------------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5 AND 7) To be completed ONLY if certificates for Old Notes in a principal amount not tendered or not accepted for exchange are to be issued in the name of, or certificates for New Notes are to be issued to the order of, someone other than the person or persons whose signature(s) appear(s) within this Letter of Transmittal. Issue: [ ] Old Notes [ ] New Notes (check as applicable) Name: ---------------------------------------------------- (PLEASE PRINT) Address: -------------------------------------------------- ------------------------------------------------------------ (ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) Credit Old Notes not exchanged and delivered by book entry transfer to the Book Entry Transfer Facility account set below: ------------------------------------------------------------ (BOOK ENTRY TRANSFER FACILITY ACCOUNT NUMBER) Credit New Notes to the Book Entry Transfer Facility account set below: ------------------------------------------------------------ (BOOK ENTRY TRANSFER FACILITY ACCOUNT NUMBER) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if certificates for Old Notes in a principal amount not accepted for exchange or certificates for New Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) within this Letter of Transmittal or to an address different from that shown in the box entitled "Description of Old Notes" within the Letter of Transmittal. Deliver: [ ] Old Notes [ ] New Notes (check as applicable) Name: ---------------------------------------------------- (PLEASE PRINT) Address: -------------------------------------------------- ------------------------------------------------------------ (ZIP CODE) ------------------------------------------------------------ 9 10 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD NOTES OR BOOK-ENTRY CONFIRMATIONS; WITHDRAWAL OF TENDERS. To tender Old Notes in the Exchange Offer, physical delivery of certificates for Old Notes or confirmation of a book-entry transfer into the Exchange Agent's account with a Book-Entry Transfer Facility of Old Notes tendered electronically, as well as a properly completed and duly executed copy or manually signed facsimile of this Letter of Transmittal, or in the case of a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Tenders of Old Notes in the Exchange Offer may be made prior to the Expiration Date in the manner described in the preceding sentence and otherwise in compliance with this Letter of Transmittal. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE HOLDER TENDERING OLD NOTES. IF SUCH DELIVERY IS MADE BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND THAT SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WILL BE ACCEPTED. Except as otherwise provided below, the delivery will be made when actually received by the Exchange Agent. THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR THE OLD NOTES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE TRUSTEE OR DTC. Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In order to be valid, notice of withdrawal of tendered Old Notes must comply with the requirements set forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of Tenders." 2. GUARANTEED DELIVERY PROCEDURES. If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i) certificates representing such Old Notes are not lost but are not immediately available, (ii) time will not permit this Letter of Transmittal, certificates representing such Holder's Old Notes and all other required documents to reach the Exchange Agent prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of Old Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." Pursuant to the guaranteed delivery procedures: (i) such tender must be made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution, at one of the addresses set forth on the cover of this Letter of Transmittal, a properly completed and validly executed Notice of Guaranteed Delivery (by manually signed facsimile transmission, mail or hand delivery) in substantially the form provided with the Prospectus, setting forth the name(s) and address(es) of the registered Holder(s) and the principal amount of Old Notes being tendered and stating that the tender is being made thereby and guaranteeing that, within three Nasdaq National Market ("NNM") trading days from the date of the Notice of Guaranteed Delivery, the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, or, in the case of a book-entry transfer, an Agent's Message, together with certificates representing the Old Notes (or confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at a Book-Entry Transfer Facility), and any other documents required by this Letter of Transmittal and the instructions thereto, will be deposited by such Eligible Institution with the Exchange Agent; and 10 11 (iii) the Exchange Agent must have received this Letter of Transmittal (or a manually signed facsimile thereof), properly completed and validly executed with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, together with certificates for all Old Notes in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Old Notes), and any other required documents within three NNM trading days after the date of such Notice of Guaranteed Delivery. 3. PARTIAL TENDERS. If less than the entire principal amount of any Old Notes evidenced by a submitted certificate is tendered, the tendering Holder must fill in the principal amount tendered in the last column of the box entitled "Description of Old Notes" herein. The entire principal amount represented by the certificates for all Old Notes delivered to the Exchange Agent will be deemed to have been tendered, unless otherwise indicated. The entire principal amount of all Old Notes not tendered or not accepted for exchange will be sent (or, if tendered by book-entry transfer, returned by credit to the account at the Book-Entry Transfer Facility designated herein) to the Holder unless otherwise provided in the "Special Issuance Instructions" or "Special Delivery Instructions" boxes of this Letter of Transmittal. 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this Letter of Transmittal is signed by a participant in one of the Book-Entry Transfer Facilities whose name is shown as the owner of the Old Notes tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Old Notes. If any of the Old Notes tendered hereby are registered in the name of two or more Holders, all such Holders must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary accompanying documents as there are different names in which certificates are held. If this Letter of Transmittal or any certificates for Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID BOND POWER, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A PARTICIPANT IN A RECOGNIZED MEDALLION SIGNATURE PROGRAM (A "MEDALLION SIGNATURE GUARANTOR"). No signature guarantee is required if (i) this Letter of Transmittal is signed by the registered Holder(s) of the Old Notes tendered herewith (or by a participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Old Notes) and certificates for New Notes or for any Old Notes for principal amounts not tendered or not accepted for exchange are to be issued, directly to such Holder(s) or, if tendered by a participant in one of the Book-Entry Transfer Facilities, any Old Notes for principal amounts not tendered or not accepted for exchange are to be credited to such participant's account at such Book-Entry Transfer Facility and neither the "Special Issuance Instructions" box nor the "Special Delivery Instructions" box of this Letter of Transmittal has been completed or (ii) such Old Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES ON LETTERS OF TRANSMITTAL ACCOMPANYING OLD NOTES MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR. In all such other cases (including if this Letter of Transmittal is not signed by the Holder), the Holder must either properly endorse the certificates for Old Notes tendered or transmit a separate properly completed bond power with this Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on 11 12 such Old Notes, and, with respect to a participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Old Notes, exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by a Medallion Signature Guarantor, unless such certificates or bond powers are executed by an Eligible Institution. Endorsements on certificates for Old Notes and signatures on bond powers provided in accordance with this Instruction 4 by registered Holders not executing this Letter of Transmittal must be guaranteed by a Medallion Signature Guarantor. 5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders should indicate in the applicable box or boxes the name and address to which Old Notes for principal amounts not tendered or not accepted for exchange or certificates for New Notes, if applicable, are to be sent or issued, if different from the name and address of the Holder signing this Letter of Transmittal. In the case of payment to a different name, the taxpayer identification or social security number of the person named must also be indicated. If no instructions are given, Old Notes not tendered or not accepted for exchange will be returned, and certificates for New Notes will be sent, to the Holder of the Old Notes tendered. 6. TAXPAYER IDENTIFICATION NUMBER. Each tendering Holder is required to provide the Exchange Agent with the Holder's social security or Federal employer identification number, on Substitute Form W-9, which is provided under "Important Tax Information" below, or alternatively, to establish another basis for exemption from backup withholding. A Holder must cross out item (2) in the Certification box in Part III on Substitute Form W-9 if such Holder is subject to backup withholding. Failure to provide the information on the form may subject such Holder to 31% Federal backup withholding tax on any payment made to the Holder with respect to the Exchange Offer. The box in Part I of the form should be checked if the tendering or consenting Holder has not been issued a Taxpayer Identification Number ("TIN") and has either applied for a TIN or intends to apply for a TIN in the near future. If the box in Part I is checked the Holder should also sign the attached Certification of Awaiting Taxpayer Identification Number. If the Exchange Agent is not provided with a TIN within 60 days thereafter, the Exchange Agent will withhold 31% on all such payments of the New Notes until a TIN is provided to the Exchange Agent. 7. TRANSFER TAXES. The Company will pay all transfer taxes applicable to the exchange and transfer of Old Notes pursuant to the Exchange Offer, except if (i) deliveries of certificates for Old Notes for principal amounts not tendered or not accepted for exchange are registered or issued in the name of any person other than the Holder of Old Notes tendered thereby, (ii) tendered certificates are registered in the name of any person other than the person signing this Letter of Transmittal or (iii) a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder. 8. IRREGULARITIES. All questions as to the form of all documents and the validity (including time of receipt) and acceptance of all tenders and withdrawals of Old Notes will be determined by the Company, in its sole discretion, which determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WILL NOT BE CONSIDERED VALID. The Company reserves the absolute right to reject any and all tenders of Old Notes that are not in proper form or the acceptance of which, in the Company's opinion, would be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretations of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Any defect or irregularity in connection with tenders of Old Notes must be cured within such time as the Company determines, unless waived by the Company. Tenders of Old Notes shall not be deemed to have been made until all defects or irregularities have been waived by the Company or cured. A defective tender (which defect is not waived by the Company or cured by the Holder) will not constitute a valid 12 13 tender of Old Notes and will not entitle the Holder to New Notes. None of the Company, the Trustee, the Exchange Agent or any other person will be under any duty to give notice of any defect or irregularity in any tender or withdrawal of any Old Notes, or incur any liability to Holders for failure to give any such notice. 9. WAIVER OF CONDITIONS. The Company reserves the right, in its reasonable discretion, to amend or waive any of the conditions to the Exchange Offer. 10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR OLD NOTES. Any Holder whose certificates for Old Notes have been mutilated, lost, stolen or destroyed should write to or telephone the Trustee at the address or telephone number set forth on the cover of this Letter of Transmittal for the Exchange Agent. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering Old Notes and requests for assistance or additional copies of the Prospectus, this Letter of Transmittal, the Notice of Guaranteed Delivery or other documents may be directed to the Exchange Agent, whose address and telephone number appear above. 13 14 IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder who tenders Old Notes prior to receipt of the New Notes is required to provide the Exchange Agent with such Holder's correct TIN on the Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his or her social security number. If the Exchange Agent is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service ("IRS") and payments, including any New Notes, made to such Holder with respect to Old Notes exchanged pursuant to the Exchange Offer may be subject to backup withholding. Certain Holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on the Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. Holders are urged to consult their own tax advisors to determine whether they are exempt. If backup withholding applies, the Exchange Agent is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional Federal income tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments, including any New Notes, made with respect to Old Notes exchanged pursuant to the Exchange Offer, the Holder is required to provide the Exchange Agent with (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on the Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder has not been notified by the IRS that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (C) the IRS has notified the Holder that the Holder is no longer subject to backup withholding and (ii) if applicable, an adequate basis for exemption. WHAT NUMBER TO GIVE THE EXCHANGE AGENT The Holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered Holder. If the Old Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 14 15 SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION PAYOR'S NAME: LORAL SPACE & COMMUNICATIONS LTD. - -------------------------------------------------------------------------------- PAYEE INFORMATION (Please print or type) Individual or business name (if joint account, list first and circle the name of person or entity whose number you furnish in Part 1 below): - -------------------------------------------------------------------------------- Check appropriate box: [ ] Individual/Sole proprietor [ ] Corporation [ ] Partnership [ ] Other -------- - -------------------------------------------------------------------------------- Address (number, street, and apt. or suite no.): - -------------------------------------------------------------------------------- City, state, and ZIP code:
- ---------------------------------------------------------------------------------------------- PART I TAXPAYER IDENTIFICATION NUMBER ("TIN") PART II PAYEES EXEMPT FROM Enter your TIN below. For individuals, this is your social BACKUP WITHHOLDING security number. For other entities, it is your employer Check box (See page 2 of the identification number. Refer to the chart on page 1 of the Guidelines for further Guidelines for Certification of Taxpayer Identification clarification. Even if you are Number on Substitute Form W-9 (the "Guidelines") for further exempt from backup withholding, clarification. If you do not have a TIN, see instructions on you should still complete and how to obtain a TIN on page 2 of the Guidelines, check the sign the certification below): appropriate box below indicating that you have applied for a TIN and, in addition to the Part III Certification, sign the [ ] EXEMPT attached Certification of Awaiting Taxpayer Identification Number. Social security number: [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ] [ ] Applied For Employer identification number [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ] - ----------------------------------------------------------------------------------------------
PART III CERTIFICATION Certification Instructions: You must cross out item 2 below if you have been notified by the Internal Revenue Service (the "IRS") that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return (See page 2 of the Guidelines for further clarification). Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature ------------------------------------------- Date ----------------- ------------------------------------------------------------------------------ NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9 CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a TIN has not been issued to me, and either (a) I have mailed or delivered an application to receive a TIN to the appropriate IRS Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that I must provide a TIN to the payor within 60 days of submitting this Substitute Form W-9 and that if I do not provide a TIN to the payor within 60 days, the payor is required to withhold 31% of all reportable payments thereafter to me until I furnish the payor with a TIN. - ------------------------------------------------------ ------------------------------------------------------ Signature Date
EX-99.2 9 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2006 IN EXCHANGE FOR NEW 9 1/2% SENIOR NOTES DUE 2006 OF LORAL SPACE & COMMUNICATIONS LTD. As set forth in the Prospectus dated , 1999 (as the same may be amended from time to time, the "Prospectus") of Loral Space & Communications Ltd. (the "Company") under the caption "The Exchange Offer -- Guaranteed Delivery Procedures," and in the accompanying Letter of Transmittal (the "Letter of Transmittal") and Instruction 2 thereto, this form or one substantially equivalent, must be used to tender any of the Company's outstanding 9 1/2% Senior Notes due 2006 (the "Old Notes") pursuant to the Exchange Offer, if (i) certificates representing the Old Notes to be tendered for exchange are not lost but are not immediately available, (ii) time will not permit a Holder's Letter of Transmittal, certificates representing the Old Notes to be tendered and all other required documents to reach The Bank of New York (the "Exchange Agent") prior to the Expiration Date with respect to the Exchange Offer, or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date. This form may be delivered by an Eligible Institution by mail or hand delivery or transmitted, via manually signed facsimile, to the Exchange Agent as set forth below. Terms not otherwise defined herein shall have their respective meanings as set forth in the Prospectus. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE"). The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK By Hand Or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail: (Eligible Institutions Only) The Bank of New York The Bank of New York (212) 571-3080 101 Barclay Street, 7E 101 Barclay Street Confirm by Telephone: New York, New York 10286 New York, New York 10286 (212) 815-6333 Attn: Reorganization Section Corporate Trust Services Window For Information Call: Ground Level (212) 815-6333 Attn: Reorganization Section
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 2 LADIES AND GENTLEMEN: The undersigned hereby tender(s) to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." The undersigned hereby represents and warrants that the undersigned has full power and authority to tender the Old Notes. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable for the perfection of the undersigned's tender. Tenders may be withdrawn in accordance with the procedures set forth in the Prospectus. The undersigned authorizes the Exchange Agent to deliver this Notice of Guaranteed Delivery to the Company and the Trustee as evidence of the undersigned's tender of Old Notes. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. 2 3
- -------------------------------------------------------- PLEASE SIGN AND COMPLETE - ------------------------------------------------------------------------------------------------------------------ Signatures of Registered Holder(s) Date: -------------------------------------------------- or Authorized Signatory: - -------------------------------------------------------- Address: ----------------------------------------------- - -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ Name(s) of Registered Holder(s): Area Code and Telephone No.: - -------------------------------------------------------- -------------------------------------------------------- - -------------------------------------------------------- -------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ Principal Amount of Notes Tendered: If Notes will be delivered by book-entry transfer, - -------------------------------------------------------- complete the following: Depository Account No. ------------------------------ Certificate No.(s) of Notes (if available): - -------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their names appear on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to the Company of such person's authority to so act. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ------------------------------------------------------------ ------------------------------------------------------------ Capacity: ------------------------------------------------------------ Address(es): ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
- -------------------------------------------------------------------------------- DO NOT SET OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT, TOGETHER WITH A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER RELATED DOCUMENTS. 3 4 - ----------------------------------------------------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, hereby guarantees that, within three Nasdaq National Market trading days from the date of this Notice of Guaranteed Delivery, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with certificates representing the Old Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at a Book-Entry Transfer Facility, pursuant to the procedure for book-entry transfer set forth in the Prospectus under the caption "The Exchange Offer -- Book-Entry Transfer"), and any other required documents will be deposited by the undersigned with the Exchange Agent at its address set forth above. - ----------------------------------------------------------------------------------------------------------------------------- Name of Firm: ----------------------------------------- --------------------------------------------------------- (AUTHORIZED SIGNATURE) Address: ------------------------------------------------ Name:------------------------------------------------ - ----------------------------------------------------------- Title:-------------------------------------------------- Area Code and Telephone No.: ----------------------------------------- Date:-------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------
4 EX-99.3 10 LETTER TO CLIENTS 1 EXHIBIT 99.3 LORAL SPACE & COMMUNICATIONS LTD. OFFER FOR ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2006 IN EXCHANGE FOR UP TO $350,000,000 PRINCIPAL AMOUNT OF 9 1/2% SENIOR NOTES DUE 2006 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE"). To Our Clients: Enclosed for your consideration is a Prospectus dated , 1999 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Loral Space & Communications Ltd. (the "Company") to exchange up to $350,000,000 in aggregate principal amount of its Senior Notes due 2006 (the "Old Notes") for $350,000,000 in aggregate principal amount of its Senior Notes due 2006 (the "New Notes") upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal. The material is being forwarded to you as the beneficial owner of Old Notes held by us for your account or benefit but not registered in your name. A tender of the Old Notes pursuant to the Exchange Offer may be made only by us as the registered holder of the Old Notes, and pursuant to your instructions. Therefore, the Company urges beneficial owners of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such holder promptly if they wish to tender Old Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Old Notes held by us for your account or benefit, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Old Notes pursuant to the Exchange Offer. Your instructions to us should be forwarded as promptly as practicable in order to permit us to tender Old Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City Time, on , 1999, unless extended (the "Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Old Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Old Notes held by us and registered in our name for your account or benefit. 2 INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by Loral Space & Communications Ltd. with respect to their Old Notes. This will instruct you to tender the Old Notes held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Old Notes held by you for my account as indicated below:
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES --------------------------------------- [ ] Please do not tender any Old Notes held by you for my account. Dated: -------------------------------, 1999 -------------------------------------------------- -------------------------------------------------- SIGNATURE(S) -------------------------------------------------- -------------------------------------------------- PLEASE PRINT NAME(S) HERE -------------------------------------------------- -------------------------------------------------- ADDRESS(ES) -------------------------------------------------- AREA CODE(S) AND TELEPHONE NUMBER(S) -------------------------------------------------- TAX IDENTIFICATION OR SOCIAL SECURITY NO(S).
None of the Old Notes held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the Old Notes held by us for your account. EX-99.4 11 LETTER TO NOMINEES 1 EXHIBIT 99.4 LORAL SPACE & COMMUNICATIONS LTD. OFFER FOR ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2006 IN EXCHANGE FOR UP TO $350,000,000 PRINCIPAL AMOUNT OF 9 1/2% SENIOR NOTES DUE 2006 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON 1999, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE"). To Brokers, Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated , 1999 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Loral Space & Communications Ltd. (the "Company") to exchange up to $350,000,000 in aggregate principal amount of its Senior Notes due 2006 (the "New Notes") for $350,000,000 in aggregate principal amount of its Senior Notes due 2006 (the "Old Notes"). We are asking you to contact your clients for whom you hold Old Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Old Notes registered in their own name. The Company will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Company for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay all transfer taxes, if any, applicable to the tender of Old Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Old Notes and for the information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Old Notes registered in your name or the name of your nominee; with space provided for obtaining the clients' instructions with regard to the Exchange Offer; 4. A form of Notice of Guaranteed Delivery; and 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City Time, on , 1999, unless extended (the "Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. In all cases, exchanges of Old Notes for New Notes accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (a) certificates representing such Old Notes or a confirmation of a book-entry transfer of such Old Notes, as the case may be, (b) the Letter of Transmittal (or a facsimile thereof) promptly completed and duly executed with any required signature guarantees, and (c) any other documents required by the Letter of Transmittal. 2 Holders who wish to tender their Old Notes and (a) whose Old Notes are not immediately available, (b) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date or (c) who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Notes by following the guaranteed delivery procedures described in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." To tender Old Notes, certificates for Old Notes, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, together with any other required documents, must be received by the Exchange Agent as provided the Prospectus and the Letter of Transmittal. Additional copies of the enclosed material may be obtained form the Exchange Agent, The Bank of New York, by calling (212) 815-????. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----