6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2021

Commission File Number: 333-255518

TELESAT CORPORATION

(Translation of registrant’s name into English)

160 Elgin Street, Suite 2100, Ottawa, Ontario, Canada K2P 2P7

(Address of Principal Executive Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ☐ No ☒

Completion of Integration Transaction

On November 18, 2021 and November 19, 2021, Telesat Corporation, a corporation incorporated under the laws of the Province of British Columbia, Canada (“Telesat” or the “Company”), along with the other parties to the Transaction Agreement (as defined below) consummated the transactions (collectively, the “Transaction”) contemplated by the Transaction Agreement and Plan of Merger (as amended, the “Transaction Agreement”), dated as of November 23, 2020, by and among Telesat, Telesat Canada, a Canadian corporation (“Telesat Canada”), Loral Space & Communications Inc., a Delaware corporation (“Loral”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of Loral (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP Investments”), and Red Isle Private Investments Inc., a Canadian corporation (“Red Isle”).

The Transaction was effected in accordance with the Transaction Agreement through a series of transactions, including: (i) on November 18, 2021, Red Isle contributing 272,827 Telesat Canada Non-Voting Participating Preferred Shares to Telesat in exchange for class C fully voting shares of Telesat (“Class C Shares”) and the balance of its equity interest in Telesat Canada to Telesat Partnership in exchange for class C units of Telesat Partnership (“Class C Units”); (ii) on November 18, 2021 and pursuant to stockholder contribution agreements, the contribution by current and former members of management of Telesat Canada of their Telesat Canada Non-Voting Participating Preferred Shares to Telesat in exchange for newly issued Class A common share of Telesat (the “Class A common shares”) if such contributing shareholder is Canadian (as such term is defined in the Investment Canada Act) or newly issued Class B variable voting shares of Telesat (the “Class B variable voting shares”) if such contributing shareholder is not Canadian (as such term is defined in the Investment Canada Act); (iii) on November 18, 2021 and pursuant to the director contribution agreement, the contribution by John Cashman and Clare Copeland of their Telesat Canada Director Voting Preferred Shares to Telesat Partnership in exchange for interests in Telesat Partnership, which were subsequently redeemed by Telesat Partnership for cash on November 19, 2021; (iv) on November 18, 2021 and pursuant to optionholder exchange agreements, the exchange of options, tandem stock appreciation rights and restrict stock units in respect of Telesat Canada for corresponding instruments in Telesat with the same vesting terms and conditions; and (v) on November 19, 2021, the merger of Merger Sub with and into Loral (the “Merger”), with Loral surviving the Merger as a wholly owned subsidiary of Telesat Partnership and the other Loral stockholders receiving shares of Telesat or units of Telesat Partnership as described below.

Under the terms of the Transaction Agreement, at the effective time of the Merger (the “Effective Time”), each share of Loral common stock outstanding immediately prior to the Effective Time was converted into the right to receive (a) if the Loral stockholder validly made an election to receive units of Telesat Partnership pursuant to the Merger (a “Unit Election”), one (1) newly issued Class A unit of Telesat Partnership if such Loral stockholder is Canadian (as such term is defined in the Investment Canada Act), and otherwise one (1) newly issued Class B unit of Telesat Partnership, (b) if the Loral stockholder validly made an election to receive shares of Telesat (a “Shares Election”), one (1) newly issued Class A common share if such Loral stockholder is Canadian (as such term is defined in the Investment Canada Act), or (c) if the Loral stockholder validly made a Shares Election and is not Canadian, or did not validly make a Unit Election or a Shares Election, one (1) newly issued Class B variable voting share. Following the Transaction, Telesat Canada became an indirect wholly owned subsidiary of Telesat.

In addition, on November 18, 2021, Telesat entered into the trust agreement and trust voting agreement with Telesat Partnership, TSX Trust Company as the trustee of Telesat Corporation Trust and, in the case of the trust agreement, Christopher DiFrancesco, effectuating the voting trust relating to the voting rights of units of Telesat Partnership. The trust agreement and the trust voting agreement are filed, respectively, as Exhibit 99.4 and Exhibit 99.5 hereto and incorporated herein by reference.

Telesat’s prospectus filed on June 30, 2021 pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”), which prospectus is a part of the Registration Statement on Form F-4, as amended (Registration No. 333-255518) (the “Registration Statement”), filed by Telesat and Telesat Partnership, contains additional information about the Transaction and the other transactions contemplated by the Transaction Agreement, including a description of the treatment of equity awards and information concerning the interests of directors, executive officers and affiliates of Telesat and Loral in the Transaction. On November 16, 2021, Telesat and Telesat Partnership filed a Non-Offering Prospectus with the Ontario Securities Commission (the “Prospectus”), which has been filed by Telesat pursuant to Rule 425 under the Securities Act . The Prospectus contains additional information regarding Telesat and Telesat Partnership.

The Class A common shares and Class B variable voting shares have been registered under Section 12(b) of the Exchange Act, and the Company is subject to the informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder as a foreign private issuer. The Class A common shares and Class B variable voting shares were approved for listing under the symbol “TSAT” on both the Nasdaq Global Select Market (“NASDAQ”) and the Toronto Stock Exchange (“TSX”). The Class A common shares and Class B variable voting shares began trading on the NASDAQ and the TSX on November 19, 2021.

The foregoing description of the Transaction Agreement and the Transaction does not purport to be complete and is qualified in its entirety by reference to the full text of the Transaction Agreement filed as Exhibit 99.1 hereto and incorporated herein by reference, the articles of Telesat filed as Exhibit 99.2 hereto, the amended and restated partnership agreement of Telesat Partnership filed as Exhibit 99.3 hereto and incorporated herein by reference.

Election of Directions and Appointment of Principal Officers

In connection with the consummation of the Transaction, on November 18, 2021, the following individuals were appointed as members of Telesat’s board of directors (the “Board”), effective immediately following the consummation of the Transaction: Mélanie Bernier, Michael Boychuk, Jason A. Caloras, Jane Craighead, Dick Fadden, Daniel Goldberg, Dr. Mark H. Rachesky, Guthrie Stewart and Michael B. Targoff. Henry Intven will continue as a member of the Board. Dr. Rachesky has been designated as chairman of the Board. Pursuant to the Transaction Agreement, three directors of Telesat were designated by PSP Investments prior to the closing of the Transaction (Mélanie Bernier, Michael Boychuk and Guthrie Stewart) and three directors of Telesat were designated by MHR Fund Management (Jason A. Caloras, Dr. Mark H. Rachesky and Michael B. Targoff).

In connection with the consummation of the Transaction, on November 18, 2021, the following individuals were appointed or confirmed, as applicable, as officers of Telesat, effective immediately following the consummation of the Transaction: Daniel Goldberg as President and Chief Executive Officer, Michèle Beck as Senior Vice President, Canadian Sales, Andrew Browne as Chief Financial Officer, Christopher S. DiFrancesco as Vice President, General Counsel and Secretary, John Flaherty as Vice President, Business Planning and Marketing, Erwin Hudson as Vice President, Telesat Lightspeed System Development, Glenn Katz as Chief Commercial Officer, Michael C. Schwartz as Senior Vice President, Corporate & Business Development and David N. Wendling as Chief Technical Officer.

Additional biographical information with respect to each director and officer of Telesat is included in the Registration Statement.

Amendments to Articles

On November 17, 2021, in connection with the consummation of the Transaction, Telesat adopted new Articles. The Articles of Telesat are attached hereto as Exhibit 99.2 and is incorporated herein by reference.

On November 17, 2021, in connection with the consummation of the Transaction, the Partnership Agreement of Telesat Partnership was amended and restated. The amended and restated partnership agreement of Telesat Partnership is attached hereto as Exhibit 99.3 and incorporated herein by reference.

Press Release

Telesat issued a press release on November 19, 2021 announcing the consummation of the Transaction, which is filed as Exhibit 99.6 hereto and is incorporated herein by reference.

Financial Statements

(a) Financial Statements of Business Acquired.

The following information is attached hereto as Exhibit 99.7, and is incorporated herein by reference:

i. Unaudited condensed interim consolidated financial statements of Telesat Canada as at September 30, 2021 and for the three- and nine-month periods ended September 30, 2021 and 2020 and related notes.

ii. Consolidated financial statements of Telesat Canada as at December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020 and related notes.

iii. Balance sheet of Telesat as at September 30, 2021 and December 31, 2020 and related notes.

iv. Balance sheet of Telesat as at December 31, 2020 and related notes.

v. Consolidated Balance of Telesat Partnership sheet as at September 30, 2021 and December 31, 2020 and related notes.

vi. Consolidated Balance Sheet of Telesat Partnership as at December 31, 2020 and related notes.

vii. Unaudited condensed interim consolidated financial statements of Loral as of September 30, 2021 and for the three- and nine-month periods ended September 30, 2021 and 2020 and related notes.

viii. Consolidated financial statements of Loral as of December 31, 2020 and 2019, and for each of the years in the two-year period ended December 31, 2020 and related notes.

ix. Consolidated financial statements of Loral as of December 31, 2019 and 2018, and for each of the years in the two-year period ended December 31, 2019 and related notes.

(b) Pro Forma Financial Information

The unaudited pro forma condensed consolidated balance sheet of Telesat as of September 30, 2021 and the unaudited pro forma condensed consolidated statements of income of Telesat for the year ended December 31, 2020 and the nine months ended September 30, 2021, after giving effect to the Transaction are included as Exhibit 99.8.

Exhibit Index

No.	Description
99.1	Transaction Agreement and Plan of Merger, dated as of November 23, 2020, by and among Telesat Canada, Telesat Corporation, Telesat Partnership LP, Telesat CanHold Corporation, Lion Combination Sub Corporation, Loral Space & Communications Inc., Public Sector Pension Investment Board and Red Isle Private Investments Inc. (incorporated by reference to Exhibit 2.1 to Loral’s Current Report on Form 8-K, filed on November 25, 2020).
99.2	Articles of Telesat Corporation.
99.3	Amended and Restated Limited Partnership Agreement of Telesat Partnership LP.
99.4	Trust Agreement, dated as of November 18, 2021, by and between Christopher DiFrancesco, TSX Trust Company and, solely for the purposes set forth therein, Telesat Corporation and Telesat Partnership LP.
99.5	Voting Agreement, dated as of November 18, 2021, by and between TSX Trust Company, Telesat Corporation and Telesat Partnership LP.
99.6	Press Release of Telesat Corporation issued on November 19, 2021.
99.7	Financial Statements of Telesat Canada, Telesat Corporation, Telesat Partnership LP and Loral Space & Communications Inc.
99.8	Unaudited pro forma condensed consolidated balance sheet of Telesat as of September 30, 2021 and the unaudited pro forma condensed consolidated statements of income of Telesat for the year ended December 31, 2020 and the nine months ended September 30, 2021.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TELESAT CORPORATION
	(Registrant)
November 19, 2021	By:	/s/ Christopher DiFrancesco
	Name:	Christopher DiFrancesco
	Title:	Vice President, General Counsel and Secretary

EX-99.2

Exhibit 99.2

BUSINESS CORPORATIONS ACT

BRITISH COLUMBIA

ARTICLES

TELESAT CORPORATION

BUSINESS CORPORATIONS ACT
BRITISH COLUMBIA

ARTICLES

TELESAT CORPORATION

I N D E X

PART 1 INTERPRETATION	1
PART 2 ALTERATIONS	13
PART 3 SHARES AND SHARE CERTIFICATES	14
PART 4 SHARE TRANSFERS	14
PART 5 PURCHASE OF SHARES	15
PART 6 BORROWING POWERS	15
PART 7 SHAREHOLDER MEETINGS	16
PART 8 PROCEEDINGS AT SHAREHOLDER MEETINGS	17
PART 9 SHAREHOLDERS VOTES	19
PART 10 ELECTION AND REMOVAL OF DIRECTORS	21
PART 11 PROCEEDINGS of DIRECTORS	25
PART 12 COMMITTEES OF DIRECTORS	27
PART 13 OFFICERS	32
PART 14 DISCLOSURE OF INTEREST OF DIRECTORS	32
PART 15 INDEMNIFICATION	33
PART 16 DIVIDENDS	37
PART 17 AUDITOR	38
PART 18 EXECUTION OF INSTRUMENTS	39
PART 19 NOTICES	39
PART 20 RESTRICTION ON SHARE TRANSFER	41

PART 21 ADVANCE NOTICE PROVISIONS	42
PART 22 FORUM SELECTION	47
PART 23 APPROVAL OF MATTERS	48
PART 24 OTHER PROVISIONS	50
PART 25 SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO CLASS A/B/C SHARES	52
PART 26 SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO SPECIAL VOTING SHARES	57
PART 27 SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO SUPER VOTING SHARES	59
PART 28 SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO GOLDEN SHARE	60
PART 29 SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO CLASS A PREFERRED SHARES	63
PART 30 DECLARATIONS	64

ARTICLES

Company Name:	Telesat Corporation
Translations of Company Name	n/a
Incorporation Number:	BC1270976

PART 1
INTERPRETATION

Definitions

1.1 In these Articles, unless the context otherwise requires:

(a) “2024 Meeting” means the Company’s annual meeting of shareholders held in calendar year 2024; provided, however, that, if the date of such 2024 annual meeting is more than thirty (30) days prior to the one (1) year anniversary of the annual meeting of shareholders held in calendar year 2023, “2024 Meeting” shall instead mean the Company’s annual meeting of shareholders held in calendar year 2025.

(b) “5% Holder” means, with respect to a Person, that such Person, together with its affiliates, beneficially owns Share Equivalents representing five percent (5%) or more of the Fully Diluted Class A/B/C Shares.

(c) “5% Voter” has the meaning ascribed to such term in Article 28.5.

(d) “Agent” means a person appointed to act on behalf of another.

(e) “Applicable Securities Laws” means (i) the applicable securities legislation of each relevant province and territory of Canada, as amended from time to time, the rules, the regulations and forms made or promulgated under any such statute and the published national instruments, multilateral instruments, policies, bulletins and notices of the securities commission and similarly regulatory authority of each province and territory of Canada and (ii) the applicable United States federal and state securities laws, including without limitation, the United States Securities Act of 1933, the United States Securities Exchange Act of 1934, each as amended from time to time, and the rules and regulations promulgated thereunder.

(f) “Audit Committee” means the audit committee of the board.

(g) “Beneficial Ownership” and “beneficially own” and similar terms have the meaning set forth in Rule 13d-3 under the United States Securities Exchange Act of 1934.

(h) “board” and “directors” mean the directors of the Company for the time being.

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(i) “Business Corporations Act” means the Business Corporations Act (British Columbia) from time to time in force and includes amendments thereto, and all regulations made pursuant thereto.

(j) “Canada Evidence Act” means the Canada Evidence Act, R.S.C. (1985), c. C-5 from time to time in force and includes amendments thereto, and all regulations made pursuant thereto.

(k) “Canadian” has the meaning ascribed to such term in the Investment Canada Act.

(l) “CbyC Director” means a director who both (i) is Canadian, and (ii) was nominated for election by either: (x) the Nominating Committee, if comprised of a majority of Canadian directors, (y) a Designator who is Canadian, or (z) a shareholder who is Canadian. For the avoidance of doubt, Contractual Designees nominated by the Polaris Designator shall qualify as CbyC Directors pursuant to either subclauses (y) or (z) of this definition.

(m) “Change of Control” means (i) any person who, together with its affiliates and associates, acquires Beneficial Ownership of at least a majority of the Fully Diluted Class A/B/C Shares, including by way of any arrangement, amalgamation, merger, consolidation, combination or acquisition of the Company with, by or into another corporation, entity or person in one or more related transactions, or (ii) the sale of all or substantially all of the assets of the Company to a third party.

(n) “Class A Common Shares” means the Class A Voting Shares Without Par Value in the capital of the Company.

(o) “Class A Holder Votes” has the meaning ascribed to such term in the Partnership Agreement.

(p) “Class A Preferred Shares” means the Class A Preferred Shares Without Par Value in the capital of the Company.

(q) “Class A Special Voting Share” means the Class A Special Voting Share Without Par Value in the capital of the Company.

(r) “Class A Units” means the Class A exchangeable limited partnership units of the Partnership.

(s) “Class B Variable Voting Shares” means the Class B Variable Voting Shares Without Par Value in the capital of the Company.

(t) “Class B Special Voting Share” means the Class B Special Voting Share Without Par Value in the capital of the Company.

(u) “Class B Units” means the Class B exchangeable limited partnership units of the Partnership.

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(v) “Class C Shares” means the Class C Fully Voting Shares and the Class C Limited Voting Shares.

(w) “Class C Fully Voting Shares” means the Class C Fully Voting Shares Without Par Value in the capital of the Company.

(x) “Class C Limited Voting Shares” means the Class C Limited Voting Shares Without Par Value in the capital of the Company.

(y) “Class C Special Voting Share” means the Class C Special Voting Share Without Par Value in the capital of the Company.

(z) “Class C Units” means the Class C exchangeable limited partnership units of the Partnership.

(aa) “Class A/B/C Shares” means the Class A Common Shares, the Class B Variable Voting Shares and the Class C Shares of the Company.

(bb) “Company” means Telesat Corporation.

(cc) “Compensation Committee” means the compensation committee of the board.

(dd) “Contractual Designee” has the meaning ascribed to such term in Article ‎10.1.

(ee) “CSA” means the securities commissions and similar regulatory authorities in all of the provinces and territories in Canada.

(ff) “Declaration” has the meaning ascribed to such term in Article ‎30.3.

(gg) “Depository” means Caisse canadienne de dépôt de valeurs Limitée / Canadian Depository for Securities Limited or any other person acting as an intermediary for the payment or delivery of securities in respect of securities transactions and providing centralized services for the compensation of securities transactions or providing centralized services as a depositary in respect of the compensation of securities transactions.

(hh) “Designated Securities Exchange” means any of (i) the New York Stock Exchange, Nasdaq, the Toronto Stock Exchange, the London Stock Exchange, the Luxembourg Stock Exchange, the Hong Kong Stock Exchange, Japan Exchange Group, Shanghai Stock Exchange, Euronext, Deutsche Börse, or any of their respective successors, or (ii) any other internationally recognized securities exchange that (x) provides investors with liquidity and (y) has listing and governance standards, in each case, comparable to the foregoing exchanges as determined by the Board in good faith.

(ii) “Designator” means either (i) Polaris or its affiliates, or (ii) Meteor or its affiliates, as applicable, in each case as provided under an investor rights agreement between such Designator and the Company.

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(jj) “Designator Assignee” has the meaning ascribed to such term in Article ‎10.1.

(kk) “Director Indemnitee” has the meaning ascribed to such term in Article ‎15.4(b).

(ll) “Exchangeable Units” means the Class A Units, the Class B Units and the Class C Units.

(mm) “Exchangeable Unit Terms” means the rights, privileges, restrictions and conditions attaching to the Exchangeable Units.

(nn) “Foreign Action” has the meaning ascribed to such term in Article ‎22.1.

(oo) “Fully Diluted Class A/B/C Shares” means as of any date, without duplication, a number of Class A/B/C Shares equal to the sum of (a) the number of Class A/B/C Shares issued and outstanding as of such date, (b) the number of Class A/B/C Shares for or into which the issued and outstanding Exchangeable Units as of such date are exchangeable or convertible, whether or not then convertible or exchangeable, and (c) the number of Class A/B/C Shares for or into which any right or security (other than an unvested right or security) that is as of such date exercisable for, convertible into or exchangeable for Class A/B/C Shares is exercisable for, convertible into or exchangeable for upon exercise, conversion or exchange, with the number of such Class A/B/C Shares for or into which any such right or security is exercisable for, convertible into or exchangeable for upon such exercise, conversion or exchange calculated in accordance with the treasury stock method, as reasonably determined by the Company consistent with its past practice (or, prior to such past practice being established, the past practice of Transit).

(pp) “Golden Share” means the Golden Share Without Par Value in the capital of the Company.

(qq) “Golden Share Additional Votes” has the meaning ascribed to such term in Article ‎24.3.

(rr) “Golden Share Canadian Votes” has the meaning ascribed to such term in Article ‎28.3(b).

(ss) “Golden Share Redemption Notice” has the meaning ascribed to such term in Article ‎28.7.

(tt) “Golden Share Redemption Price” means $1.00.

(uu) “Golden Share Voting Rights” has the meaning ascribed to such term in Article ‎28.3.

(vv) “Good Cause” means any one or more of the following factors, as applicable, which the determining group as specified herein reasonably determines, taken alone or in combination, would make it inadvisable for a person to serve on the board:

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(i) conduct by such person involving a felony (in the United States) or an indictable offense (in Canada);

(ii) non-criminal conduct by such person occurring in the past five (5) years involving material acts of dishonesty, fraud or similar circumstances;

(iii) material misconduct by such person occurring in the past five (5) years in the performance of such person’s duties as a past or current director (or similar role) of the Company or any other company on whose board of directors (or similar body) such person serves or served;

(iv) the ineligibility of such person to serve on the board due to applicable Legal Requirements; or

(v) a material violation or alleged material violation by such person of any: (A) securities laws, rules or regulations promulgated thereunder or similar Legal Requirements (whether federal, state, provincial, local or foreign, including the Applicable Securities Laws); or (B) Legal Requirement applicable (or that would be applicable) to such person in his or her capacity as a director or associate of the Company, in each case, for which enforcement proceedings have been brought by any member of the CSA, the United States Securities and Exchange Commission or any other relevant Governmental Body and such proceedings have not been withdrawn or dismissed without a finding or admission of culpability against such person.

(ww) “Governmental Authorization” means any: (i) permit, license, certificate, franchise, permission, variance, clearance, registration, qualification, or authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (ii) right under any contract with any Governmental Body.

(xx) “Governmental Body” means any: (i) nation, state, commonwealth, province, territory, county, municipality, district, or other jurisdiction of any nature; (ii) federal, state, provincial, territorial, local, municipal, foreign, or other government; or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body, or entity and any court or other tribunal).

(yy) “Independent Audit Committee Director” means a director who (i) satisfies the independence requirements of the applicable U.S. and/or Canadian securities exchanges on which the Class A/B/C Shares are listed, (ii) is “independent” of the Company within the meaning of National Instrument 52-110 - Audit Committees of the CSA and (iii) is “independent” of the Company within the meaning of Section 10A(m)(3)(B) of the United States Securities Exchange Act of 1934.

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(zz) “Interpretation Act” means the Interpretation Act (British Columbia) from time to time in force and includes amendments thereto, and all regulations made pursuant thereto.

(aaa) “Legal Requirement” means any federal, state, provincial, territorial, local, municipal, foreign, or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling, or requirement issued, enacted, adopted, promulgated, implemented, or otherwise put into effect by or under the authority of any Governmental Body (or under the authority of any stock exchange on which any of the Class A/B/C Shares are then listed).

(bbb) “meeting of shareholders” for the purposes of ‎PART 21 of these Articles, means an annual meeting of shareholders of the Company or a special meeting of shareholders of the Company.

(ccc) “Meteor” means Meteor Fund Management LLC.

(ddd) “Meteor Designators” has the meaning ascribed to such term in Article ‎10.2(a)(ii).

(eee) “Nominating Committee” means the nominating committee of the board.

(fff) “Nominating Shareholder” has the meaning ascribed to such term in Article ‎21.1(c).

(ggg) “Non-Canadian” means a person who is not Canadian.

(hhh) “Non-Canadian Principal Shareholder” has the meaning ascribed to such term in Article ‎24.2.

(iii) “Non-Canadian Voting Limitation” has the meaning ascribed to such term in Article ‎24.2.

(jjj) “Notice Date” has the meaning ascribed to such term in Article ‎21.3(a).

(kkk) “Other Investments” has the meaning ascribed to such term in Article ‎15.6(a)(i).

(lll) “Participant” means a holder of Voting Shares or the Agent of such holder registered with the Depository.

(mmm) “Partnership” means Topco Partnership LP.

(nnn) “Partnership Agreement” means the Amended and Restated Limited Partnership Agreement of the Partnership, to be dated as of the date hereof, by and among the Company, Polaris Sub, each other limited partner admitted to the partnership in accordance with the terms thereof and, solely for purposes of Section 3.21 thereof, Polaris.

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(ooo) “Passive Holder” means any holder of Class A/B/C Shares that is entitled to report its ownership interest in the Company for purposes of U.S. federal securities laws on (i) Form 13F or (ii) Schedule 13G pursuant to Rule 13d-1(b) or Rule 13d-1(c) promulgated under the United States Securities Exchange Act of 1934.

(ppp) “Polaris” means Public Sector Pension Investment Board, a Canadian Crown corporation incorporated under the laws of Canada.

(qqq) “Polaris Designators” has the meaning ascribed to such term in Article ‎10.2(a)(i).

(rrr) “Polaris Sub” means Red Isle Private Investments Inc., a subsidiary of Polaris.

(sss) “Proposed Nominee” has the meaning ascribed to such term in Article ‎21.4(a).

(ttt) “Proposing Shareholder” has the meaning ascribed to such term in Article ‎21.1(b).

(uuu) “public announcement” means disclosure (i) in a press release disseminated by the Company through a national news service in the United States and Canada; or (ii) in a document filed by the Company for public access under its profile on the System of Electronic Document Analysis and Retrieval at www.sedar.com or under its profile on the Electronic Data Gathering and Retrieval system available on the United States Securities and Exchange Commission’s website at www.sec.gov.

(vvv) “Registration System” means the services offered by the Depository.

(www) “Related Parties” has the meaning ascribed to such term in Article ‎15.6(a).

(xxx) “Renounced Business Opportunities” has the meaning ascribed to such term in Article ‎15.6(b).

(yyy) “Requisitioning Shareholder” has the meaning ascribed to such term in Article ‎21.1(b).

(zzz) “Second Tabulation Matter” has the meaning ascribed to such term in Article ‎24.5.

(aaaa) “Second Tabulation Resolution” has the meaning ascribed to such term in Article ‎24.4.

(bbbb) “Secondary Indemnitors” has the meaning ascribed to such term in Article ‎15.4(b).

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(cccc) “Share Equivalents” (i) the Class A/B/C Shares, (ii) the Exchangeable Units and (iii) any right or security that is exercisable for, convertible into or exchangeable for Class A/B/C Shares.

(dddd) “shareholder” means a shareholder of the Company.

(eeee) “Short Interest” has the meaning ascribed to such term in Article ‎21.4(b)(viii).

(ffff) “Special Board Date” means the date that the number of (a) Contractual Designees permitted to be nominated by the Polaris Designators pursuant to the investor rights agreement between the Polaris Designators and the Company plus (b) the Contractual Designees permitted to be nominated by the Meteor Designators pursuant to the investor rights agreement between the Meteor Designators and the Company collectively constitutes, in the aggregate, less than 50% of the number of directors of the Company (as such number is determined in accordance with Article 10.3, without taking into account any vacancies on the board).

(gggg) “Special Nomination Termination Date” means the earlier of: (i) the 2024 Meeting and (ii) the Special Board Date.

(hhhh) “Special Voting Redemption Price” means $33.33 per Special Voting Share.

(iiii) “Special Voting Shares” means the Class A Special Voting Share, the Class B Special Voting Share and the Class C Special Voting Share.

(jjjj) “Specially Designated Director” means a person who:

(i) is designated as a director pursuant to Article ‎10.2(a)(iii),

(ii) meets the criteria for an Independent Audit Committee Director,

(iii) is not an affiliate or associate of a Designator or a Designator Assignee (or their respective affiliates),

(iv) together with such person’s immediate family and affiliates, has not received compensation or payments from a Designator or a Designator Assignee (or any of their respective affiliates) in any of the past three (3) years in an amount in excess of US$120,000 per annum, excluding for these purposes any directors fees, and

(v) is Canadian.

(kkkk) “Successor Entity” has the meaning ascribed to such term in Article 23.2.

(llll) “Successor Securities” has the meaning ascribed to such term in Article 23.2.

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(mmmm) “Super Voting Redemption Notice” has the meaning ascribed to such term in Article ‎27.7.

(nnnn) “Super Voting Redemption Price” means $1.00 per Super Voting Share.

(oooo) “Super Voting Shares” means the Super Voting Shares Without Par Value in the capital of the Company.

(pppp) “Tabulation Agent” means a person designated by the Company, in writing, as its agent to perform the administrative tasks of (1) collecting and tabulating instructions from the holders of Exchangeable Units for the purpose of instructing the Trustee as to the exercise of the voting rights with respect to the Special Voting Shares pursuant to the terms of these Articles, the Partnership Agreement and the Voting Agreement, and (2) collecting and tabulating the votes of the Class A/B/C Shares and/or instructions from the holders of Exchangeable Units pursuant to the terms of the Partnership Agreement for the purpose of instructing the Trustee as to the exercise of the voting rights attached to the Golden Share pursuant to the terms of these Articles and the Voting Agreement. For the avoidance of doubt, the Company shall retain liability as principal for the acts of the Tabulation Agent.

(qqqq) “these Articles” means the articles of the Company from time to time and all amendments thereto, and the words “herein”, “hereto”, “hereby”, “hereunder”, “hereof” and similar words refer to these Articles as so defined and not to any particular Part, article or other subdivision of these Articles.

(rrrr) “Timely Notice” has the meaning ascribed to such term in Article ‎21.3.

(ssss) “Transfer Agent” means Computershare Trust Company of Canada or any other corporation or other entity designated by the board to act as Transfer Agent of the Company.

(tttt) “Transit” shall mean Telesat Canada, a corporation incorporated under the laws of Canada.

(uuuu) “trustee”, in relation to a shareholder, means the personal or other legal representative of the shareholder, and includes a trustee in bankruptcy of the shareholder.

(vvvv) “Trustee” means the trustee of the Trust as determined from time to time in accordance with the trust agreement made as of the date hereof.

(wwww) “Unwind Transaction” means, collectively, (i) the conversion of all of the Class B Variable Voting Shares into Class A Common Shares and (ii) the other transactions, events and occurrences specified in these Articles to occur upon an Unwind Trigger, including the redemption of the Golden Share and the Special Voting Shares and the expiration of the provisions in ‎PART 24.

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(xxxx) “Unwind Trigger” means the occurrence of the events set forth in both clauses (i) and (ii):

(i) the occurrence of either one of the following:

A. the election of the Company (which election, until the Special Board Date, must be made with the approval of the majority of the Specially Designated Directors then in office) to effect the Unwind Transaction, if: (A) no person who is not Canadian, or any voting group comprised of any persons who are not Canadians, in each case, beneficially owns or controls, directly or indirectly, one-third or more of the Fully Diluted Class A/B/C Shares; (B) the Company becomes widely held, such that at least 70% of the Fully Diluted Class A/B/C Shares are held by holders that (1) do not beneficially own or control, directly or indirectly (and are not members of any group that beneficially owns or controls, directly or indirectly), 10% or more of the Fully Diluted Class A/B/C Shares, collectively, or (2) are Passive Holders; and (C) a majority of the members of the board remain Canadian at the time of the Unwind Transaction; or

B. a Change of Control; and

(ii) both (1) the absence of any determination by the board that the Unwind Transaction would constitute a breach of, or result in an acceleration of the performance of any obligation under, any material agreement of the Company, in each case, within 60 days of the chair of the board receiving written notice from the Company of the occurrence of either event set forth in (i) above; provided, however, that in the event of the occurrence of a Change of Control, the fact that such occurrence could be deemed as a change of control under the Company’s outstanding indebtedness or other material agreements shall be excluded for purposes of this subclause (1) if such indebtedness is refinanced or intended to be refinanced in connection with the occurrence of such Change of Control; and (2) receipt by the Company of all required Governmental Authorizations for the Unwind Transaction.

(yyyy) “U.S.” means the United States of America.

(zzzz) “Voting Agreement” means the Voting Agreement dated the date hereof between the Partnership, the Company and the Trustee.

(aaaaa) “Voting Share” means any Class A/B/C Shares or Exchangeable Units that have the right to, directly or indirectly, cast a vote at an annual or other meeting of shareholders of the Company in favor of election of directors of the Company.

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Interpretation

1.2 For purposes of these Articles, a person is an “affiliate” of another person if:

(a) one of them is the subsidiary of the other, or

(b) each of them is controlled by the same person.

1.3 For purposes of these Articles, a person is a “subsidiary” of another person if

(a) it is controlled by (i) that other person, (ii) that other person and one or more persons controlled by that other person or (iii) two or more persons controlled by that other person, or

(b) it is a subsidiary of a subsidiary of that other person.

1.4 For purposes of these Articles, a person (first person) is considered an “associate” of another person (second person) only if:

(a) the second person beneficially owns, directly or indirectly, voting securities carrying more than 10 per cent of the voting rights attached to all voting securities of the first person for the time being outstanding,

(b) the first person beneficially owns, directly or indirectly, voting securities carrying more than 10 per cent of the voting rights attached to all voting securities of the second person for the time being outstanding,

(c) the first person is a partner (other than a limited partner) of the second person,

(d) with respect to a second person that is a trust or an estate, the first person either has a substantial beneficial interest serves as trustee or in a similar capacity,

(e) the first person is a relative of the second person who resides in the same home as the second person,

(f) the first person resides in the same home as the second person and is married to the second person or is living with the second person in a conjugal relationship outside marriage,

(g) the first person is a relative of the first person mentioned in clause (f) and has the same home as the second person, or

(h) the first person is a director, officer or employee of the second person or any of the second person’s affiliates or associates.

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1.5 For purposes of these Articles, a person (first person) is considered to “control” another person (second person) only if:

(a) the first person beneficially owns, or directly or indirectly exercises control or direction over, securities of the second person carrying votes which, if exercised, would entitle the first person to elect a majority of the directors (or comparable body) of the second person, unless that first person holds the voting securities only to secure an obligation,

(b) the second person is a partnership, other than a limited partnership, and the first person holds more than 50% of the interests of the partnership,

(c) the second person is a limited partnership and the general partner of the limited partnership is the first person, or

(d) the first person is a trustee of the second person.

1.6 For purposes of these Articles, references to any agreement defined or referred to herein refer to such agreement as amended, restated, supplemented, renewed, replaced or otherwise modified from time to time, unless otherwise specified.

Application of Business Corporations Act Definitions

1.7 Except as otherwise set out in these Articles, the definitions in the Business Corporations Act apply to these Articles.

Application of Interpretation Act

1.8 The Interpretation Act applies to the interpretation of these Articles as if these Articles were an enactment.

Conflict

1.9 If there is a conflict between a definition or rule in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition or rule in the Business Corporations Act will prevail.

Severability of Invalid Provisions

1.10 The invalidity or unenforceability of any provision of these Articles will not affect the validity or enforceability of the remaining provisions of these Articles.

Effect of Omissions and Errors in Notices

1.11 The accidental omission to send notice of any meeting of shareholders to any person entitled to notice or the non-receipt of any notice by any of the persons entitled to notice or any error in any notice not affecting its substance will not invalidate any action or proceeding taken at that meeting or otherwise founded on the notice.

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Signing

1.12 Expressions referring to signing shall be construed as including facsimile signatures and the receipt of messages by telecopy or electronic mail or any other method of transmitting writing and indicating thereon that the requisite instrument is signed, notwithstanding that no actual original or copy of an original signature appears thereon.

PART 2
ALTERATIONS

No Interference with Class or Series Rights without Consent

2.1 In addition to any consent or approval required by any Legal Requirement or by any provision of these Articles, a right or special right attached to issued shares must not be prejudiced or interfered with under the Business Corporations Act or under the Notice of Articles or these Articles unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a special separate resolution of those shareholders.

2.2 Subject to: (i) Article 2.1, (ii) PART 23, (iii) the special rights or restrictions attached to any class or series of shares, (iv) the Business Corporations Act, and (v) any applicable restrictions in any investor rights agreement between a Designator and the Company, the Company may:

(a) by special resolution, make any alteration to the Notice of Articles and these Articles as permitted by the Business Corporations Act; or

(b) by directors’ resolution or special resolution, subdivide or consolidate all or any of its unissued, or fully paid issued, shares and if applicable, alter its Notice of Articles and, if applicable, these Articles accordingly.

Alterations

2.3 Subject to: (i) Article 2.1, (ii) PART 23, (iii) the special rights or restrictions attached to any class or series of shares and (iv)  any applicable restrictions in any investor rights agreement between a Designator and the Company, the shareholders may from time to time, by special resolution, make any alteration to the Notice of Articles and these Articles as permitted by the Business Corporations Act.

Change of Name

2.4 The Company may by a directors’ resolution or a special resolution authorize an alteration to its Notice of Articles to change its name.

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PART 3
SHARES AND SHARE CERTIFICATES

Sending of Share Certificate

3.1 Any share certificate which a shareholder is entitled to receive may be sent to the shareholder by mail and neither the Company nor any agent of the Company is liable for any loss to the shareholder arising as a result of the accidental omission to send any share certificate or non-receipt of any share certificate so sent.

Joint Ownership

3.2 Where a share is registered in the names of two or more persons, unless the registration on the share certificate specifies otherwise, the share shall, for the purposes of these Articles, be considered to be jointly held by such persons and such persons shall, for the purposes of these Articles, be considered joint holders of such share.

Limit on Registration of Joint Holders

3.3 Except in the case of the trustees of a shareholder, the directors may refuse to register in the central securities register more than three persons as the joint holders of a share.

Delivery of Jointly Held Certificate

3.4 A share certificate for a share registered in the names of two or more persons shall be delivered to that one of them whose name appears first on the central securities register in respect of the share.

Unregistered Interests

3.5 Except as required by law or these Articles, the Company need not recognize or provide for any person’s interests in or rights to a share unless that person is registered as the holder.

Form of Share Certificate

3.6 The board is authorized to adopt and make, from time to time, any amendment to the Company’s share certificate forms required to give effect to the provisions concerning the restrictions on the issue, transfer and ownership of Voting Shares set forth in these Articles.

PART 4
SHARE TRANSFERS

Form of Instrument of Transfer

4.1 The instrument of transfer in respect of any share of the Company will be either in the form on the back of the certificate representing such share or in any other customary form satisfactory to the Company or the transfer agent for the class or series of shares to be transferred.

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Effect of Signed Instrument of Transfer

4.2 If a shareholder, or the duly authorized attorney of that shareholder, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer, or, if no number is specified, all the shares represented by share certificates deposited with the instrument of transfer,

(a) in the name of the person named as transferee in that instrument of transfer; or

(b) if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the share certificate is deposited for the purpose of having the transfer registered.

PART 5
PURCHASE OF SHARES

Authority to Purchase Shares

5.1 Subject to the special rights and restrictions attached to any class or series of shares, the Company may purchase or otherwise acquire any of its shares if authorized to do so by resolution of the directors.

PART 6BORROWING POWERS

Powers of the Board

6.1 The board may from time to time at their discretion on behalf of the Company:

(a) borrow money for the purposes of the Company in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

(b) raise or secure the repayment of any borrowed money, including by the issuance of bonds, perpetual or redeemable, debentures or debenture stock and other debt obligations either outright or as security for any liability or obligation of the Company or any other person;

(c) guarantee the repayment of money by any other person or the performance of any obligation of any other person; or

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(d) mortgage or charge, whether by way of specific or floating charge, grant a security interest or give other security on the whole or any part of the present and future property and undertaking of the Company, including uncalled capital.

Terms of Debt and Security Instruments

6.2 Any debentures, debenture stock, bonds, mortgages, security interests and other securities may be issued at a discount, premium or otherwise, and with special or other rights or privileges as to redemption, surrender, drawings, allotment of or conversion into shares, attending and voting at a general meeting of the Company, appointment of directors and otherwise as the directors may determine at or prior to the time of issuance.

PART 7
SHAREHOLDER MEETINGS

Calling of Shareholder Meetings

7.1 Meetings of shareholders of the Company shall be held at such time or times as the directors from time to time determine, and at such location or locations as the board, by resolution, may approve.

Electronic Meetings

7.2 The board may determine that a meeting of shareholders shall be held entirely by means of telephone, electronic or other communications facilities that permit all participants to communicate with each other during the meeting. A meeting of shareholders may also be held at which some, but not necessarily all, persons entitled to attend may participate by means of such communications facilities, if the board determines to make them available. A person participating in a meeting by such means is deemed to be present at the meeting.

Notice

7.3 Subject to the provisions of the Business Corporations Act regarding requisitions for general meetings and waiver of notice, the Company will send notice of the date, time and location of a meeting of shareholders to each shareholder entitled to vote at the meeting and to each director at least 21 days before, but no more than 60 days before, the meeting. Notice of an adjourned meeting of shareholders need not be given if the adjourned meeting is held within 14 days of the original meeting. Otherwise, but subject to Article 8.2, notice of adjourned meetings will be given not less than 21 days in advance of the adjourned meeting and otherwise in accordance with this Article 7.3, except that the notice need not specify the nature of the business to be transacted if unchanged from the original meeting.

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Special Business

7.4 If a general meeting is to consider special business within the meaning of Article ‎8.1, the notice of meeting will:

(a) state the general nature of the special business; and

(b) if the special business includes presenting, considering, approving, ratifying, adopting or authorizing any document (including, without limitation, any amendment to the Notice of Articles or these Articles) or the signing of or giving of effect to any document or amendment (including, without limitation, any amendment to the Notice of Articles or these Articles), have attached to it, or be accompanied by, a copy of the document.

Board Approval

7.5 Until the Special Board Date, if any matter to be submitted to (a) a shareholder vote and/or (b) a vote of the limited partners of the Partnership receives approval of a majority of the board and fails to receive approval of a majority of the Specially Designated Directors then in office, the proxy circular in respect of the meeting in which such matter will be voted on (including, for the avoidance of doubt, the information circular to be provided pursuant to Section 10.5 of the Partnership Agreement) will disclose (i) such fact at every instance in which the board’s recommendation to approve such matter is mentioned and (ii) a written statement of reasonable length setting forth the reasons expressed by the Specially Designated Directors for failing to approve such matter.

PART 8
PROCEEDINGS AT SHAREHOLDER MEETINGS

Special Business

8.1 At a meeting of shareholders, the following business is special business:

(a) at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of, or voting at, the meeting;

(b) at an annual general meeting, all business is special business except for the following:

(i) business relating to the conduct of, or voting at, the meeting;

(ii) consideration of any financial statements of the Company presented to the meeting;

(iii) consideration of any reports of the directors or auditor;

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(iv) the setting or changing of the number of directors;

(v) the election or appointment of directors;

(vi) the appointment of an auditor;

(vii) the setting of the remuneration of an auditor; and

(viii) business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution.

Quorum

8.2 Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is the presence in person or by proxy of shareholder(s) who, in the aggregate, hold shares representing not less than a majority of the votes entitled to be cast at the meeting.

Lack of Quorum

8.3 If, within 30 minutes from the time set for the holding of a meeting of shareholders, a quorum is not present,

(a) in the case of a general meeting convened by requisition of shareholders, the meeting is dissolved; and

(b) in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place, unless those shareholders present determine otherwise.

Chair

8.4 The following individual is entitled to preside as chair at a meeting of shareholders:

(a) the chair of the board, if any; and

(b) if there is no chair of the board or if the chair of the board is absent or unwilling to act as chair of the meeting, the president of the Company, if any.

Alternate Chair

8.5 If, at any meeting of shareholders:

(a) neither the chair of the board nor the president of the Company is present within 15 minutes after the time set for holding the meeting;

(b) the chair of the board and the president are unwilling to act as chair of the meeting; or

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(c) the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting;

the directors present may choose one of their number to be chair of the meeting or if all of the directors present decline to take the chair or fail to so choose or if no director is present, the shareholders present in person or by proxy may choose any person present at the meeting to chair the meeting.

Postponement or Cancellation of Meetings

8.6 A meeting of shareholders may be postponed or cancelled by the Company at any time prior to the holding of the meeting upon such notice or communication to shareholders, if any, as the board may determine, and, if postponed, the postponed meeting may be held at such time or times, and at such location or locations, as the board, by resolution, may approve.

Procedure at Meetings

8.7 The board may determine the procedures to be followed at any meeting of shareholders including, without limitation, the rules of order. Subject to the foregoing, the chair of a meeting may determine the procedures of the meeting in all respects.

Electronic Voting

8.8 Any vote at a meeting of shareholders may be held entirely or partially by means of telephonic, electronic or other communications facilities if the board determines to make them available whether or not persons entitled to attend participate in the meeting by means of telephonic, electronic or other communications facilities.

Casting Vote

8.9 In case of an equality of votes cast at a meeting of shareholders, the chair does not have a casting or second vote.

PART 9
SHAREHOLDERS VOTES

Joint Shareholders

9.1 If there are joint shareholders registered in respect of any share:

(a) any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or

(b) if more than one of the joint shareholders is present at any meeting, personally or by proxy, the joint shareholder present whose name stands first on the central securities register in respect of the share is alone entitled to vote in respect of that share.

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Trustees

9.2 Two or more trustees of a shareholder in whose name any share is registered are, for the purposes of Article ‎9.1, deemed to be joint shareholders.

Representative of Corporate Shareholder

9.3 If a corporation that is not a subsidiary of the Company is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:

(a) for that purpose, the instrument appointing a representative must:

(i) be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least 1 business day before the day set for the holding of the meeting; or

(ii) be provided, at the meeting, to the chair of the meeting; and

(b) if a representative is appointed under this Article ‎9.3:

(i) the representative is entitled to exercise in respect of and at that meeting the same rights that the appointing corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and

(ii) the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.

Authority to Vote

9.4 The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

Qualifications of Shareholders

9.5 In connection with any shareholder vote,

(a) the board may implement special operating procedures for monitoring share ownership;

(b) a shareholder may be asked to provide a Declaration;

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(c) the Company is entitled to rely on any such Declaration delivered pursuant to Article 9.5(b); and

(d) if it is subsequently determined that such Declaration is incorrect in any way, the invalidity or unenforceability of such Declaration will not affect the validity or enforceability of the applicable shareholder vote.

PART 10
ELECTION AND REMOVAL OF DIRECTORS

10.1 Article ‎10.2 shall terminate and be of no further force or effect at such time as both (a) neither Designator has the contractual right to designate one or more nominees for election as directors of the Company (each such nominee, a “Contractual Designee”), and (b) any other person to whom the contractual right to designate a Contractual Designee has been assigned by a Designator (each such assignee, a “Designator Assignee”), which assignment, for the avoidance of doubt, may only be effected to the extent permitted by the terms and conditions of the investor rights agreement to which the applicable Designator is party, in each case, no longer has such contractual right to designate such Contractual Designee. For the avoidance of doubt, for purposes of these Articles, (x) the nominee designated by a Designator Assignee shall be deemed to be a Contractual Designee and (y) the Contractual Designee of a Designator Assignee shall not constitute a Contractual Designee of a Designator, unless such Designator Assignee is an affiliate or associate of the Designator in question, in which case such Contractual Designee will constitute a Contractual Designee of such Designator Assignee and such Designator.

10.2

(a) The board shall nominate for election as directors of the board the following:

(i) the Contractual Designees to be designated by (A) Polaris or its affiliates (the “Polaris Designators”) or (B) if applicable, by the Designator Assignee of Polaris; provided that either the Nominating Committee or the board may reject any of such Contractual Designees for, and only for, Good Cause, in which case the Polaris Designators or its Designator Assignee, as applicable, shall have the right to designate a substitute Contractual Designee;

(ii) the Contractual Designees to be designated by (A) Meteor or its affiliates (the “Meteor Designators”) or (B) if applicable, by the Designator Assignee of Meteor, none of whom shall be required to be Canadian; provided that either the Nominating Committee or the board may reject any of such Contractual Designees for, and only for, Good Cause, in which case the Meteor Designators or its Designator Assignee, as applicable, shall have the right to designate a substitute Contractual Designee;

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(iii) so long as either Designator has the right to designate at least one (1) Contractual Designee and subject to Article 10.2(b), three (3) persons (who, if elected, would meet the criteria specified in clauses (ii) through (v) of the definition of “Specially Designated Director”) designated by the Nominating Committee; provided that, for purposes of the 2024 Meeting, the three (3) persons shall be designated either by the Nominating Committee or a subset of the members of the Nominating Committee, as determined by the board, with any such subset of the members of the Nominating Committee to be selected by the Board and to include at least the three (3) members required to be appointed to the Nominating Committee by Article 12.8 as if such Article 12.8 were then in effect; provided, further, that:

A. until the Special Nomination Termination Date, the board may reject any of such persons for, and only for, Good Cause, in which case the Nominating Committee shall have the right to designate a substitute designee; and

B. following the Special Nomination Termination Date, such persons shall be subject to approval of the board; provided, however, that until the Special Board Date, (x) such approval of the board shall not be unreasonably withheld and (y) such persons shall also be subject to approval of at least a majority of the Specially Designated Directors then in office, such approval not to be unreasonably withheld;

(iv) so long as either Designator has the right to designate at least one (1) Contractual Designee and subject to Article 10.2(b), a number of persons (such number being an amount that when added to the number of persons to be designated pursuant to Articles 10.2(a)(i), (ii) and (iii), the total number of directors on the board is equal to the authorized size of the board, which is initially ten (10) persons) designated by the Nominating Committee; provided that if any such person was previously a Contractual Designee of either Designator or their respective Designator Assignees but is not currently designated pursuant to clause (i) or (ii) above, then the nomination of such person shall require the unanimous vote of the Nominating Committee, and such person must be either (1) an executive officer of the Company, or (2) meet the criteria specified in clauses (ii) through (iv) of the definition of “Specially Designated Director”, provided, further, that until the Special Nomination Termination Date, the board may reject any of such persons for, and only for, Good Cause, in which case the Nominating Committee shall have the right to designate a substitute designee.

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(b) With respect to persons to be designated by the Nominating Committee pursuant to Article 10.2(a)(iii) and (iv), the board may identify for the Nominating Committee certain business, financial, industry, diversity or other general attributes desirable in any of such persons, and request that the Nominating Committee (i) nominate a candidate for election at the next meeting of shareholders, or (ii) fill an actual or anticipated vacancy on the board, in each case, with an individual who has such attributes and who is approved in accordance with this Article 10 and, in each case, the Nominating Committee shall use its reasonable efforts to comply with any such requests.

(c) Prior to the occurrence of an Unwind Trigger, the persons to be designated by the Nominating Committee pursuant to Article ‎10.2‎(a)(iii) and ‎(a)(iv) shall be Canadian, except that the Company’s chief executive officer may be designated pursuant to Article 10.2(a)(iv) if such chief executive officer is not Canadian, but only so long as such designation would not result in less than a majority of Canadian directors on the board.

Number of Directors; CbyC Directors

10.3 The Company will have a board consisting of initially ten (10) persons, and thereafter, the number of directors shall be set by resolution of the shareholders or as adjusted by the board from time to time, subject to the provisions of the Business Corporations Act, provided that:

(a) a reduction in the number of directors shall not shorten the term of any then-sitting director;

(b) no change to the number of directors shall be made in accordance with this Article 10.3 unless, in addition to the obtaining of any approval of a Designator required under the investor rights agreement to which such Designator and the Company are party, until such time as neither Designator is a 5% Holder, a majority of the Specially Designated Directors then in office have approved such change; and

(c) prior to the occurrence of an Unwind Trigger, at least a majority of the board must be CbyC Directors; provided, that the Company’s temporary inability to meet this requirement as a result of death, resignation, disqualification or removal of a director shall not result in the Company being deemed to be acting ultra vires pursuant to these Articles; provided, further, that the Company shall use reasonable best efforts to ensure any such deficiency is cured promptly.

Election of Directors

10.4 At every annual general meeting:

(a) the shareholders entitled to vote at the annual general meeting for the election or appointment of directors will elect a board consisting of the number of directors for the time being required under these Articles; and

(b) subject to Article ‎10.7, all the directors cease to hold office immediately before the election or appointment of directors under paragraph (a), but are eligible for re-election or reappointment.

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Filling of Vacancies

10.5 Subject to Article 10.6, the board shall have the exclusive right to fill any vacancy from time to time in the office of a director. For the avoidance of doubt, a vacancy shall be deemed to exist, among other times: (a) if, at any annual general meeting or special meeting, the number of persons elected to the board is fewer than the number of positions on the board then up for election (with the number of vacancies being the amount of the deficiency), and (b) upon the removal of a director pursuant to Article 10.8 or the death, resignation or disqualification of a director.

10.6 During such time as Article 10.2 is in effect, the candidate to be appointed to fill any vacancy on the board shall be designated by, (a) in the event of a vacancy with respect to a Contractual Designee designated by the Polaris Designators (other than as a result of the loss of the contractual right to designate such Contractual Designee), the Polaris Designators, (b) in the event of a vacancy with respect to a Contractual Designee designated by the Meteor Designators (other than as a result of the loss of the contractual right to designate such Contractual Designee), the Meteor Designators, (c) in the event of a vacancy with respect to a Contractual Designee designated by a Designator Assignee (other than as a result of the loss of the contractual right to designate such Contractual Designee), the Designator Assignee who designated such Contractual Designee, and (d) in the event of a vacancy (i) with respect to any other director or (ii) as a result of the loss by a Designator or a Designator Assignee of the contractual right to designate a Contractual Designee in accordance with the terms hereof and any investor rights agreement between such Designator and the Company, the Nominating Committee. The board shall appoint the candidate designated pursuant to the preceding sentence to fill the vacancy, except to the extent that the board or the Nominating Committee, could have rejected such candidate if he or she were a nominee pursuant to Article 10.2(a), in which case such designating party or parties shall designate a substitute candidate.

Failure to Elect or Appoint Directors

10.7 If the Company fails to hold an annual general meeting in accordance with the Business Corporations Act or fails, at an annual general meeting, to elect or appoint any directors, the directors then in office continue to hold office until the earlier of:

(a) the date on which the failure is remedied; and

(b) the date on which they otherwise cease to hold office under the Business Corporations Act or these Articles.

Removal of Director

10.8 The shareholders may, by resolution that is both (a) approved pursuant to Article 24.4 and (b) approved by at least 75% of the outstanding Class A/B/C Shares and Special Voting Shares, voting together as a single class, remove any director from office; provided that if a Designator or Designator Assignee at any time provides written notice to the Company that it intends for a Contractual Designee designated by such person to resign from the board, then the delivery of such written notice to the Company shall constitute such Contractual Designee’s resignation, which resignation shall be effective immediately upon receipt of such written notice by the Company without consent or acceptance of the board or any shareholders (other than such Designator or Designator Assignee, as the case may be).

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PART 11
PROCEEDINGS of DIRECTORS

Timing of Meetings

11.1 All actions of directors and of committees of directors, must be taken only (a) at a meeting of such directors duly called at which a quorum is present, or (b) by written resolution in accordance with Article 11.9 below. Meetings of the board will be held on such day and at such time and place as the president or secretary of the Company or any two directors may determine.

Chair

11.2 Meetings of directors are to be chaired by:

(a) the chair of the board, if any,

(b) in the absence of the chair of the board, the president, if any, if the president is a director, or

(c) any other director chosen by the directors if:

(i) neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting,

(ii) neither the chair of the board nor the president, if a director, is willing to chair the meeting, or

(iii) the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.

Meetings by Telephone or Other Communications Medium

11.3 A director may participate in a meeting of the board:

(a) in person;

(b) by telephone; or

(c) with the consent of all directors who wish to participate in the meeting, by other communications medium;

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if all directors participating in the meeting, whether in person, or by telephone or other communications medium, are able to communicate with each other. A director who participates in a meeting in a manner contemplated by this Article 11.3 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner.

Voting

11.4 At all meetings of directors every question will be decided by a majority of votes cast on the question and, in the case of an equality of votes, the chair of the meeting will not be entitled to a second or casting vote.

Notice

11.5 A notice to a director shall be effective only if delivered in writing in accordance with this Article ‎11.5. Subject to Article 11.6, if a meeting of the board is called under Article ‎11.1, notice of that meeting will be given to each director not less than 48 hours before the time when the meeting is to be held, specifying the place, date and time of that meeting:

(a) by mail addressed to the director’s address as it appears on the books of the Company or to any other address provided to the Company by the director for this purpose, provided that the meeting is to be held not less than three business days from the date the notice of meeting is mailed;

(b) by leaving it at the director’s prescribed address or at any other address provided to the Company by the director for this purpose;

(c) orally, including, by telephone, voice mail or on other recorded media; or

(d) by e-mail, fax or any other method of reliably transmitting messages.

Notice Not Required

11.6 It is not necessary to give notice of a meeting of the directors to a director if:

(a) the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed or is the meeting of the directors at which that director is appointed; or

(b) the director has filed a waiver under Article 11.7.

Waiver of Notice

11.7 Any director may file with the Company a document signed by the director waiving notice of any past, present or future meeting of the directors and may, at any time, withdraw the waiver by instrument in writing delivered to the registered office of the Company, and until the waiver is withdrawn, no notice of meetings of the directors shall be given to that director and any and all meetings of the directors, notice of which has not been given to such director shall, provided a quorum of the directors is present, be valid and effective.

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Quorum

11.8 The quorum necessary for the transaction of the business of the directors is a majority of the directors then in office; provided, that, until the Special Board Date, such quorum will also require a majority of the Specially Designated Directors then in office; provided, further, that, prior to an Unwind Trigger, a quorum will also require that a majority of those directors present are CbyC Directors. A director holding a disclosable interest in a contract or transaction to be considered at a meeting, if present at the meeting, is to be counted in a quorum notwithstanding such director’s interest.

Resolutions in Writing

11.9 A resolution in writing signed by all of the directors shall be as valid and effectual as if it had been passed at a meeting of the board duly convened and held.

Counterparts

11.10 A resolution in writing may be in one or more counterparts, each of which may be signed by one or more directors, and which together shall be deemed to constitute a resolution in writing.

Remuneration of Directors

11.11 Unless the shareholders by ordinary resolution otherwise resolve, the directors may fix the remuneration of the directors and officers of the Company.

PART 12
COMMITTEES OF DIRECTORS

Appointment

12.1 Article 12.2 shall terminate and be of no further force or effect at such time as neither Designator has the contractual right to designate a Contractual Designee.

12.2 Subject to the other provisions of this PART 12:

(a) the Company shall have an Audit Committee, a Compensation Committee and a Nominating Committee, which shall have the powers and duties typical of such committees to be set forth in a charter for each such committee to be approved by the directors;

(b) prior to the Special Board Date, the directors may establish one or more other committees upon the approval of (in addition to the obtaining of any approval of a Designator required under the investor rights agreement to which such Designator and the Company are party), a majority of the Specially Designated Directors then in office;

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(c) prior to the occurrence of an Unwind Trigger, (i) at least a majority of the members of each committee shall be CbyC Directors, and (ii) no committee member designated by the Meteor Designator shall be required to be Canadian;

(d) subject to (i) any rights of a Designator under the investor rights agreement to which such Designator and the Company are party with respect to the designation of Contractual Designees to serve on or be observers to committees and (ii) any rights of the Specially Designated Directors to serve on a committee as provided in these Articles, the board shall have the power to change the membership of, or fill vacancies in, or appoint members or observers to, any committee of the board; and

(e) the directors may, only by approval of a majority of all of the directors then in office (which majority shall include at least one (1) Contractual Designee designated by the Polaris Designators (but only for so long as Polaris is a 5% Holder), one (1) Contractual Designee designated by the Meteor Designators (but only so long as Meteor is a 5% Holder) and one (1) Specially Designated Director (but only until neither Designator is a 5% Holder)) delegate to a committee appointed under paragraph (b) any of the directors’ powers, except:

(i) the power to fill vacancies in the board;

(ii) the power to change the membership of, or fill vacancies in, any committee of the board;

(iii) the power to declare dividends or other distributions to the Company’s shareholders;

(iv) the power to appoint or remove officers appointed by the board; and

(v) the power to issue securities of the Company (it being understood, however, that this Article ‎12.2(d)(v) shall not be interpreted to prevent the delegation of authority in connection with the formation of a committee of the Board in compliance with the other provisions of this Part 12, including Article 12.2‎(d), for purposes of approving the pricing of any securities to be issued by the Company or any of its subsidiaries, as well as the final form of any documentation in connection with any such issuance or any other matters customarily delegated to such a committee in connection with a financing transaction).

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Duties

12.3 Any committee formed under Article ‎12.1, in the exercise of the powers delegated to it, shall:

(a) conform to any rules that may from time to time be imposed on it by the directors; and

(b) report every act or thing done in exercise of those powers to the earliest meeting of the directors to be held after the act or thing has been done.

Powers of the Board

12.4 The board may, at any time:

(a) revoke the authority given to a committee, or override a decision made by a committee, except as to: (i) acts done before such revocation or overriding; and (ii) the authority expressly granted to the Nominating Committee in PART 10;

(b) terminate the appointment of, or, subject to the other provisions of this PART 12, change the membership of, a committee; and

(c) fill vacancies in a committee, subject to the other provisions of this PART 12.

12.5 Prior to the occurrence of an Unwind Trigger, a majority of all members of each directors’ committee must be CbyC Directors.

Meetings

12.6 Subject to the other provisions of this PART 12:

(a) the members of a directors’ committee may meet and adjourn as they think proper;

(b) a directors’ committee may elect a chair of its meetings but, if no chair of the meeting is elected, or if at any meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the meeting;

(c) a majority of the members of a directors’ committee constitutes a quorum of the committee; provided, that, until the Special Board Date, such quorum will also require a majority of the Specially Designated Directors then appointed to the applicable committee; provided, further, that prior to an Unwind Trigger a majority of those members present are CbyC Directors; and

(d) questions arising at any meeting of a directors’ committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote.

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Nominating Committee

12.7 Until the Special Nomination Termination Date, the board shall have a Nominating Committee comprised of:

(a) one (1) Contractual Designee designated by the Polaris Designators for so long as the Polaris Designators have the right to appoint at least one (1) Contractual Designee;

(b) one (1) Contractual Designee designated by the Meteor Designators for so long as the Meteor Designators have the right to appoint at least one (1) Contractual Designee; and

(c) three (3) Specially Designated Directors (one of whom shall be the chair of the Nominating Committee) selected by approval of a majority of the Specially Designated Directors then in office.

12.8 Following the Special Nomination Termination Date, the Nominating Committee shall be determined by the board and must have at least three (3) members, and such members determined by the board shall include:

(a) one (1) Contractual Designee designated by the Polaris Designators for so long as the Polaris Designators have the right to appoint at least one (1) Contractual Designee;

(b) one (1) Contractual Designee designated by the Meteor Designators for so long as the Meteor Designators have the right to appoint at least one (1) Contractual Designee; and

(c) one (1) Specially Designated Director.

12.9 Notwithstanding anything to the contrary in these Articles, the Nominating Committee charter or any other rules of the Nominating Committee,

(a) each member of the Nominating Committee shall have one (1) vote and questions arising at any meeting of the Nominating Committee shall be determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote, and

(b) the chair of the Nominating Committee shall be a Specially Designated Director.

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Compensation Committee

12.10 The Compensation Committee shall be determined by the board and must have at least three (3) members, and such members determine by the board shall include:

(a) one (1) Contractual Designee designated by the Polaris Designators for so long as the Polaris Designators have the right to appoint at least one (1) Contractual Designee;

(b) one (1) Contractual Designee designated by the Meteor Designators for so long as the Meteor Designators have the right to appoint at least one (1) Contractual Designee; and

(c) one (1) Specially Designated Director.

12.11 Notwithstanding anything to the contrary in these Articles, the Compensation Committee charter or any other rules of the Compensation Committee:

(a) each member of the Compensation Committee shall have one (1) vote and questions arising at any meeting of the Compensation Committee shall be determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote; and

(b) the chair of the Compensation Committee shall be selected by approval of a majority of the members of the Compensation Committee.

Audit Committee

12.12 The Audit Committee shall be determined by the board and must have at least three members, and such members determined by the board shall include:

(a) one (1) Contractual Designee designated by the Polaris Designators (or, at their option, a committee observer) for so long as the Polaris Designators have the right to appoint at least one (1) Contractual Designee;

(b) one (1) Contractual Designee of the Meteor Designators designated by the Meteor Designators (or, at their option, a committee observer) for so long as the Meteor Designators have the right to appoint at least one (1) Contractual Designee; and

(c) one (1) Specially Designated Director.

12.13 Notwithstanding anything to the contrary in these Articles, the Audit Committee charter or any other rules of the Audit Committee:

(a) each member of the Audit Committee shall have one (1) vote and questions arising at any meeting of the Audit Committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote; and

(b) except for the appointment of Michael Boychuk as the first chair of the Audit Committee, the chair of the Audit Committee shall be a Specially Designated Director.

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Committees in General

12.14 The provisions of Part 12 are subject to Applicable Securities Laws and other Legal Requirements.

12.15 The Company’s temporary inability to meet the requirements of Articles 12.7, 12.8, 12.10 or 12.12 as a result of death, resignation, disqualification or removal of a director shall not result in the Company being deemed to be acting ultra vires pursuant to these Articles nor, in the case of Articles 12.7 and 12.8, shall such temporary inability prohibit the Nominating Committee from taking such action as is necessary or advisable to cure such deficiency; provided, further, that the Company and each Designator shall use reasonable best efforts to ensure any such deficiency is cured promptly.

PART 13
OFFICERS

Functions, Duties and Powers

13.1 The board may appoint any officers it considers necessary and for each officer:

(a) determine the functions and duties the officer is to perform;

(b) entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit;

(c) from time to time revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer; and

(d) may terminate such officer’s appointment at any time.

PART 14
DISCLOSURE OF INTEREST OF DIRECTORS

Other Office

14.1 A director may hold any office or position of profit with the Company (other than the office of auditor of the Company) in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

No Disqualification

14.2 No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise.

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Professional Services

14.3 Subject to compliance with the provisions of the Business Corporations Act, a director or officer of the Company, or any corporation or firm in which that individual has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such corporation or firm is entitled to remuneration for professional services as if that individual were not a director or officer.

Accountability

14.4 A director or officer may be or become a director, officer or employee of, or may otherwise be or become interested in, any corporation, firm or entity in which the Company may be interested as a shareholder or otherwise, and, subject to compliance with the provisions of the Business Corporations Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other corporation, firm or entity.

PART 15
INDEMNIFICATION

Mandatory Indemnification

15.1 The Company will indemnify a director or officer of the Company, a former director or officer of the Company or another individual who acts or acted at the Company’s request as a director or officer, or in a similar capacity, of another entity, and such person’s heirs and legal representatives to the extent permitted by the Business Corporations Act.

Deemed Contract

15.2 Each director is deemed to have contracted with the Company on the terms of the indemnity referred to in this Part.

Optional Indemnification

15.3 Except as otherwise required by the Business Corporations Act and subject to Article ‎15.1, the Company may from time to time indemnify and save harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was an employee or agent of the Company, or is or was serving at the request of the Company as an employee, agent of or participant in another entity against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted honestly and in good faith with a view to the best interests of the Company or, as the case may be, to the best interests of the other entity for which he or she served at the Company’s request and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his or her conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction will not, of itself, create a presumption that the person did not act honestly and in good faith with a view to the best interests of the Company or other entity and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his or her conduct was lawful.

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Right of Indemnity Not Exclusive

15.4

(a) The provisions for indemnification contained in these Articles will not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any agreement, vote of shareholders or directors or otherwise, both as to action in his or her official capacity and as to action in another capacity, and will continue as to a person who has ceased to be a director, officer, employee or agent and will inure to the benefit of that person’s heirs and legal representatives.

(b) The Company hereby acknowledges that, in addition to the rights to indemnification, advancement of expenses and/or insurance provided by or on behalf of the Company or its subsidiaries to persons acting or serving, or who have acted or served, as a director of the Company (any such person, a “Director Indemnitee”), the Director Indemnitees may have concurrent rights to indemnification, advancement of expenses and/or insurance provided by or on behalf of the person or its affiliates that employ, retain or are otherwise associated with, or designate or nominate (including pursuant to these Articles or an investor rights agreement), such director (collectively, the “Secondary Indemnitors”). Notwithstanding anything to the contrary herein and, to the fullest extent permitted by law, with respect to its indemnification and advancement obligations to the Director Indemnitees hereunder or otherwise:

(i) the Company is the indemnitor of first resort, and the Company’s and its insurers’ obligations to indemnify or provide advancement of expenses to the Director Indemnitees, subject to prohibitions on or requirements in respect of indemnification or advancement set out in the Applicable Legal Requirements, are primary to any obligation of the applicable Secondary Indemnitors or their respective insurers to provide indemnification or advancement for the same expenses or liabilities incurred by any of the Director Indemnitees;

(ii) the Company shall, to the fullest extent permitted by applicable Legal Requirements, advance the full amount of expenses incurred by each Director Indemnitee and shall be liable for the full amount of all losses of each Director Indemnitee or on his, her or its behalf to the extent legally permitted and as required hereby or otherwise, without regard to any rights such Director Indemnitees may have against the Secondary Indemnitors or their respective insurers; and

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(iii) the Company irrevocably waives and relinquishes, and releases the Secondary Indemnitors and their respective insurers from, any and all claims by the Company or its subsidiaries and their insurers against the Secondary Indemnitors or such insurers for contribution, subrogation or any other recovery of any kind in respect to the expenses or liabilities incurred by any of the Director Indemnitees for which the Company is obligated to provide indemnification or advancement hereunder or otherwise.

(c) In furtherance and not in limitation of the foregoing, in the event that any Secondary Indemnitor or its insurer advances any expenses or makes any payment to any Director Indemnitee for matters subject to advancement or indemnification by the Company pursuant these Articles or otherwise, the Company shall promptly, subject to any prohibitions set out in the Business Corporations Act, and its obligations to bring any applications or proceedings that may be required in accordance with Article 15.4(b)(ii) above, upon request by such Secondary Indemnitor, reimburse such Secondary Indemnitor or its insurer, as applicable, for such advance or payment, and such Secondary Indemnitor or insurer shall be subrogated to all of the claims or rights of such Director Indemnitee hereunder or otherwise, including to the payment of expenses in an action to collect.

Limit on Liability

15.5 To the extent permitted by law, no director or officer of the Company will be liable for the acts, receipts, neglects or defaults of any other director or officer or employee or for any loss, damage or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by the Company or for or on behalf of the Company or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Company will be placed out or invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or body corporate with whom or which any moneys, securities or other assets belonging to the Company will be lodged or deposited or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Company or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his or her respective office or trust or in relation thereto unless the same will happen by or through his or her failure to act honestly and in good faith with a view to the best interests of the Company and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. If any director or officer of the Company is employed by or performs services for the Company otherwise than as a director or officer or is a member of a firm or a shareholder, director or officer of a body corporate which is employed by or performs services for the Company, the fact that the person is a director or officer of the Company will not disentitle such director or officer or such firm or body corporate, as the case may be, from receiving proper remuneration for such services.

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Corporate Opportunity

15.6 Notwithstanding anything to the contrary in these Articles and subject to applicable Legal Requirements, the Company, directly and on behalf of its subsidiaries,

(a) acknowledges that (x) directors, (y) shareholders of the Company that employ, retain or are otherwise associated with, or designate or nominate, directors, and/or (z) their respective affiliates (collectively, the “Related Parties”), in each case, may have:

(i) participate or participated (directly or indirectly) and may continue to participate (directly or indirectly) in private equity, venture capital and other investments in corporations, joint ventures, limited liability companies and other entities (“Other Investments”), including Other Investments engaged in various aspects of businesses similar to those engaged in by the Company and its subsidiaries (and related businesses) that may, are or will be competitive with the Company or its subsidiaries’ businesses or that could be suitable for the Company’s or its subsidiaries’ interests,

(ii) interests in, participate with, aid and maintain seats on the board of directors or similar governing bodies of, Other Investments,

(iii) develop or become aware of business opportunities for Other Investments; and

(iv) as a result of or arising from the matters referenced in this Article 15.6 and the nature of their businesses or other factors of the Related Parties, have conflicts of interest or potential conflicts of interest,

(b) subject to Article 15.7, hereby renounces and disclaims any interest or expectancy in any business opportunity (including any Other Investments) or any other opportunities that may arise in connection with the circumstances described in the foregoing clauses (i)–(iv) (collectively, the “Renounced Business Opportunities”), and

(c) subject to Article 15.7, acknowledges and affirms that none of the Related Parties shall have any obligation to communicate or offer any Renounced Business Opportunity to the Company or its subsidiaries, and that the Related Parties may pursue a Renounced Business Opportunity.

15.7 Notwithstanding the foregoing, the Company does not renounce its interest or expectancy in any Renounced Business Opportunity if such Renounced Business Opportunity was (a) first discovered by or (b) offered to a director in his or her capacity as a director of the Company; provided that, in the case of a Renounced Business Opportunity of the type set forth in clause (b) of this Article 15.7, subject to the director communicating any such Renounced Business Opportunity to the Company or its subsidiary (as applicable), the director and his or her Related Parties shall be permitted to pursue such Renounced Business Opportunity if it has also been offered to such director other than in his or her capacity as a director of the Company or to any of his or her Related Parties to the fullest extent it would be permitted to do so by applicable Legal Requirements in the absence of this Article 15.7.

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Survival

15.8 The provisions of this PART 15 (including this Article 15.8) shall survive any amendment to any portion or provision of PART 15, with respect to any and all actions, failures to act, activities, forbearance, claims or matter occurring or arising, prior to the effective date of any such amendment.

PART 16
DIVIDENDS

Declaration

16.1 Subject to the Business Corporations Act and any special rights or restrictions as to dividends, the directors may from time to time by resolution declare and authorize payment of any dividends the directors consider appropriate out of profits, capital or otherwise, including, without limitation, retained earnings, other income, contributed surplus, capital surplus, any share premium account or appraisal surplus or any other unrealized appreciation in the value of the assets of the Company, if any.

No Notice

16.2 Subject to applicable Legal Requirements, the directors need not give notice to any shareholder of any declaration under Article ‎16.1.

Timing of Payment

16.3 Any dividend declared by the directors may be made payable on such date as is fixed by the directors.

Dividends Proportionate to Number of Shares

16.4 Subject to any special rights or restrictions as to dividends, all dividends on shares of any class or series of shares will be declared and paid according to the number of such shares held.

Manner of Payment

16.5 The Company may pay any dividend wholly or partly by issuing shares or warrants or by the distribution of property, bonds, debentures or other debt obligations of the Company, or in any one or more of those ways, and, if any difficulty arises in regard to the distribution, the directors may settle the difficulty as they consider expedient, and, in particular, may set the value for distribution of specific property.

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Rounding

16.6 If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

Method of Payment

16.7 Any dividend or other distribution payable in cash in respect of shares may be paid electronically or by cheque, made payable to the order of the person to whom it is sent, and mailed:

(a) subject to paragraphs ‎(b) and ‎(c), to the address of the shareholder;

(b) subject to paragraph ‎(c), in the case of joint shareholders, to the address of the joint shareholder whose name stands first on the central securities register in respect of the shares; or

(c) to the person and to the address as the shareholder or joint shareholders may direct in writing.

Joint Shareholders

16.8 If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

PART 17
AUDITOR

Remuneration

17.1 The directors may set the remuneration of any auditor of the Company.

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PART 18
EXECUTION OF INSTRUMENTS

Authority to Execute Instruments

18.1 The following persons have authority to execute and deliver and certify documents on behalf of the Company:

(a) such director, officer or other person(s) as are prescribed by resolution of the board; or

(b) any one officer.

Seal

18.2 The Company’s seal, if any, shall not be impressed on any record except when that impression is attested by the signature or signatures of:

(a) any two directors;

(b) any officer, together with any director;

(c) if there is only one director, that director; or

(d) any one or more directors or officers or persons as may be determined by resolution of the directors.

Certified Copies

18.3 For the purpose of certifying under seal a true copy of any resolution or other document, the seal shall be impressed on that copy and, notwithstanding Article ‎18.2, may be attested by the signature of any director or officer.

PART 19
NOTICES

Method of Giving Notice

19.1 Unless the Business Corporations Act or these Articles provide otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by any one of the following methods:

(a) mail addressed to the person at the applicable address for that person as follows:

(i) for a record mailed to a shareholder, the shareholder's registered address;

(ii) in any other case, the mailing address of the intended recipient;

(b) delivery at the applicable address for that person as follows, addressed to the person:

(i) for a record delivered to a shareholder, the shareholder's registered address;

(ii) in any other case, the delivery address of the intended recipient;

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(c) unless the intended recipient is the auditor of the Company, sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

(d) unless the intended recipient is the auditor of the Company, sending the record by e-mail to the e-mail address provided by the intended recipient for the sending of that record or records of that class;

(e) physical delivery to the intended recipient;

(f) creating and providing a record posted on or made available through a general accessible electronic source and providing written notice by any of the foregoing methods as to the availability of such record; or

(g) as otherwise permitted by Applicable Securities Laws.

Deemed Receipt

19.2 Any notice given to a director will require delivery in writing in accordance with Article 11.5. Subject the immediately preceding sentence, a notice, statement, report or other record that is:

(a) mailed to a person by ordinary mail to the applicable address for that person referred to in Article 19.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing;

(b) faxed to a person to the fax number provided by that person referred to in Article 19.1 is deemed to be received by the person to whom it was faxed on the day it was faxed;

(c) e-mailed to a person to the e-mail address provided by that person referred to in Article 19.1 is deemed to be received by the person to whom it was e-mailed on the day it was e-mailed; and

(d) delivered in accordance with Article 19.1(f), is deemed to be received by the person on the day such written notice is sent.

Notice to Joint Shareholders

19.3 A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder whose name stands first on the central securities register in respect of the share.

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Trustees

19.4 If a person becomes entitled to a share as a result of the death, bankruptcy or incapacity of a shareholder, the Company may provide a notice, statement, report or other record to that person by:

(a) mailing the record, addressed to that person:

(i) by name, by the title of representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

(ii) at the address, if any, supplied to the Company for that purpose by the person claiming to be so entitled; or

(b) if an address referred to in paragraph ‎(a)‎(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

PART 20
RESTRICTION ON SHARE TRANSFER

Consent Required

20.1 No security of the Company, other than a non-convertible debt security, may be transferred without the consent of:

(a) the board, expressed by a resolution duly passed at a meeting of the directors;

(b) a majority of the directors of the Company, expressed by an instrument or instruments in writing signed by such directors;

(c) the holders of the voting shares of the Company, expressed by a resolution duly passed at a meeting of the holders of voting shares; or

(d) the holders of the voting shares of the Company representing a majority of the votes attached to all the voting shares, expressed by an instrument or instruments in writing signed by such holders.

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20.2 Article ‎20.1 does not apply to the Company if and for so long as it is a public company.

PART 21
ADVANCE NOTICE PROVISIONS

Nomination of Directors

21.1 Subject only to the Business Corporations Act and Applicable Securities Laws and for so long as the Company is a public company, only persons who are nominated in accordance with the procedures set out in these Articles shall be eligible for election as directors to the board. Nominations of persons for election to the board may only be made at an annual meeting of shareholders, or at a special meeting of shareholders called for any purpose which includes the election of directors to the board, as follows:

(a) by or at the direction of the board or an authorized officer of the Company, including pursuant to a notice of meeting;

(b) by or at the direction or request of one or more shareholders (each a “Proposing Shareholder” and together the “Proposing Shareholders”) pursuant to a proposal made in accordance with the provisions of the Business Corporations Act or a requisition of shareholders (each a “Requisitioning Shareholder” and together the “Requisitioning Shareholders”) made in accordance with the provisions of the Business Corporations Act, provided that any proposal or requisition of shareholders made in whole or in part for the purpose of replacing one or more directors of the board must be in written form and prepared in accordance with Article ‎21.4 below; or

(c) by any person (a “Nominating Shareholder”), who: (A) is, at the close of business on the date of giving notice provided for in Article ‎21.3 below and at the close of business on the record date for notice of such meeting, either entered in the central securities register of the Company as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting; and (B) has given timely notice in proper written form as set forth in these Articles.

21.2 For the avoidance of doubt, the foregoing Article ‎21.1 shall be the exclusive means for any person to bring nominations for election to the board at or in connection with any meeting of shareholders of the Company. No person shall be eligible for election as a director of the Company unless such person has been nominated in accordance with the provisions of this ‎PART 21; provided, however, that nothing in this ‎PART 21 shall be deemed to preclude discussions by a shareholder (as distinct from the nomination of directors) at a meeting of shareholders of any matter in respect of which such shareholder would have been entitled to submit a proposal pursuant to the Business Corporations Act.

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21.3 For a nomination made by a Nominating Shareholder to be timely notice (a “Timely Notice”), the Nominating Shareholder’s notice must be in written form prepared in accordance with Article ‎21.4 below and received by the corporate secretary of the Company at the principal executive offices of the Company:

(a) in the case of an annual meeting of shareholders, not later than the close of business on the 30^th day before the date of the meeting; provided, however, if the first public announcement made by the Company of the date of the annual meeting (the “Notice Date”) is less than 50 days prior to the meeting date, not later than the close of business on the 10^th day following the Notice Date; and

(b) in the case of a special meeting (which is not also an annual meeting) of shareholders called for any purpose which includes the election of directors to the board, not later than the close of business on the 15^th day following the day on which the first public announcement of the date of the special meeting is made by the Company

provided that, in either Article 21.3(a) or Article 21.3(b) above, if notice-and-access (as defined in National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer) is used for delivery of proxy related materials in respect of a meeting described in Article 21.3(a) or Article 21.3(b) above, and the Notice Date in respect of the meeting is not less than 50 days prior to the date of the applicable meeting, the notice must be received not later than the close of business on the 40th day before the applicable meeting (but in any event, not prior to the Notice Date); provided, however, that in the event that the meeting is to be held on a date that is less than 50 days after the Notice Date, notice by the Nominating Shareholder shall be made, in the case of an annual meeting of shareholders, not later than the close of business on the 10th day following the Notice Date and, in the case of a special meeting of shareholders, not later than the close of business on the 15^th day following the Notice Date.

21.4 To be in proper written form, a proposal made by Proposing Shareholders, a requisition made by Requisitioning Shareholders or a Nominating Shareholder’s notice to the corporate secretary must comply with these Articles and:

(a) disclose or include, as applicable, as to each person whom the Proposing Shareholders, Requisitioning Shareholders or Nominating Shareholder, as the case may be, proposes to nominate for election as a director (a “Proposed Nominee”):

(i) his or her name, age, business and residential address, principal occupation or employment for the past five years;

(ii) his or her direct or indirect beneficial ownership in, or control or direction over, any class or series of securities of the Company, including the number or principal amount and the date(s) on which such securities were acquired;

(iii) any relationships, agreements, arrangements or understandings, including financial, compensation and indemnity related relationships, agreements, arrangements or understandings, between the Proposed Nominee or any affiliates or associates of, or any person or entity acting jointly or in concert with, the Proposed Nominee and the Proposing Shareholders, Requisitioning Shareholders or Nominating Shareholder, as the case may be;

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(iv) any other information that would be required to be disclosed in a dissident proxy circular or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to the Business Corporations Act or Applicable Securities Laws; and

(v) a duly completed personal information form in respect of the Proposed Nominee in the form prescribed from time to time by the principal stock exchange on which the securities of the Company are then listed for trading; and

(b) disclose or include, as applicable, as to each Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder giving the proposal, requisition or notice, as applicable:

(i) the name, business and residential address of each Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as the case may be;

(ii) any direct or indirect beneficial ownership in, or control or direction over, any class or series of securities of the Company, including the number or principal amount and the date(s) on which such securities were acquired, and any rights to dividends on the shares of the Company owned beneficially by each such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as the case may be, such beneficial owner and their respective affiliates or associates or others acting in concert therewith that are separated or separable from the underlying shares of the Company;

(iii) any relationships, agreements, arrangements or understandings, including financial, compensation and indemnity related relationships, agreements, arrangements or understandings, between the Proposing Shareholder, the Requisitioning Shareholder or the Nominating Shareholder, as applicable or any affiliates or associates of, or any person or entity acting jointly or in concert with, on the one hand, the Proposing Shareholder, the Requisitioning Shareholder or the Nominating Shareholder (as the case may be) and, on the other hand, any Proposed Nominee;

(iv) any relationships, agreements, arrangements or understandings, the purpose or effect of which is to alter, directly or indirectly, the economic interest of such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, or any of their affiliates or associates, in a security of the Company or the economic exposure of any such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, or any of their affiliates or associates;

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(v) any proxy, contract, arrangement, agreement or understanding pursuant to which such person, or any of its affiliates or associates, or any person acting jointly or in concert with such person, has any interests, rights or obligations relating to the voting of any securities of the Company or the nomination of directors to the board;

(vi) a representation and proof that the Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, is a holder of record of securities of the Company, or a beneficial owner, entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to propose such nomination;

(vii) a representation as to whether such person intends to deliver a proxy circular and/or form of proxy to any shareholder of the Company in connection with such nomination or otherwise solicit proxies or votes from shareholders of the Company in support of such nomination;

(viii) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Company by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith with respect to any class or series of the shares of the Company, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Company (any of the foregoing, a “Short Interest”);

(ix) any proportionate interest in shares of the Company or derivative instruments held, directly or indirectly, by a general or limited partnership in which such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, such beneficial owner and their respective affiliates or associates or others acting in concert therewith is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership;

(x) any performance-related fees (other than an asset-based fee) that such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, such beneficial owner and their respective affiliates or associates or others acting in concert therewith are entitled to based on any increase or decrease in the value of shares of the Company or derivative instruments, if any, including without limitation any such interests held by members of the immediate family sharing the same household of such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, such beneficial owner and their respective affiliates or associates or others acting in concert therewith;

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(xi) any significant equity interests or any derivative instruments or Short Interests in any principal competitor of the Company held by such Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, such beneficial owner and their respective affiliates or associates or others acting in concert therewith; and

(xii) any other information relating to such person that would be required to be included in a dissident proxy circular or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to the Business Corporations Act or as required by Applicable Securities Laws.

The Company may require any Proposed Nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such Proposed Nominee to serve as a director of the Company or a member of any committee of the board, including with respect to independence or any other relevant criteria for eligibility (including any stock exchange requirements) or that could be material to a reasonable shareholder’s understanding of the independence or eligibility, or lack thereof, of such Proposed Nominee. Notwithstanding the foregoing, the Company shall not request other information that: exceeds what is required in a dissident proxy circular; goes beyond what is necessary to determine nominee qualifications, relevant experience, shareholding or voting interest in the Company, or independence in the same manner as would be required for management nominees; or goes beyond what is required under law or regulation.

21.5 All information to be provided in a Timely Notice pursuant to Article ‎21.3 shall be provided as of the record date for determining shareholders entitled to vote at the meeting (if such date shall then have been publicly announced) and as of the date of such notice. The Nominating Shareholder shall update such information to the extent necessary so that it is true and correct as of the date that is 10 business days prior to the date of the meeting, or any adjournment or postponement thereof.

21.6 Any notice, or other document or information required to be given to the corporate secretary pursuant to these Articles may only be given by personal delivery, facsimile transmission or by email (at such email address as may be stipulated from time to time by the corporate secretary for purposes of this notice), and shall be deemed to have been given and made only at the time it is served by personal delivery to the corporate secretary at the address of the principal executive offices of the Company, email (at the address as aforesaid and provided that receipt of confirmation of such email has been received) or sent by facsimile transmission (provided that receipt of confirmation of such transmission has been received); provided that if such delivery or electronic communication is made on a day which is a not a business day or later than 5:00 p.m. (Toronto time) on a day which is a business day, then such delivery or electronic communication shall be deemed to have been made on the next following day that is a business day.

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21.7 The chair of any meeting of shareholders of the Company shall have the power to determine whether any proposed nomination is made in accordance with the provisions of these Articles, and if any proposed nomination is not in compliance with such provisions, may declare that such defective nomination shall not be considered at any meeting of shareholders.

21.8 It has been determined that the commercial best interest of the Company is served by having, prior to the occurrence of an Unwind Trigger, at least a majority of the board be comprised of CbyC Directors. No Proposed Nominee who, if elected, would not be a CbyC Director shall be qualified to serve on the board if, subsequent to the election of such Proposed Nominee and after giving effect to the election of all other directors elected concurrently with such Proposed Nominee, CbyC Directors would not constitute at least a majority of the members of the board. Notwithstanding Article ‎21.3, if both (x) a Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder has submitted Timely Notice for a Proposed Nominee who, if elected, would not be a CbyC Director, and (y) subsequent to delivering such Timely Notice the Company announces its proposed slate of director nominees, which slate has fewer nominees that if elected would constitute CbyC Directors than the number of CbyC Directors on the board at such time, then the Proposing Shareholder, Requisitioning Shareholder or Nominating Shareholder, as applicable, shall have 15 days to substitute a different person (who, if elected, would be a CbyC Director) to be its then current Proposed Nominee, but subject to all other provisions of this ‎PART 21. This Article ‎21.8 shall terminate upon an Unwind Transaction. The Company’s temporary inability to meet this requirement as a result of death, resignation, disqualification or removal of a director shall not result in the Company being deemed to be acting ultra vires pursuant to these Articles; provided, further, that the Company and each Designator shall use reasonable best efforts to ensure any such deficiency is cured promptly.

21.9 The board may, in its sole discretion, waive any requirement of ‎PART 21 of these Articles. Any such waiver pursuant to this Article ‎21.9 shall not constitute a waiver of any other provision of these Articles, including any provision referred to in this ‎PART 21, and will not affect the validity or enforceability of the remaining provisions of these Articles.

PART 22
FORUM SELECTION

22.1 Unless the Company consents in writing to the selection of an alternative forum, the Superior Court of Justice of the Province of British Columbia, Canada and the appellate Courts therefrom (or, failing such court, any other “court” as defined in the Business Corporations Act having jurisdiction and the appellate Courts therefrom), shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Company to the Company; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Business Corporations Act or the Articles of the Company (as either may be amended from time to time); or (iv) any action or proceeding asserting a claim otherwise related to the relationships among the Company, its subsidiaries and its and their respective shareholders, directors and officers but excluding claims related to the business of the Company or its subsidiaries. If any action or proceeding the subject matter of which is within the scope of the preceding sentence is filed in a Court other than a Court located within the Province of British Columbia (a “Foreign Action”) in the name of any securityholder, such securityholder shall be deemed to have consented to (i) the personal jurisdiction of the provincial and federal Courts located within the Province of British Columbia in connection with any action or proceeding brought in any such Court to enforce the preceding sentence; and (ii) having service of process made upon such securityholder in any such action or proceeding by service upon such securityholder’s counsel in the Foreign Action as agent.

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PART 23
APPROVAL OF MATTERS

23.1 Each provision of this PART 23 shall terminate and be of no further force or effect at such time as neither Designator is a 5% Holder.

23.2 In addition to any other approvals required under these Articles, the Partnership Agreement or applicable Legal Requirements, the Company shall not propose or consent to and shall cause the Partnership and the Company’s other subsidiaries (as applicable) not to propose or consent to any of the following actions without obtaining either (x) the approval of a majority of the Specially Designated Directors then in office or (y) approval by at least a simple majority of the votes cast by the holders of Class A/B/C Shares and Special Voting Shares, voting together as a single class (excluding Class A/B/C Shares beneficially owned by a Designator or any of its affiliates or associates and Special Voting Shares to the extent that the vote thereof is directed by a Designator or any of its affiliates or associates):

(a) any waivers, amendments or modifications to Article 7.5, PART 10, PART 11, PART 12, PART 15, PART 21, this PART 23, ‎PART 24, PART 25, PART 26, PART 27, PART 28 or PART 29 of these Articles (or the definition of any defined term used herein with respect to such section) or Article 3, Article 4, Article 5, Article 7, Article 10, Article 11, Article 13, Article 14 or Schedule A of the Partnership Agreement (or any defined term used therein with respect to such section);

(b) any declaration or payment of dividends or other distributions other than (i) pro rata dividends or other distributions on any class or series of any equity capital stock of the Company, (ii) dividends or other distributions paid or made by any Subsidiary of the Company to any other wholly-owned Subsidiary of the Company and (iii) dividends or other distributions pursuant to Section 5.3 of the Partnership Agreement;

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(c) any purchase or redemption of any Class A/B/C Shares or Exchangeable Units other than: (i) pro rata purchases or redemptions of Class A/B/C Shares or Exchangeable Units, (ii) purchases or redemptions of Class A/B/C Shares or Exchangeable Units held by directors, officers, employees and independent contractors (in their capacity as such) of the Company or any of its Subsidiaries: (A) to the extent the Company or the Partnership is obligated to purchase or redeem such Class A/B/C Shares or Exchangeable Units pursuant to the terms applicable to such Class A/B/C Shares or Exchangeable Units, (B) in connection with the resignation, termination or other separation of such director, officer, employee or independent contractor (C) as otherwise required or permitted pursuant to any employment, grant, consulting or compensatory agreement or other arrangement between the Company or any of its Subsidiaries and any director, officer, employee or independent contractor of the Company or any of its Subsidiaries, (iii) automatic purchases or redemptions as specified in these Articles, (iv) purchases of Exchangeable Units deemed to occur upon exchange of the Exchangeable Units for Class A/B/C Shares, (v) purchases pursuant to a tender offer or issuer bid made available to all holders of Class A/B/C Shares and Exchangeable Units and to which all participants will have any securities tendered or deposited ratably prorated in the event any maximum purchase condition is exceeded or (vi) purchases on a stock exchange or similar trading platform at the market price that were not pre-arranged with the purchaser;

(d) any change to the Company’s or the Partnership’s tax status in the U.S. or Canada that is reasonably likely to adversely affect, in the aggregate and not individually, the shareholders of the Company and limited partners of the Partnership who are taxpayers in the U.S. or Canada, other than Polaris and Meteor and their respective affiliates and associates, with respect to U.S. or Canadian tax matters;

(e) any conversion of the Company or any of its Subsidiaries to a corporation or other entity taxed as a corporation or any other change in the corporate form of the Company or any of its Subsidiaries or any recapitalization thereof that is, in each case, reasonably likely to adversely affect, in the aggregate and not individually, the shareholders of the Company and limited partners of the Partnership who are taxpayers in the U.S. or Canada, other than Polaris and Meteor and their respective affiliates and associates, with respect to U.S. or Canadian tax matters; or

(f) any transaction (whether by way of reconstruction, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale, lease or otherwise) whereby (i) all or substantially all of the Company’s undertaking, property and assets would become the property of any other Person or, in the case of an amalgamation, arrangement or merger, of the continuing corporation or other legal entity resulting therefrom (the “Successor Entity”) and (ii) the holders of the Class A/B/C Shares are entitled to receive shares or other ownership interests in the capital of the Successor Entity (“Successor Securities”); provided, that the approval that would otherwise be required by this Article 23.2(f) shall not be required if such Successor Securities are listed for trading on one or more Designated Security Exchanges.

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PART 24
OTHER PROVISIONS

24.1 This ‎PART 24 shall terminate and be of no further force or effect upon the consummation of an Unwind Transaction.

24.2 In connection with any vote of the holders of the Class A/B/C Shares and Special Voting Shares, the Company shall first calculate the number of Golden Share Canadian Votes assuming there are no Golden Share Additional Votes. In the event a person who is not Canadian beneficially owns or controls, directly or indirectly, such number of shares of the Company or Exchangeable Units, of one or more classes of one or more types, which results in such person, directly or indirectly, having the ability to exercise control or direction over one-third or more of the sum of (i) the votes attached to the Class A/B/C Shares and the Special Voting Shares then outstanding, and (ii) the Golden Share Canadian Votes applicable to such vote (such person being a “Non-Canadian Principal Shareholder”), then the number of votes cast and counted toward such vote by such Non-Canadian Principal Shareholder in respect of such shares shall be limited to one-third of the total of (i) and (ii) above, less one vote (the “Non-Canadian Voting Limitation”). The Non-Canadian Voting Limitation shall not apply to a vote on a Second Tabulation Resolution.

24.3 Any votes cast by a Non-Canadian Principal Shareholder but not counted towards a vote pursuant to the Non-Canadian Voting Limitation will be attached to the Golden Share (the “Golden Share Additional Votes”).

24.4 In the event that a resolution to be passed by the shareholders of the Company entitled to vote on such matter is with respect to any Second Tabulation Matter (a “Second Tabulation Resolution”), in order for such Second Tabulation Resolution to be duly passed, such Second Tabulation Resolution must:

(a) be passed in accordance with the Business Corporations Act; and

(b) be passed by a simple majority of the votes cast by the holders of Class A/B/C Shares and Special Voting Shares present in person or represented by proxy at a meeting of the holders of Class A/B/C Shares and Special Voting Shares, voting together as a single class.

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24.5 For the purposes of this ‎PART 24, a “Second Tabulation Matter” means a resolution to effect any of the following matters:

(a) increase or decrease the maximum number of authorized shares of one or more classes or types of Class A/B/C Shares, or increase any maximum number of authorized shares of a class or type having special rights and restrictions equal or superior to the shares of such classes or types;

(b) effect an exchange, reclassification or cancellation of all or part of the Class A/B/C Shares;

(c) add, change or remove the special rights and restrictions attached to the Class A/B/C Shares and, without limiting the generality of the foregoing;

(i) remove or change prejudicially rights to accrued dividends or rights to cumulative dividends;

(ii) add, remove or change prejudicially redemption rights;

(iii) reduce or remove a dividend preference or a liquidation preference;

(iv) add, remove or change prejudicially conversion privileges, options, voting, transfer or pre-emptive rights, or rights to acquire securities of a corporation, or sinking fund provisions;

(d) increase the rights or privileges of any class of shares having rights or privileges equal or superior to the Class A/B/C Shares;

(e) create a new class of shares equal or superior to the Class A/B/C Shares;

(f) make any class of shares having rights or privileges inferior to the Class A/B/C Shares equal or superior to the shares of such class;

(g) effect an exchange or create a right of exchange of all or part of the shares of another class into the Class A/B/C Shares;

(h) constrain the issue, transfer or ownership of the Class A/B/C Shares or change or remove such constraint;

(i) make any change in the Articles of the Company;

(j) take any steps to wind up, dissolve, reorganize or terminate the Company;

(k) sell, lease, exchange, encumber, transfer or otherwise dispose of all or substantially all of the assets of the Company;

(l) remove a director of the Company from office; or

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(m) take action to effect an amalgamation, merger or other combination of the Company with another person or to consolidate, recapitalize or reorganize the Company or to continue the Company under the laws of another jurisdiction.

PART 25SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO CLASS A/B/C SHARES

25.1 The Class A/B/C Shares have attached to them the special rights and restrictions set out in this ‎PART 25. There shall be an unlimited number of Class A/B/C Shares.

Voting Rights

25.2 The holders of the Class A Common Shares, the Class B Variable Voting Shares and the Class C Fully Voting Shares will be entitled to receive notice of and to attend all meetings of the shareholders of the Company and to one vote in respect of each such Class A/B/C Share held at all such meetings, except meetings at which only holders of another class or of a particular series shall have the right to vote.

25.3 The holders of the Class C Limited Voting Shares will be entitled to receive notice of and to attend all meetings of the shareholders of the Company, except meetings at which only holders of another class or of a particular series shall have the right to vote, and to one vote in respect of each Class C Limited Voting Share held at all such meetings, except that the holders of the Class C Limited Voting Shares will not be entitled to vote on the election of directors of the Company.

25.4 Except as otherwise provided (i) in the Business Corporations Act or (ii) these Articles, the holders of the Class A/B/C Shares, the Special Voting Shares, the Super Voting Shares and the Golden Share will vote together as a single class, and a simple majority of the votes cast by such holders voting together as a single class, shall be required to pass any matter (other than the election of directors which shall be decided by a plurality of votes cast).

25.5 Prior to the consummation of an Unwind Transaction, the Other Provisions set out in ‎PART 24 shall apply.

Payment of Dividends

25.6 The holders of the Class A/B/C Shares will be entitled to receive dividends if, as and when declared by the board out of the assets of the Company properly applicable to the payment of dividends in such amounts and payable in such manner as the board may from time to time determine. However, all dividends which the board may determine to declare and pay in any financial year of the Company must be declared and paid in equal amounts per share on each of the Class A/B/C Shares. Subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to or concurrently with the holders of the Class A/B/C Shares, the board may in its sole discretion declare dividends on each class of the Class A/B/C Shares to the exclusion of any other class of shares of the Company.

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Participation upon Liquidation, Dissolution or Winding Up

25.7 In the event of the liquidation, dissolution or winding up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, no amount will be paid and no property or assets of the Company will be distributed to the holders of the Class A/B/C Shares unless the holders of any other class of shares entitled to receive assets of the Company upon such a distribution in priority to the holders of the Class A/B/C Shares have received from the property and assets of the Company the amount to which they are entitled pursuant to these Articles and thereafter the holders of the Class A/B/C Shares will be entitled to all remaining property and assets of the Company on a share for share basis.

Conversion Rights in Respect of a Transaction

25.8 In the event that an offer is made to purchase Class A Common Shares and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange on which the Class A Common Shares are then listed, to be made to all or substantially all the holders of Class A Common Shares, each Class B Variable Voting Share shall become convertible at the option of the holder into one (1) Class A Common Share at any time while the offer is in effect until one (1) day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer. The conversion right may only be exercised in respect of Class B Variable Voting Shares for the purpose of depositing the resulting Class A Common Shares in response to the offer and the Transfer Agent shall deposit the resulting Class A Common Shares on behalf of the holder.

To exercise such conversion right, the holder or his attorney duly authorized in writing shall: (1) give written notice to the Transfer Agent of the exercise of such right and of the number of Class B Variable Voting Shares in respect of which the right is being exercised; and (2) deliver to the Transfer Agent the share certificate or certificates representing the Class B Variable Voting Shares in respect of which the right is being exercised.

No share certificates representing the Class A Common Shares resulting from the conversion of the Class B Variable Voting Shares will be delivered to the holders on whose behalf such deposit is being made.

If (i) Class A Common Shares resulting from the conversion and deposited pursuant to the offer are withdrawn by the holder or are not taken up by the offeror; or (ii) the offer is abandoned or withdrawn by the offeror or the offer otherwise expires without such Class A Common Shares being taken up and paid for, the Class A Common Shares resulting from the conversion will be re-converted into Class B Variable Voting Shares and a share certificate representing the Class B Variable Voting Shares will be sent to the holder by the Transfer Agent. Class A Common Shares resulting from the conversion and taken up and paid for by the offeror shall be re-converted into Class B Variable Voting Shares at the time the offeror is required under the relevant securities legislation to take up and pay for such shares if the offeror does not comply with the requirements of Article 25.12.

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In the event that the offeror takes up and pays for the Class A Common Shares resulting from conversion, the Transfer Agent shall deliver to the holders thereof the consideration paid for such shares by the offeror.

There will be no right to convert the Class B Variable Voting Shares into Class A Common Shares in the following cases: (i) the offer to purchase Class A Common Shares is not required under applicable securities legislation or the rules of a stock exchange on which the Class A Common Shares are then listed to be made to all or substantially all of the holders of Class A Common Shares, including an “exempt take-over bid” within the meaning of the foregoing securities legislation; or (ii) an offer to purchase Class B Variable Voting Shares is made concurrently with the offer to purchase Class A Common Shares and the two offers are identical in respect of price per share, percentage of outstanding shares for which the offer is made, including proration terms and in all other material respects, including in respect of the conditions attaching thereto. The offer to purchase the Class B Variable Voting Shares must be unconditional, subject to the exception that the offer for the Class B Variable Voting Shares may contain a condition to the effect that the offeror is not required to take up and pay for Class B Variable Voting Shares deposited to the offer if no shares are purchased pursuant to the contemporaneous offer for the Class A Common Shares.

25.9 In the event that an offer is made to purchase Class B Variable Voting Shares and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange on which the Class B Variable Voting Shares are then listed, to be made to all or substantially all the holders of Class B Variable Voting Shares, each Class A Common Share shall become convertible at the option of the holder into one (1) Class B Variable Voting Share at any time while the offer is in effect until one (1) day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer.

To exercise such conversion right, the holder or his attorney duly authorized in writing shall: (1) give written notice to the Transfer Agent of the exercise of such right and of the number of Class A Common Shares in respect of which the right is being exercised; and (2) deliver to the Transfer Agent the share certificate or certificates representing the Class A Common Shares in respect of which the right is being exercised.

No share certificates representing the Class B Variable Voting Shares resulting from the conversion of the Class A Common Shares will be delivered to the holders on whose behalf such deposit is being made.

If (i) Class B Variable Voting Shares resulting from the conversion and deposited pursuant to the offer are withdrawn by the holder or are not taken up by the offeror; or (ii) the offer is abandoned or withdrawn by the offeror or the offer otherwise expires without such Class B Variable Voting Shares being taken up and paid for, the Class B Variable Voting Shares resulting from the conversion will be re-converted into Class A Common Shares and a share certificate representing the Class A Common Shares will be sent to the holder by the Transfer Agent. Class B Variable Voting Shares resulting from the conversion and taken up and paid for by the offeror shall be re-converted into Class A Common Shares at the time the offeror is required under the relevant securities legislation to take up and pay for such shares if the offeror complies with the requirements of Article 25.12.

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In the event that the offeror takes up and pays for the Class B Variable Voting Shares resulting from conversion, the Transfer Agent shall deliver to the holders thereof the consideration paid for such shares by the offeror.

Conversion Rights Generally

25.10 Prior to the consummation of an Unwind Transaction, an issued and outstanding Class A Common Share shall immediately be converted into one Class B Variable Voting Share, automatically and without any further act of the Company or the holder thereof, if such Class A Common Share is or becomes beneficially owned or controlled, directly or indirectly, by a person who is not Canadian.

25.11 Upon the consummation of an Unwind Transaction, each issued and outstanding Class B Variable Voting Share shall immediately be converted into one Class A Common Share, automatically and without any further act of the Company or the holder thereof.

25.12 If, prior to the consummation of an Unwind Transaction, an issued and outstanding Class B Variable Voting Share is beneficially owned and controlled, directly or indirectly, by a person who is Canadian, then (i) such holder of Class B Variable Voting Shares may notify the Company of such status as Canadian, and (ii) upon the provision of evidence in form and substance satisfactory to the Company of such holder’s status as Canadian, the Class B Variable Voting Shares shall be converted into an equal number of Class A Common Shares.

25.13 An issued and outstanding Class C Share shall, subject to ‎PART 30:

(a) immediately be converted into (i) one Class A Common Share, if such Class C Share is or becomes beneficially owned or controlled, directly or indirectly, by a person who is not Polaris or Polaris Sub who is Canadian and complies with the requirements of Article 25.12, or (ii) one Class B Variable Voting Share, automatically and without any further act of the Company if such Class C Share is or becomes beneficially owned or controlled, directly or indirectly, by a person who does not comply with the requirements of Article 25.12.

(b) at any time at the option of the holder thereof by notice in writing given to the Company, (i) be converted into one Class A Common Share or one Class B Variable Voting Share, (ii) in the case of a Class C Limited Voting Share be converted into a Class C Fully Voting Share, or (iii) in the case of a Class C Fully Voting Share be converted into a Class C Limited Voting Share.

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Conversion Mechanics

25.14 Any notice required pursuant to Article ‎25.13(b) shall be delivered to the Company in writing signed by the holder of Class A/B/C Shares converted or requested to be converted, and specifying the number and class of Class A/B/C Shares converted or requested to be converted. If the Class A/B/C Shares converted or requested to be converted are represented by a share certificate, such notice shall be accompanied by such share certificate.

25.15 The Company will pay any U.S. or Canadian governmental stamp tax imposed in respect of any conversion of shares contemplated by Articles ‎25.8 to ‎25.11 (excluding, for the avoidance of doubt, any income taxes imposed on the holder of such Class A/B/C Shares).

25.16 Upon the conversion of Class A/B/C Shares represented by certificates pursuant to this ‎PART 25, the Company will issue new certificate(s) representing fully paid Class A/B/C Shares of the applicable type and class, upon the basis above prescribed and in accordance with the provisions hereof to the holder of the Class A/B/C Shares.

25.17 If less than all of the Class A/B/C Shares represented by any certificate are to be converted, the holder will be entitled to receive a new certificate representing the Class A/B/C Shares comprised in the original certificate which are not to be converted.

25.18 Upon conversion of a fully paid and non-assessable Class A/B/C Share pursuant to Articles 25.8 to ‎25.11, the new Class A/B/C Share issued upon such conversion shall be fully paid and non-assessable.

Exchangeable Units

25.19 Upon the exchange of any Exchangeable Units into Class A/B/C Shares, the Company shall issue the applicable number of Class A/B/C Shares to the holder of such Exchangeable Units in accordance with the applicable Exchangeable Unit Terms.

25.20 To the extent requested in writing, the Company shall issue certificates representing fully paid Class A/B/C Shares of the applicable type and class, upon the basis received and in accordance with the applicable Exchangeable Unit Terms to the holder of such Exchangeable Units.

25.21 Upon exchange of an Exchangeable Unit for a Class A/B/C Share pursuant to the Exchangeable Unit Terms, the new Class A/B/C Share issued upon such exchange shall be fully paid and non-assessable.

25.22 The Company shall pay any U.S. or Canadian governmental stamp tax imposed in respect of any exchange of Exchangeable Units into Class A/B/C Shares (excluding, for the avoidance of doubt, any income taxes imposed on the holder of such Exchangeable Units).

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Subdivision or Consolidation

25.23 No subdivision or consolidation of the Class A Common Shares, Class B Variable Voting Shares or Class C Shares shall occur unless, simultaneously, the other classes of Class A/B/C Shares are subdivided or consolidated in the same manner, so as to maintain and preserve the respective rights of the holders of the shares of each of the said classes.

PART 26
SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO SPECIAL VOTING SHARES

26.1 The Special Voting Shares have attached to them the special rights and restrictions set out in this ‎PART 26.

Voting Rights

26.2 The holder of the Class A Special Voting Share will be entitled to receive notice of and to attend all meetings of the shareholders of the Company, except meetings at which only holders of another class or of a particular series shall have the right to vote. The Class A Special Voting Share entitles the holder thereof to cast and exercise that number of votes equal to the aggregate number of all Class A Holder Votes (as defined in the Partnership Agreement). Only one Class A Special Voting Share may be issued.

26.3 The holder of the Class B Special Voting Share will be entitled to receive notice of and to attend all meetings of the shareholders of the Company, except meetings at which only holders of another class or of a particular series shall have the right to vote. The Class B Special Voting Share entitles the holder thereof to cast and exercise that number of votes equal to the aggregate number of all Class B Holder Votes (as defined in the Partnership Agreement). Only one Class B Special Voting Share may be issued.

26.4 The holder of the Class C Special Voting Share will be entitled to receive notice of and to attend all meetings of the shareholders of the Company, except meetings at which only holders of another class or of a particular series shall have the right to vote. The Class C Special Voting Share entitles the holder thereof to cast and exercise that number of votes equal to the aggregate number of all votes described in Schedule A, Section 3.4(a)(iii) of the Partnership Agreement. Only one Class C Special Voting Share may be issued.

26.5 The determination of the number of votes attached to the Special Voting Shares calculated in accordance with Articles ‎26.2, ‎26.3 or ‎26.4 shall be made as of the record date established by the Company or by applicable law for the determination of shareholders entitled to vote on such matter or, if no record date is established, the date such vote is taken.

26.6 Fractional votes shall not be permitted and any fractional voting rights otherwise resulting from the calculations contemplated in Articles ‎26.2, ‎26.3 or ‎26.4 shall be rounded down to the nearest whole number.

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26.7 The Special Voting Shares shall be subject to Article 25.4.

Payment of Dividends

26.8 The holders of the Special Voting Shares will not be entitled to receive any dividend payable by the Company.

Redemption at the Option of the Company

26.9 The Class A Special Voting Share shall not be subject to redemption, except that, at such time as no Class A Units (other than Class A Units beneficially owned or controlled, directly or indirectly, by the Company or its subsidiaries) remain outstanding, the Class A Special Voting Share shall automatically be, subject to the provisions of the Business Corporations Act, redeemed and cancelled, with an amount equal to the Special Voting Redemption Price due and payable to the holder of the Class A Special Voting Share upon such redemption.

26.10 The Class B Special Voting Share shall not be subject to redemption, except that, at such time as no Class B Units (other than Class B Units beneficially owned or controlled, directly or indirectly, by the Company or its subsidiaries) remain outstanding, the Class B Special Voting Share shall automatically be, subject to the provisions of the Business Corporations Act, redeemed and cancelled, with an amount equal to the Special Voting Redemption Price due and payable to the holder of the Class B Special Voting Share upon such redemption.

26.11 The Class C Special Voting Share shall not be subject to redemption, except that, at such time as no Class C Units (other than Class C Units beneficially owned or controlled, directly or indirectly, by the Company or its subsidiaries) remain outstanding, the Class C Special Voting Share shall automatically be, subject to the provisions of the Business Corporations Act, redeemed and cancelled, with an amount equal to the Special Voting Redemption Price due and payable to the holder of the Class C Special Voting Share upon such redemption.

Participation upon Liquidation, Dissolution or Winding Up

26.12 The holder of a Special Voting Share will not be entitled, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets or property of the Company among its shareholders for the purpose of winding-up its affairs, to receive any payment or property in respect thereof other than the Special Voting Redemption Price for such Special Voting Share in priority to the holders of Class A/B/C Shares.

Restrictions on Transfer

26.13 The holder of a Special Voting Share may not sell, assign or otherwise transfer a Special Voting Share to any other person without the consent of the Company.

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PART 27
SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO SUPER VOTING SHARES

27.1 The Super Voting Shares have attached to them the special rights and restrictions set out in this ‎PART 27. For the avoidance of doubt, once the Super Voting Shares are redeemed in accordance with Articles ‎27.7 to ‎27.9, they will be retired and will not be re-issued.

Voting Rights

27.2 At any time where there are only Super Voting Shares outstanding, the holders of the Super Voting Shares will be entitled to receive notice of and to attend all meetings of the shareholders of the Company and to one vote in respect of each Super Voting Share held at all such meetings.

27.3 At any time where Super Voting Shares and shares of another class are outstanding, the holders of the Super Voting Shares are entitled to receive notice of and to attend all meetings of the shareholders of the Company and, to a number of votes in respect of each Super Voting Share held at all such meetings such that the aggregate number of votes cast by holders of Super Voting Shares equals a simple majority of all votes cast at the meeting by holders of all classes of shares entitled to vote at the meeting (including the holders of Super Voting Shares), except meetings at which only holders of another class or of a particular series shall have the right to vote.

27.4 Except as otherwise provided in the Business Corporations Act or these Articles, the holders of the Class A/B/C Shares, the Special Voting Shares, the Super Voting Shares and the Golden Share will vote together as a single class.

Payment of Dividends

27.5 At any time where there are only Super Voting Shares issued and outstanding, the holders of the Super Voting Shares will be entitled to receive dividends if, as and when declared by the board out of the assets of the Company properly applicable to the payment of dividends in such amounts and payable in such manner as the board may from time to time determine.

27.6 At any time where Super Voting Shares and shares of another class on which dividends may be paid are issued and outstanding, the holders of the Super Voting Shares will not be entitled to receive any dividend payable by the Company.

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Redemption by the Company

27.7 The Company will be entitled at any time and from time to time to redeem the whole or any part of the Super Voting Shares from any one or more of the holders thereof as the board may in its sole discretion determine for the Super Voting Redemption Price, by delivering to the applicable holders of the Super Voting Shares at the particular holder’s address as it appears on the records of the Company or in the event of the address of any such holder not so appearing then to the last known address of such holder, a written notice (the “Super Voting Redemption Notice”) specifying:

(a) that the Company desires to redeem the Super Voting Share(s) held by the holder; and

(b) the certificate number, if any, representing the Super Voting Share(s) to be redeemed, and if only part of the Super Voting Share(s) held by the person to whom it is addressed is to be redeemed, the number thereof so to be redeemed.

27.8 On receipt of the Super Voting Redemption Notice by the holder, and subject to the provisions of the laws governing the Company, as now existing or hereafter amended, and to the provisions hereof, the Company will immediately redeem such Super Voting Share(s) by paying to the holder the Super Voting Redemption Price therefor.

27.9 The Super Voting Share(s) so redeemed will be, and will be deemed to be, immediately redeemed from and after the time of receipt of the Super Voting Redemption Notice, and the holder of the Super Voting Share(s) will not be entitled to exercise any of the rights of a shareholder in respect thereof, except to receive the Super Voting Redemption Price.

Participation upon Liquidation, Dissolution or Winding Up

27.10 At any time where there are only Super Voting Shares issued and outstanding, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets or property of the Company among its shareholders for the purpose of winding-up its affairs, the holders of Super Voting Shares will be entitled to all remaining property and assets of the Company on a share for share basis.

27.11 At any time where Super Voting Shares and shares of another class are issued and outstanding, the holders of the Super Voting Shares will not be entitled, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets or property of the Company among its shareholders for the purpose of winding-up its affairs, to receive any payment or property in respect thereof other than the Super Voting Redemption Price in priority to the holders of Class A/B/C Shares.

Restrictions on Transfer

27.12 The holder of a Super Voting Share may not sell, assign or otherwise transfer a Super Voting Share to any other person without the consent of the Company.

PART 28
SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO GOLDEN SHARE

28.1 The Golden Share has attached to it the special rights and restrictions set out in this ‎PART 28. Only one Golden Share may be issued.

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Voting Rights

28.2 The holder of the Golden Share is entitled to receive notice of and to attend all meetings of the shareholders of the Company and to cast the number of votes set forth in Article 28.3, but only when, as of the record date for shareholders entitled to vote at the applicable meeting:

(a) in the event of a vote with respect to the election of directors of the Company, the number of outstanding Class B Variable Voting Shares (after giving effect to the exchange of all of the outstanding Class B Units into Class B Variable Voting Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms) exceeds the aggregate number of outstanding: (i) Class A Common Shares (after giving effect to the exchange of all of the outstanding Class A Units into Class A Common Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms), and (ii) Class C Fully Voting Shares (after giving effect to the exchange of all of the outstanding Class C Units into Class C Fully Voting Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms);

(b) in the event of a vote on any matter other than with respect to the election of directors of the Company, the number of outstanding Class B Variable Voting Shares (after giving effect to the exchange of all of the outstanding Class B Units into Class B Variable Voting Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms) exceeds the aggregate number of outstanding: (i) Class A Common Shares (after giving effect to the exchange of all of the outstanding Class A Units into Class A Common Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms), and (ii) Class C Shares (after giving effect to the exchange of all of the outstanding Class C Units into Class C Shares, whether or not then exchangeable in accordance with the Exchangeable Unit Terms); or

(c) a Non-Canadian Principal Shareholder exists.

28.3 The holder of the Golden Share will be entitled to a number of votes (the “Golden Share Voting Rights”) equal to:

(a) the Golden Share Additional Votes, if applicable, plus

(b) such number of votes (the “Golden Share Canadian Votes”) such that the aggregate number of votes cast by the holder of the Golden Share, together with the aggregate number of votes cast by the holders of Class A Common Shares, the Class A Special Voting Share, Class C Shares and the Class C Special Voting Share, equals a simple majority of all votes cast by holders of all classes of shares entitled to vote at such meeting.

28.4 The Golden Share shall be subject to Article ‎25.4.

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Voting Mechanics

28.5 The Company shall direct the holder of the Golden Share to cast and exercise, in the manner instructed, the Golden Share Voting Rights as follows:

(a) If either (x) no holder (other than Polaris or its controlled Affiliates) beneficially owns or controls, directly or indirectly (and no holder (other than Polaris or its controlled Affiliates) is a member of any group that beneficially owns or controls, directly or indirectly) an aggregate number of Class A Units and/or Class A Common Shares accounting for more than five percent of the aggregate number of outstanding Class A/B/C Shares and Exchangeable Units taken as a whole as of the record date for shareholders entitled to vote at the applicable meeting (any such holder, a “5% Voter”), or (y) the 5% Voters in the aggregate do not account for more than 50% of the aggregate number of outstanding Class A Common Shares (excluding any Class A Common Shares held by or on behalf of Polaris or its controlled Affiliates (if any)) and Class A Units (excluding any Class A Units held by or on behalf of Polaris or its controlled Affiliates (if any)) taken as a whole as of the record date for shareholders entitled to vote at the applicable meeting, then the Golden Share Voting Rights shall be voted pro rata with the sum of the following votes:

(i) the aggregate votes attached to Class A Special Voting Shares cast and exercised on the applicable matter by the holders thereof (other than Class A Holder Votes cast by or on behalf of Polaris and its controlled Affiliates (if any)); and

(ii) the aggregate votes attached to Class A Common Shares cast and exercised on the applicable matter by the holders thereof (other than Polaris and its controlled Affiliates (if any));

in each case giving effect to withholds.

(b) If clause (a) is not applicable, then: (x) one-half of the Golden Share Voting Rights shall be voted pro rata with the aggregate votes cast and exercised on the applicable matter by the 5% Voters, and (y) one-half of the Golden Share Voting Rights shall be voted pro rata with the sum of the following votes:

(i) the aggregate votes attached to Class A Special Voting Shares cast and exercised on the applicable matter by the holders thereof (other than Class A Holder Votes cast by or on behalf of 5% Voters or Polaris and their respective controlled Affiliates (if any)); and

(ii) the aggregate votes attached to Class A Common Shares cast and exercised on the applicable matter by the holders thereof (other than Class A Holder Votes cast by or on behalf of 5% Voters or Polaris and their respective controlled Affiliates (if any));

in each case giving effect to withholds.

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Payment of Dividends

28.6 The holder of the Golden Share will not be entitled to receive any dividend payable by the Company.

Redemption by the Company

28.7 Upon the consummation of an Unwind Transaction, the Company shall immediately redeem the Golden Share for the Golden Share Redemption Price, by delivering to the holder of the Golden Share at the holder’s address as it appears on the records of the Company or in the event of the address of any such holder not so appearing then to the last known address of such holder, a written notice (the “Golden Share Redemption Notice”) specifying:

(a) that the Company desires to redeem the Golden Share held by the holder; and

(b) the certificate number, if any, representing the Golden Share to be redeemed.

28.8 On receipt of the Golden Share Redemption Notice by the holder, and subject to the provisions of the laws governing the Company, as now existing or hereafter amended, and to the provisions hereof, the Company will immediately redeem the Golden Share by paying to the holder the Golden Share Redemption Price therefor.

28.9 The Golden Share will be, and will be deemed to be, immediately redeemed from and after the time of receipt of the Golden Share Redemption Notice, and the holder of the Golden Share will not be entitled to exercise any of the rights of a shareholder in respect thereof, except to receive the Golden Share Redemption Price.

Participation upon Liquidation, Dissolution or Winding Up

28.10 The holder of the Golden Share will not be entitled, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets or property of the Company among its shareholders for the purpose of winding-up its affairs, to receive any payment or property in respect thereof other than the Golden Share Redemption Price in priority to the holders of Class A/B/C Shares.

PART 29
SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO CLASS A PREFERRED SHARES

29.1 The Class A Preferred Shares have attached to them the special rights and restrictions set out in this ‎PART 29. An unlimited number of Class A Preferred Shares may be issued.

29.2 The Class A Preferred Shares may include one or more series of shares and subject to the provisions of the Business Corporations Act, the directors (subject to the approval of each Designator for so long as such person is a 5% Holder) may, by resolution, if none of the shares of any particular series are issued, alter the Articles of the Company and authorize the alteration to the Notice of Articles of the Company, as the case may be, to:

(a) determine the maximum number of shares of that series that the Company is authorized to issue, determine that there is no such maximum number, or alter any such determination;

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(b) create an identifying name by which the share of that series may be identified, or alter any such identifying name; and

(c) attach special rights and restrictions to the shares of that series, or alter any such special rights and restrictions so long as such special rights do not conflict with the rights expressly set forth herein or in any investor rights agreement between the Company and a Designator.

PART 30
DECLARATIONS

Holder

30.1 The Company may request, at any time, any beneficial owner, Participant or the Depository to provide any relevant information available to such beneficial owner, Participant or the Depository and required by the Company to apply the restrictions on the issue, transfer, ownership, control or voting of the Voting Shares set out in these Articles.

Transfer or issue of shares

30.2 The Company may request, prior to accepting any transfer of or subscription for Voting Shares, the prospective holder, the Agent of such holder, any Participant in respect of such Voting Shares or the Depository to provide any relevant information available to such prospective holder, Agent, Participant or the Depository and requested by the Company to apply the restrictions on the issue, transfer, ownership, control or voting of the Voting Shares set out in these Articles.

Declaration and other information

30.3 In order to apply the restrictions on the issue, transfer, ownership, control or voting of the Voting Shares set out in these Articles, the Company may, in its entire discretion:

(a) request any beneficial owner, Participant or the Depository to provide a statutory declaration under the Canada Evidence Act or otherwise, in form and substance satisfactory to the Company, concerning whether the shareholder, or any beneficial owner of the shareholder, is Canadian (a “Declaration”);

(b) request any person seeking to have a Voting Share registered in his, her or its name, or to have a Voting Share issued to him, her or it, to provide a Declaration similar to the Declaration a person may be requested to provide under Article ‎30.3; and

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(c) determine the circumstances in which any Declarations are required, their form and the times when they are to be provided.

Failure to provide a Declaration or any other information

30.4 Prior to the consummation of an Unwind Transaction, if any beneficial owner, Participant or the Depository is requested to provide a Declaration or other information pursuant to this ‎PART 30 and fails to comply with such obligation, the Company may, until such beneficial owner, Participant or the Depository has provided such Declaration or other information, order the conversion into Class B Variable Voting Shares of any issued and outstanding Class A Common Shares held by or on behalf of such beneficial owner or Participant, without any further act of such beneficial owner or Participant.

30.5 The Company may, when it deems it appropriate, in order to apply the restrictions on or provisions applicable to the issue, transfer, ownership, control or voting of the Voting Shares set out in these Articles:

(a) enter into any contract with third persons, and particularly with the Transfer Agent, Depository and Tabulation Agent; and

(b) implement all control mechanisms and adopt all the procedures it may require from time to time, and particularly to implement and adopt forms of Declaration of the Canadian status of a holder of Voting Shares.

DATED: November 17, 2021.

Signed “Henry Intven”

Signature of Incorporator
Name of Incorporator: Henry Intven

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EX-99.3

Exhibit 99.3

TELESAT PARTNERSHIP LP

AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT

BETWEEN

TELESAT CORPORATION

- and -

Henry Intven

- and -

RED ISLE PRIVATE INVESTMENTS INC.

- and -

PUBLIC SECTOR PENSION INVESTMENT BOARD

- and –

John Cashman

- and -

Clare Copeland

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EACH PERSON WHO IS ADMITTED TO
THE PARTNERSHIP AS A LIMITED PARTNER
IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT

November 17, 2021

TABLE OF CONTENTS

ARTICLE 1 INTERPRETATION 2

1.1	Definitions	2
1.2	Headings	14
1.3	Interpretation	14
1.4	Currency	15
1.5	Schedule	15

ARTICLE 2 RELATIONSHIP BETWEEN PARTNERS 15

2.1	Formation and Name of the Partnership	15
2.2	Purpose of the Partnership	16
2.3	Office of the Partnership	16
2.4	Fiscal Year	16
2.5	Status of Partners	16
2.6	Limitation on Authority of Limited Partners	17
2.7	Power of Attorney	17
2.8	Limited Liability of Limited Partners	20
2.9	Indemnity of Limited Partners	20
2.10	Compliance with Laws	20
2.11	Other Activities of Partners	20

ARTICLE 3 PARTNERSHIP UNITS 20

3.1	Authorized Units	20
3.2	Rights, Privileges, Restrictions and Conditions of Exchangeable Units and Class D Units	21
3.3	Issuance of Additional Units	22
3.4	Capital Structure of the Partnership and the General Partner	22
3.5	Reciprocal Changes	23
3.6	Reservation of TopCo Shares	25
3.7	Notification of Certain Events	25
3.8	Delivery of TopCo Shares to the Partnership	25
3.9	Qualification of TopCo Shares	26
3.10	Admittance as Limited Partner	26
3.11	Payment of Expenses	26
3.12	Record of Limited Partners	27
3.13	Transfers of Units and Changes in Membership of Partnership	27
3.14	Notice of Change to General Partner	30
3.15	Inspection of Record	30
3.16	Amendment of Declaration of Limited Partnership or Record	30
3.17	Non-Recognition of Trusts or Beneficial Interests	30
3.18	Incapacity, Death, Insolvency or Bankruptcy	30
3.19	No Transfer upon Dissolution	31
3.20	Units Uncertificated	31

(i)

3.21	Indirect Transfers of Interests	31
3.22	Record Holders	32
3.23	Acquisition Proposals: TopCo and the Partnership	32
3.24	General Partner and Subsidiaries Not to Vote Exchangeable Units	33
3.25	Attributes of Class X Units	33

ARTICLE 4 CAPITAL CONTRIBUTIONS AND ACCOUNTS 33

4.1	General Partner Contribution	33
4.2	Limited Partner and General Partner Contributions	33
4.3	Maintenance of Capital Accounts	34

ARTICLE 5 PARTICIPATION IN PROFITS AND LOSSES 35

5.1	Allocation for Capital Account Purposes	35
5.2	Allocation of Net Income and Losses for Tax Purposes	38
5.3	Distributions	41
5.4	Tax Distributions	43
5.5	Distribution Mechanics	43

ARTICLE 6 WITHDRAWAL OF CAPITAL CONTRIBUTIONS 45

6.1 Withdrawal 45

ARTICLE 7 POWERS, DUTIES AND OBLIGATIONS OF GENERAL PARTNER 45

7.1	Duties and Obligations	45
7.2	Specific Powers and Duties	46
7.3	Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner	48
7.4	Title to Property	49
7.5	Exercise of Duties by the Board of Directors of the General Partner; General Partner Standard of Care	50
7.6	Limitation of Liability	50
7.7	Indemnity of General Partner	51
7.8	Other Matters Concerning the General Partner	52
7.9	Indemnity of Partnership	53
7.10	Restrictions upon the General Partner	53
7.11	Employment of an Affiliate or Associate	53
7.12	No Removal of the General Partner	53
7.13	Voluntary Withdrawal of the General Partner	53
7.14	Condition Precedent	54
7.15	Transfer to New General Partner	54
7.16	Release By Partnership	54
7.17	New General Partner	54
7.18	Transfer of General Partner Interest	54
7.19	Resolution of Conflict of Interests	55

(ii)

ARTICLE 8 FINANCIAL INFORMATION 57

8.1	Books and Records	57
8.2	Reports	57
8.3	Right to Inspect Partnership Books and Records	57
8.4	Accounting Policies	57
8.5	Appointment of Auditor	58

ARTICLE 9 TAX MATTERS 58

9.1	Tax Returns and Information	58
9.2	Tax Elections	58
9.3	Tax Controversies	58
9.4	Treatment as a Partnership; Election to be Treated as a Corporation	60

ARTICLE 10 MEETINGS OF THE LIMITED PARTNERS 60

10.1	Meetings	60
10.2	Place of Meeting	60
10.3	Notice of Meeting	60
10.4	Record Dates	61
10.5	Information Circular	61
10.6	Proxies	61
10.7	Validity of Proxies	61
10.8	Form of Proxy	61
10.9	Revocation of Proxy	62
10.10	Corporations	62
10.11	Attendance of Others	62
10.12	Chairperson	62
10.13	Quorum	62
10.14	Voting	62
10.15	Poll	63
10.16	Powers of Limited Partners; Resolutions Binding	63
10.17	Conditions to Action by Limited Partners	63
10.18	Minutes	63
10.19	Additional Rules and Procedures	64
10.20	Electronic Meetings	64

ARTICLE 11 SUCCESSORS OF THE GENERAL PARTNER 64

11.1	Certain Requirements in Respect of Combination, etc.	64
11.2	Vesting of Powers in Successor	65
11.3	Wholly-Owned Subsidiaries	65

ARTICLE 12 NOTICES 65

12.1	Address	65
12.2	Change of Address	66

(iii)

12.3	Accidental Failure	66
12.4	Disruption in Mail	66
12.5	Receipt of Notice	66
12.6	Undelivered Notices	66

ARTICLE 13 DISSOLUTION AND LIQUIDATION 67

13.1	Events of Dissolution	67
13.2	No Dissolution	67
13.3	Procedure on Dissolution	67
13.4	Dissolution	67
13.5	No Right to Dissolve	68
13.6	Agreement Continues	68
13.7	Capital Account Restoration	68

ARTICLE 14 AMENDMENT 68

14.1	Power to Amend	68
14.2	Amendment by General Partner	69
14.3	Notice of Amendments	70

ARTICLE 15 MISCELLANEOUS 71

15.1	Binding Agreement	71
15.2	Time	71
15.3	Counterparts	71
15.4	Governing Law	71
15.5	Severability	71
15.6	Further Acts	71
15.7	Entire Agreement	71
15.8	Limited Partner Not a General Partner	72
15.9	Amendment and Restatement of Original Limited Partnership Agreement	72
15.10	Language of Agreement	72

(iv)

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

This AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (including all exhibits and attachments hereto, the “Agreement”) is entered into as of 9:00 am on the First Closing Day between Telesat Corporation, a corporation existing under the Laws of British Columbia, in its own capacity and as General Partner (“TopCo”, together with any Person who is admitted to the Partnership as a successor to or permitted assign of the General Partner in accordance with this Agreement, the “General Partner”), Mr. Henry Intven (the “Initial Limited Partner”), Red Isle Private Investments Inc., a corporation incorporated under the Laws of Canada (“Rover”), Mr. John Cashman (“Cashman”), Mr. Clare Copeland (“Copeland”) and each other person who is admitted to the Partnership as a limited partner in accordance with the provisions of this Agreement, including each Leo Electing Stockholder (as hereinafter defined) (together with the Initial Limited Partner, Rover, Cashman and Copeland, the “Limited Partners”) and, solely for purposes of Section 3.21, Public Sector Pension Investment Board, a Canadian Crown corporation formed under the Laws of Canada (“Polaris”).

WHEREAS the General Partner and the Initial Limited Partner entered into a limited partnership agreement on November 12, 2020 (the “Original Limited Partnership Agreement”) to form a limited partnership by the name of “Telesat Partnership LP” under the Laws of the Province of Ontario (the “Partnership”);

WHEREAS the Partnership was registered as a limited partnership by the filing of the Declaration of Limited Partnership on November 12, 2020;

WHEREAS the Partnership was formed to give effect to the business of the Partnership as described in Section 2.2;

WHEREAS the Partnership entered into that certain Transaction Agreement and Plan of Merger with Telesat Canada, a corporation incorporated under the laws of Canada (“Transit”), TopCo, the Partnership, Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia and a wholly-owned subsidiary of the Partnership (“CanHoldco”), Loral Space & Communications Inc., a Delaware corporation (“Leo”), Lion Combination Sub Corporation, a Delaware corporation and a wholly-owned subsidiary of Leo, Polaris and Rover on November 23, 2020 (the “Transaction Agreement”);

WHEREAS pursuant to the Transaction Agreement and the other agreements contemplated thereby, Merger Sub will merge with and into Leo (the “Merger”) with Leo surviving as a wholly-owned subsidiary of the Partnership, and with Leo Electing Stockholders receiving Exchangeable Units and with other stockholders of Leo (other than the Partnership) receiving TopCo Shares, by completing the steps described in the Recitals set out below, at the times and in the order set out therein;

WHEREAS pursuant to the Transaction Agreement and the other agreements contemplated thereby, the Partnership will complete the transactions set forth in Section 2.1(a) of the Transaction Agreement to which it is a party on the First Closing Day in the order set out in the Transaction Agreement;

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WHEREAS each Leo Electing Stockholder will appoint TopCo as such Leo Electing Stockholder’s attorney to execute and deliver this Agreement on such Leo Electing Stockholder’s behalf;

WHEREAS pursuant to the Transaction Agreement and the other agreements contemplated thereby, the Partnership will complete the following transactions affecting its capital on the Second Closing Day (as hereinafter defined) at the effective time of the Merger (the “Merger Effective Time”):

(a) The Partnership will deliver Exchangeable Units to Leo Electing Stockholders;

(b) The Partnership will issue additional GP Units to Topco in consideration of the issuance of TopCo Shares by TopCo in the Merger to stockholders of Leo other than Leo Electing Stockholders and the Partnership; and

(c) The Partnership will redeem the Class X Units held by each of the Voting Directors and the Initial Limited Partner;

WHEREAS immediately following the Merger Effective Time, the issued capital of the Partnership shall consist of the GP Units held by the General Partner and the Exchangeable Units held by Rover and the Leo Electing Stockholders; and

WHEREAS Topco, the Initial Limited Partner, Rover, Cashman and Copeland wish to enter into this Agreement to amend and restate the Original Limited Partnership Agreement in its entirety in order to provide for the Integration (as hereinafter defined) and to set out the terms and conditions applicable to the relationship among the Partners and to the conduct of the business of the Partnership upon completion of the Merger.

NOW THEREFORE THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the respective covenants and agreements contained in this Agreement and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), the Partners agree with each other as follows:

ARTICLE 1
INTERPRETATION

1.1 Definitions

In this Agreement, the following words have the following meanings:

“Act” means the Limited Partnerships Act (Ontario);

“Adjusted Capital Account” means the Capital Account maintained for each Partner as of the end of each Fiscal Year of the Partnership (or other taxable period), (a) increased by any amounts that such Partner is obligated to restore under the standards set forth in U.S. Treasury Regulations Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under the penultimate sentences of U.S. Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5), respectively) and (b) decreased by (i) the amount of all losses and deductions that, as of the end of such Fiscal Year (or such taxable period), are reasonably expected to be allocated to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and U.S. Treasury Regulations Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of such Fiscal Year (or such taxable period), are reasonably expected to be made to such Partner in subsequent years in accordance with the terms of this Agreement or otherwise to the extent they exceed offsetting increases to such Partner’s Capital Account that are reasonably expected to occur during (or prior to) the year in which such distributions are reasonably expected to be made (other than increases as a result of a minimum gain chargeback pursuant to Section 5.1(b)(i) or Section 5.1(b)(ii)). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of U.S. Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. The “Adjusted Capital Account” of a Partner in respect of a Unit shall be the amount that such Adjusted Capital Account would be if such Unit were the only interest in the Partnership held by such Partner from and after the date on which such Unit was first issued;

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“Affiliate” means “affiliate” as defined in Rule 405 promulgated under the Securities Act of 1933, as amended; provided that, notwithstanding anything to the contrary, for purposes of this Agreement, (a) none of Topco, the Partnership or their respective Subsidiaries is an “Affiliate” of any of Meteor, Polaris, or Rover, (b) none of Meteor, Polaris or Rover is an “Affiliate” of any of Topco, the Partnership or their respective Subsidiaries, and (c) no portfolio company of (i) any investment vehicle or (ii) any holding company that, in each case, is directly or indirectly managed or controlled by Polaris, or Meteor or its Affiliates, as the case may be, is an “Affiliate” of Polaris, Rover or Meteor, unless and to the extent such portfolio company is acting at the direction of the applicable Person (it being understood, however, that each of Polaris and Rover is an “Affiliate” of the other);

“Agreement” has the meaning set out in the Preamble;

“Associate” where used to indicate a relationship with any Person has the same meaning as in the Securities Act (Ontario);

“Assumed Tax Liability” means, with respect to each Partner as of any taxable year, such Partner’s pro rata portion, based on its Percentage Interest divided by the Percentage Interest of all Partners other than TopCo, of the product of (a) income or gain, as determined under U.S. federal income tax principles (other than allocations pursuant to Section 704(c) of the Code) allocated by the Partnership to all Partners other than TopCo in such taxable year and all prior taxable years less any deduction or loss, as determined under U.S. federal income tax principles, allocated by the Partnership to such Partners (other than TopCo) in such taxable year and all prior taxable years, multiplied, for each relevant taxable year in which there is net income, by (b) the highest applicable U.S. federal, state and local income tax rate for such taxable year (including for the avoidance of doubt, the tax rate imposed on “net investment income” by Section 1411 of the Code) applicable to an individual resident in New York, New York applicable to the character of U.S. federal taxable income or loss allocated by the Partnership to such Partners (e.g., capital gains or losses, dividends, ordinary income, etc.) at any time during the taxable Year;

“Auditor” means Deloitte LLP, or any other member in good standing of CPA Canada who is appointed as auditor of the Partnership by the General Partner;

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“BCBA” means the Business Corporations Act (British Columbia);

“Beneficial Ownership” and “beneficially own” and similar terms have the meaning set forth in Rule 13d-3 under the Securities Exchange Act.

“Business Day” means any day other than a Saturday, a Sunday, a day on which banking institutions in the City of Montréal are authorized or required by law to be closed or a day on which the New York Stock Exchange, the NASDAQ Stock Market or the Toronto Stock Exchange is closed for trading;

“Canadian Securities Authorities” means the securities commissions and similar regulatory authorities in all of the provinces and territories in Canada;

“CanHoldco” means Telesat CanHold Corporation, a corporation incorporated by the Partnership under the Laws of British Columbia;

“Capital Account” has the meaning set out in Section 4.3(a);

“Capital Contribution” of a Partner means the total amount of cash and the Carrying Value of any property contributed, including any property deemed to be contributed, to the Partnership by that Partner (or such Partner’s predecessor in interest) in respect of Units held, purchased or issued to such Partner; provided, that, in the case of the Units issued pursuant to the Integration, the amount of the contribution to the Partnership in respect of the issuance of such Unit shall be the amount determined in accordance with Section 4.2;

“Carrying Value” means with respect to any Property of the Partnership (other than money), such Property’s adjusted basis for U.S. federal income tax purposes, except as follows:

(a) The initial Carrying Value of any Property contributed by a Partner to the Partnership shall be the gross fair market value of such Property, as reasonably determined by the General Partner;

(b) The Carrying Values of all such Properties shall be adjusted to equal their respective gross fair market values (in accordance with the rules set forth in U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and taking Section 7701(g) of the Code into account), as reasonably determined by the General Partner, at the time of any Revaluation pursuant to Section 4.3(c);

(c) The Carrying Value of any Property distributed to any Partner shall be adjusted immediately prior to such distribution to equal the gross fair market value (without regard to Section 7701(g) of the Code) of such Property on the date of distribution as reasonably determined by the General Partner;

(d) The Carrying Values of any such Property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such Property pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the definition of “Net Income” and “Net Loss” or Section 5.1(b)(viii); provided, however, that Carrying Values shall not be adjusted pursuant to this subparagraph (d) to the extent that an adjustment pursuant to subparagraph (b) above is made in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d); and

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(e) If the Carrying Value of any such Property has been determined or adjusted pursuant to subparagraph (a), (b) or (d) above, such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to such Property for purposes of computing Net Income and Net Loss;

Notwithstanding the foregoing, the initial Carrying Values of Leo shares and Transit shares acquired by the Partnership pursuant to the Integration shall be determined in accordance with the per share values set forth in Section 4.2;

“Cashman” has the meaning set out in the Preamble;

“Class A Exchangeable Units” has the meaning set out in Section 3.1;

“Class A Special Voting Share” means the Class A special voting share in the capital of TopCo;

“Class B Exchangeable Units” has the meaning set out in Section 3.1;

“Class B Special Voting Share” means the Class B special voting share in the capital of TopCo;

“Class C Exchangeable Units” has the meaning set out in Section 3.1;

“Class C Special Voting Share” means the Class C special voting share in the capital of TopCo;

“Class D Units” has the meaning set out in Section 3.1;

“Class X Units” means the Class X limited partnership units in the capital of the Partnership, which have the attributes provided in Section 3.25;

“Code” means the United States Internal Revenue Code of 1986;

“Combination” means any combination of shares or units, as the case may be, by reverse split, reclassification, recapitalization or otherwise;

“Confirmation” has the meaning set out in Section 3.13(i);

“Copeland” has the meaning set out in the Preamble.

“CPOA” has the meaning set out in Section 2.7(f);

“Declaration” has the meaning set out in Section ‎3.13(d);

5

“Declaration of Limited Partnership” means the declaration of limited partnership for the Partnership filed under the Act on November 12, 2020 and all amendments to the declaration and renewals or replacements of the declaration;

“Departing Partner” means any former General Partner;

“Depreciation” means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for U.S. federal income tax purposes for such Fiscal Year or other period, except that if the Carrying Value of an asset differs from its adjusted basis for U.S. federal income tax purposes at the beginning of such Fiscal Year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Carrying Value as the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or other period bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for U.S. federal income tax purposes of an asset at the beginning of such Fiscal Year or other period is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner;

“Economic Risk of Loss” has the meaning set forth in U.S. Treasury Regulations Section 1.752-2(a);

“Entity” means any of a partnership, limited partnership, limited liability company, joint venture, company or corporation with share capital, unincorporated association, or trust;

“Exchange Notice” has the meaning set out in Section 3.1 of Schedule A;

“Exchange Right” has the meaning set out in Section 2.1(a) of Schedule A;

“Exchangeable Holder” means a registered holder of Exchangeable Units;

“Exchangeable Units” has the meaning set out in Section 3.1;

“Exchanged Shares” has the meaning set out in ARTICLE 1 of Schedule A;

“First Closing Day” has the meaning set out in the Transaction Agreement;

“Fiscal Year” has the meaning set out in Section 2.4;

“General Partner” has the meaning set out in the Preamble;

“Golden Share” means the golden share without par value in the capital of TopCo;

“Governmental Authority” means any (i) international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) self-regulatory organization or stock exchange, (iii) subdivision, agent, commission, board, or authority of any of the foregoing, or (iv) quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;

6

“GP Duties” has the meaning set out in Section 7.6(b);

“GP Units” has the meaning set out in Section 3.1;

“Group Member” means a member of the Partnership Group;

“holder” means, when used with reference to Units, a holder of Units as shown from time to time in the Record;

“Indemnitee” has the meaning set out in Section 7.8(a);

“Initial Limited Partner” has the meaning set out in the Preamble;

“Integration” means the transactions contemplated by Article II of the Transaction Agreement (including, for the avoidance of doubt, the Merger);

“Investor Rights Agreements” means (i) that certain Investor Rights Agreement, dated as of November 23, 2020, by and between TopCo and Polaris and (ii) that certain Investor Rights Agreement, dated as of November 23, 2020, by and between TopCo and Meteor, collectively, in each case, as from time to time amended;

“Laws” means any and all applicable (i) laws, constitutions, treaties, statutes, codes, ordinances, principles of common and civil law and equity, rules, regulations and municipal by-laws, whether domestic, foreign or international, (ii) judicial, arbitral, administrative, ministerial, departmental and regulatory judgements, orders, writs, injunctions, decisions, and awards of any Governmental Authority, and (iii) policies, practices and guidelines of any Governmental Authority which, although not actually having the force of law, are considered by such Governmental Authority as requiring compliance as if having the force of law, and the term “applicable”, with respect to such Laws and in the context that refers to one or more Persons, means such Laws that apply to such Person or Persons or its or their business, undertaking, property or securities at the relevant time and that emanate from a Governmental Authority having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

“Legal Rights” means the rights of a Person under the applicable Laws;

“Leo” has the meaning set out in the Recitals;

“Leo Electing Stockholder” means a former stockholder of Leo that validly elects to receive Exchangeable Units on the Merger and appoints TopCo as its attorney to execute this Agreement;

“Limited Partner” has the meaning set out in the Preamble, provided, however, that a transferee of Partnership Interests that is not a permitted transferee of a Limited Partner as described in Section 3.13(g) shall not be treated as a Limited Partner;

“Merger” has the meaning set out in the Recitals;

7

“Merger Effective Time” has the meaning set out in the Recitals;

“Meteor” means MHR Fund Management LLC;

“Meteor Entity” means any entity through which a Meteor Fund beneficially owns any Units;

“Meteor Fund” means a pooled investment vehicle managed by Meteor or any of its Affiliates;

“Meteor Limited Partner” means the Leo Electing Stockholders affiliated with Meteor admitted to the Partnership as limited partners in accordance with the provisions of this Agreement;

“National Securities Exchange” means (i) an exchange registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act or the Toronto Stock Exchange or any successor thereto, and (ii) any other securities exchange (whether or not registered with the U.S. Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act) that the General Partner in its sole discretion shall designate as a National Securities Exchange for purposes of this Agreement;

“Net Cumulative Taxable Income” means, with respect to a Partner, the amount of taxable income or gain as determined under U.S. federal income tax principles (other than allocations pursuant to Section 704(c) of the Code) allocated by the Partnership to such Partner in such taxable year and all prior taxable years less any deduction or loss, as determined under U.S. federal income tax principles, allocated by the Partnership to such Partner in such taxable year and all prior taxable years;

“Net Income” and “Net Loss” mean, for U.S. federal income tax purposes, for each Fiscal Year or other period, an amount equal to the Partnership’s taxable income or loss for such Fiscal Year or period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):

(a) Any income of the Partnership that is exempt from U.S. federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of “Net Income” and “Net Loss” shall be added to such taxable income or loss;

(b) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income and Net Loss pursuant to this definition of “Net Income” and “Net Loss,” shall be subtracted from such taxable income or loss;

(c) In the event the Carrying Value of any Property of the Partnership is adjusted pursuant to subparagraphs (b) or (c) of the definition of “Carrying Value”, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Carrying Value of the asset) or an item of loss (if the adjustment decreases the Carrying Value of the asset) from the disposition of such asset and shall be taken into account, immediately prior to the event giving rise to such adjustment, for purposes of computing Net Income and/or Net Loss;

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(d) Gain or loss resulting from any disposition of any Property of the Partnership with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed by reference to the Carrying Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Carrying Value;

(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period, computed in accordance with the definition of Depreciation;

(f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) of the Code is required, pursuant to U.S. Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account, immediately prior to the event giving rise to such adjustment, for purposes of computing Net Income or Net Loss; and

(g) Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 5.2(b) shall not be taken into account in computing Net Income and Net Loss;

The amounts of the items of Partnership income, gain, loss, or deduction available to be specially allocated pursuant to Section 5.1(b) shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (g) above;

“New Shares” has the meaning given to it in Section 3.4(b)(ii);

“New Units” has the meaning given to it in Section 3.4(b)(ii);

“Nonrecourse Deductions” has the meaning set forth in U.S. Treasury Regulations Section 1.704-2(b)(1) and 1.704-2(c);

“Nonrecourse Liability” has the meaning set forth in U.S. Treasury Regulations Section 1.752-1(a)(2) and 1.704-2(b)(3);

“Ordinary Resolution” means:

(a) a resolution approved by more than 50% of the votes cast in person or by proxy at a duly constituted meeting of Partners holding Exchangeable Units entitled to vote thereon (excluding Exchangeable Units held by the General Partner and its Subsidiaries) or at any adjournment of that meeting, called in accordance with this Agreement; or

9

(b) a written resolution in one or more counterparts signed by Partners holding in the aggregate more than 50% of the aggregate number of Exchangeable Units entitled to vote thereon (excluding Exchangeable Units held by the General Partner and its Subsidiaries) at the time of such written resolution;

“Original Limited Partnership Agreement” has the meaning given to it in the Recitals;

“Outstanding” means, with respect to Partnership Interests, all Partnership Interests that are issued by the Partnership and reflected as outstanding on the Partnership’s books and records as of the date of determination;

“Partially Adjusted Capital Account” means, with respect to any Partner and any Fiscal Year, the Capital Account of such Partner at the beginning of such Fiscal Year, adjusted as set forth in Section 4.3 hereof for all contributions and distributions during such year and all Required Allocations with respect to such Fiscal Year, but before giving effect to any allocation of Net Income and Net Loss for such Fiscal Year pursuant to Section 5.1 hereof;

“Partner Nonrecourse Debt” has the meaning set forth in U.S. Treasury Regulations Section 1.704-2(b)(4);

“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in U.S. Treasury Regulations Section 1.704-2(i)(2);

“Partner Nonrecourse Deductions” has the meaning set forth in U.S. Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2);

“Partners” means, collectively, the General Partner and the Limited Partners and “Partner” means any one of them;

“Partnership” has the meaning given to it in the Recitals;

“Partnership Group” means the Partnership and its Subsidiaries treated as a single consolidated entity;

“Partnership Interest” means any interest of a Partner in the Partnership represented by Units and the rights of such Partner to any and all benefits to which such Partner may be entitled as provided in the Act or this Agreement together with the obligations of such Partner to comply with all terms and provisions of this Agreement and the Act;

“Partnership Minimum Gain” has the meaning set forth in U.S. Treasury Regulations Section 1.704-2(b)(2) and 1.704-2(d). A Partner’s share of Partnership Minimum Gain shall be computed in accordance with the provisions of U.S. Treasury Regulations Section 1.704-2(g);

“Partnership Representative” shall have the meaning set forth in Section 9.3(b) hereof;

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“Percentage Interest” means, as of any time of determination, (i) as to any Exchangeable Units held by a Partner, the product obtained by multiplying (a) 100% by (b) the quotient obtained by dividing (w) the number of such Exchangeable Units held by that Partner by (x) the Total Base, and (ii) as to the GP Units held by the General Partner, the product obtained by multiplying (a) 100% by (b) the quotient obtained by dividing (y) the number of outstanding TopCo Shares by (z) the Total Base;

“Person” means any individual, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation or other Entity with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted;

“Polaris” has the meaning set out in the Preamble;

“Property” means an interest of any kind in any real, personal or intellectual (or mixed) property, including cash, and any improvements thereto, and shall include both tangible and intangible property;

“Qualified Canadians” has the same meaning as given to the term “Canadian” in the Investment Canada Act;

“Record” means the current record of the Partners required by the Act and this Agreement to be kept by the General Partner;

“Record Holder” means, as of any particular Business Day, the Person in whose name a Unit is registered on the books of the Registrar and Transfer Agent as of the opening of business on such Business Day, or with respect to other Partnership Interests, the Person in whose name any such other Partnership Interest is registered on the books which the General Partner has caused to be kept as of the opening of business on such Business Day;

“Registrar and Transfer Agent” means the registrar and transfer agent of the Units appointed from time to time by the General Partner, which will initially be Computershare Trust Company of Canada, or, if no registrar and transfer agent is appointed, the General Partner;

“Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of the date hereof, by and between TopCo, Polaris and Meteor;

“Representatives” means, with respect to any Person, each of its directors, officers, employees, members, partners, consultants, accountants, legal counsel, investment bankers and other advisors, agents or other representatives;

“Required Allocations” means any allocation of an item of income, gain, loss or deduction pursuant to Section 5.1(b), with the exception of clause (ix) thereof;

“Revaluation” has the meaning set out in Section 4.3(c);

“Rover” has the meaning set out in the Preamble;

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“securities” has the same meaning as in the Securities Act (Ontario);

“Securities Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;

“Special Approval” means approval by either (a) the vote of a majority of the members of the board of directors of TopCo (or a committee of the board of directors of TopCo to which such matter has been delegated), which majority shall include a majority of the Specially Designated Directors then in office (or on such committee), or (b) the vote of a majority of the voting power of the Exchangeable Units (excluding Units owned by the General Partner and its Subsidiaries), which majority vote shall include the vote of a majority of the voting power of the Exchangeable Units beneficially owned by persons other than Rover, any Meteor Entity or any of their respective Affiliates or Associates;

“Special Voting Shares” means, collectively, the Class A Special Voting Share, the Class B Special Voting Share and the Class C Special Voting Share;

“Specially Designated Directors” has the meaning set out in the TopCo Articles;

“Subdivision” means any subdivision of shares or units, as the case may be, by any split, dividend, distribution, reclassification, recapitalization or otherwise;

“Subsidiary” means any Entity or other Person of which the relevant party (either alone or through or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the outstanding voting securities or equity interests having the power to vote for the election of the board of directors or other governing board of such Person or with respect to which the relevant party (either alone or through or together with any other Subsidiary) otherwise has the power to direct or control the management and policies of such Person, by contract or otherwise;

“Tabulation Agent” means a Person designated by the General Partner, in writing, as its agent to perform the administrative tasks of (1) collecting and tabulating instructions from the holders of Exchangeable Units for the purpose of instructing the Trustee as to the exercise of the Voting Rights with respect to the Special Voting Shares pursuant to the terms of this Agreement, the TopCo Articles and the Voting Agreement, and (2) collecting and tabulating the votes of the TopCo Shares and/or instructions from the holders of Exchangeable Units pursuant to the terms of this Agreement for the purpose of instructing the Trustee as to the exercise of the voting rights attached to the Golden Share pursuant to the terms of the TopCo Articles and the Voting Agreement. For the avoidance of doubt, the General Partner shall retain liability as principal for the acts of the Tabulation Agent;

“Target Capital Account” means, with respect to any Partner for any Fiscal Year, an amount (which may be either a positive or negative balance) equal to the hypothetical distribution (as described in the next paragraph) such Partner would receive, minus the Partner’s share of partnership minimum gain determined pursuant to U.S. Treasury Regulations Section 1.704-2(g), and minus the Partner’s share of partner nonrecourse debt minimum gain determined in accordance with U.S. Treasury Regulations Section 1.704-2(i)(5), all computed immediately prior to the following hypothetical sale:

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The hypothetical distribution to a Partner is equal to the amount that would be received by such Partner if all Partnership assets were sold for cash equal to their Carrying Values, all Partnership liabilities were satisfied to the extent required by their terms (limited, with respect to each Nonrecourse Liability or partner nonrecourse debt, to the Carrying Value of the assets securing each such liability), and the net assets of the Partnership were distributed in full to the Partners pursuant to Section 13.3(c), all as of the last day of such Fiscal Year;

“Tax Act” means the Income Tax Act (Canada);

“Tax Distribution Date” means any date that is five Business Days prior to (i) the date on which quarterly estimated income tax payments are required to be made by calendar year individual taxpayers in the U.S. and (ii) each due date for the income tax return of an individual calendar year taxpayer (without regard to extensions) in the U.S.;

“TopCo” has the meaning set out in the Preamble;

“TopCo Articles” means the Articles of TopCo dated the date hereof, and as may be amended subsequent to the date hereof in accordance with the terms hereof and thereof;

“TopCo Class A Shares” means the Class A common shares in the capital of TopCo;

“TopCo Class B Shares” means the Class B variable voting shares in the capital of TopCo;

“TopCo Class C Fully Voting Shares” means the Class C fully voting shares in the capital of TopCo;

“TopCo Class C Limited Voting Shares” means the Class C limited voting shares in the capital of TopCo;

“TopCo Class C Shares” means the TopCo Class C Limited Voting Shares and the TopCo Class C Fully Voting Shares;

“TopCo Shareholder Representative” shall have the meaning ascribed to such term in the Transaction Agreement;

“TopCo Offer” has the meaning given to it in Section 3.23(a);

“TopCo Shares” means, collectively, the TopCo Class A Shares, the TopCo Class B Shares and the TopCo Class C Shares;

“TopCo Successor” has the meaning given to it in Section 11.1(a);

“Total Base” at any time means the total of the Outstanding Exchangeable Units plus the number of TopCo Shares outstanding as at that time;

“Transaction Agreement” has the meaning set out in the Recitals;

“transfer” when used in this Agreement with respect to a Partnership Interest has the meaning given to it in Section 3.13(h);

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“Transit” means Telesat Canada, a corporation incorporated under the laws of Canada;

“Transit Common Shares”, “Transit Director Voting Preferred Shares”, “Transit Non-Voting Participating Preferred Shares” and “Transit Voting Participating Preferred Shares” each has the meaning ascribed thereto in the Transaction Agreement;

“Trust” means the Telesat Corporation Trust;

“Trustee” means TSX Trust Company, a trust company existing under the laws of Canada, or the trustee of the Trust as determined from time to time in accordance with the trust agreement made as of November 18, 2021;

“Unit” means the interest of a Partner in the Partnership represented by Exchangeable Units, Class D Units, Class X Units and GP Units;

“U.S.” means the United States of America;

“U.S. Treasury Regulations” means the regulations and rules made pursuant to the Code;

“Unitholder” or “holder” means a holder of one or more Units;

“Units Offer” has the meaning given to it in Section 3.23(b);

“Voting Agreement” means the Trust Voting Agreement dated the date hereof between the Partnership, TopCo and the Trustee;

“Voting Director Contribution Agreement” has the meaning ascribed thereto in the Transaction Agreement;

“Voting Directors” means Cashman and Copeland;

“Voting Rights” means the voting rights attached to the Special Voting Shares; and

1.2 Headings

In this Agreement, the headings are for convenience of reference only, do not form a part of this Agreement and are not to be considered in the interpretation of this Agreement.

1.3 Interpretation

In this Agreement,

(a) words importing the masculine gender include the feminine and neuter genders, corporations, partnerships and other Persons, and words in the singular include the plural, and vice versa, wherever the context requires;

(b) the words “include”, “includes”, “including”, or any variations thereof, when following any general term or statement, are not to be construed as limiting the general term or statement to the specific items or matters set forth or to similar items or matters, but rather as referring to all other items or matters that could reasonably fall within the broadest possible scope of the general term or statement;

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(c) unless otherwise specified, all references to designated Articles, Sections and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement;

(d) all accounting terms not otherwise defined will have the meanings assigned to them by, and all computations to be made will be made in accordance with, International Financial Reporting Standards as issued by the International Accounting Standards Board, as consistently applied by TopCo from time to time (“IFRS”);

(e) any reference to a statute will include and will be deemed to be a reference to the regulations and rules made pursuant to it, and to all amendments made to the statute, the regulations and the rules in force from time to time, and to any statute, regulation or rule that may be passed which has the effect of supplementing or superseding the statute referred to or the relevant regulation;

(f) any reference to a Person will include and will be deemed to be a reference to any Person that is a successor to that Person; and

(g) “hereof”, “hereto”, “herein”, and “hereunder” mean and refer to this Agreement and not to any particular Article, Section or other subdivision.

1.4 Currency

All references to currency in this Agreement are references to lawful money of Canada, unless otherwise indicated.

1.5 Schedule

The following is the schedule to this Agreement:

Schedule A – Exchangeable Units of the Partnership

ARTICLE 2
RELATIONSHIP BETWEEN PARTNERS

2.1 Formation and Name of the Partnership

The General Partner acknowledges and represents to the Limited Partners that the Partnership was initially formed and registered as a limited partnership on November 12, 2020 by the filing of the Declaration of Limited Partnership in accordance with the Laws of the Province of Ontario and the provisions of the Original Limited Partnership Agreement to carry on business in common with a view to profit under the firm name and style of “Telesat Partnership LP” or the French form of that name or any other name or names as the General Partner may determine from time to time. The General Partner has the right to file an amendment to the Declaration of Limited Partnership changing the name of the Partnership or the French form of that name.

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2.2 Purpose of the Partnership

The purpose of the Partnership shall be to: (a) acquire and hold direct and indirect equity interests in Leo, Transit, CanHoldco and, subject to the approval of the General Partner, any other Persons; (b) engage in any activity related to the capitalization and financing of the Partnership’s interests in such corporations and such other Persons; and (c) engage in any activity that is incidental to or in furtherance of the foregoing or any other business that it deems appropriate and that is approved by the General Partner and that lawfully may be conducted by a limited partnership organized under the Act and this Agreement; provided, however, that, (i) except pursuant to Section 9.4, the Partnership shall not engage, directly or indirectly, in any business activity that the General Partner determines would cause the Partnership to be treated as an association taxable as a corporation under U.S. Treasury Regulations Section 301.7701-3 or Section 7704 of the Code; and (ii) the General Partner shall conduct the affairs of the Partnership in a manner that does not cause the Partnership or Partners, solely as a result of being a limited partner in the Partnership, (A) to be treated as engaged in a “commercial activity” (as defined in Section 892(a)(2)(A)(i) of the Code) or (B) to be treated as engaged in a “trade or business” within the United States for purposes of Section 864 of the Code.

2.3 Office of the Partnership

The principal place of business of the Partnership will be 160 Elgin Street, Suite 2100 Ottawa, Ontario, Canada, K2P 2P7 or any other address in Ontario as the General Partner may designate in writing from time to time to the Limited Partners.

2.4 Fiscal Year

Unless changed by the General Partner, the fiscal period of the Partnership shall commence on January 1 of a calendar year and shall end on the earlier of December 31 in that year or on the date of dissolution or other termination of the Partnership. Each fiscal period is referred to in this Agreement as a “Fiscal Year”.

2.5 Status of Partners

The General Partner represents, warrants, covenants and agrees with each Limited Partner that it:

(a) is a corporation incorporated under the Laws of British Columbia and is validly subsisting under those Laws;

(b) has the capacity and corporate authority to act as a general partner and to perform its obligations under this Agreement, and those obligations do not conflict with nor do they result in a breach of any of its constating documents, by-laws or any agreement by which it is bound;

(c) will act in good faith toward the Limited Partners in carrying out its obligations under this Agreement;

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(d) holds and will maintain the registrations necessary for the conduct of its business and has and will continue to have all licences and permits necessary to carry on its business as the General Partner of the Partnership in all jurisdictions where the activities of the Partnership require that licensing or other form of registration of the General Partner; and

(e) will devote as much time as is reasonably necessary for the conduct and prudent management of the business and affairs of the Partnership.

2.6 Limitation on Authority of Limited Partners

No Limited Partner, in their capacity as a Limited Partner, will:

(a) take part in the administration, management or operation of the business of the Partnership or exercise any power in connection with that management or transact business on behalf of the Partnership;

(b) execute any document which binds or purports to bind any other Partner or the Partnership;

(c) hold that Limited Partner out as having the power or authority to bind any other Partner or the Partnership;

(d) have any authority or power to act for or undertake any obligation or responsibility on behalf of any other Partner or the Partnership;

(e) bring any action for partition or sale or otherwise in connection with the Partnership, or any interest in any property of the Partnership, whether real or personal, tangible or intangible, or file or register or permit to be filed, registered or remain undischarged any lien or charge in respect of any property of the Partnership; or

(f) compel or seek a partition, judicial or otherwise, of any of the assets of the Partnership distributed or to be distributed to the Partners in kind in accordance with this Agreement.

2.7 Power of Attorney

(a) Each Limited Partner hereby irrevocably nominates, constitutes and appoints the General Partner, with full power of substitution, as that Limited Partner’s agent and true and lawful attorney to act on the Limited Partner’s behalf with full power and authority in the Limited Partner’s name, place and stead to execute and record or file as and where required:

(i) this Agreement, any amendment to this Agreement and any other instruments or documents required to continue and keep in good standing the Partnership as a limited partnership under the Act, or otherwise to comply with the Laws of any jurisdiction in which the Partnership may carry on business or own or lease property in order to maintain the limited liability of the Limited Partners and to comply with the applicable Laws of that jurisdiction (including any amendments to the Declaration of Limited Partnership or the Record as may be necessary to reflect the admission to the Partnership of subscribers for or transferees of Units as contemplated by this Agreement);

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(ii) all instruments and any amendments to the Declaration of Limited Partnership necessary to reflect any amendment to this Agreement;

(iii) any instrument required in connection with the dissolution, liquidation and termination of the Partnership in accordance with the provisions of this Agreement, including any elections under the Tax Act, the Code and under any similar taxation legislation;

(iv) the documents necessary to be filed with the appropriate Governmental Authority in connection with the business, property, assets and undertaking of the Partnership;

(v) any documents as may be necessary to give effect to the business of the Partnership as described in Section 2.2;

(vi) the documents on the Limited Partner’s behalf and in the Limited Partner’s name as may be necessary to give effect to the sale or assignment of a Unit or to give effect to the admission of a subscriber for or transferee of Units to the Partnership;

(vii) any election, determination, designation, information return or similar document or instrument as may be required or desirable at any time under the Tax Act, the Code or under any other taxation legislation or Laws of like import of Canada, the U.S. or of any province, territory, state or jurisdiction which relates to the affairs of the Partnership or its Subsidiaries or the interest of any Person in the Partnership; and

(viii) all other similar instruments and documents on the Limited Partner’s behalf and in the Limited Partner’s name or in the name of the Partnership as may be deemed necessary by the General Partner to carry out fully this Agreement in accordance with its terms.

(b) The General Partner may require any Person subscribing for Units to execute such documents or instruments containing a power of attorney incorporating by reference, ratifying and confirming some or all of the powers described above.

(c) The power of attorney granted in this Agreement is irrevocable, is a power coupled with an interest, will survive the death or disability of a Limited Partner and will survive the transfer or assignment by the Limited Partner, to the extent of the obligations of a Limited Partner under this Agreement, of the whole or any part of the interest of the Limited Partner in the Partnership, extends to the heirs, executors, administrators, other legal representatives and successors, transferees and assigns of the Limited Partner, and may be exercised by the General Partner on behalf of each Limited Partner in executing any instrument by electronic signature or by listing all the Limited Partners and executing that instrument with a single signature as attorney and agent for all of them.

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(d) Each Limited Partner agrees to be bound by any representations or actions made or taken by the General Partner pursuant to the power of attorney granted in this Agreement and hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner taken in good faith under such power of attorney.

(e) In accordance with the Power of Attorney Act (British Columbia), the Powers of Attorney Act (Alberta), the Powers of Attorney Act, 2002 (Saskatchewan), the Powers of Attorney Act (Manitoba), the Substitute Decisions Act, 1992 (Ontario), the Property Act (New Brunswick), the Powers of Attorney Act (Prince Edward Island), the Powers of Attorney Act (Nova Scotia), the Enduring Powers of Attorney Act (Newfoundland), the Enduring Power of Attorney Act (Yukon), Powers of Attorney Act (Nunavut), and the Powers of Attorney Act (Northwest Territories), and any similar legislation governing a power of attorney, each Limited Partner declares that these powers of attorney may be exercised during any legal incapacity, mental incapacity or infirmity, or mental incompetence on the Limited Partner’s part.

(f) The power of attorney granted in this Agreement is not intended to be a continuing power of attorney within the meaning of the Substitute Decisions Act, 1992 (Ontario) exercisable during a Limited Partner’s incapacity to manage property, or any similar power of attorney under equivalent legislation in any of the provinces or territories of Canada (a “CPOA”). The execution of this power of attorney will not terminate any CPOA granted by the Limited Partner previously and will not be terminated by the execution by the Limited Partner in the future of a CPOA, and the Limited Partner hereby agrees not to take any action in future which results in the termination of the power of attorney granted in this Agreement.

(g) The General Partner may require, in connection with the subscription for, or any transfer of, Units, that the documents executed by the subscribing Limited Partner or transferee, if any, be accompanied by the explanatory notes set out in the Powers of Attorney Act (Alberta) and the Enduring Power of Attorney Act (Yukon) and a certificate of legal advice signed by a lawyer who is not the attorney or the attorney’s spouse.

(h) The power of attorney granted in this Agreement will continue in respect of the General Partner so long as it is the general partner of the Partnership, and will terminate thereafter, but will continue in respect of a new General Partner as if the new General Partner were the original attorney.

(i) A purchaser or transferee of a Unit will, upon becoming a Limited Partner, be conclusively deemed to have acknowledged and agreed to be bound by the provisions of this Agreement as a Limited Partner and will be conclusively deemed to have provided the General Partner with the power of attorney described in this Section 2.7.

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2.8 Limited Liability of Limited Partners

Subject to the provisions of the Act and of similar legislation in other jurisdictions of Canada, the liability of each Limited Partner for the debts, liabilities and obligations of the Partnership will be limited to the Limited Partner’s Capital Contribution, plus the Limited Partner’s share of any undistributed income of the Partnership. Following the contribution of a Limited Partner’s Capital Contribution, the Limited Partner will not be liable for any further claims or assessments or be required to make further contributions to the Partnership, except to the extent required by applicable Law.

2.9 Indemnity of Limited Partners

The General Partner will indemnify and hold harmless each Limited Partner (including former Limited Partners) for all costs, expenses, damages or liabilities suffered or incurred by the Limited Partner if the limited liability of that Limited Partner is lost for or by reason of the negligence of the General Partner in performing its duties and obligations under this Agreement.

2.10 Compliance with Laws

Each Limited Partner will, on the request of the General Partner from time to time, promptly execute any documents considered by the General Partner to be necessary to comply with any applicable Law for the continuation, operation or good standing of the Partnership.

2.11 Other Activities of Partners

Limited Partners and their Affiliates and Associates and, subject to Section 7.20, Affiliates and Associates of the General Partner may engage in businesses, ventures, investments and activities which may be similar to or competitive with those in which the Partnership is or might be engaged and those Persons will not be required to offer or make available to the Partnership any other business or investment opportunity which any of those Persons may acquire or be engaged in for its own account.

ARTICLE 3
PARTNERSHIP UNITS

3.1 Authorized Units

From and after the date hereof and prior to the Merger Effective Time, the interests in the Partnership of the Partners will be divided into and represented by an unlimited number of units of three classes: the GP Units, the Class C Exchangeable Units and the Class X Units.

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From and after the Merger Effective Time, the interests in the Partnership of the Partners will be divided into and represented by an unlimited number of five classes of Units as follows: (i) interests of the General Partner will be represented by general partnership units in the capital of the Partnership (“GP Units”); (ii) interests of Limited Partners (other than Rover, Rover’s permitted transferees that are wholly-owned by Polaris or any holder of Class D Units in their capacity as such) who can demonstrate to the Partnership that they are Qualified Canadians will be represented by Class A exchangeable limited partnership units in the capital of the Partnership (“Class A Exchangeable Units”); (iii) all other interests of Limited Partners (other than Rover, Rover’s permitted transferees that are wholly-owned by Polaris or any holder of Class D Units in their capacity as such) will be represented by Class B exchangeable limited partnership units in the capital of the Partnership (“Class B Exchangeable Units”); (iv) interests of Rover or its permitted transferees that are wholly-owned by Polaris will be represented by Class C exchangeable limited partnership units in the capital of the Partnership (“Class C Exchangeable Units”, and collectively with the Class A Exchangeable Units and the Class B Exchangeable Units, “Exchangeable Units”); and (v) Class D limited partnership units (“Class D Units”), which may be issued to a wholly-owned subsidiary of the General Partner immediately before all Exchangeable Units cease to be Outstanding. No Partnership Interests or other equity interests in the Partnership shall be issued other than as specified in the Recitals hereto, by the preceding sentence or as set forth in Section 3.3(a). Each of the Units will represent an interest in the Partnership having the preferences, rights, restrictions, conditions and limitations provided in this Agreement including:

(a) the holders of Units will have the right to receive allocations of net income, net loss, taxable income and tax loss as provided in this Agreement;

(b) the holders of the Units will have the right to share in returns of capital and to share in cash and any other distributions to Partners and to receive the remaining assets of the Partnership on dissolution or winding up in accordance with the terms of this Agreement; and

(c) the holders of Units will have the right to receive notice of and to attend any meetings of Partners of the Partnership.

Except as specified in this Agreement with respect to the General Partner and as otherwise specified in Sections 3.4, 3.5 and ‎3.13 or in Schedule A, no Partner will have any preference, priority or right in any circumstance over any other Partner in respect of the Units held by each. For greater certainty, the General Partner’s interest in the Partnership is a single interest defined by reference to the GP Units held by it and any other Units that it might acquire in accordance with this Agreement.

3.2 Rights, Privileges, Restrictions and Conditions of Exchangeable Units and Class D Units

In addition to the preferences, rights, restrictions, conditions and limitations set out in Sections 3.1 and 3.13(a):

(a) Each Exchangeable Unit will have the rights and preferences set out in Schedule A hereto. Except as otherwise expressly set forth in this Agreement, each Exchangeable Unit shall have the same rights and privileges as each other Exchangeable Unit regardless of class; and

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(b) Notwithstanding anything to the contrary in this Agreement, so long as any Exchangeable Units are Outstanding, the Class D Units will not (i) participate in, or be entitled to, any distribution (including distributions pursuant to Section 5.3(b) or Section 5.4) or allocation of income (including Net Income), gain, loss (including Net Loss), deduction, taxable income or tax loss, and (ii) have any right to vote on any matter, whether by way of voting in person or by proxy at any meeting of Partners of the Partnership or by written resolution.

3.3 Issuance of Additional Units

(a) Except as contemplated pursuant to the Recitals hereto and Sections 3.4, 3.5 and 3.13(a), the Partnership shall not issue any additional Units other than Class D Units.

(b) All Partnership Interests issued by the Partnership shall be fully paid Partnership Interests.

3.4 Capital Structure of the Partnership and the General Partner

Except for the transactions expressly contemplated by Section 2.1 of the Transaction Agreement, from and after the First Closing Day, so long as any Exchangeable Units are Outstanding:

(a) The General Partner shall, and shall cause the Partnership to, take all actions necessary so that, at all times for as long as this Agreement is in effect, the economic rights of the holders of the Exchangeable Units and the economic rights of the General Partner as holder of the GP Units shall be proportionate to their respective Percentage Interests (for the avoidance of doubt, excluding distributions that are made to the General Partner on the GP Units pursuant to Section 3.4(d) or Section 5.3(a)).

(b) So long as TopCo is a General Partner and without limiting the generality of Section 3.4(a):

(i) upon the issuance by TopCo of any TopCo Shares (other than pursuant to the exercise of an Exchange Right or an issuance described in Section 3.5), including any issuance in connection with a business acquisition by TopCo, an equity incentive program or upon the conversion, exercise or exchange of any security or other instrument convertible into or exercisable or exchangeable for TopCo Shares, which, in each case, will result in a corresponding change in the Percentage Interests of the Partners in accordance with the definition of “Percentage Interests”, TopCo shall contribute the proceeds of, or other consideration received in connection with, such issuance, if any, (net of any selling or underwriting discounts or commissions or other expenses) to the Partnership in consideration for the issuance of a number of additional GP Units equal to the number of Topco Shares issued; and

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(ii) if any shares in the capital of TopCo other than Topco Shares is issued by TopCo (“New Shares”), TopCo shall (either immediately before or after such issuance) (A) cause the Partnership to create a corresponding new class of Units (“New Units”) that has corresponding distribution rights to such New Shares, (B) cause the Partnership to issue one or more New Units to TopCo in exchange for the contribution by TopCo of the proceeds from, or other consideration received in connection with, the issuance of such New Shares (net of any selling or underwriting discounts or commissions or other expenses, which for the avoidance of doubt, shall be deemed to be reimbursed by the Partnership in accordance with Section 5.3(a) and such reimbursement proceeds shall be deemed to be contributed by TopCo to the Partnership) to the Partnership and (C) effect such amendments to this Agreement as are necessary in order to provide that the distributions and allocations on the New Units to TopCo pursuant to this Agreement are made on terms that allow TopCo to fund distributions on such New Shares in accordance with their terms and such other amendments as are necessary such that the capital of TopCo in the Partnership continues to correspond with the outstanding capital of TopCo.

(c) Upon the exchange of any Exchangeable Units for the applicable Exchanged Shares pursuant to the exercise of an Exchange Right, as of the effective date of such exchange, each Exchanged Share issued in exchange for an Exchangeable Unit shall be deemed (i) to have been first contributed by TopCo to the Partnership in consideration for the issuance of additional GP Units and (ii) then immediately thereafter to have been delivered by the Partnership to the holder exercising the Exchange Right and the Exchangeable Unit shall be cancelled and shall cease to exist.

(d) If the General Partner proposes to redeem, repurchase or otherwise acquire any TopCo Shares for cash, the Partnership shall, immediately prior to such redemption, repurchase or acquisition, make a distribution to the General Partner on its GP Units in an amount sufficient for the General Partner to fund such redemption, repurchase or acquisition, as the case may be.

3.5 Reciprocal Changes

Except for the transactions expressly contemplated by Section 2.1 of the Transaction Agreement, from and after the First Closing Day, so long as any Exchangeable Units not owned by the General Partner or its Subsidiaries are Outstanding:

(a) TopCo will not:

(i) issue or distribute TopCo Shares (or securities exchangeable for or convertible into or carrying rights to acquire TopCo Shares) to the holders of all or substantially all of the then outstanding TopCo Shares by way of stock dividend or other distribution, other than an issue of TopCo Shares (or securities exchangeable for or convertible into or carrying rights to acquire TopCo Shares) to holders of TopCo Shares who exercise an option to receive dividends in TopCo Shares (or securities exchangeable for or convertible into or carrying rights to acquire TopCo Shares) in lieu of receiving cash dividends; or

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(ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding TopCo Shares entitling them to subscribe for or to purchase TopCo Shares (or securities exchangeable for or convertible into or carrying rights to acquire TopCo Shares); or

(iii) issue or distribute to the holders of all or substantially all of the then outstanding TopCo Shares (A) shares or securities of the General Partner other than TopCo Shares (other than shares convertible into or exchangeable for or carrying rights to acquire TopCo Shares), (B) rights, options or warrants other than those referred to in Section 3.5(a)(ii) hereof, (C) evidences of indebtedness of the General Partner or (D) assets of the General Partner,

unless, in each case, the equitably equivalent on a per Exchangeable Unit basis of such TopCo Shares, rights, options, securities, warrants, shares, evidences of indebtedness or other assets is issued or distributed simultaneously to holders of the Exchangeable Units; provided that, for greater certainty, the above restrictions shall not apply to dividends or distributions on TopCo Shares corresponding to a distribution that is made on each Exchangeable Unit in accordance with Section 5.3(a).

(b) TopCo will not:

(i) subdivide, redivide or change the then outstanding TopCo Shares into a greater number of TopCo Shares; or

(ii) reduce, combine, consolidate or change the then outstanding TopCo Shares into a lesser number of TopCo Shares; or

(iii) reclassify or otherwise change TopCo Shares or effect an amalgamation, arrangement, merger, reorganization or other transaction affecting TopCo Shares (other than an amalgamation, arrangement, merger, reorganization or other transaction affecting TopCo Shares where such TopCo Shares are used as consideration in an acquisition by the Partnership or any Subsidiary of the Partnership),

unless, in each case, the same or an equitably equivalent change shall simultaneously be made to, or in the rights of the holders of, the Exchangeable Units.

(c) The General Partner will ensure that the record date for any event referred to in Section 3.5(a) or 3.5(b) hereof or (if no record date is applicable for such event) the effective date for any such event, will be the same with respect to both the Exchangeable Units and the TopCo Shares, and that such record date or effective date is not less than five Business Days after the date on which such event is declared or announced by the General Partner (with contemporaneous notification thereof by the General Partner to the Partnership).

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(d) Upon due notice from the General Partner, the Partnership shall take such steps as may be necessary for the purposes of ensuring that appropriate distributions are paid or other distributions are made by the Partnership, or subdivisions, redivisions or changes are made to the Exchangeable Units, in order to implement the required equitable equivalence with respect to distributions on the TopCo Shares and Exchangeable Units as provided for in this Section 3.5.

(e) The Partnership shall not effect any Subdivision or Combination of Exchangeable Units other than in accordance with this Section 3.5.

3.6 Reservation of TopCo Shares

The General Partner hereby represents, warrants and covenants in favour of the Partnership that TopCo has reserved for issuance and will, at all times while any Exchangeable Units (other than Exchangeable Units held by the General Partner or its Subsidiaries) are outstanding, keep available, free from pre-emptive and other rights, out of its authorized and unissued share capital at least such number of each class of TopCo Shares (or other shares or securities into which TopCo Shares may be reclassified or changed as contemplated by Section 3.4) without duplication (a) as is equal to the number of such corresponding class of Exchangeable Units issued and outstanding from time to time and (b) as are now and may hereafter be required to enable and permit the General Partner to meet its obligations under any other security or commitment pursuant to which TopCo may now or hereafter be required to issue TopCo Shares, and to enable and permit the Partnership to meet its obligations hereunder.

3.7 Notification of Certain Events

In order to assist TopCo to comply with its obligations hereunder, if TopCo is not then the General Partner, the Partnership will notify TopCo of each of the following events at the time set forth below:

(a) immediately, upon receipt by the Partnership of an Exchange Notice;

(b) on the same date on which the Partnership gives written notice to holders of Exchangeable Units of a mandatory exchange in accordance with Article 2 of Schedule A hereto; and

(c) as soon as practicable upon the issuance by the Partnership of any Exchangeable Units or rights to acquire Exchangeable Units.

3.8 Delivery of TopCo Shares to the Partnership

Upon notice from the Partnership of any event that requires the Partnership to cause TopCo Shares to be delivered to any holder of Exchangeable Units, TopCo shall forthwith issue and deliver or cause to be delivered, for and on behalf of the Partnership, the requisite number of such class of TopCo Shares to be received by, and issued to or to the order of, the former holder of the surrendered Exchangeable Units. All such TopCo Shares shall be duly authorized and validly issued as fully paid and non-assessable and shall be free and clear of any lien, claim or encumbrance. In consideration of the issuance and delivery of each such TopCo Share, the Partnership shall issue additional GP Units as provided in Section 3.4(c).

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3.9 Qualification of TopCo Shares

If any TopCo Shares (or other shares or securities into which TopCo Shares may be reclassified or changed as contemplated by Section 3.4) to be issued and delivered hereunder require registration or qualification with or approval of or the filing of any document, including any prospectus or similar document or the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or U.S. federal, provincial or state securities or other Law or pursuant to the rules and regulations of any securities or other regulatory authority or the fulfillment of any other Canadian or U.S. legal requirement before such shares (or such other shares or securities) may be issued and delivered by the General Partner to the holder of surrendered Exchangeable Units or in order that such shares (or such other shares or securities) may be freely traded thereafter (other than any restrictions of general application on transfer by reason of a holder being a “control person” for purposes of Canadian provincial or territorial securities Law or an “affiliate” of the General Partner for purposes of U.S. federal or state securities Law), the General Partner will in good faith expeditiously take all such actions and do all such things as are necessary or desirable to cause such TopCo Shares (or such other shares or securities) to be and remain duly registered, qualified or approved under Canadian and/or U.S. Law, as the case may be, in each case for so long as any outstanding TopCo Shares are listed, quoted or posted for trading on any stock exchange or quotation system. The General Partner will in good faith expeditiously take all such actions and do all such things as are reasonably necessary or desirable to cause all TopCo Shares (or such other shares or securities) to be delivered hereunder to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which outstanding TopCo Shares (or such other shares or securities) have been listed by the General Partner and remain listed and are quoted or posted for trading at such time.

3.10 Admittance as Limited Partner

Upon the issuance or transfer of Units to any new Limited Partner as permitted by this Agreement, all Partners will be deemed to consent to the admission of such Limited Partner, the General Partner will be deemed to have executed this Agreement on behalf of the new Limited Partner and to have caused the Record to be amended, and any other documents as may be required by the Act or under legislation similar to the Act in other provinces or the territories to be filed or amended, specifying the prescribed information and causing the foregoing information in respect of the new Limited Partner to be included in other Partnership books and records.

3.11 Payment of Expenses

The Partnership will pay or cause one of its Subsidiaries to pay, to the extent contemplated by any agreement, indenture, prospectus or other offering document, all costs, disbursements and other fees and expenses incurred, by the Partnership or on its behalf, in connection with:

(a) the organization of the Partnership;

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(b) the Integration;

(c) the registration of the Partnership under the Act and under similar legislation of other jurisdictions; and

(d) the issuance and sale of any additional Units.

3.12 Record of Limited Partners

The General Partner shall keep or cause to be kept at its principal place of business in Ontario a current Record stating for each Limited Partner that information required under the Act, including the Limited Partner’s name, status as to Qualified Canadian, address, Ontario corporation number, if any, the amount of money and/or the value of other property contributed or to be contributed by the Limited Partner to the Partnership and the number and type of Units held by each Limited Partner. Registration of interests in, and as provided in Section 3.13, transfers of, Units will be made only in the Record.

3.13 Transfers of Units and Changes in Membership of Partnership

(a) Exchangeable Units shall be exchanged for a different Class of Exchangeable Units as follows:

(i) an issued and outstanding Class A Exchangeable Unit shall immediately be converted into one Class B Exchangeable Unit, automatically and without any further act of the Partnership, the General Partner or the Unitholder thereof, (x) if such Class A Exchangeable Unit is or becomes beneficially owned or controlled, directly or indirectly, by a Person who is not a Qualified Canadian, or (y) as provided in Section 3.13(f); and

(ii) an issued and outstanding Class B Exchangeable Unit shall be converted into one Class A Exchangeable Unit, upon provision of evidence in form and substance satisfactory to the General Partner that such Class B Exchangeable Unit is or becomes beneficially owned or controlled, directly or indirectly, by a Person who is a Qualified Canadian.

(b) The General Partner may require, at all times, that any holder of Exchangeable Units must provide any relevant information required to enable it to apply the restrictions on the issue, transfer, ownership, control or voting of Exchangeable Units set out in this Agreement.

(c) The General Partner may require, prior to accepting any transfer of or subscription for Exchangeable Units, that the prospective Unitholder provide any relevant information required to enable it to apply the restrictions on the issue, transfer, ownership, control or voting of Exchangeable Units set out in this Agreement.

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(d) In order to apply the provisions concerning the restrictions on the issue, transfer, ownership, control or voting of Exchangeable Units set out in this Agreement, the General Partner may, in its entire discretion:

(i) require a person in whose name any Class A Exchangeable Units are registered to provide a statutory declaration under the Canada Evidence Act or otherwise concerning whether the Unitholder or beneficial owner is a Qualified Canadian (a “Declaration”);

(ii) require any Person seeking to have a transfer of any Class A Exchangeable Units registered in his or her name or to have any Class A Exchangeable Units issued to him or her to provide a Declaration; and

(iii) determine the circumstances in which any Declarations are required, their form and the times when they are to be provided.

(e) The General Partner may, when it deems it appropriate in order to apply the provisions concerning the restrictions on the ownership, control or voting of Exchangeable Units set forth in this Agreement:

(i) name and sign any contract with third persons, namely in order to assist in obtaining and following-up on the Declarations and various information it requires; and

(ii) implement all control mechanisms and adopt all the procedures it may require from time to time, and in particular, to implement and adopt certificates of control of the Qualified Canadian or non-Qualified Canadian status of the Unitholders.

(f) When a holder of Exchangeable Units is required to provide a Declaration or any other information required pursuant to this Section 3.13 and fails to comply with such obligation, the General Partner may, until such Unitholder has provided the Declaration or the information concerned, exchange any issued and outstanding Class A Exchangeable Units held by or on behalf of such person into Class B Exchangeable Units without any further act of such person and recognize all ownership rights attributable to the applicable Exchangeable Units, including the voting rights attached to such Exchangeable Units, on an as exchanged for Class B Exchangeable Units basis.

(g) A Limited Partner may not transfer its Exchangeable Units, in whole or in part, to any Person, except as set out in Section 3.18 and as follows:

(i) In the case of a natural person, upon their demise, to their estate and heirs;

(ii) In the case of a Person that is not a natural person, (A) by operation of Law upon a merger, consolidation, amalgamation, liquidation, dissolution or similar transaction or (B) pursuant to a transfer in which, for U.S. federal income tax purposes, the basis of the Exchangeable Unit in the hands of the transferee is determined, in whole or in part, by reference to its basis in the hands of the transferor or is determined under section 732 of the Code; and

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(iii) Exchanges of Units as provided in Section 3.13(a).

(h) The term “transfer,” when used in this Agreement with respect to a Partnership Interest, shall mean, and shall be deemed to refer to: (x) any direct conveyance of any Partnership Interest; and (y) any transaction by which the Record Holder of a Partnership Interest conveys any Partnership Interest to another Person, including by way of a sale, assignment, gift, exchange or any other disposition by Law or otherwise (excluding any grant of a pledge, lien, encumbrance or security interest, but not excluding a conveyance as a result of the foreclosure of any pledge, lien, encumbrance or security interest).

(i) The Registrar and Transfer Agent is hereby appointed registrar and transfer agent for the purpose of registering Units and transfers of Units as herein provided. Upon delivery of evidence of compliance with this Section 3.13 and an instrument of transfer (including the name, status as to Qualified Canadian, tax identification number (if applicable), address and email address for each transferee as required for inclusion in the Record) in form and substance satisfactory to the General Partner, the General Partner shall update the Record to reflect the transfer and shall execute and deliver, and the Registrar and Transfer Agent shall countersign and deliver, a statement evidencing the transfer (a “Confirmation”).

(j) The Partnership shall not recognize any transfer of Units until a Confirmation is delivered. No charge shall be imposed by the Partnership for any transfer of Units.

(k) By acceptance of the transfer of any Unit, each transferee of a Unit (including any nominee holder or an agent or representative acquiring such Units for the account of another Person) (i) shall be admitted to the Partnership as a Partner with respect to the Units so transferred to such transferee when any such transfer or admission is reflected in the Record, (ii) shall be deemed to agree to be bound by the terms of this Agreement, (iii) shall become the Record Holder of the Units so transferred (subject to Section 3.13(a)), (iv) grants powers of attorney to the General Partner, as specified herein, and (v) makes the consents and waivers contained in this Agreement. The transfer of any Units and the admission of any new Partner shall not constitute an amendment to this Agreement.

(l) No change of name or address of a Limited Partner, no transfer of a Unit and no admission of a substituted Limited Partner in the Partnership will be effective for the purposes of this Agreement until the requirements set out in this Article 3 have been satisfied, and until that change, transfer, substitution or addition is duly reflected in an amendment to the Record as may be required by the Act. The names and addresses of the Limited Partners as reflected from time to time in the Record, as from time to time amended, will be conclusive as to those facts for all purposes of the Partnership.

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(m) Where the transferee complies with all applicable provisions and is entitled to become a Limited Partner pursuant to the provisions of this Agreement, subject to Section 3.13(k), the General Partner shall admit the transferee to the Partnership as a substituted Limited Partner and the Limited Partners hereby consent to the admission of, and will admit, the transferee to the Partnership as a Limited Partner, without further act of the Limited Partners (other than as may be required by Law).

(n) No transfer of Units will be accepted by the General Partner more than 15 days after the sending of a notice of dissolution under Section 13.3(d).

3.14 Notice of Change to General Partner

No name or address of a Limited Partner will be changed and no transfer of a Unit or substitution or addition of a Limited Partner in the Partnership will be recorded on the Record except pursuant to a notice in writing received by the General Partner.

3.15 Inspection of Record

A Limited Partner, or an agent of a Limited Partner duly authorized in writing, has the right to inspect and make copies from the Record during normal business hours.

3.16 Amendment of Declaration of Limited Partnership or Record

The General Partner, on behalf of the Partnership, may effect such filings, recordings, registrations and amendments to the Record and the Declaration of Limited Partnership and to any other documents and at any places as in the opinion of counsel to the Partnership are necessary or advisable to reflect changes in the membership of the Partnership, transfers of Units and dissolution of the Partnership as provided in this Agreement and to constitute a transferee as a Limited Partner.

3.17 Non-Recognition of Trusts or Beneficial Interests

Units may be held by nominees on behalf of the beneficial owners of the Units. Notwithstanding the foregoing, except as provided in this Agreement, as required by Law or as recognized by the General Partner in its sole discretion, no Person will be recognized (including in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code) by the Partnership or any Limited Partner as holding any Unit in trust, or on behalf of another Person with the beneficial interest in that other Person, and the Partnership and Limited Partners will not be bound or compelled in any way to recognize (even when having actual notice) any equitable, contingent, future or partial interest in any Unit or in any fractional part of a Unit or any other rights in respect of any Unit except an absolute right to the entirety of the Unit in the Limited Partner shown on the Record as holder of that Unit.

3.18 Incapacity, Death, Insolvency or Bankruptcy

Where a Person becomes entitled to Units on the incapacity, death, insolvency, or bankruptcy of a Limited Partner, or otherwise by operation of law, in addition to the requirements of Section 3.13, that entitlement will not be recognized or entered into the Record until that Person:

(a) has produced evidence satisfactory to the Registrar and Transfer Agent of that Person’s entitlement; and

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(b) has delivered any other evidence, approvals and consents in respect to that entitlement as the Registrar and Transfer Agent may require and as may be required by Law or by this Agreement, including, for the avoidance of doubt, a Declaration.

3.19 No Transfer upon Dissolution

No transfer of Units may be made or will be accepted or entered into the Record after the occurrence of any of the events set out in Section 13.1.

3.20 Units Uncertificated

The Units will be uncertificated.

3.21 Indirect Transfers of Interests

(a) Polaris represents and warrants that it is the sole record and beneficial owner of all of the outstanding voting and equity interests in Rover. For so long as Rover is a Unitholder, Polaris shall not, directly or indirectly, permit the transfer of its interest in Rover or engage in one or more transactions that have the effect of reducing the economic exposure of Polaris to the Exchangeable Units held by Rover, it being understood that pledging (or engaging in a similar transaction with the same effect) by Polaris of its interest in Rover to secure bona fide borrowings which have recourse to Polaris and are not in default shall not be deemed to be a violation of this provision; provided, however, that Polaris shall be permitted to transfer its interest in Rover, in whole or in part, to any of its Affiliates that are directly or indirectly wholly-owned and controlled by Polaris; provided further, that prior to such transferee ceasing to be a direct or indirect wholly-owned subsidiary of Polaris, it shall transfer such interest back to Polaris or a direct or indirect wholly-owned and controlled subsidiary of Polaris, and all such transferees shall, prior to any such transfer, have and be subject to all of the obligations of Polaris hereunder pursuant to documentation approved in writing by the General Partner.

(b) For so long as any Meteor Entity is a Unitholder, the applicable Meteor Fund shall not, directly or indirectly, permit the transfer of its interest in such Meteor Entity or engage in one or more transactions that have the effect of reducing the economic exposure of such Meteor Fund to the Exchangeable Units held by such Meteor Entity, it being understood that pledging (or engaging in a similar transaction with the same effect) by such Meteor Fund of its interest in the applicable Meteor Entity to secure bona fide borrowings which have recourse to such Meteor Fund and are not in default shall not be deemed to be a violation of this provision; provided, however, that a Meteor Fund shall be permitted to transfer its interest in a Meteor Entity, in whole or in part, to any of its Affiliates that are directly or indirectly wholly-owned and controlled by one or more Meteor Funds; provided further, that prior to such transferee ceasing to be a direct or indirect wholly-owned subsidiary of one or more Meteor Funds, it shall transfer such interest back to the Meteor Funds or a direct or indirect wholly-owned and controlled subsidiary of the Meteor Funds, and all such transferees shall, prior to any such transfer, have and be subject to all of the obligations of the Meteor Funds hereunder pursuant to documentation approved in writing by the General Partner.

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3.22 Record Holders

In accordance with Section 3.13, the Partnership shall be entitled to recognize the Record Holder as the Limited Partner with respect to any Units and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Units on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof, except as otherwise provided by applicable Law. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Units, as between the Partnership on the one hand and such other Person on the other hand, such representative Person shall be the Record Holder of such Units.

3.23 Acquisition Proposals: TopCo and the Partnership

For so long as Exchangeable Units remain Outstanding (not including Exchangeable Units held by the General Partner and its Subsidiaries):

(a) no tender offer, share exchange offer, formal issuer bid, formal take-over bid or similar transaction with respect to TopCo Shares (a “TopCo Offer”) will be proposed or recommended by the General Partner or the General Partner’s Board of Directors or otherwise effected with the consent or approval of the General Partner’s Board of Directors unless the holders of Exchangeable Units (other than the General Partner and its Subsidiaries) are entitled to participate in such TopCo Offer to the same extent and on an equitably equivalent basis as the holders of TopCo Shares, without discrimination. The General Partner will use its commercially reasonable efforts expeditiously and in good faith to put in place procedures or to cause the Registrar and Transfer Agent to put in place procedures to ensure that, the holders of Exchangeable Units may participate in such TopCo Offer by exercising their Exchange Right (conditional upon and subject to the TopCo Shares tendered or deposited under such TopCo Offer being taken up); and

(b) no tender offer, share exchange offer, formal issuer bid, formal take-over bid or similar transaction with respect to Exchangeable Units (a “Units Offer”) will be proposed or recommended by the General Partner or the General Partner’s Board of Directors or otherwise effected with the consent or approval of the General Partner’s Board of Directors unless the holders of TopCo Shares (other than the General Partner and its Subsidiaries) are entitled to participate in such Units Offer to the same extent and on an equitably equivalent basis as the holders of Exchangeable Units, without discrimination.

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3.24 General Partner and Subsidiaries Not to Vote Exchangeable Units

The General Partner covenants and agrees in favor of the Partnership that it will appoint and cause to be appointed proxyholders with respect to all Exchangeable Units held by it and its Subsidiaries for the sole purpose of attending each meeting of holders of Exchangeable Units in order to be counted as part of the quorum for each such meeting. The General Partner further covenants and agrees that it will not, and will cause its Subsidiaries not to, exercise any voting rights which may be exercisable by holders of Exchangeable Units from time to time pursuant to this Agreement or pursuant to the provisions of the Voting Agreement (or any successor or other corporate statute by which the Partnership may in the future be governed) with respect to any Exchangeable Units held by it or by its Subsidiaries in respect of any matter considered at any meeting of holders of Exchangeable Units or, except in express compliance with the Voting Agreement, at any meeting of the holders of TopCo Shares.

3.25 Attributes of Class X Units

The holders of Class X Units as a class shall be entitled to receive distributions as provided by Section ‎5.3(b)(i) and the aggregate amount of $1,000 on the redemption thereof.

ARTICLE 4
CAPITAL CONTRIBUTIONS AND ACCOUNTS

4.1 General Partner Contribution

The General Partner has made an initial contribution of $500 to the capital of the Partnership and will make subsequent capital contributions prior to the Merger Effective Time of Transit shares and CanHoldco shares as part of the Integration.

4.2 Limited Partner and General Partner Contributions

In respect of the Exchangeable Units issued to the Limited Partners, the Capital Contribution in respect of each Exchangeable Unit issued to a Limited Partner will be equal to the fair market value of property exchanged by such Partner in consideration for such Exchangeable Unit. For the avoidance of doubt, there is no obligation pursuant to this Agreement for any Limited Partner to make additional Capital Contributions. In respect of the GP Units issued to the General Partner, the aggregate Capital Contribution in respect of the GP Units will be equal to the fair market value of the property and cash contributed to the Partnership by the General Partner in consideration for such GP Units. Except as otherwise provided in this Section 4.2, the fair market value of any property contributed to the Partnership shall be determined by the General Partner. For purposes of determining the amount of any Capital Contribution made pursuant to the Integration in exchange for Exchangeable Units or GP Units, the per share fair market value of a Leo share shall be the Canadian dollar equivalent of US$44.31 and the per share fair market value of a Transit share shall be the Canadian dollar equivalent of US$18.33. The aggregate fair market value of the Transit shares contributed to the Partnership by Topco pursuant to the Integration shall be equal to the product of the per share value of a Transit share in the preceding sentence multiplied by the total number of Transit shares contributed to Topco pursuant to the Transaction Agreement.

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4.3 Maintenance of Capital Accounts

(a) There shall be established for each Partner on the books of the Partnership as of the date such Partner becomes a Partner a capital account (each being a “Capital Account”). Each Capital Contribution by any Partner, if any, shall be credited to the Capital Account of such Partner on the date such Capital Contribution is made to the Partnership. In addition, each Partner’s Capital Account shall be (a) credited with (i) such Partner’s allocable share of any Net Income of the Partnership and any items in the nature of income or gain that are specially allocated to such Partner pursuant to Section 5.1(b), and (ii) the amount of any Partnership liabilities that are assumed by the Partner or secured by any Partnership property distributed to the Partner, (b) debited with (i) the amount of distributions (and deemed distributions) to such Partner of cash or the Carrying Value of other property so distributed, (ii) such Partner’s allocable share of Net Loss of the Partnership and any items in the nature of deduction or loss that are specially allocated to such Partner pursuant to Section 5.1(b), and (iii) the amount of any liabilities of the Partner assumed by the Partnership or which are secured by any property contributed by the Partner to the Partnership and (c) otherwise maintained in accordance with the provisions of the Code and the U.S. Treasury Regulations. Any other item which is required to be reflected in a Partner’s Capital Account under Section 704(b) of the Code and the U.S. Treasury Regulations or otherwise under this Agreement shall be so reflected. The General Partner shall make such adjustments to Capital Accounts as it determines in its sole discretion to be appropriate to ensure allocations are made in accordance with a Partner’s interest in the Partnership. Interest shall not be payable on Capital Account balances. Notwithstanding anything to the contrary contained in this Agreement, the General Partner shall maintain the Capital Accounts of the Partners in accordance with the principles and requirements set forth in Section 704(b) of the Code and the U.S. Treasury Regulations.

(b) A transferee of Units shall succeed to a pro rata portion of the Capital Account of the transferor based on the number of Units so transferred.

(c) The Partnership shall revalue the Capital Accounts of the Partners in accordance with U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(f) (a “Revaluation”) at the following times: (i) immediately prior to the contribution of more than a de minimis amount of money or other property to the Partnership by a new or existing Partner as consideration for one or more Units; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of property in respect of one or more Units; (iii) the issuance by the Partnership of more than a de minimis amount of Units as consideration for the provision of services to or for the benefit of the Partnership (as described in U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5)(iii)); and (iv) the liquidation of the Partnership within the meaning of U.S. Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (i), (ii) and (iii) above shall be made only if the General Partner reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners.

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(d) Notwithstanding anything expressed or implied to the contrary in this Agreement, in the event the General Partner shall determine, in its sole and absolute discretion, that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to give economic effect to the manner in which distributions are made to the Partners pursuant to the provisions of Sections 5.3, 5.4 and 13.3, the General Partner may make such modification.

ARTICLE 5
PARTICIPATION IN PROFITS AND LOSSES

5.1 Allocation for Capital Account Purposes

(a) After giving effect to the special allocations set forth in Section 5.1(b), Net Income (Net Loss) of the Partnership for each Fiscal Year or other taxable period shall be allocated among the Capital Accounts of the Partners as follows:

(i) After giving effect to the Required Allocations, Net Income for each Fiscal Year (or portion thereof) shall be allocated among the Partners so as to reduce, proportionally, the differences between their respective Target Capital Accounts and Partially Adjusted Capital Accounts for such Fiscal Year. No portion of the Net Income for any Fiscal Year shall be allocated to a Partner whose Partially Adjusted Capital Account is greater than or equal to the Partner’s Target Capital Account for such Fiscal Year.

(ii) After giving effect to the Required Allocations, Net Loss for any Fiscal Year shall be allocated among the Partners so as to reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for such Fiscal Year. No portion of the Net Loss for any Fiscal Year shall be allocated to a Partner whose Target Capital Account is less than or equal to the Partner’s Partially Adjusted Capital Account for such Fiscal Year.

(b) Special Allocations. Notwithstanding any other provision of this Section 5.1, the following special allocations shall be made for each Fiscal Year or other taxable period:

(i) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of this Section 5.1, if there is a net decrease in Partnership Minimum Gain during any Partnership taxable period, each Partner shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in U.S. Treasury Regulations Sections 1.704-2(f), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 5.1(b)(i), each Partner’s Adjusted Capital Account balance shall be determined, and the allocation of income and gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 5.1(b) with respect to such taxable period (other than an allocation pursuant to Sections 5.1(b)(iii) and 5.1(b)(iv)). This Section 5.1(b)(i) is intended to comply with the Partnership Minimum Gain chargeback requirement in U.S. Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

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(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding the other provisions of this Section 5.1 (other than Section 5.1(b)(i)), except as provided in U.S. Treasury Regulations Section 1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Partnership taxable period, any Partner with a share of Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in U.S. Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 5.1(b)(ii), each Partner’s Adjusted Capital Account balance shall be determined, and the allocation of income and gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 5.1(b), other than Section 5.1(b)(i) and other than an allocation pursuant to Sections 5.1(b)(v) and (vi), with respect to such taxable period. This Section 5.1(b)(ii) is intended to comply with the chargeback of items of income and gain requirement in U.S. Treasury Regulations Section 1.704-2(i) (4) and shall be interpreted consistently therewith.

(iii) Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in U.S. Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the U.S. Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in its Adjusted Capital Account created by such adjustments, allocations or distributions as quickly as possible unless such deficit balance is otherwise eliminated pursuant to Sections 5.1(b)(i) or (ii). This Section 5.1(b)(iii) is intended to qualify and be construed as a “qualified income offset” within the meaning of U.S. Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(iv) Gross Income Allocations. In the event any Partner has a deficit balance in its Capital Account at the end of any Partnership taxable period in excess of the sum of (A) the amount such Partner is required to restore pursuant to the provisions of this Agreement and (B) the amount such Partner is deemed obligated to restore pursuant to U.S. Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially allocated items of Partnership gross income and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 5.1(b)(iv) shall be made only if and to the extent that such Partner would have a deficit balance in its Capital Account as adjusted after all other allocations provided for in this Section 5.1 have been tentatively made as if this Section 5.1(b)(iv) were not in this Agreement.

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(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable period shall be allocated to the holders of the GP Units and the Exchangeable Units in accordance with their respective Percentage Interests. If the General Partner determines that the Partnership’s Nonrecourse Deductions should be allocated in a different ratio to satisfy the safe harbor requirements of the U.S. Treasury Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements.

(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any taxable period shall be allocated 100% to the Partner that bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with U.S. Treasury Regulations Section 1.704-2(i). If more than one Partner bears the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall be allocated between or among such Partners in accordance with the ratios in which they share such Economic Risk of Loss.

(vii) Nonrecourse Liabilities. Nonrecourse Liabilities of the Partnership described in U.S. Treasury Regulations Section 1.752-3(a)(3) shall be allocated among the Partners in a manner chosen by the General Partner and consistent with such U.S. Treasury Regulations.

(viii) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the U.S. Treasury Regulations.

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(ix) Curative Allocation.

(A) The Required Allocations are intended to comply with certain requirements of the U.S. Treasury Regulations. It is the intent of the Partners that, to the extent possible, all Required Allocations shall be offset either with other Required Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 5.1(b)(ix). Therefore, notwithstanding any other provision of this Article 5 (other than the Required Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Partner’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Required Allocations were not part of this Agreement and all Partnership items were allocated pursuant to the economic agreement among the Partners.

(B) The General Partner shall, with respect to each taxable period, (1) apply the provisions of Section 5.1(b)(ix)(A) in whatever order is most likely to minimize the economic distortions that might otherwise result from the Required Allocations, and (2) divide all allocations pursuant to Section 5.1(b)(ix)(A) among the Partners in a manner that is likely to minimize such economic distortions.

(x) Partnership Recourse Liabilities. Any guarantee of Partnership debt by the General Partner shall not be taken into account for purposes of Section 752 of the Code and the U.S. Treasury Regulations.

5.2 Allocation of Net Income and Losses for Tax Purposes

(a) Except as otherwise provided herein, each item of income, gain, loss and deduction shall be allocated, for U.S. federal income tax purposes, among the Partners in the same manner as its correlative item of Net Income or Net Loss is allocated pursuant to Section 5.1(a).

(b) In accordance with Section 704(c) of the Code and the U.S. Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Partnership and with respect to reverse Code Section 704(c) allocations described in U.S. Treasury Regulations 1.704-3(a)(6) shall, solely for U.S. tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such Property to the Partnership for U.S. federal income tax purposes and its initial Carrying Value or its Carrying Value determined pursuant to U.S. Treasury Regulations Section 1.704-1(b)(2)(iv)(f) (computed in accordance with the definition of Carrying Value) using any allocation method under U.S. Treasury Regulations Section 1.704-3 as the General Partner may decide. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 5.2, Section 704(c) of the Code (and the principles thereof), and U.S. Treasury Regulations Section 1.704-1(b)(4)(i) are solely for purposes of U.S. federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Net Income, Net Loss, other items, or distributions pursuant to any provision of this Agreement.

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(c) The income or loss for Canadian federal income tax purposes of the Partnership for a given Fiscal Year (or other taxable period) of the Partnership will be allocated to the Partners in accordance with the following:

(i) The General Partner shall first be allocated an amount of income for the Fiscal Year (or other taxable period) equal to the aggregate amount of distributions made to the General Partner pursuant to Section 5.3(a) in the Fiscal Year plus any Unallocated Amounts from prior Fiscal Years (or other taxable periods); provided, however, that the amount of income allocated pursuant to this Section 5.2(c)(i) in a Fiscal Year (or other taxable period) shall not exceed the current tax deductions available to the General Partner (determined as if no amount would be allocated pursuant to Section 5.2(c)(ii) in respect of the Fiscal Year (or other taxable period)). The “Unallocated Amount” for a Fiscal Year (or other taxable period) shall be (1) the amount, if any, that the aggregate amount of distributions made to the General Partner pursuant to Section 5.3(a) in the Fiscal Year (or other taxable period) exceeds the current tax deductions available to the General Partner, determined as if no amount would be allocated pursuant to Section 5.2(c)(ii) in respect of the Fiscal Year (or other taxable period), less (2) any income of the Partnership for a subsequent Fiscal Year (or other taxable period) allocated to the General Partner in respect of such Unallocated Amount pursuant to this Section 5.2(c)(i).

(ii) The remaining income of the Partnership for the Fiscal Year (or other taxable period), if any, shall be allocated to the persons who were Partners during all or part of the Fiscal Year (or other taxable period) (each such person, a “Recipient”) by multiplying the remaining income by a fraction, (1) the numerator of which is the sum of the fair market value of all distributions received by the Recipient with respect to that Fiscal Year or other taxable period pursuant to Section 5.3 (other than Section 5.3(a)) and Section 5.4, and (2) the denominator of which is the aggregate fair market value of all distributions made to all Recipients by the Partnership with respect to that Fiscal Year or other taxable period pursuant to Section 5.3 (other than Section 5.3(a)) and Section 5.4; provided that if the denominator would be nil, such remaining income will instead be allocated:

(A) if Exchangeable Units are Outstanding, to the Partners in accordance with their Percentage Interests; and

(B) if no Exchangeable Units are Outstanding, 99.999% to the General Partner and 0.001% to the holders of Class X Units or Class D Units, as applicable.

For the avoidance of doubt, a payment on redemption of a Class X Unit is not a distribution.

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(iii) If, with respect to a given Fiscal Year or other taxable period, the Partnership has a loss, the General Partner shall, acting reasonably and fairly, allocate the loss of the Partnership in the manner it considers appropriate in the circumstances.

(iv) For the avoidance of doubt, the Partners acknowledge and agree that, in general, each Partner’s share of the income of the Partnership for purposes of the income tax laws of the United States (and the income tax laws of any other jurisdiction under the Laws of which any income of the Partnership is subject to income taxation) is intended to be the same as such Partner’s share of the income of the Partnership for Canadian federal income tax purposes, except to the extent of any difference arising solely because of one or more differences described in subsection 126(4.12) of the Tax Act. Accordingly, if the foregoing allocation provisions in this Section 5.2(c) result in an allocation of income of the Partnership for Canadian federal income tax purposes that would otherwise be inconsistent with the intention set forth in the preceding sentence, the General Partner may, acting reasonably, make such adjustments as are necessary for the purposes of allocating the income of the Partnership in a manner consistent with the intention set forth in the preceding sentence.

(v) Income and loss of the Partnership for Canadian federal income tax purposes will be determined in accordance with the Tax Act.

(d) The General Partner shall determine all matters concerning allocations for tax purposes not expressly provided for herein in its sole discretion. For the proper administration of the Partnership and for the preservation of uniformity of Units (or any portion or class or classes thereof), the General Partner may (i) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of U.S. Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of Units (or any portion or class or classes thereof), and (ii) adopt and employ or modify such conventions and methods as the General Partner determines in its sole discretion to be appropriate for (A) the determination for U.S. federal income tax purposes of items of income, gain, loss, deduction and credit and the allocation of such items among Partners and between transferors and transferees under this Agreement and pursuant to the Code and the U.S. Treasury Regulations, (B) the determination of the identities and tax classification of Partners, (C) the valuation of Partnership assets and the determination of tax basis, (D) the allocation of asset values and tax basis, and (E) the adoption and maintenance of accounting methods.

(e) For purposes of determining the items of Partnership income, gain, loss, deduction, or credit allocable to any Partner for U.S. federal income tax purposes with respect to any period, such items shall be determined on a daily, monthly, quarterly or other basis, as determined by the General Partner in its sole discretion, using any permissible method under Section 706 of the Code and the U.S. Treasury Regulations.

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(f) Allocations that would otherwise be made to a Partner under the provisions of this Article 5 shall instead be made to the beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method determined by the General Partner in its sole discretion.

5.3 Distributions

The General Partner shall cause distributions to be made by the Partnership to the Partners only in accordance with this Section 5.3 and in the following order of priority:

(a) Special TopCo Distribution. The General Partner may, in its sole discretion, from time to time cause cash (and, for the avoidance of doubt, only cash) distributions to be made by the Partnership to TopCo (which distributions shall be made without pro rata distributions to the other Partners) in such amounts as required for TopCo to pay:

(i) any tax liabilities of TopCo (including any tax liabilities of TopCo resulting from allocations of taxable income related to the receipt of amounts pursuant to this Section 5.3(a) to the extent that the expenditure giving rise to the payment hereunder is not a deductible expense for the purposes of determining any income tax owed by TopCo), but excluding income taxes attributable to distributions (or allocations of income with respect to distributions) pursuant to Section 5.3(b);

(ii) any operating, administrative and other similar costs incurred by TopCo (including (A) fees and expenses related to any audit of TopCo, (B) fees or other charges of TopCo related to the making of tax, regulatory and other filings, or rendering of periodic or other reports to any Governmental Authority or other agencies having jurisdiction over the business or assets of TopCo, (C) fees and expenses incurred by TopCo related to public or investor relations, (D) fees payable to the directors of TopCo, (E) payments in respect of indebtedness and equity securities of TopCo to the extent the proceeds are used or will be used by TopCo to pay expenses or other obligations described in this Section 5.3(a) (in each case only to the extent economically equivalent indebtedness or equity securities of the Partnership were not issued to TopCo), (F) indemnification obligations of TopCo owing to directors, officers, employees or other persons under TopCo’s articles, charter, by-laws or other constating documents or pursuant to written agreements with any such person, (G) obligations of TopCo in respect of director and officer insurance (including premiums therefor), and (H) payments pursuant to any legal, tax, accounting and other professional fees and expenses incurred by TopCo);

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(iii) any judgments, settlements, penalties, fines or other costs and expenses in respect of any claims against, or any litigation or proceedings involving, TopCo;

(iv) fees and expenses (including any underwriters commissions) related to any securities offering, investment or acquisition transaction (whether or not successful) authorized by the board of directors of TopCo, including any payments required to be made by Topco pursuant to the terms of the Registration Rights Agreement, but excluding any selling or underwriting discounts or commissions or other expenses that are netted out pursuant to Section 3.4(b)(i) in determining the amount of the TopCo contribution pursuant to such Section;

(v) other fees and expenses in connection with the maintenance of the existence of TopCo (including any costs or expenses associated with being a public company listed on a National Securities Exchange and compliance with applicable Laws or the requirements of a Governmental Authority); and

(vi) any payments required to be made by TopCo pursuant to the terms of the Transaction Agreement or the Investor Rights Agreements.

For the avoidance of doubt, distributions made under this Section 5.3(a) may not be used to pay or facilitate dividends or distributions on the TopCo Shares and must be used solely for one of the express purposes set forth pursuant to the immediately preceding sentence.

(b) Pro Rata Distributions. After making any distributions required pursuant to Sections 5.3(a) and any distributions that have been deferred pursuant to clause (b) of the proviso to the first sentence of Section 5.4, the General Partner may, in its sole discretion, from time to time in such amounts as it shall determine, cause distributions to be made by the Partnership to the Partners pro rata in accordance with their Percentage Interests, provided that:

(i) prior to the Merger Effective Time, the first $1,000 of distributions shall be made to the holders of the Class X Units and the balance shall be made to the General Partner and the holders of the Class C Exchangeable Units in proportion to their respective Capital Accounts; and

(ii) after the Merger Effective Time, if no Exchangeable Units are Outstanding, such further distributions shall be made 99.999% to the General Partner and 0.001% to the holder of the Class D Units.

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5.4 Tax Distributions

In the event any Partner other than TopCo that is subject to U.S. federal income tax has Net Cumulative Taxable Income that exceeds zero, then on the next applicable Tax Distribution Date, the Partnership shall distribute to each Partner, whether or not such Partner is subject to U.S. federal income tax, its Assumed Tax Liability, less all prior distributions pursuant to Section ‎5.3 and this Section ‎5.4 paid in respect of such Partner’s Units, provided, however, that (a) TopCo shall be entitled to a distribution under this section only to the extent and in the amount that its Assumed Tax Liability exceeds the total of all amounts previously distributed to TopCo under Section 5.3 and this Section 5.4 and (b) the board of directors of the General Partner may in its sole discretion, after due consideration of and in accordance with the General Partner’s GP Duties, defer any distribution pursuant to this Section 5.4, as set forth in the following sentence. With respect to any distribution that is deferred pursuant to clause (b) of the proviso to the preceding sentence, (i) such deferred distribution must be paid prior to or simultaneously with any distributions pursuant to Section 5.3(b), and no distribution shall be paid pursuant to Section 5.3(b) prior to the payment of such deferred distributions, and (ii) upon the payment of any such deferred distribution, the amount of such deferred distribution shall be increased at an annual rate of 10.0%, compounded daily, from the date on which such distribution would have otherwise been paid to the date on which such distribution is actually paid. Upon the exchange by a Partner of any Units for TopCo Shares, which exchange is completed following the deferral of any distribution pursuant to clause (b) of the proviso to the first sentence of this Section 5.4 but prior to the payment in full of such deferred distribution, this Section 5.4 shall survive with respect to such Person, for the benefit of such Person. Without limiting the foregoing, the General Partner will use its reasonable best efforts not to take any action, or do any thing, that would reasonably be expected to result in a distribution becoming payable pursuant to this Section 5.4 (without regard for any determination that may be made by the board of directors of the General Partner to defer such distribution pursuant to clause (b) of the proviso to the first sentence of this Section 5.4).

5.5 Distribution Mechanics

(a) The General Partner shall cause the Partnership or any of its Affiliates to comply with any withholding requirements established under the Code (including pursuant to Sections 1441, 1442, 1445, 1446 and 3406), the Tax Act, or any other federal, state, provincial, territorial, local or foreign Law. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to any Partner, or to the extent that any payments made to the Partnership are subject to withholding as a result of such payments being attributable to any particular Partner, the General Partner may treat the amount withheld as a distribution of cash to such Partner in the amount of such withholding from or in respect of such Partner. In any such case, unless such amount was withheld from amounts otherwise distributable to such Partner hereunder, it shall be treated as an advance to such Partner which shall be repayable on demand and if not repaid may be set off against subsequent distributions to such Partner.

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(b)

(i) Notwithstanding the foregoing in this Section 5.5(a), the following provisions shall apply in respect of U.S. withholding taxes. If the Partnership has registered as a “withholding foreign partnership” as defined in Section 1.1441-5(c)(2)(ii) of the Treasury Regulations under the Code, provided a Limited Partner has delivered to the General Partner a properly executed IRS Form W-8BEN-E, IRS Form W-8ECI, IRS Form W-8EXP, or other documentation reasonably acceptable to the General Partner evidencing the Limited Partner’s exemption from U.S. withholding tax with respect to U.S. source interest or dividend income of the Partnership, the General Partner shall take such documentation into account and shall cause the Partnership not to withhold on any allocation of such income to the Limited Partner to the extent permitted to do so by applicable Law. If the Partnership has not registered as a withholding foreign partnership, the General Partner shall forward the IRS Form(s) W-8 supplied by the Limited Partner, along with IRS Form W-8IMY, to the relevant U.S. withholding agent in order to allow the Limited Partner to claim the benefit of any applicable exemption from U.S. withholding tax.

(ii) The General Partner further agrees that, to the extent it is able to do so under applicable Law and provided that a Limited Partner has delivered to the General Partner evidence that is satisfactory to the General Partner, acting reasonably, that it is a resident of Canada for purposes of the Tax Act, the General Partner shall use commercially reasonable efforts to ensure that no Canadian federal tax is withheld from payments made to the Partnership that are attributable to such Canadian resident Limited Partner, including without limitation providing Canada Revenue Agency Form NR302 to the payer if required by applicable Law or requested by the payer. The General Partner acknowledges that it has received evidence satisfactory to it that Rover is a resident of Canada for purposes of the Tax Act, and Rover agrees to confirm same to the General Partner if requested in writing.

(c) In the event of the dissolution of the Partnership, all receipts received during or after the Fiscal Year quarter in which the liquidation of the Partnership occurs shall be applied and distributed solely in accordance with, and subject to the terms and conditions of, Section 13.3.

(d) To the extent requested in writing by a holder of Exchangeable Units at least 10 Business Days prior to the record date for any dividend or distribution pursuant to Section 5.3(b) or 5.4, the Partnership shall convert any dividend or distribution to be paid in Canadian dollars into United States dollars at such exchange rate as it is able to obtain. The Partnership shall not be liable for any currency exchange rate obtained in good faith.

(e) Each distribution in respect of a Partnership Interest shall be paid by the Partnership, directly or through the Registrar and Transfer Agent or through any other Person or agent, only to the Record Holder of such Partnership Interest as of the Record Date set for such distribution. Such payment shall constitute full payment and satisfaction of the Partnership’s liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.

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(f) Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not be required to make a distribution to a Partner or a Record Holder if such distribution would violate the Act or other applicable Law.

ARTICLE 6
WITHDRAWAL OF CAPITAL CONTRIBUTIONS

6.1 Withdrawal

No Limited Partner has the right to withdraw any of the Limited Partner’s Capital Contribution or other amount or to receive any cash or other distribution from the Partnership except as provided for in this Agreement and except as permitted by Law.

ARTICLE 7
POWERS, DUTIES AND OBLIGATIONS OF GENERAL PARTNER

7.1 Duties and Obligations

(a) The General Partner has:

(i) unlimited liability for the debts, liabilities and obligations of the Partnership;

(ii) subject to the terms of this Agreement and to any applicable limitations set out in the Act and applicable similar legislation in Canada, the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Partnership; and

(iii) the full and exclusive right, power and authority to do any act, take any proceeding, make any decision and execute and deliver any instrument, deed, agreement or document necessary for or incidental to carrying out the business of the Partnership for and on behalf of and in the name of the Partnership.

(b) An action taken by the General Partner on behalf of the Partnership is deemed to be the act of the Partnership and binds the Partnership.

(c) In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by it. The General Partner and the Partnership shall not have any liability to a Limited Partner for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived by such Limited Partner in connection with such decisions so long as the General Partner has acted pursuant to its authority under this Agreement.

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7.2 Specific Powers and Duties

(a) Without limiting the generality of Section 7.1, Section ‎14.2 and the other terms of this Agreement and Section 3.01 of the Investor Rights Agreements, the General Partner will have full power and authority for and on behalf of and in the name of the Partnership to do all things and on such terms as it determines, in its sole discretion, to be necessary or appropriate to conduct the business of the Partnership, including without limitation the following:

(i) negotiate, execute and perform all agreements, conveyances or other instruments which require execution by or on behalf of the Partnership involving matters or transactions with respect to the Partnership’s business (and those agreements may limit the liability of the Partnership to the assets of the Partnership, with the other party to have no recourse to the assets of the General Partner, even if the same results in the terms of the agreement being less favourable to the Partnership);

(ii) open and manage bank accounts in the name of the Partnership and spend the capital of the Partnership in the exercise of any right or power exercisable by the General Partner under this Agreement;

(iii) mortgage, charge, assign, hypothecate, pledge or otherwise create a security interest in all or any property of the Partnership and its Subsidiaries now owned or later acquired, to secure any present and future borrowings and related expenses of the Partnership and its Subsidiaries and to sell all or any of that property pursuant to a foreclosure or other realization upon the foregoing encumbrances;

(iv) manage, control and develop all the activities of the Partnership and take all measures necessary or appropriate for the business of the Partnership or ancillary to the business and may, from time to time, in its sole discretion propose combinations with other partnerships or other entities, which proposal(s) will be subject to requisite approval by the Partners;

(v) incur all costs and expenses in connection with the Partnership;

(vi) employ, retain, engage or dismiss from employment, personnel, agents, representatives or professionals or other investment participants with the powers and duties upon the terms and for the compensation as in the discretion of the General Partner may be necessary or advisable in the carrying on of the business of the Partnership;

(vii) engage agents, including any Affiliate or Associate of the General Partner, to assist it to carry out its management obligations to the Partnership or subcontract administrative functions to the General Partner or any Affiliate or Associate of the General Partner, including, without limitation, the Registrar and Transfer Agent;

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(viii) invest cash assets of the Partnership that are not immediately required for the business of the Partnership in short term investments;

(ix) act as attorney in fact or agent of the Partnership in disbursing and collecting moneys for the Partnership, paying debts and fulfilling the obligations of the Partnership and handling and settling any claims of the Partnership;

(x) commence or defend any action or proceeding in connection with the Partnership and otherwise engage in the conduct of litigation, arbitration or mediation and incur legal expense and the settlement of claims and litigation:

(xi) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations;

(xii) the making of tax, regulatory and other filings, or rendering of periodic or other reports to any Governmental Authority or other agencies having jurisdiction over the business or assets of the Partnership;

(xiii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership or the merger or other combination of the Partnership with or into another Person;

(xiv) the use of the assets of the Partnership (including cash on hand) for any purpose consistent with the terms of this Agreement, including the lending of funds to other Persons; the repayment or guarantee of obligations of any Group Member and the making of capital contributions to any Group Member;

(xv) the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, limited liability companies, corporations or other relationships (including the acquisition of interests in, and the contributions of property to, the Partnership’s Subsidiaries from time to time);

(xvi) retain legal counsel, experts, advisors or consultants as the General Partner consider appropriate and rely upon the advice of those Persons;

(xvii) appoint the Registrar and Transfer Agent;

(xviii) do anything that is in furtherance of or incidental to the business of the Partnership or that is provided for in this Agreement;

(xix) obtain any insurance coverage for the benefit of the Partnership, the Partners and Indemnitees;

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(xx) the indemnification of any Person against liabilities and contingencies to the extent permitted by Law;

(xxi) the purchase, sale or other acquisition or disposition or exchange of Partnership Interests or options, rights, warrants or appreciation rights relating to Partnership Interests;

(xxii) the undertaking of any action in connection with the Partnership’s participation in the management of the Partnership Group through its directors, officers or employees or the Partnership’s direct or indirect ownership of the Group Members;

(xxiii) engage, retain, remove or replace the Tabulation Agent;

(xxiv) carry out the objects, purposes and business of the Partnership; and

(xxv) execute, acknowledge and deliver the documents necessary to effectuate any or all of the foregoing or otherwise in connection with the business of the Partnership.

(b) No Persons dealing with the Partnership will be required to enquire into the authority of the General Partner to do any act, take any proceeding, make any decision or execute and deliver any instrument, deed, agreement or document for or on behalf of or in the name of the Partnership. The General Partner may insert or cause agents of the Partnership to insert, the following clause in any contracts or agreements to which the Partnership is a party or by which it is bound:

“Telesat Partnership LP is a limited partnership formed under the Limited Partnerships Act (Ontario), a limited partner of which is only liable for any of its liabilities or any of its losses to the extent of the amount that the limited partner has contributed or agreed to contribute to its capital and the limited partner’s share of any undistributed income and no personal recourse may be had against any limited partner.”

7.3 Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner

(a) The General Partner or any of its Affiliates may, but shall be under no obligation to, lend to any Group Member, and any Group Member may borrow from the General Partner or any of its Affiliates, funds needed or desired by the Group Member for such periods of time and in such amounts as the General Partner may determine, in its discretion.

(b) Any Group Member (including the Partnership) may lend or contribute to any other Group Member, and any Group Member may borrow from any other Group Member (including the Partnership), funds on terms and conditions determined by the General Partner. The foregoing authority shall be exercised by the General Partner in its sole discretion and shall not create any right or benefit in favor of any Group Member or any other Person.

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(c) The General Partner may itself, or may enter into an agreement with any of its Affiliates (with respect to any such Affiliate who is not the General Partner or any Subsidiary of the General Partner, with prior Special Approval) to, render services to a Group Member or to the Partnership in the discharge of its duties as general partner of the Partnership. For the avoidance of doubt, the provisions of Section 5.3(a) shall apply to the rendering of services described in this Section 7.3(c).

(d) The Partnership may transfer assets to joint ventures, other partnerships, corporations, limited liability companies or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as are consistent with this Agreement and applicable Law.

(e) The General Partner or any of its Affiliates (notwithstanding the proviso in this sentence, with respect to any such Affiliate who is not the General Partner or any Subsidiary of the General Partner, with prior Special Approval) may sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, pursuant to transactions that are fair and reasonable to the Partnership; provided however that the requirements of this Section 7.4(e) conclusively shall be deemed to be satisfied and not a breach of any duty hereunder or existing at law, in equity or otherwise as to (i) any transaction approved by Special Approval, (ii) any transaction, the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties, or (iii) any transaction that is fair and reasonable to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be or have been particularly favorable or advantageous to the Partnership). With respect to any contribution of assets to the Partnership in exchange for Partnership Interests or options, rights, warrants or appreciation rights relating to Partnership Interests, the General Partner, in determining whether the appropriate Partnership Interest or options, rights, warrants or appreciation rights relating to Partnership Interests are being issued, may take into account, among other things, the fair market value of the assets, the liquidated and contingent liabilities assumed, the tax basis in the assets, the extent to which tax-only allocations to the transferor will protect the existing partners of the Partnership against a low tax basis, and such other factors as the General Partner deems relevant under the circumstances.

7.4 Title to Property

The General Partner may hold legal title to any of the assets or property of the Partnership in its name as bare trustee for the benefit of the Partnership.

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7.5 Exercise of Duties by the Board of Directors of the General Partner; General Partner Standard of Care

(a) Any action to be taken by the Partnership, that if the Partnership were a British Columbia corporation would require the approval of the corporation’s board of directors, shall only be taken with the approval of the board of directors of the General Partner.

(b) The General Partner acknowledges and agrees that it will owe the same duties to the Partnership and the Limited Partners that the board of directors of a British Columbia company owes to that company and its shareholders pursuant to paragraphs 142(1)(a) and 142(1)(b) of the BCBA (the “GP Duties”), and such additional non-waivable duties as may be provided under the Act. Furthermore, subject to applicable Law or the listing rules of any applicable securities exchange, the General Partner covenants that it will maintain the confidentiality of financial and other information and data which it may obtain through or on behalf of the Partnership, the disclosure of which may adversely affect the interests of the Partnership or a Limited Partner.

7.6 Limitation of Liability

(a) The General Partner is not personally liable for the return of any Capital Contribution made by a Limited Partner to the Partnership. Moreover, notwithstanding anything else contained in this Agreement, but subject to Section 2.9, neither the General Partner nor its officers, directors, shareholders, employees or agents are liable, responsible for or accountable in damages or otherwise to the Partnership or a Limited Partner for an action taken or failure to act on behalf of the Partnership within the scope of the authority conferred on the General Partner by this Agreement or by Law unless the act or omission was performed or omitted in breach of the GP Duties.

(b) To the extent that the board of directors of the General Partner is found to have breached its duties or obligations owed to the holders of TopCo Shares, the General Partner will be deemed to have breached its duties or obligations, as applicable, owed to the holders of Exchangeable Units pursuant to this Section 7.6 and in the event that a remedy is provided to the holders of TopCo Shares, an equivalent remedy shall be afforded to the holders of Exchangeable Units to the maximum extent possible.

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7.7 Indemnity of General Partner

(a) To the fullest extent permitted by Law but subject to the limitations expressly provided in this Agreement, the General Partner, a Departing Partner, any Person who is or was an Affiliate of the General Partner or any Departing Partner, any Person who is or was an officer, director, employee, partner, agent or trustee of the General Partner or any Departing Partner or any Affiliate, or any Person who is or was serving at the request of the General Partner or any Departing Partner or any Affiliate as a director, officer, employee, partner, agent or trustee of another Person (collectively, an “Indemnitee”) will be indemnified and held harmless by the Partnership from and against any and all losses, claims, damages, liabilities joint or several expenses (including, without limitation, legal fees and expenses on a solicitor/client basis), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as:

(i) the General Partner, a Departing Partner or any of their Affiliates; or

(ii) an officer, director, employee, partner, agent or trustee of the General Partner, any Departing Partner or any of their Affiliates as a director, office, employee, agent or trustee of another Person;

provided, that

(iii) in each case the Indemnitee acted honestly and in good faith with a view to the best interest of the Partnership and, in the case of the General Partner, in accordance with the GP Duties;

(iv) in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, the Indemnitee had reasonable grounds for believing its conduct was lawful; and

(v) no indemnification pursuant to this Section 7.8 will be available to an Indemnitee where the Indemnitee has been adjudged by a final decision of a court of competent jurisdiction that is no longer appealable to have been in breach of, or negligent in the performance of, its obligations under this Agreement.

Any indemnification pursuant to this Section 7.7(a) will be made only out of the assets of the Partnership.

(b) To the fullest extent permitted by Law, expenses (including, without limitation, legal fees and expenses) incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding will, from time to time, be advanced by the Partnership prior to the final disposition of any claim, demand, action, suit or proceeding upon receipt by the Partnership of an undertaking by or on behalf of the Indemnitee to repay that amount if it is determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 7.8.

(c) The indemnification provided by this Section 7.8 will be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of Law or otherwise, as to actions in the Indemnitee’s capacity as:

(i) the General Partner, a Departing Partner or any of their Affiliates;

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(ii) an officer, director, employee, partner, agent or trustee of the General Partner, any Departing Partner or any of their Affiliates; or

(iii) a Person serving at the request of the General Partner, any Departing Partner or any of their Affiliates as a director, officer, employee, agent or trustee of another Person,

and will continue as to an Indemnitee who has ceased to serve in that capacity and as to action in any other capacity.

(d) The Partnership may purchase and maintain (or reimburse the General Partner or its Affiliates for the cost of) insurance, on behalf of those Persons (other than the General Partner itself) as the General Partner determines, against any liability that may be asserted against or expense that may be incurred by that Person in connection with the Partnership’s activities, whether or not the Partnership would have the power to indemnify those Persons against those liabilities under the provisions of this Agreement.

7.8 Other Matters Concerning the General Partner

(a) The General Partner may rely and will be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

(b) The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors selected by it, and any act taken or omitted in reliance upon the opinion (including, without limitation, an opinion of counsel) of any of those Persons as to matters that the General Partner reasonably believes to be within that Person’s professional or expert competence will be conclusively presumed to have been done or omitted in good faith and in accordance with that opinion.

(c) The General Partner has the right, in respect of any of its power, authority or obligations under this Agreement, to act through any of its duly authorized officers.

(d) Any standard of care or duty imposed under the Act or any applicable Law will be modified, waived or limited to the extent legally permissible as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the power or authority prescribed in this Agreement, subject only to the GP Duties.

(e) Notwithstanding anything to the contrary in this Agreement, to the extent legally permissible and provided that the General Partner at such time is a Person other than TopCo or a TopCo Successor, (i) it shall be deemed not to be a breach of the GP Duties to engage in such business interests and activities in preference to or to the exclusion of any Group Member, (ii) the General Partner shall have no obligation hereunder or as a result of any duty otherwise existing at Law or otherwise to present business opportunities to any Group Member and (iii) the doctrine of “corporate opportunity” or other analogous doctrine shall not apply to the General Partner.

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7.9 Indemnity of Partnership

The General Partner hereby indemnifies and holds harmless the Partnership and each Limited Partner from and against all costs, expenses, damages or liabilities suffered or incurred by the Partnership or any Limited Partner by reason of an act of willful misconduct or gross negligence by the General Partner or of any act or omission not believed by the General Partner in good faith to be within the scope of the authority conferred on the General Partner by this Agreement.

7.10 Restrictions upon the General Partner

The General Partner will not:

(a) dissolve the affairs of the Partnership except in accordance with the provisions of Article 12; or

(b) do any act prohibited by the Act.

7.11 Employment of an Affiliate or Associate

The General Partner may itself, or may enter into an agreement with any of its Affiliates (notwithstanding the proviso in this sentence, with respect to any such Affiliate who is not the General Partner or any Subsidiary of the General Partner, with prior Special Approval) to, render services to a Group Member or to the General Partner in the discharge of its duties as general partner of the Partnership. Any services rendered to a Group Member by the General Partner or any of its Affiliates shall be on terms that are fair and reasonable to the Partnership; provided however that the requirements of this Section 7.12 conclusively shall be deemed satisfied and not a breach of any duty hereunder or existing at Law or otherwise as to any transaction (i) approved by Special Approval, (ii) the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) that is fair and reasonable to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be or have been particularly favorable or advantageous to the Partnership).

7.12 No Removal of the General Partner

The General Partner may not be removed as general partner of the Partnership.

7.13 Voluntary Withdrawal of the General Partner

The General Partner covenants and agrees in favor of the Partnership that, so long as any outstanding Exchangeable Units are owned by any Person other than the General Partner or any of its Subsidiaries, except as provided in Section 7.18, the General Partner will not voluntarily cease to be the sole general partner of the Partnership.

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7.14 Condition Precedent

As a condition precedent to the resignation of the General Partner, the Partnership will pay all amounts payable by the Partnership to the General Partner pursuant to this Agreement accrued to the date of resignation net of any claims or liabilities of the General Partner to the Partnership.

7.15 Transfer to New General Partner

On the admission of a new general partner to the Partnership on the resignation of the General Partner, the resigning General Partner will do all things and take all steps to transfer the administration, management, control and operation of the business of the Partnership and the books, records and accounts of the Partnership to the new general partner, transfer title to the Partnership’s property to the new general partner and will execute and deliver all deeds, certificates, declarations and other documents necessary or desirable to effect that transfer in a timely fashion.

7.16 Release By Partnership

On the resignation of the General Partner, the Partnership will release and hold harmless the General Partner resigning from any costs, expenses, damages or liabilities suffered or incurred by the General Partner (in its capacity as such, but not in its capacity as TopCo) as a result of or arising out of events which occur in relation to the Partnership after that resignation.

7.17 New General Partner

A new general partner will become a party to this Agreement by signing a counterpart of this Agreement and will agree to be bound by all of the provisions of this Agreement and to assume the obligations, duties and liabilities of the General Partner under this Agreement as from the date the new general partner becomes a party to this Agreement.

7.18 Transfer of General Partner Interest

Subject to Section 7.18 and Section 11.1, the General Partner may, without the approval of the Limited Partners (but with prior Special Approval) transfer all, but not less than all, of the General Partner’s Partnership Interests:

(a) to a Subsidiary of the General Partner;

(b) in connection with the General Partner’s merger or amalgamation with or into another entity; or

(c) to the purchaser of all or substantially all of the General Partner’s assets,

provided that, in all cases, the transferee assumes the rights and duties of the General Partner and agrees to be bound by the provisions of this Agreement.

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7.19 Resolution of Conflict of Interests

(a) Unless otherwise expressly provided in this Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership, any Group Member or any Partner (other than the General Partner), on the other, any resolution or course of action by the General Partner or its Affiliates in respect of such conflict of interest shall be permitted and deemed approved by all Partners, and shall not constitute a breach of this Agreement, or any agreement contemplated herein or therein, or of any duty hereunder or existing at Law or otherwise, if the resolution or course of action in respect of such conflict of interest is (i) approved by Special Approval, (ii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) fair and reasonable to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be or have been particularly favorable or advantageous to the Partnership). The General Partner shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval of such resolution, and the General Partner may (if the conflict of interest involves an Affiliate of the General Partner who is not the General Partner or any Subsidiary of the General Partner, with Special Approval) also adopt a resolution or course of action that has not received Special Approval. Failure to seek Special Approval shall not be deemed to indicate that a conflict of interest exists or that Special Approval could not have been obtained.

(b) Notwithstanding any other provision of this Agreement or otherwise applicable provision of Law, whenever in this Agreement or any other agreement contemplated hereby or otherwise the General Partner, in its capacity as the general partner of the Partnership, is permitted to or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” or under a grant of similar authority or latitude, then the General Partner, or such Affiliates causing it to do so, shall, to the fullest extent permitted by Law, make such decision in its sole discretion (regardless of whether there is a reference to “sole discretion” or “discretion”), but subject to the GP Duties, and shall not be subject to any other or different standards imposed by this Agreement, any other agreement contemplated hereby, under the Act or under any other Law. Whenever in this Agreement or any other agreement contemplated hereby or otherwise the General Partner is permitted to or required to make a decision in its “good faith” then for purposes of this Agreement, the General Partner, or any of its Affiliates that cause it to make any such decision, shall be conclusively presumed to be acting in good faith if such Person or Persons subjectively believe(s) that the decision made or not made is not inconsistent with the GP Duties.

(c) Whenever the General Partner makes a determination or takes or declines to take any other action, or any of its Affiliates causes it to do so, in its individual capacity as opposed to in its capacity as a general partner of the Partnership, whether under this Agreement or any other agreement contemplated hereby or otherwise, then the General Partner, or such Affiliates causing it to do so, are entitled, to the fullest extent permitted by Law, to make such determination or to take or decline to take such other action free of any duty (including any fiduciary duty) or obligation whatsoever to the Partnership, any Limited Partner, any Record Holder or any other Person bound by this Agreement, and the General Partner, or such Affiliates causing it to do so, shall not, to the fullest extent permitted by Law, be required to act pursuant to any other standard imposed by this Agreement, any other agreement contemplated hereby or under the Act or any other Law.

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(d) Notwithstanding anything to the contrary in this Agreement, the General Partner and its Affiliates shall have no duty or obligation, express or implied, to (i) sell or otherwise dispose of any asset of the Partnership Group other than in the ordinary course of business or (ii) permit any Group Member to use any facilities or assets of the General Partner and its Affiliates, except as may be provided in contracts entered into from time to time specifically dealing with such use. Any determination by the General Partner or any of its Affiliates to enter into such contracts shall be in its sole discretion.

(e) Except as expressly set forth in this Agreement, to the fullest extent permitted by Law, neither the General Partner nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Partnership, any Limited Partner or any other Person bound by this Agreement (except in the case of the General Partner for the GP Duties), and the provisions of this Agreement, to the extent that they restrict or otherwise modify or eliminate the duties and liabilities, including fiduciary duties, of the General Partner or any other Indemnitee otherwise existing at Law, are agreed by the Partners to replace such other duties and liabilities of the General Partner (except for the GP Duties) or such other Indemnitee.

(f) The Limited Partners hereby authorize the General Partner, on behalf of the Partnership as a partner or member of a Group Member, to approve of actions by the general partner or managing member of such Group Member similar to those actions permitted to be taken by the General Partner pursuant to this Section 7.20.

(g) The Limited Partners expressly acknowledge that except for the GP Duties, the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions, and that, subject to the GP Duties, the General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Limited Partners in connection with such decisions.

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ARTICLE 8
FINANCIAL INFORMATION

8.1 Books and Records

The General Partner will keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership’s business including the Record. Any books and records maintained by or on behalf of the Partnership in the regular course of its business, including, without limitation, books of account and records of Partnership proceedings, may be kept on, or be in the form of, computer disks, hard disks, magnetic tape, or any other information storage device, provided, that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time.

8.2 Reports

The General Partner will forward to the Limited Partners all reports and financial statements which may be required under applicable securities legislation, or as the General Partner determines to be necessary or appropriate and, after the end of each Fiscal Year, an annual report containing audited financial statements of the Partnership together with the auditors’ report on those financial statements.

8.3 Right to Inspect Partnership Books and Records

(a) In addition to other rights provided by this Agreement or by applicable Law, and except as limited by Section 8.3(b), each Limited Partner has the right, for a purpose reasonably related to that Limited Partner’s own interest as a limited partner in the Partnership, upon reasonable demand and at that Limited Partner’s own expense, to receive:

(i) a current list of the name and last known address of each Limited Partner;

(ii) copies of this Agreement, the Declaration of Limited Partnership, the Record and amendments to those documents;

(iii) copies of all documents filed by the Partnership with a securities regulatory authority in Canada;

(iv) copies of minutes of meetings of the Partners; and

(v) any other information regarding the affairs of the Partnership as is just and reasonable.

(b) Notwithstanding Section 8.3(a), the General Partner may keep confidential from the Limited Partners for any period of time as the General Partner deems reasonable, any information of the Partnership (other than information referred to in Section 8.3(a)(ii)) which, in the reasonable opinion of the General Partner, should be kept confidential in the interests of the Partnership or that the Partnership is required by Law or by agreements with third parties to keep confidential.

8.4 Accounting Policies

The General Partner is authorized to establish from time to time accounting policies with respect to the financial statements of the Partnership and to change from time to time any policy that has been so established so long as those policies are consistent with the provisions of this Agreement and IFRS.

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8.5 Appointment of Auditor

The General Partner will, on behalf of the Partnership, select the Auditor on behalf of the Partnership to review and report to the Partners upon the financial statements of the Partnership for, and as at the end of each Fiscal Year, and to advise upon and make determinations with regard to financial questions relating to the Partnership or required by this Agreement to be determined by the Auditor.

ARTICLE 9
TAX MATTERS

9.1 Tax Returns and Information

The General Partner shall use commercially reasonable efforts to timely file all tax returns of the Partnership that are required to be filed under applicable Law (including any U.S. or Canadian federal, provincial, territorial, state, or local tax returns). The General Partner shall use commercially reasonable efforts to furnish to all Partners necessary tax information as promptly as possible after the end of the Fiscal Year of the Partnership; provided, however, that delivery of such tax information may be subject to delay as a result of the late receipt of any necessary tax information from an entity in which the Partnership or any of its Subsidiaries holds an interest.

Each Limited Partner agrees to file all U.S. and Canadian federal, provincial, territorial, state and local tax returns required to be filed by it in a manner consistent with the information provided to it by the Partnership, unless otherwise required by applicable Law.

9.2 Tax Elections

The General Partner shall determine whether to make or refrain from making the election provided for in Section 754 of the Code, and any and all other elections permitted by the Code, the Tax Act, or under the tax Laws of any other relevant jurisdiction.

9.3 Tax Controversies

(a) Canadian and Other Non-US Income Tax Matters. Subject to the provisions hereof, the General Partner is authorized to represent the Partnership (at the Partnership’s expense) in connection with all examinations of the Partnership’s affairs by Canadian and other non-U.S. tax authorities, including resulting administrative and judicial proceedings, and to expand Partnership funds for professional services and costs associated therewith. Each Partner agrees to cooperate with the General Partner and to do or refrain from doing any or all things reasonably required by the General Partner to conduct such proceedings.

(b) U.S. Federal Income Tax Matters.

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(i) The TopCo Shareholder Representative shall be the “partnership representative” of the Partnership for purposes of Code Section 6223 and any corresponding provision of applicable federal, state, local and/or foreign Law (the “Partnership Representative”), and on behalf of the Partnership, the General Partner (or its designee) shall be permitted to appoint any “designated individual” permitted under U.S. Treasury Regulations Sections 301.6223-1 and 301.6223-2 or any successor regulations or similar provisions of tax Law, and unless the context otherwise requires, any reference to the Partnership Representative in this Agreement includes any “designated individual.” The Partnership Representative shall be entitled to be reimbursed by the Partnership for all out-of-pocket costs and expenses incurred as a result of acting as the Partnership Representative in connection with any proceeding involving the Partnership and to be indemnified by the Partnership (solely out of Partnership assets) with respect to any action brought against it as a result of acting as Partnership Representative in connection with the resolution or settlement of any such proceeding. Each Partner hereby agrees (i) to take such actions as may be required to effect the General Partner’s designation as the Partnership Representative, and on behalf of the Partnership, the General Partner’s (or its designee’s) appointment of any “designated individual,” and (ii) to cooperate to provide any information or take such actions as may be reasonably requested by the Partnership Representative in order to determine whether any Imputed Underpayment Amount may be modified pursuant to Code Section 6225(c) or any corresponding provision of applicable federal, state, local and/or foreign Law and/or to allow the Partnership to make any such modification. The provisions of this Section 9.3 and a Partner’s obligation to comply with this Section 9.3 shall survive any liquidation and dissolution of the Partnership and the transfer, assignment or liquidation of such Partner’s Partnership Interest.

(ii) The General Partner shall use its reasonable best efforts to (a) mitigate the economic burden to the Limited Partners of any final partnership adjustment, including by causing the Partnership to make an election under Section 6226(a)(1) of the Code or by following the procedures under Section 6225(c) of the Code to modify any imputed underpayment amount, and (b) allocate the economic burden of a final partnership adjustment (including any expenses related thereto) to the Partner(s) to whom such final partnership adjustment is attributable. Subject to the foregoing, the taking of any action and the incurring of any expense by the Partnership Representative in connection with any partnership audit, except to the extent required by Law, is a matter in the sole and absolute discretion of the Partnership Representative and the provisions relating to indemnification of the General Partner set forth in Section 7.8 shall be fully applicable to the Partnership Representative in its capacity as such. The Partnership Representative shall receive no compensation for its services. All third-party costs and expenses incurred by the Partnership Representative in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting or law firm to assist the Partnership Representative in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.

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9.4 Treatment as a Partnership; Election to be Treated as a Corporation

Notwithstanding anything to the contrary contained herein, the Partnership will use its reasonable best efforts to undertake all necessary steps to preserve its status as a partnership for U.S. federal income tax purposes and will not undertake any activity or make any investment or fail to take any action that would (i) cause the Partnership to be classified as a “publicly traded partnership” as defined in Section 7704 of the Code or (ii) jeopardize its status as a partnership for U.S. federal income tax purposes.

ARTICLE 10
MEETINGS OF THE LIMITED PARTNERS

10.1 Meetings

The General Partner may call a general meeting of Partners at any time and place as it deems appropriate in its absolute discretion for the purpose of considering any matter set out in the notice of meeting.

10.2 Place of Meeting

Every meeting of Partners will be in Ottawa, Ontario or at any other place within or outside of Canada as the General Partner may designate.

10.3 Notice of Meeting

Notice of any meeting of Partners will be given to each Limited Partner not less than 21 days (but not more than 60 days) prior to the meeting, and will state:

(a) the time, date and place of the meeting; and

(b) in general terms, the nature of the business to be transacted at the meeting in sufficient detail to permit a Partner to make a reasoned decision on that business.

Notice of an adjourned meeting of Partners need not be given if the adjourned meeting is held within 14 days of the original meeting. Otherwise, but subject to Section 10.13, notice of adjourned meetings will be given not less than 21 days in advance of the adjourned meeting and otherwise in accordance with this section, except that the notice need not specify the nature of the business to be transacted if unchanged from the original meeting.

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10.4 Record Dates

For the purpose of determining the Limited Partners who are entitled to vote or act at any meeting of Partners or any adjournment of a meeting, or for the purpose of any other action, the General Partner may from time to time cause the transfer books to be closed for a period, not exceeding 30 days, as the General Partner may determine or, without causing the transfer books to be closed, the General Partner may fix a date not more than 60 days prior to the date of any meeting of Partners or other action as a record date for the determination of Limited Partners entitled to vote at that meeting or any adjournment of the meeting or to be treated as Limited Partners of record for purposes of any other action, and any Limited Partner who was a Limited Partner at the time so fixed will be entitled to vote at the meeting or any adjournment of the meeting even though that Limited Partner has since that date disposed of the Limited Partner’s Units, and no Limited Partner becoming a Limited Partner after that fixed date will be a Limited Partner of record for purposes of that action. A Person will be a Limited Partner of record at the relevant time if the Person’s name appears in the Record, as amended and supplemented, at that time.

10.5 Information Circular

If proxies are solicited from Limited Partners in connection with a meeting of Partners, the Person or Persons soliciting those proxies will prepare an information circular which will contain, to the extent that it is relevant and applicable, the information prescribed for information circulars by the Securities Act (Ontario) and applicable rules and regulations thereunder and the information prescribed for proxy statements pursuant to the U.S. Securities Exchange of 1934, as amended, and applicable rules and regulations thereunder.

10.6 Proxies

Any Limited Partner entitled to vote at a meeting of Partners may vote by proxy if a form of proxy has been received by the General Partner or the chairperson of the meeting for verification prior to the time fixed by the General Partner, which time will not exceed two Business Days preceding the meeting, or any adjournment of the meeting.

10.7 Validity of Proxies

A proxy purporting to be executed by or on behalf of a Limited Partner will be considered to be valid unless challenged at the time of or prior to its exercise. The Person challenging the proxy will have the burden of proving to the satisfaction of the chairperson of the meeting that the proxy is invalid and any decision of the chairperson concerning the validity of a proxy will be final. Proxies will be valid only at the meeting with respect to which they were solicited, or any adjournment of the meeting, but in any event will cease to be valid one year from their date. A proxy given on behalf of joint holders must be executed by all of them and may be revoked by any of them, and if more than one of several joint holders is present at a meeting and they do not agree which of them is to exercise any vote to which they are jointly entitled, they will, for the purposes of voting, be deemed not to be present. A proxy holder need not be a holder of a Unit.

10.8 Form of Proxy

Every proxy will be substantially in the form as may be approved by the General Partner or as may be reasonably satisfactory to the chairperson of the meeting at which it is sought to be exercised.

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10.9 Revocation of Proxy

A vote cast in accordance with the terms of an instrument of proxy will be valid notwithstanding the previous death, incapacity, insolvency or bankruptcy of the Limited Partner giving the proxy or the revocation of the proxy unless written notice of that death, incapacity, insolvency, bankruptcy or revocation has been received by the chairperson of the meeting prior to the commencement of the meeting.

10.10 Corporations

A Limited Partner which is a corporation may appoint an officer, director or other authorized person as its representative to attend, vote and act on its behalf at a meeting of Partners.

10.11 Attendance of Others

Any officer or director of the General Partner, legal counsel for the General Partner and the Partnership and representatives of the Auditor will be entitled to attend any meeting of Partners. The General Partner has the right to authorize the presence of any Person at a meeting regardless of whether the Person is a Partner. With the approval of the General Partner that Person is entitled to address the meeting.

10.12 Chairperson

The General Partner may nominate a Person, including, without limitation, an officer or director of the General Partner, (who need not be a Limited Partner) to be chairperson of a meeting of Partners and the person nominated by the General Partner will be chairperson of that meeting unless the Partners elect another chairperson by Ordinary Resolution.

10.13 Quorum

A quorum at any meeting of Partners will consist of one or more Partners present in person or by proxy holding a majority of the voting power which may be exercised at such meeting. If, within half an hour after the time fixed for the holding of the meeting, a quorum for the meeting is not present, the meeting:

(a) if called by or on the requisition of Limited Partners, will be terminated; and

(b) if called by the General Partner, will be held at the same time and place on the day which is 14 days later (or if that date is not a Business Day, the first Business Day prior to that date). The General Partner will give three days’ notice to Limited Partners of the date of the reconvening of the adjourned meeting and at the reconvened meeting the quorum will consist of the Partners then present in person or represented by proxy.

10.14 Voting

(a) Every question submitted to a meeting of Partners will be decided by an Ordinary Resolution on a show of hands unless otherwise required by this Agreement or a poll is demanded by a Partner, in which case a poll will be taken. In the case of an equality of votes, the chairperson will not have a casting vote and the resolution will be deemed to be defeated. The chairperson will be entitled to vote in respect of any Units held by the chairperson or for which the chairperson may be a proxyholder.

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(b) On a poll, each Person present at the meeting will have one vote for each Unit entitled to vote in respect of which the Person is shown on the Record as a Partner at the record date and for each Unit in respect of which the Person is the proxyholder. Each Partner present at the meeting and entitled to vote at the meeting will have one vote on a show of hands. If Units are held jointly by two or more persons and only one of them is present or represented by proxy at a meeting of Unitholders, that Unitholder may, in the absence of the other or others, vote with respect those Units, but if more than one of them is present or represented by proxy, they will vote together on the whole Units held jointly. Where this Agreement or applicable Law only permits certain Units to be voted on a matter, only votes in respect of such Units will be recognized.

10.15 Poll

A poll requested or required will be taken at the meeting of Partners or an adjournment of the meeting in any manner as the chairperson directs.

10.16 Powers of Limited Partners; Resolutions Binding

The Limited Partners will have only the powers set out in this Agreement and any additional powers provided by Law. Subject to the foregoing sentence and Section 14.1, any resolution passed in accordance with this Agreement will be binding on each Partner and that Partner’s respective heirs, executors, administrators, successors and assigns, whether or not that Partner was present in person or voted against any resolution so passed.

10.17 Conditions to Action by Limited Partners

The right of the Limited Partners to vote to amend this Agreement or to approve or initiate the taking of, or take, any other action at any meeting of Partners will not come into existence or be effective in any manner unless and until, prior to the exercise of any right or the taking of any action, the Partnership has received an opinion of counsel advising the Limited Partners (at the expense of the Partnership) as to the effect that the exercise of those rights or the taking of those actions may have on the limited liability of any Limited Partners other than those Limited Partners who have initiated that action, each of whom expressly acknowledges that the exercise of the right or the taking of the action may subject each of those Limited Partners to liability as a general partner under the Act or similar legislation in Canada.

10.18 Minutes

The General Partner will cause minutes to be kept of all proceedings and resolutions at every meeting and will cause all minutes and all resolutions of the Partners consented to in writing to be made and entered in books to be kept for that purpose. Any minutes of a meeting signed by the chairperson of the meeting will be deemed evidence of the matters stated in them and the meeting will be deemed to have been duly convened and held and all resolutions and proceedings shown in them will be deemed to have been duly passed and taken.

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10.19 Additional Rules and Procedures

To the extent that the rules and procedures for the conduct of a meeting of the Partners are not prescribed in this Agreement, the rules and procedures will be determined by the General Partner.

10.20 Electronic Meetings

The General Partner may determine that a meeting of Partners shall be held entirely by means of telephone, electronic or other communications facilities that permit all participants to communicate with each other during the meeting. A meeting of Partners may also be held at which some, but not necessarily all, persons entitled to attend may participate by means of such communications facilities, if the General Partner determines to make them available. A person participating in a meeting by such means is deemed to be present at the meeting.

ARTICLE 11
SUCCESSORS OF THE GENERAL PARTNER

11.1 Certain Requirements in Respect of Combination, etc.

As long as any Exchangeable Units (other than those owned by the General Partner or its Subsidiaries) are Outstanding, the General Partner shall not consummate any transaction (whether by way of reconstruction, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, property and assets would become the property of any other Person or, in the case of an amalgamation, arrangement or merger, of the continuing corporation resulting therefrom, unless:

(a) such other Person or continuing corporation (such other Person or continuing corporation (or, in the event of an amalgamation, arrangement, merger or similar transaction pursuant to which holders of shares in the capital of the General Partner are entitled to receive shares or other ownership interests (“Successor Securities”) in the capital of any corporation or other legal entity other than such other Person or continuing corporation, then such corporation or other legal entity in which holders of shares in the capital of the General Partner are entitled to receive an interest) is herein called the “TopCo Successor”) by operation of law, becomes, without more, bound by the terms and provisions of this Agreement and the Voting Agreement or, if not so bound, executes, prior to or contemporaneously with the consummation of such transaction, an agreement supplemental hereto and such other instruments (if any) as are reasonably necessary or advisable to evidence the assumption by the TopCo Successor of all of the rights and obligations of the General Partner hereunder, including liability for all moneys payable and property deliverable hereunder and the covenant of such TopCo Successor to pay or cause to be paid and deliver or cause to be delivered the same and its agreement to observe and perform all the covenants and obligations of the General Partner under this Agreement;

(b) the approval under Article 23.2(f) of the TopCo Articles, if required, has been obtained; and

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(c) such transaction shall be upon such terms and conditions as substantially to preserve and not to impair in any material respect any of the rights, duties, powers and authorities of the other parties hereunder.

Where the foregoing conditions are satisfied, all references herein to TopCo Shares shall be deemed to be references to the shares of the TopCo Successor which has assumed the obligations of the General Partner and all references to the General Partner shall be to the TopCo Successor, without amendment hereto or any further action whatsoever. For the avoidance of doubt, if a transaction described in this Section 11.1 results in holders of Exchangeable Units being entitled to exchange their Exchangeable Units for shares of a TopCo Successor in a different ratio than that set out herein, then this Agreement shall be deemed to be amended to refer to such different ratio(s). For the further avoidance of doubt, this Section 11.1 shall not apply to the transactions contemplated by the Transaction Agreement.

11.2 Vesting of Powers in Successor

Whenever the conditions of Section 11.1 have been duly observed and performed, the parties, if required by Section 11.1, shall execute and deliver the supplemental agreement provided for in Section 11.1(a) and thereupon the TopCo Successor shall possess and from time to time may exercise each and every right and power of the General Partner under this Agreement in the name of the General Partner or otherwise and any act or proceeding by any provision of this Agreement required to be done or performed by the General Partner’s Board of Directors or any officers of the General Partner may be done and performed with like force and effect by the directors or officers of such TopCo Successor.

11.3 Wholly-Owned Subsidiaries

Nothing herein shall be construed as preventing the amalgamation or merger of any wholly-owned direct or indirect Subsidiary of the General Partner with or into the General Partner or the winding-up, liquidation or dissolution of any wholly-owned direct or indirect Subsidiary of the General Partner (other than the Partnership) provided that all of the assets of such Subsidiary are transferred to the General Partner or another wholly-owned direct or indirect Subsidiary of the General Partner or any other distribution of the assets of any wholly-owned direct or indirect Subsidiary of the General Partner among the shareholders of such Subsidiary, and any such transactions are expressly permitted by this Article 11.

ARTICLE 12
NOTICES

12.1 Address

Any notice or other written communication which must be given or sent under this Agreement will be given by first-class mail, electronic mail or personal delivery to the address of the General Partner and the Limited Partners as follows:

(a) in the case of the General Partner, Telesat Corporation, 160 Elgin Street, Suite 2100, Ottawa, Ontario, Canada K2P 2P7, Attention: Chris DiFrancesco, Email: CDiFrancesco@telesat.com; and

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(b) in the case of Limited Partners, to the postal or electronic mail address inscribed in the Record, or any other new address following a change of address in conformity with Section 12.2.

12.2 Change of Address

A Limited Partner may, at any time, change the Limited Partner’s postal or electronic mail address for the purposes of service by written notice to the General Partner which will promptly notify the Registrar and Transfer Agent, if different from the General Partner. The General Partner may change its address for the purpose of service by written notice to all the Limited Partners.

12.3 Accidental Failure

An accidental omission in the giving of, or failure to give, a notice required by this Agreement will not invalidate or affect in any way the legality of any meeting or other proceeding in respect of which that notice was or was intended to be given.

12.4 Disruption in Mail

In case of any disruption, strike or interruption in the Canadian postal service after mailing and before receipt or deemed receipt of a document, it will be deemed to have been received on the sixth Business Day following full resumption of the Canadian postal service.

12.5 Receipt of Notice

Subject to Section 12.4, notices given by first-class mail will be deemed to have been received on the third Business Day following the deposit of the notice in the mail, notices given by delivery will be deemed to have been received on the date of their delivery and notices given by electronic mail will be deemed to have been received when delivered, if sent to the recipient by electronic mail during normal business hours of the recipient, and otherwise on the next Business Day; provided that, if sent by electronic mail, the notice shall be confirmed by the same being sent by one of the other means contemplated by Section 12.1 (it being understood that delivery shall be effective in accordance with this Section 12.5).

12.6 Undelivered Notices

If the General Partner sends a notice or document to a Limited Partner in accordance with Section 12.1 and the notice or document is returned on three consecutive occasions because the Limited Partner cannot be found, the General Partner is not required to send any further notices or documents to the Limited Partner until the Limited Partner informs the General Partner in writing of the Limited Partner’s new address.

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ARTICLE 13
DISSOLUTION AND LIQUIDATION

13.1 Events of Dissolution

The Partnership will follow the procedure for dissolution established in Section 13.3 upon the occurrence of any of the following events or dates:

(a) the deemed removal of the sole General Partner unless the General Partner is replaced as provided in Sections 7.18 or 7.19;

(b) the sale, exchange or other disposition of all or substantially all of the property of the Partnership, if approved in accordance with this Agreement; or

(c) after the Merger Effective Time, no Exchangeable Units or Class D Units remain Outstanding.

13.2 No Dissolution

The Partnership will not come to an end by reason of the death, bankruptcy, insolvency, mental incompetency or other disability of any Limited Partner or upon transfer of any Units.

13.3 Procedure on Dissolution

Upon the occurrence of any of the events set out in Section 13.1, the General Partner (or in the event of an occurrence specified in Section 13.1(a), any other Person as may be appointed by resolution passed by a majority of the holders of the GP Units) will act as a receiver and liquidator of the assets of the Partnership and will:

(a) sell or otherwise dispose of that part of the Partnership’s assets as the receiver considers appropriate;

(b) pay or provide for the payment of the debts and liabilities of the Partnership and liquidation expenses;

(c) if there are any assets of the Partnership remaining, distribute all property and cash as provided under Section 5.3; and

(d) file the declaration of dissolution prescribed by the Act and satisfy all applicable formalities in those circumstances as may be prescribed by the Laws of other jurisdictions where the Partnership is registered. In addition, the General Partner will give prior notice of any dissolution of the Partnership by mailing to each Limited Partner and to the Registrar and Transfer Agent a notice at least 21 days prior to the filing of the declaration of dissolution prescribed by the Act.

13.4 Dissolution

The Partnership will be dissolved upon the completion of all matters set out in Section 13.3.

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13.5 No Right to Dissolve

No Limited Partner has the right to ask for the dissolution of the Partnership, for the winding-up of its affairs or for the distribution of its assets.

13.6 Agreement Continues

Notwithstanding the dissolution of the Partnership, this Agreement will not terminate until the provisions of Section 13.3 have been satisfied.

13.7 Capital Account Restoration

No Partner shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Partnership or otherwise.

ARTICLE 14
AMENDMENT

14.1 Power to Amend

Subject to Sections 14.2 and the rights of Exchangeable Units set forth in Schedule A, this Agreement or any part hereof, may be amended only in writing, with and only with the consent of all of the following: (i) the shareholders of TopCo by resolution passed by a simple majority of all votes cast at a meeting by holders entitled to vote at such meeting or by written consent of TopCo shareholders holding in the aggregate a majority of the outstanding TopCo shares; (ii) the holders of a majority of the Outstanding Units; (iii) the shareholders of TopCo (other than Rover and any Meteor Entity and their respective Affiliates and Associates) by resolution passed by a simple majority of all votes cast by such shareholders at a meeting by holders entitled to vote at such meeting or by written consent of such shareholders holding in the aggregate a majority of the outstanding TopCo shares (other than shares held by Rover and any Meteor Entity and their respective Affiliates and Associates) and (iv) the holders of a majority of the Outstanding Units (other than those beneficially owned by Rover, any Meteor Entity and their respective Affiliates and Associates); provided that:

(a) no amendment will be made to this Agreement which would have the effect of changing the Partnership from a limited partnership to a general partnership without the unanimous written consent of the Partners;

(b) no amendment will be made to this Agreement without the consent of the General Partner which would have the effect of adversely affecting the rights and obligations of the General Partner (other than an amendment to effect a dissolution of the Partnership pursuant to Section 13.1(a));

(c) no amendment to this Agreement may give any Person the right to dissolve the Partnership, other than the General Partner’s right to dissolve the Partnership pursuant to Section 13.1(b) and 13.1(c); and

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(d) any amendment that disproportionately and adversely affects any individual, group or class of holders of Units as compared to other holders of Units shall require the consent of each holder of Units so disproportionately and adversely affected.

14.2 Amendment by General Partner

Each Limited Partner agrees that the General Partner (pursuant to its powers of attorney from the Limited Partners or as expressly provided in this Agreement), without the approval of any Limited Partner, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection with that amendment, to reflect:

(a) a change in the name of the Partnership or the location of the principal place of business or the registered office of the Partnership;

(b) admission, substitution, withdrawal or removal of Limited Partners in accordance with this Agreement;

(c) a change that the General Partner, acting reasonably, determines is necessary to qualify or continue the qualification of the Partnership as a limited partnership which the Limited Partners have limited liability under the applicable laws;

(d) a change that, in the discretion of the General Partner, is reasonable and necessary or appropriate to enable Partners to take advantage of, or not be detrimentally affected by, changes, proposed changes or differing interpretations with respect to any of the Tax Act, the Code, U.S. Treasury Regulations, administrative pronouncements of the Internal Revenue Service and judicial decisions, or other taxation Laws;

(e) a change that the General Partner, acting reasonably, determines to be necessary to satisfy any requirements, conditions or guidelines contained in any Law;

(f) a change in the Fiscal Year or taxable year of the Partnership and any other changes that the General Partner determines to be necessary or appropriate as a result of a change in the Fiscal Year or taxable year of the Partnership;

(g) an amendment that the General Partner, acting reasonably, determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of Partnership Interests or options, rights, warrants or appreciation rights relating to Partnership Interests pursuant to Section 3.4; and

(h) any amendment expressly permitted in this Agreement to be made by the General Partner acting alone;

provided, that, the amendments set out in clauses ‎(c), ‎(d), ‎(e), ‎(g) and ‎(h) of this Section ‎14.2 may only be made without the approval of any Limited Partner if approved by a majority of the Specially Designated Directors then in office.

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From and after the Special Board Date (as defined in the Topco Articles), if neither any Meteor Entity nor Polaris is a 5% Holder (as defined in the Topco Articles), each Limited Partner agrees that the General Partner with the approval of the Topco board of directors (pursuant to its powers of attorney from the Limited Partners or as expressly provided in this Agreement), without the approval of any Limited Partner, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection with that amendment, to reflect:

(a) a change to cure any ambiguity or to correct or supplement any provisions contained in this Agreement which may be defective or inconsistent with any other provision contained in this Agreement, in each case, that does not adversely affect the Limited Partners in any material respect;

(b) a change that the General Partner, acting reasonably, determines (i) to be necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any Governmental Authority, or (ii) is required to effect the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement that does not adversely affect the Limited Partners in any material respect;

(c) an amendment that is necessary, in the written opinion of outside counsel to the Partnership, to prevent the Partnership, or the General Partner or its directors, officers, trustees or agents from having a material risk of being in any manner subjected to the provisions of the U.S. Investment Company Act of 1940, as amended, the U.S. Investment Advisers Act of 1940, as amended, or “plan asset” regulations adopted under the U.S. Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor; or

(d) an amendment that the General Partner, acting reasonably, determines to be necessary or appropriate to reflect and account for the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Partnership of activities permitted by the terms of Section 2.2 that does not adversely affect the Limited Partners in any material respect.

14.3 Notice of Amendments

The General Partner will notify the Limited Partners in writing of the full details of any amendment to this Agreement, if any, within 30 days of the effective date of the amendment.

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ARTICLE 15
MISCELLANEOUS

15.1 Binding Agreement

Subject to the restrictions on assignment and transfer contained in this Agreement, this Agreement will enure to the benefit of and be binding upon the parties to this Agreement and their respective heirs, executors, administrators and other legal representatives, successors and assigns.

15.2 Time

In connection with the exchange of Exchangeable Units for Exchanged Shares, time will be of the essence in this Agreement.

15.3 Counterparts

This Agreement, or any amendment to it, may be executed in multiple counterparts (including electronically), each of which will be deemed an original agreement. This Agreement may also be executed and adopted in any instrument signed by a Limited Partner with the same effect as if the Limited Partner had executed a counterpart of this Agreement. All counterparts and adopting instruments will be construed together and will constitute one and the same agreement.

15.4 Governing Law

This Agreement and the Schedules to this Agreement will be governed and construed exclusively according to the Laws of the Province of Ontario and the Laws of Canada applicable therein and the parties to this Agreement irrevocably attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario.

15.5 Severability

If any part of this Agreement is declared invalid or unenforceable, then that part will be deemed to be severable from this Agreement and will not affect the remainder of this Agreement.

15.6 Further Acts

The parties will perform and cause to be performed any further and other acts and things and execute and deliver or cause to be executed and delivered any further and other documents as counsel to the Partnership considers necessary or desirable to carry out the terms and intent of this Agreement.

15.7 Entire Agreement

This Agreement constitutes the entire agreement among the parties to this Agreement with respect to the subject matter of this Agreement.

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15.8 Limited Partner Not a General Partner

If any provision of this Agreement has the effect of imposing upon any Limited Partner (other than the General Partner) any of the liabilities or obligations of a general partner under the Act, that provision will be of no force and effect.

15.9 Amendment and Restatement of Original Limited Partnership Agreement

This Agreement amends, restates and replaces in its entirety the Original Limited Partnership Agreement.

15.10 Language of Agreement

The parties to this Agreement have expressly agreed that this Agreement be drawn in the English language. Les parties aux présentes ont expressément convenu que le présent contrat soit rédigé en anglais.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF the parties to this Agreement have executed this Agreement as of the date first set out above.

TELESAT CORPORATION
in its own capacity and as General Partner of the Partnership and agent and attorney for the Leo Electing Stockholders
By:	/s/ Christopher DiFrancesco
	Name: Christopher DiFrancesco
	Title: Vice President, General Counsel and Secretary
RED ISLE PRIVATE INVESTMENTS INC.
By:	/s/ Selin Bastin
	Name: Selin Bastin
	Title: Authorized Signatory
By:	/s/ Martin Longchamps
	Name: Martin Longchamps
	Title: Authorized Signatory
PUBLIC SECTOR PENSION INVESTMENT BOARD
solely for the limited purposes described herein
By:	/s/ Selin Bastin
	Name: Selin Bastin
	Title: Authorized Signatory
By:	/s/ Martin Longchamps
	Name: Martin Longchamps
	Title: Authorized Signatory
	/s/ John Cashman
	John Cashman
	/s/ Clare Copeland
	Clare Copeland
	/s/ Henry Intven
	Henry Intven

[Signature Page to Amended and Restated Limited Partnership Agreement]

SCHEDULE A

EXCHANGEABLE UNITS OF THE PARTNERSHIP

ARTICLE 1
DEFINITIONS

For the purposes of this Schedule A, unless the context otherwise requires, each term denoted herein by initial capital letters and not otherwise defined herein shall have the meanings ascribed thereto in Section 1.1 of the Agreement. The following definitions are applicable to the terms of the Exchangeable Units:

“Class A Holder Votes” has the meaning set out in Section 3.4(a)(i) of this Schedule A;

“Class B Holder Votes” has the meaning set out in Section 3.4(a)(ii) of this Schedule A;

“Class Vote Proposal” has the meaning set out in Section 3.4(e) of this Schedule A;

“Combined Vote” has the meaning set out in Section 3.4(b)(i) of this Schedule A;

“Exchange Date” means, for any exchange of Exchangeable Units, the Exchange Date specified in the applicable Exchange Notice, which date must be a Business Day and must not be less than two Business Days nor more than ten Business Days after the date upon which such Exchange Notice is delivered to the office of the Partnership. If no such Business Day is specified in an Exchange Notice, the Exchange Date shall be deemed to be the second Business Day after the date on which such Exchange Notice is received by the Partnership, and in the event the General Partner fails to deliver Exchanged Shares on such date, the Exchange Date shall be deemed to be the date on which such Exchanged Shares are delivered;

“Exchange Notice” means the notice in the form of Exhibit A hereto (with such changes as may be determined in good faith by the General Partner consistent with this Agreement) or in such other form as may be acceptable to the General Partner;

“Exchange Right” has the meaning set out in Section 2.1(a) of this Schedule A;

“Exchanged Shares” means, subject to Section 3.5(b): (i) in respect of a Class A Exchangeable Unit, one TopCo Class A Share; (ii) in respect of a Class B Exchangeable Unit, one TopCo Class B Share; and (iii) in respect of a Class C Exchangeable Unit, one TopCo Class C Fully Voting Share (or at the election of the holder, one TopCo Class C Limited Voting Share);

“Exempt Exchangeable Voting Event” means any matter in respect of which applicable Law provides holders of Exchangeable Units with a vote as holders of Units of the Partnership in order to approve or disapprove, as applicable, any change to, or any change in the rights of the holders of, the Exchangeable Units, where the approval or disapproval, as applicable, of such change would be required to maintain the economic equivalence of the Exchangeable Units and the TopCo Shares;

“Holder Votes” has the meaning set out in Section 3.4(a)(iii) of this Schedule A;

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“List” has the meaning set out in Section 3.3 of this Schedule A;

“TopCo Consent” means any written consent sought from shareholders of TopCo;

“TopCo Control Transaction” shall be deemed to have occurred upon the consummation of a merger, amalgamation, arrangement or consolidation, of TopCo, other than any transaction which would result in the holders of outstanding voting securities of TopCo (assuming the exchange of all outstanding Exchangeable Units for Exchanged Shares) immediately prior to such transaction having at least a majority of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction, with the voting power of each such continuing holder relative to other continuing holders not being altered substantially in the transaction.

“TopCo Meeting” means any meeting of shareholders of TopCo at which holders of any or all classes of TopCo Shares are entitled to vote; and

“Subject Units” has the meaning set out in Section 2.1(b) of this Schedule A.

ARTICLE 2
EXCHANGE OF EXCHANGEABLE UNITS BY HOLDER

2.1 Exchange Right

(a) From and after the date that is six months following the date of the Merger Effective Time, a holder of Exchangeable Units shall, at any time and from time to time, have the right to require the Partnership to repurchase any or all of the Exchangeable Units held by such holder in exchange for, and in connection therewith the right to require TopCo to issue, the applicable Exchanged Shares (the “Exchange Right”); provided, however, that a holder of Exchangeable Units may exercise its Exchange Right at any time to effect a transfer to be effective immediately prior to (and if so elected by such holder, subject to) the closing of a TopCo Control Transaction so that such Exchanged Shares to be received by such holder in such repurchase will have the full right and power to participate in such Topco Control Transaction (and such right and power shall be expressly recognized and provided for in any agreement relating to any such Topco Control Transaction).

(b) To exercise the Exchange Right, the holder shall present and surrender at the office of the Partnership (or at any office of the Registrar and Transfer Agent as may be specified by the Partnership by notice to the holders of Exchangeable Units) a duly executed Exchange Notice together with such additional customary documents and instruments as the Registrar and Transfer Agent or the Partnership may reasonably require; provided that a definitive list of any such documents and instruments and copies thereof shall be posted publicly on the Company’s website. The Exchange Notice shall specify the number and class of Exchangeable Units in respect of which the holder is exercising the Exchange Right (the “Subject Units”) and, in the case of Class C Exchangeable Units, whether such Units are to be exchanged for TopCo Class C Fully Voting Shares or TopCo Class C Limited Voting Shares.

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2.2 Share Settlement

Provided that the Exchange Notice is not revoked by the holder in the manner specified in Section 2.4 of this Schedule A, effective at the close of business on the Exchange Date:

(a) the Partnership shall have, and shall be deemed to have, repurchased the Subject Units for cancellation in consideration for the transfer to such holder of the applicable number of Exchanged Shares and such holder shall be deemed to have transferred to the Partnership all of such holder’s right, title and interest in and to the Subject Units;

(b) the General Partner shall deliver (or cause to be delivered) to such holder or in accordance with its direction, for and on behalf of the Partnership and in the manner provided for in Section 2.3 of this Schedule A, the applicable number of Exchanged Shares; and

(c) the Partnership shall issue to the General Partner a number of GP Units equal to the number of Exchanged Shares delivered to such holder pursuant to Section 2.2(b) of this Schedule A, in consideration for the General Partner delivering such Exchanged Shares to such holder.

Notwithstanding the foregoing, neither the Partnership, nor the General Partner, shall be liable for damages arising from a failure to deliver the applicable number of Exchanged Shares (x) on an Exchange Date of less than three Business Days after the date upon which such Exchange Notice is delivered to the office of the Partnership, so long as each of the Partnership and the General Partner used commercially reasonable efforts to meet such Exchange Date, or (y) on any Exchange Date as a result of any cause or impediment not reasonably within the control of the Partnership or the General Partner, including any failure on behalf of the Registrar or Transfer Agent to take timely any actions requested by the Partnership or the General Partner, so long as each of the Partnership and the General Partner used reasonable best efforts to eliminate such cause or impediment. The Partnership and the General Partner shall have a continuing obligation to deliver the Exchange Shares, even if not delivered on the specified Exchange Date.

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2.3 Effect of Exchange

(a) Subject to compliance by the applicable holder of the Subject Units with the terms of this Schedule A, the Partnership (or the General Partner for and on behalf of the Partnership) shall deliver or cause the Registrar and Transfer Agent to deliver to the relevant holder or in accordance with its direction, as applicable the applicable Exchanged Shares (which shares shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim or encumbrance) less any amounts withheld on account of tax pursuant to Section 5.5(a) of the Agreement, and such delivery by or on behalf of the Partnership or by the Registrar and Transfer Agent shall be deemed to be payment of and shall satisfy and discharge all liability for the total consideration payable or issuable. To the extent that amounts are so required to be deducted or withheld on account of tax pursuant to Section 5.5(a), the Partnership (or the General Partner for and on behalf of the Partnership) is hereby authorized to sell such portion of the Exchanged Shares otherwise payable to the holder as is necessary to provide sufficient funds to the Partnership to enable it to comply with such deduction or withholding requirement and the Partnership (or the General Partner for and on behalf of the Partnership) shall notify such holder of such sale and (x) remit the applicable portion of the net proceeds of such sale to the appropriate taxing authority and (y) the remaining net proceeds of such sale (after deduction for the amounts described in clause (x)) to such holder; provided that the General Partner shall use its reasonable best efforts to provide such holder with the opportunity to pay any withholding tax in cash, in lieu of having Exchanged Shares sold to pay some or all of the withholding tax. The General Partner shall respond to reasonable inquiries from the holders of Exchangeable Units as to the existence and amount of any withholding tax upon the exchange of such Exchangeable Units and otherwise cooperate in a reasonable manner, so that such payment can be made promptly and in a manner and at a time that will not result in a failure of delivery of all Exchanged Shares without any need for a sale as contemplated above, as, and within the time periods, contemplated in 2.2(b) above.

(b) On and after the close of business on the Exchange Date, the holders of the Subject Units shall cease to be holders of such Subject Units and all rights with respect to such Subject Units shall immediately cease and terminate, other than the right to receive the applicable Exchanged Shares in accordance with the provisions of this Article 2. On and after the close of business on the Exchange Date, provided that payment of the applicable Exchanged Shares has been made in accordance with the foregoing provisions, the holder of the Subject Units exchanged for TopCo Shares shall thereafter be considered and deemed for all purposes to be a holder of the applicable number and class of TopCo Shares delivered to it.

(c) Notwithstanding Section 2.3(b) of this Schedule A, where a record date in respect of a distribution occurs prior to the Exchange Date with regard to any Exchangeable Unit as to which an Exchange Notice has been delivered and there is any declared and unpaid distribution on any Exchangeable Unit as to which an Exchange Notice has been delivered, subject to Section 6.1 of this Schedule A, such distribution shall remain payable and shall be paid in the applicable form on the designated payment date to the former holder of the Exchangeable Unit so exchanged hereunder.

(d) All filing fees, transfer taxes, sales taxes, document stamps or other similar charges levied by any Governmental Authority in connection with the repurchase of the Exchangeable Units pursuant to the Agreement shall be paid by the Partnership; provided, however, that the holder of such Exchangeable Units shall pay any such fees, taxes, stamps or similar charges that may be payable as a result of any transfer of the consideration payable in respect of such Exchangeable Units to a Person other than such holder. Except as otherwise provided in the Agreement, each party will bear its own costs in connection with the performance of its obligations under the Agreement.

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2.4 Revocation Right

A holder of Subject Units may, by notice in writing given by the holder to the Partnership before the close of business on the second Business Day immediately preceding the Exchange Date, withdraw its Exchange Notice, in which event such Exchange Notice shall be null and void.

2.5 Mandatory Exchange

In the event that:

(a) at any time the number of Exchangeable Units Outstanding (other than Exchangeable Units held by the General Partner or its Affiliates and as such number of Units may be adjusted in accordance with the Agreement to give effect to a Combination or Subdivision of, or unit distribution on, the Exchangeable Units, or any issue or distribution of rights to acquire Exchangeable Units or securities exchangeable for or convertible into Exchangeable Units following the date hereof) represents less than 2% of the equity capital of the General Partner on a fully-diluted basis, or

(b) a TopCo Control Transaction occurs with respect to which both: (i) the General Partner’s Board of Directors has determined, in good faith, that such TopCo Control Transaction involves an arm’s length transaction between TopCo and a bona fide third party and has a legitimate material commercial purpose other than causing the exchange of the Exchangeable Units in connection with such TopCo Control Transaction; and (ii) the holders of the Exchangeable Units have received not less than 15 Business Days prior written notice from the General Partner prior to the date that it makes such determination, or

(c) an Exempt Exchangeable Voting Event is proposed and, following reasonable prior written notice to the holders of the Exchangeable Units by the General Partner that such proposal constitutes an Exempt Exchangeable Voting Event, the requisite plurality of such holders fail to vote or provide written consent or proxy with respect to such Exchangeable Units (to the extent such actions are permitted by Law and would not cause a violation of this Agreement, the TopCo Articles, or the Investor Rights Agreement) at a meeting called in accordance with this Agreement to approve or disapprove, as applicable, the Exempt Exchangeable Voting Event in order to maintain economic equivalence of the Exchangeable Units and the GP Units,

then on prior written notice given by the Partnership to the holders of Exchangeable Units at least fifteen days prior to such mandatory exchange, in the case of the foregoing Sections 2.5(a) and 2.5(b), and on the Business Day following the day on which the holders of the Exchangeable Units failed to take such action in the case of the foregoing Section 2.5(c), the Partnership may cause a mandatory exchange of all of the Outstanding Exchangeable Units (which shall be deemed to be the Subject Units), on such date as is specified by the Partnership in such notice (which shall be deemed to be the Exchange Date), pursuant to Section 2.2 of this Schedule A, and for greater certainty the holders of Exchangeable Units shall not have the right to revoke such mandatory exchange pursuant to this Section 2.5 of Schedule A.

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2.6 Take-Over Bid

With respect to any matter described in Section 3.23 of the Agreement that is proposed or recommended by the General Partner or the General Partner’s Board of Directors, and as a term thereof, the Partnership will cause to be put in place procedures or cause the Registrar and Transfer Agent to put in place procedures to ensure that, if holders of Exchangeable Units are required to exchange such Exchangeable Units to participate in a TopCo Offer, any such exchange shall be conditional upon and shall only be effective if the TopCo Shares tendered or deposited under such TopCo Offer are taken up.

ARTICLE 3
VOTING RIGHTS

3.1 Mailings to TopCo Shareholders

TopCo, in its own capacity and not in its capacity as General Partner, will deliver to the General Partner copies of all proxy materials (including notices of TopCo Meetings but excluding proxies to vote TopCo Shares), information statements, reports (including all interim and annual financial statements) and other written communications that, in each case, are to be distributed from time to time to holders of TopCo Shares in sufficient quantities and in sufficient time so as to enable the General Partner to send those materials to each Exchangeable Holder at the same time as such materials are first sent to holders of TopCo Shares. The General Partner will promptly mail or cause to be mailed (or otherwise communicate in the same manner as TopCo utilizes in communications to holders of TopCo Shares, subject to applicable Laws and provided such manner of communications is reasonably available to the General Partner) to each Exchangeable Holder, at the expense of TopCo, such mailing or communication to commence on the same day as the mailing or notice (or other communication) with respect thereto is commenced by TopCo to its shareholders:

(a) a copy of such notice, together with any related materials, including any proxy circular or information statement, to be provided to shareholders of TopCo;

(b) a statement that such Exchangeable Holder is entitled to instruct the General Partner to instruct the Trust as to the exercise of the Holder Votes with respect to such TopCo Meeting or TopCo Consent or, pursuant to Section 2.03 of the Voting Agreement, to attend such TopCo Meeting and to exercise personally the Holder Votes thereat;

(c) a written statement as to the manner in which such instructions may be given to the General Partner, including an express indication that instructions may be given to the General Partner to give:

(i) a proxy to such Exchangeable Holder or his or her designee to exercise personally the Holder Votes as contemplated in Section 3.5 below;

A-6

(ii) a proxy to a designated agent or other representative of the management of TopCo to exercise such Holder Votes in accordance with the elections(s) indicated by such Exchangeable Holder in the space that shall be included on such proxy for casting votes on each of the matters that are to be presented for a vote at the applicable meeting; and

(iii) a statement that if no such instructions are received from an Exchangeable Holder, the Holder Votes with respect to which such Exchangeable Holder is entitled to give instructions will not be exercised by the Trust;

(d) a form of direction whereby an Exchangeable Holder may so direct and instruct the General Partner as contemplated herein; and

(e) a statement of the time and date by which such instructions must be received by the General Partner in order to be binding upon it, which in the case of a TopCo Meeting shall not be earlier than the close of business on the third Business Day prior to such meeting, and of the method for revoking or amending such instructions.

provided, however, that the General Partner shall not be required to provide an Exchangeable Holder such mailing or communication relating to a TopCo Meeting at which or TopCo Consent for which the TopCo Shares receivable upon the exchange of the Exchangeable Units owned of record by such Exchangeable Units do not have the right to vote. The General Partner will include in all such communications contemplated in clauses (a) through (e) above, a written form of proxy, notice or instruction, together with a pre addressed return envelope, so that the holder of the Exchangeable Units will be able to complete and sign such form and return it to as appropriate, in order to exercise the rights and powers contemplated herein.

3.2 Other Materials

As soon as reasonably practicable after receipt by TopCo or shareholders of TopCo (if such receipt is known by TopCo) of any material sent or given by or on behalf of a third party to holders of TopCo Shares generally, including dissident proxy and information circulars (and related information and material) and take-over bid circulars (and related information and material), TopCo shall use its reasonable commercial efforts to obtain and deliver to the General Partner copies thereof in sufficient quantities so as to enable the General Partner to forward such material (unless the same has been provided directly to Exchangeable Holders by such third party) to each Exchangeable Holder as soon as possible thereafter. As soon as reasonably practicable after receipt thereof, the General Partner will mail or otherwise send to each Exchangeable Holder, at the expense of TopCo, copies of all such materials received by the General Partner from TopCo. The General Partner will also make available for inspection by any Exchangeable Holder at the General Partner’s principal office in Toronto, Ontario copies of all such materials.

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3.3 List of Persons Entitled to Vote

The Partnership shall (a) prior to each annual, general and special TopCo Meeting or the seeking of any TopCo Consent from the holders of TopCo Shares and (b) forthwith upon each request made at any time by the Trustee in writing, prepare or cause to be prepared a list (a “List”) of the names and addresses of the Exchangeable Holders arranged in alphabetical order and showing the number of Exchangeable Units held of record by each such Exchangeable Holder, in each case at the close of business on the date specified by TopCo in such request or, in the case of a List prepared in connection with a TopCo Meeting or a TopCo Consent, at the close of business on the record date established by TopCo or pursuant to applicable Law for determining the holders of TopCo Shares entitled to receive notice of and/or to vote at such TopCo Meeting or to give consent in connection with such TopCo Consent. Each such List shall be delivered to the Trustee promptly after receipt by the Partnership of such request or the record date for such meeting or seeking of consent, as the case may be, and in any event within sufficient time as to permit the Trustee to perform its obligations under the Voting Agreement.

3.4 Entitlement to Direct Votes

(a) Generally

(i) With respect to all TopCo Meetings at which the TopCo Class A Shares have the right to vote, and with respect to any solicitation of TopCo Consents in which the consent of the holders of the TopCo Class A Shares are sought, each holder of Class A Exchangeable Units shall be entitled to instruct the General Partner to direct the Trust to cast and exercise, in the manner instructed, that number of votes comprised in the Voting Rights for the Class A Special Voting Share which is equal to that number of votes which would attach to the TopCo Class A Shares receivable upon the exchange of the Class A Exchangeable Units owned of record by such holder of Class A Exchangeable Units on the record date established by TopCo or by applicable Law for such TopCo Meeting or TopCo Consent, as the case may be (the “Class A Holder Votes”) in respect of each matter, question, proposal or proposition on which TopCo Class A Shares are entitled to vote at such TopCo Meeting or in connection with such TopCo Consents.

(ii) With respect to all TopCo Meetings at which the TopCo Class B Shares have the right to vote, and with respect to any solicitation of TopCo Consents in which the consent of the holders of the TopCo Class B Shares are sought, each holder of Class B Exchangeable Units shall be entitled to instruct the General Partner to direct the Trust to cast and exercise, in the manner instructed, that number of votes comprised in the Voting Rights for the Class B Special Voting Share which is equal to that number of votes which would attach to the TopCo Class B Shares receivable upon the exchange of the Class B Exchangeable Units owned of record by such holder of Class B Exchangeable Units on the record date established by TopCo or by applicable Law for such TopCo Meeting or TopCo Consent, as the case may be (the “Class B Holder Votes”) in respect of each matter, question, proposal or proposition on which TopCo Class B Shares are entitled to vote at such TopCo Meeting or in connection with such TopCo Consent.

A-8

(iii) With respect to any (A) TopCo Meetings at which the TopCo Class C Fully Voting Shares and/or the TopCo Class C Limited Voting Shares have the right to vote, and (B) any solicitation of TopCo Consents in which the consent of the holders of the TopCo Class C Fully Voting Shares and/or the TopCo Class C Limited Voting Shares are sought, in each case, each holder of Class C Exchangeable Units shall be entitled to instruct the General Partner to direct the Trust to cast and exercise, in the manner instructed by the holder of Class C Exchangeable Units, that number of votes comprised in the Voting Rights for the Class C Special Voting Share which is equal to that number of votes which would attach to the TopCo Class C Fully Voting Shares and/or the TopCo Class C Limited Voting Shares (such number of votes as allocated between TopCo Class C Fully Voting Shares and/or the TopCo Class C Limited Voting Shares by such holder of Class C Exchangeable Units in its instructions to the General Partner) receivable upon the exchange of the Class C Exchangeable Units owned of record by such holder of Class C Exchangeable Units on the record date established by TopCo or by applicable Law for such TopCo Meeting or TopCo Consent, as the case may be (collectively with the Class A Holder Votes and the Class B Holder Votes, the “Holder Votes”) in respect of each matter, question, proposal or proposition on which TopCo Class C Shares are entitled to vote at such TopCo Meeting or in connection with such TopCo Consent, assuming each such Class C Exchangeable Unit were exchanged for a TopCo Class C Fully Voting Share or a TopCo Class C Limited Voting Share, as applicable.

(b) In Connection with the Separate Class Vote of a Special Voting Share

(i) Notwithstanding Section 3.4(a) of this Schedule A, in the event that under applicable law any matter requires the approval of the holder of record of a particular Special Voting Share, voting separately as a class, the General Partner shall direct the Trust to cast and exercise, in the manner instructed, that number of votes comprised in the Voting Rights for such Special Voting Share:

(A) in favour of the relevant matter where the result of the vote of the holders of the class of TopCo Shares receivable upon the exchange of the Exchangeable Units to which such Special Voting Share relates (e.g., TopCo Class A Shares in the case of the Class A Special Voting Share) and the applicable class of Holder Votes (e.g., Class A Holder Votes in the case of the Class A Special Voting Share), voting together if they were as a single class on such matter (a “Combined Vote”), would be the approval of such matter; and

(B) against the relevant matter where the result of the Combined Vote would be against the relevant matter;

A-9

provided that, in the event of a vote on a proposal to amend the TopCo Articles to, or to take any other action that would: (x) effect an exchange, reclassification, cancellation or other modification which could adversely affect such Special Voting Share or the rights thereunder relative to the applicable class of TopCo Shares (e.g., TopCo Class A Shares in the case of the Class A Special Voting Share) or (y) add, change, amend, modify or remove in any respect the rights, privileges, restrictions or conditions attached to such Special Voting Share (any of the foregoing actions described in clauses (x) or (y), a “Class Vote Proposal”), in each case, the General Partner shall direct the Trust to cast and exercise, in the manner instructed, that number of votes comprised in the Voting Rights for such Special Voting Share (i) in favour of such Class Vote Proposal if a majority of the class of Holder Votes alone (e.g., Class A Holder Votes in the case of the Class A Special Voting Share), rather than a Combined Vote, voted in favour of such Class Vote Proposal, otherwise (ii) against such Class Vote Proposal.

(c) For the purpose of determining Holder Votes with respect to which such Unitholder is entitled to give instructions pursuant to the Agreement in respect of any TopCo Meeting or TopCo Consent, the number of Exchangeable Units owned of record by a Unitholder shall be determined at the close of business on the record date established by TopCo or by applicable Law for purposes of determining shareholders entitled to vote at such TopCo Meeting.

(d) For instructions with respect to the Voting Rights to be timely delivered by the holders of Exchangeable Units, such instructions must be delivered: (i) with respect to a TopCo Meeting, no later than three Business Days prior to the proxy cut-off time established by TopCo for such TopCo Meeting, or (ii) with respect to a TopCo Consent, no later than the close of business on the third Business Day prior to the deadline specified in such TopCo Consent, if any. The General Partner, may, in its sole discretion, choose to treat instructions delivered subsequent to the times set forth in the preceding sentence as timely delivered. The General Partner shall specify all such applicable times and dates (by reference to a specific time and date and not to a computation methodology) in each of its relevant notices required to be given to each holder of Exchangeable Units.

(e) The General Partner shall timely direct the Trust, in writing, to cast and exercise, in the manner timely instructed, the Voting Rights in accordance with the voting instructions received pursuant to Section 3.4(a) and 3.4(b). To the extent that no instructions are timely received by the General Partner with respect to the Voting Rights with respect to any Special Voting Share, the General Partner shall instruct the Trust not exercise or permit the exercise of such Voting Rights.

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3.5 Exchangeable Holder Proxies

At the request of a holder of Exchangeable Units, the General Partner shall direct the Trustee to sign and deliver to such holder of Exchangeable Units (or its designee) a proxy to exercise personally the Holder Votes of such holder of Exchangeable Units with respect to the applicable Special Voting Shares; provided that such Unit Holder provides such identifying information as is reasonably requested by the Trustee and either (i) has not previously given the General Partner instructions pursuant to Section 3.4 in respect of such TopCo Meeting or (ii) submits to the General Partner written revocation of any such previous instructions. The holder of Exchangeable Units exercising such Holder Votes shall have the same rights as the Trust would have had in relation to such Holder Votes to speak at the TopCo Meeting in respect of any matter, question, proposal or proposition, to vote by way of ballot at the TopCo Meeting in respect of any matter, question, proposal or proposition, and to vote by way of a show of hands in respect of any matter, question or proposition.

3.6 Actions of Exchangeable Holders

The Exchangeable Holders shall have the right to institute any action, suit or proceeding or to exercise any other remedy under or pursuant to the Agreement or the Voting Agreement in relation to directing the exercise of rights attached to a Special Voting Share as the Trustee might have taken.

3.7 Voting of Golden Share

The General Partner shall instruct the Trustee to vote the Golden Share as provided for in the Voting Agreement.

ARTICLE 4
other rights as shareholders

4.1 Certain Statutory Rights as Shareholders

TopCo hereby agrees that the Exchangeable Holders shall have the right to exercise the following rights of shareholders of TopCo on an “as-if exchanged” basis, meaning that such Exchangeable Holders shall have the same rights as if they had exchanged their Exchangeable Units for TopCo Shares:

(a) All rights of holders of common shares set forth in the TopCo Articles and under applicable Law (other than voting rights and rights to dividends or other distributions).

(b) Inspection of books and records as set forth in Section 46, 48, 196(4) and (5), 436(2) and 428(1) of the BCBA.

(c) The right to obtain the List and all shareholder lists as set forth in Section 49 of the BCBA.

(d) The right to make a shareholder requisition, to have a court call a shareholder meeting, to participate in a meeting telephonically and to submit shareholder proposals as set forth in Sections 167, 174(1), 186-191 of the BCBA, provided that the Exchangeable Holders also comply with the TopCo Articles.

A-11

ARTICLE 5
AMENDMENT AND APPROVAL

5.1 Amendments

(a) In addition to any other approval required pursuant to the terms of this Agreement, the rights, privileges, restrictions and conditions attaching to the Exchangeable Units may be added to, changed or removed but only with the approval of:

(i) in the case of amendments that would increase or decrease the economic rights of an Exchangeable Unit relative to the applicable class of TopCo Share it would be exchangeable into, such that such securities would cease to have economic equivalence, or that would otherwise enhance or limit the rights, privileges, restrictions or conditions attaching to such Exchangeable Units relative to the rights, privileges, restrictions or conditions attaching to the applicable TopCo Shares, (A) in the case of amendments to the Class A Exchangeable Units, (i) the holders of Class A Exchangeable Units pursuant to Section 5.1(b) of this Schedule A, (ii) the holders of a majority of the outstanding TopCo Class A Shares and (iii) the General Partner; (B) in the case of amendments to the Class B Exchangeable Units, (i) the holders of Class B Exchangeable Units pursuant to Section 5.1(b) of this Schedule A, (ii) the holders of a majority of the outstanding TopCo Class B Shares and (iii) the General Partner; and (C) in the case of amendments to the Class C Exchangeable Units, (i) the holders of Class C Exchangeable Units pursuant to Section 5.1(b) of this Schedule A, and (ii) the holders of a majority of the outstanding TopCo Class C Shares and (iii) the General Partner; or

(ii) in the case of any amendment (x) not covered by Section 5.1(a)(i) of this Schedule A and (y) that would affect the rights, privileges, restrictions or conditions attaching to certain of the Exchangeable Units in a manner adverse to those holders of Exchangeable Units relative to other holders of Exchangeable Units, with the approval all of the holders of the adversely affected Exchangeable Units and the General Partner; or

(iii) in the case of any other amendment that would affect the rights, privileges, restrictions or conditions attaching to the Exchangeable Units, the General Partner; provided, that, until the Special Board Date (as defined in the TopCo Articles), the amendments set out in this clause (a)(iii) may only be made without the approval of any Limited Partner if approved by a majority of the Specially Designated Directors then in office.

(b) Any approval given by the holders of the Exchangeable Units to add to, change or remove any right, privilege, restriction or condition attaching to the class of Exchangeable Units held by such holders or any other matter requiring the approval or consent of the holders of the Exchangeable Units, shall be deemed to have been sufficiently given if it shall have been given in accordance with applicable Law subject to a minimum requirement that such approval be evidenced by an Ordinary Resolution passed by the holders of such class of Exchangeable Units.

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(c) Neither the Partnership nor TopCo will propose, agree to or otherwise give effect to:

(i) any amendment to, or waiver of its rights or obligations under, the Voting Agreement without the approval of the Partners given in accordance with Section 5.1(a); or

(ii) the termination of the Voting Agreement in accordance with Section 8.01 of the Voting Agreement without the approval of at least 75 % of the voting power attached to the Exchangeable Units (excluding Units owned by the General Partner and its Subsidiaries), which 75% approval shall include the vote of a majority of the voting power attached to the Exchangeable Units (other than Exchangeable Units beneficially owned by Rover, any Meteor Entity and their respective Affiliates and Associates); and provided that any such termination shall include the implementation of a successor Voting Agreement no less favorable to the owners of the Exchangeable Units .

ARTICLE 6
GENERAL

6.1 Fractional Shares

A holder of Exchangeable Units shall not be entitled to any fraction of a TopCo Share and no certificates representing any such fractional interest shall be issued, and such holder otherwise entitled to a fractional interest shall only be entitled to receive the nearest whole number of TopCo Shares, rounded down.

6.2 Tax Treatment

This Schedule A shall be treated as part of the partnership agreement of the Partnership as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the U.S. Treasury Regulations.

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EXHIBIT A

EXCHANGE NOTICE

To Telesat Partnership LP (the “Partnership”)

This notice is given pursuant to Section 2.1(a) of Schedule A of the Amended and Restated Limited Partnership Agreement, as amended from time to time, between Telesat Corporation (“Topco”), in its own capacity and as general partner, and the other parties thereto (the Limited Partnership Agreement”). All capitalized words and expressions used in this notice that are defined in the Limited Partnership Agreement have the meanings ascribed to such words and expressions in such Limited Partnership Agreement.

The undersigned hereby notifies the Partnership that the undersigned desires to have the Partnership exchange in accordance with the terms of the Limited Partnership Agreement:

¨ all Class _____ Exchangeable Unit(s) held by the undersigned; or

¨ _________ Class _____ Exchangeable Unit(s) held by the undersigned,

on __________ (the “Exchange Date”).

NOTE: The “Exchange Date” must be a Business Day and must not be less than two Business Days nor more than ten Business Days after the date upon which the Exchange Notice is delivered to the office of the Partnership. If no such Business Day is specified in an Exchange Notice, the Exchange Date shall be deemed to be the second Business Day after the date on which such Exchange Notice is received by the Partnership.

If the undersigned is exchanging Class C Exchangeable Units, the undersigned hereby notifies the Partnership it desires to have the Partnership exchange the foregoing Exchangeable Unit(s) for _____ Topco Class C Fully Voting Shares and _____ TopCo Class C Limited Voting Shares.

This Exchange Notice may be revoked and withdrawn by the undersigned only by notice in writing given to the Partnership at any time before the close of business on the second Business Day preceding the Exchange Date.

The undersigned hereby represents and warrants to the Partnership that the undersigned has good title to, and owns, the Exchangeable Units subject to this notice to be acquired by the Partnership free and clear of all liens, claims and encumbrances.

¨      If the undersigned is exchanging Class A Exchangeable Units or Class C Exchangeable Units, the undersigned represents that they are a Qualified Canadian (as defined in the Limited Partnership Agreement) and will promptly provide evidence in form and substance satisfactory to the General Partner of the Unitholder’s status as a Qualified Canadian upon request of the Partnership. Failure to check this box means that TopCo Class B Shares will be issued.

(Signature of Record Holder) (Name of Record Holder) (Date)

Exh. A-1

NOTE: The securities resulting from the exchange of the Exchangeable Units will be issued and registered in the name of the Unitholder as it appears on the register of the Partnership unless either option appearing immediately below is duly completed.

¨ If the securities are to be issued to a Canadian broker account (CDS TRAX):

Canadian Broker Name:  

Canadian Broker Address:  

Canadian Broker CUID:  

Canadian Broker Account Number:  

Canadian Broker Phone Number:  

Signature of Record Holder:  

¨ If the securities are to be issued to a U.S. broker account (DWAC):

U.S. Broker Name:  

U.S. Broker Address:  

U.S. Broker DTC Number:  

Account Number:  

U.S. Broker Contact Name:  

U.S. Broker Phone Number:  

Signature of Record Holder:  

Exh. A-2

EX-99.4

Exhibit 99.4

TRUST AGREEMENT

creating

TELESAT CORPORATION TRUST

Made as of November 18, 2021

i

	TABLE OF CONTENTS
		Page
Article One INTERPRETATION		1
Section 1.01	Definitions	1
Section 1.02	Rules of Construction	3
Section 1.03	Governing Law	4
Section 1.04	References to Acts of the Trust	4
Article Two ESTABLISHMENT AND ACTIVITIES OF THE TRUST		4
Section 2.01	Establishment of Trust	4
Section 2.02	Activities of the Trust	4
Article Three CHARACTERISTICS OF THE TRUST		6
Section 3.01	Name and Head Office	6
Section 3.02	Nature and Object of the Trust	6
Section 3.03	Representations and Covenants	6
Article Four RIGHTS AND POWERS OF TRUSTEE		7
Section 4.01	General Powers	7
Section 4.02	Legal Title and Custody	7
Section 4.03	Possession, Use and Disposition of Assets	7
Section 4.04	Taxes	7
Section 4.05	Collection	8
Section 4.06	Expenses and Compensation of Trustee	8
Section 4.07	Allocation	9
Section 4.08	Fiscal Year and Form of Accounts	9
Section 4.09	Power to Contract	9
Section 4.10	Further Powers	10
Section 4.11	Auditors	10
Section 4.12	Power of Attorney	10
Section 4.13	Defect in Appointment	11
Article Five REPLACEMENT OF TRUSTEE		11
Section 5.01	Resignation or Removal of Trustee; Conflict of Interest	11
Article Six LIABILITY OF TRUSTEE		12

ii

Section 6.01	Standard of Care	12
Section 6.02	Limitation of Liability of Trustee	13
Section 6.03	Indemnification of Trustee	14
Section 6.04	Reliance upon Directions and Advice	14
Section 6.05	Limitation of Liability of Beneficiaries	15
Section 6.06	Interest of Beneficiaries in Trust Property	15
Section 6.07	Provisions Regarding Liability	15
Section 6.08	Protection of Trustee	16
Article Seven RECORDS AND NOTICE		17
Section 7.01	Records to be Kept	17
Section 7.02	Method of Keeping Records	17
Section 7.03	Notice	17
Article Eight AMENDMENT		17
Section 8.01	Amendment	17
Section 8.02	Automatic Amendment	18
Section 8.03	Supplemental Trust Agreement	18
Article Nine DISTRIBUTION OF TRUST PROPERTY AND TERMINATION OF TRUST ACTIVITIES		18
Section 9.01	Termination of Trust Activities	18
Section 9.02	Termination of Trust and Distribution of Trust Property	18
Section 9.03	Counterparts	18

- 1 -

TRUST AGREEMENT

THIS AGREEMENT made as of the 18th day of November, 2021,

BETWEEN:

Christopher DiFrancesco, of Ottawa, Ontario

(hereinafter referred to as the “Settlor”)

-and-

TSX Trust Company,
a trust company existing under the laws of Canada

(hereinafter referred to as the “Trustee”),

WHEREAS the Settlor wishes to establish an irrevocable trust to be known as the Telesat Corporation Trust (the “Trust”) for the benefit of the Beneficiaries to, inter alia acquire and hold the Special Voting Shares and the Golden Share (each as hereinafter defined), and has transferred the sum of FIVE THOUSAND ONE HUNDRED U.S. DOLLARS (US$5,100) to the Trustee to be held by the Trustee and with and subject to the powers and provisions provided in this Agreement;

NOW THEREFORE in consideration of the premises and of the mutual covenants and agreements herein contained, the parties agree as follows:

Article One
INTERPRETATION

Section 1.01 Definitions

(1)            In this Agreement, the following terms will have the following meanings:

“Annual Net Income of the Trust” means, for any taxation year, the income of the Trust for such year computed in accordance with the provisions of the ITA other than paragraph 82(1)(b) and subsection 104(6) of the ITA regarding the calculation of income for the purposes of determining the “taxable income” of the Trust;

“Beneficiaries” means any one or more charities as the Trustee may at any time and from time to time, subject to Section 4.09(1)(b), select in writing to be the recipient or recipients of the Trust Property, or any part or parts thereof, including, for greater certainty, the Annual Net Income of the Trust pursuant to Article Nine, and any successor of any such charity, which the initial Beneficiary shall be Canadian Cancer Society (Registration No. 118829803 RR 0001); provided that at all times each such charity or successor is (i) a “registered charity” designated as a “charitable organization” or “public foundation” for purposes of the ITA, (ii) is incorporated under the laws of Canada or a Province thereof and is not a trust, (iii) is not controlled by a non-resident person or group of non-resident persons for the purposes of ITA and (iv) in conjunction with the distribution of the Remaining Property, has not given notice that it will decline to accept a payment;

- 2 -

“Business Day” means any day other than a Saturday, Sunday, a day on which banking institutions in the City of Montréal are authorized or required by law to be closed or a day on which the New York Stock Exchange, the NASDAQ Stock Market or the Toronto Stock Exchange is closed for trading;

“Class A Special Voting Share” means a Class A special voting share in the capital of New Transit;

“Class B Special Voting Share” means a Class B special voting share in the capital of New Transit;

“Class C Special Voting Share” means a Class C special voting share in the capital of New Transit;

“default” has the meaning set out in Section 6.08(4).

“Exchangeable Units” means exchangeable limited partnership units of the Partnership;

“Golden Share” means the special variable voting share in the capital of New Transit;

“ITA” means the Income Tax Act (Canada) and the regulations thereunder, both as amended, restated or re-enacted from time to time;

“LPA” means the amended and restated limited partnership agreement dated November 17, 2021, as may be amended from time to time, in respect of the Partnership;

“New Transit” means Telesat Corporation, a corporation incorporated under the laws of the Province of British Columbia;

“Officer’s Certificate” means a certificate signed by any officer or director of New Transit;

“Partnership” means Telesat Partnership LP, a limited partnership formed under the laws of the Province of Ontario;

“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation or other entity with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted;

“Remaining Property” means all of the property of the Trust other than the Special Voting Shares and the Golden Share;

“Settlor” has the meaning set out in the preamble;

“Special Voting Shares” means, together, the Class A Special Voting Share, the Class B Special Voting Share and the Class C Special Voting Share;

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“this Agreement”, “Trust Agreement”, “herein”, “hereof”, “hereto”, “hereunder” and similar expressions refer to this Trust Agreement, as the same may be amended, supplemented, modified, restated or replaced from time to time, and not to any particular Article, Section, paragraph, subparagraph or clause hereof;

“Trust” has the meaning set out in the recitals;

“Trust Activities” means the activities of the Trust described in Section 2.02;

“Trust Property” means, together, the Special Voting Shares, the Golden Share and the Remaining Property;

“Trustee” has the meaning set out in the preamble; and

“Voting Agreement” means the Voting Agreement to be entered into between the Trust, the Trustee, New Transit and the Partnership on the date hereof.

Section 1.02 Rules of Construction

Except as may be otherwise specifically provided in this Agreement and unless the context otherwise requires, in this Agreement:

(a) the terms “Agreement”, “this Agreement”, “the Agreement”, “hereto”, “hereof”, “herein”, “hereby”, “hereunder” and similar expressions refer to this Agreement in its entirety and not to any particular provision hereof;

(b) references to an “Article” or “Section” followed by a number or letter refer to the specified Article or Section of this Agreement;

(c) the division of this Agreement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement;

(d) words importing the singular number only shall include the plural and vice versa and words importing the use of any gender shall include all genders;

(e) the word “including” is deemed to mean “including without limitation”;

(f) the terms “party” and “the parties” refer to a party or the parties to this Agreement;

(g) any reference to this Agreement, the Voting Agreement or the LPA means this Agreement, the Voting Agreement or the LPA, as the case may be, as amended, modified, replaced or supplemented from time to time;

(h) any reference to a statute, regulation or rule shall be construed to be a reference thereto as the same may from time to time be amended, re-enacted or replaced, and any reference to a statute shall include any regulations or rules made thereunder;

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(i) any time period within which a payment is to be made or any other action is to be taken hereunder shall be calculated excluding the day on which the period commences and including the day on which the period ends;

(j) whenever any payment shall be due, any period of time shall begin or end, any calculation is to be made or any other action is to be taken on, or as of, or from a period ending on, a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculation shall be made and such other actions shall be taken, as the case may be, on, or as of, or from a period beginning on or ending on, the next succeeding Business Day; and

(k) references to the Trust owning property or undertaking an action refer to the Trustee owning property or undertaking an action, as applicable, solely in its capacity as Trustee of the Trust.

Section 1.03 Governing Law

This Agreement shall be interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province of Ontario and the federal laws of Canada applicable in that province.

Section 1.04 References to Acts of the Trust

For greater certainty, where any reference is made in this Agreement, or in any other instrument to which the Trust or the Trustee, as trustee of the Trust, is party, to an act (including for greater certainty the Trust Activities) to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to (i) the Trust, or (ii) the Trustee, such reference shall be construed and applied for all purposes as if it referred to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to the Trustee, solely in its capacity as trustee of the Trust.

Article Two
ESTABLISHMENT AND ACTIVITIES OF THE TRUST

Section 2.01 Establishment of Trust

The purpose of this Agreement is to create an inter vivos trust that will acquire and hold the Trust Property for the benefit of the Beneficiaries, as herein provided.

Section 2.02 Activities of the Trust

(1)            The Trust will carry on its activities in accordance with this Agreement and the Voting Agreement in order to hold and administer the Trust Property for the benefit of the Beneficiaries. The activities of the Trust shall be, and shall be limited to: (i) acquiring and holding the Special Voting Shares, (ii) acquiring and holding the Golden Share, (iii) entering into the Voting Agreement and carrying out the Trust’s obligations thereunder, (iv) investing and reinvesting the Remaining Property and (v) carrying on all other activities as may be reasonably incidental to those activities (the “Trust Activities”).

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(2)            During the term commencing on the date hereof until the earliest to occur of (i) the termination of the Trust pursuant to Article Nine, (ii) the date no Exchangeable Units are outstanding, and (iii) all outstanding Exchangeable Units are held by New Transit, the Trustee shall have all of the rights and powers of an owner with respect to the Special Voting Shares, provided that the Trustee shall:

(a) exercise all voting rights attached to the Special Voting Shares only in accordance with the provisions of the Voting Agreement;

(b) except as specifically authorized by this Agreement or the Voting Agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Special Voting Shares, and the Special Voting Shares shall not be used or disposed of by the Trustee for any purpose (including for exercising dissent or appraisal rights relating to the Special Voting Shares) other than as contemplated by, and solely in accordance with, the Voting Agreement; and

(c) hold the certificates representing the Special Voting Shares, if any, in safe keeping at all times.

(3)            During the term commencing on the date hereof until the earliest to occur of (i) the termination of the Trust pursuant to Article Nine and (ii) the date the Golden Share is no longer outstanding, the Trustee shall have all of the rights and powers of an owner with respect to the Golden Share, provided that the Trustee shall:

(a) exercise all voting rights attached to the Golden Share only in accordance with the provisions of the Voting Agreement;

(b) except as specifically authorized by this Agreement or the Voting Agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Golden Share, and the Golden Share shall not be used or disposed of by the Trustee for any purpose (including for exercising dissent or appraisal rights relating to the Golden Share) other than as contemplated by and, solely in accordance with, the Voting Agreement t; and

(c) hold the certificate representing the Golden Share, if any, in safe keeping at all times.

(4)            If any event described in Sections 2.02(2) or 2.02(3) has occurred, New Transit will provide the Trustee with an Officer’s Certificate stating that such event has occurred.

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Article Three
CHARACTERISTICS OF THE TRUST

Section 3.01 Name and Head Office

The name of the Trust will be “Telesat Corporation Trust” and it will be referred to as “Telesat Corporation Trust”. Should the Trustee determine that the use of such name is not practicable, legal or convenient, it may use such other designation or adopt such other name for the Trust as it deems proper and the Trust may hold the Trust Property and conduct the Trust Activities under such other designation or name. The head office and situs of administration of the Trust initially will be 301-100 Adelaide Street W. Toronto, Ontario M5H 4H1. The Trustee may at any time or from time to time change the head office and situs of the administration of the Trust to another location within the Province of Ontario and have such other offices or places of administration within Canada as the Trustee may from time to time determine is necessary or desirable.

Section 3.02 Nature and Object of the Trust

(1)            The Trust is a special purpose trust and the Trust Property will be segregated and not commingled with the money and investments of any other Person and the Trustee will hold the Trust out as separate and independent from any other Person, maintain separate books and records for the Trust from those of any other Person, conduct the business of the Trust in the name of the Trust and comply with other formalities inherent in treating the Trust as separate and independent from any other Person.

(2)            The Trust is not and is not intended to be, will not be deemed to be and will not be treated as a general partnership, limited partnership, syndicate, association, joint venture, company or corporation, nor will the Trustee or the Beneficiaries or any of them for any purpose be, or be deemed to be, or be treated in any way whatsoever as, liable or responsible hereunder as partners or joint venturers. The Trustee will not be, or be deemed to be, the agent of the Beneficiaries. The relationship of the Beneficiaries to the Trustee will be solely that of the beneficiaries of the Trust and the rights of a Beneficiary will be limited to those expressly conferred upon it by this Agreement and, for greater certainty, the Trustee will be entitled to deal with the Trust Property in the manner provided in this Agreement and in accordance with applicable law without the consent of or approval from or notice to the Beneficiaries.

(3)            The object of the Trust is to carry on the Trust Activities for the benefit of the Beneficiaries and to distribute and otherwise deal with the Trust Property according to this Agreement accordance with applicable law and not for any religious, charitable, educational or public purpose.

Section 3.03 Representations and Covenants

(1)            The Trustee hereby represent and warrant to New Transit and the Partnership that:

(a) the Trustee is authorized to carry on a trust business as contemplated hereby in each of the Provinces of Canada;

(b) the Trustee is a resident of Canada for the purposes of the ITA; and

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(c) the Trustee is not controlled by a non-resident person or group of non-resident persons for the purposes of the ITA.

(2)            The Trustee agrees that all decisions made by the Trustee in the course of performing its obligations as Trustee of the Trust will be made in Canada.

Article Four
RIGHTS AND POWERS OF TRUSTEE

Section 4.01 General Powers

Subject to the specific restrictions and limitations set forth in this Agreement, the Trustee will have, without the necessity of authorization by, and free from any power or control on the part of, any Beneficiary, full, exclusive and absolute power, control and authority over the Trust Property and the Trust Activities to the same extent as if the Trustee were the sole and absolute owner thereof in its own right, including, without limitation, such power, control and authority to do all such acts and things as in its sole judgment and discretion are necessary, incidental or desirable for carrying on the Trust Activities in accordance with this Agreement and the Voting Agreement, with such powers of delegation as may be permitted by this Agreement. For greater certainty, and without limiting the generality of the foregoing, the powers of the Trustee that may be exercised as aforesaid include the powers set forth in Section 4.02 to Section 4.13, inclusive. The enumeration of any specific power or authority in this Agreement will not be construed as limiting the aforesaid power or authority or any other specific power or authority or any power and authority necessarily incidental to the conduct of the Trust Activities.

Section 4.02 Legal Title and Custody

Subject to Article Nine, the Trustee will have the power to cause any and all Trust Property to be held by or registered in the name of any Person, on such terms and in such manner as the Trustee may determine and with or without disclosure that the Trust is interested therein. The Beneficiaries will not have any right to call for any partition or division of any part of the Trust Property nor can they be called on to pay for, contribute toward or assume any losses of the Trust. The Trust Property will be considered at all times as property held in trust by the Trustee, as trustee of the Trust, according and subject to this Agreement and applicable law.

Section 4.03 Possession, Use and Disposition of Assets

The Trustee will have the power, subject to this Agreement and the terms and conditions of the Voting Agreement, to possess and use the Trust Property in connection with the Trust Activities, including, without limitation, the power to exercise all of the Trust’s rights and perform all of the Trust’s obligations under the Voting Agreement.

Section 4.04 Taxes

(1)            The Trustee will have the power to pay all taxes or assessments of whatever kind or nature imposed upon the Trustee or the Trust in connection with the Trust Property or upon or against the income from the Trust Activities or any part thereof, to settle and compromise disputed tax liabilities and, for the foregoing purposes, to make such returns and do all such other acts and things as may be deemed by the Trustee necessary or desirable. The Trustee will have the power to deduct and remit any taxes which are required by law to be deducted and remitted from any payment made by the Trustee.

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(2)            The Trustee shall, to the extent necessary file on behalf of the Trust appropriate income tax returns and any other returns or reports as may be required by applicable law or pursuant to the rules and regulations of any securities exchange or other trading system through which shares of New Transit are traded. New Transit will prepare, or cause to be prepared, any such returns or reports, including any returns or reports required relating to the distribution of the Remaining Property and the termination of the Trust, and the Trustee shall cooperate with such preparation.

Section 4.05 Collection

In accordance with and subject to the terms of this Agreement and the Voting Agreement, the Trustee will have the power to collect, receive, give receipts for and sue for all sums of money or other property due to the Trust; to consent to extensions of time for payment, or to the renewal of, any securities or obligations; to engage or intervene in, prosecute, defend, compound, compromise, abandon or adjust by arbitration or otherwise any actions, suits, proceedings, disputes, claims, demands or things relating to the Trust Property or the Trust Activities; to exercise any and all remedies available to it or the Trust under any agreement to which it or the Trust is a party or otherwise including any foreclosure or power of sale available to the Trustee or the Trust thereunder or under any such other security and, in connection with any such foreclosure or sale, to purchase or otherwise acquire title to any property and to convey good title thereto free of any and all trusts hereby established, or to take or retake possession of any property secured or unsecured thereunder or such other security; to extend the time, with or without security, for the payment or delivery of any debts or property and to execute and enter into releases, agreements and other instruments; and to pay or satisfy any debts or claims upon any evidence that the Trustee determines to be sufficient.

Section 4.06 Expenses and Compensation of Trustee

(1)            The Trustee will have the power to incur and make payment of any charges or expenses which in the opinion of the Trustee are reasonably necessary or incidental to or proper for carrying out any of the powers provided in this Agreement and the Trust Activities and to pay appropriate compensation or fees out of the Trust Property to Persons with whom the Trust or the Trustee has contracted or transacted business including, without limitation, any charges, expenses, compensation or fees payable under the Voting Agreement.

(2)            New Transit and the Partnership agree on a joint and several basis to pay the Trustee reasonable compensation for its services under this Agreement and the Voting Agreement and to reimburse the Trustee for all reasonable expenses (including, but not limited to, taxes other than taxes based on the net income of the Trustee, fees paid to legal counsel and other experts and advisors and travel expenses) and disbursements, including the reasonable cost and expense of any suit or litigation of any character and any proceedings before any governmental agency reasonably incurred by the Trustee in connection with its duties under this Agreement and the Voting Agreement; provided that New Transit and the Partnership shall have no obligation to reimburse the Trust for any expenses or disbursements paid, incurred or suffered by the Trustee in any suit or litigation arising from or in connection with the bad faith, wilful misconduct, gross negligence, fraud or the failure to comply with the standard of care referred to in Section 6.01 by the Trustee or any incorporator, director, officer, employee or agent of the Trustee.

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Section 4.07 Allocation

The Trustee will have the power to determine whether moneys or other assets received by the Trust or expenses or disbursements made by the Trust will be charged or credited to income or capital or allocated between income and capital.

Section 4.08 Fiscal Year and Form of Accounts

The fiscal year of the Trust will be the calendar year or such other fiscal year as the Trustee may determine. The Trustee will have power to determine and from time to time change the method or form in which the accounts of the Trust will be kept, provided such method or form reasonably complies with International Financial Reporting Standards, as applicable from time to time.

Section 4.09 Power to Contract

(1)            The rights, powers, duties and authorities of the Trustee under this Agreement, in its capacity as Trustee of the Trust, shall include and be limited to:

(a) receipt and safekeeping of the Special Voting Shares and the Golden Share in accordance with the provisions of this Agreement and the Voting Agreement;

(b) designating a Beneficiary or Beneficiaries in writing on an annual basis or on the termination of the Trust from a group identified by New Transit or the Partnership;

(c) granting proxies to holders of Exchangeable Units as provided in the Voting Agreement and Article 3 of Schedule A to the LPA;

(d) voting the Special Voting Shares in accordance with the provisions of the Voting Agreement;

(e) voting the Golden Share in accordance with the provisions of the Voting Agreement;

(f) holding title to the Trust Property;

(g) investing the Remaining Property; and

(h) taking such other actions and doing such other things as are specifically provided in this Agreement or the Voting Agreement.

(2)            In the exercise of such rights, powers, duties and authorities the Trustee shall have (and is granted) such incidental and additional rights, powers, duties and authority not in conflict with any of the provisions of this Agreement or the Voting Agreement as the Trustee, acting in good faith and in the reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the exercise of the powers set forth in Section 4.09(1) above. Any exercise of such discretionary rights, powers, duties and authorities by the Trustee shall be final, conclusive and binding upon all Persons when made by the Trustee honestly and in good faith and in compliance with the standard of care referred to in Section 6.01. For greater certainty, the Trustee shall have only those duties and powers as are set out specifically in this Agreement or the Voting Agreement.

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(3)            The Trustee shall not be bound to give notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall be specifically required to do so under the terms hereof; nor shall the Trustee be required to take any notice of, or to do, or to take any act, action or proceeding as a result of any default or breach of any provision hereunder, unless and until notified in writing of such default or breach, which notices shall distinctly specify the default or breach desired to be brought to the attention of the Trustee, and in the absence of such notice the Trustee may for all purposes of this Agreement conclusively assume that no default or breach has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein.

(4)            In the exercise of its powers, the Trustee shall not be limited by any law now or hereafter in effect limiting the investments which may be held or retained by trustees or other fiduciaries.

Section 4.10 Further Powers

The Trustee will have the power to perform and do all such other acts and things and to execute all such deeds, transfers, assignments, agreements or other instruments whatsoever as are necessary, proper or desirable in order to carry out the Trust Activities in accordance with this Agreement and the Voting Agreement although such acts or things, or deeds, transfers, assignments or other instruments are not herein specifically mentioned. Any determination as to what is necessary, proper or desirable in order to carry on the Trust Activities in accordance with any such agreement, when made by the Trustee honestly and in good faith and in compliance with the standard of care referred to in Section 6.01, will be conclusive. Any construction of this Agreement or any determination of the purposes of the Trust or the existence of any power or authority hereunder, made honestly and in good faith and in compliance with the standard of care referred to in Section 6.01 by the Trustee upon the advice of legal counsel, will be conclusive to the extent consistent with the law. In construing the provisions of this Agreement, there will be a presumption in favour of a grant of power to the Trustee.

Section 4.11 Auditors

In accordance with and subject to the terms of this Agreement and the Voting Agreement, the Trustee shall have power from time to time to select and appoint and discharge and re-appoint an auditor or auditors of the Trust in its discretion and to negotiate and fix the reasonable fees of any such auditor or auditors; provided, such auditor or auditors shall be a nationally recognized independent accounting firm.

Section 4.12 Power of Attorney

The Trustee shall have power to appoint any Person its attorney, with or without power of substitution, and any such attorney shall be entitled to exercise the powers of the Trustee set forth herein, other than the powers at the discretion of the Trustee set forth in Article Nine and to select Beneficiaries pursuant to the definition thereof in Section 1.01(1), to the extent of such appointment which may be for action generally or for any particular action.

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Section 4.13 Defect in Appointment

Notwithstanding anything to the contrary herein contained, no action taken by the Trustee will be invalid by reason only of any defect that is thereafter discovered in its appointment.

Article Five
REPLACEMENT OF TRUSTEE

Section 5.01 Resignation or Removal of Trustee; Conflict of Interest

(1)            New Transit and the Partnership, shall have the power at any time, on notice in writing duly executed by both New Transit and the Partnership, to the Trustee to remove the existing Trustee and to appoint a new or successor Trustee.

(2)            The Trustee may resign its trust after giving 60 days’ notice in writing to New Transit and the Partnership or such shorter notice as New Transit and the Partnership may accept as sufficient, provided that no such voluntary resignation shall be effective until a replacement Trustee acceptable to New Transit and the Partnership has been appointed in accordance with Section 5.01(4) and has executed a written agreement pursuant to and in compliance with Section 6.01 of the Voting Agreement whereby such replacement Trustee agrees to assume the obligations of the Trustee hereunder, under the Voting Agreement and under any other contract pursuant to which the Trustee is obligated. The Trustee shall resign if: (i) a material conflict of interest arises in its role as a trustee under this Agreement, (ii) it ceases to be authorized to carry on the business of a trust company in each of the Provinces of Canada or (iii) it becomes controlled by a non-resident person or group of non-resident persons for the purposes of the ITA, and is not rectified within 90 days after the Trustee becomes aware that it has such a material conflict of interest, has lost such authorization or has become so controlled. Forthwith after the Trustee becomes aware that it has a material conflict of interest it shall provide New Transit and the Partnership with written notice of the nature of that conflict. Upon such resignation, the Trustee shall be discharged from all further duties and liabilities under this Agreement. If, notwithstanding the foregoing provisions of this Section 5.01(2), the Trustee has such a material conflict of interest, the validity and enforceability of this Agreement shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Trustee contravenes the foregoing provisions of this Section 5.01(2), any interested party may apply to a judge of the Ontario Superior Court of Justice, on such notice as such judge may direct, for an order that the Trustee be replaced as trustee hereunder. The Trustee represents to New Transit and the Partnership that at the time of the execution and delivery hereof no material conflict of interest exists in the Trustee’s role as a fiduciary hereunder. The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Trustee in its reasonable judgment determines that such act would reasonably be expected to cause it to be in non-compliance with any applicable laws including, without limitation, anti-money laundering or anti-terrorist legislation, economic sanction, regulation or guideline. Further, should the Trustee, in its sole judgment, determine at any time that its acting under this Agreement has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days written notice to New Transit and the Partnership, provided (i) that the Trustee’s written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Trustee’s satisfaction within such 10 day period, then such resignation shall not be effective.

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(3)            In the event of the Trustee resigning or being removed or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, New Transit and the Partnership may forthwith appoint a replacement Trustee; failing which the retiring Trustee may apply to a judge of the Ontario Superior Court of Justice, on such notice as such judge may direct, for the appointment of a replacement Trustee. Any replacement Trustee appointed under any provision of this Section 5.01 shall be a corporation authorized to carry on a trust business as contemplated hereby in each of the Provinces of Canada, shall not be controlled by a non-resident person or group of non-resident persons for the purposes of the ITA and shall not have a material conflict of interest in its role as a fiduciary under this Agreement. The expense of any act, document or other instrument or thing required under this Section 5.01 will be satisfied from the Trust Property.

(4)            Subject to Section 5.01(1), Section 5.01(2) and Section 5.01(3), any replacement or successor Trustee shall, forthwith upon appointment, become vested with all the estates, properties, rights, powers, duties, responsibilities and trusts of its predecessor in the trusts hereunder, with like effect as if originally named as Trustee herein. Nevertheless, upon the written request of the replacement or successor Trustee and upon payment of any outstanding undisputed fees and expenses, the Trustee ceasing to act will do, make, execute and deliver or cause to be done, made, executed or delivered all such acts, documents, deeds or other instruments and things as may be necessary or desirable in order to more effectively assign, transfer and deliver to, and vest in, the replacement or successor Trustee upon the trusts herein expressed, all the rights, powers and trusts of, and all property and money held by, the trustee so ceasing to act.

(5)            Any company into which the Trustee may be merged or with which it may be consolidated or amalgamated, any company resulting from any merger, consolidation or amalgamation to which the Trustee shall be a party or any company to which the Trustee may transfer all or substantially all of its corporate trust business shall be a successor Trustee under this Agreement without the execution of any instrument or any further act; provided that such successor Trustee shall be a corporation qualified to carry on a trust business as contemplated hereby in each of the Provinces of Canada, shall not be controlled by a non-resident person or group of non-resident persons for the purposes of the ITA and shall not have a material conflict of interest in its role as a fiduciary under this Agreement.

Article Six
LIABILITY OF TRUSTEE

Section 6.01 Standard of Care

The Trustee will exercise its powers and carry out its obligations hereunder as Trustee honestly, in good faith and in the best interests of the Trust and the Beneficiaries and in connection therewith will exercise that degree of care, diligence, and skill that a reasonably prudent trustee would exercise in comparable circumstances. Unless otherwise required by law, the Trustee will not be required to give bond, surety or security in any jurisdiction for the performance of any duties or obligations hereunder. The Trustee will not be required to devote its entire time to the Trust Activities. For greater certainty, it is expressly acknowledged that the entering into of the Voting Agreement by the Trustee, in its capacity as trustee of the Trust, and the performance by the Trustee or the Trust of its obligations thereunder in compliance with the express terms of the Voting Agreement shall be deemed to be in the best interests of the Trust and the Beneficiaries and shall be deemed to have satisfied the foregoing standard of care.

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Section 6.02 Limitation of Liability of Trustee

The Trustee, in doing anything or permitting anything to be done in respect of the execution of the duties of its office or in respect of the Trust Property or the Trust Activities is, and will be conclusively deemed to be, acting solely as trustee of the Trust and not in any other capacity. The Trustee will not be subject to any liability whatsoever, in tort, contract or otherwise, in connection with the Trust Property or the Trust Activities, to the Beneficiaries or to any other Person, for any action taken or permitted by it to be taken, or for its failure to take any action including, without limitation, the failure to compel in any way any former or acting Trustee to redress any breach of trust in respect of the execution of the duties of its office or in respect of the Trust Property or the Trust Activities. The Trustee will not be subject to any liability for any claims, demands, losses, actions, causes of action, costs, charges, debts, expenses, damages, judgments, liabilities or obligations whatsoever against or with respect to the Trust or the Trustee, arising out of anything done, omitted to be done or permitted to be done by it in respect of the execution of the duties of its office or for or in respect of the Trust Property or the Trust Activities, including any loss or diminution in the value of the Trust or its assets, for any reason (including any loss occasioned by error in judgment or oversight on the part of the Trustee or for any other loss that may happen in the execution by the Trustee of its duties hereunder) and resort will be had solely to the Trust Property for the payment or performance thereof. No property or assets of the Trustee, owned in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligations under this Agreement or under the Voting Agreement. No recourse may be had or taken, directly or indirectly, against the Trustee in its personal capacity or against any incorporator, director, officer, employee or agent of the Trustee or any predecessor or successor of the Trustee. The foregoing limitations of this Section 6.02 will not apply in respect of (1) any claim, demand, loss, action, cause of action, cost, charge, debt, expense, damage, judgment, liability or obligation whatsoever arising from or in connection with bad faith, wilful misconduct, gross negligence, fraud or the failure to comply with the standard of care referred to in Section 6.01 by the Trustee or any incorporator, director, officer, employee or agent of the Trustee, or (2) an injunction, specific performance and other equitable relief expressly available pursuant to the terms of the Voting Agreement. In no event shall the Trustee be liable for any consequential or special damages, indirect, incidental, exemplary, aggravated or punitive loss or damages including but not limited to loss of reputation, goodwill or business.

The Trustee shall not be liable or responsible for loss or damage of any nature whatsoever resulting from official action, war or threat of war, insurrection or civil disturbances, interruptions in postal, telephone, internet, email, fax or other electronic communication systems or power supply, the failure of any third party to fulfil its obligations under any agreement with the Trust, New Transit or the Partnership, or any other factor beyond the Trustee’s control which obstructs, affects, prohibits or delays the Trustee, its directors, officers, employees or agents in carrying out the responsibilities provided for herein, in whole or in part.

The Trustee shall have no duty or responsibility to fulfil, observe or perform any of the powers or responsibilities of New Transit or the Partnership or any other person except as are stipulated under this Agreement or the Voting Agreement.

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Section 6.03 Indemnification of Trustee

New Transit and the Partnership jointly and severally agree to indemnify and hold harmless the Trustee and each of its directors, officers, employees and agents acting in accordance with this Agreement and the Voting Agreement (the “Trustee Indemnified Persons”) from and against any and all claims, demands, losses, actions, causes of action, costs, charges, debts, expenses, damages, liabilities or obligations whatsoever including, without limitation, reasonable legal fees and disbursements and costs and expenses incurred in connection with the enforcement of this indemnity, which may be imposed on, incurred by or assessed against the Trustee Indemnified Parties which, without fraud, gross negligence, wilful misconduct, bad faith or the failure to comply with the standard of care referred to in Section 6.01 on the part of the Trustee Indemnified Parties, may be paid, incurred or suffered by the Trustee Indemnified Party by reason or as a result of its compliance with its duties set forth in this Agreement, the Voting Agreement or any written or oral instruction delivered to the Trustee by New Transit or the Partnership pursuant to this Agreement.

In no case shall (1) the Trustee or any of its directors, officers, employees or agents have recourse to the Special Voting Shares or the Golden Share and (2) New Transit or the Partnership be liable under this Article Six unless New Transit and the Partnership shall be notified by the Trustee of the assertion of a claim or of any action commenced against the Trustee Indemnified Parties as soon as reasonably practicable after any of the Trustee Indemnified Parties shall have received a written assertion of such a claim. New Transit and the Partnership shall be entitled to participate at their own expense in the defence and, if New Transit and the Partnership so elect at any time after receipt of such notice, subject to (ii) below, either of them may assume the defence of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee unless: (i) the employment of such counsel has been expressly authorized by New Transit or the Partnership, such authorization not to be unreasonably withheld; or (ii) the named parties to any such suit include both the Trustee and New Transit or the Partnership and the Trustee shall have been advised by counsel acceptable to New Transit or the Partnership that there may be one or more legal defences available to the Trustee that are different from or in addition to those available to New Transit or the Partnership and that, in the judgment of such counsel, would present a conflict of interest were a joint representation to be undertaken (in which case New Transit and the Partnership shall not have the right to assume the defence of such suit on behalf of the Trustee but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee).

The foregoing indemnities will survive the removal or resignation of the Trustee or the termination of this Trust Agreement and the termination of the Trust. Each of the Trustee Indemnified Persons other than the Trustee is a third party beneficiary of the foregoing indemnity and the rights to indemnification of such Trustee Indemnified Persons are held in trust by the Trustee on behalf of such Trustee Indemnified Persons.

Section 6.04 Reliance upon Directions and Advice

(1)            The Trustee shall be entitled to consult with and obtain advice from legal counsel appointed by it in the event of any questions as to any of the provisions hereof or its duties hereunder.

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(2)            The Trustee may rely and act upon any statement, report or opinion prepared by or any advice received in writing from the auditors, legal counsel or other professional advisors of the Trustee and shall not be responsible or held liable for any loss or damage resulting from so relying or acting if the Trustee acted honestly and in good faith in relying or acting (or failing to rely or act) upon the advice received and complied with the standard of care referred to in Section 6.01 in the selection of any such auditor, legal counsel or other professional advisor and in the decision to rely or act or not to rely or act upon the advice received.

(3)            The Trustee shall be fully protected in acting upon any instrument, certificate or other writing (including an Officer’s Certificate and those given by New Transit or the Partnership) reasonably believed by it to be genuine and to be signed or presented by the proper person or persons and shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained.

(4)            The Trustee shall in no way be responsible for, nor incur any liability based on, the action or failure to act or for acting pursuant to or in reliance on instructions of New Transit or the Partnership.

Section 6.05 Limitation of Liability of Beneficiaries

The Beneficiaries will not be held to have any personal liability as such, and no resort will be had to its private property for satisfaction of any obligation or claim arising out of or in connection with any contract or obligation in respect of which the Beneficiaries would otherwise have to indemnify the Trustee for any liability incurred by the Trustee as such, but rather the Trust Property only will be subject to levy or execution for such satisfaction.

Section 6.06 Interest of Beneficiaries in Trust Property

The legal ownership of the Trust Property and the right to conduct the affairs of the Trust are vested exclusively in the Trustee and the Beneficiaries shall have no interest therein other than pursuant to Article Nine as relates to the Remaining Property, and the Beneficiaries shall not have any right to require the Trustee to terminate the Trust or to partition, liquidate or distribute any of the Trust Property.

Section 6.07 Provisions Regarding Liability

This Trust Agreement, Voting Agreement and any written instrument creating an obligation of the Trustee will be conclusively deemed to have been executed by the Trustee only in its capacity as trustee of the Trust. Any written instrument creating an obligation of the Trustee may contain a provision to the effect that, subject to Section 6.02, (i) the Trustee has entered into the written agreement in its capacity as trustee of the Trust; (ii) any and all of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations made on the part of the Trustee therein are made and intended not as personal representations, warranties, undertakings, covenants, indemnities, agreements and other obligations by the Trustee or for the purpose or with the intention of binding the Trustee in its personal capacity, but are made and intended for the purpose of binding only the property and assets of the Trust or a specific portion thereof; (iii) no property or assets of the Trustee, whether owned beneficially by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Trustee thereunder; and (iv) no recourse may be had or taken, directly or indirectly against the Trustee in its personal capacity, any Beneficiaries or any incorporator, officer, director, employee or agent of the Trustee or any predecessor or successor of the Trustee, with regard to the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Trustee thereunder; provided, in each case, the foregoing limitations will not apply in respect of (1) any claim, demand, loss, action, cause of action, cost, charge, debt, expense, damage, judgment, liability or obligation whatsoever arising from or in connection with bad faith, wilful misconduct, gross negligence, fraud or the failure to comply with the standard of care referred to in Section 6.01 by the Trustee or any incorporator, director, officer, employee or agent of the Trustee, or (2) an injunction, specific performance and other equitable relief expressly available pursuant to the terms of the Voting Agreement. Such written instrument may contain any further provisions which the Trustee may deem appropriate, but, subject to Section 6.02, the omission of any such provisions will not operate to impose liability on the Trustee in its personal capacity, any Beneficiaries or any incorporator, officer, director, employee or agent of the Trustee or any predecessor or successor of the Trustee.

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Section 6.08 Protection of Trustee

(1)            The Trustee shall not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any security deposited with it, subject to compliance with the standard of care referred to in Section 6.01.

(2)            None of the provisions in this Agreement will require the Trustee in its personal capacity under any circumstances whatever to expend or risk its own funds or otherwise incur financial liability in the performance of any of its Trustee duties or in the exercise of any of its Trustee rights or powers.

(3)            The Trustee will be required to disburse moneys according to this Agreement only to the extent that moneys have been deposited with it.

(4)            The Trustee shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Trustee be required to take notice of any failure by it in the exercise of its powers or the carrying out of its obligations hereunder (a “default”), unless and until notified in writing of such default, which notice shall distinctly specify the default desired to be brought to the attention of the Trustee and in the absence of any such notice the Trustee may for all purposes of this Agreement conclusively assume that no default has been made. No such notice shall in any way limit any discretion herein given to the Trustee to determine whether or not the Trustee shall take action with respect to such default.

(5)            The Trustee shall not be liable in any manner, or held in breach of this Agreement, if prevented, hindered or delayed in the performance or observance of any of its obligations hereunder because of any cause beyond its control which prevents its performance or observance of any of its obligations hereunder and not caused by its fault or default and not avoidable by the exercise of reasonable effort on its part, including, without limitation, an act of God, riots, terrorism, acts of war, epidemics, governmental action, judicial order or earthquakes. The performance or observance of such obligations shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section 6.08(5).

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(6)            The obligation of the Trustee to take any action not contemplated in its duties hereunder, shall be conditional upon the New Transit, the Partnership or another person furnishing, when required by notice in writing by the Trustee, sufficient funds to commence or continue such act, action or proceeding and indemnify (to the extent sufficient funds for such purpose are not available to the Trust) satisfactory to the Trustee to protect and hold harmless the Trustee against costs, changes, and expenses and liabilities to be incurred as a result of such act and any loss and damages it would reasonably be expected to suffer by reason thereof.

Article Seven
RECORDS AND NOTICE

Section 7.01 Records to be Kept

The Trustee will keep or cause to be kept proper records and books of account as are by law or good and prudent business practice necessary. Such books or records will be available for inspection by the Beneficiaries, New Transit and the Partnership. Such records or books shall be kept at the principal place of business of the Trustee in Toronto, Ontario or at the office of any Person whom the Trustee has appointed to maintain the same, provided that the Trustee has access to such books and records on one Business Day’s notice to such Person.

Section 7.02 Method of Keeping Records

Where this Agreement requires the Trustee to cause a record to be kept, it may be kept in bound or loose leaf form, or by means of mechanical, electronic or other device.

Section 7.03 Notice

Any notice or other communication required or permitted to be given hereunder to the Trustee by New Transit and the Partnership, or to New Transit and the Partnership by the Trustee, shall be in writing and shall be delivered in accordance with Section 9.04 of the Voting Agreement.

Article Eight
AMENDMENT

Section 8.01 Amendment

The Trustee may, from time to time, amend, vary, supplement or replace or restate the provisions of this Agreement without the consent or approval of the Beneficiaries or any court as follows:

(1)            to the extent deemed by the Trustee in good faith to be necessary to remove any conflicts or other inconsistencies which may exist between any of the terms of this Agreement and the provisions of any applicable law; and

(2)            to the extent deemed by the Trustee in good faith to be necessary to make any change or correction in this Agreement which is a typographical change or correction or which the Trustee has been advised by legal counsel is required for the purpose of curing any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error contained herein;

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Section 8.02 Automatic Amendment

Upon the Trustee ceasing to be a trustee of the Trust, this Agreement will be deemed to be automatically amended to delete any reference to the name of such trustee so ceasing to be a trustee of the Trust and to substitute therefor the name of the successor trustee of the Trust. Notice of any change in the Trustee shall be endorsed upon or attached to this Agreement, signed by the successor Trustee and every such notice shall be sufficient evidence to any Person dealing with the Trustee under this Agreement as to the facts to which it relates.

Section 8.03 Supplemental Trust Agreement

The Trustee is authorized to execute any supplemental agreement on behalf of the Trust, in its capacity as trustee, to give effect to amendments to this Agreement made pursuant to this Article Eight.

Article Nine
DISTRIBUTION OF TRUST PROPERTY AND TERMINATION OF TRUST ACTIVITIES

Section 9.01 Termination of Trust Activities

The Trust will continue in full force and effect until the earliest to occur of the following events (at which time it will terminate):

(1)            one year following the date on which the later of the following is true: (a) no Exchangeable Units are outstanding or all outstanding Exchangeable Units are held by New Transit, and (b) the Golden Share is no longer outstanding;

(2)            one year following the date on which New Transit and the Partnership jointly notify the Trustee in writing that the Trust shall terminate; and

(3)            the date that is 21 years after the death of the last survivor of the descendants of Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust.

Section 9.02 Termination of Trust and Distribution of Trust Property

Following a termination of the Trust in accordance with Section 9.01, the Trustee will terminate the Trust Activities and, upon receipt of such releases, indemnities and refunding agreements as the Trustee deems reasonably necessary for its protection, will distribute the Remaining Property to the remaining Beneficiaries on an equal share basis.

Section 9.03 Counterparts

This Agreement and all documents contemplated by or delivered under or in connection with this Agreement may be executed in any number of counterparts and delivered by means of facsimile, portable document format (PDF) or other electronic format, with the same effect as if all parties had signed and delivered the same document, and all counterparts shall be construed together to be an original and will constitute one and the same agreement.

[SIGNATURE PAGE FOLLOWS]

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DATED as of the date first written above.

/s/ Christopher DiFrancesco

CHRISTOPHER DIFRANCESCO

TSX TRUST COMPANY, as trustee of TELESAT CORPORATION TRUST
By:	/s/ Donald Crawford
Name	Donald Crawford
Title	Senior Trust Officer
By:	/s/ Michael Rosenberg
Name	Michael Rosenberg
Title	Sr. Trust Officer

Solely with respect to Section 2.02, Section 4.04, Section 4.06, Section 4.09, Article Five, Article Six ,Article Seven and Article Nine:

TELESAT CORPORATION
By:	/s/ Christopher DiFrancesco
Name	Christopher DiFrancesco
Title	Vice President, General Counsel and Secretary
TELESAT PARTNERSHIP LP, by its general partner, TELESAT CORPORATION
By:	/s/ Christopher DiFrancesco
Name	Christopher DiFrancesco
Title	Vice President, General Counsel and Secretary

EX-99.5

Exhibit 99.5

Voting Agreement

Between

TSX Trust Company, in its capacity as trustee of the Telesat Corporation Trust

and

Telesat Corporation

and

Telesat Partnership LP

made as of the 18th day of November, 2021

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Table of Contents

		Page
Article 1 - Interpretation		2
1.01	Defined Terms	2
1.02	Rules of Construction	4
1.03	Governing Law and Submission to Jurisdiction	5
1.04	Severability	5
1.05	Ownership of Special Voting Shares	5
1.06	Ownership of Golden Share	6
Article 2 - Exercise of Voting Rights		6
2.01	Voting Rights	6
2.02	Voting Instructions to Trustee	7
2.03	Voting by Trust and Attendance of Trust Representative at Meeting	7
Article 3 - Concerning the TrustEE		8
3.01	Reliance Upon Agreements	8
3.02	Evidence and Authority to the Trustee	8
3.03	Trustee Not Bound to Act on Request; Specific Performance	9
Article 4 – Indemnification and Limitation of Liability		9
4.01	Standard of Care	9
4.02	Limitation of Liability of Trustee	10
4.03	Indemnification of the Trust and the Trustee	11
Article 5 - TrustEE successors		11
5.01	Successor Trustee	11
Article 6 - New Transit Successors		12
6.01	Successor in the Event of Combination, etc.	12
6.02	Wholly-Owned Subsidiaries	12
Article 7 - Amendments		12
7.01	Amendments, Modifications, etc.	12
7.02	Meeting to Consider Amendments	13
7.03	Changes in Capital of New Transit and the Partnership	13
Article 8 - Termination		13
8.01	Term	13
8.02	Survival of Agreement	14
Article 9 - General		14
9.01	Waivers	14
9.02	Assignment	14
9.03	Successors and Assigns	14

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9.04	Notices	14
9.05	Force Majeure	15
9.06	Counterparts	15

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VOTING AGREEMENT

THIS AGREEMENT made as of the 18th day of November, 2021,

BETWEEN:

TSX Trust Company,
a trust company incorporated under the laws of Canada, in its capacity as trustee of Telesat Corporation Trust, a trust formed under the laws of the Province of Ontario,

(hereinafter referred to as the “Trust”),

-and-

Telesat Corporation,
a corporation incorporated under the laws of the Province of British Columbia,

(hereinafter referred to as “New Transit”),

-and-

Telesat Partnership LP,
a limited partnership formed under the laws of the Province of Ontario,

(hereinafter referred to as the “Partnership”),

RECITALS:

A. In connection with the transactions contemplated by a transaction agreement and plan of merger dated November 23, 2020 between New Transit, the Partnership, Telesat Canada, a corporation incorporated under the laws of Canada, Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia and a wholly-owned subsidiary of the Partnership, Loral Space & Communications Inc., a Delaware corporation, Lion Combination Sub Corporation, a Delaware corporation and a wholly-owned subsidiary of Loral Space & Communications Inc., Public Sector Pension Investment Board, a Canadian Crown corporation incorporated under the laws of Canada, and Red Isle Private Investments Inc., a corporation incorporated under the laws of Canada and a wholly-owned subsidiary of Public Sector Pension Investment Board (the “Transaction Agreement”), the Partnership will issue Class A exchangeable limited partnership units, Class B exchangeable limited partnership units and Class C exchangeable limited partnership units (together, the “Exchangeable Units”) and the Trust will be the registered holder of the Special Voting Shares (as defined herein) and the Golden Share (as defined herein);

B. The Trust, New Transit and the Partnership have determined to enter into this Agreement pursuant to which the Trust agrees to vote (1) the Special Voting Shares in accordance with the instructions provided by New Transit, in its capacity as General Partner (as defined herein), as directed by the holders of the Exchangeable Units pursuant to the LPA (as defined herein) and this Agreement, and (2) the Golden Share in accordance with the instructions provided by New Transit pursuant to this Agreement, or to grant proxies as contemplated herein; and

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C. The parties hereto agree as follows:

Article 1 - Interpretation

1.01 Defined Terms

(1)          For the purposes of this Agreement, unless the context otherwise requires, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“Affiliate” has the meaning set out in the LPA;

“Applicable Record Date” with respect to a New Transit Meeting or New Transit Consent means the record date established by New Transit or by applicable law for such New Transit Meeting or New Transit Consent;

“Agreement” means this Voting Agreement;

“Articles” means the Articles of New Transit dated the date hereof;

“Beneficiaries” has the meaning set out in the Trust Agreement;

“Business Day” means any day other than a Saturday, a Sunday, a day on which banking institutions in the City of Montréal are authorized or required by law to be closed or a day on which the New York Stock Exchange, the NASDAQ Stock Market or the Toronto Stock Exchange is closed for trading;

“Class A Common Shares” means the Class A common shares in the capital of New Transit;

“Class A Special Voting Share” means a Class A special voting share in the capital of New Transit;

“Class A Unit Holders” means the registered holders from time to time of the Class A exchangeable limited partnership units of the Partnership, excluding New Transit and its Affiliates;

“Class B Variable Voting Shares” means the Class B variable voting shares in the capital of New Transit;

“Class B Special Voting Share” means a Class B special voting share in the capital of New Transit;

“Class B Unit Holders” means the registered holders from time to time of the Class B exchangeable limited partnership units of the Partnership, excluding New Transit and its Affiliates;

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“Class C Shares” means the Class C Fully Voting Shares and the Class C Limited Voting Shares;

“Class C Fully Voting Share” means the Class C fully voting shares in the capital of New Transit;

“Class C Limited Voting Share” means a Class C limited voting shares in the capital of New Transit;

“Class C Special Voting Share” means a Class C special voting share in the capital of New Transit;

“Class C Unit Holders” means the registered holders from time to time of the Class C exchangeable limited partnership units of the Partnership, excluding New Transit and its Affiliates;

“Class A/B/C Shares” means, together, the Class A Common Shares, the Class B Variable Voting Shares and the Class C Shares;

“Exchangeable Units” has the meaning set out in the recitals;

“General Partner” means the general partner of the Partnership as determined from time to time in accordance with the LPA;

“Golden Share” means the special variable voting share in the capital of New Transit;

“Holder Votes” has the meaning set out in the LPA;

“Indemnified Parties” has the meaning set out in Section 4.01(1);

“LPA” means the amended and restated limited partnership agreement of the Partnership dated the date hereof;

“New Transit Consent” means any written consent sought from shareholders of New Transit including the holders of any or all classes of Class A/B/C Shares and/or Special Voting Shares;

“New Transit Meeting” means any meeting of shareholders of New Transit at which holders of any or all classes of Class A/B/C Shares and/or Special Voting Shares are entitled to vote;

“New Transit Successor” has the meaning set out in Section 6.01;

“Officer’s Certificate” means, with respect to New Transit, a certificate signed by any officer or director of New Transit, and with respect to the Partnership, a certificate signed by any officer or director of the General Partner;

“Person” has the meaning set out in the LPA;

“Special Voting Shares” means, together, the Class A Special Voting Share, the Class B Special Voting Share and the Class C Special Voting Share;

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“Tabulation Agent” means a Person designated by New Transit, in writing, as its agent to perform the administrative tasks of (1) collecting and tabulating instructions from the holders of Exchangeable Units for the purpose of instructing New Transit or the Trustee as to the exercise of the Voting Rights with respect to the Special Voting Shares pursuant to the terms of the LPA and this Agreement, and (2) collecting and tabulating the votes of the Class A/B/C Shares and/or instructions from the holders of Exchangeable Units pursuant to the terms of the LPA for the purpose of instructing New Transit or the Trustee as to the exercise of the Voting Rights with respect to the Golden Share pursuant to the terms of the Articles and this Agreement. For the avoidance of doubt, New Transit shall retain liability as principal for the acts of the Tabulation Agent.

“Trust Agreement” means the Trust Agreement made as of the date hereof, establishing the Telesat Corporation Trust;

“Trust Property” has the meaning set out in the Trust Agreement;

“Trustee” means the trustee of the Trust as determined from time to time in accordance with the Trust Agreement, such person being on the date hereof TSX Trust Company;

“Unit Holders” means the registered holders from time to time of the Exchangeable Units; and

“Voting Rights” means the voting rights attached to the Special Voting Shares (as determined pursuant to the Articles and the LPA) and the voting rights attached to the Golden Share (as determined pursuant to the Articles), as applicable.

1.02 Rules of Construction

Except as may be otherwise specifically provided in this Agreement and unless the context otherwise requires, in this Agreement:

(a) the terms “Agreement”, “this Agreement”, “the Agreement”, “hereto”, “hereof”, “herein”, “hereby”, “hereunder” and similar expressions refer to this Agreement in its entirety and not to any particular provision hereof;

(b) references to an “Article” or “Section” followed by a number or letter refer to the specified Article or Section of this Agreement;

(c) the division of this Agreement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement;

(d) words importing the singular number only shall include the plural and vice versa and words importing the use of any gender shall include all genders;

(e) the word “including” is deemed to mean “including without limitation”;

(f) the terms “party” and “the parties” refer to a party or the parties to this Agreement;

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(g) any reference to this Agreement, the Trust Agreement or the LPA means this Agreement, the Trust Agreement or the LPA, as the case may be, as amended, modified, replaced or supplemented from time to time;

(h) any reference to a statute, regulation or rule shall be construed to be a reference thereto as the same may from time to time be amended, re-enacted or replaced, and any reference to a statute shall include any regulations or rules made thereunder;

(i) any time period within which a payment is to be made or any other action is to be taken hereunder shall be calculated excluding the day on which the period commences and including the day on which the period ends;

(j) whenever any payment shall be due, any period of time shall begin or end, any calculation is to be made or any other action is to be taken on, or as of, or from a period ending on, a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculation shall be made and such other actions shall be taken, as the case may be, on, or as of, or from a period beginning on or ending on, the next succeeding Business Day; and

(k) references to the Trust owning property or undertaking an action refer to the Trustee owning property or undertaking an action, as applicable in its capacity as trustee of the Trust.

1.03 Governing Law and Submission to Jurisdiction

This Agreement shall be interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province of Ontario and the federal laws of Canada applicable in that province. Each of the parties irrevocably and unconditionally (i) submits to the non-exclusive jurisdiction of the courts of the Province of Ontario over any action or proceeding arising out of or relating to this Agreement, (ii) waives any objection that it might otherwise be entitled to assert to the jurisdiction of such courts and (iii) agrees not to assert that such courts are not a convenient forum for the determination of any such action or proceeding.

1.04 Severability

If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto.

1.05 Ownership of Special Voting Shares

During the term of the Trust and subject to the terms and conditions of this Agreement, the Trust shall have control over and the exclusive administration of the Special Voting Shares and shall be entitled to exercise all of the rights and powers of an owner with respect to the Special Voting Shares provided that, except as specifically authorized by this Agreement or the Trust Agreement, the Trust shall not sell, transfer, vote or otherwise deal in or with the Special Voting Shares, and the Special Voting Shares shall not be used or disposed of by the Trust for any purpose (including for exercising dissent or appraisal rights relating to the Special Voting Shares) other than in accordance with this Agreement and the Trust Agreement.

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1.06 Ownership of Golden Share

During the term of the Trust and subject to the terms and conditions of this Agreement, the Trust shall have control over and the exclusive administration of the Golden Share and shall be entitled to exercise all of the rights and powers of an owner with respect to the Golden Share provided that, except as specifically authorized by this Agreement or the Trust Agreement, the Trust shall not sell, transfer, vote or otherwise deal in or with the Golden Share, and the Golden Share shall not be used or disposed of by the Trust for any purpose (including for exercising dissent or appraisal rights relating to the Golden Share) other than in accordance with this Agreement and the Trust Agreement.

Article 2 - Exercise of Voting Rights

2.01 Voting Rights

The Trust, as the holder of record of each of the Special Voting Shares and the Golden Share, shall, and shall be entitled to, exercise all of the Voting Rights with respect to each of the Special Voting Shares and the Golden Share, including the right to vote each of the Special Voting Shares and the Golden Share in person or by proxy on any matters, questions, proposals or propositions whatsoever that may properly come before the shareholders of New Transit at a New Transit Meeting and the right to consent in connection with a New Transit Consent (provided, that neither the Trust nor any representative of the Trust shall be required to attend any New Transit Meeting in person in order to exercise the Trust’s voting rights hereunder). Such Voting Rights shall be and remain vested in and exercised by the Trust. Subject to Section 2.03(2):

(1)          the Trust shall exercise the Voting Rights with respect to each of the Special Voting Shares in accordance with, and only on the basis of, instructions received pursuant to Section 2.02 from New Transit, in New Transit’s capacity as General Partner, or the Tabulation Agent, with respect to all matters that require the approval of the holder of record of a Special Voting Share, including, for the avoidance of doubt, voting separately as a class where required under applicable law, each with respect to the voting thereof at the time at which a New Transit Meeting is held or a New Transit Consent is sought, as applicable;

(2)          the Trust shall exercise the Voting Rights with respect to the Golden Share in accordance with, and only on the basis of, instructions received pursuant to Section 2.02 from New Transit or the Tabulation Agent, including, for the avoidance of doubt, voting separately as a class where required under applicable law, at the time at which a New Transit Meeting is held or a New Transit Consent is sought, as applicable; and

(3)          to the extent that no instructions are received pursuant to Section 2.02 from New Transit or the Tabulation Agent with respect to the Voting Rights with respect to any Special Voting Share or the Golden Share, as applicable, the Trust shall not exercise or permit the exercise of such Voting Rights.

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2.02 Voting Instructions to Trustee

(1)          New Transit, including in its capacity as General Partner, or the Tabulation Agent shall instruct the Trustee in writing to exercise the Voting Rights provided in Section 2.01 with respect to the Special Voting Shares in accordance with the terms of the LPA and with respect to the Golden Share in accordance with the terms of the Articles. The Trustee may presume that, and has no duty to inquire whether, any instructions received from New Transit or the Tabulation Agent are in accordance with the LPA or the Articles, as applicable. For the avoidance of doubt, New Transit shall remain responsible for the accuracy of any instructions delivered to the Trustee by New Transit or the Tabulation Agent pursuant to this Section 2.02.

(2)          New Transit or the Tabulation Agent shall deliver such written instructions to the Trustee, on behalf of the Trust, as follows:

(a) in the case of the Voting Rights with respect to the Special Voting Shares: (i) with respect to a New Transit Meeting, no later than 48 hours prior to the proxy cut-off time established by New Transit for such Meeting, or (ii) with respect to a New Transit Consent, no later than the close of business on the second Business Day prior to the deadline specified in such New Transit Consent (provided, in the event that under applicable law any matter requires the approval of the holder of record of a particular Special Voting Share, voting separately as a class, as promptly as practicable following the close of the applicable poll and the tabulation of the applicable vote pursuant to the LPA); and

(b) in the case of the Voting Rights with respect to the Golden Share: as promptly as practicable following the close of the applicable poll for the Class A/B/C Shares and the tabulation of the applicable vote pursuant to the Articles.

2.03 Voting by Trust and Attendance of Trust Representative at Meeting

(1)          In connection with each New Transit Meeting and New Transit Consent, the Trustee, on behalf of the Trust, shall cast and exercise the Voting Rights, either in person or by proxy in accordance with the written instructions received from New Transit or the Tabulation Agent pursuant to Section 2.02.

(2)          Subject to the timely receipt of instructions as contemplated in Section 2.02(2), the Trustee shall cause a representative who is empowered by it to sign and deliver, on behalf of the Trust, proxies for Voting Rights to be voted at each New Transit Meeting.

(3)          At New Transit’s direction (upon New Transit, in its capacity as General Partner, receiving such request by a Unit Holder at least one Business Day prior to the deadline for timely receipt of instructions as contemplated in Section 2.02(2)), the Trustee shall sign and deliver to a Unit Holder (or its designee) a proxy to exercise personally the Holder Votes of such Unit Holder with respect to the applicable Special Voting Shares; provided that such Unit Holder either (i) has not previously given New Transit instructions pursuant to the LPA in respect of such New Transit Meeting or (ii) submits to such representative written revocation of any such previous instructions and the Trustee can rely on confirmation from New Transit as to whether these requirements have been satisfied. The Unit Holder exercising such Holder Votes shall have the same rights as the Trust to speak at the New Transit Meeting in respect of any matter, question, proposal or proposition, to vote by way of ballot at the New Transit Meeting in respect of any matter, question, proposal or proposition, and to vote by way of a show of hands in respect of any matter, question or proposition.

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Article 3 - Concerning the TrustEE

3.01 Reliance Upon Agreements

The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and authorities hereunder if, when required, it acts and relies reasonably and in good faith upon statutory declarations, certificates, opinions or reports furnished pursuant to the provisions hereof or required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and authorities hereunder if such statutory declarations, certificates (including Officer’s Certificates), opinions or reports comply with the provisions of Section 3.02, if applicable, and with any other applicable provisions of this Agreement.

3.02 Evidence and Authority to the Trustee

(1)          New Transit, the Tabulation Agent or the Partnership, as applicable, shall furnish to the Trustee evidence of compliance with the conditions provided for in this Agreement relating to any action or step required or permitted to be taken by New Transit, the Tabulation Agent, the Partnership or the Trust under this Agreement or as a result of any obligation imposed under this Agreement, including in respect of the Voting Rights and the taking of any other action to be taken by the Trust at the request of or on the application of any, some or all of New Transit, in its capacity as General Partner and in its own capacity, the Tabulation Agent or the Partnership, as applicable, promptly if and when:

(a) such evidence is required by any other provision of this Agreement, the LPA or the Articles or other constating documents to be furnished to the Trustee; or

(b) the Trustee, on behalf of the Trust, in the exercise of its rights, powers, duties and authorities under this Agreement, gives New Transit, the Tabulation Agent or the Partnership, as applicable, written notice requiring it to furnish such evidence in relation to any particular action or obligation specified in such notice.

(2)          Such evidence required pursuant to this Section 3.02 shall consist of an Officer’s Certificate of New Transit, the Tabulation Agent or the Partnership, as applicable, or a statutory declaration or a certificate made by Persons entitled to sign an Officer’s Certificate stating that any such condition has been complied with in accordance with the terms of this Agreement; provided that in the case of the Tabulation Agent, such evidence shall also include an Officer’s Certificate or a statutory declaration or certificate by New Transit

(3)          Each statutory declaration, Officer’s Certificate, opinion or report furnished to the Trustee as evidence of compliance with a condition provided for in this Agreement shall include a statement by the Person giving the evidence:

(a) declaring that he or she has read and understands the provisions of this Agreement relating to the condition in question;

(b) describing the nature and scope of the examination or investigation upon which he or she based the statutory declaration, certificate, statement or opinion; and

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(c) declaring that he or she has made such examination or investigation as he or she believes is necessary to enable him or her to make the statements or give the opinions contained or expressed therein.

3.03 Trustee Not Bound to Act on Request; Specific Performance

(a) Except as specifically provided in this Agreement, the Trustee shall not be bound to act in accordance with any direction or request of New Transit, and/or the Partnership until a duly authenticated copy of the instrument or resolution containing such direction or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act upon any such copy purporting to be authenticated (at which time the Trustee shall be bound to so act in accordance with such direction or request ) and reasonably believed by the Trustee to be genuine. The obligation of the Trustee to act in accordance with the instruction or request of New Transit, the Tabulation Agent or the Partnership shall be enforceable by New Transit, the Partnership and by any holder or Exchangeable Units including pursuant to clause (b) below.

(b) The Trustee, New Transit and the Partnership hereby agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that (i) any instruction or request of New Transit or the Partnership delivered in accordance with this Section 3.03 or (ii) any provision of this Agreement, in each case, is not performed in accordance with its specific terms or is otherwise breached. Accordingly, the Trustee, New Transit and the Partnership agree that, prior to the valid termination of this Agreement in accordance with Article 8, New Transit, the Partnership and any holder of the Exchangeable Units shall be entitled to, and are deemed to have standing to seek and obtain, an injunction or injunctions, or any other appropriate form of specific performance or equitable relief, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in accordance with Section 1.03, this being in addition to any other remedy to which they are entitled under the terms of this Agreement, at law or in equity (and the Trustee hereby waives any requirement for the securing or posting of any bond in connection with such remedy). New Transit, the Partnership and any holder of the Exchangeable Units seeking an injunction or injunctions to prevent breaches or threatened breaches of, or to enforce compliance with, this Agreement when expressly available pursuant to the terms of this Agreement, shall not be required to provide any bond or other security in connection with any such order or injunction.

Article 4 – Indemnification and Limitation of Liability

4.01 Standard of Care

The Trustee will exercise its powers and carry out its obligations hereunder as Trustee honestly, in good faith and in the best interests of the Trust and the Beneficiaries and in connection therewith will exercise that degree of care, diligence, and skill that a reasonably prudent trustee would exercise in comparable circumstances. Unless otherwise required by law, the Trustee will not be required to give bond, surety or security in any jurisdiction for the performance of any duties or obligations hereunder. The Trustee will not be required to devote its entire time to carrying out its obligations hereunder. For greater certainty, it is expressly acknowledged that the entering into of this Agreement by the Trustee in its capacity as trustee of the Trust, and the performance by the Trustee or the Trust of its obligations hereunder in compliance with the express terms of this Agreement shall be deemed to be in the best interests of the Trust and the Beneficiaries and shall be deemed to have satisfied the foregoing standard of care.

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4.02 Limitation of Liability of Trustee

(1)           The Trustee, in doing anything or permitting anything to be done in accordance with the terms of this Agreement is, and will be conclusively deemed to be, acting solely as trustee of the Trust and not in any other capacity. Any and all of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations made on the part of the Trustee therein are made and intended not as personal representations, warranties, undertakings, covenants, indemnities, agreements and other obligations by the Trustee or for the purpose or with the intention of binding the Trustee in its personal capacity, but are made and intended for the purpose of binding only the property and assets of the Trust or a specific portion thereof. The Trustee will not be subject to any liability whatsoever, in tort, contract or otherwise, in connection with the Trust Property or the Trust Activities, to the Beneficiaries or to any other Person, for any action taken or permitted by it to be taken, or for its failure to take any action, in each case in accordance with the terms of this Agreement. The Trustee will not be subject to any liability for any claims, demands, losses, actions, causes of action, costs, charges, debts, expenses, damages, judgments, liabilities or obligations whatsoever against or with respect to the Trust or the Trustee, arising out of anything done, omitted to be done or permitted to be done by it pursuant to the terms of this Agreement and resort will be had solely to the Trust Property for the payment or performance thereof. No property or assets of the Trustee, owned in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligations under this Agreement. No recourse may be had or taken, directly or indirectly, against the Trustee in its personal capacity or against any incorporator, director, officer, employee or agent of the Trustee or any predecessor or successor of the Trustee. The foregoing limitations of this Section 4.02 will not apply in respect of any claim, demand, loss, action, cause of action, cost, charge, debt, expense, damage, judgment, liability or obligation whatsoever arising from or in connection with bad faith, wilful misconduct, gross negligence, fraud or the failure to comply with the standard of care referred to in Section 4.01 by the Trustee or any incorporator, director, officer, employee or agent of the Trustee. In no event shall the Trustee be liable for any consequential or special damages, indirect, incidental, exemplary, aggravated or punitive loss or damages including but not limited to loss of reputation, goodwill or business. The Trustee shall not be liable or responsible for loss or damage of any nature whatsoever resulting from official action, war or threat of war, insurrection or civil disturbances, interruptions in postal, telephone, internet, email, fax or other electronic communication systems or power supply, the failure of any third party to fulfil its obligations under any agreement with the Trust or New Transit or the Partnership, or any other factor beyond the Trustee’s control which obstructs, affects, prohibits or delays the Trustee, its directors, officers, employees or agents in carrying out the responsibilities provided for herein, in whole or in part. The Trustee shall have no duty or responsibility to fulfil, observe or perform any of the powers or responsibilities of New Transit or the Partnership or any other person except as are stipulated under this Agreement or the Trust Agreement.

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4.03 Indemnification of the Trust and the Trustee

(1)            New Transit and the Partnership jointly and severally agree to indemnify and hold harmless the Trust and the Trustee, in its capacity as trustee of the Trust, and each of its directors, officers, employees and agents appointed and acting in accordance with this Agreement and the Trust Agreement (collectively, the “Indemnified Parties”) from and against any and all claims, demands, losses, actions, causes of action, costs, charges, debts, expenses, damages, liabilities or obligations whatsoever including, without limitation, reasonable legal fees and disbursements and costs and expenses incurred in connection with the enforcement of this indemnity, which may be imposed on, incurred by or assessed against the Indemnified Parties which, without fraud, gross negligence, wilful misconduct, bad faith or the failure to comply with the standard of care referred to in Section 4.01 on the part of the Indemnified Parties, may be paid, incurred or suffered by the Indemnified Party by reason or as a result of its compliance with its duties set forth in this Agreement, the Trust Agreement or any written or oral instruction delivered to the Trustee by New Transit, the Tabulation Agent or the Partnership pursuant hereto.

(2)            In no case shall New Transit or the Partnership be liable under this Article 4 unless New Transit and the Partnership shall be notified by the Trustee of the assertion of a claim or of any action commenced against the Indemnified Parties as soon as reasonably practicable after any of the Indemnified Parties shall have received a written assertion of such a claim. New Transit and the Partnership shall be entitled to participate at their own expense in the defence and, if New Transit and the Partnership so elect at any time after receipt of such notice, subject to (ii) below, either of them may assume the defence of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee unless: (i) the employment of such counsel has been expressly authorized by New Transit or the Partnership, such authorization not to be unreasonably withheld; or (ii) the named parties to any such suit include both the Trustee and New Transit or the Partnership and the Trustee shall have been advised by counsel acceptable to New Transit or the Partnership that there may be one or more legal defences available to the Trustee that are different from or in addition to those available to New Transit or the Partnership and that, in the judgment of such counsel, would present a conflict of interest were a joint representation to be undertaken (in which case New Transit and the Partnership shall not have the right to assume the defence of such suit on behalf of the Trustee but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee). . The foregoing indemnities will survive the removal or resignation of the Trustee or the termination of this Agreement and the termination of the Trust. Each of the Indemnified Persons other than the Trustee or the Trust is a third party beneficiary of the foregoing indemnity and the rights to indemnification of such Indemnified Parties are held in trust by the Trustee on behalf of such Indemnified Parties.

Article 5 - TrustEE successors

5.01 Successor Trustee

The Trust shall require that any successor trustee to the Trustee appointed as provided under the Trust Agreement shall execute, acknowledge and deliver to New Transit, the Partnership and to its predecessor trustee an instrument accepting the rights, powers, duties and obligations of its predecessor under this Agreement. Thereupon, the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with the like effect as if an original signatory to this Agreement. Notwithstanding the above, any company into which the Trustee may be merged or with which it may be consolidated or amalgamated, any company resulting from any merger, consolidation or amalgamation to which the Trustee shall be a party or any company to which the Trustee may transfer all or substantially all of its corporate trust business shall be a successor Trustee under this Agreement without the execution of any instrument or any further act; provided that such successor Trustee shall be a corporation qualified to carry on a trust business as contemplated hereby in each of the Provinces of Canada, shall not be controlled by a non-resident person or group of non-resident persons for the purposes of the Income Tax Act (Canada) and shall not have a material conflict of interest in its role as a fiduciary under the Trust Agreement.

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Article 6 - New Transit Successors

6.01 Successor in the Event of Combination, etc.

In connection with any transaction (whether by way of reconstruction, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale, lease or otherwise) whereby all or substantially all of the undertaking, property and assets of New Transit would become the property of any other Person or, in the case of an amalgamation, arrangement or merger, of the continuing corporation resulting therefrom, either (i) such other Person or continuing corporation (herein called the “New Transit Successor”), by operation of law, shall become, without more, bound by the terms and provisions of this Agreement, or (ii) if not so bound, shall execute, prior to or contemporaneously with the consummation of such transaction, an assignment and assumption agreement by the New Transit Successor of liability for all monies payable and property deliverable hereunder and the covenant of such New Transit Successor to pay and deliver or cause to be delivered the same and its agreement to observe and perform all the covenants and obligations of New Transit under this Agreement.

6.02 Wholly-Owned Subsidiaries

Nothing in this Article 6 shall be construed as applying to the amalgamation or merger of any wholly-owned direct or indirect subsidiary of New Transit with or into New Transit or the winding-up, liquidation or dissolution of any wholly-owned direct or indirect subsidiary of New Transit (other than the Partnership) provided that all of the assets of such subsidiary are transferred to New Transit or another wholly-owned direct or indirect subsidiary of New Transit or any other distribution of the assets of any wholly-owned direct or indirect subsidiary of New Transit among its shareholders, and any such transactions are expressly permitted by this Article 6.

Article 7 - Amendments

7.01 Amendments, Modifications, etc.

Except as set forth in Section 7.03, this Agreement may not be amended or modified except by an agreement in writing executed by:

(1)            New Transit;

(2)            the Partnership;

(3)            the Trust; it being understood and agreed that the Trustee, on behalf of the Trust, shall execute and deliver an amending agreement to this Agreement or other instruments supplemental hereto to give effect to any such amendment or modification proposed by New Transit and the Partnership, provided that such agreement does not adversely affect the rights, duties, liabilities or immunities of the Trustee hereunder;

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subject to the prior approval of:

(i)            solely in the event of amendments or modifications in respect of one or more classes of Special Voting Shares, including the related Voting Rights, approved by the Unit Holders in accordance with and meeting the requirements of the Section 14.1 of, and Article 5 of Schedule A to, the LPA of which the Partnership will provide the Trustee with an Officer’s Certificate certifying receipt of the required approval; and

(ii)            solely in the event of amendments or modifications in respect of the Golden Share, including the related Voting Rights, approved by each of the following voting as a separate class: (a) the holders of Class A Units and Class A Common Shares, and (b) the holders of all other Units and Class A/B/C Shares, all in accordance with and meeting the requirements of the Articles and Section 14.1 of, and Article 5 of Schedule A to, the LPA of which New Transit will provide the Trustee with an Officer’s Certificate certifying receipt of the required approval.

7.02 Meeting to Consider Amendments

The Partnership, at the request of New Transit in its capacity as General Partner, shall call a meeting or meetings of the applicable Unit Holders for the purpose of considering any proposed amendment or modification requiring their approval pursuant hereto. Any such meeting or meetings shall be called and held in accordance with the LPA and all applicable laws.

7.03 Changes in Capital of New Transit and the Partnership

At all times after the occurrence of any event contemplated pursuant to Section 3.5 of the LPA or otherwise, as a result of which Class A/B/C Shares, Special Voting Shares, the Golden Share or the Exchangeable Units or all are in any way changed, this Agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which Class A/B/C Shares, Special Voting Shares, the Golden Share or the Exchangeable Units or all are so changed and the parties hereto shall execute and deliver an amending agreement to this Agreement giving effect to and evidencing such necessary amendments and modifications.

Article 8 - Termination

8.01 Term

This Agreement may be terminated by mutual written consent of New Transit and the Partnership, so long as (a) either (i) no Exchangeable Units are outstanding or (ii) such termination is approved by the Unit Holders in accordance with Section 14.1 of, and Article 5 of Schedule A to, the LPA and (b) no Golden Share is outstanding. Notice of termination will be given by New Transit and the Partnership to the Trustee in either circumstance under this Section 8.01.

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8.02 Survival of Agreement

The provisions of Article 4 shall survive any termination of this Agreement.

Article 9 - General

9.01 Waivers

No waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by such party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.

9.02 Assignment

No party may assign any of its rights or benefits under this Agreement, or delegate any of its duties or obligations hereunder, except with the prior written consent of the other parties hereto.

9.03 Successors and Assigns

This Agreement shall enure to the benefit of and shall be binding on and enforceable by and against the parties hereto and their respective successors or heirs, executors, administrators and other legal personal representatives, and permitted assigns.

9.04 Notices

(1)            Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person, transmitted by fax or e-mail or similar means of recorded electronic communication or sent by registered mail, charges prepaid, addressed as follows:

(a) if to New Transit or the Partnership, at:

Telesat Corporation

160 Elgin Street, Suite 2100

Ottawa, Ontario, Canada K2P 2P7

Attention:	Chris DiFrancesco
Email:	CDiFrancesco@telesat.com

(b) if to the Trust, at:

TSX Trust Company, as trustee of the Telesat Corporation Trust

301-100 Adelaide Street W.,

Toronto, Ontairo M5H 4H1

Attention:	Vice President, Trust Services
Email:	tmxestaff-corporatetrust@tmx.com

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(2)            Any such notice or other communication shall be deemed to have been given and received on the day on which it was delivered or transmitted (or, if such day is not a Business Day or if delivery or transmission is made on a Business Day after 5:00 p.m. at the place of receipt, then on the next following Business Day) or, if mailed, on the third Business Day following the date of mailing; provided, however, that if at the time of mailing or within three Business Days thereafter there is or occurs a labour dispute or other event which might reasonably be expected to disrupt the delivery of documents by mail, any notice or other communication hereunder shall be delivered or transmitted by means of recorded electronic communication as aforesaid.

(3)            Any party may at any time change its address for service from time to time by giving notice to the other parties in accordance with this Section 9.04.

9.05 Force Majeure

Except for the payment obligations of New Transit and the Partnership contained herein, none of the parties shall be liable to the other, or held in breach of this Agreement, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of act of God, strikes, lockouts, riots, terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Agreement shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section 9.05.

9.06 Counterparts

This Agreement and all documents contemplated by or delivered under or in connection with this Agreement may be executed in any number of counterparts and delivered by means of facsimile, portable document format (PDF) or other electronic format, with the same effect as if all parties had signed and delivered the same document, and all counterparts shall be construed together to be an original and will constitute one and the same agreement.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed as of the date first above written.

TELESAT CORPORATION
by	/s/ Christopher DiFrancesco
	Name:	Christopher DiFrancesco
	Title:	Vice President, General Counsel and Secretary

TELESAT PARTNERSHIP LP, by its general partner, TELESAT CORPORATION
by	/s/ Christopher DiFrancesco
	Name:	Christopher DiFrancesco
	Title:	Vice President, General Counsel and Secretary

TSX Trust Company, in its capacity as trustee of the Telesat Corporation Trust
by	/s/ Donald Crawford
	Name:	Donald Crawford
	Title:	Senior Trust Officer
by	/s/ Michael Rosenberg
	Name:	Michael Rosenberg
	Title:	Sr. Trust Officer

[Telesat Corporation Trust – Voting Agreement]

EX-99.6

Exhibit 99.6

Telesat Becomes a Public Company, Marking

A Significant Milestone in Support of its Compelling Growth Strategy

The global satellite operator begins trading today

on Nasdaq and Toronto Stock Exchange

OTTAWA, CANADA, November 19, 2021 – Telesat Corporation announced today that it is now a public company and will begin trading on the Nasdaq Global Select Market (“NASDAQ”) and the Toronto Stock Exchange (“TSX”) under the ticker symbol “TSAT”. This follows the closing of Telesat’s previously announced transaction with Loral Space & Communications Inc. (“Loral”) and Public Sector Pension Investment Board (“PSP Investments”) (the “Transaction”), in which Loral’s stockholders and Telesat Canada’s other equityholders have exchanged their interests for equity in Telesat’s new public holding structure. Telesat did not issue new equity to raise additional cash financing as part of the Transaction.

Telesat Canada and Loral have become subsidiaries of Telesat Corporation, the Canadian controlled and incorporated public holding company formed in connection with the Transaction. Telesat Corporation will continue to be led by Telesat’s President and Chief Executive Officer Dan Goldberg.

“Today’s announcement marks a major milestone for Telesat, driving forward our plans for growth, innovation and increased value for our customers, partners, employees and shareholders,” said Goldberg. “By rationalizing our corporate structure and providing access to the public equity markets, this dual-listing enhances Telesat’s ability to execute on its compelling investment opportunities to drive our growth—and the future of global broadband connectivity—including our transformative Telesat Lightspeed Low Earth Orbit satellite network.”

Dr. Mark H. Rachesky, Chairman of the Board of Telesat, added “I commend the management team for developing and advancing our revolutionary global connectivity solution. Today, by executing this strategically important transaction, we have aligned ownership and positioned Telesat to realize the significant value of our world-class assets for all equityholders.”

In the Transaction, each share of Loral common stock has been converted into the right to receive either one share of Telesat Corporation or one unit of Telesat Partnership LP (“Telesat Partnership”). PSP Investments and other shareholders of Telesat Canada have also exchanged their shares or equity awards into shares or equity awards of Telesat Corporation or units of Telesat Partnership.

In total, Telesat Corporation and Telesat Partnership are expected to have 49,546,940 shares and units outstanding, of which a total of 11,907,246 Class A common shares and Class B variable voting shares of Telesat Corporation will be outstanding initially. The Class A common shares and Class B variable voting shares of Telesat Corporation are listed for trading on NASDAQ and TSX, under the stock symbol TSAT. The equity securities of Telesat Corporation and Telesat Partnership that are not listed for trading consist of Class C shares of Telesat Corporation and units of Telesat Partnership, which are convertible into Class A common shares and Class B variable voting shares of Telesat Corporation in accordance with their terms. (See Exhibit 1, for further detail.)

Telesat’s Board of Directors will have a majority of Canadian directors and will include current Telesat Canada board members Mélanie Bernier, Michael Boychuk, Richard Fadden, Henry (Hank) Intven, Dr. Mark H. Rachesky, Guthrie Stewart and Michael B. Targoff, along with new directors

· Jason A. Caloras, MHR Fund Management LLC Principal

· Jane Craighead, Chartered Professional Accountant and former Scotiabank Senior Vice President, Global Human Resources

· Dan Goldberg, Telesat President and CEO

Following the completion of the Transaction, affiliated funds of MHR Fund Management LLC hold securities representing approximately 36% of Telesat’s outstanding equity (on a combined basis), and PSP Investments beneficially holds securities representing approximately 37% of Telesat’s outstanding equity (on a combined basis).

In connection with the transaction, Goldman Sachs & Co. LLC and BMO Capital Markets acted as financial advisors to Telesat and Wachtell, Lipton, Rosen & Katz and Stikeman Elliott LLP acted as legal counsel to Telesat. J.P. Morgan advised Telesat on the structuring of the transaction.

Additional information with respect to the equity securities of Telesat Corporation is available in the report on Form 6-K of Telesat Corporation, filed with the U.S. Securities and Exchange Commission on the date hereof, and in the non-offering prospectus of Telesat Corporation and Telesat Partnership dated November 16, 2021 on the website maintained by the Canadian securities regulatory authorities at the System for Electronic Document Analysis and Retrieval at www.sedar.com.

A registration statement relating to the Telesat Corporation shares and the Telesat Partnership units was filed with, and declared effective by, the U.S. Securities and Exchange Commission. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Copies of the non-offering prospectus may be obtained free of charge through the website maintained by the Canadian securities regulatory authorities at the System for Electronic Document Analysis and Retrieval at www.sedar.com and the website maintained by the U.S. Securities and Exchange Commission at www.sec.gov.

About Telesat

Backed by a legacy of engineering excellence, reliability and industry-leading customer service, Telesat Corporation (“Telesat”) (NASDAQ and TSX: TSAT) is one of the largest and most successful global satellite operators. Telesat works collaboratively with its customers to deliver critical connectivity solutions that tackle the world’s most complex communications challenges, providing powerful advantages that improve their operations and drive profitable growth.

Continuously innovating to meet the connectivity demands of the future, Telesat Lightspeed, the company’s Low Earth Orbit (LEO) satellite network, will be the first and only LEO network optimized to meet the rigorous requirements of telecom, government, maritime and aeronautical customers. Operating under its international priority Ka-band spectrum rights, Telesat Lightspeed will redefine global satellite connectivity with ubiquitous, affordable, high-capacity links with fibre-like speeds. For updates on Telesat, follow us on Twitter, LinkedIn, or visit www.telesat.com.

Investor Relations Contacts:

Michael Bolitho             Hugh Harley

+1 613 748 8828              +1 613 748 8424

ir@telesat.com

Media Contact:

Gregory FCA for Telesat

Nicole Sullivan

nsullivan@gregoryfca.com

Forward-Looking Statements Safe Harbor

This news release contains statements that are not based on historical fact and are “forward-looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995 and Canadian securities laws. When used herein, statements which are not historical in nature, or which contain the words “will,” “expected,” “plans,” “considering,” or similar expressions, are forward-looking statements. Actual results may differ materially from the expectations expressed or implied in the forward-looking statements as a result of known and unknown risks and uncertainties.

These forward-looking statements are based on Telesat Corporation’s current expectations and are subject to a number of risks, uncertainties and assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Telesat Corporation’s control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Known risks and uncertainties include but are not limited to: risks associated with operating satellites and providing satellite services, including satellite construction or launch delays, launch failures, in-orbit failures or impaired satellite performance; the impact of COVID-19 on Telesat Canada’s business and the economic environment; the ability to deploy successfully an advanced global Low Earth Orbit (“LEO”) satellite constellation, and the timing of any such deployment; the availability of government and/or other funding for the LEO satellite constellation; the receipt of proceeds in relation to the re-allocation of C-band spectrum; volatility in exchange rates; the ability to expand Telesat Canada’s existing satellite utilization; risks associated with domestic and foreign government regulation; the risk that expected benefits and growth prospects of the Transaction may not be achieved in a timely manner or at all; and risks relating to the value of the shares of Telesat Corporation and limited partnership units of Telesat Partnership issued in connection with the Transaction. The foregoing list of important factors is not exhaustive. Investors should review the other risk factors discussed in the non-offering prospectus of Telesat Corporation and Telesat Partnership dated November 16, 2021 on the website maintained by the Canadian securities regulatory authorities at the System for Electronic Document Analysis and Retrieval at www.sedar.com.

Telesat Corporation believes these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. Additional risks are detailed in the non-offering prospectus, including, without limitation, those described under “Risk factors.” Except as may be required by applicable law, Telesat Corporation does not undertake any obligation to update or revise these forward-looking statements to reflect future events or circumstances.

Exhibit 1:

Outstanding Equity Securities of Telesat Corporation and Telesat Partnership

The following table summarizes the approximate outstanding equity capital of Telesat Corporation and Telesat Partnership immediately following the completion of the Transaction:

Description and Class Designation	Listing (Ticker)	Securities Outstanding		Percent Ownership (combined basis)
Class A Common Shares and Class B Variable Voting Shares of Telesat Corporation	NASDAQ (TSAT) TSX (TSAT)		11,907,246		24	%
Class A and Class B Units of Telesat Partnership	Unlisted		19,428,491		39	%
Class C Shares (comprised of Class C Fully Voting and Class C Limited Voting Shares) of Telesat Corporation and Class C Units of Telesat Partnership (beneficially held by PSP Investments)	Unlisted		18,211,203		37	%
	Total:		49,546,940		100	%

All Telesat Corporation shares and Telesat Partnership units represent equivalent economic interests and will generally vote as a single class in accordance with their terms. The distinction between Class A common shares and units and Class B variable voting shares and units relates to the mechanism for maintaining Canadian voting control of Telesat Corporation, as discussed in greater detail in the company’s other public disclosures.

The deadline has passed for Loral shareholders to validly elect to receive units of Telesat Partnership. Shares of Telesat Corporation received in exchange for shares of Loral cannot be converted into units of Telesat Partnership. Each unit of Telesat Partnership received in exchange for shares of Loral will be exchangeable into one share of Telesat Corporation at any time on or after May 19, 2022, at the discretion of the unitholder. Class C shares of Telesat Corporation are only held by affiliates of PSP Investments and may be converted into Class A common shares or Class B variable voting shares of Telesat Corporation at any time.

The description of the equity securities of Telesat Corporation and Telesat Partnership set forth herein is not complete, and is qualified by reference to the descriptions thereof set forth in the proxy statement/prospectus, dated June 30, 2021, filed by Telesat Corporation and Telesat Partnership with the U.S. Securities and Exchange Commission in connection with the Transaction, available at www.sec.gov, and the non-offering prospectus of Telesat Corporation and Telesat Partnership, dated November 16, 2021, available on the website maintained by the Canadian securities regulatory authorities at the System for Electronic Document Analysis and Retrieval at www.sedar.com.

EX-99.7

INDEX TO FINANCIAL STATEMENTS

Financial Statements of Telesat Canada

Unaudited condensed interim consolidated financial statements as at September 30, 2021, and for the three- and nine-month periods ended September 30, 2021 and 2020.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME For the periods ended September 30	F-3
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME For the periods ended September 30	F-4
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	F-5
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS	F-6
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended September 30	F-7
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021	F-8

Consolidated financial statements as at December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020.

Report of Independent Registered Public Accounting Firm	F-24
CONSOLIDATED STATEMENTS OF INCOME (LOSS) for the years ended December 31	F-26
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the years ended December 31	F-27
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	F-28
CONSOLIDATED BALANCE SHEETS	F-30
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-31
NOTES TO THE 2020 CONSOLIDATED FINANCIAL STATEMENTS	F-32

Financial Statements of Telesat Corporation

Balance sheet as at September 30, 2021 and December 31, 2020.

UNAUDITED BALANCE SHEETS as at September 30, 2021 and December 31, 2020	F-76
NOTES TO THE UNAUDITED BALANCE SHEETS	F-77

Balance sheet as at December 31, 2020.

TELESAT CORPORATION AUDITED FINANCIAL STATEMENTS	F-79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-79
BALANCE SHEET as of December 31, 2020	F-80
NOTES TO THE DECEMBER 31, 2020 BALANCE SHEET	F-81

Financial Statements of Telesat Partnership

Consolidated Balance sheet as at September 30, 2021 and December 31, 2020.

UNAUDITED CONSOLIDATED BALANCE SHEETS as at September 30, 2021 and December 31, 2020	F-83
NOTES TO THE UNAUDITED CONSOLIDATED BALANCE SHEETS September 30, 2021	F-84

Consolidated Balance Sheet as at December 31, 2020.

TELESAT PARTNERSHIP AUDITED FINANCIAL STATEMENTS	F-86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-86
CONSOLIDATED BALANCE SHEET as of December 31, 2020	F-87
NOTES TO THE DECEMBER 31, 2020 CONSOLIDATED BALANCE SHEET	F-88

F-1

Financial Statements of Loral

Unaudited condensed interim consolidated financial statements as of September 30, 2021, and for the three- and nine-month periods ended September 30, 2021 and 2020.

CONDENSED CONSOLIDATED BALANCE SHEETS	F-90
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME	F-91
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	F-92
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	F-93
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F-94
Management’s Discussion and Analysis of Financial Condition and Results of Operations	F-115

Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2020 and 2019	F-130
Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31 2019 and 2018	F-147
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-163

Consolidated financial statements as of December 31, 2020 and 2019, and for each of the years in the two-year period ended December 31, 2020.

CONSOLIDATED BALANCE SHEETS	F-165
CONSOLIDATED STATEMENTS OF OPERATIONS	F-166
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	F-167
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	F-168
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-170
Schedule II	F-196

Consolidated financial statements as of December 31, 2019 and 2018, and for each of the years in the two-year period ended December 31, 2019.

CONSOLIDATED BALANCE SHEETS	F-197
CONSOLIDATED STATEMENTS OF OPERATIONS	F-198
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	F-199
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	F-200
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-202
Schedule II	F-224

F-2

Telesat Canada

Unaudited Interim Condensed Consolidated Statements of (Loss) Income
For the periods ended September 30

​

​

​

Three months

Nine months

(in thousands of Canadian dollars)

Notes

2021

2020

2021

2020

Revenue

​

5

​

$

192,335

​

$

202,053

​

$

570,715

​

$

618,560

Operating expenses

​

6

​

​

(49,691)

​

​

(42,185)

​

​

(146,921)

​

​

(133,712)

Depreciation

​

​

​

​

(50,663)

​

​

(55,597)

​

​

(153,402)

​

​

(166,819)

Amortization

​

​

​

​

(3,988)

​

​

(4,289)

​

​

(12,051)

​

​

(12,906)

Other operating losses, net

​

​

​

​

(30)

​

​

(34)

​

​

(777)

​

​

(246)

Operating income

​

​

​

​

87,963

​

​

99,948

​

​

257,564

​

​

304,877

Interest expense

​

7

​

​

(50,691)

​

​

(50,116)

​

​

(139,153)

​

​

(155,917)

Interest and other income

​

​

​

​

1,013

​

​

875

​

​

2,786

​

​

6,667

Gain (loss) on changes in fair value of financial instruments

​

​

​

​

971

​

​

5,715

​

​

(20,357)

​

​

(38,884)

(Loss) gain on foreign exchange

​

​

​

​

(68,411)

​

​

66,334

​

​

7,343

​

​

(99,088)

(Loss) income before tax

​

​

​

​

(29,155)

​

​

122,756

​

​

108,183

​

​

17,655

Tax expense

​

8

​

​

(12,764)

​

​

(15,736)

​

​

(47,591)

​

​

(27,100)

Net (loss) income

​

​

​

$

(41,919)

​

$

107,020

​

$

60,592

​

$

(9,445)

See accompanying notes to the unaudited interim condensed consolidated financial statements

F-3

Telesat Canada

Unaudited Interim Condensed Consolidated Statements of Comprehensive (Loss) Income
For the periods ended September 30

​

Three months

Nine months

(in thousands of Canadian dollars)

2021

2020

2021

2020

Net (loss) income

​

$

(41,919)

​

$

107,020

​

$

60,592

​

$

(9,445)

Other comprehensive income (loss)

​

​

​

​

​

​

​

​

​

​

​

​

Items that may be reclassified into profit or loss

​

​

​

​

​

​

​

​

​

​

​

​

Foreign currency translation adjustments

​

​

29,235

​

​

(26,745)

​

​

(1,816)

​

​

24,181

Other comprehensive income (loss)

​

​

29,235

​

​

(26,745)

​

​

(1,816)

​

​

24,181

Total comprehensive (loss) income

​

$

(12,684)

​

$

80,275

​

$

58,776

​

$

14,736

See accompanying notes to the unaudited interim condensed consolidated financial statements

F-4

Telesat Canada

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of Canadian dollars)	Common shares			Preferred shares			Total share capital			Accumulated earnings			Equity- settled employee benefits reserve			Foreign currency translation reserve			Total reserves			Total shareholders’ equity
Balance as at January 1, 2020	​	$	26,580	​	$	128,315	​	$	154,895	​	$	1,031,055	​	$	74,877	​	$	(15,502)	​	$	59,375	​	$	1,245,325
Net loss	​	​	—	​	​	—	​	​	—	​	​	(9,445)	​	​	—	​	​	—	​	​	—	​	​	(9,445)
Other comprehensive income, net of tax of $nil	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—	​	​	24,181	​	​	24,181	​	​	24,181
Share-based compensation	​	​	—	​	​	—	​	​	—	​	​	—	​	​	7,160	​	​	—	​	​	7,160	​	​	7,160
Balance as at September 30, 2020	​	$	26,580	​	$	128,315	​	$	154,895	​	$	1,021,610	​	$	82,037	​	$	8,679	​	$	90,716	​	$	1,267,221
Balance as at October 1, 2020	​	$	26,580	​	$	128,315	​	$	154,895	​	$	1,021,610	​	$	82,037	​	$	8,679	​	$	90,716	​	$	1,267,221
Net income	​	​	—	​	​	—	​	​	—	​	​	255,023	​	​	—	​	​	—	​	​	—	​	​	255,023
Issuance of share capital on settlement of restricted share units	​	​	—	​	​	803	​	​	803	​	​	—	​	​	(1,729)	​	​	—	​	​	(1,729)	​	​	(926)
Other comprehensive loss, net of tax recovery of $3,584	​	​	—	​	​	—	​	​	—	​	​	(10,109)	​	​	—	​	​	(56,603)	​	​	(56,603)	​	​	(66,712)
Share-based compensation	​	​	—	​	​	—	​	​	—	​	​	—	​	​	5,340	​	​	—	​	​	5,340	​	​	5,340
Dividends declared on Director Voting Preferred Shares	​	​	—	​	​	—	​	​	—	​	​	(10)	​	​	—	​	​	—	​	​	—	​	​	(10)
Balance as at December 31, 2020	​	$	26,580	​	$	129,118	​	$	155,698	​	$	1,266,514	​	$	85,648	​	$	(47,924)	​	$	37,724	​	$	1,459,936
Balance as at January 1, 2021	​	$	26,580	​	$	129,118	​	$	155,698	​	$	1,266,514	​	$	85,648	​	$	(47,924)	​	$	37,724	​	$	1,459,936
Net income	​	​	—	​	​	—	​	​	—	​	​	60,592	​	​	—	​	​	—	​	​	—	​	​	60,592
Issuance of share capital on exercise of stock options	​	​	—	​	​	16	​	​	16	​	​	—	​	​	—	​	​	—	​	​	—	​	​	16
Other comprehensive loss, net of tax of $nil	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—	​	​	(1,816)	​	​	(1,816)	​	​	(1,816)
Share-based compensation	​	​	—	​	​	—	​	​	—	​	​	—	​	​	33,758	​	​	—	​	​	33,758	​	​	33,758
Balance as at September 30, 2021	​	$	26,580	​	$	129,134	​	$	155,714	​	$	1,327,106	​	$	119,406	​	$	(49,740)	​	$	69,666	​	$	1,552,486

See accompanying notes to the unaudited interim condensed consolidated financial statements

F-5

Telesat Canada

Unaudited Interim Condensed Consolidated Balance Sheets

(in thousands of Canadian dollars)	Notes	September 30, 2021			December 31, 2020
Assets	​	​	​	​	​	​	​
Cash and cash equivalents	​	​	$	1,558,638	​	$	818,378
Trade and other receivables	​	​	​	55,985	​	​	51,928
Other current financial assets	​	​	​	474	​	​	448
Prepaid expenses and other current assets	​	​	​	38,103	​	​	22,861
Total current assets	​	​	​	1,653,200	​	​	893,615
Satellites, property and other equipment	5,9	​	​	1,286,390	​	​	1,318,526
Deferred tax assets	​	​	​	62,523	​	​	79,912
Other long-term financial assets	​	​	​	16,918	​	​	53,425
Other long-term assets	5	​	​	13,410	​	​	9,922
Intangible assets	5	​	​	766,031	​	​	779,190
Goodwill	​	​	​	2,446,603	​	​	2,446,603
Total assets	​	​	$	6,245,075	​	$	5,581,193
Liabilities	​	​	​	​	​	​	​
Trade and other payables	​	​	$	33,508	​	$	30,091
Other current financial liabilities	​	​	​	63,433	​	​	35,880
Other current liabilities	​	​	​	91,294	​	​	96,155
Total current liabilities	​	​	​	188,235	​	​	162,126
Long-term indebtedness	11	​	​	3,805,313	​	​	3,187,152
Deferred tax liabilities	​	​	​	290,282	​	​	325,893
Other long-term financial liabilities	​	​	​	25,172	​	​	35,499
Other long-term liabilities	​	​	​	383,587	​	​	410,587
Total liabilities	​	​	​	4,692,589	​	​	4,121,257
Shareholders’ Equity	​	​	​	​	​	​	​
Share capital	12	​	​	155,714	​	​	155,698
Accumulated earnings	​	​	​	1,327,106	​	​	1,266,514
Reserves	​	​	​	69,666	​	​	37,724
Total shareholders’ equity	​	​	​	1,552,486	​	​	1,459,936
Total liabilities and shareholders’ equity	​	​	$	6,245,075	​	$	5,581,193

See accompanying notes to the unaudited interim condensed consolidated financial statements

F-6

Telesat Canada

Unaudited Interim Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30

(in thousands of Canadian dollars)	Notes		2021			2020
Cash flows generated from operating activities	​	​	​	​	​	​	​	​
Net income (loss)	​	​	​	$	60,592	​	$	(9,445)
Adjustments to reconcile net income (loss) to cash flows generated from operating activities	​	​	​	​	​	​	​	​
Depreciation	​	​	​	​	153,402	​	​	166,819
Amortization	​	​	​	​	12,051	​	​	12,906
Tax expense	​	​	​	​	47,591	​	​	27,100
Interest expense	​	​	​	​	139,153	​	​	155,917
Interest income	​	​	​	​	(3,197)	​	​	(6,761)
(Gain) loss on foreign exchange	​	​	​	​	(7,343)	​	​	99,088
Loss on changes in fair value of financial instruments	​	​	​	​	20,357	​	​	38,884
Share-based compensation	​	​	​	​	33,758	​	​	7,160
Loss on disposal of assets	​	​	​	​	777	​	​	246
Other	​	​	​	​	(45,397)	​	​	(45,474)
Income taxes paid, net of income taxes received	​	17	​	​	(71,644)	​	​	(35,221)
Interest paid, net of interest received	​	17	​	​	(87,213)	​	​	(120,576)
Operating assets and liabilities	​	17	​	​	(2,753)	​	​	9,046
Net cash generated from operating activities	​	​	​	​	250,134	​	​	299,689
Cash flows used in investing activities	​	​	​	​	​	​	​	​
Purchases for satellite programs	​	​	​	​	(97,131)	​	​	(64,810)
Purchase of property and other equipment	​	​	​	​	(27,202)	​	​	(13,235)
Purchase of intangible assets	​	​	​	​	—	​	​	(30)
Net cash used in investing activities	​	​	​	​	(124,333)	​	​	(78,075)
Cash flows generated from (used in) financing activities	​	​	​	​	​	​	​	​
Proceeds from indebtedness	​	17	​	​	619,900	​	​	—
Repayment of indebtedness	​	17	​	​	—	​	​	(19,197)
Payment of debt issue costs	​	17	​	​	(6,834)	​	​	—
Payments of principal on lease liabilities	​	17	​	​	(1,780)	​	​	(1,215)
Satellite performance incentive payments	​	17	​	​	(5,092)	​	​	(6,877)
Proceeds from exercise of stock options	​	16	​	​	—	​	​	​
Government grant received	​	​	​	​	—	​	​	6,120
Net cash generated from (used in) financing activities	​	​	​	​	606,210	​	​	(21,169)
Effect of changes in exchange rates on cash and cash equivalents	​	​	​	​	8,249	​	​	14,648
Increase in cash and cash equivalents	​	​	​	​	740,260	​	​	215,093
Cash and cash equivalents, beginning of period	​	​	​	​	818,378	​	​	1,027,222
Cash and cash equivalents, end of period	​	​	​	$	1,558,638	​	$	1,242,315

See accompanying notes to the unaudited interim condensed consolidated financial statements

F-7

Telesat Canada

Notes to the Unaudited Interim Condensed Consolidated Financial Statements
September 30, 2021
(all amounts in thousands of Canadian dollars, except where otherwise noted)

1.   BACKGROUND OF THE COMPANY

Telesat Canada (the “Company” or “Telesat”) is a Canadian corporation. Telesat is a global satellite operator, providing mission-critical communications solutions to support the requirements of sophisticated satellite users throughout the world. Headquartered in Ottawa, Canada, the Company’s state-of-the-art fleet consists of 15 geostationary satellites and the Canadian payload on ViaSat-1.

The Company has commenced the development of a constellation of low earth orbit (“LEO”) satellites and integrated terrestrial infrastructure, called “Telesat Lightspeed”. In January 2018, the first LEO satellite was successfully launched into orbit. This Phase 1 LEO satellite has demonstrated certain key features of the Telesat Lightspeed system design, specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience.

As at September 30, 2021, Loral Space and Communications Inc. (“Loral”) and Canada’s Public Sector Pension Investment Board (“PSP Investments”) indirectly held economic interests in Telesat of approximately 63% and 36%, respectively, with the remaining economic interest held by various individuals. Loral indirectly held a voting interest of 33% on all matters including the election of directors. PSP Investments indirectly held a voting interest of 67% on all matters except for the election of directors, and a 29% voting interest for the election of directors. The remaining voting interest of 38% for the election of directors is held by shareholders of the Company’s Director Voting Preferred Shares.

Unless the context states or requires otherwise, references herein to the “financial statements” or similar terms refer to the unaudited interim condensed consolidated financial statements of Telesat Canada.

On November 4, 2021, these financial statements were approved by the Audit Committee of the Board of Directors and authorized for issue.

2.   BASIS OF PRESENTATION

Statement of Compliance

The financial statements represent the interim financial statements of the Company and its subsidiaries, on a consolidated basis, prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”).

The financial statements should be read in conjunction with the December 31, 2020 consolidated financial statements of Telesat Canada. The financial statements use the same basis of presentation and significant accounting policies as outlined in Notes 2 and 3 of the consolidated financial statements for the year ended December 31, 2020. The results of operations for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for a full fiscal year.

Basis of Consolidation

Subsidiaries

These consolidated financial statements include the results of the Company and subsidiaries controlled by the Company. Control is achieved when the Company has power over an entity, has exposure, or rights to variable returns from its involvement with an entity, and has the ability to use the power over an entity to affect the amount of its return.

Joint arrangements

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to their share of the assets and revenue, and obligations for the liabilities and expenses, relating to the arrangement.

F-8

The Company’s consolidated financial statements include the Company’s share of the assets, liabilities, revenue and expenses of its interest in joint operations.

3.   CHANGES IN ACCOUNTING POLICIES

Interest rate benchmark reform — Phase 2

The Company has adopted Interest rate benchmark reform — Phase 2 (Amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, IFRS 7, Financial Instruments: Disclosure, IFRS 4, Insurance Contracts and IFRS 16, Leases). The amendments enable entities to reflect the effects of transitioning from benchmark interest rates, such as inter-bank offered rates (“IBOR”) to alternative benchmark interest rates. As a result of the Phase 2 amendments relief, changes to contractual cash flows as a direct consequence of IBOR reform will not result in an immediate gain or loss in the statement of income.

Interest rates on certain indebtedness of the Company are determined by reference to benchmark rates. Similarly, benchmark rates are used in the calculation of the fair value of certain financial assets and liabilities. As none of the benchmark interest rates used by the Company have yet been transitioned to an alternative benchmark rate, there is no impact on its financial statements.

The Company has determined that the largest impact of the alternative benchmark rates will be relating to the Term Loan B Facility and the interest rate swaps.

The risks identified are not expected to cause any major changes in the Company’s risk management strategy.

4.   SIGNIFICANT ACCOUNTING POLICIES

Future Changes in Accounting Policies

Amendments to IAS 1 and IFRS Practice Statement 2

In February 2021, the International Accounting Standards Board (“IASB”) issued amendments to IAS 1, Presentation of Financial Statements in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments require entities to disclose their material accounting policies rather than their significant accounting policies.

The amendments clarify that accounting policy information is material if users of an entity’s financial statements would need it to understand other material information in the financial statements and that accounting policy information may be material because of its nature, even if the related amounts are immaterial. On the other hand, although a transaction, other event or condition to which the accounting policy information relates may be material, it does not necessarily mean that the corresponding accounting policy information is material to the entity’s financial statements.

The amendments are applied prospectively and are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted.

The changes will only impact the level of disclosures within the Company’s financial statements.

The Company is currently evaluating the impact of the amendment.

Amendments to IAS 12

In May 2021, the IASB issued amendments to IAS 12, Income Taxes.

In specified circumstances, companies are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. The amendments clarify that such initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on

F-9

initial recognition. Accordingly, entities are required to recognize deferred tax associated with transactions, such as leases and decommissioning obligations, which give rise to equal and offsetting temporary differences.

The amendments are effective for annual reporting periods beginning on or after January 1, 2023 with early adoption permitted.

There will be no impact on its consolidated financial statements as a result of the amendments.

There are no other new and amended standards determined to be applicable to Telesat.

5.   SEGMENT INFORMATION

Telesat operates in a single operating segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world.

The Company derives revenue from the following services:

•

Broadcast — Direct-to-home television, video distribution and contribution, and occasional use services.

•

Enterprise — Telecommunication carrier and integrator, government, consumer broadband, resource, maritime and aeronautical, retail and satellite operator services.

•

Consulting and other — Consulting services related to space and earth segments, government studies, satellite control services, and research and development.

Revenue derived from the above services were as follows:

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Broadcast	​	$	97,408	​	$	103,221	​	$	293,229	​	$	309,773
Enterprise	​	​	91,126	​	​	93,487	​	​	267,675	​	​	293,634
Consulting and other	​	​	3,801	​	​	5,345	​	​	9,811	​	​	15,153
Revenue	​	$	192,335	​	$	202,053	​	$	570,715	​	$	618,560

Equipment sales included within the various services were as follows:

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Broadcast	​	$	52	​	$	704	​	$	67	​	$	704
Enterprise	​	​	1,337	​	​	668	​	​	8,552	​	​	7,775
Total equipment sales	​	$	1,389	​	$	1,372	​	$	8,619	​	$	8,479

Geographic Information

Revenue by geographic regions was based on the point of origin of the revenue, which was the destination of the billing invoice, and was allocated as follows:

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Canada	​	$	78,589	​	$	89,625	​	$	249,032	​	$	270,062
United States	​	​	77,856	​	​	76,767	​	​	217,277	​	​	233,543
Latin America & Caribbean	​	​	13,242	​	​	15,006	​	​	41,921	​	​	49,236
Europe, Middle East & Africa	​	​	14,279	​	​	10,522	​	​	32,823	​	​	34,284
Asia & Australia	​	​	8,369	​	​	10,133	​	​	29,662	​	​	31,435
Revenue	​	$	192,335	​	$	202,053	​	$	570,715	​	$	618,560

F-10

For disclosure purposes, the satellites, and the intangible assets have been classified based on ownership. Satellites, property and other equipment, and intangible assets by geographic regions were allocated as follows:

As at,	September 30, 2021			December 31, 2020
Canada	​	$	651,269	​	$	624,303
Europe, Middle East & Africa	​	​	576,195	​	​	619,959
United States	​	​	56,356	​	​	71,659
All others	​	​	2,570	​	​	2,605
Satellites, property and other equipment	​	$	1,286,390	​	$	1,318,526

As at,	September 30, 2021			December 31, 2020
Canada	​	$	708,440	​	$	718,880
United States	​	​	6,111	​	​	38,448
Latin America & Caribbean	​	​	38,204	​	​	15,114
All others	​	​	13,276	​	​	6,748
Intangible assets	​	$	766,031	​	$	779,190

Other long-term assets by geographic regions were allocated as follows:

As at,	September 30, 2021			December 31, 2020
Canada	​	$	13,090	​	$	9,470
Europe, Middle East & Africa	​	​	320	​	​	452
Other long-term assets	​	$	13,410	​	$	9,922

Goodwill was not allocated to geographic regions.

Major Customers

For the three and nine months ended September 30, 2021 and 2020, there were two significant customers each representing more than 10% of consolidated revenue.

6.   OPERATING EXPENSES

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Compensation and employee benefits(a)	​	$	28,421	​	$	20,520	​	$	88,699	​	$	63,983
Other operating expenses(b)	​	​	13,766	​	​	14,674	​	​	36,034	​	​	47,032
Cost of sales(c)	​	​	7,504	​	​	6,991	​	​	22,188	​	​	22,697
Operating expenses	​	$	49,691	​	$	42,185	​	$	146,921	​	$	133,712

(a)

Compensation and employee benefits included salaries, bonuses, commissions, post-employment benefits and charges arising from share-based compensation.

(b)

Other operating expenses included general and administrative expenses, marketing expenses, in-orbit insurance expenses, professional fees and facility costs. The balance for the three and nine months ended September 30, 2021 included $0.2 million and $1.7 million, respectively (three and nine months ended September 30, 2020 — $0.4 million and $1.4 million, respectively), of leases not capitalized due to exemptions and variable lease payments not included in the measurement of lease liabilities.

(c)

Cost of sales included the cost of third-party satellite capacity, the cost of equipment sales and other costs directly attributable to fulfilling the Company’s obligations under customer contracts.

F-11

7.   INTEREST EXPENSE

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Interest on indebtedness	​	$	41,179	​	$	37,777	​	$	110,356	​	$	127,004
Interest on derivative instruments	​	​	3,587	​	​	5,498	​	​	10,627	​	​	7,841
Interest on satellite performance incentive payments	​	​	557	​	​	714	​	​	1,719	​	​	2,262
Interest on significant financing component	​	​	4,669	​	​	5,544	​	​	14,348	​	​	17,022
Interest on employee benefit plans	​	​	323	​	​	260	​	​	971	​	​	781
Interest on leases	​	​	376	​	​	323	​	​	1,132	​	​	1,007
Interest expense	​	$	50,691	​	$	50,116	​	$	139,153	​	$	155,917

8.   INCOME TAXES

​	Three months ended September 30,						Nine months ended September 30,
​	2021			2020			2021			2020
Current tax expense	​	$	23,253	​	$	23,354	​	$	64,906	​	$	51,612
Deferred tax recovery	​	​	(10,489)	​	​	(7,618)	​	​	(17,315)	​	​	(24,512)
Tax expense	​	$	12,764	​	$	15,736	​	$	47,591	​	$	27,100

A reconciliation of the statutory income tax rate, which is a composite of Canadian federal and provincial rates, to the effective income tax rate was as follows:

​

Three months ended September 30,

Nine months ended September 30,

​

2021

2020

2021

2020

Income (loss) before tax

​

$

(29,155)

​

$

122,756

​

$

108,183

​

$

17,655

Multiplied by the statutory income tax rates

​

​

26.46%

​

​

26.49%

​

​

26.46%

​

​

26.49%

​

​

​

(7,714)

​

​

32,518

​

​

28,625

​

​

4,677

Income tax recorded at rates different from the Canadian tax rate

​

​

(2,087)

​

​

(3,221)

​

​

(35,904)

​

​

(10,591)

Permanent differences

​

​

14,150

​

​

(6,763)

​

​

19,960

​

​

18,018

Effect on deferred tax balances due to the change in income tax rates

​

​

—

​

​

—

​

​

—

​

​

(1,155)

Effect of temporary differences not recognized as deferred tax assets

​

​

10,538

​

​

(6,297)

​

​

40,057

​

​

15,654

Change in estimates related to prior period

​

​

29

​

​

—

​

​

(2,090)

​

​

—

Other

​

​

(2,152)

​

​

(501)

​

​

(3,057)

​

​

497

Tax expense

​

$

12,764

​

$

15,736

​

$

47,591

​

$

27,100

Effective income tax rate

​

​

(43.78)%

​

​

12.82%

​

​

43.99%

​

​

153.50%

9.   SATELLITES, PROPERTY AND OTHER EQUIPMENT

For the nine months ended September 30, 2021, the Company had additions of $124.0 million (September 30, 2020 — $82.2 million) primarily related to acquisitions associated with the LEO program.

F-12

10.   LEASE LIABILITIES

The expected undiscounted contractual cash flows of the lease liabilities as at September 30, 2021 were as follows:

Remaining 2021	2022			2023			2024			2025			Thereafter			Total
$822	​	$	3,331	​	$	3,273	​	$	3,130	​	$	2,854	​	$	35,650	​	$	49,060

The undiscounted contractual cash flows included $15.4 million of interest payments.

In addition, there were certain leases which were signed but not capitalized as at September 30, 2021. Based upon the assessed lease term, the expected undiscounted cash flows totaled $3.5 million.

11.   INDEBTEDNESS

​	September 30, 2021			December 31, 2020
Senior Secured Credit Facilities	​	​	​	​	​	​
Revolving Credit Facility	​	$	—	​	$	—
Term Loan B – U.S. Facility (September 30, 2021 and December 31, 2020 – US$1,552,815)	​	​	1,968,969	​	​	1,975,957
6.5% Senior Notes (US$550,000)	​	​	697,400	​	​	699,875
5.625% Senior Secured Notes (US$500,000)	​	​	634,000	​	​	—
4.875% Senior Secured Notes (US$400,000)	​	​	507,200	​	​	509,000
​	​	​	3,807,569	​	​	3,184,832
Deferred financing costs, prepayment options and loss on repayment	​	​	(2,256)	​	​	2,320
​	​	​	3,805,313	​	​	3,187,152
Less: current indebtedness	​	​	—	​	​	—
Long-term indebtedness	​	$	3,805,313	​	$	3,187,152

On April 27, 2021, Telesat Canada, as issuer, and Telesat LLC, as co-issuer (together with Telesat Canada, the “Co-Issuers”), issued US$500 million in aggregate principal amount of 5.625% Senior Secured Notes maturing on December 6, 2026 (the “5.625% Senior Secured Notes”). Debt issue costs of $6.8 million were incurred in connection with the issuance of the 5.625% Senior Secured Notes.

The 5.625% Senior Secured Notes bear interest from the issue date, payable on June 1 and December 1 of each year, commencing on December 1, 2021, to holders of record on the immediately preceding May 15 or November 15, as the case may be.

The indenture governing the 5.625% Senior Secured Notes includes covenants and terms that restrict Telesat Canada’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem the 5.625% Senior Secured Notes, without penalty, before December 6, 2022, in each case subject to exceptions provided in such indenture. The prepayment options associated with the 5.625% Senior Secured Notes (Note 15) were fair valued at the time of debt issuance. The initial fair value impact, as at April 27, 2021, of the prepayment option related to the 5.625% Senior Secured Notes was a $1.9 million increase to the indebtedness. This liability is subsequently amortized using the effective interest method.

F-13

12.   SHARE CAPITAL

The number of shares and stated value of the outstanding shares were as follows:

​	September 30, 2021					December 31, 2020
​	Number of shares		Stated value			Number of shares		Stated value
Common Shares	​	74,252,460	​	$	26,580	​	74,252,460	​	$	26,580
Voting Participating Preferred Shares	​	7,034,444	​	​	48,246	​	7,034,444	​	​	48,246
Non-Voting Participating Preferred Shares	​	38,508,717	​	​	80,878	​	38,508,117	​	​	80,862
Director Voting Preferred Shares	​	1,000	​	​	10	​	1,000	​	​	10
Share capital	​	​	​	$	155,714	​	​	​	$	155,698

Stock Option Cancellation

In April 2021, 6,197,776 issued and outstanding, vested and unvested stock options were cancelled. This resulted in a non-cash operating expense recorded in the nine months ended September 30, 2021 of $8.5 million.

Restricted Share Unit Plan

In April 2021, the Company approved the adoption of a restricted share unit (“RSU”) plan. A total of 3,660,000 Non-Voting Participating Preferred Shares are reserved for issuance upon vesting of the RSUs awarded under the RSU Plan, provided that the aggregate number of Non-Voting Participating Preferred Shares issuable under the RSU Plan (and under all other share compensation arrangements) does not exceed 10% of the total number of Non-Voting Participating Preferred Shares outstanding from time to time (on a non-diluted basis).

As at September 30, 2021, 3,530,000 RSUs have been granted under the RSU Plan with 130,000 remaining RSUs available for grant under the RSU Plan.

This resulted in a non-cash operating expense in the nine months ended September 30, 2021 of $22.9 million.

13.   GOVERNMENT GRANT

In May 2019, Telesat entered into an agreement for a non-refundable government contribution of a value up to $85 million to July 31, 2023 relating to the Telesat Lightspeed constellation.

For the nine months ended September 30, 2021, the Company recorded $10.4 million relating to the agreement (nine months ended September 30, 2020 — $10.2 million).

Of the amount recorded in the nine months ended September 30, 2021, $6.9 million was recorded as a reduction to satellites, property and other equipment and $3.5 million was recorded as a reduction to operating expenses (nine months ended September 30, 2020 — $7.2 million was recorded as a reduction in satellites, property and other equipment and $3.0 million as a reduction to operating expenses).

14.   CAPITAL DISCLOSURES

The Senior Secured Credit Facilities, the 4.875% Senior Secured Notes and the 5.625% Senior Secured Notes are secured by substantially all of the Company’s assets, excluding the assets of unrestricted subsidiaries.

If the Revolving Facility is drawn, the Senior Secured Credit Facilities require Telesat Canada to comply with a first lien net leverage ratio test. As at September 30, 2021, the first lien net leverage ratio was 4.55:1.00, which was less than the maximum test ratio of 5.75:1.00.

The Credit Agreement of the Senior Secured Credit Facilities contains total leverage ratio covenants that restrict, with certain exceptions, the ability of Telesat Canada and the guarantors, but not its unrestricted

F-14

subsidiaries, to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. As at September 30, 2021, the total leverage ratio was 5.60:1.00, which was more than the maximum test ratio of 4.50:1.00.

The Company’s operating results are tracked against budget on a monthly basis, and this analysis is reviewed by senior management. The Company partly manages its interest rate risk on variable interest rate debt through the use of interest rate swaps (Note 15).

15.   FINANCIAL INSTRUMENTS

Measurement of Risks

The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at September 30, 2021.

Credit risk

Credit risk is the risk that a counterparty to a financial asset will default, resulting in the Company incurring a financial loss. As at September 30, 2021, the maximum exposure to credit risk is equal to the carrying value of the financial assets which totaled $1,632.0 million (December 31, 2020 — $924.2 million).

Cash and cash equivalents are invested with high quality investment grade financial institutions and are governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to investment grade, mainly U.S. dollar and Canadian dollar denominated investments.

The Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks related to trade accounts receivable. The Company’s standard payment terms are 30 days with interest typically charged on balances remaining unpaid at the end of standard payment terms. The Company’s historical experience with customer defaults has been minimal. As at September 30, 2021, North American and International customers made up 57% and 43% of the outstanding trade receivable balance, respectively (December 31, 2020 — 50% and 50%, respectively). Anticipated bad debt losses have been provided for in the allowance for doubtful accounts. The allowance for doubtful accounts as at September 30, 2021 was $5.3 million (December 31, 2020 — $7.3 million).

The Company mitigates the credit risk associated with derivative instruments by entering into them with only high quality financial institutions.

Foreign exchange risk

The Company’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. The Company’s main currency exposures lie in its U.S. dollar denominated cash and cash equivalents, trade and other receivables, trade and other payables and indebtedness with the most significant impact being on the U.S. dollar denominated indebtedness. As at September 30, 2021 and December 31, 2020, the entire indebtedness was denominated in U.S. dollars, with the Canadian dollar equivalent of the U.S. dollar denominated indebtedness equaling $3,807.6 million and $3,184.8 million, respectively, before netting of deferred financing costs, prepayment options and loss on repayment.

As at September 30, 2021, the impact of a 5 percent increase (decrease) in the value of the Canadian dollar against the U.S. dollar on financial assets and liabilities would have decreased (increased) net income by $147.6 million (December 31, 2020 — $158.5 million) and increased (decreased) other comprehensive income by $30.2 million (December 31, 2020 — $35.6 million). This analysis assumes that all other variables, in particular interest rates, remain constant.

Interest rate risk

The Company is exposed to interest rate risk on its cash and cash equivalents and its indebtedness. The interest rate risk on the indebtedness is from a portion of the indebtedness having a variable interest rate. Changes in the interest rates could impact the amount of interest that the Company is required to pay or receive.

F-15

In October 2017, the Company entered into four interest rate swaps to hedge the interest rate risk associated with the variable interest rate on $1,800.0 million of the U.S. denominated Term Loan B at fixed interest rates, excluding applicable margins, ranging from 1.72% to 2.04%. As at September 30, 2021, one interest rate swap of US$450 million, with expiration term of September  2022, was outstanding to hedge the interest rate risk associated with the variable interest rate on the U.S. denominated Term Loan B at fixed interest rate, excluding applicable margins, of 2.04%.

If the interest rates on the variable rate indebtedness change by 0.25%, the result would be an increase or decrease to net income of $1.2 million and $3.7 million for the three and nine months ended September 30, 2021, respectively.

Liquidity risk

The Company maintains credit facilities to ensure it has sufficient funds available to meet current and foreseeable financial requirements.

The contractual maturities of financial liabilities as at September 30, 2021 were as follows:

​	Carrying amount			Contractual cash flows (undiscounted)			Remaining 2021			2022			2023			2024			2025			Thereafter
Trade and other payables	​	$	33,508	​	$	33,508	​	$	33,508	​	$	—	​	$	—	​	$	—	​	$	—	​	$	—
Customer and other deposits	​	​	1,913	​	​	1,913	​	​	1,439	​	​	17	​	​	111	​	​	17	​	​	186	​	​	143
Satellite performance incentive payments	​	​	32,673	​	​	40,253	​	​	2,408	​	​	8,330	​	​	7,491	​	​	5,898	​	​	3,122	​	​	13,004
Other financial liabilities	​	​	2,183	​	​	2,183	​	​	2,183	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—
Interest rate swaps	​	​	7,415	​	​	7,489	​	​	1,888	​	​	5,601	​	​	—	​	​	—	​	​	—	​	​	—
Indebtedness(1)	​	​	3,851,990	​	​	4,747,648	​	​	70,758	​	​	163,365	​	​	163,365	​	​	163,455	​	​	162,415	​	​	4,024,290
​	​	$	3,929,682	​	$	4,832,994	​	$	112,184	​	$	177,313	​	$	170,967	​	$	169,370	​	$	165,723	​	$	4,037,437

(1)

Indebtedness excludes deferred financing costs, prepayment options and loss on repayment.

The interest payable and interest payments included in the carrying value and contractual cash flows, respectively, in the above table, were as follows:

​	Interest payable			Interest payments
Satellite performance incentive payments	​	$	384	​	$	7,826
Indebtedness	​	$	44,421	​	$	940,079

F-16

Financial assets and liabilities recorded on the balance sheets and the fair value hierarchy levels used to calculate those values were as follows:

As at September 30, 2021

FVTPL

Amortized cost

Total

Fair value

Fair value hierarchy

Cash and cash equivalents

​

$

—

​

$

1,558,638

​

$

1,558,638

​

$

1,558,638

Level 1

Trade and other receivables

​

​

—

​

​

55,985

​

​

55,985

​

​

55,985

(3)

Other current financial assets

​

​

—

​

​

474

​

​

474

​

​

474

Level 1

Other long-term financial assets(1)

​

​

1,394

​

​

15,524

​

​

16,918

​

​

16,918

Level 1,

​

​

​

​

​

​

​

​

​

​

​

​

​

Level 2

Trade and other payables

​

​

—

​

​

(33,508)

​

​

(33,508)

​

​

(33,508)

(3)

Other current financial liabilities

​

​

(7,415)

​

​

(56,018)

​

​

(63,433)

​

​

(65,135)

Level 2

Other long-term financial liabilities

​

​

—

​

​

(25,172)

​

​

(25,172)

​

​

(25,423)

Level 2

Indebtedness(2)

​

​

—

​

​

(3,807,569)

​

​

(3,807,569)

​

​

(3,459,216)

Level 2

​

​

$

(6,021)

​

$

(2,291,646)

​

$

(2,297,667)

​

$

(1,951,267)

​

As at December 31, 2020

FVTPL

Amortized cost

Total

Fair value

Fair value hierarchy

Cash and cash equivalents

​

$

—

​

$

818,378

​

$

818,378

​

$

818,378

Level 1

Trade and other receivables

​

​

—

​

​

51,928

​

​

51,928

​

​

51,928

(3)

Other current financial assets

​

​

—

​

​

448

​

​

448

​

​

448

Level 1

Other long-term financial assets(1)

​

​

30,266

​

​

23,159

​

​

53,425

​

​

53,425

Level 1,

​

​

​

​

​

​

​

​

​

​

​

​

​

Level 2

Trade and other payables

​

​

—

​

​

(30,091)

​

​

(30,091)

​

​

(30,091)

(3)

Other current financial liabilities

​

​

(12,581)

​

​

(23,299)

​

​

(35,880)

​

​

(37,921)

Level 2

Other long-term financial liabilities

​

​

(5,448)

​

​

(30,051)

​

​

(35,499)

​

​

(36,357)

Level 2

Indebtedness(2)

​

​

—

​

​

(3,184,832)

​

​

(3,184,832)

​

​

(3,214,543)

Level 2

​

​

$

12,237

​

$

(2,374,360)

​

$

(2,362,123)

​

$

(2,394,733)

​

(1)

Other long-term financial assets classified as fair value through profit or loss were calculated using level 2 of the fair value hierarchy. All other balances were calculated using level 1 of the fair value hierarchy.

(2)

Indebtedness excludes deferred financing costs, prepayment options and loss on repayment.

(3)

Trade and other receivables and trade and other payables approximate fair value due to the short-term maturity of these instruments.

Assets pledged as security

The Senior Secured Credit Facilities, the 4.875% Senior Secured Notes and the 5.625% Senior Secured Notes are secured by substantially all of Telesat’s assets excluding the assets of unrestricted subsidiaries.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market under current market conditions at the measurement date. Where possible, fair values are based on the quoted market values in an active market. In the absence of an active market, the Company determines fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs.

The fair value hierarchy is as follows:

Level 1 is based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.

F-17

Level 2 is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially all of the full term of the assets or liabilities.

Level 3 is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Estimates of fair values are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

The carrying amounts of cash and cash equivalents, trade and other receivables, and trade and other payables approximate fair value due to the short-term maturity of these instruments. As at September 30, 2021, cash and cash equivalents included $85.6 million (December 31, 2020 — $130.4 million) of short-term investments.

The fair value of the satellite performance incentive payments, included in other current and long-term financial liabilities, was determined using a discounted cash flow methodology. The calculation is performed on a recurring basis. As at September 30, 2021 and December 31, 2020, the discount rate used was 4.8% and 4.4%, respectively.

The fair value of the indebtedness was based on transactions and quotations from third parties considering market interest rates and excluding deferred financing costs, prepayment options and loss on repayment. The calculation of the fair value of the indebtedness is performed on a recurring basis. The rates used were as follows:

As at	September 30, 2021		December 31, 2020
Term Loan B – U.S. Facility – Senior Secured Credit Facilities	​	90.00%	​	98.88%
6.5% Senior Notes	​	86.87%	​	104.76%
4.875% Senior Secured Notes	​	92.53%	​	103.64%
5.625% Senior Secured Notes	​	96.53%	​	—

Fair value of derivative financial instruments

Derivatives were valued using a discounted cash flow methodology. The calculations of the fair value of the derivatives are performed on a recurring basis.

Interest rate swap future cash flows were determined based on current yield curves and exchange rates and then discounted based on discount curves.

Prepayment option cash flows were calculated with a third party option valuation model which is based on the current price of the debt instrument and discounted based on a discount curve.

The discount rates used to discount cash flows as at September 30, 2021 ranged from 0.08% to 1.08% (December 31, 2020 — 0.08% to 0.54%).

F-18

The fair value of the derivative assets and liabilities was calculated based on the level 2 of the fair value hierarchy. The current and long-term portions of the fair value of the Company’s derivative assets and liabilities, as at each balance sheet date, were as follows:

As at September 30, 2021	Other long-term financial assets			Other current financial liabilities			Total
Interest rate swaps	​	$	—	​	$	(7,415)	​	$	(7,415)
Prepayment options	​	​	1,394	​	​	—	​	​	1,394
​	​	$	1,394	​	$	(7,415)	​	$	(6,021)

As at December 31, 2020	Other long-term financial assets			Other current financial liabilities			Other long-term financial liabilities			Total
Interest rate swaps	​	$	—	​	$	(12,581)	​	$	(5,448)	​	$	(18,029)
Prepayment options	​	​	30,266	​	​	—	​	​	—	​	​	30,266
​	​	$	30,266	​	$	(12,581)	​	$	(5,448)	​	$	12,237

The reconciliation of the fair value of derivative assets and liabilities was as follows:

Fair value, December 31, 2020 and January 1, 2021	$	12,237
Derivative recognized at inception	​	​
Prepayment options – 5.625% Senior Secured Notes (Note 11)	​	1,896
Unrealized (losses) gains on derivatives	​	​
Prepayment options	​	(30,848)
Interest rate swaps	​	10,491
Impact of foreign exchange	​	203
Fair value, June 30, 2021	$	(6,021)

16.   EMPLOYEE BENEFIT PLANS

The expenses included on the consolidated statements of (loss) income was as follows:

​	2021						2020
Three months ended September 30,	Pension			Other			Pension			Other
Operating expenses	​	$	1,973	​	$	41	​	$	1,797	​	$	37
Interest expense	​	$	185	​	$	138	​	$	106	​	$	154

​	2021						2020
Nine months ended September 30,	Pension			Other			Pension			Other
Operating expenses	​	$	5,920	​	$	124	​	$	5,391	​	$	109
Interest expense	​	$	557	​	$	414	​	$	318	​	$	463

No amounts were recorded on the statements of comprehensive income for the three and nine months ended September 30, 2021 or 2020.

The balance sheet obligations, distributed between pension and other post-employment benefits, included in other long-term liabilities were as follows:

As at	September 30, 2021			December 31, 2020
Pension benefits	​	$	24,151	​	$	22,070
Other post-employment benefits	​	​	25,709	​	​	25,914
Accrued benefit liabilities	​	$	49,860	​	$	47,984

F-19

17.   SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents were comprised of the following:

As at September 30,	2021			2020
Cash	​	$	1,473,049	​	$	910,852
Short-term investments(1)	​	​	85,589	​	​	331,463
Cash and cash equivalents	​	$	1,558,638	​	$	1,242,315

(1)

Consisted of short-term investments with an original maturity of three months or less or which are available on demand with no penalty for early redemption.

Income taxes paid, net of income taxes received was comprised of the following:

Nine months ended September 30,	2021			2020
Income taxes paid	​	$	(71,690)	​	$	(35,620)
Income taxes received	​	​	46	​	​	399
​	​	$	(71,644)	​	$	(35,221)

Interest paid, net of interest received was comprised of the following:

Nine months ended September 30,	2021			2020
Interest paid	​	$	(90,367)	​	$	(128,955)
Interest received	​	​	3,154	​	​	8,379
​	​	$	(87,213)	​	$	(120,576)

The reconciliation of the liabilities arising from financing activities was as follows:

​	Indebtedness			Satellite performance incentive payments			Leases
Balance as at January 1, 2021	​	$	3,187,152	​	$	37,574	​	$	29,051
Cash inflows	​	​	619,900	​	​	—	​	​	—
Cash outflows	​	​	—	​	​	(5,092)	​	​	(1,780)
Amortization of deferred financing costs, prepayment options and loss on repayment	​	​	362	​	​	—	​	​	—
Debt issue costs	​	​	(6,834)	​	​	—	​	​	—
Prepayment option at inception – 5.625% Senior Secured Notes	​	​	1,896	​	​	—	​	​	—
Interest accrued	​	​	—	​	​	—	​	​	1,132
Interest paid	​	​	—	​	​	—	​	​	(1,132)
Non-cash additions	​	​	—	​	​	—	​	​	7,323
Non-cash disposals	​	​	—	​	​	—	​	​	(939)
Impact of foreign exchange	​	​	2,837	​	​	(193)	​	​	(235)
Balance as at September 30, 2021	​	$	3,805,313	​	$	32,289	​	$	32,420

F-20

​	Satellite performance incentive payments			Leases			Satellite performance incentive payments
Balance as at January 1, 2020	​	$	3,712,799	​	$	46,951	​	$	28,582
Cash outflows	​	​	(19,197)	​	​	(6,877)	​	​	(1,215)
Amortization of deferred financing costs and prepayment options	​	​	314	​	​	—	​	​	—
Interest accrued	​	​	—	​	​	—	​	​	1,007
Interest paid	​	​	—	​	​	—	​	​	(1,317)
Non-cash additions	​	​	—	​	​	—	​	​	2,592
Other	​	​	—	​	​	148	​	​	(77)
Impact of foreign exchange	​	​	94,177	​	​	1,246	​	​	150
Balance as at September 30, 2020	​	$	3,788,093	​	$	41,468	​	$	29,722

The net change in operating assets and liabilities was comprised of the following:

Nine months ended September 30,	2021			2020
Trade and other receivables	​	$	8,035	​	$	(7,865)
Financial assets	​	​	2,351	​	​	1,291
Other assets	​	​	(14,773)	​	​	1,578
Trade and other payables	​	​	3,679	​	​	(4,018)
Financial liabilities	​	​	2,869	​	​	(219)
Other liabilities	​	​	(4,914)	​	​	18,279
​	​	$	(2,753)	​	$	9,046

Non-cash investing activities were comprised of:

Nine months ended September 30,	2021			2020
Satellites, property and other equipment	​	$	656	​	$	4,148

18.   COMMITMENTS AND CONTINGENT LIABILITIES

The following were the Company’s off-balance sheet contractual obligations as at September 30, 2021:

​	Remaining 2021			2022			2023			2024			2025			Thereafter			Total
Property leases	​	$	367	​	$	1,168	​	$	1,153	​	$	1,139	​	$	1,058	​	$	13,658	​	$	18,543
Capital commitments	​	​	57,401	​	​	22,068	​	​	40,919	​	​	48,374	​	​	12,553	​	​	—	​	​	181,315
Other operating commitments	​	​	13,580	​	​	8,385	​	​	5,789	​	​	4,801	​	​	4,287	​	​	11,417	​	​	48,259
​	​	$	71,348	​	$	31,621	​	$	47,861	​	$	54,314	​	$	17,898	​	$	25,075	​	$	248,117

Property leases consisted of off-balance sheet contractual obligations for land or building usage, while capital commitments included commitments for capital projects. Other operating commitments consisted of third party satellite capacity arrangements as well as other commitments that are not categorized as property leases or capital commitments. The Company’s off-balance sheet obligations included the future minimum payments for the non-cancellable period of each respective obligation, which have various terms and expire between 2021 to 2039.

Certain variable costs associated with the capitalized leases have been included in property leases commitments with a termination date co-terminus with the lease liability.

The Company has entered into contracts for the development of the Telesat Lightspeed constellation and other capital expenditures. The total outstanding commitments as at September 30, 2021 were included in capital commitments.

F-21

The Company has agreements with various customers for prepaid revenue on several service agreements which take effect when the satellite is placed in service. The Company is responsible for operating and controlling these satellites. As at September 30, 2021, customer prepayments of $378.8 million (December 31, 2020 — $414.1 million), a portion of which is refundable under certain circumstances, were reflected in other current and other long-term liabilities.

Legal Proceedings

In the normal course of business, the Company has executed agreements that provide for indemnification and guarantees to counterparties in various transactions. These indemnification undertakings and guarantees may require the Company to compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. The nature of substantially all of the indemnification undertakings prevents the Company from making a reasonable estimate of the maximum potential amount the Company could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant payments under such indemnifications.

Telesat and Loral have entered into an indemnification agreement whereby Loral will indemnify Telesat for tax liabilities for taxation years prior to 2007 related to Loral Skynet operations. Likewise, Telesat will indemnify Loral for the settlement of tax receivables for taxation years prior to 2007.

In May 2021, the Company was reassessed by the Canada Revenue Agency for $6.9 million, including interest, for its Scientific Research and Experimental Development claim for the taxation year ended December 31, 2016. The Company has challenged the reassessment. The Company believes the likelihood of a favorable outcome is more likely than not, and as such, no reserve has been established.

The Company frequently participates in proceedings before national telecommunications regulatory authorities. In addition, the Company may also become involved from time to time in other legal proceedings arising in the normal course of its business.

Other than the legal proceedings disclosed above, and in Note 31 of the Company’s December 31, 2020 consolidated statements, the Company is not aware of any proceedings outstanding or threatened as of the date hereof by or against it or relating to its business which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability.

19.   RELATED PARTY TRANSACTIONS

The Company’s immediate shareholders are Red Isle Private Investment Inc. (“Red Isle”), a company incorporated in Canada, Loral Holdings Corporation (“Loral Holdings”), a company incorporated in the United States and various individuals. Red Isle is wholly-owned by PSP Investments, a Canadian Crown corporation. Loral Holdings is a wholly-owned subsidiary of Loral, a United States publicly listed company.

Transactions with subsidiaries

The Company and its subsidiaries regularly engage in inter-group transactions. These transactions include the purchase and sale of satellite services and communications equipment, providing and receiving network and call centre services, access to orbital slots and management services. The transactions have been entered into over the normal course of operations. Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and therefore have not been disclosed.

Compensation of executives and Board level directors

Compensation of the Company’s executives consists of short-term benefits (including salaries), post-employment benefits and share-based compensation. The compensation of Board level directors consists of an annual retainer and meeting attendance fees. The transactions have been entered into with the Company in the normal course of operations.

F-22

Stock Option Cancellation

In April 2021, 6,197,776 issued and outstanding, vested and unvested stock options held by certain executives were cancelled. This resulted in a non-cash operating expense recorded in the nine months ended September 30, 2021 of $8.5 million.

Restricted Share Unit Plan

In April 2021, the Company approved the adoption of a restricted share unit (“RSU”) plan. A total of 3,660,000 Non-Voting Participating Preferred Shares are reserved for issuance upon vesting of the RSUs awarded under the RSU Plan, provided that the aggregate number of Non-Voting Participating Preferred Shares issuable under the RSU Plan (and under all other share compensation arrangements) does not exceed 10% of the total number of Non-Voting Participating Preferred Shares outstanding from time to time (on a non-diluted basis).

As at September 30, 2021, 3,530,000 RSUs have been granted under the RSU Plan, resulting in a non-cash operating expense in the nine months ended September 30, 2021 of $22.9 million.

Transactions with related parties

The Company and certain of its subsidiaries regularly engage in transactions with related parties. The Company’s related parties include Loral and Red Isle. The transactions have been entered into over the normal course of operations. There were no transactions or balances with Red Isle during any of the periods presented.

During the periods presented below, the Company and its subsidiaries entered into the following transactions with Loral.

​	Sale of goods and services						Purchase of goods and services
Three months ended September 30,	2021			2020			2021			2020
Revenue	​	$	31	​	$	33	​	$	—	​	$	—
Operating expenses	​	$	—	​	$	—	​	$	1,564	​	$	1,668

​	Sale of goods and services						Purchase of goods and services
Nine months ended September 30,	2021			2020			2021			2020
Revenue	​	$	94	​	$	101	​	$	—	​	$	—
Operating expenses	​	$	—	​	$	—	​	$	4,703	​	$	5,061

The following balances were outstanding with Loral at the end of the periods presented below:

​

Amounts owed by related parties

Amounts owed to related parties

As at

September 30, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Current receivables/payables

​

$

131

​

$

—

​

$

—

​

$

105

The amounts outstanding are unsecured and will be settled in cash.

Other related party transactions

The Company funds certain defined benefit pension plans. Contributions made to the plans for the three and nine months ended September 30, 2021 were $1.2 million and $3.9 million, respectively (September 30, 2020 — $1.3 million and $4.2 million, respectively).

F-23

 

Report of Independent Registered Public Accounting Firm

To the shareholders and the Board of Directors of Telesat Canada

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Telesat Canada (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Indefinite Life Intangible Assets (Orbital Slots) Impairment — Refer to Notes 3, 4, 16 and 17 of the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill and indefinite life intangible assets, specifically orbital slots impairment involves the comparison of the recoverable amount of each Cash Generating Unit (“CGU”) to

F-24

its carrying value. The recoverable amount of each CGU is based on the higher of its fair value less costs of disposal and its value in use, which is determined using both a market approach based on market multiples and an income approach based on a discounted cash flow. In determining the recoverable amount of the CGUs, management made significant estimates and assumptions related to future revenue forecasts, future expenses, capital expenditures, working capital, costs of disposal, discount rates and market multiples. In addition, the Company plans to introduce new satellites under the Low Earth Orbit constellation (known as “Telesat Lightspeed”) whose forecasted revenues contribute significantly to the estimated recoverable amount of the CGUs. The recoverable amounts of the CGUs exceeded their carrying values as of December 31, 2020 and no impairment charge to goodwill or orbital slots was recorded.

While there are several estimates and assumptions that are required to determine the recoverable amounts of the CGUs, the estimates with the highest degree of subjectivity are future revenue forecasts, discounts rates and market multiples (“key assumptions”). This required significant auditor attention as the key assumptions are subject to a high degree of auditor judgment and there is limited historical data for Telesat Lightspeed which resulted in an increased extent of effort, including the involvement of fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the key assumptions used to determine the recoverable amount of the CGUs included the following, among others:

•

Evaluated management’s ability to accurately forecast future revenues by comparing actual results to historical forecasts.

•

Evaluated the reasonableness of future revenue forecasts by comparing the forecasts to:

•

Historical revenue;

•

Contracted revenue backlog for existing service contracts;

•

Internal communications from management to the board of directors and external communications made by management to analysts and investors;

•

Industry reports containing analyses of the Company’s and its competitors’ revenues.

•

With the assistance of fair value specialists:

•

Evaluated the reasonableness of the discount rates by testing the source information underlying the determination of the discount rates and developing a range of independent estimates and comparing to those selected by management.

•

Evaluated the market multiples by analyzing precedent market transactions and comparable public company multiples and developing a range of independent market multiples and comparing to those selected by management.

/s/ Deloitte LLP

Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 3, 2021

We have served as the Company’s auditor since 1993.

F-25

Telesat Canada

Consolidated Statements of Income (Loss)
For the years ended December 31

(in thousands of Canadian dollars)	Notes	2020			2019			2018
Revenue	5	​	$	820,468	​	$	910,893	​	$	902,932
Operating expenses	6	​	​	(180,874)	​	​	(165,499)	​	​	(185,827)
Depreciation	​	​	​	(216,885)	​	​	(242,966)	​	​	(224,851)
Amortization	​	​	​	(17,195)	​	​	(23,277)	​	​	(24,305)
Other operating (losses) gains, net	7	​	​	(215)	​	​	(862)	​	​	743
Operating income	​	​	​	405,299	​	​	478,289	​	​	468,692
Interest expense	8	​	​	(203,760)	​	​	(258,261)	​	​	(237,786)
Loss on refinancing	23	​	​	—	​	​	(151,919)	​	​	—
Interest and other income	​	​	​	5,196	​	​	20,043	​	​	16,498
Loss on changes in fair value of financial instruments	​	​	​	(13,115)	​	​	(49,672)	​	​	(18,205)
Gain (loss) on foreign exchange	​	​	​	47,605	​	​	163,840	​	​	(259,079)
Income (loss) before tax	​	​	​	241,225	​	​	202,320	​	​	(29,880)
Tax recovery (expense)	9	​	​	4,353	​	​	(15,122)	​	​	(61,056)
Net income (loss)	​	​	$	245,578	​	$	187,198	​	$	(90,936)

See accompanying notes to the consolidated financial statements

F-26

Telesat Canada

Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31

(in thousands of Canadian dollars)	Notes		2020			2019			2018
Net income (loss)	​	​	​	$	245,578	​	$	187,198	​	$	(90,936)
Other comprehensive (loss) income	​	​	​	​	​	​	​	​	​	​	​
Items that may be reclassified into profit or loss	​	​	​	​	​	​	​	​	​	​	​
Foreign currency translation adjustments	​	​	​	​	(32,422)	​	​	(50,465)	​	​	44,459
Items that will not be reclassified into profit or loss	​	​	​	​	​	​	​	​	​	​	​
Actuarial (losses) gains on employee benefit plans	​	29	​	​	(13,693)	​	​	1,134	​	​	7,755
Tax recovery (expense)	​	​	​	​	3,584	​	​	(403)	​	​	(2,031)
Other comprehensive (loss) income	​	​	​	​	(42,531)	​	​	(49,734)	​	​	50,183
Total comprehensive income (loss)	​	​	​	$	203,047	​	$	137,464	​	$	(40,753)

See accompanying notes to the consolidated financial statements

F-27

Telesat Canada

Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of Canadian dollars)

Notes

Common shares

Preferred shares

Total share capital

Accumulated earnings

Equity- settled employee benefits reserve

Foreign currency translation reserve

Total reserves

Total shareholders’ equity

Balance as at January 1, 2018

​

​

​

$

26,580

​

$

126,102

​

$

152,682

​

$

968,408

​

$

31,549

​

$

(9,818)

​

$

21,731

​

$

1,142,821

Net loss

​

​

​

​

—

​

​

—

​

​

—

​

​

(90,936)

​

​

—

​

​

—

​

​

—

​

​

(90,936)

Issuance of share capital on exercise of stock appreciation rights

​

24

​

​

—

​

​

1,024

​

​

1,024

​

​

(1,079)

​

​

(339)

​

​

—

​

​

(339)

​

​

(394)

Cumulative effect adjustment

​

​

​

​

—

​

​

—

​

​

—

​

​

(38,516)

​

​

—

​

​

322

​

​

322

​

​

(38,194)

Other comprehensive income, net of tax expense of $2,031

​

​

​

​

—

​

​

—

​

​

—

​

​

5,724

​

​

—

​

​

44,459

​

​

44,459

​

​

50,183

Share-based compensation

​

​

​

​

—

​

​

—

​

​

—

​

​

—

​

​

29,505

​

​

—

​

​

29,505

​

​

29,505

Balance as at December 31, 2018

​

​

​

$

26,580

​

$

127,126

​

$

153,706

​

$

843,601

​

$

60,715

​

$

34,963

​

$

95,678

​

$

1,092,985

Balance as at January 1, 2019

​

​

​

$

26,580

​

$

127,126

​

$

153,706

​

$

843,601

​

$

60,715

​

$

34,963

​

$

95,678

​

$

1,092,985

Net income

​

​

​

​

—

​

​

—

​

​

—

​

​

187,198

​

​

—

​

​

—

​

​

—

​

​

187,198

Dividends declared on Director Voting Preferred shares

​

24

​

​

—

​

​

—

​

​

—

​

​

(20)

​

​

—

​

​

—

​

​

—

​

​

(20)

Issuance of share capital on exercise of stock appreciation rights

​

24

​

​

—

​

​

385

​

​

385

​

​

(455)

​

​

(144)

​

​

—

​

​

(144)

​

​

(214)

Issuance of share capital on settlement of restricted share units

​

24

​

​

—

​

​

804

​

​

804

​

​

—

​

​

(1,729)

​

​

—

​

​

(1,729)

​

​

(925)

Other comprehensive income (loss), net of tax expense of $403

​

​

​

​

—

​

​

—

​

​

—

​

​

731

​

​

—

​

​

(50,465)

​

​

(50,465)

​

​

(49,734)

Share-based compensation

​

​

​

​

—

​

​

—

​

​

—

​

​

—

​

​

16,035

​

​

—

​

​

16,035

​

​

16,035

Balance as at December 31, 2019

​

​

​

$

26,580

​

$

128,315

​

$

154,895

​

$

1,031,055

​

$

74,877

​

$

(15,502)

​

$

59,375

​

$

1,245,325

Balance as at January 1, 2020

​

​

​

$

26,580

​

$

128,315

​

$

154,895

​

$

1,031,055

​

$

74,877

​

$

(15,502)

​

$

59,375

​

$

1,245,325

Net income

​

​

​

​

—

​

​

—

​

​

—

​

​

245,578

​

​

—

​

​

—

​

​

—

​

​

245,578

Dividends declared on Director Voting Preferred shares

​

24

​

​

—

​

​

—

​

​

—

​

​

(10)

​

​

—

​

​

—

​

​

—

​

​

(10)

See accompanying notes to the consolidated financial statements

F-28

(in thousands of Canadian dollars)

Notes

Common shares

Preferred shares

Total share capital

Accumulated earnings

Equity- settled employee benefits reserve

Foreign currency translation reserve

Total reserves

Total shareholders’ equity

Issuance of share capital on settlement of restricted share units

​

24

​

​

—

​

​

803

​

​

803

​

​

—

​

​

(1,729)

​

​

—

​

​

(1,729)

​

​

(926)

Other comprehensive loss, net of tax recovery of $3,584

​

​

​

​

—

​

​

—

​

​

—

​

​

(10,109)

​

​

—

​

​

(32,422)

​

​

(32,422)

​

​

(42,531)

Share-based compensation

​

​

​

​

—

​

​

—

​

​

—

​

​

—

​

​

12,500

​

​

—

​

​

12,500

​

​

12,500

Balance as at December 31, 2020

​

​

​

$

26,580

​

$

129,118

​

$

155,698

​

$

1,266,514

​

$

85,648

​

$

(47,924)

​

$

37,724

​

$

1,459,936

See accompanying notes to the consolidated financial statements

F-29

Telesat Canada

Consolidated Balance Sheets

(in thousands of Canadian dollars)	Notes	December 31, 2020			December 31, 2019
Assets	​	​	​	​	​	​	​
Cash and cash equivalents	30	​	$	818,378	​	$	1,027,222
Trade and other receivables	10	​	​	51,928	​	​	64,062
Other current financial assets	11	​	​	448	​	​	210
Prepaid expenses and other current assets	12	​	​	22,861	​	​	43,724
Total current assets	​	​	​	893,615	​	​	1,135,218
Satellites, property and other equipment	5, 15	​	​	1,318,526	​	​	1,458,933
Deferred tax assets	9	​	​	79,912	​	​	12,412
Other long-term financial assets	13	​	​	53,425	​	​	57,730
Other long-term assets	5, 14	​	​	9,922	​	​	8,264
Intangible assets	5, 16	​	​	779,190	​	​	802,791
Goodwill	17	​	​	2,446,603	​	​	2,446,603
Total assets	​	​	$	5,581,193	​	$	5,921,951
Liabilities	​	​	​	​	​	​	​
Trade and other payables	18	​	$	30,091	​	$	26,247
Other current financial liabilities	19	​	​	35,880	​	​	38,281
Other current liabilities	20	​	​	96,155	​	​	72,315
Current indebtedness	23	​	​	—	​	​	24,408
Total current liabilities	​	​	​	162,126	​	​	161,251
Long-term indebtedness	23	​	​	3,187,152	​	​	3,688,391
Deferred tax liabilities	9	​	​	325,893	​	​	348,762
Other long-term financial liabilities	21	​	​	35,499	​	​	42,511
Other long-term liabilities	22	​	​	410,587	​	​	435,711
Total liabilities	​	​	​	4,121,257	​	​	4,676,626
Shareholders’ Equity	​	​	​	​	​	​	​
Share capital	24	​	​	155,698	​	​	154,895
Accumulated earnings	​	​	​	1,266,514	​	​	1,031,055
Reserves	​	​	​	37,724	​	​	59,375
Total shareholders’ equity	​	​	​	1,459,936	​	​	1,245,325
Total liabilities and shareholders’ equity	​	​	$	5,581,193	​	$	5,921,951

See accompanying notes to the consolidated financial statements

F-30

Telesat Canada

Consolidated Statements of Cash Flows
For the years ended December 31

(in thousands of Canadian dollars)	Notes	2020			2019			2018
Cash flows from operating activities	​	​	​	​	​	​	​	​	​	​
Net income (loss)	​	​	$	245,578	​	$	187,198	​	$	(90,936)
Adjustments to reconcile net income (loss) to cash flows from operating activities	​	​	​	​	​	​	​	​	​	​
Depreciation	​	​	​	216,885	​	​	242,966	​	​	224,851
Amortization	​	​	​	17,195	​	​	23,277	​	​	24,305
Tax (recovery) expense	​	​	​	(4,353)	​	​	15,122	​	​	61,056
Interest expense	​	​	​	203,760	​	​	258,261	​	​	237,786
Interest income	​	​	​	(7,668)	​	​	(20,268)	​	​	(12,415)
(Gain) loss on foreign exchange	​	​	​	(47,605)	​	​	(163,840)	​	​	259,079
Loss on changes in fair value of financial instruments	​	​	​	13,115	​	​	49,672	​	​	18,205
Share-based compensation	28	​	​	12,500	​	​	16,035	​	​	29,505
Loss on disposal of assets	7	​	​	215	​	​	862	​	​	353
Loss on refinancing	23	​	​	—	​	​	151,919	​	​	—
Other	​	​	​	(58,784)	​	​	(100,078)	​	​	(91,580)
Income taxes paid, net of income taxes received	30	​	​	(53,443)	​	​	(95,455)	​	​	(106,308)
Interest paid, net of capitalized interest and interest received	30	​	​	(179,972)	​	​	(176,112)	​	​	(176,417)
Operating assets and liabilities	30	​	​	15,018	​	​	(13,942)	​	​	88,813
Net cash from operating activities	​	​	​	372,441	​	​	375,617	​	​	466,297
Cash flows used in investing activities	​	​	​	​	​	​	​	​	​	​
Satellite programs, including capitalized interest	​	​	​	(75,902)	​	​	(3,668)	​	​	(67,387)
Purchase of property and other equipment	​	​	​	(17,060)	​	​	(8,345)	​	​	(15,997)
Purchase of intangible assets	​	​	​	(30)	​	​	(27,597)	​	​	(19,923)
Net cash used in investing activities	​	​	​	(92,992)	​	​	(39,610)	​	​	(103,307)
Cash flows used in financing activities	​	​	​	​	​	​	​	​	​	​
Repayment of indebtedness	30	​	​	(453,592)	​	​	(3,743,465)	​	​	(94,951)
Proceeds from indebtedness	30	​	​	—	​	​	3,786,082	​	​	—
Payment of early redemption premium	23	​	​	—	​	​	(43,940)	​	​	—
Payment of debt issue costs	30	​	​	—	​	​	(28,082)	​	​	(10,190)
Payments of principal on lease liabilities	30	​	​	(1,793)	​	​	(1,252)	​	​	(29)
Satellite performance incentive payments	30	​	​	(9,031)	​	​	(9,644)	​	​	(9,037)
Government grant received	​	​	​	14,185	​	​	—	​	​	—
Dividends paid on Director Voting preferred shares	24	​	​	(10)	​	​	(20)	​	​	—
Net cash used in financing activities	​	​	​	(450,241)	​	​	(40,321)	​	​	(114,207)
Effect of changes in exchange rates on cash and cash equivalents	​	​	​	(38,052)	​	​	(36,897)	​	​	40,605
(Decrease) increase in cash and cash equivalents	​	​	​	(208,844)	​	​	258,789	​	​	289,388
Cash and cash equivalents, beginning of year	​	​	​	1,027,222	​	​	768,433	​	​	479,045
Cash and cash equivalents, end of year	30	​	$	818,378	​	$	1,027,222	​	$	768,433

See accompanying notes to the consolidated financial statements

F-31

Telesat Canada

Notes to the 2020 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

1.

BACKGROUND OF TELESAT CANADA

Telesat Canada (“Telesat”) is a Canadian corporation. Telesat is a global satellite operator, providing mission-critical communications solutions to support the requirements of sophisticated satellite users throughout the world. Headquartered in Ottawa, Canada, Telesat’s state-of-the-art fleet consists of 15 geostationary satellites and the Canadian payload on ViaSat-1.

Telesat has commenced the development of a constellation of low earth orbit (“LEO”) satellites and integrated terrestrial infrastructure, called “Telesat Lightspeed.” In January 2018, the first LEO satellite was successfully launched into orbit. This Phase 1 LEO satellite has demonstrated certain key features of the Telesat Lightspeed system design, specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience.

As at December 31, 2020, Loral Space and Communications Inc. (“Loral”) and Canada’s Public Sector Pension Investment Board (“PSP Investments”) indirectly held economic interests in Telesat of approximately 63% and 36%, respectively, with the remaining economic interest held by various individuals. Loral indirectly held a voting interest of 33% on all matters including the election of directors. PSP Investments indirectly held a voting interest of 67% on all matters except for the election of directors, and a 29% voting interest for the election of directors. The remaining voting interest of 38% for the election of directors is held by shareholders of Telesat’s Director Voting Preferred Shares.

Unless the context states or requires otherwise, references herein to the “financial statements” or similar terms refer to the audited consolidated financial statements of Telesat Canada.

On March 3, 2021, these financial statements were approved by the Audit Committee of the Board of Directors and authorized for issue.

2.

BASIS OF PRESENTATION

Statement of Compliance

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The accounting policies described in Note 3 were consistently applied.

Basis of Consolidation

Subsidiaries

These consolidated financial statements include the results of Telesat and subsidiaries controlled by Telesat. Control is achieved when Telesat has power over an entity, has exposure, or rights to variable returns from its involvement with an entity, and has the ability to use the power over an entity to affect the amount of its return. The most significant subsidiaries are listed in Note 32.

Joint arrangements

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to their share of the assets and revenue, and obligations for the liabilities and expenses, relating to the arrangement.

Telesat’s consolidated financial statements include Telesat’s share of the assets, liabilities, revenue and expenses of its interest in joint operations.

F-32

3.

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on an historical cost basis except for certain financial instruments which were measured at their fair values, as explained in the accounting policies below. Historical cost is based on the fair value of the consideration given or received in exchange for assets or liabilities.

Segment Reporting

Telesat operates in a single operating segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world. Operating segments are reported in a manner consistent with the internal reporting provided to Telesat’s Chief Operating Decision Maker, who is Telesat’s Chief Executive Officer. To be reported, a segment is usually based on quantitative thresholds but can also encompass qualitative factors management deems significant.

Foreign Currency Translation

Unless otherwise specified, all figures reported in the consolidated financial statements and associated note disclosures are presented in Canadian dollars, which is the functional and presentation currency of Telesat. Each of the subsidiaries of Telesat determines its own functional currency and uses that currency to measure items on their separate financial statements.

For Telesat’s non-foreign operations, foreign currency non-monetary assets and liabilities are translated at their historical exchange rates, foreign currency monetary assets and liabilities are translated at the yearend exchange rates, and foreign denominated revenue and expenses are translated at the average exchange rates of the month in which the transactions occurred. Gains or losses on translation of these items are recognized as a component of net income (loss).

Upon consolidation of Telesat’s foreign operations that have a functional currency other than the Canadian dollar, assets and liabilities are translated at the year end exchange rate, and revenue and expenses are translated at the average exchange rates of the month in which the transactions occurred. Gains or losses on the translation of foreign subsidiaries are recognized in other comprehensive income (loss).

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less, or which are available upon demand with no penalty for early redemption, are classified as cash and cash equivalents. Cash and cash equivalents are comprised of cash on hand, demand deposits, short-term investments and restricted cash expected to be used within the next twelve months.

Revenue Recognition

Telesat recognizes revenue from satellite services on a monthly basis as services are performed in an amount that reflects the consideration Telesat expects to receive in exchange for those services. Telesat accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability is considered probable.

Revenue from a contract to sell consulting services is recognized as follows:

•

Consulting revenue for cost plus contracts is recognized as the approved time and labour is completed by Telesat.

•

Fixed price consulting revenue contracts use an input method to determine the progress towards complete satisfaction of the performance obligation. The input method is measured by comparing actual cost incurred to total cost expected.

Equipment sale revenue is recognized when the customer obtains control of the equipment, being at the time the equipment is delivered to and accepted by the customer. Only equipment sales are subject to

F-33

warranty or return and there is no general right of return. Historically, Telesat has not incurred significant expenses for warranties.

When a transaction involves more than one product or service, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Transactions are evaluated to determine whether Telesat is the principal and if the transactions should be recorded on a gross or net basis.

Deferred Revenue

Deferred revenue represents Telesat’s liability for the provision of future services and is classified on the balance sheet in other current and long-term liabilities. Deferred revenue consists of remuneration received in advance of the provision of service and in the majority of cases is recognized in income on a straight-line basis over the term of the related customer contracts. In the case of certain deferred revenue for short-term services, balances are recognized into income upon the completion or percentage completion of the related contract. Prepayments are evaluated to determine whether or not they constitute a significant financing component. Telesat has elected a practical expedient whereby if the timing difference between the customer prepayment and the transfer of control of the promised goods and services is less than a year then it would not be considered as a significant financing component.

A significant financing component will only occur in the following circumstances:

•

There is a timing difference between when the control of goods or services is transferred to the customer and when the customer pays for the goods;

•

The timing difference between the customer prepayment and transfer of control of the promised goods and services is in excess of one year; and

•

The primary reason for the prepayment is for financing purposes.

In the case of the existence of a significant financing component, the amount of the consideration is adjusted to reflect what the cash selling price of the promised service would have been if payments had occurred as control of the service was transferred to the customer. The discount rate used in determining the significant financing component is the rate that would be reflected in a separate financing transaction between Telesat and the customer at contract inception.

Borrowing Costs

Borrowing costs are incurred on Telesat’s debt financing. Borrowing costs attributable to the acquisition, production or construction of a qualifying asset are added to the cost of that asset. Telesat has defined a qualifying asset as an asset that takes longer than twelve months to be ready for its intended use or sale. Capitalization of borrowing costs continues until such time that the asset is substantially ready for its intended use or sale. Borrowing costs are determined based on specific financing related to the asset, or in the absence of specific financing, the borrowing costs are calculated on the basis of a capitalization rate which is equal to Telesat’s weighted average cost of debt. All other borrowing costs are expensed when incurred.

Leases

At the inception of a contract, Telesat assesses whether a contract is, or contains, a lease based on whether or not the contract conveys the right to control the use of the asset for a period of time in exchange for consideration.

Telesat recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, less any lease incentives received. The right-of-use assets are depreciated to the earlier of the end of the useful life of the asset or the end of the lease term. Each individual lease liability is initially measured at the present value of the lease payments over the respective lease term, discounted using Telesat’s incremental borrowing rate for that lease.

The lease term is the non-cancellable period determined for each of the leases considering the option to extend when it is reasonably certain that Telesat will exercise the option or the option to terminate if it is reasonably certain that Telesat will exercise the option.

F-34

After the commencement date, the right-of-use assets are measured applying the cost model and depreciated to the earlier of the end of the useful life of the asset or the end of the lease term on a straight-line basis. The lease liability is subsequently measured by increasing the carrying amount to reflect the interest on the lease, using the effective interest method, and by reducing the carrying amount to reflect the lease payments made.

The lease liability is remeasured when there is a change in future lease payments, arising from a change in index or rate, or if there is a change in the assessment of whether Telesat will exercise a purchase, extension or termination option. The amount of the remeasurement of the lease liability is also recognized as an adjustment to the right-of-use asset, or is recorded in the statement of income if the carrying amount of the right-of-use asset has been reduced to zero.

Telesat has elected to not recognize a right-of-use asset or lease liability for any lease that has a lease term of 12 months or less. The payments associated with these agreements would be recognized as an operating expense on a straight-line basis over the lease term.

Telesat has also elected the practical expedient, for property leases, not to separate the non-lease components from the lease components, and instead account for each lease and any associated non-lease components within the contract as a single lease component.

Government Grants

Government grants are recognized where there is a reasonable assurance that the grant will be received and the attached conditions will be complied with.

When the grant relates to an expense, the grant is recorded as a deduction to the related expense incurred over the same period.

When the grant relates to an asset, the grant is deducted from the carrying amount of the related asset as the grant is receivable.

Satellites, Property and Other Equipment

Satellites, property and other equipment, which are carried at cost, less accumulated depreciation and any accumulated impairment losses, include the contractual cost of equipment, capitalized engineering costs, capitalized borrowing costs during the construction or production of qualifying assets, and with respect to satellites, the cost of launch services, and launch insurance.

Depreciation is calculated using the straight-line method over the respective estimated useful lives of the assets.

Below are the estimated useful lives in years of satellites, property and other equipment as at December 31, 2020.

​	Years
Satellites	12 to 15
Right-of-use assets	2 to 27
Property and other equipment	3 to 30

Construction in progress is not depreciated as depreciation only commences when the asset is ready for its intended use. For satellites, depreciation commences on the day the satellite becomes available for service.

The investment in each satellite will be removed from the accounts when the satellite is retired. When other property is retired from operations at the end of its useful life, the cost of the asset and accumulated depreciation are removed from the accounts. Earnings are credited with the amount of any net salvage value and charged with any net cost of removal. When an asset is sold prior to the end of its useful life, the gain or loss is recognized immediately in other operating (losses) gains, net.

In the event of an unsuccessful launch or total in-orbit satellite failure, all unamortized costs that are not recoverable under launch or in-orbit insurance are recorded in other operating (losses) gains, net.

F-35

Liabilities related to decommissioning and restoration of retiring property and other equipment are measured at fair value with a corresponding increase to the carrying amount of the related asset. The liability is accreted over the period of expected cash flows with a corresponding charge to interest expense. The liabilities recorded to date have not been significant and are reassessed at the end of each reporting period. There are no decommissioning or restoration obligations for satellites.

Satellite Performance Incentive Payments

Satellite performance incentive payments are obligations payable to satellite manufacturers over the lives of certain satellites. The present value of the payments are capitalized as part of the cost of the satellite and recognized as part of the depreciation of the satellite.

Impairment of Long-Lived Assets

Tangible fixed assets and finite life intangible assets are assessed for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the carrying value of an asset exceeds the recoverable amount. Tangible fixed assets and finite life intangible assets are also assessed for indicators of impairment or impairment reversals at each reporting period.

In cases where there are indicators of impairment, the recoverable amount of the asset, which is the higher of its fair value less costs of disposal and its value in use, is determined. If it is not possible to measure the recoverable amount for a particular asset, Telesat determines the recoverable amount of the cash generating unit (“CGU”) with which it is associated. A CGU is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets.

Telesat measures value in use on the basis of the estimated future cash flows to be generated by an asset or CGU. These future cash flows are based on Telesat’s latest business plan information approved by senior management and are discounted using rates that best reflect the time value of money and the specific risks associated with the underlying asset or assets in the CGU.

The fair value less costs of disposal is the price that would be received to sell an asset or CGU in an orderly transaction between market participants at the measurement date. For the impairment assessment, the fair value is calculated on a recurring basis and is calculated using level 3 of the fair value hierarchy.

An impairment loss is the amount by which the carrying amount of an asset or CGU exceeds its recoverable amount. When an impairment loss subsequently reverses, the carrying amount of the asset (or a CGU) is increased to the revised measure of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. Impairment losses and reversals of impairment losses are recognized in other operating (losses) gains, net.

Goodwill and Intangible Assets

Telesat accounts for business combinations using the acquisition method of accounting, which establishes specific criteria for the recognition of intangible assets separately from goodwill. Goodwill represents the excess between the total of the consideration transferred over the fair value of net assets acquired. After initial recognition at cost, goodwill is measured at cost less any accumulated impairment losses.

Telesat distinguishes intangible assets between assets with finite and indefinite useful lives. Intangible assets with indefinite useful lives are comprised of Telesat’s trade name, intellectual property, and orbital slots. These assets are carried at cost less any accumulated impairment losses. Finite life intangible assets, which are carried at cost less accumulated amortization and any accumulated impairment losses, consist of revenue backlog, customer relationships, customer contracts, concession rights, transponder rights and patents. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method of amortization, except for revenue backlog which is based on the expected period of recognition of the related revenue.

F-36

Below are the estimated useful lives in years of the finite life intangible assets as at December 31, 2020.

​	Years
Revenue backlog	17
Customer relationships	20 to 21
Customer contracts	15
Concession rights	5 to 15
Transponder rights	16
Patents	18

Impairment of Goodwill and Indefinite Life Intangible Assets

An assessment for impairment of goodwill and indefinite life intangible assets is performed annually, or more frequently whenever events or changes in circumstances indicate that the carrying amounts of these assets are likely to exceed their recoverable amount. Goodwill is tested for impairment at the entity level as this represents the lowest level within Telesat at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment. With the exception of trade name, which have not been allocated to any CGU and are tested for impairment at the asset level, indefinite life intangible assets are tested for impairment at the CGU level. In the case of orbital slots, the CGU is based on geography.

Goodwill and indefinite life intangible assets are qualitatively assessed for indicators of impairment.

If the qualitative assessment concludes an indication of impairment, a quantitative impairment test is performed. A quantitative impairment test consists of assessing the recoverable amount of an asset, which is the higher of its fair value less costs of disposal and its value in use. For the quantitative impairment assessment, fair value is calculated on a recurring basis and is calculated using level 2 or level 3 of the fair value hierarchy depending on the valuation approach being utilized.

Orbital Slots

In performing the quantitative orbital slot impairment analysis, Telesat determines, for each CGU, its fair value less costs of disposal, and its value in use on an annual basis. The higher of these two amounts is determined to be the recoverable amount. To the extent that the recoverable amount is less than the carrying value of the asset, an impairment exists and the asset is written down to its recoverable amount.

The key assumptions used in estimating the recoverable amounts of the orbital slots include assumptions such as:

i)

the market penetration leading to revenue growth;

ii)

the profit margin;

iii)

the duration and profile of the build-up period;

iv)

the estimated start-up costs and losses incurred during the build-up period;

v)

and the discount rate.

Fair value less costs of disposal is the price that would be received to sell the CGU in an orderly transaction between market participants at the measurement date. In order to determine the fair value less costs of disposal, Telesat uses either a market or income approach. Under a market approach, Telesat measures what an independent third party would pay to purchase the orbital slots by looking to actual market transactions for similar assets. Under an income approach, the fair value is determined to be the sum of the projected discounted cash flows over a discrete period of time in addition to the terminal value.

The value in use amount is the present value of the future cash flows expected to be derived from the CGU. The determination of this amount includes projections of cash inflows from the continuing use of the asset and cash outflows that are required to generate the associated cash inflows. These cash flows are discounted at an appropriate discount rate.

F-37

Goodwill

In performing the quantitative goodwill impairment analysis, Telesat assesses the recoverable amount of goodwill using the income approach as well as the market approach in the determination of the fair value of goodwill at the entity level.

Under the income approach, the sum of the projected discounted cash flows for the next five years, or a longer period if justified by the most recent financial plan approved by management, in addition to a terminal value are used to determine the fair value at the entity level. In this model, significant assumptions used include: revenue, expenses, capital expenditures, working capital, costs of disposal, terminal growth rate and discount rate.

Under the market approach, the fair value at the entity level is determined based on market multiples derived from comparable public companies. As part of this analysis, assumptions are made regarding the comparability of selected companies including revenue, earnings before interest, taxes, depreciation and amortization multiples for valuation purposes, growth rates, size and overall profitability.

Under both approaches, all assumptions used are based on management’s best estimates. The discount rates are consistent with external sources of information.

Trade Name

For the purposes of quantitative impairment testing, the fair value of the trade name is determined using an income approach, specifically the relief from royalties method.

The relief from royalties method is comprised of two major steps:

i)

a determination of the hypothetical royalty rate; and

ii)

the subsequent application of the royalty rate to projected revenue.

In determining the hypothetical royalty rate in the relief from royalties method, Telesat considered comparable license agreements, operating earnings benchmarks, an excess earnings analysis to determine aggregate intangible asset earnings, and other qualitative factors. The key assumptions used include the tax and discount rates.

Intellectual Property

In performing the quantitative intellectual property impairment analysis, Telesat determines its fair value less costs of disposal, and its value in use on an annual basis. The higher of these two amounts is determined to be the recoverable amount. To the extent that the recoverable amount is less than the carrying value of the asset, an impairment exists and the asset is written down to its recoverable amount.

Telesat measures value in use on the basis of the estimated future cash flows to be generated by an asset. These future cash flows are based on Telesat’s latest business plan information approved by senior management and are discounted using rates that best reflect the time value of money and the specific risks associated with the underlying asset.

Fair value less costs of disposal is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In order to determine the fair value less costs of disposal, Telesat uses a market approach. Under a market approach, Telesat measures what an independent third party would pay to purchase the intellectual property.

Financial Instruments

Financial assets are initially recognized at fair value. Financial assets are measured using one of three measurement approaches (fair value through profit or loss (“FVTPL”), fair value through other comprehensive income (“FVTOCI”), or amortized cost). A financial asset is measured at amortized cost if it is not designated as FVTPL, it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of

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principal and interest on the principal amount outstanding. A debt investment is measured at FVTOCI if it is not designated at FVTPL, it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amounts outstanding. On initial recognition of an equity investment that is not held for trading, Telesat may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment by investment basis. All financial assets not classified as measured at amortized cost or FVTOCI as described above are measured at FVTPL.

The following accounting policies apply to the subsequent measurement of Telesat’s financial assets:

•

Amortized cost:   The financial assets are subsequently measured at amortized cost in accordance with the effective interest method. The amortized cost is reduced by any impairment losses; and

•

FVTPL:   These financial assets are subsequently measured at fair value with changes in fair value recorded in the consolidated statement of income (loss) as part of loss on changes in fair value of financial instruments.

Financial liabilities are initially measured at fair value. Financial liabilities are classified as amortized cost or FVTPL. Financial liabilities that are classified as amortized cost are measured and recorded at amortized cost in accordance with the effective interest method. Financial liabilities classified as FVTPL are subsequently measured at fair value with changes in fair value recorded in the consolidated statement of income (loss) as part of the loss on changes in fair value of financial instruments.

Telesat has used derivative financial instruments to manage its exposure to foreign exchange risk associated with debt denominated in foreign currencies, as well as to reduce its exposure to interest rate risk associated with debt. Currently, Telesat does not designate any of its derivative financial instruments as hedging instruments for accounting purposes. All realized and unrealized gains and losses on these derivative financial instruments are recorded in the consolidated statement of income (loss) as part of loss on changes in fair value of financial instruments.

Derivatives, including embedded derivatives that must be separately accounted for, are recorded at fair value on the consolidated balance sheet at inception and marked to market at each reporting period thereafter. Derivatives embedded in financial liabilities and other non-financial instrument contracts are treated as separate derivatives when their risk and characteristics are not closely related to those of the host contract and the host contract is measured separately according to its characteristics. Telesat accounts for embedded foreign currency derivatives and the related host contract as a single instrument where the contract requires payments denominated in the currency that is commonly used in contracts to procure non-financial items in the economic environment in which Telesat transacts.

Transaction costs for instruments classified as FVTPL are expensed as incurred. Transaction costs that are directly attributable to the acquisition of financial assets and liabilities (other than FVTPL) are added or deducted from the fair value of the financial asset or financial liability on initial recognition.

Telesat’s financial assets classified as amortized cost and contract assets are subject to impairment requirements. Telesat has elected to measure loss allowances for trade receivables and other contract assets at an amount equal to lifetime expected credit loss. The lifetime expected credit losses are the expected credit losses that result from possible default events over the expected life of the instrument.

Financing Costs

The debt issuance costs related to the Senior Secured Credit Facility, the 6.5% Senior Notes and the 4.875% Senior Secured Notes are included in current and long-term indebtedness and are amortized to interest expense using the effective interest method. All other debt issuance costs are accounted for as short-term and long-term deferred charges and are included in prepaid expenses and other current assets and other long-term assets. The deferred charges are amortized to interest expense on a straight-line basis over the term of the indebtedness to which they relate.

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Employee Benefit Plans

Telesat maintains one contributory and three non-contributory defined benefit pension plans which provide benefits based on length of service and rate of pay. Two of these defined-benefit plans were closed to new members in 2013. Telesat is responsible for adequately funding the defined benefit pension plans. Contributions are made based on actuarial cost methods that are permitted by pension regulatory bodies and reflect assumptions about future investment returns, salary projections and future service benefits. Telesat also provides other post-employment and retirement benefits, including health care and life insurance benefits on retirement and various disability plans, worker’s compensation and medical benefits to former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement, under certain circumstances. In addition, Telesat provides defined contribution pension plans, under certain circumstances, for employees who are not eligible for the defined benefit pension plans. Costs for defined contribution pension plans are recognized as an expense during the year in which the employees have rendered service entitling them to Telesat’s contribution.

Telesat accrues the present value of its obligations under employee benefit plans and the related costs reduced by the fair value of plan assets. Pension costs and other retirement benefits are determined using the projected unit credit method prorated on service and management’s best estimate of expected investment performance, salary escalation, retirement ages of employees and expected health care costs.

Pension plan assets are valued at fair value. The discount rate is based on the market interest rate of high quality bonds and is consistent with guidance described by Canadian Institute of Actuaries in the December 2020 Revision to the Educational Note on Setting the Accounting Discount Rate Assumption for Pension and Post-employment Benefit Plans. Past service costs arising from plan amendments are recognized immediately to the extent that the benefits are already vested, and otherwise are amortized on a straight-line basis over the average remaining vesting period. A valuation is performed at least every three years to determine the present value of the accrued pension and other retirement benefits.

Remeasurements arising from defined benefit pension plans comprise actuarial gains and losses and the return on plan assets (excluding interest). Telesat recognizes them immediately in other comprehensive income (loss), which is included in accumulated earnings, in the year in which they occur.

The current service costs and administration fees not related to asset management are included in operating expenses. The net interest expense (income) on the net defined benefit liability (asset) for the period is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the net defined benefit liability (asset) at the beginning of the year while taking into account any changes in the net defined benefit liability (asset) during the year as a result of contributions and benefit payments. The net interest expense (income) is included in interest expense.

The pension expense for 2020 was determined based on membership data as at December 31, 2018. The accrued benefit obligation as at December 31, 2020 was determined based on the membership data as at December 31, 2019, and extrapolated one year based on December 31, 2020 assumptions. For certain Canadian post-retirement benefits, the expense for 2020 was based on membership and eligibility data as at September 30, 2018 and the accrued benefit obligations as at December 31, 2020 was based on membership data as at September 30, 2018. The accrued benefit obligation for certain American post-retirement benefits as at December 31, 2020 was determined based on membership data as at January 1, 2019, and extrapolated, based on December 31, 2020 assumptions. The most recent valuation of the pension plans for funding purposes was as of December 31, 2019. Valuations will be performed for the pension plans as of December 31, 2020.

Telesat also provides health care and life insurance benefits for certain retired employees. These benefits are funded primarily on a pay-as-you-go basis, with the retiree paying a portion of the cost through contributions, deductibles and co-insurance provisions. Commencing in 2015, as a result of an amendment to one of the plans, Telesat has contributed to a health reimbursement account instead of providing the health care and life insurance benefits directly to certain retired employees.

Share-Based Compensation Plans

Telesat offers equity-settled share-based compensation plans for certain key employees under which it receives services from employees in exchange for equity instruments of Telesat. The expense is based on the

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fair value of the awards granted using the Black-Scholes option pricing model. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied, with a corresponding increase in equity. For awards with graded vesting, the fair value of each tranche is recognized over the respective vesting period with a significant higher proportionate amount of the total expense being recognized earlier in the vesting period.

Restricted Share Units

For each restricted share unit (“RSU”), an expense is recorded over the vesting period equal to the fair value of the Non-Voting Participating Preferred shares with a corresponding increase in equity. For awards with graded vesting, the fair value of each tranche is recognized over the respective vesting period with a significant higher proportionate amount of the total expense being recognized earlier in the vesting period. RSU’s are expected to be settled in Non-Vesting Participating Preferred shares of Telesat.

Income Taxes

Income tax expense, comprised of current and deferred income tax, is recognized in income except to the extent it relates to items recognized in other comprehensive income (loss) or equity, in which case the income tax expense is recognized in other comprehensive income (loss) or equity, respectively.

Current income tax is measured at the amount expected to be paid to the taxation authorities, net of recoveries, based on the tax rates and laws enacted or substantively enacted as at the balance sheet date.

Deferred taxes are the result of temporary differences arising between the tax bases of assets and liabilities and their carrying amount. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that the deferred tax assets will be realized. Unrecognized deferred tax assets are reassessed at each balance sheet date and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets are netted against the deferred tax liabilities when they relate to income taxes levied by the same taxation authority on either:

i)

the same taxable entity; or

ii)

different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Deferred tax liabilities are recognized for all taxable temporary differences except when the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination. For taxable temporary differences associated with investments in subsidiaries, a deferred tax liability is recognized unless the parent can control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Future Changes in Accounting Policies

The IASB periodically issues new and amended accounting standards. The new and amended standards determined to be applicable to Telesat are disclosed below. The remaining new and amended standards have been excluded as they are not applicable.

Interest rate benchmark reform — Phase 2

In August 2020, the IASB issued amendments to various IFRS standards associated with the ongoing interest rate benchmark reform. The amendments enable entities to reflect the effects of transitioning from benchmark interest rates, such as inter-bank offered rates (“IBOR”) to alternative benchmark interest rates.

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The amendments are effective for annual periods beginning on or after January 1, 2021 with early application permitted. Telesat is currently evaluating the impact of the Phase 2 of the interest rate benchmark reform on its consolidated financial statements.

4.

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

Critical judgments in applying accounting policies

The following are the critical judgments made in applying Telesat’s accounting policies which have the most significant effect on the amounts reported in the financial statements:

Deferred Revenue

Telesat’s accounting policy relating to deferred revenue is described in Note 3. Certain of Telesat’s revenue agreements were noted to include a significant financing component. Judgment by management is required to determine the discount rate used in the significant financing component calculation.

Lease Liability

Telesat’s accounting policy relating to leases is described in Note 3. Judgment by management is required in the determination of the likelihood that the lease renewal periods will be exercised as well as the determination of the incremental borrowing rate.

Uncertain income tax positions

Telesat operates in numerous jurisdictions and is subject to country-specific tax laws. Management uses significant judgment when determining the worldwide provision for tax, and estimates provisions for uncertain tax positions as the amounts expected to be paid based on a qualitative assessment of all relevant factors. In the assessment, management considers risk with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. Management reviews the provisions as at each balance sheet date.

Critical accounting estimates and assumptions

Telesat makes accounting estimates and assumptions that affect the carrying value of assets and liabilities, reported net income (loss) and disclosure of contingent assets and liabilities. Estimates and assumptions are based on historical experience, current events and other relevant factors, therefore, actual results may differ and differences could be material.

The accounting estimates and assumptions critical to the determination of the amounts reported in the financial statements were as follows:

Derivative financial instruments measured at fair value

Derivative financial assets and liabilities measured at fair value were $30.3 million and $18.0 million, respectively, as at December 31, 2020 (December 31, 2019 — $32.8 million and $7.9 million, respectively).

Quoted market values are unavailable for Telesat’s financial instruments and, in the absence of an active market, Telesat determines fair value for financial instruments based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs. The determination of fair value is significantly impacted by the assumptions used for the amount and timing of estimated future cash flows and discount rates. As a result, the fair value of financial assets and liabilities and the amount of loss on changes in fair value of financial instruments recorded to net income (loss) could vary.

Impairment of goodwill

Goodwill represented $2,446.6 million of total assets as at December 31, 2020 and 2019. Determining whether goodwill is impaired using a quantitative approach requires an estimation of Telesat’s value which

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requires management to estimate the future cash flows expected to arise from operations and to make assumptions regarding economic factors, tax rates and annual growth rates. Actual operating results and the related cash flows of Telesat could differ from the estimates used for the impairment analysis.

Impairment of intangible assets

Intangible assets represented $779.2 million of total assets as at December 31, 2020 (December 31, 2019 — $802.8 million). Impairment of intangible assets is tested annually or more frequently if indicators of impairment or reversal of a prior impairment loss exist. If a quantitative impairment analysis is required, it would require Telesat to estimate the future cash flows expected to arise from operations and to make assumptions regarding economic factors, discount rates, tax rates and annual growth rates. Significant judgments are made in establishing these assumptions. Actual operating results and the related cash flows of Telesat could differ from the estimates used for the impairment analysis.

Employee benefits

The cost of defined benefit pension plans and other post-employment benefits, and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, future pension increases and return on plan assets. Due to the complexity of the valuation, the underlying assumptions, and its long-term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed annually.

Share-based compensation

The expense for stock options is based on the fair value of the awards granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model includes estimates of the dividend yield, expected volatility, risk-free interest rate and the expected life in years. Any changes in these estimates may have a significant impact on the amounts reported.

Determination of useful life of satellites and finite life intangible assets

The estimated useful life and depreciation method for satellites and finite life intangible assets are reviewed annually, with the effect of any changes in estimate being accounted for on a prospective basis. Any change in these estimates may have a significant impact on the amounts reported.

Income taxes

Management assesses the recoverability of deferred tax assets based upon an estimation of Telesat’s projected taxable income using enacted or substantively enacted tax laws, and its ability to utilize future tax deductions before they expire. Actual results could differ from expectations.

5.

SEGMENT INFORMATION

Telesat operates in a single operating segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world.

Telesat derives revenue from the following services:

Broadcast — Direct-to-home television, video distribution and contribution, and occasional use services.

Enterprise — Telecommunication carrier and integrator, government, consumer broadband, resource, maritime and aeronautical, retail and satellite operator services.

Consulting and other — Consulting services related to space and earth segments, government studies, satellite control services, and research and development.

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Revenue derived from the above services were as follows:

Years ended December 31,	2020			2019			2018
Broadcast	​	$	411,407	​	$	444,478	​	$	455,125
Enterprise	​	​	389,696	​	​	444,732	​	​	428,226
Consulting and other	​	​	19,365	​	​	21,683	​	​	19,581
Revenue	​	$	820,468	​	$	910,893	​	$	902,932

Equipment sales included within the various services were as follows:

Years ended December 31,	2020			2019			2018
Broadcast	​	$	1,300	​	$	233	​	$	315
Enterprise	​	​	13,693	​	​	8,323	​	​	23,639
Total equipment sales	​	$	14,993	​	$	8,556	​	$	23,954

Geographic Information

Revenue by geographic regions was based on the point of origin of the revenue, which was the destination of the billing invoice, and was allocated as follows:

Years ended December 31,	2020			2019			2018
Canada	​	$	362,939	​	$	395,235	​	$	417,692
United States	​	​	307,433	​	​	329,634	​	​	318,779
Europe, Middle East & Africa	​	​	44,710	​	​	50,911	​	​	61,317
Latin America & Caribbean	​	​	64,024	​	​	73,120	​	​	75,011
Asia & Australia	​	​	41,362	​	​	61,993	​	​	30,133
Revenue	​	$	820,468	​	$	910,893	​	$	902,932

For disclosure purposes, the satellites and the intangible assets have been classified based on ownership. Satellites, property and other equipment and intangible assets by geographic regions were allocated as follows:

As at December 31,	2020			2019
Canada	​	$	624,303	​	$	682,518
Europe, Middle East & Africa	​	​	619,959	​	​	685,562
United States	​	​	71,659	​	​	88,360
All others	​	​	2,605	​	​	2,493
Satellites, property and other equipment	​	$	1,318,526	​	$	1,458,933

As at December 31,	2020			2019
Canada	​	$	718,880	​	$	733,880
United States	​	​	38,448	​	​	39,395
Latin America & Caribbean	​	​	15,114	​	​	21,908
All others	​	​	6,748	​	​	7,608
Intangible assets	​	$	779,190	​	$	802,791

Other long-term assets by geographic regions were allocated as follows:

As at December 31,	2020			2019
Canada	​	$	9,470	​	$	7,624
Europe, Middle East & Africa	​	​	452	​	​	640
Other long-term assets	​	$	9,922	​	$	8,264

Goodwill was not allocated to geographic regions.

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Major Customers

For the year ended December 31, 2020, there were two significant customers (for the years ended December 31, 2019 and 2018 - three customers) each representing more than 10% of consolidated revenue.

6.

OPERATING EXPENSES

Years ended December 31,	2020			2019			2018
Compensation and employee benefits(a)	​	$	89,882	​	$	87,943	​	$	98,350
Other operating expenses(b)	​	​	57,622	​	​	40,332	​	​	45,596
Cost of sales(c)	​	​	33,370	​	​	37,224	​	​	41,881
Operating expenses	​	$	180,874	​	$	165,499	​	$	185,827

(a)

Compensation and employee benefits included salaries, bonuses, commissions, post-employment benefits and charges arising from share-based compensation.

(b)

Other operating expenses included general and administrative expenses, marketing expenses, in-orbit insurance expenses, professional fees and facility costs. The balance for the year ended December 31, 2020 included $1.9 million of leases not capitalized due to exemptions and variable lease payments not included in the measurement of the leases liabilities (December 31, 2019 — $1.7 million).

(c)

Cost of sales included the cost of third-party satellite capacity, the cost of equipment sales and other costs directly attributable to fulfilling Telesat’s obligations under customer contracts.

7.

OTHER OPERATING (LOSSES) GAINS, NET

Years ended December 31,	2020			2019			2018
Loss on disposal of assets	​	$	(215)	​	$	(862)	​	$	(353)
Other	​	​	—	​	​	—	​	​	1,096
Other operating (losses) gains, net	​	$	(215)	​	$	(862)	​	$	743

8.

INTEREST EXPENSE

Years ended December 31,	2020			2019			2018
Interest on indebtedness	​	$	164,253	​	$	239,805	​	$	231,015
Interest on derivative instruments	​	​	11,625	​	​	(13,191)	​	​	(7,105)
Interest on satellite performance incentive payments	​	​	2,930	​	​	3,536	​	​	4,134
Interest on significant financing component	​	​	22,434	​	​	25,484	​	​	27,374
Interest on employee benefit plans (Note 29)	​	​	1,169	​	​	1,339	​	​	1,488
Interest on leases	​	​	1,349	​	​	1,288	​	​	—
Capitalized interest (Note 15)	​	​	—	​	​	—	​	​	(19,120)
Interest expense	​	$	203,760	​	$	258,261	​	$	237,786

9.

INCOME TAXES

Years ended December 31,	2020			2019			2018
Current tax expense	​	$	77,138	​	$	71,202	​	$	98,841
Deferred tax recovery	​	​	(81,491)	​	​	(56,080)	​	​	(37,785)
Tax (recovery) expense	​	$	(4,353)	​	$	15,122	​	$	61,056

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A reconciliation of the statutory income tax rate, which is a composite of Canadian federal and provincial rates, to the effective income tax rate was as follows:

Year ended December 31,	2020			2019			2018
Income (loss) before tax	​	$	241,225	​	$	202,320	​	$	(29,880)
Multiplied by the statutory income tax rates	​	​	26.46%	​	​	26.56%	​	​	26.59%
​	​	​	63,828	​	​	53,736	​	​	(7,945)
Income tax recorded at rates different from the Canadian tax rate	​	​	(22,875)	​	​	(13,017)	​	​	(10,823)
Permanent differences	​	​	1,548	​	​	(6,760)	​	​	50,458
Effect on deferred tax balances due to changes in income tax rates	​	​	(885)	​	​	(2,829)	​	​	(427)
Effect of temporary differences not recognized as deferred tax assets	​	​	(43,941)	​	​	(16,681)	​	​	35,416
Previously unrecognized tax losses and credits	​	​	—	​	​	—	​	​	(6,110)
Change in estimates related to prior period(1)	​	​	(1,467)	​	​	(311)	​	​	—
Other(1)	​	​	(561)	​	​	984	​	​	487
Tax (recovery) expense	​	$	(4,353)	​	$	15,122	​	$	61,056
Effective income tax rate	​	​	(1.80)%	​	​	7.47%	​	​	(204.34)%

(1)

Certain comparative figures have been reclassified to conform to the current year presentation.

The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes are presented below:

As at December 31,	2020			2019
Deferred tax assets	​	​	​	​	​	​
Foreign tax credits	​	$	6,558	​	$	5,710
Corporate interest restriction	​	​	—	​	​	11,393
Financing charges	​	​	12,004	​	​	17,152
Deferred revenue	​	​	11,127	​	​	13,071
Loss carry forwards	​	​	29,715	​	​	29,351
Employee benefits	​	​	12,438	​	​	8,282
Reserves	​	​	1,222	​	​	—
Other	​	​	2,531	​	​	2,209
Total deferred tax assets	​	$	75,595	​	$	87,168

As at December 31,	2020			2019
Deferred tax liabilities	​	​	​	​	​	​
Capital assets	​	$	(149,214)	​	$	(178,317)
Intangible assets	​	​	(158,957)	​	​	(237,269)
Unrealized foreign exchange gains	​	​	(13,405)	​	​	(7,932)
Total deferred tax liabilities	​	$	(321,576)	​	$	(423,518)
Deferred tax liabilities, net	​	$	(245,981)	​	$	(336,350)

Deferred income tax assets of $79.9 million (December 31, 2019 — $12.4 million) on the balance sheet relates to Canada and Brazil tax jurisdictions (December 31, 2019 — United Kingdom and Canada tax jurisdictions).

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Temporary differences, tax losses and tax credits

Foreign tax credit

Telesat has Canadian foreign tax credits of $9.5 million which may only be used to offset taxes payable, of which $6.5 million has been recognized. The credits are due to expire between 2023 and 2030.

Telesat has United Kingdom foreign tax credits of $4.6 million which have no expiry. No deferred tax asset has been recognized in respect of these foreign tax credits.

Loss carry forwards and deductible temporary differences.

Telesat has tax losses in Canada of $22.4 million which expire in 2040 for which a deferred tax asset of $5.9 million has been recognized. Telesat also has $1.2 million of deductible temporary differences for which no deferred tax asset has been recognized.

Telesat has tax losses in the United Kingdom of $122.5 million that can be carried forward indefinitely, subject to restrictions on their utilization. The use of the losses is limited to 50% of taxable income generated in a carry forward year. Notwithstanding, Telesat will be entitled to a GBP 5 million annual allowance of unrestricted taxable income not subject to the 50% limitation. A deferred tax asset of $23.3 million has been recognized in respect of the losses. Telesat also has $130.8 million of unused interest deductions in the United Kingdom that can be carried forward indefinitely. No deferred tax asset has been recognized in respect of these unused interest deductions.

Telesat has tax losses of $2.0 million in the United States, that can be carried forward indefinitely subject to restrictions on their utilization. The use of the losses is limited to 80% of taxable income generated in a carry forward year. No deferred tax asset has been recognized in respect of the losses.

Telesat has tax losses of $1.5 million in Brazil that can be carried forward indefinitely, subject to restrictions on their utilization. The use of the losses is limited to 30% of taxable income generated in a carry forward year. As of December 31, 2020, Telesat has cumulative pre-tax income for the last three years and expectation of future income in Brazil, demonstrating sufficient positive evidence to conclude that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. A deferred tax asset of $0.5 million has been recognized in respect of the losses.

Investments in subsidiaries

As at December 31, 2020, Telesat had temporary differences of $11.2 million associated with investments in subsidiaries for which no deferred tax liabilities have been recognized, as Telesat is able to control the timing of the reversal of these temporary differences and it is not probable that these differences will reverse in the foreseeable future.

10.

TRADE AND OTHER RECEIVABLES

As at December 31,	2020			2019
Trade receivables	​	$	47,368	​	$	53,893
Less: Allowance for doubtful accounts	​	​	(7,257)	​	​	(1,779)
Net trade receivables	​	​	40,111	​	​	52,114
Other receivables	​	​	11,817	​	​	11,948
Trade and other receivables	​	$	51,928	​	$	64,062

F-47

Allowance for doubtful accounts

The movement in the allowance for doubtful accounts was as follows:

Years ended December 31,	2020			2019
Allowance for doubtful accounts, beginning of year	​	$	1,779	​	$	5,136
Provisions for impaired receivables	​	​	6,069	​	​	604
Receivables written off	​	​	(146)	​	​	(4,899)
Impact of foreign exchange	​	​	(445)	​	​	938
Allowance for doubtful accounts, end of year	​	$	7,257	​	$	1,779

11.

OTHER CURRENT FINANCIAL ASSETS

As at December 31,	2020			2019
Security deposits	​	$	448	​	$	210
Other current financial assets	​	$	448	​	$	210

12.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

As at December 31,	2020			2019
Prepaid expenses	​	$	5,942	​	$	12,896
Income tax recoverable	​	​	3,116	​	​	26,730
Inventory(a)	​	​	5,224	​	​	3,556
Deferred charges(b)	​	​	278	​	​	307
Other	​	​	8,301	​	​	235
Prepaid expenses and other current assets	​	$	22,861	​	$	43,724

(a)

As at December 31, 2020, inventory consisted of $1.2 million of finished goods (December 31, 2019 — $1.4 million) and $4.1 million of work in process (December 31, 2019 — $2.2 million). During the year, $10.4 million was recognized as cost of equipment sales and recorded as an operating expense (December 31, 2019 — $7.0 million, December 31, 2018 — $17.7 million).

(b)

Deferred charges included deferred financing charges relating to the Revolving Credit Facility.

13.

OTHER LONG-TERM FINANCIAL ASSETS

As at December 31,	2020			2019
Long-term receivables	​	$	17,298	​	$	18,932
Security deposits	​	​	5,861	​	​	5,977
Derivative assets (Note 27)	​	​	30,266	​	​	32,821
Other long-term financial assets	​	$	53,425	​	$	57,730

14.

OTHER LONG-TERM ASSETS

As at December 31,	2020			2019
Prepaid expenses	​	$	452	​	$	640
Deferred charges (Note 12)	​	​	775	​	​	1,039
Income tax recoverable	​	​	8,418	​	​	6,283
Other	​	​	277	​	​	302
Other long-term assets	​	$	9,922	​	$	8,264

F-48

15.

SATELLITES, PROPERTY AND OTHER EQUIPMENT

​

Satellites

Property and other equipment

Right-of-use assets(1)

Assets under construction

Total

Cost as at January 1, 2019

​

$

3,669,570

​

$

255,055

​

$

—

​

$

11,137

​

$

3,935,762

Cumulative effect adjustment(3)

​

​

—

​

​

(474)

​

​

26,732

​

​

—

​

​

26,258

Additions

​

​

—

​

​

797

​

​

2,798

​

​

7,843

​

​

11,438

Disposals/retirements

​

​

(77,322)

​

​

(7,306)

​

​

(104)

​

​

—

​

​

(84,732)

Reclassifications and transfers from assets under construction

​

​

—

​

​

7,652

​

​

—

​

​

(7,652)

​

​

—

Impact of foreign exchange

​

​

(39,133)

​

​

(1,486)

​

​

(285)

​

​

(153)

​

​

(41,057)

Cost as at December 31, 2019

​

​

3,553,115

​

​

254,238

​

​

29,141

​

​

11,175

​

​

3,847,669

Additions(2)

​

​

—

​

​

1,635

​

​

6,813

​

​

87,444

​

​

95,892

Disposals/retirements

​

​

(93,755)

​

​

(3,285)

​

​

—

​

​

—

​

​

(97,040)

Reclassifications and transfers from assets under construction

​

​

—

​

​

4,463

​

​

—

​

​

(4,463)

​

​

—

Impact of foreign exchange

​

​

(16,028)

​

​

(1,259)

​

​

(438)

​

​

(4,402)

​

​

(22,127)

Cost as at December 31, 2020

​

$

3,443,332

​

$

255,792

​

$

35,516

​

$

89,754

​

$

3,824,394

Accumulated depreciation and impairment as at January 1, 2019

​

$

(2,072,796)

​

$

(159,927)

​

$

—

​

$

—

​

$

(2,232,723)

Cumulative effect adjustment(3)

​

​

—

​

​

92

​

​

—

​

​

—

​

​

92

Depreciation

​

​

(225,675)

​

​

(14,890)

​

​

(2,401)

​

​

—

​

​

(242,966)

Disposals/retirements

​

​

77,322

​

​

6,379

​

​

—

​

​

—

​

​

83,701

Impact of foreign exchange

​

​

2,328

​

​

798

​

​

34

​

​

—

​

​

3,160

Accumulated depreciation and impairment as at December 31, 2019

​

​

(2,218,821)

​

​

(167,548)

​

​

(2,367)

​

​

—

​

​

(2,388,736)

Depreciation

​

​

(200,041)

​

​

(13,644)

​

​

(3,200)

​

​

—

​

​

(216,885)

Disposals/retirements

​

​

93,755

​

​

3,007

​

​

—

​

​

—

​

​

96,762

Impact of foreign exchange

​

​

2,178

​

​

705

​

​

108

​

​

—

​

​

2,991

Accumulated depreciation and impairment as at December 31, 2020

​

$

(2,322,929)

​

$

(177,480)

​

$

(5,459)

​

$

—

​

$

(2,505,868)

Net carrying values

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

As at December 31, 2019

​

$

1,334,294

​

$

86,690

​

$

26,774

​

$

11,175

​

$

1,458,933

As at December 31, 2020

​

$

1,120,403

​

$

78,312

​

$

30,057

​

$

89,754

​

$

1,318,526

(1)

Right-of-use assets consisted primarily of property leases.

(2)

Additions for assets under construction are net of a reduction related to the government grant of $8.0 million.

(3)

Relates to the recognition of the right-of-use assets in connection with the implementation of IFRS 16, Leases as at January 1, 2019.

Certain leases which were signed were not capitalized as at December 31, 2020. Based upon the assessed lease term, the expected undiscounted cash flows totaled $10.3 million (December 31, 2019 — $10.8 million).

Substantially all of Telesat’s satellites, property and other equipment have been pledged as security as a requirement of Telesat’s Senior Secured Credit Facilities and Senior Secured Notes as at December 31, 2020 (Note 23).

Borrowing costs

For the year ended December 31, 2020 and 2019 there were no borrowing costs capitalized.

F-49

For the year ended December 31, 2018, borrowing costs of $19.1 million were capitalized with 7% as the average capitalization rate. Borrowing costs of $0.4 million were capitalized to intangible assets with the remaining balance capitalized to satellites, property and other equipment.

Impairment

No impairment was recognized for the years ended December 31, 2020, 2019 and 2018.

Joint arrangements

Telesat International Limited (“TIL”) and APT entered into agreements relating to the Telstar 18 VANTAGE satellite, which are accounted for as a joint operation, whereby TIL’s interest is 42.5%. Telesat (IOM) Limited (“TIOM”) and Viasat Inc. entered into agreements relating to the ViaSat-1 satellite, which are accounted for as a joint operation, whereby TIOM owns the Canadian payload on the ViaSat-1 satellite.

16.

INTANGIBLE ASSETS

The intangible assets are split between assets with finite and indefinite lives.

The indefinite life intangible assets are summarized below.

​

Orbital slots

Trade name

Intellectual property

Total indefinite life intangible assets

Cost as at January 1, 2019

​

$

609,995

​

$

17,000

​

$

47,049

​

$

674,044

Additions(1)

​

​

—

​

​

—

​

​

20,137

​

​

20,137

Disposals/retirements

​

​

—

​

​

—

​

​

—

​

​

—

Impact of foreign exchange

​

​

(1,974)

​

​

—

​

​

(1,364)

​

​

(3,338)

Cost as at December 31, 2019 and January 1, 2020

​

​

608,021

​

​

17,000

​

​

65,822

​

​

690,843

Additions

​

​

—

​

​

—

​

​

5

​

​

5

Disposals/retirements

​

​

—

​

​

—

​

​

(229)

​

​

(229)

Impact of foreign exchange

​

​

(808)

​

​

—

​

​

(757)

​

​

(1,565)

Cost as at December 31, 2020

​

$

607,213

​

$

17,000

​

$

64,841

​

$

689,054

Accumulated impairment as at January 1, 2019

​

$

(1,100)

​

$

—

​

$

—

​

$

(1,100)

Impairment

​

​

—

​

​

—

​

​

—

​

​

—

Accumulated impairment as at December 31, 2019 and January 1, 2020

​

​

(1,100)

​

​

—

​

​

—

​

​

(1,100)

Impairment

​

​

—

​

​

—

​

​

—

​

​

—

Accumulated impairment as at December 31, 2020

​

$

(1,100)

​

$

—

​

$

—

​

$

(1,100)

Net carrying values

​

​

​

​

​

​

​

​

​

​

​

​

As at December 31, 2019

​

$

606,921

​

$

17,000

​

$

65,822

​

$

689,743

As at December 31, 2020

​

$

606,113

​

$

17,000

​

$

64,841

​

$

687,954

(1)

Additions for intellectual property for 2019 are net of a reduction related to the government grant of $3.3 million.

F-50

The finite life intangible assets are summarized below.

​

Revenue backlog

Customer relationships

Customer contracts

Transponder rights

Concession rights

Other

Total finite life intangible assets

Cost as at January 1, 2019

​

$

235,955

​

$

198,727

​

$

23,142

​

$

16,718

​

$

32,874

​

$

59

​

$

507,475

Additions

​

​

—

​

​

—

​

​

—

​

​

—

​

​

162

​

​

—

​

​

162

Disposals/retirements

​

​

(11,051)

​

​

—

​

​

(10,284)

​

​

—

​

​

(290)

​

​

—

​

​

(21,625)

Impact of foreign exchange

​

​

(1,240)

​

​

(251)

​

​

—

​

​

—

​

​

(2,598)

​

​

—

​

​

(4,089)

Cost as at December 31, 2019 and January 1, 2020

​

​

223,664

​

​

198,476

​

​

12,858

​

​

16,718

​

​

30,148

​

​

59

​

​

481,923

Additions

​

​

—

​

​

—

​

​

—

​

​

—

​

​

24

​

​

—

​

​

24

Disposals/retirements

​

​

—

​

​

(3,943)

​

​

(240)

​

​

—

​

​

—

​

​

—

​

​

(4,183)

Impact of foreign exchange

​

​

—

​

​

12

​

​

—

​

​

—

​

​

(7,258)

​

​

—

​

​

(7,246)

Cost as at December 31, 2020

​

$

223,664

​

$

194,545

​

$

12,618

​

$

16,718

​

$

22,914

​

$

59

​

$

470,518

Accumulated amortization and impairment as at January 1, 2019

​

$

(207,770)

​

$

(130,564)

​

$

(12,116)

​

$

(11,866)

​

$

(6,912)

​

$

(37)

​

$

(369,265)

Amortization

​

​

(7,291)

​

​

(7,495)

​

​

(5,119)

​

​

(1,078)

​

​

(2,291)

​

​

(3)

​

​

(23,277)

Disposals/retirements

​

​

11,051

​

​

—

​

​

10,284

​

​

—

​

​

234

​

​

—

​

​

21,569

Impact of foreign exchange

​

​

1,227

​

​

142

​

​

—

​

​

—

​

​

729

​

​

—

​

​

2,098

Accumulated amortization and impairment as at December 31, 2019 and January 1, 2020

​

​

(202,783)

​

​

(137,917)

​

​

(6,951)

​

​

(12,944)

​

​

(8,240)

​

​

(40)

​

​

(368,875)

Amortization

​

​

(6,198)

​

​

(6,847)

​

​

(834)

​

​

(1,078)

​

​

(2,235)

​

​

(3)

​

​

(17,195)

Disposals/retirements

​

​

—

​

​

3,943

​

​

240

​

​

—

​

​

—

​

​

—

​

​

4,183

Impact of foreign exchange

​

​

—

​

​

(70)

​

​

—

​

​

—

​

​

2,675

​

​

—

​

​

2,605

Accumulated amortization and impairment as at December 31, 2020

​

$

(208,981)

​

$

(140,891)

​

$

(7,545)

​

$

(14,022)

​

$

(7,800)

​

$

(43)

​

$

(379,282)

Net carrying values

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

As at December 31, 2019

​

$

20,881

​

$

60,559

​

$

5,907

​

$

3,774

​

$

21,908

​

$

19

​

$

113,048

As at December 31, 2020

​

$

14,683

​

$

53,654

​

$

5,073

​

$

2,696

​

$

15,114

​

$

16

​

$

91,236

The total combined indefinite and finite life intangible assets are summarized below.

​	As at December 31, 2020									As at December 31, 2019
​	Cost			Accumulated amortization and impairment			Net carrying value			Cost			Accumulated amortization and impairment			Net carrying value
Indefinite life intangibles	​	$	689,054	​	$	(1,100)	​	$	687,954	​	$	690,843	​	$	(1,100)	​	$	689,743
Finite life intangibles	​	​	470,518	​	​	(379,282)	​	​	91,236	​	​	481,923	​	​	(368,875)	​	​	113,048
Total intangibles	​	$	1,159,572	​	$	(380,382)	​	$	779,190	​	$	1,172,766	​	$	(369,975)	​	$	802,791

The orbital slots represent a right to operate satellites in a given longitudinal coordinate in space, where geostationary orbit may be achieved. They are limited in availability and represent a scarce resource. Usage of orbital slots is licensed through the International Telecommunications Union. Satellite operators can generally expect, with a relatively high level of certainty, continued occupancy of an assigned orbital slot either during the operational life of an existing orbiting satellite or upon replacement by a new satellite once the operational life of the existing orbiting satellite is over. As a result of the expectancy right to maintain the once awarded orbital slots, an indefinite life is typically associated with orbital slots.

F-51

Telesat’s trade name has a long and established history, a strong reputation and has been synonymous with quality and growth within the satellite industry. It has been assigned an indefinite life because of expected ongoing future use.

Telesat’s intellectual property relates to development relating to its planned Lightspeed constellation. It has been assigned an indefinite life because of anticipated ongoing future use.

The following are the remaining useful lives of the intangible assets:

​	Years
Revenue backlog	4
Customer relationships	6 to 8
Customer contracts	6
Transponder rights	2
Concession rights	2 to 11
Patent	5

All of Telesat’s intangible assets, excluding the intangible assets held in an unrestricted subsidiary, have been pledged as security as a requirement of Telesat’s Senior Secured Credit Facilities and 4.875% Senior Secured Notes (Note 23).

Impairment

Finite life intangible assets are assessed for impairment at Telesat’s CGU level. With the exception of trade name, which is tested for impairment at the asset level, the indefinite life intangible assets are tested for impairment at the individual CGU level. The annual impairment tests for these assets were performed in the fourth quarters of 2020, 2019 and 2018 in accordance with the policy described in Note 3.

No impairment loss was recognized in the years ended December 31, 2020, 2019 and 2018.

In 2020, the recoverable amount, for indefinite life intangible assets using the income approach, for both the value in use and fair value less cost of disposal, were calculated using discount rates ranging from 8.0% to 15.0%.

In 2019, the recoverable amount, for indefinite life intangible assets using the income approach, which is equal to the value in use, was calculated using the discount rate of 8.5%.

In 2018, after performing the qualitative assessment, Telesat concluded that it is remote that the fair value is less than the carrying amount. Therefore, the quantitative impairment test was not required.

Some of the more sensitive assumptions used in the quantitative analysis, including the forecasted cash flows and the discount rate, could have yielded different estimates of the recoverable amount. Actual operating results and the related cash flows of Telesat could differ from the estimated operating results and related cash flows used in the impairment analysis, and had different estimates been used, it could have resulted in a different fair value.

17.

GOODWILL

Telesat carries goodwill at its cost of $2,446.6 million with no accumulated impairment losses since acquisition.

Impairment

Goodwill is tested for impairment at the entity level because that represents the lowest level at which goodwill supports Telesat’s operations and is monitored internally. The annual impairment test on goodwill was performed in the fourth quarters of 2020, 2019, and 2018 in accordance with the policy described in Note 3.

F-52

In 2020 and 2019, a quantitative assessment of goodwill was performed. Telesat’s recoverable amount exceeded the carrying value therefore, no impairment was recognized.

The most significant assumptions used in the quantitative impairment test for 2020 and 2019 were as follows:

•

Market multiples;

•

Discount rate; and

•

Terminal year growth rate.

Some of the more sensitive assumptions used in the quantitative analysis, including the forecasted cash flows, discount rate and market multiples, could have yielded different estimates of the recoverable amount. Actual operating results and the related cash flows of Telesat could differ from the estimated operating results and related cash flows used in the impairment analysis, and had different estimates been used, it could have resulted in a different fair value.

In 2018, after performing the qualitative assessment of goodwill, Telesat concluded that it is remote that the fair value is less than the carrying amount. Therefore, the quantitative goodwill impairment test was not required.

18.

TRADE AND OTHER PAYABLES

As at December 31,	2020			2019
Trade payables	​	$	5,393	​	$	4,561
Other payables and accrued liabilities(a)	​	​	24,698	​	​	21,686
Trade and other payables	​	$	30,091	​	$	26,247

(a)

Other payables and accrued liabilities included payables that are not trade in nature as well as various operating and capital accruals.

19.

OTHER CURRENT FINANCIAL LIABILITIES

As at December 31,	2020			2019
Derivative liabilities (Note 27)	​	$	12,581	​	$	3,206
Security deposits	​	​	1,141	​	​	1,277
Satellite performance incentive payments	​	​	7,996	​	​	9,608
Interest payable(a)	​	​	12,046	​	​	20,563
Other	​	​	2,116	​	​	3,627
Other current financial liabilities	​	$	35,880	​	$	38,281

(a)

Interest payable included interest payable on indebtedness, satellite performance incentive payments, and other current financial liabilities.

20.

OTHER CURRENT LIABILITIES

As at December 31,	2020			2019
Deferred revenue (Note 22)	​	$	81,759	​	$	65,704
Decommissioning liabilities (Note 22)	​	​	790	​	​	826
Uncertain tax positions	​	​	1,315	​	​	1,315
Income taxes payable	​	​	7,326	​	​	118
Lease liabilities	​	​	2,131	​	​	1,866
Other	​	​	2,834	​	​	2,486
Other current liabilities	​	$	96,155	​	$	72,315

F-53

21.

OTHER LONG-TERM FINANCIAL LIABILITIES

As at December 31,	2020			2019
Derivative liabilities (Note 27)	​	$	5,448	​	$	4,710
Security deposits	​	​	473	​	​	458
Satellite performance incentive payments	​	​	29,578	​	​	37,343
Other long-term financial liabilities	​	$	35,499	​	$	42,511

22.

OTHER LONG-TERM LIABILITIES

As at December 31,	2020			2019
Deferred revenue(b)	​	$	332,363	​	$	374,642
Accrued benefit liabilities (Note 29)	​	​	47,984	​	​	32,074
Uncertain tax positions	​	​	175	​	​	175
Decommissioning liabilities(a)	​	​	3,145	​	​	2,104
Lease liabilities(c)	​	​	26,920	​	​	26,716
Other long-term liabilities	​	$	410,587	​	$	435,711

(a)

The current and long-term decommissioning liabilities on property and equipment were $3.9 million (December 31, 2019 — $2.9 million). The decommissioning liabilities are for the restoration of leased buildings and teleports. During the year ended December 31, 2020, $0.1 million was recorded as interest expense (December 31, 2019 — $0.1 million) with no decommissioning liabilities derecognized (December 31, 2019 — $0.2 million). It is expected that the decommissioning liabilities will mature between 2021 and 2062.

(b)

Remaining performance obligations, which the Company also refers to as contract revenue backlog (“backlog”) represents the expected future revenue under existing customer contracts, includes both cancellable and non-cancellable contracts, and any deferred revenue that will be recognized in the future in respect to cash already received. The Company does not include revenue beyond the stated expiration of the contract regardless of potential for renewal.

Telesat expects the backlog as at December 31, 2020 to be recognized as follows (in millions of Canadian dollars):

2021	2022	2023	2024	2025	Thereafter	Total
$642	$518	$435	$305	$217	$569	$2,686

(c)

The expected undiscounted contractual cash flows of the lease liabilities as at December 31, 2020 were as follows:

2021	2022	2023	2024	2025	Thereafter	Total
$3,388	$3,032	$2,981	$2,795	$2,518	$27,840	$42,554

The undiscounted contractual cash flows included $13.3 million of interest payments.

23.

INDEBTEDNESS

As at December 31,	2020			2019
Senior Secured Credit Facilities(a)	​	​	​	​	​	​
Revolving Credit Facility	​	$	—	​	$	—
Term Loan B – U.S. Facility (December 31, 2020 – US$1,552,815, December 31, 2019 – US$1,908,500)	​	​	1,975,957	​	​	2,479,142
Senior Notes (US$550,000)(b)	​	​	699,875	​	​	714,450
Senior Secured Notes (US$400,000)(c)	​	​	509,000	​	​	519,600
​	​	​	3,184,832	​	​	3,713,192
Less: deferred financing costs and prepayment options(d)	​	​	2,320	​	​	(393)
​	​	​	3,187,152	​	​	3,712,799
Less: current indebtedness	​	​	—	​	​	(24,408)
Long-term indebtedness	​	$	3,187,152	​	$	3,688,391

F-54

On October 11, 2019, Telesat Canada issued, through a private placement, US$550 million of Senior Notes at an interest rate of 6.5%, which mature in October 2027. Debt issue costs of $7.4 million were incurred in connection with the issuance of the Senior Notes. The Senior Notes are structurally subordinated to Telesat Canada’s existing and future secured indebtedness, including obligations under its Senior Secured Credit Facilities and Senior Secured Notes. The Senior Notes are governed by the 6.5% Senior Notes Indenture. With the proceeds from the 6.5% Senior Notes offering, along with available cash on hand, all outstanding amounts, including redemption premium and discounted interest to November 15, 2019, were repaid on October 11, 2019, on the US$500 million 8.875% Senior Notes.

On December 6, 2019, Telesat Canada entered into a new amended and restated Credit Agreement with a syndicate of banks which provides for the extension of credit under the Senior Secured Credit Facilities of US$1,908.5 million and revolving credit borrowings up to US$200.0 million (or Canadian dollar equivalent). The term loan facility matures in December 2026 while the revolving credit facility matures in December 2024. Debt issue costs of $16.0 million were incurred in connection with this amendment, inclusive of $1.3 million relating to the revolving credit facility. All obligations under the Credit Agreement are guaranteed by Telesat and certain of Telesat Canada’s existing subsidiaries (“Guarantors”). The obligations under the Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by first priority liens and security interest in the assets of Telesat Canada and the Guarantors. If the Revolving Credit Facility is drawn by more than 35% of the Credit Facility amount, the Credit Agreement requires Telesat Canada to comply with a first lien net leverage ratio of 5.75:1.00, tested quarterly, and failure to comply will result in an event of default. The Credit Agreement contains total leverage ratio covenants that restrict, with certain exceptions, the ability of Telesat Canada and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. As at December 31, 2020, the leverage ratio was 4.44:1.00, which is less than the maximum test ratio of 4.50:1.00 (December 31, 2019 — 4.63:1.00, which was more than the maximum test ratio of 4.50:1.00).

On December 6, 2019, Telesat Canada issued, through private placement, US$400 million of Senior Secured Notes, at an interest rate of 4.875%, which mature in June 2027. Debt issue costs of $6.6 million were incurred in connection with the issuance of the Senior Secured Notes. The Senior Secured Notes are guaranteed by Telesat and certain Guarantors. The Senior Secured Notes are governed by the 4.875% Senior Secured Notes Indenture. The obligations under the Senior Secured Notes Indenture are secured, subject to certain exceptions, by first priority liens and security interest in the assets of Telesat Canada and the Guarantors. The Senior Secured Notes include covenants or terms that restricts Telesat’s ability to, among other things: (i) incur or guarantee additional indebtedness, or issue disqualified stock or preferred shares, (ii) incur liens, (iii) pay dividends, or make certain restricted payments or investments, (iv) enter into certain transactions with affiliates, (v) modify or cancel satellite insurance, (vi) consolidate, merge, sell or otherwise dispose of substantially all assets, (vii) create restrictions on the ability to pay dividends, make loans, and sell assets, and (viii) designate subsidiaries as unrestricted subsidiaries.

The former senior secured credit facilities was fully repaid on December 6, 2019 from the new amended and restated Credit Agreement in the amount of US$1,908.5 million and the US$400 million 4.875% Senior Secured Notes.

In December 2020, Telesat made a US$341.4 million prepayment on the Term Loan B — U.S. Facility. The prepayment was applied to all mandatory future quarterly principal repayments, with the remaining balance of the prepayment being applied towards the principal amount outstanding on maturity. The prepayment resulted in the recognition of a loss of $2.3 million, which was recorded against interest and other income and indebtedness. The loss recorded against the indebtedness is subsequently amortized to interest expense using the effective interest method.

(a)

The Senior Secured Credit Facilities, which were entered into on December 6, 2019, are secured by substantially all of Telesat’s assets. The Credit Agreement requires Telesat Canada and the Guarantors to comply with a First Lien Net Leverage Ratio if the Revolving Credit Facility is drawn by more than 35% of the Credit Facility amount. As at December 31, 2020 and 2019, Telesat was in compliance with this covenant.

F-55

The Senior Secured Credit Facilities, have two tranches which are described below:

(i)

A Revolving Credit Facility (“Revolving Facility”) of up to $200.0 million U.S. dollars (or Canadian dollar equivalent) is available to Telesat maturing in December 2024. This Revolving Facility is available to be drawn at any time in U.S. funds or Canadian dollar equivalent funds. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 0.75% to 1.25% is applied to the Prime Rate and ABR as these interest rates are defined in the Senior Credit Facilities. For Bankers Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from 1.75% to 2.25% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. The Revolving Facility has an unused commitment fee that ranges from 25.0 to 37.5 basis points per annum, depending upon the result of the total leverage ratio. As at December 31, 2020, other than $0.2 million (December 31, 2019 — $0.1 million) in drawings related to letters of credit, there were no borrowings under this facility.

(ii)

The U.S. TLB Facility is a US$1,908.5 million facility maturing in December 2026. The borrowings under the U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with the terms of the Senior Secured Credit Facilities, plus an applicable margin of 2.75%; or (ii) Alternative Base Rate as determined in accordance with the terms of the Senior Secured Credit Facilities plus an applicable margin of 1.75%. The mandatory principal repayment is equal to 0.25% of the original aggregate principal amount, payable on the last day of each quarter, commencing on March 31, 2020. As a result of the prepayment made in December 2020, mandatory quarterly principal repayments will no longer be required. The weighted average effective interest rate for the year ended December 31, 2020 was 3.63% (25-day period ended December 31, 2019 — 4.73%).

(b)

The Senior Notes bear interest at an annual rate of 6.5% with interest payments payable in April and October, annually, commencing in April 2020. The Senior Notes are due in October 2027 and were entered into on October 11, 2019. The total balance of the Senior Notes is US$550.0 million. The Senior Notes include covenants or terms that restrict Telesat’s ability to, among other things: (i) incur or guarantee additional indebtedness, or issue disqualified stock or preferred shares, (ii) incur liens, (iii) pay dividends, or make certain restricted payments or investments, (iv) enter into certain transactions with affiliates, (v) modify or cancel satellite insurance, (vi) consolidate, merge, sell or otherwise dispose of substantially all assets, (vii) create restrictions on the ability to pay dividends, make loans, and sell assets, and (viii) designate subsidiaries as unrestricted subsidiaries. The weighted average effective interest rate for the year ended December 31, 2020 was 6.27% (81-day period ended December 31, 2019 — 6.27%).

(c)

The Senior Secured Notes bear interest at an annual rate of 4.875% with interest payable on June 1 and December 1, annually, commencing in June 2020. The Senior Secured Notes are due in June 2027 and were entered into on December 6, 2019. The total balance of the Senior Secured Notes is US$400.0 million. The Senior Secured Notes are secured, subject to certain exceptions, by the assets of Telesat Canada and the Guarantors. The Senior Secured Notes include covenants or terms that restrict Telesat’s ability to, among other things: (i) incur or guarantee additional indebtedness, or issue disqualified stock or preferred shares, (ii) incur liens, (iii) pay dividends, or make certain restricted payments or investments, (iv) enter into certain transactions with affiliates, (v) modify or cancel satellite insurance, (vi) consolidate, merge, sell or otherwise dispose of substantially all assets, (vii) create restrictions on the ability to pay dividends, make loans, and sell assets, and (viii) designate subsidiaries as unrestricted subsidiaries. The weighted average effective interest rate for the year ended December 31, 2020 was 4.76% (25-day period ended December 31, 2019 — 4.76%).

(d)

The Senior Secured Credit Facilities, Senior Notes and Senior Secured Notes included the following deferred financing costs and prepayment options:

(i)

The U.S. TLB Facility, Senior Notes and Senior Secured Notes were presented on the balance

F-56

sheet net of related deferred financing costs of $24.9 million as at December 31, 2020 (December 31, 2019 — $28.3 million). The deferred financing costs are amortized using the effective interest method.

(ii)

The U.S. TLB Facility was presented on the balance sheet net of the loss on repayment of $2.3 million as at December 31, 2020 (December 31, 2019 — $Nil).

(iii)

The indenture agreement for the Senior Notes contained provisions for certain prepayment options (Note 27) which were fair valued at the time of debt issuance. The initial fair value impact, as at October 11, 2019, of the prepayment option related to the Senior Notes was a $17.8 million increase to the indebtedness. This liability is subsequently amortized using the effective interest method and had a carrying amount of $15.7 million as at December 31, 2020 (December 31, 2019 — $17.4 million).

(iv)

The indenture agreement for the Senior Secured Notes contained provisions for certain prepayment options (Note 27) which were fair valued at the time of debt issuance. The initial fair value impact, as at December 6, 2019, of the prepayment option related to the Senior Secured Notes was a $10.6 million increase to the indebtedness. This liability is subsequently amortized using the effective interest method and had a carrying amount of $9.3 million as at December 31, 2020 (December 31, 2019 — $10.5 million).

The short-term and long-term portions of deferred financing costs, prepayment options and loss on repayment were as follows:

As at December 31,	2020			2019
Short-term deferred financing costs	​	$	—	​	$	3,385
Long-term deferred financing costs	​	​	24,888	​	​	24,934
​	​	$	24,888	​	$	28,319
Short-term prepayment options	​	$	—	​	$	(3,001)
Long-term prepayment options	​	​	(24,925)	​	​	(24,925)
​	​	$	(24,925)	​	$	(27,926)
Short-term loss on repayment	​	$	—	​	$	—
Long-term loss on repayment	​	​	(2,283)	​	​	—
​	​	$	(2,283)	​	$	—
Deferred financing costs, prepayment options and loss on repayment	​	$	(2,320)	​	$	393

24.

SHARE CAPITAL

The number of shares and stated value of the outstanding shares were as follows:

​	2020					2019
As at December 31,	Number of shares		Stated value			Number of shares		Stated value
Common Shares	​	74,252,460	​	$	26,580	​	74,252,460	​	$	26,580
Voting Participating Preferred Shares	​	7,034,444	​	​	48,246	​	7,034,444	​	​	48,246
Non-Voting Participating Preferred Shares	​	38,508,117	​	​	80,862	​	38,477,137	​	​	80,059
Director Voting Preferred Shares	​	1,000	​	​	10	​	1,000	​	​	10
Share capital	​	​	​	$	155,698	​	​	​	$	154,895

In November 2020, December 2019 and February 2019 dividends were declared and paid on the Director Voting Preferred Shares.

In June 2018, 95,363 stock appreciation rights (“SARS”) were exercised for 39,488 Non-Voting Participating Preferred Shares, on a net settlement basis.

In January 2019, 40,269 SARS were exercised for 14,846 Non-Voting Participating Preferred Shares, on a net settlement basis.

F-57

In December 2019, 66,667 restricted share units (“RSUs”) were settled in exchange for 30,980 Non-Voting Participating Preferred Shares, on a net settlement basis.

In December 2020, 66,667 RSUs were settled in exchange for 30,980 Non-Voting Participating Preferred Shares, on a net settlement basis.

There were no changes to the rights, privileges or conditions associated to each class of shares.

The authorized share capital of Telesat is comprised of: (i) an unlimited number of Common Shares, Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred Shares, (ii) 1,000 Director Voting Preferred Shares, and (iii) 325,000 Senior Preferred Shares. None of the Redeemable Common Shares, Redeemable Non-Voting Participating Preferred Shares or Senior Preferred Shares have been issued as at December 31, 2020 or 2019. Telesat’s share-based compensation plans have authorized the grant of up to 17,495,233 options to purchase Non-Voting Participating Preferred Shares combined with authorizing 200,000 restricted share units expected to be settled in Non-Voting Participating Preferred Shares (Note 28).

Common Shares

The holders of the Common Shares are entitled to receive notice of and to attend all annual and special meetings of the shareholders of Telesat and to one vote in respect of each common share held on all matters at all such meetings, except in respect of a class vote applicable only to the shares of any other class, in respect of which the common shareholders shall have no right to vote. The holders of the Common Shares are entitled to receive dividends as may be declared by the Board of Directors of Telesat, and are entitled to share in the distribution of the assets of Telesat upon liquidation, winding-up or dissolution, subject to the rights, privileges and conditions attaching to any other class of shares ranking in order of priority. The Common Shares are convertible at the holders’ option, at any time, into Voting Participating Preferred Shares or Non-Voting Participating Preferred Shares, on a one-for-one basis. The Common Shares have no par value.

Voting Participating Preferred Shares

The rights, privileges and conditions of the Voting Participating Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

•

The holders of Voting Participating Preferred Shares are not entitled to vote at meetings of the shareholders of Telesat on resolutions electing directors.

•

For all other meetings of the shareholders of Telesat, the holders of Voting Participating Preferred Shares are entitled to a variable number of votes per Voting Participating Preferred Share based on the number of Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares and Redeemable Non-Voting Participating Preferred Shares outstanding on the record date of the given meeting of the shareholders of Telesat.

•

The Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or Non-Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause Telesat to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The Voting Participating Preferred Shares have no par value.

Non-Voting Participating Preferred Shares

The rights, privileges and conditions of the Non-Voting Participating Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

•

The holders of Non-Voting Participating Preferred Shares are not entitled to vote on any matter at meetings of the shareholders of Telesat, except in respect of a class vote applicable only to the Non-Voting Participating Preferred Shares.

F-58

•

The Non-Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause Telesat to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The Non-Voting Participating Preferred Shares have no par value.

Director Voting Preferred Shares

The rights, privileges and conditions of the Director Voting Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

•

The holders of Director Voting Preferred Shares are entitled to receive notice of and to attend all meetings of the shareholders of Telesat at which directors of Telesat are to be elected. The holders of the Director Voting Preferred Shares are not entitled to attend meetings of the shareholders of Telesat and have no right to vote on any matter other than the election of directors of Telesat.

•

The holders of Director Voting Preferred Shares are entitled to receive annual non-cumulative dividends of $10 per share if declared by the Board of Directors of Telesat, in priority to the payment of dividends on the Common Shares, Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred Shares, but after payment of any accrued dividends on the Senior Preferred Shares.

•

The Director Voting Preferred Shares are redeemable at the option of Telesat, at any time, at a redemption price of $10 per share.

The Director Voting Preferred Shares have a nominal stated value.

25.

GOVERNMENT GRANT

In May 2019, Telesat entered into an agreement for a non-refundable government contribution of a value up to $85 million to July 31, 2023 relating to the Lightspeed constellation.

For the year ended December 31, 2020, Telesat recorded $12.0 million relating to the agreement (December 31, 2019 — $5.0 million).

26.

CAPITAL DISCLOSURES

Telesat is a privately held company. Telesat’s financial strategy is designed to maintain compliance with the financial covenant under its Senior Secured Credit Facilities (Note 23), and to maximize returns to its shareholders and other stakeholders. Telesat meets these objectives through regular monitoring of the financial covenant and operating results on a quarterly basis. Telesat’s overall financial strategy remains unchanged from 2019.

Telesat defines its capital as shareholders’ equity (comprising issued share capital, accumulated earnings and excluding reserves) and debt financing (comprising indebtedness and excluding deferred financing costs and prepayment options and loss on repayment as defined in Note 23).

Telesat’s capital at the end of the year was as follows:

As at December 31,	2020			2019
Shareholders’ equity (excluding reserves)	​	$	1,422,212	​	$	1,185,950
Debt financing (excluding deferred financing costs, prepayment options and loss on repayment (December 31, 2019 – deferred financing costs and prepayment options))	​	$	3,184,832	​	$	3,713,192

F-59

If the Revolving Facility is drawn by more than 35% of the credit facility amount, the Senior Secured Credit Facilities require Telesat Canada to comply with a first lien net leverage ratio test. As at December 31, 2020, the first lien net leverage ratio was 3.43:1.00 (December 31, 2019 — 3.72:1.00), which was less than the maximum test ratio of 5.75:1.00. If the Revolving Facility is drawn, the former senior secured credit facilities required Telesat Canada to comply with a first lien net leverage ratio test.

Telesat’s operating results are tracked against budget on a regular basis, and this analysis is reviewed by senior management. Telesat partly manages its interest rate risk due to variable interest rate debt through the use of interest rate swaps (Note 27).

27.

FINANCIAL INSTRUMENTS

Measurement of Risks

Telesat, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at December 31, 2020.

Credit risk

Credit risk is the risk that a counterparty to a financial asset will default, resulting in Telesat incurring a financial loss. As at December 31, 2020, the maximum exposure to credit risk is equal to the carrying value of the financial assets which totaled $924.2 million (December 31, 2019 — $1,149.2 million).

Cash and cash equivalents are invested with high quality investment grade financial institutions and are governed by Telesat’s corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade, mainly U.S. dollar and Canadian dollar denominated investments.

Telesat has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks related to trade accounts receivable. Telesat’s standard payment terms are 30 days with interest typically charged on balances remaining unpaid at the end of standard payment terms. Telesat’s historical experience with customer defaults has been minimal. As at December 31, 2020, North American and International customers made up 50% and 50% of the outstanding trade receivable balance, respectively (December 31, 2019 — 50% and 50%, respectively). Anticipated bad debt losses have been provided for in the allowance for doubtful accounts. The allowance for doubtful accounts as at December 31, 2020 was $7.3 million (December 31, 2019 — $1.8 million).

Telesat mitigates the credit risk associated with derivative instruments by entering into them with only high quality financial institutions.

Foreign exchange risk

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. Telesat’s main currency exposures lie in its U.S. dollar denominated cash and cash equivalents, trade and other receivables, trade and other payables and indebtedness with the most significant impact being on the U.S. dollar denominated indebtedness. As at December 31, 2020 and 2019, the entire indebtedness was denominated in U.S. dollars, with the Canadian dollar equivalent of the U.S. dollar denominated indebtedness equaling $3,184.8 million and $3,713.2 million, respectively, before netting of deferred financing costs, prepayment options and loss on repayment (December 31, 2019 — before netting of deferred financing costs and prepayment option).

As at December 31, 2020, the impact of a 5 percent increase (decrease) in the value of the Canadian dollar against the U.S. dollar on financial assets and liabilities would have decreased (increased) net income by $158.5 million (December 31, 2019 — $172.9 million) and increased (decreased) other comprehensive income by $35.6 million (December 31, 2019 — $30.9 million). This analysis assumes that all other variables, in particular interest rates, remain constant.

F-60

Interest rate risk

Telesat is exposed to interest rate risk on its cash and cash equivalents and its indebtedness. The interest rate risk on the indebtedness is from a portion of the indebtedness having a variable interest rate. Changes in the interest rates could impact the amount of interest that Telesat is required to pay or receive.

In October 2017, Telesat entered into four interest rate swaps to hedge the interest rate risk associated with the variable interest rate on $1,800.0 million of the U.S. denominated Term Loan B at fixed interest rates, excluding applicable margins, ranging from 1.72% to 2.04%. As at December 31, 2020, two interest rate swaps of US$450 million each, with expiration terms of September 2021 and September 2022, were outstanding to hedge the interest rate risk associated with the variable interest rate on the U.S. denominated Term Loan B at fixed interest rates, excluding applicable margins, of 1.95% and 2.04%.

If the interest rates on the variable rate indebtedness change by 0.25%, the result would be an increase or decrease to net income of $4.1 million for the year ended December 31, 2020 (December 31, 2019 — $2.0 million).

Liquidity risk

Telesat maintains credit facilities to ensure it has sufficient funds available to meet current and foreseeable financial requirements.

The contractual maturities of financial liabilities as at December 31, 2020 were as follows:

​	Carrying amount			Contractual cash flows (undiscounted)			2021			2022			2023			2024			2025			Thereafter
Trade and other payables	​	$	30,091	​	$	30,091	​	$	30,091	​	$	—	​	$	—	​	$	—	​	$	—	​	$	—
Customer and other deposits	​	​	1,614	​	​	1,614	​	​	1,270	​	​	17	​	​	83	​	​	17	​	​	83	​	​	144
Satellite performance incentive payments	​	​	37,948	​	​	47,296	​	​	9,316	​	​	8,360	​	​	7,518	​	​	5,918	​	​	3,133	​	​	13,051
Other financial liabilities	​	​	2,116	​	​	2,116	​	​	2,116	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—
Interest rate swaps	​	​	18,029	​	​	18,330	​	​	12,709	​	​	5,621	​	​	—	​	​	—	​	​	—	​	​	—
Indebtedness(1)	​	​	3,196,504	​	​	4,013,282	​	​	129,552	​	​	129,359	​	​	129,358	​	​	129,453	​	​	128,404	​	​	3,367,156
​	​	$	3,286,302	​	$	4,112,729	​	$	185,054	​	$	143,357	​	$	136,959	​	$	135,388	​	$	131,620	​	$	3,380,351

(1)

Indebtedness excludes deferred financing costs, prepayment options and loss on repayment.

The interest payable and interest payments included in the carrying value and contractual cash flows,
respectively, in the above table, were as follows:

​	Interest payable	Interest payments
Satellite performance incentive payments	$374	$9,558
Indebtedness	$11,672	$828,450

F-61

Financial assets and liabilities recorded on the balance sheets and the fair value hierarchy levels used to calculate those values were as follows:

As at December 31, 2020

FVTPL

Amortized cost

Total

Fair value

Fair value hierarchy

Cash and cash equivalents

​

$

—

​

$

818,378

​

$

818,378

​

$

818,378

Level 1

Trade and other receivables

​

​

—

​

​

51,928

​

​

51,928

​

​

51,928

(3)

Other current financial assets

​

​

—

​

​

448

​

​

448

​

​

448

Level 1

Other long-term financial assets(1)

​

​

30,266

​

​

23,159

​

​

53,425

​

​

53,425

Level 1,

​

​

​

​

​

​

​

​

​

​

​

​

​

Level 2

Trade and other payables

​

​

—

​

​

(30,091)

​

​

(30,091)

​

​

(30,091)

(3)

Other current financial liabilities

​

​

(12,581)

​

​

(23,299)

​

​

(35,880)

​

​

(37,921)

Level 2

Other long-term financial liabilities

​

​

(5,448)

​

​

(30,051)

​

​

(35,499)

​

​

(36,357)

Level 2

Indebtedness(2)

​

​

—

​

​

(3,184,832)

​

​

(3,184,832)

​

​

(3,214,543)

Level 2

​

​

$

12,237

​

$

(2,374,360)

​

$

(2,362,123)

​

$

(2,394,733)

​

As at December 31, 2019

FVTPL

Amortized cost

Total

Fair value

Fair value hierarchy

Cash and cash equivalents

​

$

—

​

$

1,027,222

​

$

1,027,222

​

$

1,027,222

Level 1

Trade and other receivables

​

​

—

​

​

64,062

​

​

64,062

​

​

64,062

(3)

Other current financial assets

​

​

—

​

​

210

​

​

210

​

​

210

Level 1

Other long-term financial assets(1)

​

​

32,821

​

​

24,909

​

​

57,730

​

​

57,730

Level 1,

​

​

​

​

​

​

​

​

​

​

​

​

​

Level 2

Trade and other payables

​

​

—

​

​

(26,247)

​

​

(26,247)

​

​

(26,247)

(3)

Other current financial liabilities

​

​

(3,206)

​

​

(35,075)

​

​

(38,281)

​

​

(40,748)

Level 2

Other long-term financial liabilities

​

​

(4,710)

​

​

(37,801)

​

​

(42,511)

​

​

(42,493)

Level 2

Indebtedness(2)

​

​

—

​

​

(3,713,192)

​

​

(3,713,192)

​

​

(3,760,656)

Level 2

​

​

$

24,905

​

$

(2,695,912)

​

$

(2,671,007)

​

$

(2,720,920)

​

(1)

Other long-term financial assets classified as fair value through profit or loss were calculated using level 2 of the fair value hierarchy. All other balances were calculated using level 1 of the fair value hierarchy.

(2)

Indebtedness excludes deferred financing costs, prepayment options and loss on repayment (December 31, 2019 — deferred financing costs and prepayment option).

(3)

Trade and other receivables and trade and other payables approximate fair value due to the short-term maturity of these instruments.

Assets pledged as security

The Senior Secured Credit Facilities and Senior Secured Notes are secured by substantially all of Telesat’s assets excluding the assets of unrestricted subsidiaries.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market under current market conditions at the measurement date. Where possible, fair values are based on the quoted market values in an active market. In the absence of an active market, Telesat determines fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs.

F-62

The fair value hierarchy is as follows:

Level 1 is based on quoted prices (unadjusted) in active markets for identical assets or liabilities that Telesat can access at the measurement date.

Level 2 is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially all of the full term of the assets or liabilities.

Level 3 is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Estimates of fair values are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

The carrying amounts of cash and cash equivalents, trade and other receivables, and trade and other payables approximate fair value due to the short-term maturity of these instruments. As at December 31, 2020, cash and cash equivalents included $130.4 million (December 31, 2019 — $484.7 million) of short-term investments.

The fair value of the satellite performance incentive payments, included in other current and long-term financial liabilities, was determined using a discounted cash flow methodology. The calculation is performed on a recurring basis. As at December 31, 2020 and 2019, the discount rate used was 4.4% and 5.2%, respectively.

The fair value of the indebtedness was based on transactions and quotations from third parties considering market interest rates and excluding deferred financing costs, prepayment options and loss on repayment (December 31, 2019 — deferred financing costs and prepayment options). The calculation of the fair value of the indebtedness is performed on a recurring basis. The rates used were as follows:

As at December 31,	2020		2019
Term Loan B – U.S. Facility – Senior Secured Credit Facilities	​	98.88%	​	100.25%
Senior Notes	​	104.76%	​	104.25%
Senior Secured Notes	​	103.64%	​	102.10%

Fair value of derivative financial instruments

Derivatives were valued using a discounted cash flow methodology. The calculations of the fair value of the derivatives are performed on a recurring basis.

Interest rate swap future cash flows were determined based on current yield curves and exchange rates and then discounted based on discount curves.

Prepayment option cash flows were calculated with a third party option valuation model which is based on the current price of the debt instrument and discounted based on a discount curve.

The discount rates used to discount cash flows as at December 31, 2020 ranged from 0.08% to 0.54% (December 31, 2019 — 1.45% to 1.91%).

F-63

The fair value of the derivative assets and liabilities was calculated based on the level 2 of the fair value hierarchy. The current and long-term portions of the fair value of Telesat’s derivative assets and liabilities, as at each balance sheet date, were as follows:

As at December 31, 2020	Other long- term financial assets			Other current financial liabilities			Other long- term financial liabilities			Total
Interest rate swaps	​	$	—	​	$	(12,581)	​	$	(5,448)	​	$	(18,029)
Prepayment options	​	​	30,266	​	​	—	​	​	—	​	​	30,266
​	​	$	30,266	​	$	(12,581)	​	$	(5,448)	​	$	12,237

As at December 31, 2019	Other long- term financial assets			Other current financial liabilities			Other long- term financial liabilities			Total
Interest rate swaps	​	$	—	​	$	(3,206)	​	$	(4,710)	​	$	(7,916)
Prepayment options	​	​	32,821	​	​	—	​	​	—	​	​	32,821
​	​	$	32,821	​	$	(3,206)	​	$	(4,710)	​	$	24,905

The reconciliation of the fair value of derivative assets and liabilities was as follows:

Fair value, December 31, 2018 and January 1, 2019	$	46,795
Derivatives recognized at inception	​	​
Prepayment option – Senior Notes	​	17,829
Prepayment option – Senior Secured Notes	​	10,562
Unrealized gains (losses) on derivatives	​	​
Interest rate floor	​	5,368
Prepayment options	​	(12,391)
Interest rate swaps	​	(42,649)
Impact of foreign exchange	​	(609)
Fair value, December 31, 2019	​	24,905
Unrealized losses on derivatives	​	​
Prepayment options	​	(2,308)
Interest rate swaps	​	(10,807)
Impact of foreign exchange	​	447
Fair value, December 31, 2020	$	12,237

F-64

28.

SHARE-BASED COMPENSATION PLANS

Telesat Canada Stock Incentive Plans

In September 2008 and April 2013, Telesat adopted share-based compensation plans (the “stock incentive plans”) for certain key employees of Telesat and its subsidiaries. The stock incentive plans provide for the grant of up to 17,505,045 options, to purchase Non-Voting Participating Preferred Shares of Telesat Canada, convertible into Common Shares as detailed in the table below.

Year authorized	Quantity
2008	​	8,824,646
2013	​	4,036,729
2015	​	62,404
2017	​	350,000
2018	​	3,280,000
2019	​	500,000
2020	​	451,266

Of the stock options authorized and issued in 2018, 780,000 vest over three-year period with the vesting period commencing on January 1, 2018 and 2,500,000 vest over a five-year period with the vesting period commencing on November 1, 2017.

In addition, in 2018, Telesat authorized the issuance of 200,000 restricted share units expected to be settled in Non-Voting Participating Preferred Shares. The restricted share units vest over a three-year period with a vesting period commencing on January 1, 2018.

Under the stock incentive plans, two different types of stock options can be granted: time-vesting options and performance-vesting options. The time-vesting options generally become vested and exercisable over a five-year period by 20% annual increments. The performance-vesting options become vested and exercisable over a five-year period, provided that Telesat has achieved or exceeded an annual or cumulative target consolidated EBITDA established by the Board of Directors. The exercise period of the stock options expires 10 years from the grant date. The exercise price of each share underlying the options will be the higher of a fixed price, established by the Board of Directors on the grant date, and the fair market value of a Non-Voting Participating Preferred Share on the grant date. Both plans authorize the Board of Directors to grant tandem SARs, at their discretion.

Telesat expenses the fair value of stock options that are expected to vest over the vesting period using the Black-Scholes option pricing model. The share-based compensation expense is included in operating expenses.

F-65

The change in number of stock options outstanding and their weighted average exercise price were as follows:

​	Time vesting option plans					Performance vesting option plans
​	Number of options		Weighted average exercise price			Number of options		Weighted average exercise price
Outstanding at December 31, 2018 and January 1, 2019	​	7,102,864	​	$	25.56	​	432,102	​	$	11.07
Granted	​	522,372	​	​	​	​	—	​	​	​
Forfeited	​	(62,499)	​	​	​	​	—	​	​	​
Exercised (Note 24)	​	(18,120)	​	​	​	​	(22,149)	​	​	​
Expired	​	—	​	​	​	​	—	​	​	​
Outstanding at December 31, 2019 and January 1, 2020	​	7,544,617	​	$	25.63	​	409,953	​	$	11.07
Granted	​	650,000	​	​	​	​	—	​	​	​
Forfeited	​	(246,049)	​	​	​	​	(3,691)	​	​	​
Exercised	​	—	​	​	​	​	—	​	​	​
Expired	​	—	​	​	​	​	—	​	​	​
Outstanding at December 31, 2020	​	7,948,568	​	$	25.83	​	406,262	​	$	11.07

The movement in the number of restricted share units outstanding was as follows:

Outstanding, January 1, 2019	200,000
Settled	(66,667)
Outstanding, December 31, 2019 and January 1, 2020	133,333
Settled	(66,667)
Outstanding, December 31, 2020	66,666

The quantity of stock options that are exercisable and the weighted average remaining life were as follows:

As at December 31,	2020		2019
Time vesting option plans	​	5,779,565	​	4,762,335
Performance vesting option plans	​	406,266	​	409,953
Weighted average remaining life	6 years		7 years

The share-based compensation expense included in the consolidated statements of income (loss) was as follows:

Years ended December 31,	2020			2019			2018
Operating expenses	​	$	12,500	​	$	16,035	​	$	29,505

The weighted average assumptions used to determine the share-based compensation expense for stock options using the Black-Scholes option pricing model were as follows:

​	2020		2019		2018
Dividend yield	​	—%	​	—%	​	—%
Expected volatility	​	32.7%	​	32.4%	​	31.7%
Risk-free interest rate	​	2.79%	​	2.93%	​	2.94%
Expected life (years)	​	10	​	10	​	10

The expected volatility is based on the historical volatility of comparable publicly listed entities.

The weighted average fair value of the stock options granted during 2020 was $12.29 (2019 — $12.84).

F-66

29.

EMPLOYEE BENEFIT PLANS

The expenses included on the consolidated statements of income (loss) and the consolidated statements of comprehensive income (loss) were as follows:

​	Pension plans									Other post-employment benefit plans
Years ended December 31,	2020			2019			2018			2020			2019			2018
Consolidated statements of income (loss)	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​	$	7,188	​	$	6,198	​	$	6,345	​	$	145	​	$	116	​	$	276
Interest expense	​	$	423	​	$	524	​	$	658	​	$	746	​	$	815	​	$	830
Consolidated statements of comprehensive income (loss)	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Actuarial losses (gains) on employee benefit plans	​	$	11,390	​	$	(3,325)	​	$	(4,555)	​	$	2,303	​	$	2,191	​	$	(3,200)

In October 2013, Telesat ceased to allow new employees to join certain defined benefit plans, except under certain circumstances, and commenced a defined contribution pension plan for new employees.

Telesat made contributions of $1.9 million for various defined contribution arrangements during 2020 (December 31, 2019 — $1.2 million).

Telesat’s funding policy is to make contributions to its defined benefit pension funds based on actuarial cost methods as permitted and required by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign equity securities, fixed income instruments and short-term investments.

Telesat provides certain health care and life insurance benefits for some of its retired employees and their dependents. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for the pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.

The balance sheet obligations, distributed between pension and other post-employment benefits, included in other long-term liabilities (Note 22) were as follows:

As at December 31,	2020			2019
Pension benefits	​	$	22,070	​	$	8,566
Other post-employment benefits	​	​	25,914	​	​	23,508
Accrued benefit liabilities	​	$	47,984	​	$	32,074

The amounts recognized in the balance sheets and the funded statuses of the benefit plans were as follows:

​	2020						2019
As at December 31,	Pension			Other			Pension			Other
Present value of funded obligations	​	$	375,222	​	$	—	​	$	331,737	​	$	—
Fair value of plan assets	​	​	(354,385)	​	​	—	​	​	(324,257)	​	​	—
​	​	​	20,837	​	​	—	​	​	7,480	​	​	—
Present value of unfunded obligations	​	​	1,233	​	​	25,914	​	​	1,086	​	​	23,508
Accrued benefit liabilities	​	$	22,070	​	$	25,914	​	$	8,566	​	$	23,508

F-67

The changes in the benefit obligations and in the fair value of plan assets were as follows:

​	Pension			Other			Total
Change in benefit obligations	​	​	​	​	​	​	​	​	​
Benefit obligation, January 1, 2020	​	$	332,823	​	$	23,508	​	$	356,331
Current service cost	​	​	6,695	​	​	145	​	​	6,840
Interest expense	​	​	10,723	​	​	746	​	​	11,469
Remeasurements	​	​	​	​	​	​	​	​	​
Actuarial losses arising from plan experience	​	​	2,212	​	​	184	​	​	2,396
Actuarial losses from change in demographic assumptions	​	​	—	​	​	11	​	​	11
Actuarial losses from changes in financial assumptions	​	​	33,278	​	​	2,108	​	​	35,386
Benefits paid	​	​	(10,294)	​	​	(726)	​	​	(11,020)
Contributions by plan participants	​	​	1,018	​	​	—	​	​	1,018
Foreign exchange	​	​	—	​	​	(62)	​	​	(62)
Benefit obligation, December 31, 2020	​	​	376,455	​	​	25,914	​	​	402,369
Change in fair value of plan assets	​	​	​	​	​	​	​	​	​
Fair value of plan assets, January 1, 2020	​	​	(324,257)	​	​	—	​	​	(324,257)
Contributions by plan participants	​	​	(1,018)	​	​	—	​	​	(1,018)
Contributions by employer	​	​	(5,497)	​	​	(726)	​	​	(6,223)
Interest income	​	​	(10,300)	​	​	—	​	​	(10,300)
Benefits paid	​	​	10,294	​	​	726	​	​	11,020
Remeasurements	​	​	​	​	​	​	​	​	​
Return on plan assets, excluding interest income	​	​	(24,100)	​	​	—	​	​	(24,100)
Administrative costs	​	​	493	​	​	—	​	​	493
Fair value of plan assets, December 31, 2020	​	​	(354,385)	​	​	—	​	​	(354,385)
Accrued benefit liabilities, December 31, 2020	​	$	22,070	​	$	25,914	​	$	47,984
Change in benefit obligations	​	​	​	​	​	​	​	​	​
Benefit obligation, January 1, 2019	​	$	293,969	​	$	21,330	​	$	315,299
Current service cost	​	​	5,701	​	​	116	​	​	5,817
Interest expense	​	​	11,241	​	​	815	​	​	12,056
Remeasurements	​	​	​	​	​	​	​	​	​
Actuarial losses arising from plan experience	​	​	1,773	​	​	235	​	​	2,008
Actuarial losses from change in demographic assumptions	​	​	—	​	​	16	​	​	16
Actuarial losses from changes in financial assumptions	​	​	28,531	​	​	1,940	​	​	30,471
Benefits paid	​	​	(9,483)	​	​	(758)	​	​	(10,241)
Contributions by plan participants	​	​	1,091	​	​	—	​	​	1,091
Foreign exchange	​	​	—	​	​	(186)	​	​	(186)
Benefit obligation, December 31, 2019	​	​	332,823	​	​	23,508	​	​	356,331

F-68

​	Pension			Other			Total
Change in fair value of plan assets	​	​	​	​	​	​	​	​	​
Fair value of plan assets, January 1, 2019	​	​	(283,064)	​	​	—	​	​	(283,064)
Contributions by plan participants	​	​	(1,091)	​	​	—	​	​	(1,091)
Contributions by employer	​	​	(5,736)	​	​	(758)	​	​	(6,494)
Interest income	​	​	(10,717)	​	​	—	​	​	(10,717)
Benefits paid	​	​	9,483	​	​	758	​	​	10,241
Remeasurements	​	​	​	​	​	​	​	​	​
Return on plan assets, excluding interest income	​	​	(33,629)	​	​	—	​	​	(33,629)
Administrative costs	​	​	497	​	​	—	​	​	497
Fair value of plan assets, December 31, 2019	​	​	(324,257)	​	​	—	​	​	(324,257)
Accrued benefit liabilities, December 31, 2019	​	$	8,566	​	$	23,508	​	$	32,074

The weighted average duration of the defined benefit obligation as at December 31, 2020 is 16 years for the defined benefit pension plans and 15 years for the other post-employment benefit plans. The weighted average duration of the current service cost as at December 31, 2020 is 23 years for the defined benefit pension plans and 28 years for the other post-employment benefit plans.

The estimated future benefit payments for the defined benefit pension plans and other post-employment benefit plans until 2030 are as follows:

​	Pension			Other
2021	​	$	11,519	​	$	901
2022	​	$	12,096	​	$	936
2023	​	$	12,790	​	$	972
2024	​	$	13,558	​	$	1,008
2025	​	$	14,433	​	$	1,044
2026 to 2030	​	$	80,999	​	$	6,620

Benefit payments include obligations to 2030 only as obligations beyond this date are not quantifiable.

The fair value of the plan assets were allocated as follows between the various types of investments:

As at December 31,	2020		2019
Equity securities	​	​	​	​
Canada	​	22.9%	​	22.3%
United States	​	19.7%	​	19.8%
International (other than United States)	​	14.3%	​	14.1%
Fixed income instruments	​	​	​	​
Canada	​	41.0%	​	41.2%
Cash and cash equivalents	​	​	​	​
Canada	​	2.1%	​	2.6%

The investments are made in accordance with the Statement of Investment Policies and Procedures. The Statement of Investment Policies and Procedures is reviewed on an annual basis by the Management Level Pension Fund Investment Committee with approval of the policy being provided by the Audit Committee.

F-69

The following are the significant assumptions adopted in measuring Telesat’s pension and other benefit obligations:

​	Pension	Other	Pension	Other
As at December 31,	2020	2020	2019	2019
Actuarial benefit obligation	​	​	​	​
Discount rate	2.60%	2.00% to 2.60%	3.20%	2.95% to 3.20%
Benefit costs for the year ended	​	​	​	​
Discount rate	3.20%	2.95% to 3.20%	3.90%	3.90% to 4.00%
Future salary growth	2.50%	N/A	2.50%	N/A
Health care cost trend rate	N/A	3.49% to 5.49%	N/A	3.49% to 5.49%
Other medical trend rates	N/A	4.00% to 4.56%	N/A	4.00% to 4.56%

For certain Canadian post-retirement plans the above trend rates are applicable for 2020 to 2029 which will decrease linearly to 4.75% in 2029 and grading down to an ultimate rate of 3.57% per annum in 2040 and thereafter.

Sensitivity of assumptions

The calculation of the defined benefit obligation is sensitive to the assumptions set out above. The following table summarizes how the impact on the defined benefit obligation as at December 31, 2020 and 2019 would have increased or decreased as a result of the change in the respective assumptions by one percent.

​

Pension

Other

As at December 31, 2020

1% increase

1% decrease

1% increase

1% decrease

Discount rate

​

$

(53,058)

​

$

67,549

​

$

(3,486)

​

$

4,351

Future salary growth

​

$

10,423

​

$

(9,165)

​

​

N/A

​

​

N/A

Medical and dental trend rates

​

​

N/A

​

​

N/A

​

$

2,222

​

$

(1,839)

​

Pension

Other

As at December 31, 2019

1% increase

1% decrease

1% increase

1% decrease

Discount rate

​

$

(45,385)

​

$

57,745

​

$

(2,751)

​

$

3,576

Future salary growth

​

$

9,856

​

$

(8,874)

​

​

N/A

​

​

N/A

Medical and dental trend rates

​

​

N/A

​

​

N/A

​

$

2,018

​

$

(1,531)

The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a one percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities.

Telesat expects to make contributions of $4.1 million to the defined benefit plans and $0.6 million to the defined contribution plan of Telesat Canada during the next fiscal year.

30.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents were comprised of the following:

As at December 31,	2020			2019			2018
Cash	​	$	687,967	​	$	542,537	​	$	342,874
Short-term investments(1)	​	​	130,411	​	​	484,685	​	​	425,559
Cash and cash equivalents	​	$	818,378	​	$	1,027,222	​	$	768,433

(1)

Consisted of short-term investments with an original maturity of three months or less or which are available on demand with no penalty for early redemption.

F-70

Income taxes paid, net of income taxes received was comprised of the following:

Years ended December 31,	2020			2019			2018
Income taxes paid	​	$	(53,842)	​	$	(101,952)	​	$	(109,193)
Income taxes received	​	​	399	​	​	6,497	​	​	2,885
​	​	$	(53,443)	​	$	(95,455)	​	$	(106,308)

Interest paid, net of capitalized interest and interest received was comprised of the following:

Years ended December 31,	2020			2019			2018
Interest paid	​	$	(188,969)	​	$	(195,671)	​	$	(207,339)
Interest received	​	​	8,997	​	​	19,559	​	​	11,802
Capitalized interest	​	​	—	​	​	—	​	​	19,120
​	​	$	(179,972)	​	$	(176,112)	​	$	(176,417)

The reconciliation of the liabilities arising from financing activities was as follows:

​	Indebtedness			Satellite performance incentive payments			Lease liabilities
Balance as at January 1, 2020	​	$	3,712,799	​	$	46,951	​	$	28,582
Cash outflows	​	​	(453,592)	​	​	(9,031)	​	​	(1,793)
Loss on repayment (Note 23)	​	​	2,284	​	​	—	​	​	—
Amortization of deferred financing costs, prepayment options and loss on repayment	​	​	428	​	​	—	​	​	—
Non-cash additions	​	​	—	​	​	—	​	​	2,788
Interest paid	​	​	—	​	​	—	​	​	(1,649)
Interest accrued	​	​	—	​	​	—	​	​	1,349
Other	​	​	—	​	​	182	​	​	(91)
Impact of foreign exchange	​	​	(74,767)	​	​	(528)	​	​	(135)
Balance as at December 31, 2020	​	$	3,187,152	​	$	37,574	​	$	29,051

​	Indebtedness			Satellite performance incentive payments			Lease liabilities
Balance as at January 1, 2019	​	$	3,724,228	​	$	58,913	​	$	369
Cash outflows	​	​	(3,743,465)	​	​	(9,644)	​	​	(1,252)
Cash inflows	​	​	3,786,082	​	​	—	​	​	—
Write-off of deferred financing costs, interest rate floor, prepayment option and net gain on repricing/repayment (Note 23)	​	​	107,065	​	​	—	​	​	—
Amortization of deferred financing costs, interest rate floor, prepayment options and net gain on repricing/repayment	​	​	22,461	​	​	—	​	​	—
Debt issue costs	​	​	(28,082)	​	​	—	​	​	—
Debt issue costs accrued	​	​	(573)	​	​	​	​	​	​
Prepayment option at inception – Senior Notes	​	​	17,829	​	​	—	​	​	—
Prepayment option at inception – Senior Secured Notes	​	​	10,562	​	​	—	​	​	—
Cumulative effect adjustment	​	​	—	​	​	—	​	​	26,851
Non-cash additions	​	​	—	​	​	—	​	​	2,775
Interest paid	​	​	—	​	​	—	​	​	(984)
Interest accrued	​	​	—	​	​	—	​	​	1,288
Other	​	​	—	​	​	296	​	​	(236)
Impact of foreign exchange	​	​	(183,308)	​	​	(2,614)	​	​	(229)
Balance as at December 31, 2019	​	$	3,712,799	​	$	46,951	​	$	28,582

F-71

​	Indebtedness			Satellite performance incentive payments			Capital leases
Balance as at January 1, 2018	​	$	3,543,377	​	$	62,961	​	$	369
Debt repricing costs	​	​	(10,190)	​	​	—	​	​	—
Cash outflows	​	​	(94,951)	​	​	(9,037)	​	​	(29)
Amortization of deferred financing costs, interest rate floor, prepayment option and net gain on repricing/repayment	​	​	22,497	​	​	—	​	​	—
Loss on voluntary payment (Note 23)	​	​	2,828	​	​	—	​	​	—
Gain on repricing (Note 24)	​	​	(6,901)	​	​	—	​	​	—
Cumulative effect adjustment (Note 23)	​	​	(36,072)	​	​	—	​	​	—
Other	​	​	—	​	​	191	​	​	—
Impact of foreign exchange	​	​	303,640	​	​	4,798	​	​	29
Balance as at December 31, 2018	​	$	3,724,228	​	$	58,913	​	$	369

The net change in operating assets and liabilities was comprised of the following:

As at December 31,	2020			2019			2018
Trade and other receivables	​	$	(4,173)	​	$	(16,113)	​	$	22,056
Financial assets	​	​	161	​	​	(3,897)	​	​	(210)
Other assets	​	​	(7,286)	​	​	(13,183)	​	​	371
Trade and other payables	​	​	1,860	​	​	1,685	​	​	(4,695)
Financial liabilities	​	​	(651)	​	​	(2,125)	​	​	(1,026)
Other liabilities	​	​	25,107	​	​	19,691	​	​	72,317
​	​	$	15,018	​	$	(13,942)	​	$	88,813

Non-cash investing activities were comprised of:

Years ended December 31,	2020			2019			2018
Satellites, property and other equipment	​	$	2,963	​	$	29,234	​	$	3,795
Intangible assets	​	$	—	​	$	(3,263)	​	$	3,635

31.

COMMITMENTS AND CONTINGENT LIABILITIES

The following were Telesat’s off-balance sheet contractual obligations as at December 31, 2020:

​	2021			2022			2023			2024			2025			Thereafter			Total
Property leases	​	$	1,141	​	$	1,079	​	$	1,065	​	$	1,051	​	$	969	​	$	12,455	​	$	17,760
Capital commitments	​	​	32,055	​	​	35,057	​	​	86,785	​	​	—	​	​	—	​	​	—	​	​	153,897
Other operating commitments	​	​	32,681	​	​	6,483	​	​	5,000	​	​	4,244	​	​	3,808	​	​	11,438	​	​	63,654
​	​	$	65,877	​	$	42,619	​	$	92,850	​	$	5,295	​	$	4,777	​	$	23,893	​	$	235,311

Property leases consisted of off-balance sheet contractual obligations for land or building usage, while capital commitments included commitments for capital projects. Other operating commitments consisted of third party satellite capacity arrangements as well as other commitments that are not categorized as property leases or capital commitments. Telesat’s off-balance sheet obligations included the future minimum payments for the non-cancellable period of each respective obligation, which have various terms and expire between 2021 to 2039.

Certain variable costs associated with the capitalized leases have been included in property leases commitments with a termination date co-terminus with the lease liability.

F-72

Telesat has entered into contracts for the development of the Lightspeed constellation and other capital expenditures. The total outstanding commitments as at December 31, 2020 were included in capital commitments.

Telesat has agreements with various customers for prepaid revenue on several service agreements which take effect when the satellite is placed in service. Telesat is responsible for operating and controlling these satellites. As at December 31, 2020, customer prepayments of $414.1 million (December 31, 2019 — $440.3 million), a portion of which is refundable under certain circumstances, were reflected in other current and long-term liabilities.

In the normal course of business, Telesat has executed agreements that provide for indemnification and guarantees to counterparties in various transactions. These indemnification undertakings and guarantees may require Telesat to compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. The nature of substantially all of the indemnification undertakings prevents Telesat from making a reasonable estimate of the maximum potential amount Telesat could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, Telesat has not made any significant payments under such indemnifications.

Telesat and Loral have entered into an indemnification agreement whereby Loral will indemnify Telesat for tax liabilities for taxation years prior to 2007 related to Loral Skynet operations. Likewise, Telesat will indemnify Loral for the settlement of tax receivables for taxation years prior to 2007.

Legal Proceedings

Telesat participates from time to time in legal proceedings arising in the normal course of its business.

Telesat previously received assessments from Brazilian tax authorities alleging that additional taxes are owed on revenue earned for the period 2003 to 2018. In September 2020, the Brazilian tax authority issued an additional assessment for 2015 for an amount, including interest and penalties, of $22 million. The total disputed amount for the period 2003 to 2018, including interest and penalties, is now $77 million. The disputes relate to the Brazilian tax authorities’ characterization of revenue. Telesat has challenged the assessments. Telesat believes the likelihood of an unfavorable outcome in these disputes is remote and, as such, no reserve has been established.

The Canadian tax authorities previously assessed Telesat for $9 million relating to transfer pricing issues for the years 2009 and 2012. In November 2020, the Canadian tax authority issued additional assessments for 2013 and 2014 for an amount, including interest, of $4 million. All disputes relate to the Canadian tax authorities’ repricing of certain transactions between Telesat and its subsidiaries. Telesat has paid 50% of the outstanding amounts in order to formally object to the assessments. Telesat believes the likelihood of an unfavorable outcome in these disputes is remote and, as such, no reserve has been established.

Other than the legal proceedings disclosed above, Telesat is not aware of any proceedings outstanding or threatened as of the date hereof by or against it or relating to its business which may have, or have had in the recent past, significant effects on Telesat’s financial position or profitability.

F-73

32.

SUBSIDIARIES

The list of significant companies included in the scope of consolidation as at December 31, 2020 was as follows:

Company	Country	Method of Consolidation	% voting rights
Infosat Communications LP	Canada	Fully consolidated	100
Telesat Spectrum General Partnership	Canada	Fully consolidated	100
Telesat LEO Holdings Inc.	Canada	Fully consolidated	100
Telesat Technology Corporation	Canada	Fully consolidated	100
Telesat Spectrum Corporation	Canada	Fully consolidated	100
Telesat Spectrum Holdings Corporation	Canada	Fully consolidated	100
Skynet Satellite Corporation	United States	Fully consolidated	100
Telesat Network Services, Inc.	United States	Fully consolidated	100
The SpaceConnection Inc.	United States	Fully consolidated	100
Telesat Satellite LP	United States	Fully consolidated	100
Telesat LEO Inc.	United States	Fully consolidated	100
Telesat US Services, LLC	United States	Fully consolidated	100
Infosat Able Holdings, Inc.	United States	Fully consolidated	100
Telesat Brasil Capacidade de Satélites Ltda.	Brazil	Fully consolidated	100
Telesat (IOM) Limited	Isle of Man	Fully consolidated	100
Telesat International Limited	United Kingdom	Fully consolidated	100

Apart from Telesat Technology Corporation, Telesat Spectrum Corporation and Telesat Spectrum Holdings Corporation, which were incorporated in 2020, the percentage of voting rights and method of consolidation were the same as at December 31, 2019.

33.

RELATED PARTY TRANSACTIONS

Telesat’s immediate shareholders are Red Isle Private Investment Inc. (“Red Isle”), a company incorporated in Canada, Loral Holdings Corporation (“Loral Holdings”), a company incorporated in the United States and various individuals. Red Isle is wholly-owned by PSP Investments, a Canadian Crown corporation. Loral Holdings is a wholly-owned subsidiary of Loral, a United States publicly listed company.

Transactions with subsidiaries

Telesat and its subsidiaries regularly engage in inter-group transactions. These transactions include the purchase and sale of satellite services and communications equipment, providing and receiving network and call centre services, access to orbital slots and management services. The transactions have been entered into over the normal course of operations. Balances and transactions between Telesat and its subsidiaries have been eliminated on consolidation and therefore have not been disclosed.

Compensation of executives and Board level directors

Year ended December 31,	2020			2019			2018
Short-term benefits (including salaries)	​	$	13,058	​	$	11,051	​	$	16,853
Special payments(1)	​	​	710	​	​	948	​	​	2,904
Post-employment benefits	​	​	2,180	​	​	2,773	​	​	2,510
Share-based payments	​	​	12,373	​	​	15,649	​	​	29,016
​	​	$	28,321	​	$	30,421	​	$	51,283

(1)

Balance relates to the special cash distribution effective January 25, 2017.

F-74

Key management personnel-stock options

In June 2018, 95,363 SARS were exercised by a member of key management personnel for 39,488 Non-Voting Participating Preferred shares, on a net settlement basis.

During 2018, Telesat issued 3,630,000 time-vesting options to certain key management personnel. Of this balance, 2,850,000 options vest over a five-year period, while 780,000 vest over a three-year period. In addition, 200,000 RSUs were granted during 2018 which vest over a three-year period and are expected to be settled with Non-Voting Participating Preferred shares.

During 2019, Telesat issued 500,000 time-vesting options to certain key management personnel, which vest over a five-year period.

In January 2019, 40,269 SARS were exercised by a member of key management personnel for 14,846 Non-Voting Participating Preferred Shares, on a net settlement basis.

In December 2019, 66,667 RSUs were settled in exchange for 30,980 Non-Voting Participating Preferred Shares, on a net settlement basis.

In December 2020, 66,667 RSUs were settled in exchange for 30,980 Non-Voting Participating Preferred Shares, on a net settlement basis.

In December 2020, Telesat issued 650,000 time-vesting options to certain key management personnel, which vest over a five-year period.

Transactions with related parties

Telesat and certain of its subsidiaries regularly engage in transactions with related parties. Telesat’s related parties include Loral and Red Isle. The transactions have been entered into over the normal course of operations. There were no transactions or balances with Red Isle during any of the years presented.

During the years presented below, Telesat and its subsidiaries entered into the following transactions with Loral.

​	Sale of goods and services, interest income									Purchase of goods and services, interest expense
Years ended December 31,	2020			2019			2018			2020			2019			2018
Revenue	​	$	133	​	$	133	​	$	128	​	$	—	​	$	—	​	$	—
Operating expenses	​	$	—	​	$	—	​	$	—	​	$	6,712	​	$	6,645	​	$	6,456

The following balances were outstanding with Loral at the end of the years presented below:

​	Amounts owed by related parties						Amounts owed to related parties
At December 31,	2020			2019			2020			2019
Current receivables/payables	​	$	—	​	$	—	​	$	105	​	$	204

The amounts outstanding are unsecured and will be settled in cash.

Other related party transactions

Telesat funds certain defined benefit pension plans. Contributions made to the plans for the year ended December 31, 2020 were $5.5 million (December 31, 2019 — $5.7 million).

F-75

TELESAT CORPORATION

UNAUDITED BALANCE SHEETS
AS AT SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

(in Canadian dollars)	Note		September 30, 2021			December 31, 2020
Assets	​	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​	​
Cash	​	​	​	$	500	​	$	500
Shareholder’s equity	​	​	​	​	​	​	​	​
Share capital	​	4	​	$	500	​	$	500

See accompanying notes to the unaudited balance sheets

F-76

TELESAT CORPORATION

NOTES TO THE UNAUDITED BALANCE SHEETS
SEPTEMBER 30, 2021

1.   BACKGROUND OF TELESAT CORPORATION

Telesat Corporation (“Telesat Corporation”) was incorporated under the British Columbia Business Corporations Act on October 21, 2020. Telesat Corporation has not commenced operations and has no assets. Telesat Corporation has its registered office located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, British Columbia, V6C 2X8.

There was no activity in Telesat Corporation from the period of incorporation on October 21, 2020 through December 31, 2020 and for the nine-month period ended September 30, 2021, and therefore, no statement of comprehensive income, statement of changes in shareholder’s equity or the statement of cash flows has been presented.

Unless the context states or requires otherwise, references herein to the “financial statements” or similar terms refer to the unaudited balance sheets of Telesat Corporation.

The balance sheet was authorized for issue by the sole director of Telesat Corporation on November 8, 2021.

2.   BASIS OF PRESENTATION

Statement of Compliance

The balance sheets have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

3.   SIGNIFICANT ACCOUNTING POLICIES

The balance sheet is presented in Canadian dollars and was prepared on a going concern basis, under the historical cost convention.

The principal accounting policies applied in the preparation of the balance sheet are set out below.

Cash

Cash consists of proceeds generated on the issuance of super voting shares without par value in the capital of Telesat Corporation (the “Telesat Corporation Super Voting Shares”).

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by Telesat Corporation are recorded at the proceeds received, net of direct issue costs.

Future Changes in Accounting Policies

The IASB periodically issues new and amended accounting standards. There are no new and amended standards determined to be applicable to Telesat Corporation.

4.   SHARE CAPITAL

On October 21, 2020, Telesat Corporation issued 50 Telesat Corporation Super Voting Shares to its incorporator for $500.

There were no further share issuances for the period October 21, 2020 through December 31, 2020 or for the nine-month period ended September 30, 2021.

F-77

Telesat Corporation has authorized the issuance of 50 Telesat Corporation Super Voting Shares.

5.   TRANSACTION AND SUBSEQUENT EVENTS

On November 12, 2020, Telesat Corporation paid $500 to Telesat Partnership LP (“Telesat Partnership”) in exchange for 50 general partnership units in the capital of Telesat Partnership.

On November 23, 2020, Telesat Corporation entered into a Transaction Agreement and Plan of Merger with, Telesat Canada (“Telesat”), Telesat Partnership, Telesat CanHold Corporation, Loral Space & Communications Inc. (“Loral”), Lion Combination Sub Corporation, Public Sector Pension Investment Board (“PSP Investments”) and Red Isle Private Investments Inc. (“Red Isle”). Upon completion, the integration transaction (the “Transaction”) will result in the current stockholders of Loral, PSP Investments (through Red Isle) and the other shareholders in Telesat who sign stockholder contribution agreements or optionholder exchange agreements (principally current or former management) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP Investments) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

In furtherance of the Transaction, on April 26, 2021, Telesat Corporation and Telesat Partnership filed a Registration Statement on Form F-4 with the United States Securities and Exchange Commission, which was subsequently amended on May 28, 2021 and June 24, 2021, and declared effective on June 30, 2021. The proxy statement/prospectus included in the Registration Statement on Form F-4 was mailed to Loral’s stockholders in connection with the special meeting of Loral stockholders.

On August 6, 2021, Telesat was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies. Certain other regulatory consents and approvals required to consummate the Transaction are still pending.

On August 23, 2021, Loral Space & Communications Inc. reconvened a special meeting of their stockholders to vote on the Transaction. The Transaction was approved by Loral’s stockholders at the meeting.

On closing of the Transaction, the shares of Telesat Corporation will be listed on the Nasdaq Global Select Market and the parties have also applied for a listing on the Toronto Stock Exchange. The Transaction is expected to close in the fourth quarter of 2021, subject to the receipt of the remaining required regulatory approvals and other customary conditions. There can be no assurance that the Transaction will close as described.

F-78

TELESAT CORPORATION AUDITED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and the Director of Telesat Corporation

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Telesat Corporation (the “Company”) as of December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte LLP

Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
November 9, 2021

We have served as the Company’s auditor since 2020.

F-79

TELESAT CORPORATION

BALANCE SHEET
AS OF DECEMBER 31, 2020

(in Canadian dollars)	Note		​	​
Assets	​	​	​	​
Current assets	​	​	​	​
Cash	​	​	$	500
Shareholder’s equity	​	​	​	​
Share capital	​	4	$	500

See accompanying notes to the balance sheet

F-80

TELESAT CORPORATION

NOTES TO THE DECEMBER 31, 2020 BALANCE SHEET

1.   BACKGROUND OF TELESAT CORPORATION

Telesat Corporation (“Telesat Corporation”) was incorporated under the British Columbia Business Corporations Act on October 21, 2020. Telesat Corporation has not commenced operations and has no assets. Telesat Corporation has its registered office located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, British Columbia, V6C 2X8.

There was no activity in Telesat Corporation from the period of incorporation on October 21, 2020 through December 31, 2020 and therefore no statement of comprehensive income, statement of changes in shareholder’s equity or the statement of cash flows has been presented.

The balance sheet was authorized for issue by the sole director of Telesat Corporation on November 8, 2021.

2.   BASIS OF PRESENTATION

Statement of Compliance

The balance sheet of Telesat has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

3.   SIGNIFICANT ACCOUNTING POLICIES

The balance sheet is presented in Canadian dollars and was prepared on a going concern basis, under the historical cost convention.

The principal accounting policies applied in the preparation of the balance sheet are set out below.

Cash

Cash consists of proceeds generated on the issuance of super voting shares without par value in the capital of Telesat Corporation (the “Telesat Corporation Super Voting Shares”).

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by Telesat Corporation are recorded at the proceeds received, net of direct issue costs.

Future Changes in Accounting Policies

The IASB periodically issues new and amended accounting standards. There are no new and amended standards determined to be applicable to Telesat Corporation.

4.   SHARE CAPITAL

On October 21, 2020, Telesat Corporation issued 50 Telesat Corporation Super Voting Shares to its incorporator for $500.

There were no share issuances for the period from October 21, 2020 through December 31, 2020.

Telesat Corporation has authorized the issuance of 50 Telesat Corporation Super Voting Shares.

5.   TRANSACTION AND SUBSEQUENT EVENTS

On November 12, 2020, Telesat Corporation paid $500 to Telesat Partnership LP (“Telesat Partnership”) in exchange for 50 general partnership units in the capital of Telesat Partnership.

F-81

On November 23, 2020, Telesat Corporation entered into a Transaction Agreement and Plan of Merger with, Telesat Canada (“Telesat”), Telesat Partnership, Telesat CanHold Corporation, Loral Space & Communications Inc. (“Loral”), Lion Combination Sub Corporation, Public Sector Pension Investment Board (“PSP Investments”) and Red Isle Private Investments Inc. (“Red Isle”). Upon completion, the integration transaction (the “Transaction”) will result in the current stockholders of Loral, PSP Investments (through Red Isle) and the other shareholders in Telesat who sign stockholder contribution agreements or optionholder exchange agreements (principally current or former management) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP Investments) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

In furtherance of the Transaction, on April 26, 2021, Telesat Corporation and Telesat Partnership filed a Registration Statement on Form F-4 with the United States Securities and Exchange Commission, which was subsequently amended on May 28, 2021 and June 24, 2021, and declared effective on June 30, 2021. The proxy statement/prospectus included in the Registration Statement on Form F-4 was mailed to Loral’s stockholders in connection with the special meeting of Loral stockholders.

On August 6, 2021, Telesat was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies. Certain other regulatory consents and approvals required to consummate the Transaction are still pending.

On August 23, 2021, Loral Space & Communications Inc. reconvened a special meeting of their stockholders to vote on the Transaction. The Transaction was approved by Loral’s stockholders at the meeting.

On closing of the Transaction, the shares of Telesat Corporation will be listed on the Nasdaq Global Select Market and the parties have also applied for a listing on the Toronto Stock Exchange. The Transaction is expected to close in the fourth quarter of 2021, subject to the receipt of the remaining required regulatory approvals and other customary conditions. There can be no assurance that the Transaction will close as described.

F-82

TELESAT PARTNERSHIP LP

UNAUDITED CONSOLIDATED BALANCE SHEETS
as at September 30, 2021 and December 31, 2020

(in Canadian dollars)	Note		September 30, 2021			December 31, 2020
Assets	​	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​	​
Cash	​	​	​	$	472	​	$	600
Investment in Loral Space & Communications, Inc.	​	4	​	​	128	​	​	—
​	​	​	​	$	600	​	$	600
Partners’ capital	​	​	​	​	​	​	​	​
Partners’ capital	​	5	​	$	600	​	$	600

See accompanying notes to the unaudited consolidated balance sheets

F-83

TELESAT PARTNERSHIP LP

NOTES TO THE UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, 2021

1.   BACKGROUND OF TELESAT PARTNERSHIP

Telesat Partnership LP (“Telesat Partnership”) was registered under the laws of Ontario on November 12, 2020. Telesat Partnership has not commenced operations. Telesat Partnership has its registered office located at 160 Elgin Street, Ottawa, Ontario, K2P 2P7.

Unless the context states or requires otherwise, references herein to the “financial statements” or similar terms refer to the unaudited consolidated balance sheets of Telesat Partnership.

These consolidated balance sheets were authorized for issue by the general partner, Telesat Corporation, on November 8, 2021.

2.   BASIS OF PRESENTATION

Statement of Compliance

The consolidated balance sheets have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of Consolidation

The consolidated balance sheet include the results of the sole subsidiary controlled by Telesat Partnership, Telesat CanHold Corporation (“Telesat CanHoldco”). Control is achieved when Telesat Partnership has power over the entity, has exposure, or rights to variable returns from its involvement with an entity, and has the ability to use the power over an entity to affect the amount of the return.

3.   SIGNIFICANT ACCOUNTING POLICIES

The consolidated balance sheet is presented in Canadian dollars and was prepared on a going concern basis, under the historical cost convention.

The principal accounting policies applied in the preparation of the balance sheet are set out below.

Cash

Cash consists of proceeds generated on the issuance of partnership units.

Investment in Loral Space & Communications, Inc.

Investment in Loral Space & Communications, Inc. is originally recognized at fair value. The Investment in Loral Space & Communications, Inc. is subsequently measured at fair value through other comprehensive income.

Future Changes in Accounting Policies

The IASB periodically issues new and amended accounting standards. There are no new and amended standards determined to be applicable to Telesat.

4.   INVESTMENT IN LORAL SPACE & COMMUNICATIONS, INC.

On November 23, 2020, Telesat Partnership subscribed for five shares of Series B Preferred stock of Loral Space & Communications, Inc. for US$100.40, in which payment occurred in March 2021.

F-84

5.   PARTNERS’ CAPITAL

On November 12, 2020, Telesat Partnership issued the following partnership units:

​	Number of partnership units		Stated value
General partnership units	​	50	​	$	500
Class X LP units	​	10	​	​	100
Partners’ capital	​	​	​	$	600

The authorized partnership units of Telesat Partnership is comprised of an unlimited number of general partner units and class X limited partner units.

No incremental partnership units were issued for the period from November 12, 2020 through December 31, 2020 or for the nine-month period ended September 30, 2021.

6.   TRANSACTION AND SUBSEQUENT EVENTS

On November 23, 2020, Telesat Partnership entered into a Transaction Agreement and Plan of Merger with, Telesat Canada (“Telesat”), Telesat Corporation (“Telesat Corporation”), Telesat CanHold Corporation, Loral Space & Communications Inc. (“Loral”), Lion Combination Sub Corporation, Public Sector Pension Investment Board (“PSP Investments”) and Red Isle Private Investments Inc. (“Red Isle”). Upon completion, the integration transaction (the “Transaction”) will result in the current stockholders of Loral, PSP Investments (through Red Isle) and the other shareholders in Telesat who sign stockholder contribution agreements or optionholder exchange agreements (principally current or former management) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP Investments) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

In furtherance of the Transaction, on April 26, 2021, Telesat Corporation and Telesat Partnership filed a Registration Statement on Form F-4 with the United States Securities and Exchange Commission, which was subsequently amended on May 28, 2021 and June 24, 2021, and declared effective on June 30, 2021. The proxy statement/prospectus included in the Registration Statement on Form F-4 was mailed to Loral’s stockholders in connection with the special meeting of Loral stockholders.

On August 6, 2021, Telesat was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies. Certain other regulatory consents and approvals required to consummate the Transaction are still pending.

On August 23, 2021, Loral Space & Communications Inc. reconvened a special meeting of their stockholders to vote on the Transaction. The Transaction was approved by Loral’s stockholders at the meeting.

F-85

TELESAT PARTNERSHIP AUDITED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Director of Telesat Corporation as general partner of Telesat Partnership LP

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Telesat Partnership LP (the “Partnership”) as of December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte LLP

Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
November 9, 2021

We have served as the Partnership’s auditor since 2020.

F-86

TELESAT PARTNERSHIP LP

CONSOLIDATED BALANCE SHEET
AS OF December 31, 2020

(in Canadian dollars)	Note		​	​
Assets	​	​	​	​
Current assets	​	​	​	​
Cash	​	​	$	600
Partners’ capital	​	​	​	​
Partners’ capital	​	4	$	600

See accompanying notes to the consolidated balance sheet

F-87

TELESAT PARTNERSHIP LP

NOTES TO THE DECEMBER 31, 2020 CONSOLIDATED BALANCE SHEET

1.

BACKGROUND OF TELESAT PARTNERSHIP

Telesat Partnership LP (“Telesat Partnership”) was registered under the laws of Ontario on November 12, 2020. Telesat Partnership has not commenced operations. Telesat Partnership has its registered office located at 160 Elgin Street, Ottawa, Ontario, K2P 2P7.

The consolidated balance sheet as at December 31, 2020 was authorized for issue by the general partner, Telesat Corporation, on November 8, 2021.

2.

BASIS OF PRESENTATION

Statement of Compliance

The consolidated balance sheet of Telesat Partnership as at December 31, 2020 has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of Consolidation

The consolidated balance sheet include the results of the sole subsidiary controlled by Telesat Partnership, Telesat CanHold Corporation (“Telesat CanHoldco”). Control is achieved when Telesat Partnership has power over the entity, has exposure, or rights to variable returns from its involvement with an entity, and has the ability to use the power over an entity to affect the amount of the return.

3.

SIGNIFICANT ACCOUNTING POLICIES

The consolidated balance sheet is presented in Canadian dollars and was prepared on a going concern basis, under the historical cost convention.

The principal accounting policies applied in the preparation of the balance sheet are set out below.

Cash

Cash consists of proceeds generated on the issuance of partnership units.

Future Changes in Accounting Policies

The IASB periodically issues new and amended accounting standards. There are no new and amended standards determined to be applicable to Telesat.

4.

PARTNERS’ CAPITAL

On November 12, 2020, Telesat Partnership issued the following partnership units:

​	Number of partnership units		Standard value
General partnership units	​	50	​	$	500
Class X LP units	​	10	​	​	100
Partners’ capital	​	​	​	$	600

The authorized partnership units of Telesat Partnership is comprised of an unlimited number of general partner units and class X limited partner units.

No incremental partnership units were issued for the period from November 12, 2020 through December 31, 2020.

F-88

5.

TRANSACTION AND SUBSEQUENT EVENTS

On November 23, 2020, Telesat Partnership entered into a Transaction Agreement and Plan of Merger with, Telesat Canada (“Telesat”), Telesat Corporation (“Telesat Corporation”), Telesat CanHold Corporation, Loral Space & Communications Inc. (“Loral”), Lion Combination Sub Corporation, Public Sector Pension Investment Board (“PSP Investments”) and Red Isle Private Investments Inc. (“Red Isle”). Upon completion, the integration transaction (the “Transaction”) will result in the current stockholders of Loral, PSP Investments (through Red Isle) and the other shareholders in Telesat who sign stockholder contribution agreements or optionholder exchange agreements (principally current or former management) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP Investments) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

On November 23, 2020, Telesat Partnership subscribed for five shares of Series B Preferred stock of Loral Space & Communications, Inc. for US$100.40, in which payment occurred in March 2021.

In furtherance of the Transaction, on April 26, 2021, Telesat Corporation and Telesat Partnership filed a Registration Statement on Form F-4 with the United States Securities and Exchange Commission, which was subsequently amended on May 28, 2021 and June 24, 2021, and declared effective on June 30, 2021. The proxy statement/prospectus included in the Registration Statement on Form F-4 was mailed to Loral’s stockholders in connection with the special meeting of Loral stockholders.

On August 6, 2021, Telesat was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies. Certain other regulatory consents and approvals required to consummate the Transaction are still pending.

On August 23, 2021, Loral Space & Communications Inc. reconvened a special meeting of their stockholders to vote on the Transaction. The Transaction was approved by Loral’s stockholders at the meeting.

On closing of the Transaction, the shares of Telesat Corporation will be listed on the Nasdaq Global Select Market and the parties have also applied for a listing on the Toronto Stock Exchange. The Transaction is expected to close in the fourth quarter of 2021, subject to the receipt of the remaining required regulatory approvals and other customary conditions. There can be no assurance that the Transaction will close as described.

F-89

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

​	September 30, 2021			December 31, 2020
ASSETS	​	​	​	​	​	​
Current assets:	​	​	​	​	​	​
Cash and cash equivalents	​	$	19,986	​	$	31,631
Income tax refund receivable	​	​	1,299	​	​	1,228
Other current assets	​	​	1,194	​	​	1,232
Total current assets	​	​	22,479	​	​	34,091
Right-of-use asset	​	​	159	​	​	342
Investments in affiliates	​	​	241,499	​	​	192,664
Deferred tax assets	​	​	29,280	​	​	27,339
Other assets	​	​	31	​	​	33
Total assets	​	$	293,448	​	$	254,469
LIABILITIES AND SHAREHOLDERS’ EQUITY	​	​	​	​	​	​
Current liabilities:	​	​	​	​	​	​
Accrued employment costs	​	$	9,759	​	$	2,839
Other current liabilities	​	​	2,534	​	​	2,002
Total current liabilities	​	​	12,293	​	​	4,841
Pension and other post-retirement liabilities	​	​	19,214	​	​	20,181
Other liabilities	​	​	20,667	​	​	19,914
Total liabilities	​	​	52,174	​	​	44,936
Commitments and contingencies	​	​	​	​	​	​
Shareholders’ Equity:	​	​	​	​	​	​
Preferred stock, $0.01 par value; 10,000,000 shares authorized	​	​	—	​	​	—
Series A junior participating preferred stock, $0.01 par value, 50,000 shares authorized, no shares issued and outstanding	​	​	—	​	​	—
Series B preferred stock, $0.01 par value, 5 shares authorized, 5 issued and outstanding	​	​	—	​	​	—
Common Stock:	​	​	​	​	​	​
Voting common stock, $0.01 par value; 50,000,000 shares authorized, 21,581,572 issued	​	​	216	​	​	216
Non-voting common stock, $0.01 par value; 20,000,000 shares authorized 9,505,673 issued and outstanding	​	​	95	​	​	95
Paid-in capital	​	​	1,019,988	​	​	1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock	​	​	(9,592)	​	​	(9,592)
Accumulated deficit	​	​	(702,203)	​	​	(729,202)
Accumulated other comprehensive loss	​	​	(67,230)	​	​	(71,972)
Total shareholders’ equity	​	​	241,274	​	​	209,533
Total liabilities and shareholders’ equity	​	$	293,448	​	$	254,469

See notes to condensed consolidated financial statements

F-90

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share amounts)
(Unaudited)

​

Three Months Ended September 30,

Nine Months Ended September 30,

​

2021

2020

2021

2020

General and administrative expenses

​

$

(8,745)

​

$

(1,725)

​

$

(12,374)

​

$

(5,174)

Recovery of affiliate doubtful receivable

​

​

—

​

​

5,854

​

​

—

​

​

5,854

Operating (loss) income

​

​

(8,745)

​

​

4,129

​

​

(12,374)

​

​

680

Interest and investment income

​

​

2

​

​

16

​

​

5

​

​

1,045

Interest expense

​

​

(8)

​

​

(9)

​

​

(19)

​

​

(20)

Other expense

​

​

(2,362)

​

​

(2,300)

​

​

(6,834)

​

​

(6,440)

(Loss) income before income taxes and equity in net (loss) income of affiliates

​

​

(11,113)

​

​

1,836

​

​

(19,222)

​

​

(4,735)

Income tax benefit (provision)

​

​

829

​

​

(309)

​

​

1,252

​

​

(956)

(Loss) income before equity in net (loss) income of affiliates

​

​

(10,284)

​

​

1,527

​

​

(17,970)

​

​

(5,691)

Equity in net (loss) income of affiliates

​

​

(14,924)

​

​

49,645

​

​

44,969

​

​

9,086

Net (loss) income

​

​

(25,208)

​

​

51,172

​

​

26,999

​

​

3,395

Other comprehensive income (loss), net of tax

​

​

8,343

​

​

(7,220)

​

​

4,742

​

​

6,891

Comprehensive (loss) income

​

$

(16,865)

​

$

43,952

​

$

31,741

​

$

10,286

Net (loss) income per share:

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

$

(0.81)

​

$

1.65

​

$

0.87

​

$

0.11

Diluted

​

$

(0.81)

​

$

1.64

​

$

0.83

​

$

0.11

Weighted average common shares outstanding:

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

30,933

​

​

30,933

​

​

30,933

​

​

30,933

Diluted

​

​

30,933

​

​

31,026

​

​

31,032

​

​

31,017

See notes to condensed consolidated financial statements

F-91

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

​

Common Stock

Paid-In Capital

Treasury Stock Voting

Accumulated Deficit

Accumulated Other Comprehensive Loss

Shareholders’ Equity

​

Voting

Non-Voting

​

Shares Issued

Amount

Shares Issued

Amount

Shares

Amount

Balance, January 1, 2020

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(605,766)

​

$

(54,914)

​

$

350,027

Net loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(47,777)

​

​

​

​

​

​

Other comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

14,111

​

​

​

Comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(33,666)

Common dividend paid ($5.50 per share)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(170,130)

​

​

​

​

​

(170,130)

Balance, June 30, 2020

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(823,673)

​

​

(40,803)

​

​

146,231

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

51,172

​

​

​

​

​

​

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(7,220)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

43,952

Balance, September 30, 2020

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(772,501)

​

​

(48,023)

​

​

190,183

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

89,698

​

​

​

​

​

​

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(23,949)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

65,749

Common dividend paid ($1.50 per share)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(46,399)

​

​

​

​

​

(46,399)

Balance, December 31, 2020

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(729,202)

​

​

(71,972)

​

​

209,533

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

52,207

​

​

​

​

​

​

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(3,601)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

48,606

Balance, June 30, 2021

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(676,995)

​

​

(75,573)

​

​

258,139

Net loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(25,208)

​

​

​

​

​

​

Other comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

8,343

​

​

​

Comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(16,865)

Balance, Sept 30, 2021

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(702,203)

​

$

(67,230)

​

$

241,274

See notes to condensed consolidated financial statements

F-92

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

​	Nine Months Ended September 30,
​	2021			2020
Operating activities:	​	​	​	​	​	​
Net income	​	$	26,999	​	$	3,395
Adjustments to reconcile net income to net cash used in operating activities	​	​	​	​	​	​
Non-cash operating items (Note 2)	​	​	(46,042)	​	​	(14,231)
Changes in operating assets and liabilities:	​	​	​	​	​	​
Other current assets	​	​	38	​	​	6,010
Accrued employment costs and other current liabilities	​	​	7,645	​	​	(117)
Income tax refund receivable, net of payable	​	​	(72)	​	​	(945)
Pension and other post-retirement liabilities	​	​	(966)	​	​	(1,833)
Other liabilities	​	​	753	​	​	2,170
Net cash used in operating activities	​	​	(11,645)	​	​	(5,551)
Financing activities:	​	​	​	​	​	​
Dividend paid	​	​	—	​	​	(170,130)
Net cash used in financing activities	​	​	—	​	​	(170,130)
Cash, cash equivalents and restricted cash – period decrease	​	​	(11,645)	​	​	(175,681)
Cash, cash equivalents and restricted cash (Note 2) – beginning of year	​	​	31,935	​	​	259,371
Cash, cash equivalents and restricted cash (Note 2) – end of period	​	$	20,290	​	$	83,690

See notes to condensed consolidated financial statements

F-93

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.   Organization and Principal Business

Loral Space & Communications Inc., together with its subsidiaries (“Loral,” the “Company,” “we,” “our” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

On November 23, 2020, Loral entered into a Transaction Agreement and Plan of Merger (as it may be amended from time to time, the “Transaction Agreement”) with Telesat Canada, a Canadian corporation (“Telesat”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat Corporation, a newly formed corporation incorporated under the laws of the Province of British Columbia, Canada and the sole general partner of Telesat Partnership (“Telesat Corporation”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada and wholly owned subsidiary of Telesat Partnership (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and Red Isle Private Investments Inc., a Canadian corporation and wholly owned subsidiary of PSP (“Red Isle”), under which Merger Sub will merge with and into Loral, with Loral surviving the merger as a wholly owned subsidiary of Telesat Partnership (the “Merger”), and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation (the “Transaction”).

The Transaction Agreement contains a number of customary conditions that must be fulfilled to complete the Transaction, including (i) approval of (A) a majority of the outstanding Loral voting common stock and (B) a majority of the outstanding Loral voting common stock not held by MHR Fund Management LLC (“MHR”), PSP, any other party to the Transaction Agreement or certain of their respective affiliates; (ii) the parties having obtained certain regulatory consents and approvals; (iii) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the Transaction; (iv) the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange; (v) no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred; (vi) Telesat remaining in good standing with respect to its material debt obligations; (vii) the accuracy of certain representations (subject to certain qualifications as to materiality) and material performance of certain covenants by the parties, subject to specified exceptions; (viii) effectiveness of a registration statement on Form F-4 in connection with the Transaction (the “Registration Statement”) and the issuance of a receipt for each of the Canadian preliminary and final prospectuses in respect of the Transaction; (ix) no U.S., Canadian or Spanish governmental agency having commenced civil or criminal proceeding against Loral alleging that any member of the “Loral Group” has criminally violated any law, and no member of the “Loral Group” having been indicted or convicted for, or pled nolo contendere to, any such alleged criminal violation; (x) Loral remaining solvent and not having entered into any bankruptcy or related proceeding; and (xi) the delivery by the parties of certain closing deliverables. If the parties have confirmed that all the conditions are satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing of the Transaction (the “Closing”), but which conditions are capable of being satisfied at the Closing), then PSP and Loral will each have the right to extend the Closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate, from the date on which the Closing otherwise would have occurred. If the Closing is extended, the Closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or waived (other than the conditions (i) with respect to no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred, (ii) that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing and (iii) if PSP extends the Closing, with respect to a civil or criminal legal proceeding alleging that Loral or any of its subsidiaries (excluding XTAR, LLC (“XTAR”) and Globalstar de Mexico, S. de R.L. de C.V. (“GdM”) and their subsidiaries), has criminally violated a law).

On August 6, 2021, Loral was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s and XTAR’s FCC licenses in connection

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with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies.

On August 23, 2021, at a reconvened special meeting of stockholders of the Company, Loral stockholders approved the Transaction and related proposals. In addition, on August 23, 2021, Loral was notified by the Committee on Foreign Investment in the United States (“CFIUS”) that CFIUS had concluded its review of the Transaction and had determined that there were no unresolved national security concerns.

As of the date hereof, consummation of the Closing remains subject to the satisfaction or waiver of certain conditions, including the issuance by the applicable Canadian securities regulator of a receipt for the Canadian prospectus in respect of the Transaction and the listing of the Class A common shares and Class B variable voting shares of Telesat Corporation on a U.S. securities exchange. Telesat has informed the parties to the Transaction Agreement that it expects to satisfy those conditions later this month. Accordingly, the parties currently expect that the two-day Closing provided for in the Transaction Agreement will occur on November 18, 2021 and November 19, 2021, subject to the satisfaction or waiver of all of the conditions to Closing, and Loral has announced that the election deadline for election by stockholders of the Transaction consideration is 5:00 p.m. New York City time on November 15, 2021.

Under the terms of the Transaction Agreement, each of Loral and PSP has the right to terminate the Transaction Agreement after the Outside Date (defined as the date that is twelve months following November 23, 2020 subject to certain extension rights as specified in the Transaction Agreement) if the Closing has not occurred by the proposed termination date. Because there can be no assurance that the Closing will occur when currently expected, the parties to the Transaction Agreement and the parties to the Voting Support Agreement, dated as of November 23, 2020, by and among Telesat, Loral, PSP and certain affiliates of MHR Fund Management LLC party thereto executed on November 3, 2021 a waiver, waiving, among other things, until December 23, 2021, their rights to terminate the Transaction Agreement as a result of the Closing not having occurred prior to the Outside Date. The foregoing description of the waiver is not complete and is qualified in its entirety by reference to the waiver, a copy of which is filed as Exhibit 10.1 to this Report.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91 million or to pay to PSP a “breach” fee of $40.0 million, in each case as provided in the Transaction Agreement.

Expenses related to the Transaction included in other expense in our statements of operations were $2.3 million and $2.2 million for the three months ended September 30, 2021 and 2020, respectively, and $6.6 million and $6.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, a leading global satellite operator. Loral holds a 62.6% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our ownership interest in Telesat (see Note 5).

Telesat owns and leases a satellite fleet that operates in geostationary earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s

F-95

surface and provide reliable, high-bandwidth services anywhere in their coverage areas, serving as the backbone for many forms of telecommunications. Telesat is also developing Telesat Lightspeed, a global constellation of low earth orbit (“LEO”) satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.

2.   Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) and, in our opinion, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations, financial position and cash flows as of the balance sheet dates presented and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. We believe that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.

The December 31, 2020 balance sheet has been derived from the audited consolidated financial statements at that date. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our latest Annual Report on Form 10-K filed with the SEC.

Investments in Affiliates

Our ownership interest in Telesat is accounted for using the equity method of accounting under U.S. GAAP. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP. Income and losses of Telesat are recorded based on our economic interest. The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of September 30, 2021 and December 31, 2020. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other-than-temporary.

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Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of income (loss) reported for the period. Actual results could materially differ from estimates.

Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.

Cash, Cash Equivalents and Restricted Cash

As of September 30, 2021, the Company had $20.0 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date.

On April 30, 2020, the Company’s Board of Directors declared a special dividend of $5.50 per share for an aggregate dividend of approximately $170.1 million. The special dividend was paid on May 28, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on May 14, 2020.

On November 23, 2020, the Company’s Board of Directors declared a special dividend of $1.50 per share for an aggregate dividend of approximately $46.4 million. The special dividend was paid on December 17, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on December 4, 2020.

As of September 30, 2021 and December 31, 2020, the Company had restricted cash of $0.3 million, representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in February 2022, has been provided as a guaranty to the lessor of our corporate offices.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):

​	September 30, 2021			December 31, 2020
Cash and cash equivalents	​	$	19,986	​	$	31,631
Restricted cash included in other current assets	​	​	304	​	​	304
Cash, cash equivalents and restricted cash shown in the statement of cash flows	​	$	20,290	​	$	31,935

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of September 30, 2021 and December 31, 2020, our cash and cash equivalents were invested primarily in two liquid government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

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Level 1:   Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

Level 2:   Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3:   Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):

​

September 30, 2021

December 31, 2020

​

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Money market funds

​

$

18,170

​

$

—

​

$

—

​

$

29,166

​

$

—

​

$

—

Other current assets:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Sale of SSL

​

​

—

​

​

—

​

​

598

​

​

—

​

​

—

​

​

598

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other liabilities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Globalstar do Brasil S.A.

​

$

—

​

$

—

​

$

145

​

$

—

​

$

—

​

$

145

The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of September 30, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.

Contingencies

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third

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parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.

Income Taxes

Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized.

The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.

Earnings per Share

Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options and restricted share units.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019- 12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is expected to reduce the cost and complexity related to accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification 740 and improves how financial statement preparers will apply certain income tax-related guidance. The ASU is part of the FASB’s simplification initiative to make narrow-scope improvements to accounting standards through a series of short-term projects. The new guidance, effective for the Company on January 1, 2021, did not have a material impact on our condensed consolidated financial statements.

Additional Cash Flow Information

The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):

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​	Nine Months Ended September 30,
​	2021			2020
Non-cash operating items:	​	​	​	​	​	​
Equity in net income of affiliates	​	$	(44,969)	​	$	(9,086)
Deferred taxes	​	​	(2,175)	​	​	(253)
Depreciation	​	​	2	​	​	3
Right-of-use asset, net of lease liability	​	​	(10)	​	​	(4)
Recovery of affiliate doubtful receivable	​	​	—	​	​	(5,854)
Amortization of prior service credit and actuarial loss	​	​	1,110	​	​	963
Net non-cash operating items	​	$	(46,042)	​	$	(14,231)
Supplemental information:	​	​	​	​	​	​
Interest paid	​	$	19	​	$	20
Income tax refunds	​	$	2	​	$	178
Income tax payments	​	$	242	​	$	190

3.   Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

​	Pension and Other Post-retirement Benefits			Equity in Telesat-related Other Comprehensive Loss			Accumulated Other Comprehensive Loss
Balance, January 1, 2020	​	$	(16,167)	​	$	(38,747)	​	$	(54,914)
Other comprehensive loss before reclassification	​	​	(3,852)	​	​	(14,232)	​	​	(18,084)
Amounts reclassified from accumulated other comprehensive loss	​	​	1,026	​	​	—	​	​	1,026
Net current-period other comprehensive loss	​	​	(2,826)	​	​	(14,232)	​	​	(17,058)
Balance, December 31, 2020	​	​	(18,993)	​	​	(52,979)	​	​	(71,972)
Other comprehensive income before reclassification	​	​	—	​	​	3,864	​	​	3,864
Amounts reclassified from accumulated other comprehensive loss	​	​	878	​	​	—	​	​	878
Net current-period other comprehensive income	​	​	878	​	​	3,864	​	​	4,742
Balance, September 30, 2021	​	$	(18,115)	​	$	(49,115)	​	$	(67,230)

The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):

​	Three Months Ended September 30,
​	2021									2020
​	Before-Tax Amount			Tax Provision			Net-of-Tax Amount			Before-Tax Amount			Tax (Provision) Benefit			Net-of-Tax Amount
Amortization of prior service credits and net actuarial loss	​	$	370(a)	​	$	(76)	​	$	294	​	$	321(a)	​	$	(68)	​	$	253
Equity in Telesat-related other comprehensive income (loss)	​	​	8,052	​	​	(3)	​	​	8,049	​	​	(7,477)	​	​	4	​	​	(7,473)
Other comprehensive income (loss)	​	$	8,422	​	$	(79)	​	$	8,343	​	$	(7,156)	​	$	(64)	​	$	(7,220)

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​	Nine Months Ended September 30,
​	2021									2020
​	Before-Tax Amount			Tax Provision			Net-of-Tax Amount			Before-Tax Amount			Tax Provision			Net-of-Tax Amount
Amortization of prior service credits and net actuarial loss	​	$	1,110(a)	​	$	(232)	​	$	878	​	$	963(a)	​	$	(202)	​	$	761
Equity in Telesat-related other comprehensive income	​	​	3,866	​	​	(2)	​	​	3,864	​	​	6,132	​	​	(2)	​	​	6,130
Other comprehensive income	​	$	4,976	​	$	(234)	​	$	4,742	​	$	7,095	​	$	(204)	​	$	6,891

(a)

Reclassifications are included in other expense.

4.   Other Current Assets

Other current assets consists of (in thousands):

​	September 30, 2021			December 31, 2020
Restricted cash (see Note 2)	​	$	304	​	$	304
Indemnification receivable from SSL for pre-closing taxes (see Note 13)	​	​	598	​	​	598
Due from affiliates	​	​	17	​	​	88
Prepaid expenses	​	​	275	​	​	240
Other	​	​	—	​	​	2
​	​	$	1,194	​	$	1,232

5.   Investments in Affiliates

Investments in affiliates consist of (in thousands):

​	September 30, 2021			December 31, 2020
Telesat	​	$	241,499	​	$	192,664

Equity in net (loss) income of affiliates consists of (in thousands):

​	Three Months Ended September 30,						Nine Months Ended September 30,
​	2021			2020			2021			2020
Telesat	​	$	(14,924)	​	$	49,645	​	$	44,969	​	$	9,086

Telesat

As of September 30, 2021 and December 31, 2020, we held a 62.6% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 32.6% of the voting stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our economic interest as our holdings consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to dividends, return of capital and surplus distributions, but have no voting rights.

In addition to recording our share of equity in net income of Telesat, we also recorded our share of equity in other comprehensive income of Telesat of $3.9 million for the nine months ended September 30, 2021.

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The ability of Telesat to pay dividends or certain other restricted payments in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Telesat’s credit agreement governing its senior secured credit facilities limits, among other items, Telesat’s ability to incur debt and make dividend payments if the total leverage ratio (“Total Leverage Ratio”) is above 4.50:1.00, with certain exceptions. As of September 30, 2021, Telesat’s Total Leverage Ratio was 5.60:1.00. Telesat was permitted, however, to pay annual consulting fees of $5.0 million to Loral in cash under a consulting agreement which expired in October 2021 (see Note 14).

On April 27, 2021, Telesat issued $500 million in aggregate principal amount of 5.625% senior secured notes maturing on December 6, 2026 (the “5.625% Senior Secured Notes”).

Interest on the 5.625% Senior Secured Notes will be payable on June 1 and December 1 of each year, commencing on December 1, 2021, to holders of record on the immediately preceding May 15 or November 15, as the case may be.

The 5.625% Senior Secured Notes indenture includes covenants and terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem the 5.625% Senior Secured Notes, without penalty, before December 6, 2022, in each case subject to exceptions provided in the 5.625% Senior Secured Notes indenture.

In April 2021, Telesat cancelled 6,197,776 issued and outstanding vested and unvested stock options.

In April 2021, Telesat approved the adoption of a restricted share unit (“Telesat RSU”) plan. A total of 3,660,000 non-voting participating preferred shares are reserved for issuance upon vesting of the Telesat RSUs awarded under the Telesat RSU plan, provided that the aggregate number of non-voting participating preferred shares issuable under the Telesat RSU plan (and under all other share compensation arrangements) does not exceed 10% of the total number of non-voting participating preferred shares outstanding from time to time (on a non-diluted basis).

In April 2021, 3,530,000 Telesat RSUs were granted under the Telesat RSU plan with 130,000 Telesat RSUs remaining available for grant under the Telesat RSU plan.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020 (in thousands):

​	September 30, 2021			December 31, 2020
Balance Sheet Data:	​	​	​	​	​	​
Current assets	​	$	1,304,567	​	$	703,210
Total assets	​	​	4,501,504	​	​	3,943,875
Current liabilities	​	​	150,873	​	​	129,849
Long-term debt	​	​	2,979,716	​	​	2,483,256
Total liabilities	​	​	3,597,358	​	​	3,140,747
Shareholders’ equity	​	​	904,146	​	​	803,128

F-102

​

Three Months Ended September 30,

Nine Months Ended September 30,

​

2021

2020

2021

2020

Statement of Operations Data:

​

​

​

​

​

​

​

​

​

​

​

​

Revenues

​

$

153,334

​

$

152,081

​

$

457,052

​

$

460,407

Operating expenses

​

​

(33,099)

​

​

(32,325)

​

​

(115,594)

​

​

(101,106)

Depreciation and amortization

​

​

(43,410)

​

​

(44,888)

​

​

(131,977)

​

​

(133,336)

Other operating expense

​

​

(23)

​

​

(26)

​

​

(587)

​

​

(182)

Operating income

​

​

76,802

​

​

74,842

​

​

208,894

​

​

225,783

Interest expense

​

​

(40,501)

​

​

(37,715)

​

​

(111,517)

​

​

(115,947)

Foreign exchange (loss) gain

​

​

(55,138)

​

​

48,943

​

​

908

​

​

(74,387)

Gain (loss) on financial instruments

​

​

3,955

​

​

246

​

​

7,749

​

​

(11,643)

Other (loss) income

​

​

(88)

​

​

527

​

​

(1,164)

​

​

4,865

Income tax provision

​

​

(10,590)

​

​

(9,053)

​

​

(38,273)

​

​

(18,509)

Net (loss) income

​

$

(25,560)

​

$

77,790

​

$

66,597

​

$

10,162

Other

We own 56% of the ordinary membership interests of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. Hisdesat owns the remaining 44% of the ordinary membership interests and all of XTAR’s Class A membership interests, which have liquidation priority over the ordinary membership interests. We account for our ownership interest in XTAR under the equity method of accounting because we do not control certain of its significant operating decisions. We have also concluded that XTAR is not a variable interest entity for which we are the primary beneficiary. As of September 30, 2021 and December 31, 2020, the carrying value of our investment in XTAR was zero. Beginning January 1, 2016, we discontinued providing for our allocated share of XTAR’s net losses as our investment was reduced to zero and we have no commitment to provide further financial support to XTAR.

Prior to July 1, 2020, XTAR owned and operated an X-band satellite, XTAR — EUR (the “Satellite”) located at the 29° E.L. orbital slot (the “Orbital Slot”). In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L. (the “Transponder Lease”). On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the management agreement between them (the “Loral Management Agreement”) under which, until December 31, 2013, XTAR was charged a quarterly management fee for services provided by Loral; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. As of the date of this report, Hisdesat has not exercised this option. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

As of September 30, 2021 and December 31, 2020, the Company also held an indirect ownership interest in GdM which currently serves as the exclusive service provider for Globalstar service in Mexico. The Company accounts for this ownership interest using the equity method of accounting. As of September 30, 2021 and December 31, 2020, the carrying value of this investment was zero. Loral has written-off its investment in this company and has no future funding requirements relating to this investment. Accordingly, there is no requirement for us to provide for our allocated share of GdM’s net losses. GdM is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with GdM upon completion of this process.

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6.   Other Current Liabilities

Other current liabilities consist of (in thousands):

​	September 30, 2021			December 31, 2020
Operating lease liability	​	$	152	​	$	345
Due to affiliate	​	​	106	​	​	98
Accrued professional fees	​	​	1,850	​	​	1,287
Pension and other post-retirement liabilities	​	​	83	​	​	82
Accrued liabilities	​	​	343	​	​	190
​	​	$	2,534	​	$	2,002

7.   Income Taxes

The following summarizes our income tax benefit (provision) (in thousands):

​	Three Months Ended September 30,						Nine Months Ended September 30,
​	2021			2020			2021			2020
Current income tax provision	​	$	(294)	​	$	(262)	​	$	(923)	​	$	(1,209)
Deferred income tax benefit (provision)	​	​	1,123	​	​	(47)	​	​	2,175	​	​	253
Income tax benefit (provision)	​	$	829	​	$	(309)	​	$	1,252	​	$	(956)

For the nine month periods ended September 30, 2021 and 2020, our income tax benefit (provision) is computed by applying an expected effective annual tax rate against the pre-tax results for each period (after adjusting for certain tax items that are discrete to each period). For the three month periods ended September 30, 2021 and 2020, this amount is then reduced by the tax (provision) benefit recorded for the six months ended June 30, 2021 and 2020. The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each period. The deferred income tax benefit (provision) for each period includes the impact of equity in net (loss) income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. For the three and nine months ended September 30, 2020, the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law on March 27, 2020, provided a deferred income tax benefit of $2.2 million and $5.7 million, respectively. Since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of September 30, 2021 and December 31, 2020.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, subject to the provisions of the Transaction Agreement, in order to prevent federal NOLs from expiring and realize the benefit of all remaining deferred tax assets.

The following summarizes amounts for UTPs included in our income tax benefit (provision) (in thousands):

​	Three Months Ended September 30,						Nine Months Ended September 30,
​	2021			2020			2021			2020
Current provision for UTPs	​	$	(257)	​	$	(244)	​	$	(753)	​	$	(1,052)
Deferred benefit for UTPs	​	​	52	​	​	50	​	​	115	​	​	222
Tax provision for UTPs	​	$	(205)	​	$	(194)	​	$	(638)	​	$	(830)

F-104

As of September 30, 2021, we had unrecognized tax benefits relating to UTPs of $43 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of September 30, 2021, we have accrued no penalties and approximately $4.1 million for the potential payment of tax-related interest.

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2014. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the NOL carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. In October 2021, the statute of limitations for assessment of additional tax expired with regard to certain UTPs, which is expected to result in a reduction to our unrecognized tax benefits of approximately $16.4 million. Pursuant to the purchase agreement for the sale of SSL, we are obligated to indemnify SSL for certain taxes related to periods prior to the closing of the transaction.

As of September 30, 2021, if our positions are sustained by the taxing authorities, the Company’s income tax provision would be reduced by approximately $9.1 million. Other than as described above, we anticipate no other significant changes to our unrecognized tax benefits during the next twelve months.

8.   Other Liabilities

Other liabilities consist of (in thousands):

​	September 30, 2021			December 31, 2020
Indemnification liabilities – other (see Note 13)	​	$	145	​	$	145
Liabilities for uncertain tax positions	​	​	20,522	​	​	19,769
​	​	$	20,667	​	$	19,914

9.   Stock-Based Compensation

Stock Plans

The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed for the grant of several forms of stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards, had a ten-year term and has expired. As of September 30, 2021 and 2020, outstanding and unconverted restricted stock units (“RSUs”) were 98,917 and 92,857, respectively, that are vested and do not expire.

We paid special dividends of $5.50 per share in the second quarter of 2020 (see Note 2) and $1.50 per share in the fourth quarter of 2020 for an aggregate dividend amount of $216.5 million. In accordance with Loral’s Stock Incentive Plan, an equitable adjustment was made to outstanding stock-based awards to reflect the cash dividend. As a result, RSUs outstanding under the Stock Incentive Plan increased by 17,595 during the second quarter of 2020 and by 6,060 during the fourth quarter of 2020.

10.   Earnings Per Share

Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s economic ownership interest in Telesat from 62.6% to approximately 61.1%.

The following table presents the dilutive impact of Telesat stock options on Loral’s reported net income for the purpose of computing diluted earnings per share (in thousands):

F-105

​	Three Months Ended September 30,			Nine Months Ended September 30,
​	2020			2021			2020
Net income – basic	​	$	51,172	​	$	26,999	​	$	3,395
Less: Adjustment for dilutive effect of Telesat stock options	​	​	(257)	​	​	(1,129)	​	​	(46)
Net income – diluted	​	$	50,915	​	$	25,870	​	$	3,349

Telesat stock options are excluded from the calculation of diluted loss per share for the three months ended September 30, 2021 as the effect would be antidilutive.

Basic income per share is computed based upon the weighted average number of share of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):

​	Three Months Ended September 30, 2020		Nine Months Ended September 30,
​			2021		2020
Weighted average common shares outstanding	​	30,933	​	30,933	​	30,933
Unconverted restricted stock units	​	93	​	99	​	84
Common shares outstanding for diluted earnings per share	​	31,026	​	31,032	​	31,017

For the three months ended September 30, 2021, the following unconverted restricted stock units are excluded from the calculation of diluted loss per share as the effect would have been antidilutive (in thousands):

​	Three Months Ended September 30, 2021
Unconverted restricted stock units	​	99

11.   Pensions and Other Employee Benefit Plans

The following tables provide the components of net periodic cost for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and nine months ended September 30, 2021 and 2020 (in thousands):

​	Pension Benefits Three Months Ended September 30,						Other Benefits Three Months Ended September 30,
​	2021			2020			2021			2020
Service cost(1)	​	$	176	​	$	176	​	$	—	​	$	—
Interest cost(2)	​	​	377	​	​	441	​	​	3	​	​	4
Expected return on plan assets(2)	​	​	(684)	​	​	(663)	​	​	—	​	​	—
Amortization of net actuarial loss (gain)(2)	​	​	370	​	​	322	​	​	—	​	​	(1)
Net periodic cost	​	$	239	​	$	276	​	$	3	​	$	3

​	Pension Benefits Nine Months Ended September 30,						Other Benefits Nine Months Ended September 30,
​	2021			2020			2021			2020
Service cost(1)	​	$	528	​	$	528	​	$	—	​	$	—
Interest cost(2)	​	​	1,130	​	​	1,324	​	​	9	​	​	12
Expected return on plan assets(2)	​	​	(2,051)	​	​	(1,989)	​	​	—	​	​	—
Amortization of net actuarial loss (gain)(2)	​	​	1,110	​	​	966	​	​	—	​	​	(3)
Net periodic cost	​	$	717	​	$	829	​	$	9	​	$	9

(1)

Included in general and administrative expenses.

(2)

Included in other expense.

F-106

12.   Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.

Foreign Currency

We are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, we attempt to denominate all contracts in U.S. dollars. Where appropriate, derivatives are used to minimize the risk of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or speculative purposes.

Derivatives and Hedging Transactions

There were no derivative instruments as of September 30, 2021 and December 31, 2020.

13.   Commitments and Contingencies

Financial Matters

In connection with the Closing, the employment of each Loral employee will be terminated. For the three months ended September 30, 2021, we charged approximately $7.2 million to general and administrative expenses, mainly for severance and related costs, and expect to make cash payments to the terminated employees at the Closing.

In 2012, we sold our former subsidiary, SSL, to MDA Communications Holdings, Inc., a subsidiary of Maxar Technologies Inc. (formerly known as MacDonald, Dettwiler and Associates Ltd.) (“MDA”). Under the terms of the purchase agreement, we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our condensed consolidated balance sheets include an indemnification refund receivable of $0.6 million as of September 30, 2021 and December 31, 2020. Certain tax assessments against SSL for 2007 to 2010 have been settled, resulting in our having received during the second and third quarters of 2019 refunds of prior indemnification payments totaling $1.8 million. The remaining receivable as of September 30, 2021 represents payments to date over the estimated fair value of the remaining liability for our indemnification of SSL pre-closing taxes where the final amounts have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our condensed consolidated balance sheets include liabilities of $0.1 million as of September 30, 2021 and December 31, 2020 for indemnification liabilities relating to the sale of GdB.

See Note 14 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies relating to our agreement to indemnify Telesat for certain liabilities.

Lease Arrangements

We lease a facility and certain equipment under agreements expiring at various dates. We may renew, extend or modify the lease covering our facilities as needed. In March 2021, the operating lease for our corporate offices was modified by extending the lease expiration date from June 30, 2021 to December 31, 2021 and decreasing the rent for the extension period. The facility lease modification was accounted for by remeasuring the lease liability and adjusting the carrying amount of the right-of-use asset by the amount of the remeasurement of the lease liability as of March 31, 2021. We have no sublease income in any of the periods presented.

F-107

Lease costs expensed for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

​	Three Months Ended September 30,						Nine Months Ended September 30,
​	2021			2020			2021			2020
Rent Expense	​	$	160	​	$	174	​	$	494	​	$	521

Lease payments for the nine months ended September 30, 2021 were $0.5 million. The remaining lease term as of September 30, 2021 is three months and we used a discount rate of 7.5% to compute the lease liability. The right-of-use asset is being amortized over the life of the lease.

The following is a reconciliation of the lease liability to future lease payments as of September 30, 2021 (in thousands):

Operating lease payments – (October 1, 2021 to December 31, 2021)	​	153
Less: Future interest	​	1
Operating lease liability	$	152
Amounts recognized in Balance Sheet	​	​
Other current liabilities	$	152

Legal Proceedings

   Litigation Related to the Transaction

Southern District of New York Litigation.   On May 5, 2021, Guy Coffman filed a complaint (Civil Action No. 1:21-cv-04007, the “Coffman Complaint”) in the United States District Court for the Southern District of New York against Loral and the members of the Loral Board (the “Individual Defendants”). Also on May 5, 2021, Shiva Stein filed a complaint (Civil Action No. 1:21-cv-04018, the “Stein Complaint”) in the United States District Court for the Southern District of New York against Loral and the Individual Defendants. On May 7, 2021, Julia Marshall filed a complaint (Civil Action No. 1:21-cv-04128, the “Marshall Complaint”) in the United States District Court for the Southern District of New York against Loral, the Individual Defendants and Merger Sub (collectively, the “Loral Defendants”); the Marshall Complaint also named as defendants Telesat, Telesat Corporation, Telesat Partnership and Telesat CanHoldco (together, the “Telesat Defendants”) and PSP and Red Isle (the “PSP Defendants” and, together with the Loral Defendants and the Telesat Defendants, the “SDNY Defendants”). On June 18, 2021, Anthony Morgan filed a complaint (Civil Action No. 1:21-cv-05385, the “Morgan Complaint” and, together with the Coffman Complaint, the Stein Complaint and the Marshall Complaint, the “SDNY Complaints”) in the United States District Court for the Southern District of New York against Loral and the Individual Defendants.

The SDNY Complaints alleged, among other things, that the Registration Statement on Form F-4 filed on April 26, 2021 with the SEC by Telesat Corporation and Telesat Partnership, and, in the case of the Morgan Complaint, such Registration Statement as amended by Amendment No. 1 thereto filed with the SEC by Telesat Corporation and Telesat Partnership on May 28, 2021 (the “2021 Registration Statement”) contained materially incomplete and misleading information. The SDNY Complaints sought, among other things, to enjoin the SDNY Defendants from proceeding with, consummating or closing the Transaction, unless and until the SDNY Defendants disclosed the material information that plaintiffs claimed had been omitted from the 2021 Registration Statement; awarding plaintiffs the costs and disbursements of their actions, including reasonable attorneys’ and expert fees and expenses; and such other and further equitable relief as the court may deem just and proper.

None of the Complaints were served on the SDNY Defendants. The Stein Complaint was voluntarily dismissed on July 8, 2021; the Morgan Complaint was voluntarily dismissed on August 3, 2021; the Coffman complaint was voluntarily dismissed on August 24, 2021; and the Marshall complaint was voluntarily dismissed on August 31, 2021.

F-108

Delaware Class Action Litigation.   On June 21, 2021, Mcbreakley Pluviose filed a class action complaint (Civil Action No. 2021-0541-LWW, the “Pluviose Complaint”) in the Court of Chancery of the State of Delaware against Loral, the Individual Defendants, MHR and MHR Holdings LLC (collectively, the “Class Action Defendants”). On July 13, 2021, Diana Butchko filed a class action complaint (Civil Action No. 2021-0597-LWW, the “Butchko Complaint,” and, together with the Pluviose Complaint, the “Delaware Complaints”) in the Court of Chancery of the State of Delaware against the Class Action Defendants.

The Delaware Complaints alleged, among other things, that the Transaction is substantively and procedurally unfair to Loral’s public stockholders. Each of the Delaware Complaints sought, among other things, a judgment declaring that the Transaction violated Section 203 of the Delaware General Corporation Law (the “DGCL”) and that Loral’s shareholder rights plan was unenforceable; converting into non-voting shares of Telesat Corporation the shares that Dr. Rachesky and MHR receive in the Transaction in exchange for their shares of Loral non-voting common stock; finding the Individual Defendants, and Dr. Rachesky and MHR as controlling stockholders, liable for breaching their fiduciary duties owed to plaintiff and the class; enjoining the Loral stockholder vote on the Transaction unless and until it is subject to a vote under DGCL Section 203; and awarding to plaintiff and the class, damages, together with pre-and post-judgment interest, costs, expenses and disbursements of the action, including all reasonable attorneys’, accountants’ and experts’ fees, and such other relief as the court deems just and equitable.

On July 15, 2021, plaintiffs in the above-described Delaware lawsuits, with court approval, voluntarily dismissed their lawsuits.

Other and Routine Litigation

Other than as set forth above, we are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.

14.   Related Party Transactions

MHR Fund Management LLC

Mark H. Rachesky, President and Chief Investment Officer of MHR, and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s board of directors.

Various funds affiliated with MHR and Dr. Rachesky held, as of September 30, 2021 and December 31, 2020, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral.

Transactions with Affiliates

Telesat

Transaction Agreement.   On November 23, 2020, Loral entered into the Transaction Agreement with Telesat, Telesat Partnership, Telesat Corporation, Telesat CanHoldco, Merger Sub, PSP and Red Isle, under which Merger Sub will merge with and into Loral, with Loral surviving the Merger as a wholly owned subsidiary of Telesat Partnership, and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period.

On June 24, 2021, pursuant to Section 12.8 of the Transaction Agreement, Loral, with the approval of the special committee of the board of directors of Loral, entered into Amendment No. 1 to the Transaction Agreement (“Amendment No. 1”) with the parties thereto, that replaced all references to Colin Watson in the Transaction Agreement with references to Clare Copeland, the transferee of the Transit Director Voting Preferred Shares (as defined in the Transaction Agreement) formerly held by the estate of Colin Watson.

Under the terms of the Transaction Agreement, each of Loral and PSP has the right to terminate the Transaction Agreement after the Outside Date (defined as the date that is twelve months following

F-109

November 23, 2020 subject to certain extension rights as specified in the Transaction Agreement) if the Closing has not occurred by the proposed termination date. Because there can be no assurance that the Closing will occur when currently expected, the parties to the Transaction Agreement and the parties to the Voting Support Agreement, dated as of November 23, 2020, by and among Telesat, Loral, PSP and certain affiliates of MHR Fund Management LLC party thereto executed on November 3, 2021 a waiver, waiving, among other things, until December 23, 2021, their rights to terminate the Transaction Agreement as a result of the Closing not having occurred prior to the Outside Date. The foregoing description of the waiver is not complete and is qualified in its entirety by reference to the waiver, a copy of which is filed as Exhibit 10.1 to this Report.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides for certain economic adjustments and contractual protections with respect to Loral’s assets and liabilities other than its indirect interest in Telesat. These include among others:

•

One Time Payment.   To compensate PSP and Red Isle for certain tax inefficiencies for PSP and Red Isle related to the structure of the Transaction, Loral will make a payment of $7 million to Red Isle, subject to the extent of Loral’s available cash; however, if such payment is less than $7 million due to a lack of available cash, Telesat Partnership will be required to pay the balance of such unpaid amount to Red Isle no later than 35 trading days following consummation of the Transaction.

•

Absolute Indemnities.   Loral, Telesat Corporation and Telesat CanHoldco will indemnify PSP for PSP’s pro rata share of costs relating to: (a) certain losses and litigation proceedings related to the Transaction, (b) certain out-of-pocket expenses of Loral after the Closing and (c) certain tax matters. This indemnification will be (i) independent of the accuracy of the underlying representations and warranties, (ii) in the case of the tax indemnification, subject to a cap of $50 million and (iii) subject to additional, customary limitations.

The Transaction Agreement also provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91 million or to pay to PSP a “breach” fee of $40.0 million in each case as provided in the Transaction Agreement.

In connection with the Transaction, Loral entered into the following agreements with related parties or their subsidiaries:

Subscription Agreement for Series B Preferred Stock.   In connection with the Transaction, Loral issued to Telesat Partnership five shares of Series B Preferred Stock pursuant to the terms of a subscription agreement entered into between Loral and Telesat Partnership. Such shares of Series B Preferred Stock will remain outstanding following the Merger and will give Telesat Partnership the right to vote such shares once there is no Loral common stock outstanding.

Full and Final Release and Amendment of Tolling Agreement.   Loral has asserted certain claims against PSP arising out of PSP’s actions in certain previous transaction processes relating to Telesat. PSP has asserted various counterclaims and Loral, PSP and Telesat have entered into a series of tolling agreements preventing those claims from being terminated due to the passing of the statute of limitations while negotiating the Transaction Agreement. In connection with the signing of the Transaction Agreement, the parties entered into a mutual release that will release those claims on the first to occur of the closing of the Transaction or the termination of the Transaction Agreement due to Loral’s material breach.

Standstill Agreement.   Loral and MHR have entered into a standstill agreement (the “MHR Standstill Agreement”) prohibiting MHR and its affiliates from, subject to the terms thereof, acquiring more than an

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additional 6% of the outstanding Voting Common Stock prior to the conclusion of the Loral stockholder meeting to be held to approve the Transaction. The MHR Standstill Agreement will terminate immediately upon the first to occur of the conclusion of the Loral stockholder meeting and termination of the Transaction Agreement.

On June 24, 2021, pursuant to Section 12.8 of the Transaction Agreement, Loral (with the approval of the special committee of the board of directors of Loral) and PSP entered into a consent letter agreement with and at the request of Telesat granting a limited waiver of Telesat Corporation’s obligations under Section 8.8(b) of the Transaction Agreement such that (a) Telesat Corporation or any of its subsidiaries may propose the issuance or sale of shares of capital stock or other equity interests of Telesat Corporation or any of its subsidiaries in connection with any private investment the purpose of which is to finance Telesat Lightspeed and (b) Telesat Corporation may privately propose the issuance or sale of shares of capital stock or other equity interests of Telesat Corporation in connection with an underwritten public offering to potential underwriters, applicable regulators and to Loral and PSP, and may furnish a registration statement on Form F-1 and amendments thereto on a confidential basis to the SEC and deliver corresponding documents to applicable Canadian securities regulators in connection with an underwritten offering of securities; provided that Telesat Corporation does not publicly file such registration statement or publicly announce its intention to conduct such offering (except to generally disclose its intention to conduct such an offering pursuant to disclosure to be included in Telesat Corporation’s and Telesat Partnership’s registration statement on Form F-4 filed with the SEC and reasonably acceptable to Loral and PSP); provided, in each case, that such consent does not extend to the authorization or issuance of such shares of capital stock or other equity interests.

Ownership Interest.   As described in Note 5, we own a 62.6% economic interest and a 32.6% voting interest in Telesat and account for our ownership interest under the equity method of accounting.

Shareholders Agreement.   In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and certain of its subsidiaries, our Canadian co-owner, PSP and one of its subsidiaries, Telesat and MHR entered into a Shareholders Agreement (the “Shareholders Agreement”). The Shareholders Agreement provides for, among other things, the manner in which the affairs of Telesat and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. The Shareholders Agreement also contains an agreement by Loral not to engage in a competing satellite communications business and agreements by the parties to the Shareholders Agreement not to solicit employees of Telesat or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) provides for, in certain circumstances, tag-along rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Telesat equity securities.

Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) or (ii) there is a change in the composition of a majority of the members of the Loral Board of Directors over a consecutive two-year period without the approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat and its subsidiaries. In addition, after either of these events, PSP will have certain rights to enable it to exit from its investment in Telesat, including a right to cause Telesat to conduct an initial public offering in which PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of cooperation from Loral or Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to Loral’s right to call PSP’s shares at fair market value.

The Shareholders Agreement provides for a board of directors of Telesat consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent

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directors then in office. Each party to the Shareholders Agreement is obligated to vote all of its Telesat shares for the election of the directors nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the board of directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.

Consulting Services Agreement.   On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provided to Telesat certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the satellite communications business of Telesat. The Consulting Agreement had an initial term of seven-years. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year term which expired on October 31, 2021. In exchange for Loral’s services under the Consulting Agreement, Telesat paid Loral an annual fee of $5.0 million, payable quarterly in arrears on the last day of March, June, September and December of each year during the term of the Consulting Agreement. Our general and administrative expenses are net of income related to the Consulting Agreement of $1.25 million for each of the three-month periods ended September 30, 2021 and 2020 and $3.8 million for each of the nine-month periods ended September 30, 2021 and 2020. For each of the nine-month periods ended September 30, 2021 and 2020, Loral received payments in cash from Telesat, net of withholding taxes, of $3.6 million for consulting fees.

Tax Indemnification.   In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately $0.6 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification. There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes.

Administrative Fee.   Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants. The amount due to Telesat as of September 30, 2021 and December 31, 2020 was $0.1 million.

Grant Agreements.   Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), has entered into (i) a stock option grant agreement dated November 18, 2013 with respect to shares in Telesat with Telesat President and CEO, Daniel Goldberg (the “Goldberg Stock Option Grant Agreement”); (ii) an award agreement for Telesat restricted share units dated November 28, 2018 with Mr. Goldberg (the “Goldberg RSU Grant Agreement”); and (iii) restricted share unit grant agreements dated April 23, 2021 with respect to shares in Telesat (the “2021 RSU Grant Agreements” and, together with the Goldberg RSU Grant Agreement, the “RSU Grant Agreements”) with the following executives of Telesat: Mr. Goldberg, Andrew Browne, Telesat Chief Financial Officer, Erwin Hudson, Telesat Vice President, LEO, and Michael Schwartz, Telesat Senior Vice President, Corporate and Business Development (each a “Participant” and collectively, the “Participants”).

The Goldberg Stock Option Grant Agreement documents a grant to Mr. Goldberg of Telesat stock options (including tandem SAR rights) and provides for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Goldberg Stock Option Grant Agreement; (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of Mr. Goldberg’s termination of employment; (y) the right of Mr. Goldberg to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than

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the minimum withholding amount; and (z) the right of Mr. Goldberg to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under Telesat’s Management Stock Incentive Plan at the relevant time, in the event that more than 90% of Loral’s common stock is acquired by an unaffiliated third party that does not also purchase all of PSP’s and its affiliates’ interest in Telesat. Under an option cancellation agreement between Telesat and Mr. Goldberg, 220,000 options under the Goldberg Stock Option Agreement were cancelled, with the balance of the options under that agreement remaining outstanding.

The Goldberg RSU Grant Agreement documents a grant to Mr. Goldberg of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Goldberg RSU Grant Agreement; and (y) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of the termination of Mr. Goldberg’s employment.

The 2021 RSU Grant Agreements document grants to the Participants of restricted share units with respect to shares in Telesat and provide for certain rights, obligations and restrictions related to such restricted share units, which include, among other things, the obligation of the Special Purchaser, prior to the occurrence of the Transaction, to purchase Telesat shares upon exercise by Telesat of its call right under Telesat’s Restricted Share Unit Plan in the event of the termination of a Participant’s employment.

The Goldberg Stock Option Grant Agreement and the RSU Grant Agreements further provide that, in the event the Special Purchaser is required to purchase Telesat shares pursuant to such agreements, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat.

Other than the stock options that remain outstanding under the Goldberg Stock Option Grant Agreement as discussed above, stock options to purchase shares in Telesat previously granted by Telesat to certain Telesat executives (Messrs. Goldberg, Browne, Hudson and Schwartz) and a former Telesat executive (Mr. Cayouette) under stock option grant agreements among Telesat, such Telesat executives or former executive, PSP, Loral and the Special Purchaser have been either exercised for Telesat shares or cancelled, and, accordingly, neither Loral nor the Special Purchaser has any further obligations under those agreements.

Other

We own 56% of the ordinary membership interests of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship (see Note 5). As part of the restructuring, XTAR and Loral terminated the Loral Management Agreement pursuant to which Loral provided general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral at the time of the restructuring, primarily due to the Loral Management Agreement, were $6.6 million and we had an allowance of $6.6 million against these receivables. On July 2, 2020, Loral received from XTAR $5.9 million in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As of December 31, 2020, Loral had a receivable of $0.1 million from XTAR.

Consulting Agreement

On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting

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fees of $120,000 per month and reimburses the Company for certain expenses. For each of the three and nine month periods ended September 30, 2021 and 2020, Mr. Targoff earned consulting fees of $360,000 and $1,080,000, respectively, and reimbursed Loral net expenses of $11,250 and $33,750, respectively.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements (the “financial statements”) and the audited consolidated financial statements filed with the Securities and Exchange Commission (“SEC”) and included herein.

Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries (“Loral,” the “Company,” “we,” “our,” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

Disclosure Regarding Forward-Looking Statements

Except for the historical information contained in the following discussion and analysis, the matters discussed below are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend” or “outlook” or other variations of these words. These statements, including without limitation, those relating to Telesat, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. For a detailed discussion of these and other factors and conditions, please refer to the Commitments and Contingencies section below and to our other periodic reports filed with the SEC. We operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Overview

On November 23, 2020, Loral entered into a Transaction Agreement and Plan of Merger (as it may be amended from time to time, the “Transaction Agreement”) with Telesat Canada, a Canadian corporation (“Telesat”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat Corporation, a newly formed corporation incorporated under the laws of the Province of British Columbia, Canada and the sole general partner of Telesat Partnership (“Telesat Corporation”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada and wholly owned subsidiary of Telesat Partnership (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and Red Isle Private Investments Inc., a Canadian corporation and wholly owned subsidiary of PSP (“Red Isle”), under which Merger Sub will merge with and into Loral, with Loral surviving the merger as a wholly owned subsidiary of Telesat Partnership (the “Merger”), and Loral stockholders receiving common shares of Telesat Corporation and/​or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period (the “Transaction”).

The Transaction Agreement contains a number of customary conditions that must be fulfilled to complete the Transaction, including (i) approval of (A) a majority of the outstanding Loral voting common stock and (B) a majority of the outstanding Loral voting common stock not held by MHR Fund Management LLC (“MHR”), PSP, any other party to the Transaction Agreement or certain of their respective affiliates; (ii) the parties having obtained certain regulatory consents and approvals; (iii) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the Transaction; (iv) the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange; (v) no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred; (vi) Telesat remaining in good standing with respect to its material debt obligations; (vii) the accuracy of certain representations (subject to certain qualifications as to materiality) and material performance of certain covenants by the parties, subject to specified exceptions; (viii) effectiveness of a registration statement on Form F-4 in connection with the Transaction (the “Registration Statement”) and the issuance of a receipt for each of the Canadian preliminary and final prospectuses in respect of the Transaction; (ix) no U.S., Canadian or Spanish governmental agency having commenced civil or criminal proceeding against Loral alleging that any member of the “Loral Group” has criminally violated any law, and no member of the “Loral Group” having been indicted or

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convicted for, or pled nolo contendere to, any such alleged criminal violation; (x) Loral remaining solvent and not having entered into any bankruptcy or related proceeding; and (xi) the delivery by the parties of certain closing deliverables. If the parties have confirmed that all the conditions are satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing of the Transaction (the “Closing”), but which conditions are capable of being satisfied at the Closing), then PSP and Loral will each have the right to extend the Closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate, from the date on which the Closing otherwise would have occurred. If the Closing is extended, the Closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or waived (other than the conditions (i) with respect to no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred, (ii) that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing and (iii) if PSP extends the Closing, with respect to a civil or criminal legal proceeding alleging that Loral or any of its subsidiaries (excluding XTAR, LLC (“XTAR”) and Globalstar de Mexico, S. de R.L. de C.V. (“GdM”) and their subsidiaries), has criminally violated a law).

On August 6, 2021, Loral was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s and XTAR’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies.

On August 23, 2021, at a reconvened special meeting of stockholders of the Company, Loral stockholders approved the Transaction and related proposals. In addition, on August 23, 2021, Loral was notified by the Committee on Foreign Investment in the United States (“CFIUS”) that CFIUS had concluded its review of the Transaction and had determined that there were no unresolved national security concerns.

As of the date hereof, consummation of the Closing remains subject to a number of conditions, including the issuance of a receipt for the Canadian prospectus in respect of the Transaction and the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange, which Telesat has informed the parties to the Transaction Agreement that it is in the final stages of obtaining. Accordingly, the parties have scheduled the two-day Closing provided for in the Transaction Agreement to occur on November 17, 2021 and November 18, 2021, subject to the satisfaction of all of the conditions to Closing, and Loral has announced that the election deadline for election by stockholders of the Transaction consideration is November 12, 2021. In the event that the conditions to Closing are not satisfied on or before November 17, 2021, Loral will publicly announce a new election deadline and date for Closing. Under the terms of the Transaction Agreement, Loral and PSP each has the right to terminate the Transaction Agreement after the Outside Date (generally defined as the date that is twelve months following November 23, 2020) if the Closing has not occurred by the proposed termination date. Because there can be no assurance that the Closing will occur when scheduled, on November 3, 2021, the parties to the Transaction Agreement executed a waiver, waiving until December 23, 2021, among other things, their rights to terminate the Transaction Agreement as a result of the Closing not having occurred prior to November 23, 2021 and extending the Outside Date to December 23, 2021. A copy of this waiver is filed as Exhibit 10.1 to this Report.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91million or to pay to PSP a “breach” fee of $40 million, in each case as provided in the Transaction Agreement.

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Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of geostationary satellites that occupy Canadian and other orbital locations. Telesat is also developing a planned global constellation of low earth orbit (“LEO”) satellites known as “Telesat Lightspeed.” Loral holds a 62.6% economic interest and a 32.6% voting interest in Telesat as of September 30, 2021.

Telesat’s GEO Satellite Business

The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment. Once the investment in a satellite is made, the incremental costs to maintain and operate the satellite are relatively low over the life of the satellite, with the exception of in-orbit insurance. Telesat has been able to generate a large contractual revenue backlog by entering into long-term contracts with some of its customers, in some cases for all or substantially all of a satellite’s orbital maneuver life. Historically, this has resulted in revenue from the satellite services business being fairly predictable.

As of September 30, 2021, Telesat provided satellite services to customers from its fleet of 15 geostationary satellites, as well as the Canadian payload on the ViaSat-1 satellite. Telesat also manages the operations of additional satellites for third parties. As of September 30, 2021, Telesat’s contracted backlog from its geostationary satellite business was approximately $1.8 billion.

Telesat Lightspeed

Telesat has commenced the development of what it believes will be the world’s most advanced constellation of LEO satellites and integrated terrestrial infrastructure, called “Telesat Lightspeed” — a platform designed to revolutionize the provision of global broadband connectivity. In January 2018, Telesat’s first LEO satellite was successfully launched into orbit. This Phase 1 LEO satellite has demonstrated certain key features of the Telesat Lightspeed system design, specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience. Telesat also installed ground infrastructure at its teleport in Allan Park in Canada to support testing with a variety of existing and prospective customers and potential suppliers of the Telesat Lightspeed system hardware who have been participating in trials since the second half of 2018.

Telesat continues to advance its Telesat Lightspeed plans:

Government Grant

In May 2019, Telesat entered into an agreement with the government of Canada pursuant to which the government of Canada will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat Lightspeed constellation. In return for the grant, Telesat made a number of commitments to the government of Canada, including commitments to conduct over CAD 200 million of research and development activities in Canada as well as to expand Telesat’s Canadian workforce. As of September 30, 2021, Telesat claimed CAD 27.4 million against the government grant and incurred CAD 277.3 million in connection with this program.

During the nine months ended September 30, 2021, Telesat claimed CAD 10.4 million against the government grant and incurred CAD 142.6 million in connection with this program.

On August 9, 2021, Telesat and the Government of Ontario announced that they have partnered to bridge the digital divide in Ontario by leveraging Telesat’s planned advanced, state-of-the-art LEO satellite network, Telesat Lightspeed. Under this CAD 109 million, five-year partnership, a dedicated Telesat Lightspeed capacity pool will be made available at substantially reduced rates to Canadian Internet service providers (“ISPs”), including Indigenous owned and operated ISPs, as well as mobile network operators to expand high-speed Internet and LTE/5G networks to Ontario’s unserved and underserved communities. The transaction is subject to the entering into of a further, definitive agreement.

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On August 12, 2021, Telesat announced that it expects to receive a $1.44 billion investment from the Government of Canada to support Telesat Lightspeed. Under the terms of the agreement, the Government of Canada would provide a loan of CAD 790 million and make a CAD 650 million preferred equity investment in Telesat Lightspeed. In return, Telesat will commit to make certain minimum capital and operating expenditures in Canada in connection with the program and, in addition, to create hundreds of Canadian high-quality, full-time jobs and co-ops and provide academic scholarships. With the investment from the Government of Canada and other financing sources already in place, Telesat now has arrangements for approximately $4 billion in funding for the program. These arrangements, including the Government of Canada investment, are subject to a number of conditions, including the entering into of further, definitive agreements.

Thales Alenia Space (“TAS”), Telesat’s proposed primary vendor for the Lightspeed program, has advised Telesat that global supply chain constraints on the availability of certain components required for the development and construction of Telesat’s Lightspeed constellation are likely to extend the expected construction timeline and delay entry into service of the Lightspeed constellation. Telesat is working with TAS to assess the impact of, and potential mitigants to, these supply chain issues. This development has delayed Telesat’s ability to finalize financing agreements with certain export credit agencies, which may also negatively impact the timeline.

Telesat Outlook

Telesat’s desirable spectrum rights, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled it to successfully develop its business to date. Leveraging these strengths and building on its existing contractual revenue backlog, Telesat’s focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and, in a disciplined manner, deploying expansion satellite capacity where strong market demand is anticipated.

After decades of developing and successfully operating its geosynchronous orbit-based satellite services business, Telesat is now poised to revolutionize the provision of global broadband connectivity by developing Telesat Lightspeed, which Telesat believes will be the world’s most advanced constellation of LEO satellites and integrated terrestrial infrastructure.

Telesat believes that it is well positioned to serve its customers and the markets in which it participates. Telesat actively pursues opportunities to develop new satellites, particularly in conjunction with current or prospective customers who will commit to long-term service agreements prior to the time the satellite construction contract is signed. However, while Telesat regularly pursues these opportunities, it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity.

In 2021, Telesat remains focused on increasing utilization of its existing satellites, the development of the Telesat Lightspeed constellation and identifying and pursuing opportunities to invest in other expansion of satellite capacity, all while maintaining operating discipline.

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. For the nine months ended September 30, 2021, approximately 53.1% of Telesat’s revenues, 33.8% of its operating expenses, 100% of its interest expense and a significant portion of its capital expenditures were denominated in U.S. dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated indebtedness and cash and short-term investments. As of September 30, 2021, Telesat’s U.S. dollar denominated debt totaled $3.0 billion. As of September 30, 2021, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $116.4 million. This analysis assumes all other variables, in particular interest rates, remain constant.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral has agreed that, subject to certain exceptions described in the Shareholders Agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity

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in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs.

Other

We own 56% of the ordinary membership interests of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. Hisdesat owns the remaining 44% of the ordinary membership interests and all of XTAR’s Class A membership interests, which have liquidation priority over the ordinary membership interests. Prior to July 1, 2020, XTAR owned and operated an X-band satellite, XTAR — EUR (the “Satellite”) located at the 29° E.L. orbital slot (the “Orbital Slot”). In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L. (the “Transponder Lease”). For services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee under a management agreement with Loral (the “Loral Management Agreement”).

On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the Loral Management Agreement; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. As of the date of this report, Hisdesat has not exercised this option. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

COVID-19

On March 11, 2020, the World Health Organization designated the COVID-19 coronavirus as a global pandemic. Various policies and initiatives have been implemented worldwide to reduce the global transmission of COVID-19, including the promotion of social distancing and the adoption of remote working policies. The COVID 19 pandemic has had a limited impact on our ability to operate our business.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, and on April 24, 2020, the Paycheck Protection Program and Healthcare Enhancement Act was signed into law (collectively, the “COVID-19 Acts”) The COVID-19 Acts provided substantial stimulus and assistance packages intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The COVID-19 Acts reduced our income tax provision for the three and nine months ended September 30, 2020 by approximately $2.2 million and $5.7 million, respectively. We continue to monitor any other effects that may result from the COVID-19 Acts.

Consolidated Operating Results

See Critical Accounting Matters in our latest Annual Report on Form 10-K filed with the SEC and Note 2 to the financial statements.

Changes in Critical Accounting Policies — There have been no changes in our critical accounting policies during the nine months ended September 30, 2021.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

The following compares our consolidated results for the three months ended September 30, 2021 and 2020 as presented in our financial statements:

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Operating (loss) income

​	Three Months Ended September 30,
​	2021			2020
​	(In thousands)
General and administrative expenses	​	$	(8,745)	​	$	(1,725)
Recovery of affiliate doubtful receivable	​	​	—	​	​	5,854
Operating (loss) income	​	$	(8,745)	​	$	4,129

General and administrative expenses increased by $7.0 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2021, primarily due to a $7.2 million severance and related expense in connection with the termination of the employment of each Loral employee at Closing. For the three months ended September 30, 2020, we had operating income of $4.1 million primarily due to the receipt of $5.9 million from XTAR in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

Other Expense

​	Three Months Ended September 30,
​	2021			2020
​	(In thousands)
Other expense	​	$	2,362	​	$	2,300

For the three months ended September 30, 2021 and 2020, other expense primarily includes Transaction related expenses.

Income Tax Benefit (Provision)

​	Three Months Ended September 30,
​	2021			2020
​	(In thousands)
Income tax benefit (provision)	​	$	829	​	$	(309)

For the three months ended September 30, our income tax provision is summarized as follows: (i) for 2021, we recorded a current provision of $0.3 million and a deferred tax benefit of $1.1 million, resulting in a net tax benefit of $0.8 million and (ii) for 2020, we recorded a current provision of $0.3 million and an insignificant deferred tax provision, resulting in a net tax provision of $0.3 million. Our deferred income tax provision for 2020 included a benefit of $2.2 million from the COVID-19 Acts.

Our income tax provision for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the nine month periods ended September 30, 2021 and 2020 (after adjusting for certain tax items that are discrete to each period). This amount is then reduced by the tax benefit (provision) recorded for the six months ended June 30, 2021 and 2020. The current income tax provision for each period includes our anticipated income tax liability related to Global Intangible Low Taxed Income (“GILTI”) from Telesat and our provision for uncertain tax positions (“UTPs”). After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each period. The deferred income tax benefit (provision) for each period includes the impact of equity in net (loss) income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. Since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of September 30, 2021 and December 31, 2020.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat

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investment, subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

Equity in Net (Loss) Income of Affiliates

​	Three Months Ended September 30,
​	2021			2020
​	(In thousands)
Telesat	​	$	(14,924)	​	$	49,645

As of September 30, 2021, we held a 62.6% economic interest and a 32.6% voting interest in Telesat. Loral’s equity in net (loss) income of Telesat is based on our proportionate share of Telesat’s results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in U.S. dollars. The amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars for the three months ended September 30, 2021 and 2020 follows (in thousands):

​	Three Months Ended September 30,				Three Months Ended September 30,
​	2021		2020		2021		2020
​	(In Canadian dollars)				(In U.S. dollars)
Statement of Operations Data:	​	​	​	​	​	​	​	​
Revenues	​	193,110	​	202,830	​	153,334	​	152,081
Operating expenses	​	(41,735)	​	(43,088)	​	(33,099)	​	(32,325)
Depreciation and amortization	​	(54,679)	​	(59,884)	​	(43,410)	​	(44,888)
Other operating expense	​	(30)	​	(34)	​	(23)	​	(26)
Operating income	​	96,666	​	99,824	​	76,802	​	74,842
Interest expense	​	(50,981)	​	(50,288)	​	(40,501)	​	(37,715)
Foreign exchange (loss) gain	​	(68,965)	​	66,909	​	(55,138)	​	48,943
Gain on financial instruments	​	4,970	​	419	​	3,955	​	246
Other (loss) income	​	(112)	​	678	​	(88)	​	527
Income tax provision	​	(13,356)	​	(12,140)	​	(10,590)	​	(9,053)
Net (loss) income	​	(31,778)	​	105,402	​	(25,560)	​	77,790
Average exchange rate for translating Canadian dollars to U.S. dollars ( 1 U.S. dollar equals)	​	1.2597	​	1.3345	​	​	​	​

Telesat’s revenue increased by $1.3 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 due primarily to an increase in enterprise revenue associated with short-term services provided to another satellite operator and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue, partially offset by a slight reduction in service for a North American DTH customer and lower consulting activities. The foreign exchange rate change increased Telesat’s revenue by $3.9 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Telesat’s operating expenses increased by $0.8 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 primarily due to higher share-based compensation

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expense, higher consulting costs principally associated with a contract with the U.S. government, a higher provision for bad debt expense and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated expenses, partially offset by higher capitalized engineering costs and lower professional fees. The foreign exchange rate change increased Telesat’s operating expenses by $1.2 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

The following compares our consolidated results for the nine months ended September 30, 2021 and 2020 as presented in our financial statements:

Operating (loss) income

​	Nine Months Ended September 30,
​	2021			2020
​	(In thousands)
General and administrative expenses	​	$	(12,374)	​	$	(5,174)
Recovery of affiliate doubtful receivable	​	​	—	​	​	5,854
Operating (loss) income	​	$	(12,374)	​	$	680

General and administrative expenses increased by $7.2 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a $7.2 million severance and related expense in connection with the termination of the employment of each Loral employee at Closing. For the nine months ended September 30, 2020, we had operating income of $0.7 million primarily due to the receipt of $5.9 million from XTAR in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

Interest and Investment Income

​	Nine Months Ended September 30,
​	2021			2020
​	(In thousands)
Interest and investment income	​	$	5	​	$	1,045

Interest and investment income decreased by $1.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due to the lower cash balance resulting primarily from payment of cash dividends of $170.1 million and $46.4 million in May 2020 and December 2020, respectively, and lower interest rates earned on the cash balance during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Other Expense

​	Nine Months Ended September 30,
​	2021			2020
​	(In thousands)
Other expense	​	$	6,834	​	$	6,440

For the nine months ended September 30, 2021 and 2020, other expense primarily includes Transaction related expenses.

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Income Tax Benefit (Provision)

​	Nine Months Ended September 30,
​	2021			2020
​	(In thousands)
Income tax benefit (provision)	​	$	1,252	​	$	(956)

For the nine months ended September 30, our income tax benefit (provision) is summarized as follows: (i) for 2021, we recorded a current provision of $0.9 million and a deferred tax benefit of $2.2 million, resulting in a net tax benefit of $1.3 million and (ii) for 2020, we recorded a current provision of $1.2 million and a deferred tax benefit of $0.2 million, resulting in a net tax provision of $1.0 million. Our deferred income tax benefit for 2020 included a benefit of $5.7 million from the COVID-19 Acts.

Our income tax benefit (provision) for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the nine month periods ended September 30, 2021 and 2020 (after adjusting for certain tax items that are discrete to each period). The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. After utilizing our NOL carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each period. The deferred income tax benefit for each period includes the impact of equity in net (loss) income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. Since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of September 30, 2021 and December 31, 2020.

In October 2021, the statute of limitations for assessment of additional tax expired with regard to certain UTPs, which is expected to result in a reduction to our income tax provision for the fourth quarter of approximately $19.7 million.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets

Equity in Net Income of Affiliates

​	Nine Months Ended September 30,
​	2021			2020
​	(In thousands)
Telesat	​	$	44,969	​	$	9,086

The following is a reconciliation of the changes in our investment in Telesat for the nine months ended September 30, 2021:

​	Nine Months Ended September 30, 2021
​	(In thousands)
Balance, January 1, 2021	​	​	​	$	192,664
Components of equity in net income of Telesat:	​	​	​	​	​
Equity in net income of Telesat	​	$	41,713	​	​
Eliminations of affiliate transactions and related amortization	​	​	3,256	​	44,969
Equity in Telesat-related other comprehensive income	​	​	​	​	3,866
Balance, September 30, 2021	​	​	​	$	241,499

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Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars as of September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020 follows (in thousands):

​	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
​	(In Canadian dollars)				(In U.S. dollars)
Balance Sheet Data:	​	​	​	​	​	​	​	​
Current assets	​	1,654,493	​	894,835	​	1,304,567	​	703,210
Total assets	​	5,708,944	​	5,018,579	​	4,501,504	​	3,943,875
Current liabilities	​	191,342	​	165,233	​	150,873	​	129,849
Long-term debt	​	3,778,967	​	3,159,944	​	2,979,716	​	2,483,256
Total liabilities	​	4,562,279	​	3,996,600	​	3,597,358	​	3,140,747
Shareholders’ equity	​	1,146,665	​	1,021,979	​	904,146	​	803,128
Period end exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	​	1.2680	​	1.2725	​	​	​	​

​	Nine Months Ended September 30,				Nine Months Ended September 30,
​	2021		2020		2021		2020
​	(In Canadian dollars)				(In U.S. dollars)
Statement of Operations Data:	​	​	​	​	​	​	​	​
Revenues	​	573,005	​	620,890	​	457,052	​	460,407
Operating expenses	​	(144,920)	​	(136,347)	​	(115,594)	​	(101,106)
Depreciation and amortization	​	(165,460)	​	(179,812)	​	(131,977)	​	(133,336)
Other operating expense	​	(735)	​	(246)	​	(587)	​	(182)
Operating income	​	261,890	​	304,485	​	208,894	​	225,783
Interest expense	​	(139,809)	​	(156,363)	​	(111,517)	​	(115,947)
Foreign exchange gain (loss)	​	1,138	​	(100,315)	​	908	​	(74,387)
Gain (loss) on financial instruments	​	9,715	​	(15,701)	​	7,749	​	(11,643)
Other (loss) income	​	(1,460)	​	6,558	​	(1,164)	​	4,865
Income tax provision	​	(47,982)	​	(24,961)	​	(38,273)	​	(18,509)
Net income	​	83,492	​	13,703	​	66,597	​	10,162
Average exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	​	1.2542	​	1.3495	​	​	​	​

Telesat’s revenue decreased by $3.4 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due primarily to decreases from the COVID-19 pandemic combined with the termination or reduction of service for certain other enterprise customers, a slight reduction in service for a North American DTH customer and lower consulting activities, partially offset by an increase in enterprise revenue associated with short-term services provided to another satellite operator and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue. The foreign exchange rate change increased Telesat’s revenue by $15.1 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Telesat’s operating expenses increased by $14.5 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to higher share-based compensation expense, higher wages primarily associated with the hiring of additional employees to support the Telesat Lightspeed program, higher consulting costs principally associated with a contract with the U.S. government and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar

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denominated expenses, partially offset by higher capitalized engineering costs, reversal of a bad debt provision that was recorded during the nine months ended September 30, 2020 and lower professional fees. The foreign exchange rate change increased Telesat’s operating expenses by $5.4 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Backlog

Telesat’s backlog as of September 30, 2021 and December 31, 2020 was $1.8 billion and $2.1 billion, respectively.

Liquidity and Capital Resources

Loral

As described above, Loral’s principal asset is a 62.6% economic interest in Telesat. The operations of Telesat are not consolidated but are presented using the equity method of accounting. Loral has no debt. Telesat has third party debt with financial institutions. Cash is maintained at Loral and Telesat to support the operating needs of each respective entity. The ability of Telesat to pay dividends or certain other restricted payments as well as consulting fees in cash to Loral is governed by applicable covenants relating to its debt and its shareholder agreement.

Cash and Available Credit

At September 30, 2021, Loral had $20.0 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of September 30, 2021 decreased by $11.6 million from December 31, 2020 due primarily to corporate expenses of $4.7 million adjusted for changes in working capital and net of consulting fees from Telesat, payments of $6.3 million related to strategic initiatives and pension and other post-retirement funding of $0.6 million. A discussion of cash changes by activity is set forth in the sections “Net Cash Used in Operating Activities” and “Net Cash Used in Financing Activities.”

Loral did not have a credit facility as of September 30, 2021 and December 31, 2020.

Cash Management

We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile. Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short term investments but does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The policy addresses dealer qualifications, lists approved securities, establishes minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe keep securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. We operate the cash management investment program under the guidelines of our investment policy and continuously monitor the investments to avoid risks.

We currently invest our cash primarily in two liquid government AAA money market funds. The dispersion across funds reduces the exposure of a default at any one fund.

Liquidity

We believe that our cash and cash equivalents will be sufficient to fund projected expenditures for the next 12 months or until the Closing of the Transaction, if sooner. We expect that our major cash outlays during the next 12 months will include general corporate expenses net of consulting fees from Telesat and costs associated with completing the Transaction, including employee severance costs and professional fees. Loral receives consulting fees from Telesat of $1.25 million per quarter under a consulting agreement which expired on October 31, 2021.

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Under the terms of the Transaction Agreement, Loral is required to make a $7 million payment to Red Isle at Closing. Telesat Corporation is obligated to make this payment as well as costs associated with completing the Transaction if Loral does not have sufficient cash at Closing.

Risks to Cash Flow

In 2012, we sold our former subsidiary, SSL, to MDA. Under the terms of the purchase agreement, we are obligated to indemnify MDA from liabilities with respect to certain pre-closing taxes the total amount of which has not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

Telesat

Cash and Available Credit

As of September 30, 2021, Telesat had CAD 1.56 billion of cash and short-term investments as well as approximately $200 million of borrowing availability under its revolving credit facility.

Liquidity

A large portion of Telesat’s annual cash receipts are reasonably predictable because they are primarily derived from an existing backlog of long-term customer contracts and high contract renewal rates. Telesat believes its cash and short-term investments as of September 30, 2021, cash flows from operating activities, and drawings on the revolving credit facility under its senior secured credit facilities will be adequate to meet Telesat’s expected cash requirements for at least the next 12 months for activities in the normal course of business, including required interest and principal payments on debt and Telesat’s capital requirements. This includes the commitments Telesat has made to date for the Telesat Lightspeed program, but does not include the capital that would be required to complete construction of the constellation.

The construction of any satellite replacement or expansion program will require significant capital expenditures, and in particular Telesat currently estimates that its planned Telesat Lightspeed constellation will require a capital investment of approximately $5 billion for satellites, launch vehicles, insurance and related ground systems. Cash required for any future satellite programs may be funded from a range of sources including: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments; through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities; vendor financing; equity investments, including through the issuance of public equity; export credit agency financing; additional secured or unsecured debt financing; proceeds received from repurposing U.S. C-band spectrum, and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of Telesat’s senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under Telesat’s senior secured credit facilities. Telesat’s ability to access these sources of funding, however, is not guaranteed, and therefore, Telesat may not be able to fully fund additional replacement or new satellite programs.

Debt

Telesat’s debt as of September 30, 2021 and December 31, 2020 was as follows:

​	​	​	​	September 30, 2021			December 31, 2020
​	Maturity		Currency
​	​	​	​	(In thousands)
Senior Secured Credit Facilities:	​	​	​	​	​	​	​	​	​
Revolving credit facility	​	December 2024	USD or CAD equivalent	​	$	—	​	$	—
Term Loan B – U.S. facility	​	December 2026	USD	​	​	1,552,815	​	​	1,552,815
6.5% Senior notes	​	October 2027	USD	​	​	550,000	​	​	550,000

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​	​	​	September 30, 2021			December 31, 2020
​	Maturity	Currency
​	​	​	(In thousands)
5.625% Senior secured notes	December 2026	USD	​	​	500,000	​	​	—
4.875% Senior secured notes	June 2027	USD	​	​	400,000	​	​	400,000
​	​	​	​	​	3,002,815	​	​	2,502,815
Deferred financing costs and prepayment options	​	​	​	​	(1,779)	​	​	1,824
Total debt under international financial reporting standards	​	​	​	​	3,001,036	​	​	2,504,639
U.S. GAAP adjustments	​	​	​	​	(21,320)	​	​	(21,383)
Total debt under U.S. GAAP	​	​	​	​	2,979,716	​	​	2,483,256
Current portion	​	​	​	​	—	​	​	—
Long term portion	​	​	​	$	2,979,716	​	$	2,483,256

As of September 30, 2021, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its 4.875% Senior Secured Notes, the indenture governing its 5.625% Senior Secured Notes and the indenture governing its senior notes.

Senior Secured Credit Facilities

The obligations under Telesat’s credit agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest in the assets of Telesat and certain of its subsidiaries (the “Guarantors”). The credit agreement contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. The credit agreement also requires Telesat and the Guarantors to comply with a maximum first lien leverage ratio and contains customary events of default and affirmative covenants, including an excess cash sweep, that may require Telesat to repay a portion of the outstanding principal under its senior secured credit facilities prior to the stated maturity.

Telesat’s senior secured credit facilities are comprised of the following facilities:

i

— Revolving Credit Facility

Telesat’s revolving credit facility (“Revolving Facility”) is a $200 million loan facility available in either U.S. dollar or Canadian dollar equivalent, maturing in December 2024. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 0.75% to 1.25% is applied to the Prime Rate and ABR as these interest rates are defined in the senior credit facilities. For Bankers’ Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from 1.75% to 2.25% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. Telesat’s Revolving Facility currently has an unused commitment fee that ranges from 25 to 37.5 basis points per annum, depending upon the result of the total leverage ratio. As of September 30, 2021, other than CAD 0.2 million in drawings related to letters of credit, there were no borrowings under this facility.

ii

— Term Loan B — U.S. Facility

Telesat’s term loan B — U.S. facility (“U.S. TLB Facility”) is a $1,908.5 million facility maturing in December 2026. As of September 30, 2021, $1,552.8 million of this facility was outstanding, which represents the full amount available. The borrowings under Telesat’s U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with

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the terms of the senior secured credit facilities plus an applicable margin of 2.75%; or (ii) Alternative Base Rate as determined in accordance with the terms of the senior secured credit facilities plus an applicable margin of 1.75%.

In December 2020, Telesat made a $341.4 million prepayment on its outstanding term loans under its U.S. TLB Facility. The mandatory principal repayments on Telesat’s U.S. TLB Facility are one quarter of 1.00% of the value of the loan, which must be paid on the last day of each quarter. As a result of the prepayment made in December 2020, mandatory quarterly principal repayments will no longer be required.

Senior Secured Notes

Telesat has senior secured notes, in the amount of $400.0 million, which bear interest at an annual rate of 4.875% and are due in June 2027 (the “4.875% Senior Secured Notes”). The 4.875% Senior Secured Notes indenture includes covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its 4.875% Senior Secured Notes, without penalty, before December 1, 2024, in each case subject to exceptions provided in the 4.875% Senior Secured Notes indenture.

On April 27, 2021, Telesat issued senior secured notes in the amount of $500 million at an annual rate of 5.625%, which are due in December 2026 (the “5.625% Senior Secured Notes”). The 5.625% Senior Secured Notes indenture includes covenants and terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem the 5.625% Senior Secured Notes, without penalty, before December 6, 2022, in each case subject to exceptions provided in the 5.625% Senior Secured Notes indenture. Telesat incurred debt issuance costs of CAD 6.8 million in connection with the issuance of the 5.625% Senior Secured Notes.

Senior Notes

Telesat’s senior notes, in the amount of $550 million, bear interest at an annual rate of 6.5% and are due in October 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its senior notes, without penalty, before October 15, 2024, in each case subject to exceptions provided in the senior notes indenture.

Debt Service Cost

The interest expense on Telesat’s senior secured credit facilities, senior notes, senior secured notes and interest rate swaps, excluding the impact of the amortization of deferred financing costs, prepayment options and loss on repayment for the year ended December 31, 2021, is expected to be approximately CAD 162.4 million.

Derivatives

Telesat uses, from time to time, interest rate and currency derivatives to manage its exposure to changes in interest rates and foreign exchange rates.

As of September 30, 2021, Telesat had one outstanding interest rate swap which hedges the interest rate risk on $450 million of U.S. denominated Term Loan B borrowings. The contract, which matures in September 2022, is at a fixed interest rate of 2.04%, excluding applicable margin. As of September 30, 2021, the fair value of the interest rate swap was a liability of $5.8 million.

Telesat also has foreign currency embedded derivatives in its purchase contracts with suppliers and sales contracts with customers as a result of some of these contracts being denominated in a currency other than the functional currency of the substantial parties to the respective contract. The fair value of these foreign currency embedded derivatives as of September 30, 2021 was a net liability of $6.7 million.

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Capital Expenditures

Telesat has entered into contracts for the development of Telesat Lightspeed constellation and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 181.3 million as of September 30, 2021. These expenditures may be funded from some or all of the following: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments; or funds available under the revolving credit facility.

Statements of Cash Flows

Net Cash Used in Operating Activities

Net cash used in operating activities was $11.6 million for the nine months ended September 30, 2021, consisting primarily of a $19.0 million cash use attributable to net income adjusted for non-cash operating items and a $1.0 million decrease in pension and other post-retirement liabilities, partially offset by a $7.6 million increase in accrued employment costs and other current liabilities primarily due to the accrual of $7.2 million in severance and related costs payable to Loral employees upon termination of their employment at Closing and a $0.8 million increase in other liabilities.

Net cash used in operating activities was $5.6 million for the nine months ended September 30, 2020, consisting primarily of a $10.8 million cash use attributable to net income adjusted for non-cash operating items and a $0.9 million decrease in income taxes payable, net of refunds receivable, and a $1.8 million decrease in pension and other post-retirement liabilities, partially offset by a receipt of $5.9 million from XTAR for a past due receivable and a $2.2 million increase in other liabilities.

Net Cash Used in Financing Activities

Net cash used in financing activities was $170.1 million for the nine months ended September 30, 2020 attributable to the payment of a cash dividend to common shareholders in May 2020.

Affiliate Matters

Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting (see Note 5 to our financial statements for further information on affiliate matters).

Commitments and Contingencies

Our business and operations are subject to a number of significant risks, the most significant of which are summarized in Note 13 to our condensed consolidated financial statements.

Other Matters

Recent Accounting Pronouncements

There are no accounting pronouncements that have been issued but not yet adopted that we believe will have a significant impact on our financial statements.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements (the “financial statements”) included herein.

Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries, is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

Disclosure Regarding Forward-Looking Statements

Except for the historical information contained in the following discussion and analysis, the matters discussed below are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend,” or “outlook” or other variations of these words. These statements, including without limitation those relating to Telesat, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. For a detailed discussion of these and other factors and conditions, please refer to the Risk Factors section above, the Commitments and Contingencies section below and to our other periodic reports filed with the Securities and Exchange Commission (“SEC”). We operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Overview

Business

Recent Developments

On November 23, 2020, Loral entered into the Transaction Agreement with Telesat, Telesat Partnership, Telesat Corporation, Telesat CanHoldco, Merger Sub, PSP and Red Isle, under which Merger Sub will merge with and into Loral, with Loral surviving the Merger as a wholly owned subsidiary of Telesat Partnership, and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period.

The Transaction Agreement contains a number of customary conditions that must be fulfilled to complete the Transaction, including (i) approval of (A) a majority of the outstanding Loral voting common stock and (B) a majority of the outstanding Loral voting common stock not held by MHR, PSP, any other party to the Transaction Agreement or certain of their respective affiliates; (ii) the parties having obtained certain regulatory consents and approvals; (iii) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the Transaction; (iv) the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange; (v) no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred; (vi) Telesat remaining in good standing with respect to its material debt obligations; (vii) the accuracy of certain representations (subject to certain qualifications as to materiality) and material performance of certain covenants by the parties, subject to specified exceptions; (viii) effectiveness of the registration statement on Form F-4 and the issuance of a receipt for each of the Canadian preliminary and final prospectuses in respect of the Transaction; (ix) no U.S., Canadian or Spanish governmental agency having commenced civil or criminal proceeding against Loral alleging that any member of the “Loral Group” has criminally violated any law, and no member of the “Loral Group” having been indicted or convicted for, or plead nolo contendere to, any such alleged criminal violation; (x) Loral remaining solvent and not having entered into any bankruptcy or related proceeding; and (xi) the delivery by the parties of certain closing deliverables. If the parties have confirmed that all the conditions are satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, but which conditions are capable of being satisfied at the Closing), then PSP and Loral will each have the right

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to extend the Closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate, from the date on which the Closing otherwise would have occurred. If the Closing is extended, the Closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or waived (other than the conditions (i) with respect to no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred, (ii) that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing and (iii) if PSP extends the Closing, with respect to a civil or criminal legal proceeding alleging that Loral or any of its subsidiaries (excluding XTAR and GdM and their subsidiaries), has criminally violated a law). Subject to the satisfaction of the conditions to Closing and any extensions described above, we expect to complete the Transaction in the third quarter of 2021.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6,550,000 or $22,910,000, or to pay to PSP a “breach” fee of $40,000,000, in each case as provided in the Transaction Agreement.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of GEO satellites that occupy Canadian and other orbital locations. Telesat is also developing a planned global constellation of LEO satellites known as “Telesat Lightspeed.” Loral holds a 62.6% economic interest and a 32.6% voting interest in Telesat as of December 31, 2020.

Telesat’s GEO Satellite Business

The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment. Once the investment in a satellite is made, the incremental costs to maintain and operate the satellite are relatively low over the life of the satellite, with the exception of in-orbit insurance. Telesat has been able to generate a large contractual revenue backlog by entering into long-term contracts with some of its customers, in some cases for all or substantially all of a satellite’s orbital maneuver life. Historically, this has resulted in revenue from the satellite services business being fairly predictable.

As of December 31, 2020, Telesat provided satellite services to customers from its fleet of 15 GEO satellites, as well as the Canadian payload on the ViaSat-1 satellite. Telesat also manages the operations of additional satellites for third parties. As of December 31, 2020, Telesat’s contracted backlog from its GEO satellite business was approximately $2.1 billion.

Telesat Lightspeed

Telesat has commenced the development of what it believes will be the world’s most advanced constellation of LEO satellites and integrated terrestrial infrastructure, called “Telesat Lightspeed” — a platform designed to revolutionize the provision of global broadband connectivity. In January 2018, Telesat’s first LEO satellite was successfully launched into orbit. This Phase 1 LEO satellite has demonstrated certain key features of the Telesat Lightspeed system design, specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience. Telesat also installed ground infrastructure at its teleport in Allan Park in Canada to support testing with a variety of existing and prospective customers

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and potential suppliers of the Telesat Lightspeed system hardware who have been participating in trials since the second half of 2018.

To advance its plans for Telesat Lightspeed, Telesat has recently undertaken, among other things, the following:

In February 2021, Telesat announced that it had entered into an agreement with TAS to be the prime manufacturer of the Telesat Lightspeed constellation and that TAS and its affiliate Telespazio have made a Lightspeed capacity commitment in connection with the agreement. Under the terms of the agreement, the parties have provided for continued progress of the program while the financing for the project is being finalized. The execution of the definitive manufacturing agreement, the commencement of full construction activities and the final constellation deployment schedule are subject to, and conditional upon, the progress of the financing of the program.

In February 2021, Telesat announced that it had selected MDA to manufacture the phased array antennas to be incorporated into the Telesat Lightspeed satellites. Under the terms of the agreement Telesat has entered into with MDA, the parties have provided for continued progress of the program while the financing for the project is being finalized.

In February 2021, Telesat announced that it had entered into an MOU with the government of Québec for an investment of CAD 400 million into Telesat Lightspeed. Under the terms of the MOU, the investment by the government of Québec will consist of CAD 200 million in preferred equity as well as a CAD 200 million loan. Telesat expects that a final agreement will be completed in the coming months.

While Telesat has entered into agreements with TAS and MDA, the execution of the definitive manufacturing agreements with them, the commencement of full construction activities and the final constellation deployment schedule are subject to, and conditional upon, the progress of the financing for the program. Similarly, the government of Quebec’s CAD 400 million investment is subject to a number of conditions, including financing and the entering into of a further definitive agreement.

Telesat continues to take a number of steps to advance Telesat Lightspeed’s business plan, including putting in place arrangements with launch providers, ground systems operators, and antenna manufacturers (to advance the development of economical and high efficiency antenna systems).

Telesat currently estimates that Telesat Lightspeed will require a capital investment of approximately $5 billion. Telesat anticipates diverse sources of financing, including (subject to compliance with Telesat’s borrowing covenants) Telesat’s current cash-on-hand, expected cash flows of Telesat’s GEO business, proceeds Telesat expects to receive from the repurposing of C-band spectrum, potential future equity issuance, and future borrowings, including from export credit agencies.

In July 2019, Telesat announced that it had entered into a memorandum of understanding with the government of Canada regarding a partnership intended to ensure access to affordable high-speed internet connectivity across rural and remote areas of Canada through the development of the Telesat Lightspeed constellation. The partnership is expected to generate CAD 1.2 billion in revenue for Telesat over 10 years, which includes up to CAD 600 million from the government of Canada.

In May 2019, Telesat entered into an agreement with the government of Canada pursuant to which the government of Canada will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat Lightspeed constellation. As of December 31, 2020 and 2019, Telesat recorded CAD 12 million and CAD 5.0 million, respectively, relating to the agreement.

Repurposing of C-Band Spectrum

In a number of countries, regulators plan to adopt new spectrum allocations for terrestrial mobile broadband and 5G, including certain C-band spectrum currently allocated to satellite services. Telesat currently use C-band spectrum in a number of countries, including the U.S. and Canada. To the extent that Telesat is able to assist in making the C-band spectrum it uses available for use for terrestrial mobile broadband and 5G, Telesat may be entitled to certain compensation.

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In February 2020, the FCC issued a final Report and Order on Expanding Flexible use of the 3.7 to 4.2 GHz Band. The Report and Order provided that Telesat would receive as much as $344.4 million from the repurposing of C-band spectrum in the U.S. provided that Telesat takes the necessary actions to move its services in the continental U.S. out of the 3700 — 4000 MHz spectrum band and into the 4000 — 4200 MHz band and takes the necessary steps to ensure that its end user antennas will not be subject to terrestrial interference. Telesat believes that it can meet all the requirements to receive the $344.4 million.

A similar repurposing of C-band spectrum is currently underway in Canada as well, with the government of Canada launching a public consultation on repurposing C-band spectrum in August 2020. In the consultation document, in addition to its own proposal, the government of Canada included a proposal put forward by Telesat whereby Telesat — the sole satellite operator licensed to use C-band in Canada — would accelerate, and be fully responsible for, the clearing of a portion of the C-band spectrum for 5G. In return, Telesat would be compensated for clearing and repurposing the spectrum. Comments were submitted to the government on October 26, 2020, and Reply Comments were submitted on November 30, 2020. Telesat anticipates a decision in 2021.

Telesat Lightspeed Asset Transfers

In December 2020, in connection with Telesat’s ongoing financing activities related to its planned Telesat Lightspeed constellation, Telesat designated certain of its subsidiaries as unrestricted subsidiaries under its amended senior secured credit facilities and the indentures governing its senior secured notes and senior notes.

On December 31, 2020, Telesat and Telesat Spectrum General Partnership (“TSGP”), a wholly owned restricted subsidiary of Telesat, entered into a series of transactions in which Telesat and TSGP transferred to certain unrestricted subsidiaries (i) assets relating to the Telesat Lightspeed network, including NGSO spectrum authorizations, U.S. market access rights, certain IP, certain fixed assets and certain contracts, and (ii) C-band assets, including Canadian C-band licenses and U.S. C-band market access rights, together with the right to receive proceeds from the repurposing thereof. In connection with such asset transfers, the applicable unrestricted subsidiaries entered into certain market access and control agreements permitting Telesat and TSGP to retain access and/or control over the transferred assets. Concurrently with these transactions, Telesat contributed $193 million in cash to Telesat LEO Holdings Inc., an unrestricted subsidiary of Telesat. These transactions are collectively referred to as the “LEO Transactions.”

Immediately prior to the LEO Transactions, Telesat prepaid outstanding term loans under its amended senior secured credit facilities in an aggregate principal amount of $341.4 million. As a result of such prepayment, pro forma leverage under the amended senior secured credit facilities at the time of the LEO Transactions was less than 4.50 to 1.00. The LEO Transactions complied with the covenants set forth in the amended senior secured credit facilities and the indentures governing Telesat’s senior secured notes and senior notes.

Telesat Outlook

Telesat’s desirable spectrum rights, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled it to successfully develop its business to date. Leveraging these strengths and building on its existing contractual revenue backlog, Telesat’s focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and, in a disciplined manner, deploying expansion satellite capacity where strong market demand is anticipated.

After decades of developing and successfully operating its GEO-based satellite services business, Telesat believes that it is now poised to revolutionize the provision of global broadband connectivity by developing what Telesat believes will be the world’s most advanced constellation of LEO satellites and integrated terrestrial infrastructure, Telesat Lightspeed.

Telesat believes that it is well positioned to serve its customers and the markets in which it participates. Telesat actively pursues opportunities to develop new satellites, particularly in conjunction with current or prospective customers who will commit to long-term service agreements prior to the time the satellite

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construction contract is signed. Although Telesat regularly pursues these opportunities, it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity.

In 2021, Telesat remains focused on increasing utilization of its existing satellites, the development of its global Lightspeed constellation, identifying and pursuing opportunities to invest in other expansion of satellite capacity and leveraging the value of its spectrum rights, all while maintaining operating discipline.

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. During 2020, approximately 53% of Telesat’s revenues, 46% of its operating expenses, 100% of its interest expense and the majority of its capital expenditures were denominated in U.S. dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated indebtedness and cash and short term investments. As of December 31, 2020, Telesat’s U.S. dollar denominated debt totaled $2.5 billion. As of December 31, 2020, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $124.6 million. This analysis assumes all other variables, in particular interest rates, remain constant.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral has agreed that, subject to certain exceptions described in the Shareholders Agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs.

Other

We own 56% of XTAR, a joint venture between us and Hisdesat of Spain. Prior to July 1, 2020, XTAR owned and operated an X-band satellite, the XTAR — EUR Satellite located at the 29° E.L. Orbital Slot. In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L.. For services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee under the Loral Management Agreement. As of December 31, 2019, the amount due to Loral under the Loral Management Agreement was $6.6 million, and we had an allowance of $6.6 million against this receivable.

On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the Loral Management Agreement; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. This option has not yet been exercised by Hisdesat. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As a result, the Company recorded a $5.9 million recovery of an affiliate doubtful receivable and a corresponding reduction in its allowance for doubtful accounts for the year ended December 31, 2020.

COVID-19

On March 11, 2020, the World Health Organization designated the COVID-19 coronavirus as a global pandemic. Various policies and initiatives have been implemented worldwide to reduce the global transmission of COVID-19, including the promotion of social distancing and the adoption of remote working policies.

Although the COVID-19 pandemic has had a limited impact on Telesat’s and our ability to operate our respective businesses, Telesat’s customers in the maritime and aeronautical markets have been significantly impacted by the pandemic. At the request of some of these customers, Telesat has agreed to amend the terms

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of certain of their contracts to mitigate the adverse financial impact that COVID-19 is having on their respective businesses. These arrangements will have an adverse impact on Telesat’s revenues in the near term. While not sufficient to offset adverse impacts referred to above, Telesat has experienced some increased demand for services as a result of COVID-19, primarily from government, and government-sponsored broadband requirements. In addition, certain of Telesat’s maritime and aeronautical customers have commenced voluntary bankruptcy proceedings. As a result, Telesat recorded a provision for bad debt expense for certain accounts receivable with these customers given the risk that Telesat may not receive payment for all, or substantially all, of the amounts owed to it.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, and on April 24, 2020, the Paycheck Protection Program and Healthcare Enhancement Act was signed into law (collectively, the “COVID-19 Acts”). The COVID-19 Acts provide a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The COVID-19 Acts reduced our income tax provision by approximately $2.6 million for the year ended December 31, 2020. We continue to monitor any other effects that may result from the COVID-19 Acts.

Consolidated Operating Results

Please refer to Critical Accounting Matters set forth below in this section.

2020 Compared with 2019

The following compares our consolidated results for 2020 and 2019 as presented in our financial statements:

Operating loss

​	Year Ended December 31,
​	2020			2019
​	(In thousands)
General and administrative expenses	​	$	(6,717)	​	$	(6,612)
Recovery of affiliate doubtful receivable	​	​	5,854	​	​	—
Operating loss	​	$	(863)	​	$	(6,612)

General and administrative expenses were comparable for the years ended December 31, 2020 and 2019. The recovery of affiliate doubtful receivable in 2020 represents the receipt of $5.9 million from XTAR in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

Interest and Investment Income

​	Year Ended December 31,
​	2020			2019
​	(In thousands)
Interest and investment income	​	$	1,050	​	$	5,727

Interest and investment income decreased by $4.7 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the lower cash balance resulting primarily from payment of cash dividends of $170.1 million and $46.4 million in May 2020 and December 2020, respectively, and lower interest rates earned on the cash balance during the year 2020 as compared to 2019.

Other Expense

​	Year Ended December 31,
​	2020			2019
​	(In thousands)
Other expense	​	$	10,898	​	$	4,586

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For the years ended December 31, 2020 and 2019, other expense includes Transaction related expenses of $10.2 million and $4.0 million, respectively.

Income Tax Provision

​	Year Ended December 31,
​	2020			2019
​	(In thousands)
Income tax provision	​	$	(12,886)	​	$	(6,153)

For 2020, we recorded a current and deferred tax provision of $1.5 million and $11.4 million, respectively, resulting in a total tax provision of $12.9 million. For 2019, we recorded a current and deferred tax provision of $3.2 million and $3.0 million, respectively, resulting in a total tax provision of $6.2 million. Our income tax provision for 2020 includes a current and deferred tax benefit of $1.6 million and $1.0 million, respectively, from the COVID-19 Acts.

The deferred tax provision for each period included the impact of equity in net income of affiliates in our consolidated statement of operations. After utilization of our NOL carryforwards and allowable tax credits, federal income tax on Global Intangible Low-Taxed Income (“GILTI”) from Telesat was zero. Furthermore, since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets are valued at zero.

During 2021, the statute of limitations for assessment of additional tax will expire with regard to certain uncertain tax positions (“UTPs”), potentially resulting in a $19.1 million reduction to our income tax provision.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

See Critical Accounting Matters — Taxation below for discussion of our accounting method for income taxes.

Equity in Net Income of Affiliates

​	Year Ended December 31,
​	2020			2019
​	(In thousands)
Telesat	​	$	116,716	​	$	101,403

The following is a reconciliation of the changes in our investment in Telesat for the years ended December 31, 2020 and 2019:

​	Year Ended December 31,
​	2020					2019
​	(In thousands)
Opening Balance, January 1,	​	​	​	$	90,184	​	​	​	$	24,574
Components of equity in net income of Telesat:	​	​	​	​	​	​	​	​	​	​
Equity in net income of Telesat	​	$	111,892	​	​	​	$	97,856	​	​
Eliminations of affiliate transactions and related amortization	​	​	4,824	​	116,716	​	​	3,547	​	101,403
Equity in Telesat-related other comprehensive loss	​	​	​	​	(14,236)	​	​	​	​	(35,793)
Ending balance, December 31,	​	​	​	$	192,664	​	​	​	$	90,184

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As of December 31, 2020, we held a 62.6% economic interest and a 32.6% voting interest in Telesat. Loral’s equity in net income of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. The amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income or loss of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

Summary financial information for Telesat in accordance with U.S. GAAP in Canadian dollars and U.S. dollars for the years ended and as of December 31, 2020 and 2019 follows (in thousands):

​	December 31,				December 31,
​	2020		2019		2020		2019
​	(In Canadian dollars)				(In U.S. dollars)
Balance Sheet Data:	​	​	​		​		​
Current assets	​	894,835	​	1,139,605	​	703,210	​	$	877,294
Total assets	​	5,018,579	​	5,365,307	​	3,943,875	​	​	4,130,337
Current liabilities	​	165,233	​	161,357	​	129,849	​	​	124,217
Long-term debt, including current portion	​	3,159,944	​	3,684,873	​	2,483,256	​	​	2,836,700
Total liabilities	​	3,996,600	​	4,552,467	​	3,140,747	​	​	3,504,594
Shareholders’ equity	​	1,021,979	​	812,840	​	803,128	​	​	625,743
Period end exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	​	1.2725	​	1.2990	​	​	​	​	​

Telesat’s revenue decreased by $74 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 due primarily to the reduction of service for a North American DTH customer, lower revenue from enterprise services due to the completion of the non-cash amortization of a significant financing component of an agreement, lower revenue associated with short-term services provided to other satellite operators, and, to a lesser extent, the impact of the COVID-19 pandemic on certain enterprise customers and lower consulting revenues. The foreign exchange rate change decreased Telesat’s revenue by approximately $3.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Telesat’s operating expenses decreased by $4.9 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to lower expenses related to development of the Telesat Lightspeed constellation, net of amounts to be reimbursed under a grant from the Canadian government, lower consultancy related expenses and lower employee bonuses, partially offset by higher wages related to hiring of additional employees primarily to support the Telesat Lightspeed program, lower capitalized engineering costs, higher professional fees, higher provision for bad debt expense associated with the COVID-19 pandemic and higher in-orbit insurance.

Telesat’s depreciation and amortization decreased by $26.3 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to the end of useful life, for accounting purposes, of the Anik F2 satellite in the fourth quarter of 2019, the Anik F1R satellite in the fourth quarter of 2020 and certain customer relationships in 2019.

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. Telesat’s main currency exposures as of December 31, 2020, lie in its U.S. dollar denominated cash and cash equivalents, accounts receivable, accounts payable and debt financing. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated debt financing. As of December 31, 2020, Telesat’s U.S. dollar denominated debt totaled $2.5 billion. As of December 31, 2020, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $124.6 million. This analysis assumes all other variables, in particular interest rates, remain constant.

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On January 1, 2019, Telesat adopted Accounting Standards Codification (“ASC”) 842, Leases, for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new guidance using the modified retrospective approach with the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its consolidated balance sheet.

Backlog

Telesat’s backlog as of December 31, 2020 and 2019 was $2.1 billion and $2.5 billion, respectively. It is expected that approximately 23.9% of satellite services backlog will be recognized as revenue by Telesat during 2021. As of December 31, 2020, Telesat had received approximately $325.4 million of customer prepayments.

Critical Accounting Matters

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income (loss) reported for the period. Actual results could differ from estimates. We believe the following critical accounting matters contain the more significant judgments and estimates used in the preparation of our financial statements.

Investments in Affiliates

Our investments in affiliates are accounted for using the equity method of accounting under U.S. GAAP. The carrying value of our investments in affiliates is reviewed for impairment in accordance with Financial Accounting Standards Board (“FASB”) Codification Topic 323 Investments — Equity Method and Joint Ventures.

We monitor our equity method investments for factors indicating other-than-temporary decrease in value. An impairment charge would be recognized when the decrease in value is determined to be other-than-temporary. The fair value of each investment is determined based on the income approach by discounting our investee’s projected annual free cash flows to their present value using a rate of return appropriate for the risk of achieving the projected cash flows. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1:   Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

Level 2:   Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3:   Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

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These provisions are applicable to all of our assets and liabilities that are measured and recorded at fair value.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring or non-recurring basis at December 31, 2020:

​	Level 1			Level 2			Level 3
​	(In thousands)
Assets	​	​	​	​	​	​	​	​	​
Cash equivalents: Money market funds	​	$	29,166	​	$	—	​	$	—
Other current assets:	​	​	​	​	​	​	​	​	​
Indemnification – Sale of SSL	​	$	—	​	$	—	​	$	598
Liabilities	​	​	​	​	​	​	​	​	​
Long term liabilities:	​	​	​	​	​	​	​	​	​
Indemnification – Globalstar do Brasil S.A.	​	$	—	​	$	—	​	$	145

The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated remaining liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A., originally determined using expected value analysis, is net of payments since inception.

Taxation

Loral is subject to U.S. federal, state and local income taxation on its worldwide income and foreign taxes on certain income from sources outside the United States. Our foreign subsidiaries are subject to taxation in local jurisdictions. Telesat is subject to tax in Canada and other jurisdictions and Loral will provide in operating earnings any additional U.S. current and deferred tax required on distributions received or deemed to be received from Telesat, including GILTI.

We use the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions are recorded in the financial statements. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. We assess the recoverability of our deferred tax assets and, based upon this analysis, record a valuation allowance against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition criteria.

The tax benefit of a UTP taken or expected to be taken in income tax returns is recognized only if it is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits

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as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. Evaluating the technical merits of a tax position and determining the benefit to be recognized involves a significant level of judgment in the assumptions underlying such evaluation.

Pension and Other Employee Benefits

We maintain a qualified pension plan, which is a defined benefit pension plan. In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. Healthcare benefits end when the retiree reaches age 65. Pension and other employee post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in these pension and other employee post-retirement benefit costs may occur in the future due to changes in these assumptions, as well as our actual experience.

The discount rate is subject to change each year, based on a hypothetical yield curve developed from a portfolio of high quality, corporate, non-callable bonds with maturities that match our projected benefit payment stream. The resulting discount rate reflects the matching of the plan liability cash flows to the yield curve. The discount rate determined on this basis for the qualified pension plan and other employee post-retirement benefit costs was 2.5% and 3.25% as of December 31, 2020 and 2019, respectively.

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the plan’s projected benefit obligation, asset mix and the fact that its assets are actively managed to mitigate risk. Allowable investment types include equity investments, fixed income investments and real assets. Both equity and fixed income investment types may include alternative investments which are permitted to be up to 20% of total plan assets. Pension plan assets are primarily managed by Russell Investment Corp. (“Russell”), which allocates the assets into specified Russell-designed funds as we direct. Each specified Russell fund is then managed by investment managers chosen by Russell. We also engage non-Russell related investment managers through Russell, in its role as trustee, to invest pension plan assets. The targeted long-term allocation of our pension plan assets is 56.5% in liquid return-seeking investments, 29% in fixed income investments and 14.5% in alternative investments. The expected long-term annual rate of return on plan assets was 7.00% and 7.25% for 2020 and 2019, respectively. For 2021, we have updated our expected long-term rate of return to 6.75%.

Pension and other employee post-retirement benefit costs (“Net Periodic Costs”) included in our statement of operations in 2021 are expected to be approximately $1.1 million, which is unchanged from Net Periodic Costs in 2020. Net Periodic Costs include amortization of actuarial gains and losses presented in accumulated other comprehensive loss. We use the corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the benefit obligation or fair value of plan assets are amortized on a straight-line basis. Changes in Net Periodic Costs are partly driven by changes in discount rate and expected long-term rate of return. Lowering the discount rate and the expected long-term rate of return each by 0.5% would have increased Net Periodic Costs by approximately $0.2 million in 2020.

The benefit obligations for pensions and other employee post-retirement benefits exceeded the fair value of plan assets by $20.3 million at December 31, 2020. We are required to recognize the funded status of a benefit plan on our balance sheet. Market conditions and interest rates significantly affect future assets and liabilities of Loral’s pension and other employee benefits plans.

Contingencies

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of

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potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when, in management’s opinion, such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made. Management considers the assessment of loss contingencies as a critical accounting policy because of the significant uncertainty relating to the outcome of any potential legal actions and other claims and the difficulty of predicting the likelihood and range of the potential liability involved, coupled with the material impact on our results of operations that could result from legal actions or other claims and assessments.

Accounting Standards Issued and Not Yet Implemented

For discussion of accounting standards issued and not yet implemented that could have an impact on us, see Note 2 to the financial statements.

Liquidity and Capital Resources

Loral

As described above, Loral’s principal asset is a 62.6% economic interest in Telesat. The operations of Telesat are not consolidated but are presented using the equity method of accounting. Loral has no debt. Telesat has third party debt with financial institutions. Cash is maintained at Loral and Telesat to support the operating needs of each respective entity. The ability of Telesat to pay dividends or certain other restricted payments as well as consulting fees in cash to Loral is governed by applicable covenants relating to its debt and its shareholder agreement.

Cash and Available Credit

At December 31, 2020, Loral had $31.6 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of December 31, 2020 decreased by $227.4 million from December 31, 2019 due primarily to payment of cash dividends of $170.1 million and $46.4 million in May 2020 and December 2020, respectively, corporate expenses of $5.9 million adjusted for changes in working capital and net of consulting fees from Telesat, payments of $10.3 million related to strategic initiatives and pension and other post-retirement funding of $2.0 million, partially offset by $5.9 million received from XTAR for a past due receivable and $1.4 million of interest and investment income. A discussion of cash changes by activity is set forth in the sections “Net Cash (Used in) Provided by Operating Activities” and “Net Cash Used in Financing Activities.” The Company did not have a credit facility as of December 31, 2020 and 2019.

Cash Management

We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile. Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short-term investments but does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The policy addresses dealer qualifications, lists approved securities, establishes minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe keep securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. We operate the cash management investment program under the guidelines of our investment policy and continuously monitor the investments to avoid risks.

We currently invest our cash in several liquid prime and government AAA money market funds. The dispersion across funds reduces the exposure of a default at one fund.

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Liquidity

We believe that our cash and cash equivalents will be sufficient to fund projected expenditures for the next 12 months or until the Closing of the Transaction, if sooner. We expect that our major cash outlays during the next 12 months will include general corporate expenses net of consulting fees from Telesat and costs associated with completing the Transaction, including employee severance costs and professional fees . Loral receives consulting fees from Telesat of $1.25 million per quarter under a consulting agreement which expires on October 31, 2021.

Under the terms of the Transaction Agreement, Loral is required to make a $7 million payment to Red Isle at Closing. Telesat Corporation is obligated to make this payment as well as costs associated with completing the Transaction if Loral does not have sufficient cash at Closing.

Risks to Cash Flow

In 2012, we sold our former subsidiary, SSL, to MDA. Under the terms of the purchase agreement, we are obligated to indemnify MDA from liabilities with respect to certain pre-closing taxes the total amount of which has not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

Telesat

Cash and Available Credit

As of December 31, 2020, Telesat had CAD 818.4 million of cash and short-term investments as well as approximately $200 million of borrowing availability under its revolving credit facility.

Liquidity

A large portion of Telesat’s annual cash receipts are reasonably predictable because they are primarily derived from an existing backlog of long-term customer contracts and high contract renewal rates. Telesat believes its cash and short-term investments as of December 31, 2020, cash flows from operating activities, and drawings on the revolving credit facility under its senior secured credit facilities will be adequate to meet Telesat’s expected cash requirements for at least the next 12 months for activities in the normal course of business, including required interest and principal payments on debt and Telesat’s capital requirements. This includes the commitments Telesat has made to date for the Telesat Lightspeed program, but does not include the capital that would be required to commence construction of the constellation.

The construction of any satellite replacement or expansion program will require significant capital expenditures, in particular Telesat’s planned Telesat Lightspeed constellation which Telesat currently estimates will require a capital investment of approximately $5 billion. Cash required for any future satellite programs may be funded from a range of sources including: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments or through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities; vendor financing; equity investments; export credit agency financing; additional secured or unsecured financing; proceeds received from repurposing C-band spectrum, and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of Telesat’s senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under Telesat’s senior secured credit facilities. Telesat’s ability to access these sources of funding, however, is not guaranteed, and therefore, Telesat may not be able to fully fund additional replacement or new satellite programs.

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Debt

Telesat’s debt as of December 31, 2020 and 2019 was as follows:

​	​	​	December 31,
​	Maturity	Currency	2020			2019
​	​	​	(in thousands)
Senior secured credit facilities:	​	​	​	​	​	​	​	​
Revolving credit facility	​	USD or CAD	​	​	—	​	​	—
​	December 2024	equivalent	​	​	​	​	​	​
Term Loan B – U.S. facility	December 2026	USD	​	$	1,552,815	​	$	1,908,500
6.5% Senior notes	October 2027	USD	​	​	550,000	​	​	550,000
4.875% Senior secured notes	June 2027	USD	​	​	400,000	​	​	400,000
​	​	​	​	​	2,502,815	​	​	2,858,500
Deferred financing costs and prepayment options	​	​	​	​	1,824	​	​	(302)
Total debt under international financial reporting standards	​	​	​	​	2,504,639	​	​	2,858,198
U.S. GAAP adjustments	​	​	​	​	(21,383)	​	​	(21,498)
Total debt under U.S. GAAP	​	​	​	​	2,483,256	​	​	2,836,700
Current portion	​	​	​	​	—	​	​	16,480
Long term portion	​	​	​	$	2,483,256	​	$	2,820,220

Senior Secured Credit Facilities

The obligations under Telesat’s credit agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest in the assets of Telesat and certain of its subsidiaries (the “Guarantors”). The credit agreement contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. The credit agreement also requires Telesat and the Guarantors to comply with a maximum first lien leverage ratio and contains customary events of default and affirmative covenants, including an excess cash sweep, that may require Telesat to repay a portion of the outstanding principal under its senior secured credit facilities prior to the stated maturity.

Telesat’s senior secured credit facilities are comprised of the following facilities:

i — Revolving Credit Facility

Telesat’s revolving credit facility (“Revolving Facility”) is a $200 million loan facility available in either U.S. dollar or Canadian dollar equivalent, maturing in December 2024. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 0.75% to 1.25% is applied to the Prime Rate and ABR as these interest rates are defined in the senior credit facilities. For Bankers’ Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from 1.75% to 2.25% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. Telesat’s Revolving Facility currently has an unused commitment fee that ranges from 25 to 37.5 basis points per annum, depending upon the result of the total leverage ratio. As of December 31, 2020, other than approximately CAD 0.2 million in drawings related to letters of credit, there were no borrowings under this facility.

ii — Term Loan B — U.S. Facility

Telesat’s term loan B — U.S. facility (“U.S. TLB Facility”) is a $1,908.5 million facility maturing in December 2026. As of December 31, 2020, $1,552.8 million of this facility was outstanding, which represents

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the full amount available. The borrowings under Telesat’s U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with the terms of the senior secured credit facilities plus an applicable margin of 2.75%; or (ii) Alternative Base Rate as determined in accordance with the terms of the senior secured credit facilities plus an applicable margin of 1.75%.

In December 2020, Telesat made a $341.4 million prepayment on its outstanding term loans under its amended senior secured credit facilities. The prepayment was applied to all mandatory future quarterly principal repayments, with the remaining balance of the prepayment being applied towards the principal amount outstanding on maturity. The mandatory principal repayments on Telesat’s U.S. TLB Facility are one quarter of 1.00% of the value of the loan, which must be paid on the last day of each quarter. As a result of the prepayment made in December 2020, mandatory quarterly principal repayments will no longer be required.

Senior Notes

Telesat’s senior notes, in the amount of $550 million, bear interest at an annual rate of 6.5% and are due in October 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its senior notes, without penalty, before October 15, 2024, in each case subject to exceptions provided in the senior notes indenture.

As of December 31, 2020, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its senior secured notes and the indenture governing its senior notes.

Senior Secured Notes

Telesat’s senior secured notes, in the amount of $400.0 million, bear interest at an annual rate of 4.875% and are due in June 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its senior secured notes, without penalty, before December 1, 2024, in each case subject to exceptions provided in the senior secured notes indenture.

The senior secured notes indenture contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents.

Debt Service Cost

The interest expense on Telesat’s senior secured credit facilities, senior notes, senior secured notes and interest rate swaps, excluding the impact of the amortization of deferred financing costs, interest rate floors, prepayment options and net gain on repricing/repayment for the year ended December 31, 2020 was CAD 175.4 million.

Derivatives

Telesat uses, from time to time, interest rate and currency derivatives to manage its exposure to changes in interest rates and foreign exchange rates.

As of December 31, 2020, Telesat had two outstanding interest rate swaps which hedge the interest rate risk associated with the variable interest rate on $900 million of U.S. denominated Term Loan B borrowings. These contracts, which mature in September 2021 and September 2022, are at fixed interest rates of 1.95% and 2.04%, respectively, excluding applicable margin. As of December 31, 2020, the fair value of the interest rate swaps was a liability of $14.1 million.

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Telesat also has foreign currency embedded derivatives in its purchase contracts with suppliers and sales contracts with customers as a result of some of these contracts being denominated in a currency other than the functional currency of the substantial parties to the respective contract. The fair value of these foreign currency embedded derivatives as of December 31, 2020 was a net liability of $6.1 million.

Development Costs and Capital Expenditures

Telesat has entered into contracts for the development of Telesat Lightspeed constellation and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 277.2 million as of March 3, 2021. These expenditures may be funded from some or all of the following: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments or funds available under the revolving credit facility.

Statements of Cash Flow

Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities was $10.9 million for the year ended December 31, 2020, consisting primarily of a $16.8 million cash use attributable to net income adjusted for non-cash operating items, a $0.9 million increase in income taxes receivable, net of payables, and a $2.1 million decrease in pension and other post-retirement liabilities, partially offset by a receipt of $5.9 million from XTAR for a past due receivable and a $2.4 million increase in other liabilities.

Net cash provided by operating activities was $2.1 million for the year ended December 31, 2019.

Net cash provided by operating activities from continuing operations was $0.3 million for the year ended December 31, 2019, consisting primarily of a $4.4 million change in income tax accounts mainly attributable to the receipt of income tax refunds and a $4.0 million increase in other liabilities, primarily due to an increase in the liability for uncertain tax positions, partially offset by a $7.6 million cash use attributable to net income adjusted for non-cash operating items and a $0.6 million decrease in pension and other post-retirement liabilities.

Net cash provided by operating activities from discontinued operations was $1.8 million for the year ended December 31, 2019 attributable to a tax indemnification recovery related to the SSL Sale.

Net Cash Used in Financing Activities

Net cash used in financing activities was $216.5 million for the year ended December 31, 2020 attributable to the payment of cash dividends of $170.1 million and $46.4 million to common shareholders in May 2020 and December 2020, respectively.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Other

Loral’s operating cash flows for 2020 and 2019 included contributions of approximately $2.0 million and $1.0 million, respectively, to the qualified pension plan and for other post-retirement benefits.

Affiliate Matters

Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting (see Note 5 to the financial statements for further information on affiliate matters).

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Commitments and Contingencies

Our business and operations are subject to a number of significant risks, the most significant of which are summarized in Note 13 to the financial statements.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements (the “financial statements”) included herein.

Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries, is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

Disclosure Regarding Forward-Looking Statements

Except for the historical information contained in the following discussion and analysis, the matters discussed below are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend,” or “outlook” or other variations of these words. These statements, including without limitation those relating to Telesat, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. For a detailed discussion of these and other factors and conditions, please refer to the Risk Factors section above, the Commitments and Contingencies section below and to our other periodic reports filed with the Securities and Exchange Commission (“SEC”). We operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Overview

Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of satellites that occupy Canadian and other orbital locations. Loral holds a 62.7% economic interest and a 32.6% voting interest in Telesat as of December 31, 2019.

At December 31, 2019, Telesat, with approximately $2.5 billion of backlog, provided satellite services to customers from its fleet of 16 in-orbit geostationary satellites and the Canadian Ka-band payload on the ViaSat-1 satellite. Telesat is also developing a global constellation of LEO satellites. In January 2018, Telesat launched a Ka-band satellite into low earth orbit as part of its plans to deploy an advanced, global LEO constellation. This satellite is being used to perform testing and live demonstrations of certain features of Telesat’s LEO system design with existing Telesat customers and potential suppliers of Telesat LEO system hardware. These satellite leaders will be able to experience key advantages of Telesat’s LEO system — including ultra-low latency and high speeds — and assess the role Telesat’s constellation can play in their next-generation broadband networks.

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

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On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.

On July 24, 2019, Telesat announced that it had entered into a memorandum of understanding with the GoC regarding a partnership intended to ensure access to affordable high-speed internet connectivity across rural and remote areas of Canada through the development of the Telesat LEO constellation. The partnership is expected to generate CAD 1.2 billion in revenue for Telesat over 10 years, which includes a contribution of up to CAD 600 million from the GoC.

In May 2019, Telesat entered into an agreement with the GoC pursuant to which the GoC will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat LEO constellation (the “Government Grant”). As of December 31, 2019, Telesat recorded CAD 5.0 million relating to the agreement.

In 2018, Telesat became a member of the C-Band Alliance, which is composed of leading global satellite operators Intelsat, SES and Telesat, a consortium formed to facilitate the potential repurposing of certain C-band spectrum in the United States for 5G.

On March 3, 2020, the FCC issued a Report and Order on Expanding Flexible use of the 3.7 to 4.2 GHz Band. The Report and Order indicated that Telesat could receive as much as $344.4 million from the repurposing of C-band Spectrum in the United States. However, Telesat’s ability to receive any proceeds would be subject to certain conditions (See “Business Strategy”). There can be no assurance that Telesat will receive any proceeds from the FCC process or, if it were to receive proceeds, the amount or timing of receipt.

The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment. Once the investment in a satellite is made, the incremental costs to maintain and operate the satellite are relatively low over the life of the satellite, with the exception of in- orbit insurance. Telesat has been able to generate a large contractual revenue backlog by entering into long- term contracts with some of its customers, in some cases for all or substantially all of a satellite’s orbital maneuver life. Historically, this has resulted in revenue from the satellite services business being fairly predictable.

Telesat’s desirable spectrum rights, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled it to successfully develop its business to date. Leveraging these strengths and building on its existing contractual revenue backlog, Telesat’s focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and, in a disciplined manner, deploying expansion satellite capacity where strong market demand is anticipated. In 2018, Telesat launched a Ka-band satellite into low earth orbit in furtherance of its plans to develop a state-of-the-art, high capacity LEO constellation that will deliver transformative, low latency, fiber-like broadband to commercial and government users worldwide.

Telesat believes that it is well positioned to serve its customers and the markets in which it participates. Telesat actively pursues opportunities to develop new satellites, particularly in conjunction with current or prospective customers who will commit to long-term service agreements prior to the time the satellite construction contract is signed. However, while Telesat regularly pursues these opportunities, it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity.

In 2020, Telesat remains focused on increasing utilization of its existing satellites, the development of its global LEO constellation, identifying and pursuing opportunities to invest in other expansion of satellite capacity and leveraging the value of its spectrum rights, all while maintaining operating discipline.

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. During 2019, approximately 53% of Telesat’s revenues, 39% of its operating expenses, 100% of its interest expense and the majority of its capital expenditures were denominated in U.S. dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated indebtedness and cash and short term investments. As of December 31, 2019, Telesat’s U.S. dollar denominated debt totaled $2.86 billion. As of December 31, 2019, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on

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financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $133.1 million. This analysis assumes all other variables, in particular interest rates, remain constant.

General

Our principal asset is our majority economic ownership interest in Telesat. In an effort to maximize shareholder value, we have been exploring, and are in discussions with PSP regarding, potential strategic transactions to alter the status quo in our ownership of Telesat. Subject to market conditions and the cooperation of PSP, we continue to explore the combination of Loral and Telesat into one public company. Also, as described more fully below, we have exercised our right to require that Telesat initiate a public offering, and we may further pursue this right in the event that the combination transaction that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms. There can be no assurance as to whether or when we will be able to conclude any strategic transaction or that any strategic initiatives or transaction involving Telesat or Loral may occur, or that any particular economic, tax, structural or other objectives or benefits with respect to any initiative or transaction involving Telesat or Loral’s interest therein will be achieved.

In 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. We intend to use the proceeds of such distribution, net of reasonable reserves for working capital and other liabilities, to make a distribution or return capital to our stockholders. There can be no assurance as to the amount and timing of any such distribution or return of capital, and such distribution or return of capital may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction that we are pursuing.

As mentioned above, we have the right under the Telesat Shareholders Agreement to require Telesat to conduct an initial public offering of its equity shares, and, in July 2015, we exercised this right. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a transaction to combine Loral and Telesat into one public company that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.

Depending upon the outcome of the strategic initiatives discussed above, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions relating to Telesat, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.

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Loral may, from time to time, explore and evaluate other possible strategic transactions and alliances which may include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of assets. In order to pursue certain of these opportunities, additional funds are likely to be required. There can be no assurance that we will enter into additional strategic transactions or alliances, nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms, if at all.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral has agreed that, subject to certain exceptions described in the Shareholders Agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs.

Consolidated Operating Results

Please refer to Critical Accounting Matters set forth below in this section.

2019 Compared with 2018

The following compares our consolidated results for 2019 and 2018 as presented in our financial statements:

General and Administrative Expenses

​	Year Ended December 31,
​	2019			2018
​	(In thousands)
General and administrative expenses	​	$	6,612	​	$	6,534

General and administrative expenses were comparable for the years ended December 31, 2019 and 2018.

Interest and Investment Income

​	Year Ended December 31,
​	2019			2018
​	(In thousands)
Interest and investment income	​	$	5,727	​	$	4,746

Interest and investment income increased by $1.0 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to higher interest rates earned on the cash balance in 2019 as compared to 2018.

Other Expense

​	Year Ended December 31,
​	2019			2018
​	(In thousands)
Other expense	​	$	4,586	​	$	3,445

Other expense for the years ended December 31, 2019 and 2018 was primarily comprised of expenses related to the evaluation of strategic initiatives. See Overview — General.

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Income Tax (Provision) Benefit

​	Year Ended December 31,
​	2019			2018
​	(In thousands)
Income tax (provision) benefit	​	$	(6,153)	​	$	39,348

For 2019, we recorded a current and deferred tax provision of $3.2 million and $3.0 million, respectively, resulting in a total tax provision of $6.2 million. For 2018, we recorded a current tax benefit of $48.4 million and a deferred tax provision of $ 9.1 million, resulting in a net tax benefit of $39.3 million.

The deferred tax provision for each period included the impact of equity in net income (loss) of affiliates in our consolidated statement of operations. After utilization of our NOL carryforward and allowable tax credits, there was no federal income tax on Global Intangible Low-Taxed Income (“GILTI”) from Telesat.

For 2018, the statute of limitations for the assessment of additional tax expired with regard to certain of our federal uncertain tax positions (“UTPs”). As a result, the reduction to our liability for UTPs provided a current tax benefit including the reversal of previously recognized interest, partially offset by an additional provision for the potential payment of interest on our remaining UTPs.

Public Law 115-97, known as the “Tax Cuts and Jobs Act,” first effective in 2018, made broad and complex changes to the U.S tax code including, but not limited to, (1) eliminating U.S federal income taxes on dividends from certain foreign investments, such as Telesat; (2) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, including Telesat, as part of GILTI; (3) limiting the use of FTCs to reduce U.S. federal tax liability; (4) creating the base erosion anti-abuse tax, a new minimum tax; (5) creating a new limit on deductible interest expense; and (6) changing the rules related to the use of NOL carryforwards created in tax years beginning after December 31, 2017. During 2018, in accordance with SAB 118, we recognized the income tax effects of additional regulatory guidance issued by the U.S. Treasury and Internal Revenue Service on various provisions of the Tax Cuts and Jobs Act. Based upon our interpretation of this guidance, we determined that, after the utilization of allowable tax credits, federal income tax imposed on the future recognition of GILTI from Telesat will be zero. Since we anticipate that our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets are valued at zero. Therefore, as of December 31, 2018, we reduced deferred tax assets by $1.5 million with a corresponding increase to our deferred income tax provision.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

See Critical Accounting Matters — Taxation below for discussion of our accounting method for income taxes.

Equity in Net Income (Loss) of Affiliates

​	Year Ended December 31,
​	2019			2018
​	(In thousands)
Telesat	​	$	101,403	​	$	(24,412)

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The following is a reconciliation of the changes in our investment in Telesat for the years ended December 31, 2019 and 2018:

​	Year Ended December 31,
​	2019					2018
​	(In thousands)
Opening Balance, January 1,	​	​	​	$	24,574	​	​	​	$	53,430
Components of equity in net income (loss) of Telesat:	​			​		​			​
Equity in net income (loss) of Telesat	​	$	97,856	​	​	​	$	(25,603)	​	​
Eliminations of affiliate transactions and related amortization	​	​	3,547	​	101,403	​	​	1,191	​	(24,412)
Equity in Telesat related other comprehensive (loss) income:	​			​		​			​
Prior years(1)	​	​	(22,056)	​	​	​	​	—	​	​
Current year	​	​	(13,737)	​	(35,793)	​	​	22,033	​	22,033
Cumulative effect adjustment of accounting change(2)	​	​	​	​	—	​	​	​	​	(26,477)
Ending balance, December 31,	​	​	​	$	90,184	​	​	​	$	24,574

(1)

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to December 31, 2018. The adjustment resulted from translating our share of Telesat’s equity from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, Foreign Currency Matters, as required by ASC 323, Investments — Equity Method and Joint Ventures. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.

(2)

On January 1, 2018, Telesat adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for its U.S. GAAP reporting which we use to record our equity in net income or loss of Telesat. Telesat adopted the new guidance using the modified retrospective approach with a cumulative effect adjustment to reduce Telesat’s retained earnings by $42.2 million. As a result, we recorded our share of the cumulative effect adjustment of $26.5 million by reducing our investment in Telesat.

As of December 31, 2019, we held a 62.7% economic interest and a 32.6% voting interest in Telesat. Loral’s equity in net income of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. The amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income or loss of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

Summary financial information for Telesat in accordance with U.S. GAAP in Canadian dollars and U.S. dollars for the years ended and as of December 31, 2019 and 2018 follows (in thousands):

​	Year Ended December 31,				Year Ended December 31,
​	2019		2018		2019		2018
​	(In Canadian dollars)				(In U.S. dollars)
Statement of Operations Data:	​	​	​	​	​	​	​	​
Revenues	​	914,000	​	902,932	​	687,868	​	699,596
Operating expenses	​	(172,431)	​	(177,335)	​	(129,770)	​	(137,400)
Depreciation, amortization and stock-based compensation	​	(282,069)	​	(265,165)	​	(212,282)	​	(205,451)
Other operating (expense) income	​	(862)	​	743	​	(649)	​	576
Operating income	​	458,638	​	461,175	​	345,167	​	357,321

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​	Year Ended December 31,				Year Ended December 31,
​	2019		2018		2019		2018
​	(In Canadian dollars)				(In U.S. dollars)
Interest expense	​	(247,670)	​	(228,281)	​	(186,394)	​	(176,873)
Loss on refinancing	​	(114,493)	​	—	​	(86,166)	​	—
Foreign exchange gain (loss)	​	162,109	​	(262,008)	​	122,002	​	(203,005)
(Loss) gain on financial instruments	​	(55,859)	​	20,386	​	(42,039)	​	15,795
Other income	​	21,738	​	14,629	​	16,360	​	11,335
Income tax provision	​	(16,929)	​	(58,625)	​	(12,741)	​	(45,423)
Net income (loss)	​	207,534	​	(52,724)	​	156,189	​	(40,850)
Average exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	​	1.3289	​	1.2912	​	​	​	​

​	December 31,				December 31,
​	2019		2018		2019		2018
​	(In Canadian dollars)				(In U.S. dollars)
Balance Sheet Data:	​		​		​		​
Current assets	​	1,139,605	​	856,575	​	877,294	​	628,125
Total assets	​	5,365,307	​	5,376,860	​	4,130,337	​	3,942,847
Current liabilities	​	161,357	​	190,100	​	124,217	​	139,401
Long-term debt, including current portion	​	3,684,873	​	3,770,084	​	2,836,700	​	2,764,599
Total liabilities	​	4,552,467	​	4,738,181	​	3,504,594	​	3,474,504
Shareholders’ equity	​	812,840	​	638,679	​	625,743	​	468,343
Period end exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	​	1.2990	​	1.3637	​		​

Telesat’s revenue decreased by $11.7 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 due primarily to the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue, the reduction of service for a North American DTH customer, lower equipment sales to enterprise customers, lower revenue from certain enterprise customers in the resource sector and lower revenue due to the completion of an enterprise agreement that provided for a prepayment for services which was accounted for as having a significant financing component. These decreases were partially offset by higher revenue from the Telstar 19 VANTAGE and Telstar 18 VANTAGE satellites, which began service in August 2018 and October 2018, respectively, an increase in revenue from short-term services provided to other satellite operators and higher consulting revenues.The foreign exchange rate change decreased Telesat’s revenue by approximately $9.5 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Telesat’s operating expenses decreased by $7.6 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to lower cost of sales principally due to lower equipment sales, lower rent expense, and the impact of the change in the U.S. dollar/Canadian exchange rate on Canadian dollar denominated expenses, partially offset by higher consulting expenses. The foreign exchange rate change decreased Telesat’s operating expenses by approximately $2.3 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Telesat’s depreciation, amortization and stock-based compensation increased by $6.8 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to depreciation on the Telstar 19 VANTAGE and Telstar 18 VANTAGE satellites, which began commercial service in August 2018 and October 2018, respectively, and higher stock-based compensation.

The loss on refinancing of $86.2 million for the year ended December 31, 2019 related to the redemption of Telesat’s 8.875% senior notes and the refinancing of former senior secured credit facilities, which occurred in the fourth quarter of 2019.

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Telesat’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. Telesat’s main currency exposures as of December 31, 2019, lie in its U.S. dollar denominated cash and cash equivalents, accounts receivable, accounts payable and debt financing. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated debt financing. As of December 31, 2019, Telesat’s U.S. dollar denominated debt totaled $2.86 billion. As of December 31, 2019, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $133.1 million. This analysis assumes all other variables, in particular interest rates, remain constant.

Backlog

Telesat’s backlog as of December 31, 2019 and 2018 was $2.5 billion and $2.7 billion, respectively. It is expected that approximately 21.5% of satellite services backlog will be recognized as revenue by Telesat during 2020. As of December 31, 2019, Telesat had received approximately $339.0 million of customer prepayments.

Critical Accounting Matters

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income (loss) reported for the period. Actual results could differ from estimates. We believe the following critical accounting matters contain the more significant judgments and estimates used in the preparation of our financial statements.

Investments in Affiliates

Our investments in affiliates are accounted for using the equity method of accounting under U.S. GAAP. The carrying value of our investments in affiliates is reviewed for impairment in accordance with Financial Accounting Standards Board (“FASB”) Codification Topic 323 Investments — Equity Method and Joint Ventures. We monitor our equity method investments for factors indicating other-than-temporary decrease in value. An impairment charge would be recognized when the decrease in value is determined to be other-than-temporary. The fair value of each investment is determined based on the income approach by discounting our investee’s projected annual free cash flows to their present value using a rate of return appropriate for the risk of achieving the projected cash flows. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1:   Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

Level 2:   Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

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Level 3:   Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

These provisions are applicable to all of our assets and liabilities that are measured and recorded at fair value.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring or non-recurring basis at December 31, 2019:

​	Level 1			Level 2			Level 3
​	(In thousands)
Assets	​			​			​
Cash equivalents: Money market funds	​	$	256,915	​	$	—	​	$	—
Other current assets:	​			​			​
Indemnification - Sale of SSL	​	$	—	​	$	—	​	$	598
Liabilities	​			​			​
Long term liabilities:	​			​			​
Indemnification - Globalstar do Brasil S.A.	​	$	—	​	$	—	​	$	145

The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated remaining liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.

Taxation

Loral is subject to U.S. federal, state and local income taxation on its worldwide income and foreign taxes on certain income from sources outside the United States. Our foreign subsidiaries are subject to taxation in local jurisdictions. Telesat is subject to tax in Canada and other jurisdictions and Loral will provide in operating earnings any additional U.S. current and deferred tax required on distributions received or deemed to be received from Telesat, including GILTI.

We use the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions are recorded in the financial statements. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. We assess the recoverability of our deferred tax assets and,

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based upon this analysis, record a valuation allowance against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition criteria.

The tax benefit of a UTP taken or expected to be taken in income tax returns is recognized only if it is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. Evaluating the technical merits of a tax position and determining the benefit to be recognized involves a significant level of judgment in the assumptions underlying such evaluation.

Pension and Other Employee Benefits

We maintain a qualified pension plan, which is a defined benefit pension plan. In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. Healthcare benefits end when the retiree reaches age 65. Pension and other employee post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in these pension and other employee post-retirement benefit costs may occur in the future due to changes in these assumptions, as well as our actual experience.

The discount rate is subject to change each year, based on a hypothetical yield curve developed from a portfolio of high quality, corporate, non-callable bonds with maturities that match our projected benefit payment stream. The resulting discount rate reflects the matching of the plan liability cash flows to the yield curve. The discount rate determined on this basis for the qualified pension plan and other employee post-retirement benefit costs was 3.25% and 4.25% as of December 31, 2019 and 2018, respectively.

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the plan’s projected benefit obligation, asset mix and the fact that its assets are actively managed to mitigate risk. Allowable investment types include equity investments, fixed income investments and real assets. Both equity and fixed income investment types may include alternative investments which are permitted to be up to 20% of total plan assets. Pension plan assets are primarily managed by Russell Investment Corp. (“Russell”), which allocates the assets into specified Russell-designed funds as we direct. Each specified Russell fund is then managed by investment managers chosen by Russell. We also engage non-Russell related investment managers through Russell, in its role as trustee, to invest pension plan assets. The targeted long-term allocation of our pension plan assets is 56.5% in liquid return-seeking investments, 29% in fixed income investments and 14.5% in alternative investments. The expected long-term annual rate of return on plan assets was 7.25% for 2019 and 2018. For 2020, we have updated our expected long-term rate of return to 7.00%.

Pension and other employee post-retirement benefit costs (“Net Periodic Costs”) included in income from continuing operations in 2020 are expected to be approximately $1.0 million, compared with $1.3 million in 2019. Net Periodic Costs include amortization of actuarial gains and losses presented in accumulated other comprehensive loss. We use the corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the benefit obligation or fair value of plan assets are amortized on a straight-line basis. Changes in Net Periodic Costs are partly driven by changes in discount rate and expected long-term rate of return. Lowering the discount rate and the expected long-term rate of return each by 0.5% would have increased Net Periodic Costs by approximately $0.2 million in 2019.

The benefit obligations for pensions and other employee post-retirement benefits exceeded the fair value of plan assets by $17.5 million at December 31, 2019. We are required to recognize the funded status

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of a benefit plan on our balance sheet. Market conditions and interest rates significantly affect future assets and liabilities of Loral’s pension and other employee benefits plans.

Contingencies

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when, in management’s opinion, such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made. Management considers the assessment of loss contingencies as a critical accounting policy because of the significant uncertainty relating to the outcome of any potential legal actions and other claims and the difficulty of predicting the likelihood and range of the potential liability involved, coupled with the material impact on our results of operations that could result from legal actions or other claims and assessments.

Accounting Standards Issued and Not Yet Implemented

For discussion of accounting standards issued and not yet implemented that could have an impact on us, see Note 2 to the financial statements.

Liquidity and Capital Resources

Loral

As described above, Loral’s principal asset is a 62.7% economic interest in Telesat. The operations of Telesat are not consolidated but are presented using the equity method of accounting. Loral has no debt. Telesat has third party debt with financial institutions. Cash is maintained at Loral and Telesat to support the operating needs of each respective entity. The ability of Telesat to pay dividends or certain other restricted payments as well as consulting fees in cash to Loral is governed by applicable covenants relating to its debt and its shareholder agreement.

Cash and Available Credit

At December 31, 2019, Loral had $259.1 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of December 31, 2019 increased by $2.1 million from December 31, 2018 due primarily to $5.8 million of interest and investment income, $5.3 million of income tax refunds, net of income tax payments, and a $1.8 million recovery of our tax indemnification receivable from SSL, partially offset by corporate expenses of $6.2 million, adjusted for changes in working capital and net of consulting fees from Telesat, post-retirement benefits funding of $1.0 million and payments of $3.6 million related to strategic initiatives. A discussion of cash changes by activity is set forth in the section “Net Cash Provided by Operating Activities.”

The Company did not have a credit facility as of December 31, 2019 and 2018.

Cash Management

We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile. Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short-term investments but does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The policy addresses dealer qualifications, lists approved securities, establishes minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe keep

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securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. We operate the cash investments to avoid risks.

We currently invest our cash in several liquid Prime and Government AAA money market funds. The dispersion across funds reduces the exposure of a default at one fund.

Liquidity

We believe that our cash and cash equivalents will be sufficient to fund projected expenditures for the next 12 months. We expect that our major cash outlays during the next 12 months will include general corporate expenses net of consulting fees from Telesat.

In 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. We intend to use the proceeds of such distribution, net of reasonable reserves for working capital and other liabilities, to make a distribution or return capital to our stockholders. There can be no assurance as to the amount and timing of any such distribution or return of capital, and such distribution or return of capital may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction with respect to our interest in Telesat that we are pursuing.

Risks to Cash Flow

In 2012, we sold our former subsidiary, SSL, to MDA. Under the terms of the purchase agreement, we are obligated to indemnify MDA from liabilities with respect to certain pre-closing taxes the total amount of which has not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

Telesat

Cash and Available Credit

As of December 31, 2019, Telesat had CAD 1.03 billion of cash and short-term investments as well as approximately $200 million of borrowing availability under its revolving credit facility.

Liquidity

A large portion of Telesat’s annual cash receipts are reasonably predictable because they are primarily derived from an existing backlog of long-term customer contracts and high contract renewal rates. Telesat believes its cash and short-term investments as of December 31, 2019, cash flows from operating activities, and drawings on the revolving credit facility under its senior secured credit facilities will be adequate to meet Telesat’s expected cash requirements for at least the next 12 months for activities in the normal course of business, including capital requirements and required interest and principal payments on debt.

The construction of any satellite replacement or expansion program, including Telesat’s planned LEO constellation, will require significant capital expenditures. Cash required for any future satellite programs may be funded from a range of sources including: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments or through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities; vendor financing; equity investments; export credit agency financing; additional secured or unsecured financing; proceeds received from repurposing C-band spectrum, and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of Telesat’s senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under Telesat’s senior secured credit facilities. Telesat’s ability to access these sources of funding, however, is not guaranteed, and therefore, Telesat may not be able to fully fund additional replacement or new satellite programs.

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Debt

Telesat’s debt as of December 31, 2019 and 2018 was as follows:

​	Maturity	Currency	December 31,
​			2019			2018
​	​	​	(In thousands)
Former senior secured credit facilities:	​	​	​	​	​	​	​	​
Revolving credit facility	​	USD or CAD equivalent	​	$	—	​	$	—
Term Loan B – U.S. facility	​	USD	​	​	—	​	​	2,326,049
8.875% Senior notes	​	USD	​	​	—	​	​	500,000
Senior secured credit facilities:	​	​	​			​
Revolving credit facility	December 2024	USD or CAD equivalent	​	​	—	​	​	—
Term Loan B – U.S. facility	December 2026	USD	​	​	1,908,500	​	​	—
6.5% Senior notes	October 2027	USD	​	​	550,000	​	​	—
4.875% Senior secured notes	June 2027	USD	​	​	400,000	​	​	—
​	​	​	​	​	2,858,500	​	​	2,826,049
Less: Deferred financing costs and prepayment options	​	​	​	​	(302)	​	​	(95,076)
Total debt under international financial reporting standards	​	​	​	​	2,858,198	​	​	2,730,973
U.S. GAAP adjustments	​	​	​	​	(21,498)	​	​	33,626
Total debt under U.S. GAAP	​	​	​	​	2,836,700	​	​	2,764,599
Current portion	​	​	​	​	16,480	​	​	5,784
Long term portion	​	​	​	$	2,820,220	​	$	2,758,815

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.

Senior Secured Credit Facilities

The obligations under Telesat’s credit agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest in the assets of Telesat and certain of its subsidiaries (the “Guarantors”). The credit agreement contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. The credit agreement also requires Telesat and the

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Guarantors to comply with a maximum first lien leverage ratio and contains customary events of default and affirmative covenants, including an excess cash facilities prior to the stated maturity.

Telesat’s senior secured credit facilities are comprised of the following facilities:

i —  Revolving Credit Facility

Telesat’s revolving credit facility (“Revolving Facility”) is a $200 million loan facility available in either U.S. dollar or Canadian dollar equivalent, maturing in December 2024. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 0.75% to 1.25% is applied to the Prime Rate and ABR as these interest rates are defined in the senior credit facilities. For Bankers’ Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from 1.75% to 2.25% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. Telesat’s Revolving Facility currently has an unused commitment fee that ranges from 25 to 37.5 basis points per annum, depending upon the result of the total leverage ratio. As of December 31, 2019, other than approximately CAD 0.1 million in drawings related to letters of credit, there were no borrowings under this facility.

ii — Term Loan B — U.S. Facility

Telesat’s term loan B — U.S. facility (“U.S. TLB Facility”) is a $1,908.5 million facility maturing in December 2026. As of December 31, 2019, $1,908.5 million of this facility was outstanding, which represents the full amount available. The borrowings under Telesat’s U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with the terms of the senior secured credit facilities plus an applicable margin of 2.75%; or (ii) Alternative Base Rate as determined in accordance with the terms of the senior secured credit facilities plus an applicable margin of 1.75%.

The mandatory principal repayments on Telesat’s U.S. TLB Facility are one quarter of 1.00% of the value of the loan, which must be paid on the last day of each quarter, commencing on March 31, 2020.

Senior Secured Notes

Telesat’s senior secured notes, in the amount of $400.0 million, bear interest at an annual rate of 4.875% and are due in June 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its senior secured notes, without penalty, before December 1, 2024, in each case subject to exceptions provided in the senior secured notes indenture.

The senior secured notes indenture contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents.

Senior Notes

Telesat’s senior notes, in the amount of $550 million, bear interest at an annual rate of 6.5% and are due in October 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its senior notes, without penalty, before October 15, 2024, in each case subject to exceptions provided in the senior notes indenture.

As at December 31, 2019, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its senior secured notes and the indenture governing its senior notes.

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Debt Service Cost

The interest expense on Telesat’s senior secured credit facilities, senior notes, senior secured notes and interest rate swaps, excluding the impact of the amortization of deferred financing costs, interest rate floors, prepayment options and net gain on repricing/repayment for the year ended December 31, 2019 was CAD 204.0 million.

Derivatives

Telesat uses, from time to time, interest rate and currency derivatives to manage its exposure to changes in interest rates and foreign exchange rates.

As of December 31, 2019, Telesat had three outstanding interest rate swaps which hedge the interest rate risk associated with the variable interest rate on $1.35 billion of U.S. denominated Term Loan B borrowings. These contracts, which mature between September 2020 and September 2022, are at fixed interest rates ranging from 1.84% to 2.04%, excluding applicable margin. As of December 31, 2019, the fair value of the interest rate swaps was a net liability of $6.1 million.

Telesat also has foreign currency embedded derivatives in its purchase contracts with suppliers and sales contracts with customers as a result of some of these contracts being denominated in a currency other than the functional currency of the substantial parties to the respective contract. The fair value of these foreign currency embedded derivatives as of December 31, 2019 was a net liability of $0.5 million.

Development Costs and Capital Expenditures

Telesat has entered into contracts for the development of its LEO constellation and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 41.9 million as of December 31, 2019. These expenditures may be funded from some or all of the following: cash and short-term investments; cash flow from operating activities; cash flow from customer prepayments or funds available under the revolving credit facility.

Statements of Cash Flow

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $2.1 million for the year ended December 31, 2019.

Net cash provided by operating activities from continuing operations was $0.3 million for the year ended December 31, 2019, consisting primarily of a $4.4 million change in income tax accounts mainly attributable to the receipt of income tax refunds and a $4.0 million increase in other liabilities, primarily due to an increase in the liability for uncertain tax positions, partially offset by a $7.6 million cash use attributable to net income adjusted for non-cash operating items and a $0.6 million decrease in pension and other post-retirement liabilities.

Net cash provided by operating activities from discontinued operations was $1.8 million for the year ended December 31, 2019 attributable to a tax indemnification recovery related to the SSL Sale.

Net cash provided by operating activities from continuing operations was $1.9 million for the year ended December 31, 2018, consisting primarily of $44.2 million attributable to income from continuing operations adjusted for non-cash operating items and a decrease in income taxes receivable of $8 million, partially offset by a reduction in other long term liabilities of $48 million, primarily due to a decrease in the liability for uncertain tax positions, and a $2.4 million decrease in pension and post-retirement liabilities primarily due to pension funding.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital

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resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Other

Loral’s operating cash flows for 2019 and 2018 included contributions of approximately $1.0 million and $2.4 million, respectively, to the qualified pension plan and for other post-retirement benefits.

Affiliate Matters

Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting (see Note 5 to the financial statements for further information on affiliate matters).

Commitments and Contingencies

Our business and operations are subject to a number of significant risks, the most significant of which are summarized in Item 1A — Risk Factors and also in Note 13 to the financial statements.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of
Loral Space & Communications Inc.
New York, New York

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Loral Space & Communications Inc. and subsidiaries (the “Company”) as of December 31, 2020, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows, for the years then ended, and the related notes and Schedule II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, 2019, and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Change in Accounting Principle

As discussed in Note 5 to the financial statements, the Company’s equity method investment, Telesat Canada, has changed its method of accounting for leases in fiscal year 2019 due to the adoption of the new lease standard.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Investment in Affiliates — Telesat — Refer to Notes 2, 3, and 5 to the financial statements.

Critical Audit Matter Description

The Company participates in satellite services operations primarily through its ownership interest in Telesat Canada (“Telesat”), a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of satellites that occupy Canadian and other orbital locations. The Company holds a

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62.6% economic interest and a 32.6% voting interest in Telesat. The Company uses the equity method of accounting for its ownership interest in Telesat. Equity in net income (loss) of Telesat is recorded based on the Company’s economic interest in Telesat, and also reflects amortization of profits eliminated, to the extent of its economic interest in Telesat. The Company prepares its financial statements in accordance with U.S. GAAP, while Telesat prepares its financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). As a result, Telesat’s financial information is converted from IFRS to U.S. GAAP in order for the Company to record its share of equity in net income (loss) of Telesat.

Given the complexity involved in converting Telesat’s financial information from IFRS to U.S. GAAP, coupled with past out of period adjustments associated with the Company’s investment in Telesat, auditing the conversion is complex and involves extensive effort, including the need to involve professionals knowledgeable about IFRS to U.S. GAAP differences.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures over the conversion of Telesat’s financial information included the following, among others:

•

We tested the effectiveness of the control over the Company’s investment in Telesat, including management’s review of the conversion of Telesat’s financial information from IFRS to U.S. GAAP.

•

With the assistance of professionals knowledgeable about IFRS to U.S. GAAP differences, we:

•

Tested the completeness and accuracy of the conversion of Telesat’s financial information from IFRS to U.S. GAAP.

•

Evaluated the propriety of a selection of conversion adjustments from IFRS to U.S. GAAP in accordance with applicable accounting standards.

•

Recalculated the selected conversion adjustments from IFRS to U.S. GAAP.

•

Tested the validity of the selected conversion adjustments through evaluation of documentary evidence and inquiry of management.

•

Tested the translation of Telesat’s financial information from Canadian Dollars to U.S. Dollars.

•

We tested the calculation of the equity in net income of Telesat recognized in the Company’s financial statements for the year ended December 31, 2020.

/s/ DELOITTE & TOUCHE LLP
New York, New York
March 8, 2021

We have served as the Company’s auditor since 1996.

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LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

​	December 31,
​	2020			2019
ASSETS	​	​	​	​	​	​
Current assets:	​	​	​	​	​	​
Cash and cash equivalents	​	$	31,631	​	$	259,067
Income tax refund receivable	​	​	1,228	​	​	576
Other current assets	​	​	1,232	​	​	1,322
Total current assets	​	​	34,091	​	​	260,965
Right-of-use asset	​	​	342	​	​	988
Income tax refund receivable, non-current	​	​	—	​	​	387
Investments in affiliates	​	​	192,664	​	​	90,184
Deferred tax assets	​	​	27,339	​	​	37,945
Other assets	​	​	33	​	​	341
Total assets	​	$	254,469	​	$	390,810
LIABILITIES AND SHAREHOLDERS’ EQUITY	​	​	​	​	​	​
Current liabilities:	​	​	​	​	​	​
Accrued employment costs	​	$	2,839	​	$	2,611
Other current liabilities	​	​	2,002	​	​	2,883
Total current liabilities	​	​	4,841	​	​	5,494
Pension and other post-retirement liabilities	​	​	20,181	​	​	17,447
Other liabilities	​	​	19,914	​	​	17,842
Total liabilities	​	​	44,936	​	​	40,783
Commitments and contingencies	​	​	​	​	​	​
Shareholders’ Equity:	​	​	​	​	​	​
Preferred stock, $0.01 par value; 10,000,000 shares authorized	​	​	—	​	​	—
Series A junior participating preferred stock, $0.01 par value, 50,000 shares authorized, no shares issued and outstanding	​	​	—	​	​	—
Series B preferred stock, $0.01 par value, 5 shares authorized, 5 and nil issued and outstanding	​	​	—	​	​	—
Common Stock:	​	​	​	​	​	​
Voting common stock, $0.01 par value; 50,000,000 shares authorized, 21,581,572 issued	​	​	216	​	​	216
Non-voting common stock, $0.01 par value; 20,000,000 shares authorized, 9,505,673 issued and outstanding	​	​	95	​	​	95
Paid-in capital	​	​	1,019,988	​	​	1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock	​	​	(9,592)	​	​	(9,592)
Accumulated deficit	​	​	(729,202)	​	​	(605,766)
Accumulated other comprehensive loss	​	​	(71,972)	​	​	(54,914)
Total shareholders’ equity	​	​	209,533	​	​	350,027
Total liabilities and shareholders’ equity	​	$	254,469	​	$	390,810

See notes to consolidated financial statements

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LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

​	Year Ended December 31,
​	2020			2019
General and administrative expenses	​	$	(6,717)	​	$	(6,612)
Recovery of affiliate doubtful receivable	​	​	5,854	​	​	—
Operating loss	​	​	(863)	​	​	(6,612)
Interest and investment income	​	​	1,050	​	​	5,727
Interest expense	​	​	(26)	​	​	(24)
Other expense	​	​	(10,898)	​	​	(4,586)
Loss before income taxes and equity in net income of affiliates	​	​	(10,737)	​	​	(5,495)
Income tax provision	​	​	(12,886)	​	​	(6,153)
Loss before equity in net income of affiliates	​	​	(23,623)	​	​	(11,648)
Equity in net income of affiliates	​	​	116,716	​	​	101,403
Net income	​	$	93,093	​	$	89,755
Net income per share:	​	​	​	​	​	​
Basic	​	$	3.01	​	$	2.90
Diluted	​	$	2.98	​	$	2.88
Weighted average common shares outstanding:	​	​	​	​	​	​
Basic	​	​	30,933	​	​	30,933
Diluted	​	​	31,020	​	​	31,008

See notes to consolidated financial statements

F-166

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

​	Year Ended December 31,
​	2020			2019
Net income	​	$	93,093	​	$	89,755
Other comprehensive loss, net of tax:	​	​	​	​	​	​
Pension and other post-retirement benefits	​	​	(2,826)	​	​	(1,511)
Proportionate share of Telesat other comprehensive loss	​	​	(14,232)	​	​	(35,783)
Other comprehensive loss, net of tax	​	​	(17,058)	​	​	(37,294)
Comprehensive income	​	$	76,035	​	$	52,461

See notes to consolidated financial statements

F-167

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amounts)

​

Common Stock

Paid-In Capital

Treasury Stock Voting

Accumulated Deficit

Accumulated Other Comprehensive Loss

Shareholders’ Equity

Voting

Non-Voting

Shares Issued

Amount

Shares Issued

Amount

Shares

Amount

Balance, January 1, 2019

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(695,521)

​

$

(17,620)

​

$

297,566

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

89,755

​

​

​

​

​

​

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(37,294)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

52,461

Balance, December 31, 2019

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(605,766)

​

​

(54,914)

​

​

350,027

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

93,093

​

​

—

​

​

—

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(17,058)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

76,035

Common dividend paid ($7.00 per share)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(216,529)

​

​

—

​

​

(216,529)

Balance, December 31, 2020

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(729,202)

​

$

(71,972)

​

$

209,533

See notes to consolidated financial statements

F-168

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

​	Year Ended December 31,
​	2020			2019
Operating activities:	​	​	​	​	​	​
Net income	​	$	93,093	​	$	89,755
Adjustments to reconcile net income to net cash (used in) provided by operating activities:	​	​	​	​	​	​
Non-cash operating items (Note 2)	​	​	(109,911)	​	​	(97,384)
Changes in operating assets and liabilities:	​	​	​	​	​	​
Other current assets	​	​	6,248	​	​	98
Accrued employment costs and other current liabilities	​	​	322	​	​	93
Income taxes payable and receivable	​	​	(938)	​	​	4,387
Pension and other post-retirement liabilities	​	​	(2,138)	​	​	(633)
Other liabilities	​	​	2,417	​	​	3,998
Net cash (used in) provided by operating activities – continuing operations	​	​	(10,907)	​	​	314
Net cash provided by operating activities – discontinued operations	​	​	—	​	​	1,812
Net cash (used in) provided by operating activities	​	​	(10,907)	​	​	2,126
Investing activities:	​	​	​	​	​	​
Capital expenditures	​	​	—	​	​	(6)
Net cash used in investing activities – continuing operations	​	​	—	​	​	(6)
Net cash used in investing activities – discontinued operations	​	​	—	​	​	—
Net cash used in investing activities	​	​	—	​	​	(6)
Financing activities:	​	​	​	​	​	​
Dividends paid	​	​	(216,529)	​	​	—
Net cash used in financing activities – continuing operations	​	​	(216,529)	​	​	—
Net cash used in financing activities – discontinued operations	​	​	—	​	​	—
Net cash used in financing activities	​	​	(216,529)	​	​	—
Cash, cash equivalents and restricted cash – period (decrease) increase	​	​	(227,436)	​	​	2,120
Cash, cash equivalents and restricted cash – beginning of year	​	​	259,371	​	​	257,251
Cash, cash equivalents and restricted cash – end of year	​	$	31,935	​	$	259,371

See notes to consolidated financial statements

F-169

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Principal Business

Loral Space & Communications Inc., together with its subsidiaries (“Loral,” the “Company,” “we,” “our” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

Recent Developments

On November 23, 2020, Loral entered into a Transaction Agreement and Plan of Merger (as it may be amended from time to time, the “Transaction Agreement”) with Telesat Canada, a Canadian corporation (“Telesat”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat Corporation, a newly formed corporation incorporated under the laws of the Province of British Columbia, Canada and the sole general partner of Telesat Partnership (“Telesat Corporation”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada and wholly owned subsidiary of Telesat Partnership (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and Red Isle Private Investments Inc., a Canadian corporation and wholly owned subsidiary of PSP (“Red Isle”), under which Merger Sub will merge with and into Loral, with Loral surviving the merger as a wholly owned subsidiary of Telesat Partnership (the “Merger”), and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation (the “Transaction”).

The Transaction Agreement contains a number of customary conditions that must be fulfilled to complete the Transaction, including (i) approval of (A) a majority of the outstanding Loral voting common stock and (B) a majority of the outstanding Loral voting common stock not held by MHR, PSP, any other party to the Transaction Agreement or certain of their respective affiliates; (ii) the parties having obtained certain regulatory consents and approvals; (iii) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the Transaction; (iv) the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange; (v) no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred; (vi) Telesat remaining in good standing with respect to its material debt obligations; (vii) the accuracy of certain representations (subject to certain qualifications as to materiality) and material performance of certain covenants by the parties, subject to specified exceptions; (viii) effectiveness of the registration statement on Form F-4 and the issuance of a receipt for each of the Canadian preliminary and final prospectuses in respect of the Transaction; (ix) no U.S., Canadian or Spanish governmental agency having commenced civil or criminal proceeding against Loral alleging that any member of the “Loral Group” has criminally violated any law, and no member of the “Loral Group” having been indicted or convicted for, or plead nolo contendere to, any such alleged criminal violation; (x) Loral remaining solvent and not having entered into any bankruptcy or related proceeding; and (xi) the delivery by the parties of certain closing deliverables. If the parties have confirmed that all the conditions are satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing of the Transaction (the “Closing”), but which conditions are capable of being satisfied at the Closing), then PSP and Loral will each have the right to extend the Closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate, from the date on which the Closing otherwise would have occurred. If the Closing is extended, the Closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or waived (other than the conditions (i) with respect to no “Material Adverse Effect” ​(as defined in the Transaction Agreement) having occurred, (ii) that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing and (iii) if PSP extends the Closing, with respect to a civil or criminal legal proceeding alleging that Loral or any of its subsidiaries (excluding XTAR, LLC (“XTAR”) and Globalstar de Mexico, S. de R.L. de C.V. (“GdM”) and their subsidiaries), has criminally violated a law). Subject to the satisfaction of the conditions to Closing and any extensions described above, we expect to complete the Transaction in the third quarter of 2021.

F-170

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6,550,000 or $22,910,000, or to pay to PSP a “breach” fee of $40,000,000, in each case as provided in the Transaction Agreement.

Expenses related to the Transaction included in other expense in our statements of operations for the years ended December 31, 2020 and 2019 were $10.2 million and $4.0 million, respectively.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, a leading global satellite operator. Loral holds a 62.6% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our ownership interest in Telesat (see Note 5).

Telesat owns and leases a satellite fleet that operates in geostationary earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s surface and provide reliable, high-bandwidth services anywhere in their coverage areas, serving as the backbone for many forms of telecommunications. Telesat is also developing Telesat Lightspeed, a global constellation of low earth orbit (“LEO”) satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.

2. Basis of Presentation

The consolidated financial statements include the results of Loral and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated.

Investments in Affiliates

Our ownership interest in Telesat is accounted for using the equity method of accounting under U.S. GAAP. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP. Income and losses of Telesat are recorded based on our economic interest. The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned Space Systems/Loral, LLC (formerly known as Space Systems/​Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets. Non-refundable cash distributions received from Telesat in excess of our initial

F-171

investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of December 31, 2020 and 2019. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other-than-temporary.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of income (loss) reported for the period. Actual results could materially differ from estimates.

Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.

Cash, Cash Equivalents and Restricted Cash

As of December 31, 2020, the Company had $31.6 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date.

On April 30, 2020, the Company’s Board of Directors declared a special dividend of $5.50 per share for an aggregate dividend of approximately $170.1 million. The special dividend was paid on May 28, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on May 14, 2020.

On November 23, 2020, the Company’s Board of Directors declared a special dividend of $1.50 per share for an aggregate dividend of approximately $46.4 million. The special dividend was paid on December 17, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on December 4, 2020.

As of December 31, 2020 and December 31, 2019, the Company had restricted cash of $0.3 million, representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in August 2021, has been provided as a guaranty to the lessor of our corporate offices.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the consolidated statement of cash flows (in thousands):

​	December 31,
​	2020			2019
Cash and cash equivalents	​	$	31,631	​	$	259,067
Restricted cash included in other current assets	​	​	304	​	​	—
Restricted cash included in other assets	​	​	—	​	​	304
Cash, cash equivalents and restricted cash shown in the statement of cash flows	​	$	31,935	​	$	259,371

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of December 31, 2020 and December 31, 2019, our cash and cash equivalents

F-172

were invested primarily in several liquid prime and government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1:   Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

Level 2:   Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3:   Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring or non-recurring basis (in thousands):

​

December 31, 2020

December 31, 2019,

​

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Money market funds

​

$

29,166

​

$

—

​

$

—

​

$

256,915

​

$

—

​

$

—

Other current assets:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Sale of SSL

​

$

—

​

$

—

​

$

598

​

$

—

​

$

—

​

$

598

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Long term liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Globalstar do Brasil S.A.

​

$

—

​

$

—

​

$

145

​

$

—

​

$

—

​

$

145

The carrying amount of cash equivalents approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of December 31, 2020 and December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

F-173

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated remaining liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.

Contingencies

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.

Income Taxes

Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized.

The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.

Earnings per Share

Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unvested or unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options and restricted share units.

Additional Cash Flow Information

The following represents non-cash activities and supplemental information to the consolidated statements of cash flows (in thousands):

F-174

​	Year Ended December 31,
​	2020			2019
Non-cash operating items	​	​	​	​	​	​
Equity in net income of affiliates	​	$	(116,716)	​	$	(101,403)
Recovery of affiliate doubtful receivable	​	​	(5,854)	​	​	—
Deferred taxes	​	​	11,362	​	​	2,987
Depreciation	​	​	4	​	​	15
Right-of-use asset, net of lease liability	​	​	(6)	​	​	9
Amortization of prior service credit and actuarial loss	​	​	1,299	​	​	1,008
Net non-cash operating items – continuing operations	​	$	(109,911)	​	$	(97,384)
Supplemental information:	​	​	​	​	​	​
Interest paid – continuing operations	​	$	26	​	$	24
Income tax refunds	​	$	178	​	$	5,547
Income tax payments	​	$	252	​	$	288

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019- 12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is expected to reduce the cost and complexity related to accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and improves how financial statement preparers will apply certain income tax-related guidance. The ASU is part of the FASB’s simplification initiative to make narrow-scope improvements to accounting standards through a series of short-term projects. The new guidance, effective for the Company on January 1, 2021, is not expected to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 eliminates, amends, and adds disclosure requirements to improve the effectiveness of fair value measurement disclosures. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented. The new guidance is effective for the Company on January 1, 2020, with earlier application permitted. The new guidance, adopted by the Company on January 1, 2020, did not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASC Topic 842, Leases (“ASC 842”). ASC Topic 842 requires a lessee to record a right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. The main difference between previous U.S. GAAP and ASC Topic 842 is the recognition under ASC 842 of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance was effective for the Company on January 1, 2019. We adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective method with a practical expedient through a cumulative-effect adjustment at the beginning of the first quarter of 2019. As a result, on January 1, 2019, we recognized a right-of-use asset and lease liability for an operating lease of approximately $0.3 million on our consolidated balance sheet.

F-175

3. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

​	Pension and Other Post-retirement Benefits			Equity in Telesat-related Other Comprehensive Loss			Accumulated Other Comprehensive Loss
Balance, January 1, 2019	​	$	(14,656)	​	$	(2,964)	​	$	(17,620)
Other comprehensive loss before reclassification	​	​	(2,307)	​	​	(35,783)	​	​	(38,090)
Amounts reclassified from accumulated other comprehensive loss	​	​	796	​	​	—	​	​	796
Net current-period other comprehensive loss	​	​	(1,511)	​	​	(35,783)	​	​	(37,294)
Balance, December 31, 2019	​	​	(16,167)	​	​	(38,747)	​	​	(54,914)
Other comprehensive loss before reclassification	​	​	(3,852)	​	​	(14,232)	​	​	(18,084)
Amounts reclassified from accumulated other comprehensive loss	​	​	1,026	​	​	—	​	​	1,026
Net current-period other comprehensive loss	​	​	(2,826)	​	​	(14,232)	​	​	(17,058)
Balance, December 31, 2020	​	$	(18,993)	​	$	(52,979)	​	$	(71,972)

The components of other comprehensive loss and related tax effects are as follows (in thousands):

​	Before-Tax Amount			Tax Benefit (Provision)			Net-of-Tax Amount
Year ended December 31, 2020	​	​	​	​	​	​	​	​	​
Pension and other post-retirement benefits:	​	​	​	​	​	​	​	​	​
Net actuarial loss and prior service credits	​	$	(4,877)	​	$	1,025	​	$	(3,852)
Amortization of prior service credits and net actuarial loss	​	​	1,299(a)	​	​	(273)	​	​	1,026
Pension and other post-retirement benefits	​	​	(3,578)	​	​	752	​	​	(2,826)
Equity in Telesat-related other comprehensive loss	​	​	(14,236)	​	​	4 (b)	​	​	(14,232)
Other comprehensive loss	​	$	(17,814)	​	$	756	​	$	(17,058)
Year ended December 31, 2019	​	​	​	​	​	​	​	​	​
Pension and other post-retirement benefits:	​	​	​	​	​	​	​	​	​
Net actuarial loss and prior service credits	​	$	(2,921)	​	$	614	​	$	(2,307)
Amortization of prior service credits and net actuarial loss	​	​	1,008(a)	​	​	(212)	​	​	796
Pension and other post-retirement benefits	​	​	(1,913)	​	​	402	​	​	(1,511)
Equity in Telesat-related other comprehensive loss	​	​	(35,793)	​	​	10(b)	​	​	(35,783)
Other comprehensive loss	​	$	(37,706)	​	$	412	​	$	(37,294)

(a)

Reclassifications are included in other expenses.

(b)

See Note 7, Income Taxes

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4. Other Current Assets

Other current assets consist of (in thousands):

​	December 31,
​	2020			2019
Restricted cash (see Note 2)	​	$	304	​	$	—
Indemnification receivable from SSL for pre-closing taxes (see Note 13)	​	​	598	​	​	598
Due from affiliates	​	​	88	​	​	186
Prepaid expenses	​	​	240	​	​	164
Other	​	​	2	​	​	374
​	​	$	1,232	​	$	1,322

5. Investments in Affiliates

Investments in affiliates consist of (in thousands):

​	December 31,
​	2020			2019
Telesat	​	$	192,664	​	$	90,184

Equity in net income of affiliates consists of (in thousands):

​	Year Ended December 31,
​	2020			2019
Telesat	​	$	116,716	​	$	101,403

Telesat

As of December 31, 2020, we held a 62.6% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 32.6% of the voting stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our economic interest as our holdings consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to dividends, return of capital and surplus distributions, but have no voting rights.

In addition to recording our share of equity in net income loss of Telesat, we also recorded our share of equity in other comprehensive loss of Telesat of $14.2 million and $35.8 million for the years ended December 31, 2020 and 2019, respectively.

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to December 31, 2018. The adjustment resulted from translating our share of Telesat’s equity from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, Foreign Currency Matters, as required by ASC 323, Investments — Equity Method and Joint Ventures. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.

On January 1, 2019, Telesat adopted ASC 842, Leases, for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new guidance using the modified retrospective

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approach with the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its consolidated balance sheet.

In December 2020, Telesat made a $341.4 million prepayment on its outstanding term loans under its amended senior secured credit facilities. The prepayment was applied to all mandatory future quarterly principal repayments, with the remaining balance of the prepayment being applied towards the principal amount outstanding on maturity.

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.

The ability of Telesat to pay dividends or certain other restricted payments in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Telesat’s credit agreement governing its senior secured credit facilities limits, among other items, Telesat’s ability to incur debt and make dividend payments if the total leverage ratio (“Total Leverage Ratio”) is above 4.50:1.00, with certain exceptions. As of December 31, 2020, Telesat’s Total Leverage Ratio was 4.44:1.00. Telesat is permitted to pay annual consulting fees of $5 million to Loral in cash (see Note 14).

The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities is proportionately eliminated in determining our share of the net income or losses of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP, for the years ended December 31, 2020 and 2019 and as of December 31, 2020 and 2019 (in thousands):

​	Year Ended December 31,
​	2020			2019
Statement of Operations Data:	​	​	​	​	​	​
Revenues	​	$	613,866	​	$	687,868
Operating expenses	​	​	(136,262)	​	​	(141,136)
Depreciation and amortization	​	​	(174,526)	​	​	(200,838)
Impairment of intangible asset	​	​	(3,410)	​	​	—
Other operating expense	​	​	(160)	​	​	(649)
Operating income	​	​	299,508	​	​	345,245
Interest expense	​	​	(152,236)	​	​	(186,394)
Loss on refinancing	​	​	—	​	​	(86,166)

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​	Year Ended December 31,
​	2020			2019
Foreign exchange gain	​	​	35,655	​	​	122,002
Loss on financial instruments	​	​	(13,305)	​	​	(42,039)
Other income	​	​	5,294	​	​	16,282
Income tax benefit (provision)	​	​	3,721	​	​	(12,741)
Net income	​	$	178,637	​	$	156,189

​	December 31,
​	2020			2019
Balance Sheet Data:	​	​	​	​	​	​
Current assets	​	$	703,210	​	$	877,294
Total assets	​	​	3,943,875	​	​	4,130,337
Current liabilities	​	​	129,849	​	​	124,217
Long-term debt, including current portion	​	​	2,483,256	​	​	2,836,700
Total liabilities	​	​	3,140,747	​	​	3,504,594
Shareholders’ equity	​	​	803,128	​	​	625,743

Other

We own 56% of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. We account for our ownership interest in XTAR under the equity method of accounting because we do not control certain of its significant operating decisions. We have also concluded that XTAR is not a variable interest entity for which we are the primary beneficiary. As of December 31, 2020 and 2019, the carrying value of our investment in XTAR was zero. Beginning January 1, 2016, we discontinued providing for our allocated share of XTAR’s net losses as our investment was reduced to zero and we have no commitment to provide further financial support to XTAR.

Prior to July 1, 2020, XTAR owned and operated an X-band satellite, XTAR — EUR (the “Satellite”) located at the 29° E.L. orbital slot (“the “Orbital Slot”). In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L. (the “Transponder Lease”). For services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee under a management agreement with Loral (the “Loral Management Agreement”). As of December 31, 2019, the amount due to Loral under the Loral Management Agreement was $6.6 million, and we had an allowance of $6.6 million against this receivable.

On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the Loral Management Agreement; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. This option has not yet been exercised by Hisdesat. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As a result, the Company recorded a $5.9 million recovery of an affiliate doubtful receivable and a corresponding reduction in its allowance for doubtful accounts for the year ended December 31, 2020.

As of December 31, 2020 and 2019, the Company also held an indirect ownership interest in a foreign company that currently serves as the exclusive service provider for Globalstar service in Mexico. The Company accounts for this ownership interest using the equity method of accounting. As of December 31, 2020 and 2019, the carrying value of this investment was zero. Loral has written-off its investment in this

F-179

company and has no future funding requirements relating to this investment. Accordingly, there is no requirement for us to provide for our allocated share of this company’s net losses. This company is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with this company upon completion of this process.

6. Other Current Liabilities

Other current liabilities consists of (in thousands):

​	December 31,
​	2020			2019
Operating lease liability	​	$	345	​	$	652
Due to affiliate	​	​	98	​	​	5
Accrued professional fees	​	​	1,287	​	​	1,419
Pension and other post-retirement liabilities	​	​	82	​	​	77
Income taxes payable	​	​	—	​	​	673
Accrued liabilities	​	​	190	​	​	57
​	​	$	2,002	​	$	2,883

7. Income Taxes

The following summarizes our income tax provision (in thousands):

​	Year Ended December 31,
​	2020			2019
Current:	​	​	​	​	​	​
U.S. federal	​	$	(1,299)	​	$	(2,918)
State and local	​	​	25	​	​	2
Foreign	​	​	(250)	​	​	(250)
Total current	​	​	(1,524)	​	​	(3,166)
Deferred:	​	​	​	​	​	​
U.S. federal	​	​	(11,334)	​	​	(2,990)
State and local	​	​	(28)	​	​	3
Total deferred	​	​	(11,362)	​	​	(2,987)
Total income tax provision	​	$	(12,886)	​	$	(6,153)

Our current income tax provision includes an increase to our liability for UTPs of (in thousands):

​	Year Ended December 31,
​	2020			2019
Unrecognized tax benefits	​	$	(1,118)	​	$	(2,467)
Interest expense	​	​	(1,299)	​	​	(1,570)
Total	​	$	(2,417)	​	$	(4,037)

While our loss before income taxes and equity in net income of affiliates is domestic, the deferred income tax provision for each period includes the impact of equity in net income of affiliates in our consolidated statement of operations and the periodic effect of our accounting for GILTI. After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero. Furthermore, since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets were valued at zero.

F-180

In addition to the income tax provision presented above, we also recorded the following item (in thousands):

​	Year Ended December 31,
​	2020			2019
Deferred tax benefit for adjustments in other comprehensive loss (see Note 3)	​	$	756	​	$	412

The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate on the loss before income taxes and equity in net income of affiliates because of the effect of the following items (dollars in thousands):

​	Year Ended December 31,
​	2020			2019
U.S. Statutory Federal Corporate Income Tax Rate	​	​	21%	​	​	21%
Tax benefit	​	$	2,255	​	$	1,154
Permanent adjustments which change statutory amounts:	​	​	​	​	​	​
State and local income taxes, net of federal income tax	​	​	(77)	​	​	107
Equity in net income of affiliates	​	​	(17,185)	​	​	(5,055)
Federal provision for unrecognized tax benefits	​	​	(1,138)	​	​	(1,226)
Nondeductible expenses	​	​	(2,380)	​	​	(695)
Change in valuation allowance	​	​	69	​	​	(118)
Income tax credits	​	​	5,820	​	​	—
Foreign income taxes	​	​	(250)	​	​	(250)
Other, net	​	​	—	​	​	(70)
Total income tax provision	​	$	(12,886)	​	$	(6,153)

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

​	Year Ended December 31,
​	2020			2019
Balance at January 1	​	$	43,037	​	$	43,055
Decreases as a result of statute expirations	​	​	—	​	​	(18)
Balance at December 31	​	$	43,037	​	$	43,037

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2014. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the NOL carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. During 2021, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs, potentially resulting in $16.4 million reduction to our unrecognized tax benefits.

Our liability for UTPs increased from $17.4 million at December 31, 2019 to $19.8 million at December 31, 2020 and is included in long-term liabilities in the consolidated balance sheets. At December 31, 2020, we have accrued $3.3 million for the potential payment of tax-related interest. If our positions are sustained by the taxing authorities, approximately $8.4 million of the tax benefits will reduce the Company’s income tax provision.

Other than as described above, there were no significant changes to our unrecognized tax benefits during the year ended December 31, 2020, and we do not anticipate any other significant increases or decreases to our unrecognized tax benefits during the next twelve months.

F-181

At December 31, 2020, we had federal FTC carryforwards of $109.6 million, federal NOL carryforwards of $43.1 million and New York NOL carryforwards of $1.5 million which expire from 2022 to 2034.

The reorganization of the Company pursuant to emergence from Chapter 11 of the federal bankruptcy laws during 2005 constituted an ownership change under section 382 of the Internal Revenue Code. Accordingly, use of our tax attributes, such as NOLs and tax credits generated prior to the ownership change, are subject to an annual limitation of approximately $32.6 million, subject to increase or decrease based on certain factors.

We assess the recoverability of our FTCs, NOLs and other deferred tax assets and based upon this analysis, record a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria. We continue to maintain our valuation allowance until sufficient positive evidence exists to support full or partial reversal. As of December 31, 2020, we had a valuation allowance totaling $128.4 million against our deferred tax assets for certain tax credits, primarily FTC carryovers from 2017, and loss carryovers due to the limited carryforward periods. During 2020, the valuation allowance decreased by $0.1 million, which was recorded as a benefit in our statement of operations. To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

During 2019, the valuation allowance increased by $0.1 million, which was recorded as a provision in our statement of operations.

The significant components of the net deferred income tax assets are (in thousands):

​	December 31,
​	2020			2019
Deferred tax assets:	​	​	​	​	​	​
Net operating loss carryforwards	​	$	23,020	​	$	34,294
Foreign tax credit carryforwards	​	​	126,007	​	​	126,007
Compensation and benefits	​	​	701	​	​	961
Indemnification liabilities	​	​	98	​	​	66
Other, net	​	​	279	​	​	305
Federal benefit of uncertain tax positions	​	​	701	​	​	428
Pension costs	​	​	4,119	​	​	3,375
Investments in and advances to affiliates	​	​	828	​	​	992
Total deferred tax assets before valuation allowance	​	​	155,753	​	​	166,428
Less valuation allowance	​	​	(128,414)	​	​	(128,483)
Deferred tax assets	​	$	27,339	​	$	37,945

8. Other Liabilities

Other liabilities consists of (in thousands):

​	December 31,
​	2020			2019
Operating lease liability	​	$	—	​	$	345
Indemnification liabilities – other (see Note 13)	​	​	145	​	​	145
Liabilities for uncertain tax positions	​	​	19,769	​	​	17,352
​	​	$	19,914	​	$	17,842

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9. Shareholders’ Equity

Series A Preferred Stock

On November 23, 2020, the Board of Directors of Loral declared a dividend of one preferred share purchase right (a “Right”) for each share of Loral common stock outstanding on December 4, 2020 to the Loral stockholders of record on that date. Each Right entitles the registered holder to purchase from Loral one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) of Loral, having such rights and preferences as are set forth in the Certificate of Designation of Series A Junior Participating Preferred Stock, at a price of $120.48 per one one-thousandth of a share of Series A Preferred Stock, subject to adjustment. The Series A Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Series A Preferred Stock would entitle the holder thereof to a quarterly dividend payment of 1,000 times the dividend declared per share of the Company’s common stock (if any). In the event of a liquidation of Loral, the holders of the Series A Preferred Stock would be entitled to an aggregate payment of 1,000 times the aggregate payment made per share of the Company’s common stock. Each share of Series A Preferred Stock has 1,000 votes and is entitled to vote together with the shares of the Company’s common stock. In the event of any merger, consolidation or other transaction in which shares of the Company’s common stock are exchanged, each share of Series A Preferred Stock would be entitled to receive 1,000 times the amount received per share of the Company’s common stock.

Series B Preferred Stock

On November 23, 2020, in connection with the Transaction, the Loral Board of Directors approved the Certificate of Designation of Series B Preferred Stock, par value $0.01 per share, of Loral (the “Series B Preferred Stock”) and on November 24, 2020, Loral issued to Telesat Partnership five shares of Series B Preferred Stock. The Series B Preferred Stock is redeemable at the Company’s option at any time for an amount per share of Series B Preferred Stock of $20.08 (adjusted for any stock splits or stock dividends) plus all declared and unpaid dividends, if any, with respect to such share (for purposes of this paragraph, the “liquidation value”). In the event of a liquidation of the Company, the holders of the Series B Preferred Stock would be entitled to a payment, before any payment would be made to holders of the Company’s common stock or preferred stock specifically designated as junior to the Series B Preferred Stock, equal to the liquidation value per share of Series B Preferred Stock. The Series B Preferred Stock is nonvoting, provided if no shares of the Company’s common stock and no shares of any series of Preferred Stock holding voting rights equivalent to the voting rights of shares of the Company’s common stock are issued and outstanding, each share of the Series B Preferred Stock shall be entitled to one vote with respect to all matters submitted to a vote of the Company’s stockholders.

Stock Plans

The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed for the grant of several forms of stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards, had a ten-year term and has expired. As of December 31, 2020 and December 31, 2019, outstanding and unconverted restricted stock units (“RSUs”) were 98,917 and 75,262, respectively, that are vested and do not expire. During 2020, we paid special dividends of $7.00 per share for an aggregate dividend amount of $216.5 million (see Note 2). In accordance with Loral’s Stock Incentive Plan, an equitable adjustment was made to outstanding stock-based awards to reflect the cash dividend. As a result, RSUs outstanding under the Stock Incentive Plan increased by 23,655 during 2020.

10. Earnings Per Share

Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s ownership interest in Telesat to approximately 62.4%. The following table presents the dilutive impact of Telesat stock options on Loral’s reported net income for the purpose of computing diluted earnings per share (in thousands):

F-183

​	Year Ended December 31,
​	2020			2019
Net income – basic	​	$	93,093	​	$	89,755
Less: Adjustment for dilutive effect of Telesat stock options	​	​	(522)	​	​	(528)
Net income – diluted	​	$	92,571	​	$	89,227

Basic earnings per share is computed based upon the weighted average number of shares of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):

​	Year Ended December 31,
​	2020		2019
Weighted average common shares outstanding	​	30,933	​	30,933
Weighted average unconverted restricted stock units	​	87	​	75
Common shares outstanding for diluted earnings per share	​	31,020	​	31,008

11. Pensions and Other Employee Benefit Plans

Pensions

We maintain a qualified defined benefit pension plan to which members may contribute in order to receive enhanced pension benefits. Employees hired after June 30, 2006 do not participate in the defined benefit pension plan, but participate in our defined contribution savings plan with an additional Company contribution. Benefits are based primarily on members’ compensation and/or years of service. Our funding policy is to fund the qualified pension plan in accordance with the Internal Revenue Code and regulations thereon. Plan assets are generally invested in equity, fixed income and real asset investments. Pension plan assets are managed primarily by Russell Investment Corp. (“Russell”), which allocates the assets into funds as we direct.

Other Benefits

In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. For the years ended December 31, 2020 and 2019 certain of these benefits were provided through plans sponsored or managed by Telesat. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for our pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Medical coverage for retired employees and dependents ends when the retiree reaches age 65.

Funded Status

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2020 and 2019, and a statement of the funded status as of December 31, 2020 and 2019. We use a December 31 measurement date for the pension plan and other post-retirement benefits (in thousands).

​

Pension Benefits

Other Benefits

​

Year Ended December 31,

Year Ended December 31,

​

2020

2019

2020

2019

Reconciliation of benefit obligation:

​

​

​

​

​

​

​

​

​

​

​

​

Obligation at beginning of period

​

$

55,159

​

$

49,020

​

$

511

​

$

479

Service cost

​

​

703

​

​

722

​

​

—

​

​

—

Interest cost

​

​

1,765

​

​

2,018

​

​

17

​

​

21

F-184

​

Pension Benefits

Other Benefits

​

Year Ended December 31,

Year Ended December 31,

​

2020

2019

2020

2019

Participant contributions

​

​

27

​

​

25

​

​

—

​

​

—

Actuarial loss

​

​

5,453

​

​

5,256

​

​

30

​

​

30

Benefit payments

​

​

(1,926)

​

​

(1,882)

​

​

(19)

​

​

(19)

Obligation at December 31,

​

​

61,181

​

​

55,159

​

​

539

​

​

511

Reconciliation of fair value of plan assets:

​

​

​

​

​

​

​

​

​

​

​

​

Fair value of plan assets at beginning of period

​

​

38,146

​

​

34,263

​

​

—

​

​

—

Actual return on plan assets

​

​

3,257

​

​

4,798

​

​

—

​

​

—

Employer contributions

​

​

1,953

​

​

942

​

​

19

​

​

19

Participant contributions

​

​

27

​

​

25

​

​

—

​

​

—

Benefit payments

​

​

(1,926)

​

​

(1,882)

​

​

(19)

​

​

(19)

Fair value of plan assets at December 31,

​

​

41,457

​

​

38,146

​

​

—

​

​

—

Funded status at end of period

​

$

(19,724)

​

$

(17,013)

​

$

(539)

​

$

(511)

The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $20.3 million at December 31, 2020 (the “unfunded benefit obligations”). The unfunded benefit obligations were measured using a discount rate of 2.5% and 3.25% at December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, the actuarial loss component of the change in benefit obligation of $5.5 million for the pension plan comprises $5.8 million attributable to the change in the discount rate partially offset by $0.3 million attributable to other factors. For the year ended December 31, 2019, the actuarial loss component of the change in benefit obligation of $5.3 million for the pension plan comprises $6.7 million attributable to the change in the discount rate partially offset by $1.4 million attributable to other factors. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations for pension and other post-retirement benefits by approximately $4.4 million and $3.7 million as of December 31, 2020 and 2019, respectively. Market conditions and interest rates will significantly affect future assets and liabilities of Loral’s pension plan and other post-retirement benefits.

The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31, 2020 and 2019 consist of (in thousands):

​	Pension Benefits						Other Benefits
​	December 31,						December 31,
​	2020			2019			2020			2019
Actuarial loss	​	$	(22,172)	​	$	(18,613)	​	$	(51)	​	$	(32)

The amounts recognized in other comprehensive (loss) income during the years ended December 31, 2020 and 2019 consist of (in thousands):

​	Pension Benefits December 31,						Other Benefits December 31,
​	2020			2019			2020			2019
Actuarial (loss) gain during the period	​	$	(4,847)	​	$	(2,891)	​	$	(30)	​	$	(30)
Amortization of actuarial loss	​	​	1,288	​	​	1,006	​	​	11	​	​	2
Total recognized in other comprehensive (loss) income	​	$	(3,559)	​	$	(1,885)	​	$	(19)	​	$	(28)

Amounts recognized in the balance sheet consist of (in thousands):

F-185

​	Pension Benefits December 31,						Other Benefits December 31,
​	2020			2019			2020			2019
Current Liabilities	​	$	—	​	$	—	​	$	82	​	$	77
Long-Term Liabilities	​	​	19,724	​	​	17,013	​	​	457	​	​	434
​	​	$	19,724	​	$	17,013	​	$	539	​	$	511

The accumulated pension benefit obligation was $60.3 million and $54.2 million at December 31, 2020 and 2019, respectively.

During 2020, we contributed $2.0 million to the qualified pension plan and our contributions for the other employee post-retirement benefits were not significant. During 2021, based on current estimates, we expect our contributions to the qualified pension plan will be approximately $1.3 million. We expect that our funding of other employee post-retirement benefits during 2021 will not be significant.

The following table provides the components of net periodic cost included in our statements of operations for the plans for the years ended December 31, 2020 and 2019 (in thousands):

​	Pension Benefits Year Ended December 31,						Other Benefits Year Ended December 31,
​	2020			2019			2020			2019
Service cost(1)	​	$	703	​	$	722	​	$	—	​	$	—
Interest cost(2)	​	​	1,765	​	​	2,018	​	​	17	​	​	21
Expected return on plan assets(2)	​	​	(2,651)	​	​	(2,432)	​	​	—	​	​	—
Amortization of net actuarial loss(2)	​	​	1,288	​	​	1,006	​	​	11	​	​	2
Net periodic cost	​	$	1,105	​	$	1,314	​	$	28	​	$	23

(1)

Included in general and administrative expenses.

(2)

Included in other expense.

Assumptions

Assumptions used to determine net periodic cost:

​	Year Ended December 31,
​	2020		2019
Discount rate	​	3.25%	​	4.25%
Expected return on plan assets	​	7.00%	​	7.25%
Rate of compensation increase	​	4.25%	​	4.25%

Assumptions used to determine the benefit obligation:

​	December 31,
​	2020		2019
Discount rate	​	2.50%	​	3.25%
Rate of compensation increase	​	4.25%	​	4.25%

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. Our expected long-term rate of return on plan assets for 2021 is 6.75%.

As of December 31, 2020 and 2019, the Company contributions remaining for other benefits were primarily for fixed amounts. Therefore, future health care cost trend rates will not affect Company costs and accumulated post-retirement benefit obligation.

F-186

Plan Assets

The Company has established the pension plan as a retirement vehicle for participants and as a funding vehicle to secure promised benefits. The investment goal is to provide a total return that over time will earn a rate of return to satisfy the benefit obligations given investment risk levels, contribution amounts and expenses. The pension plan invests in compliance with the Employee Retirement Income Security Act 1974, as amended (“ERISA”), and any subsequent applicable regulations and laws.

The Company has adopted an investment policy for the management and oversight of the pension plan. It sets forth the objectives for the pension plan, the strategies to achieve these objectives, procedures for monitoring and control and the delegation of responsibilities for the oversight and management of pension plan assets.

The Company’s Board of Directors has delegated primary fiduciary responsibility for pension assets to an investment committee. In carrying out its responsibilities, the investment committee establishes investment policy, makes asset allocation decisions, determines asset class strategies and retains investment managers to implement asset allocation and asset class strategy decisions. It is responsible for the investment policy and may amend such policy from time to time.

Pension plan assets are invested in various asset classes in what we believe is a prudent manner for the exclusive purpose of providing benefits to participants. U.S. equities are held for their long-term expected return premium over fixed income investments and inflation. Non-U.S. equities are held for their expected return premium (along with U.S. equities), as well as diversification relative to U.S. equities and other asset classes. Fixed income investments are held for diversification relative to equities. Real assets are held for diversification relative to equities and fixed income. Alternative investments are held for both diversification and higher returns than those typically available in traditional asset classes.

Asset allocation policy is the principal method for achieving the pension plan’s investment objectives stated above. Asset allocation policy is reviewed regularly by the investment committee. The pension plan’s actual and targeted asset allocations, are as follows:

​	December 31, 2020 Actual Allocation		Target Allocation
​			Target		Target Range
Liquid return-seeking investments	​	61%	​	56.5%	​	45 – 65%
Alternative investments	​	10%	​	14.5%	​	0 – 20%
Fixed income investments	​	29%	​	29.0%	​	20 – 40%
​	​	100%	​	100%	​	100%

The target allocation within the liquid return-seeking portfolio is 75% global equities, 15% marketable real assets and 10% fixed income. Allocations may vary by up to 5% from these targets.

The pension plan’s assets are actively managed using a multi-asset, multi-style, multi-manager investment approach. Portfolio risk is controlled through this diversification process and monitoring of money managers. Consideration of such factors as differing rates of return, volatility and correlation are utilized in the asset and manager selection process. Diversification reduces the impact of losses in single investments. Performance results and fund accounting are provided to the Company by Russell on a monthly basis. Periodic reviews of the portfolio are performed by the investment committee with Russell. These reviews typically consist of a market and economic review, a performance review, an allocation review and a strategy review. Performance is judged by investment type against market indexes. Allocation adjustments or fund changes may occur after these reviews. Performance is reported to the Company’s Board of Directors at quarterly board meetings.

Fair Value Measurements

The values of the fund trusts are calculated using systems and procedures widely used across the investment industry. Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, discounted cash flow methodology, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers.

F-187

The table below provides the fair values of the Company’s pension plan assets, by asset category, at December 31, 2020 and 2019. The Company’s pension plan assets are mainly held in commingled employee benefit fund trusts.

​

Fair Value Measurements

Asset Category

Total

Percentage

Level 1

Level 2

Level 3

Assets Measured at NAV(1)

​

(Dollars in thousands)

At December 31, 2020 Liquid return-seeking:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Multi-asset fund(2)

​

$

25,196

​

61%

​

​

​

​

​

​

​

​

$

25,196

Fixed income securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commingled funds(3)

​

​

11,881

​

29%

​

​

​

​

​

​

​

​

​

11,881

Alternative investments:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity long/short fund(4)

​

​

2,201

​

5%

​

​

​

​

​

$

2,201

​

​

​

Private equity fund(5)

​

​

22

​

0%

​

​

​

​

​

​

22

​

​

​

Distressed opportunity limited partnership(6)

​

​

433

​

1%

​

​

​

​

​

​

433

​

​

​

Multi-strategy limited partnership(7)

​

​

1,724

​

4%

​

​

​

​

​

​

1,724

​

​

​

​

​

​

4,380

​

10%

​

—

​

—

​

​

4,380

​

​

—

​

​

$

41,457

​

100%

​

—

​

—

​

$

4,380

​

$

37,077

At December 31, 2019

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Liquid return-seeking:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Multi-asset fund(2)

​

$

23,127

​

61%

​

​

​

​

​

​

$

23,127

Fixed income securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commingled funds(3)

​

​

11,463

​

30%

​

​

​

​

​

​

​

​

​

11,463

Alternative investments:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity long/short fund(4)

​

​

1,349

​

4%

​

​

​

​

​

$

1,349

​

​

​

Private equity fund(5)

​

​

48

​

0%

​

​

​

​

​

​

48

​

​

​

Distressed opportunity limited partnership(6)

​

​

463

​

1%

​

​

​

​

​

​

463

​

​

​

Multi-strategy limited partnership(7)

​

​

1,696

​

4%

​

​

​

​

​

​

1,696

​

​

​

​

​

​

3,556

​

9%

​

—

​

—

​

​

3,556

​

​

—

​

​

$

38,146

​

100%

​

—

​

—

​

$

3,556

​

$

34,590

(1)

Assets measured using the net asset value (“NAV”) practical expedient have not been classified in the fair value hierarchy. The NAV practical expedient is based on the fair value of the underlying assets of the common/collective trust (“CCT”) minus its liabilities, and then divided by the number of units outstanding. The NAV practical expedient of a CCT is calculated based on a compilation of primarily observable market information.

(2)

A single fund that invests in global equities, marketable real assets and fixed income securities. The fund has no limitation on redemptions.

(3)

Investments in bonds representing many sectors of the broad bond market with both short-term and intermediate-term maturities. The fund has no limitation on redemptions.

(4)

Investments primarily in long and short positions in equity securities of U.S. and non-U.S. companies. The fund generally has semi-annual tender offer redemption periods on June 30 and December 31 and is reported on a one month lag.

(5)

Fund invests in portfolios of secondary interest in established venture capital, buyout, mezzanine and special situation funds on a global basis. Fund is valued on a quarterly lag with adjustment for subsequent cash activity. The fund terminates on July 12, 2021, subject to extension for a one-year period. Earlier redemptions are not permitted.

(6)

Investments mainly in discounted debt securities, bank loans, trade claims and other debt and equity securities of financially troubled companies. This partnership has semi-annual withdrawal rights on June 30 and December 31 with notice of 90 days and is reported on a one month lag.

F-188

(7)

Investments in a partnership that has a multi-strategy investment program and does not rely on a single investment model. This partnership has quarterly redemption rights with notice of 65 days and is reported on a one month lag.

Additional information pertaining to the changes in the fair value of the pension plan assets classified as Level 3 for the years ended December 31, 2020 and 2019 is presented below:

​

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

​

Private Equity Fund

Equity Long/Short Fund

Distressed Opportunity Ltd. Partnership

Multi Strategy Fund

Total

​

(In thousands)

Balance, January 1, 2019

​

$

76

​

$

1,002

​

$

463

​

$

1,602

​

$

3,143

Unrealized (loss) gain

​

​

(23)

​

​

347

​

​

—

​

​

94

​

​

418

Sales

​

​

(5)

​

​

—

​

​

—

​

​

—

​

​

(5)

Balance, December 31, 2019

​

​

48

​

​

1,349

​

​

463

​

​

1,696

​

​

3,556

Unrealized (loss) gain

​

​

(26)

​

​

852

​

​

(30)

​

​

28

​

​

824

Balance, December 31, 2020

​

$

22

​

$

2,201

​

$

433

​

$

1,724

​

$

4,380

Both the Equity Long/Short Fund and the Distressed Opportunity Limited Partnership are valued at each month-end based upon quoted market prices by the investment managers.

The Multi-Strategy Fund invests in various underlying securities. The fund’s net asset value is calculated by the fund manager and is not publicly available. The fund manager accumulates all the underlying security values and uses them in determining the fund’s net asset value.

The private equity fund and limited partnership valuations are primarily based on cost/price of recent investments, earnings/performance multiples, net assets, discounted cash flows, comparable transactions and industry benchmarks.

The annual audited financial statements of all funds are reviewed by the Company.

Benefit Payments

The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):

​	Pension			Other
​	Benefits			Benefits
2021	​	$	2,323	​	$	84
2022	​	​	2,421	​	​	71
2023	​	​	2,573	​	​	60
2024	​	​	2,814	​	​	49
2025	​	​	2,833	​	​	40
2026 to 2030	​	​	15,346	​	​	122

Employee Savings (401k) Plan

We have an employee savings (401k) plan, to which the Company provides contributions which match up to 6% of a participant’s base salary at a rate of 662∕3%. The Company also makes retirement contributions to the savings (401k) plan, which provide added retirement benefits to employees hired on or after July 1, 2006, as they are not eligible to participate in our defined benefit pension plan. Retirement contributions are provided regardless of an employee’s contribution to the savings (401k) plan. Matching contributions and retirement contributions are collectively known as Company contributions. Company contributions are made in cash and placed in each participant’s age appropriate “life cycle” fund. For each of the years ended December 31, 2020 and 2019, Company contributions were $0.1 million. Participants of the savings (401k)

F-189

plan are able to redirect Company contributions to any available fund within the plan. Participants are also able to direct their contributions to any available fund.

12. Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.

Foreign Currency

We are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, we attempt to denominate all contracts in U.S. dollars. Where appropriate, derivatives are used to minimize the risk of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or speculative purposes.

Derivatives and Hedging Transactions

There were no derivative instruments as of December 31, 2020 and 2019.

13. Commitments and Contingencies

Financial Matters

In 2012, we sold our former subsidiary, SSL, to MDA Communications Holdings, Inc., a subsidiary of Maxar Technologies Inc. (formerly known as MacDonald, Dettwiler and Associates Ltd.) (“MDA”) pursuant to the Purchase Agreement. Under the terms of the Purchase Agreement, we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our consolidated balance sheets include an indemnification refund receivable of $0.6 million as of December 31, 2020 and 2019. Certain tax assessments against SSL for 2007 to 2010 have been settled, resulting in our having received during the second and third quarters of 2019 refunds of prior indemnification payments totaling $1.8 million. The remaining receivable as of December 31, 2020 represents payments to date over the estimated fair value of the remaining liability for our indemnification of SSL pre-closing taxes where the final amounts have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our consolidated balance sheets include liabilities of $0.1 million as of December 31, 2020 and 2019 for indemnification liabilities relating to the sale of GdB.

See Note 14 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies relating to the Transaction and our agreement to indemnify Telesat for certain liabilities.

Lease Arrangements

We lease a facility and certain equipment under agreements expiring at various dates. We may renew, extend or modify a lease covering facilities as needed. We have no sublease income in any of the periods presented.

We changed our method of accounting for leases in the first quarter of 2019 due to the adoption of ASC 842. We adopted ASC 842 as of January 1, 2019 using the modified retrospective transition method and elected to apply the transition as of the beginning of the period of adoption.

Upon adoption of ASC 842, we recognized a right-of-use asset and lease liability of $0.3 million for an operating lease on our consolidated balance sheet as of January 1, 2019. In March 2019, the operating lease

F-190

was modified by extending the lease termination date from June 30, 2019 to June 30, 2020 and increasing the rent for the extension period. In December 2019, the operating lease was further modified by extending the lease termination date to June 30, 2021. Lease costs expensed for the years ended December 31, 2020 and 2019 were as follows (in thousands):

​	Lease Expense
Year ended December 31, 2020	​	$	695
Year ended December 31, 2019	​	​	677

Lease payments for the year ended December 31, 2020 were $0.7 million. The remaining lease term as of December 31, 2020 is 6 months, and we used a discount rate of 7.5% to compute the lease liability at inception and at each modification date. The right-of-use asset is being amortized over the life of the lease.

The following is a reconciliation of the future operating lease payments to operating lease liability as of December 31, 2020 (in thousands):

2021 (January 1, 2021 through June 30, 2021)	​	350
Total operating lease payments	​	350
Less: Interest	​	(5)
Operating lease liability	$	345
Amounts recognized in Balance Sheet	​	​
Other current liabilities	$	345

Legal Proceedings

We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.

14. Related Party Transactions

MHR Fund Management LLC

Mark H. Rachesky, President of MHR Fund Management LLC (“MHR”), and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s Board of Directors.

Various funds affiliated with MHR and Dr. Rachesky held, as of December 31, 2020 and December 31, 2019, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral.

Transactions with Affiliates

Telesat

Recent Developments

Transaction Agreement.   On November 23, 2020, Loral entered into the Transaction Agreement with Telesat, Telesat Partnership, Telesat Corporation, Telesat CanHoldco, Merger Sub, PSP and Red Isle, under which Merger Sub will merge with and into Loral, with Loral surviving the Merger as a wholly owned subsidiary of Telesat Partnership, and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat

F-191

(principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides for certain economic adjustments and contractual protections with respect to Loral’s assets and liabilities other than its indirect interest in Telesat. These include among others:

•

One Time Payment.   To induce PSP and Red Isle to enter into the Transaction, Loral will pay Red Isle $7 million at Closing.

•

Absolute Indemnities.   Loral, Telesat Corporation and Telesat CanHoldco will indemnify PSP for PSP’ pro rata share of costs relating to: (a) certain losses and litigation proceedings related to the Transaction, (b) certain out-of-pocket expenses of Loral after the Closing and (c) certain tax matters. This indemnification will be (i) independent of the accuracy of the underlying representations and warranties, (ii) in the case of the tax indemnification, subject to a cap of $50 million and (iii) subject to additional, customary limitations.

The Transaction Agreement also provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6,550,000 or $22,910,000, or to pay to PSP a “breach” fee of $40,000,000, in each case as provided in the Transaction Agreement.

In connection with the Transaction, Loral entered into the following agreements with related parties or their subsidiaries:

Subscription Agreement for Series B Preferred Stock.   In connection with the Transaction, Loral issued to Telesat Partnership five shares of Series B Preferred Stock pursuant to the terms of a subscription agreement entered into between Loral and Telesat Partnership. Such shares of Series B Preferred Stock will remain outstanding following the Merger and will give Telesat Partnership the right to vote such shares once there is no Loral common stock outstanding.

Full and Final Release and Amendment of Tolling Agreement.   Loral has asserted certain claims against PSP arising out of PSP’ actions in certain previous transaction processes relating to Telesat. PSP has asserted various counterclaims and Loral, PSP and Telesat have entered into a series of tolling agreements preventing those claims from being terminated due to the passing of the statute of limitations while negotiating the Transaction Agreement. In connection with the signing of the Transaction Agreement, the parties entered into a mutual release that will release those claims on the first to occur of the closing of the Transaction or the termination of the Transaction Agreement due to Loral’s material breach.

Standstill Agreement.   Loral and MHR have entered into a standstill agreement (the “MHR Standstill Agreement”) prohibiting MHR and its affiliates from, subject to the terms thereof, acquiring more than an additional 6% of the outstanding Voting Common Stock prior to the conclusion of the Loral stockholder meeting to be held to approve the Transaction. The MHR Standstill Agreement will terminate immediately upon the first to occur of the conclusion of the Loral stockholder meeting and termination of the Transaction Agreement.

Ownership Interest.   As described in Note 5, we own a 62.6% economic interest and a 32.6% voting interest in Telesat and account for our ownership interest under the equity method of accounting.

Shareholders Agreement.   In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and certain of its subsidiaries, our Canadian co-owner, PSP and one of its subsidiaries, Telesat and MHR entered into a Shareholders Agreement (the “Shareholders Agreement”). The Shareholders Agreement provides for, among other things, the manner in which the affairs of Telesat and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. The Shareholders Agreement also contains an agreement by Loral not to engage

F-192

in a competing satellite communications business and agreements by the parties to the Shareholders Agreement not to solicit employees of Telesat or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) provides for, in certain circumstances, tag-along rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Telesat equity securities.

Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) or (ii) there is a change in the composition of a majority of the members of the Loral Board of Directors over a consecutive two-year period without the approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat and its subsidiaries. In addition, after either of these events, PSP will have certain rights to enable it to exit from its investment in Telesat, including a right to cause Telesat to conduct an initial public offering in which PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of cooperation from Loral or Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to Loral’s right to call PSP’s shares at fair market value.

The Shareholders Agreement provides for a board of directors of Telesat consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent directors then in office. Each party to the Shareholders Agreement is obligated to vote all of its Telesat shares for the election of the directors nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the board of directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.

Consulting Services Agreement.   On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provides to Telesat certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the satellite communications business of Telesat. The Consulting Agreement has a term of seven-years with an automatic renewal for an additional seven-year term if Loral is not then in material default under the Shareholders Agreement. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year term which expires on October 31, 2021. In exchange for Loral’s services under the Consulting Agreement, Telesat pays Loral an annual fee of $5.0 million, payable quarterly in arrears on the last day of March, June, September and December of each year during the term of the Consulting Agreement. Our general and administrative expenses for each of the years ended December 31, 2020 and 2019, are net of income of $5.0 million related to the Consulting Agreement. Loral received payments in cash from Telesat, net of withholding taxes, of $4.8 million for each of the years ended December 31, 2020 and 2019.

Tax Indemnification.   In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately $0.7 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification. There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes.

F-193

Administrative Fee.   Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants.

Grant Agreements.   Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), entered into stock option grant agreements (the “Stock Option Grant Agreements”) and a restricted stock unit grant agreement (the “RSU Grant Agreement,” and, together with the Stock Option Grant Agreements, the “Grant Agreements”) with respect to shares in Telesat with certain executives of Telesat (each, a “Participant” and collectively, the “Participants”). Each of the Participants is or was, at the time, an executive of Telesat. The Stock Option Grant Agreements document grants to the Participants of Telesat stock options (including tandem SAR rights) and provide for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Stock Option Grant Agreements; and (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of a Participant’s termination of employment; and, in the case of certain executives, (y) the right of each such Participant to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than the minimum withholding amount; and (z) the right of each such Participant to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under Telesat’s Management Stock Incentive Plan at the relevant time, in the event that more than 90% of Loral’s common stock is acquired by an unaffiliated third party that does not also purchase all of PSP’s and its affiliates’ interest in Telesat.

The RSU Grant Agreement documents a grant to the Participant of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the RSU Grant Agreement; and (y) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of the termination of the Participant’s employment.

The Grant Agreements further provide that, in the event the Special Purchaser is required to purchase shares, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat.

Other

We own 56% of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship (see Note 5). As part of the restructuring, XTAR and Loral terminated the Loral Management Agreement pursuant to which Loral provided general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. As of December 31, 2019, amounts due to Loral, primarily due to the Loral Management Agreement, were $6.7 million, and we had an allowance of $6.6 million against these receivables. On July 2, 2020, Loral received from XTAR $5.9 million in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As of December 31, 2020, Loral had a $0.1 million receivable from XTAR.

F-194

Consulting Agreement

On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting fees of $120,000 per month and reimburses the Company for certain expenses. For each of the years ended December 31, 2020 and 2019, Mr. Targoff earned $1,440,000 in consulting fees and reimbursed Loral net expenses of $45,000.

F-195

SCHEDULE II

LORAL SPACE & COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS

For the Year Ended December 31, 2020 and 2019
(In thousands)

​

​

​

​

Additions

​

​

Description

Balance at Beginning of Period

Charged to Costs and Expenses

Charged to Other Accounts

Deductions from Allowance

Balance at End of Period

Year ended December 31, 2019

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for affiliate receivables

​

$

6,692

​

$

—

​

$

—

​

$

—

​

$

6,692

Deferred tax valuation allowance

​

$

128,365

​

$

118

​

$

—

​

$

—

​

$

128,483

Year ended December 31, 2020

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for affiliate receivables

​

$

6,692

​

$

—

​

$

—

​

$

(6,552)(1)

​

$

140

Deferred tax valuation allowance

​

$

128,483

​

$

(69)

​

$

—

​

$

—

​

$

128,414

(1)

Deductions from allowance for affiliate receivables reflects $5,854 receivable collected and $698 receivable write-off during the year.

F-196

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

​	December 31,
​	2019			2018
ASSETS	​	​	​	​	​	​
Current assets:	​	​	​	​	​	​
Cash and cash equivalents	​	$	259,067	​	$	256,947
Income tax refund receivable	​	​	576	​	​	3,903
Other current assets	​	​	1,322	​	​	3,232
Total current assets	​	​	260,965	​	​	264,082
Right-of-use asset	​	​	988	​	​	—
Income tax refund receivable, non-current	​	​	387	​	​	774
Investments in affiliates	​	​	90,184	​	​	24,574
Deferred tax assets	​	​	37,945	​	​	40,520
Other assets	​	​	341	​	​	350
Total assets	​	$	390,810	​	$	330,300
LIABILITIES AND SHAREHOLDERS’ EQUITY	​	​	​	​	​	​
Current liabilities:	​	​	​	​	​	​
Accrued employment costs	​	$	2,611	​	$	2,573
Other current liabilities	​	​	2,883	​	​	1,495
Total current liabilities	​	​	5,494	​	​	4,068
Pension and other post-retirement liabilities	​	​	17,447	​	​	15,167
Other liabilities	​	​	17,842	​	​	13,499
Total liabilities	​	​	40,783	​	​	32,734
Commitments and contingencies	​	​	​	​	​	​
Shareholders’ Equity:	​	​	​	​	​	​
Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	​	​	—	​	​	—
Common Stock:	​	​	​	​	​	​
Voting common stock, $0.01 par value; 50,000,000 shares authorized, 21,581,572 issued	​	​	216	​	​	216
Non-voting common stock, $0.01 par value; 20,000,000 shares authorized, 9,505,673 issued and outstanding	​	​	95	​	​	95
Paid-in capital	​	​	1,019,988	​	​	1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock	​	​	(9,592)	​	​	(9,592)
Accumulated deficit	​	​	(605,766)	​	​	(695,521)
Accumulated other comprehensive loss	​	​	(54,914)	​	​	(17,620)
Total shareholders’ equity	​	​	350,027	​	​	297,566
Total liabilities and shareholders’ equity	​	$	390,810	​	$	330,300

See notes to consolidated financial statements

F-197

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

​	Year Ended December 31,
​	2019			2018
General and administrative expenses	​	$	(6,612)	​	$	(6,534)
Operating loss	​	​	(6,612)	​	​	(6,534)
Interest and investment income	​	​	5,727	​	​	4,746
Interest expense	​	​	(24)	​	​	(26)
Other expense	​	​	(4,586)	​	​	(3,445)
Loss from continuing operations before income taxes and equity in net income (loss) of affiliates	​	​	(5,495)	​	​	(5,259)
Income tax (provision) benefit	​	​	(6,153)	​	​	39,348
(Loss) income from continuing operations before equity in net income (loss) of affiliates	​	​	(11,648)	​	​	34,089
Equity in net income (loss) of affiliates	​	​	101,403	​	​	(24,412)
Income from continuing operations	​	​	89,755	​	​	9,677
Loss from discontinued operations, net of tax	​	​	—	​	​	(63)
Net income	​	$	89,755	​	$	9,614
Net income per share:	​	​	​	​	​	​
Basic	​	​	​	​	​	​
Income from continuing operations	​	$	2.9	​	$	0.31
Loss from discontinued operations, net of tax	​	​	—	​	​	—
Net income	​	$	2.9	​	$	0.31
Diluted	​	​	​	​	​	​
Income from continuing operations	​	$	2.88	​	$	0.31
Loss from discontinued operations, net of tax	​	​	—	​	​	—
Net income	​	$	2.88	​	$	0.31
Weighted average common shares outstanding:	​	​	​	​	​	​
Basic	​	​	30,933	​	​	30,933
Diluted	​	​	31,008	​	​	31,008

See notes to consolidated financial statements

F-198

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

​	Year Ended December 31,
​	2019			2018
Net income	​	$	89,755	​	$	9,614
Other comprehensive (loss) income, net of tax:	​	​	​	​	​	​
Pension and other post-retirement benefits	​	​	(1,511)	​	​	1,798
Proportionate share of Telesat other comprehensive (loss) income	​	​	(35,783)	​	​	22,033
Other comprehensive (loss) income, net of tax	​	​	(37,294)	​	​	23,831
Comprehensive income	​	$	52,461	​	$	33,445

See notes to consolidated financial statements

F-199

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amounts)

​

Common Stock

Paid-In Capital

Treasury Stock Voting

Accumulated Deficit

Accumulated Other Comprehensive Loss

Shareholders’ Equity

​

Voting

Non-Voting

​

Shares Issued

Amount

Shares Issued

Amount

Shares

Amount

Balance, January 1, 2018

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(682,831)

​

$

(37,278)

​

$

290,598

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

9,614

​

​

​

​

​

​

Other comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

23,831

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

33,445

Tax Cuts and Jobs Act, reclassification tax effect

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

4,173

​

​

(4,173)

​

​

—

Cumulative effect adjustment attributable to investment in Telesat

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(26,477)

​

​

​

​

​

(26,477)

Balance, December 31, 2018

​

21,582

​

​

216

​

9,506

​

​

95

​

​

1,019,988

​

154

​

​

(9,592)

​

​

(695,521)

​

​

(17,620)

​

​

297,566

Net income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

89,755

​

​

—

​

​

—

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(37,294)

​

​

​

Comprehensive income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

52,461

Balance, December 31, 2019

​

21,582

​

$

216

​

9,506

​

$

95

​

$

1,019,988

​

154

​

$

(9,592)

​

$

(605,766)

​

$

(54,914)

​

$

350,027

See notes to consolidated financial statements

F-200

LORAL SPACE & COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

​	Year Ended December 31,
​	2019			2018
Operating activities:	​	​	​	​	​	​
Net income	​	$	89,755	​	$	9,614
Loss from discontinued operations, net of tax	​	​	—	​	​	63
Adjustments to reconcile net income to net cash provided by operating activities:	​	​	​	​	​	​
Non-cash operating items (Note 2)	​	​	(97,384)	​	​	34,539
Changes in operating assets and liabilities:	​	​	​	​	​	​
Other current assets	​	​	98	​	​	(133)
Accrued employment costs and other current liabilities	​	​	93	​	​	184
Income taxes payable and receivable	​	​	4,387	​	​	7,978
Pension and other post-retirement liabilities	​	​	(633)	​	​	(2,411)
Other liabilities	​	​	3,998	​	​	(47,976)
Net cash provided by operating activities – continuing operations	​	​	314	​	​	1,858
Net cash provided by (used in) operating activities – discontinued operations	​	​	1,812	​	​	(46)
Net cash provided by operating activities	​	​	2,126	​	​	1,812
Investing activities:	​	​	​	​	​	​
Capital expenditures	​	​	(6)	​	​	(4)
Net cash used in investing activities – continuing operations	​	​	(6)	​	​	(4)
Net cash used in investing activities – discontinued operations	​	​	—	​	​	—
Net cash used in investing activities	​	​	(6)	​	​	(4)
Cash, cash equivalents and restricted cash – period increase	​	​	2,120	​	​	1,808
Cash, cash equivalents and restricted cash – beginning of year	​	​	257,251	​	​	255,443
Cash, cash equivalents and restricted cash – end of year	​	$	259,371	​	$	257,251

See notes to consolidated financial statements

F-201

LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Principal Business

Loral Space & Communications Inc., together with its subsidiaries (“Loral,” the “Company,” “we,” “our” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat Canada (“Telesat”), a leading global satellite operator. Loral holds a 62.7% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our ownership interest in Telesat (see Note 5).

Telesat owns and leases a satellite fleet that operates in geostationary earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s surface and provide reliable, high-bandwidth services anywhere in their coverage areas, serving as the backbone for many forms of telecommunications. Telesat is also developing a global constellation of low earth orbit (“LEO”) satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.

2.   Basis of Presentation

The consolidated financial statements include the results of Loral and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated.

Investments in Affiliates

Our ownership interest in Telesat is accounted for using the equity method of accounting under U.S. GAAP. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP. Income and losses of Telesat are recorded based on our economic interest. The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of December 31, 2019 and 2018. We use the nature of distribution approach to

F-202

classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other-than-temporary.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of income (loss) reported for the period. Actual results could materially differ from estimates.

Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.

Cash, Cash Equivalents and Restricted Cash

As of December 31, 2019, the Company had $259.1 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date.

As of December 31, 2019 and December 31, 2018, the Company had restricted cash of $0.3 million, representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in August 2021, has been provided as a guaranty to the lessor of our corporate offices.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the consolidated statement of cash flows (in thousands):

​	December 31,
​	2019			2018
Cash and cash equivalents	​	$	259,067	​	$	256,947
Restricted cash included in other assets	​	​	304	​	​	304
Cash, cash equivalents and restricted cash shown in the statement of cash flows	​	$	259,371	​	$	257,251

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of December 31, 2019 and December 31, 2018, our cash and cash equivalents were invested primarily in several liquid Prime and Government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1:

Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

F-203

Level 2:

Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3:

Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring or non-recurring basis (in thousands):

​

December 31, 2019

December 31, 2018,

​

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Money market funds

​

$

256,915

​

$

—

​

$

—

​

$

254,552

​

$

—

​

$

—

Other current assets:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Sale of SSL

​

$

—

​

$

—

​

$

598

​

$

—

​

$

—

​

$

2,410

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Long term liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Indemnification – Globalstar do Brasil S.A.

​

$

—

​

$

—

​

$

145

​

$

—

​

$

—

​

$

184

The carrying amount of cash equivalents approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of December 31, 2019 and December 31, 2018.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated remaining liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.

Contingencies

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.

F-204

Income Taxes

Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized.

The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.

Earnings per Share

Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unvested or unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options and restricted share units.

Additional Cash Flow Information

The following represents non-cash activities and supplemental information to the consolidated statements of cash flows (in thousands):

​	Year Ended December 31,
​	2019			2018
Non-cash operating items	​	​	​	​	​	​
Equity in net (income) loss of affiliates	​	$	(101,403)	​	$	24,412
Deferred taxes	​	​	2,987	​	​	9,030
Depreciation	​	​	15	​	​	26
Right-of-use asset, net of lease liability	​	​	9	​	​	—
Amortization of prior service credit and actuarial loss	​	​	1,008	​	​	1,071
Net non-cash operating items – continuing operations	​	$	(97,384)	​	$	34,539
Supplemental information:	​	​	​	​	​	​
Interest paid – continuing operations	​	$	24	​	$	26
Income tax refunds	​	$	5,547	​	$	8,619
Income tax payments	​	$	288	​	$	264

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General

F-205

(Subtopic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in ASU No. 2018-14 remove certain disclosures that are no longer considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant to improve effectiveness of disclosures related to employer sponsored defined benefit or other postretirement plans. The new guidance is effective for the Company on January 1, 2021, with earlier application permitted in any interim or annual period. The amendments in this ASU are applied on a retrospective basis to all periods presented. The Company early adopted the new guidance in the fourth quarter of 2018 by providing the required additional disclosures for all periods presented (see Note 11).

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 eliminates, amends, and adds disclosure requirements to improve the effectiveness of fair value measurement disclosures. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented. The new guidance is effective for the Company on January 1, 2020, with earlier application permitted. We will adopt the new guidance in the first quarter of 2020. While we continue to assess the potential impact of the new guidance, we do not expect it to have a material effect on our consolidated financial statements.

In February 2016, the FASB amended the Accounting Standards Codification (“ASC”) by creating ASC Topic 842, Leases (“ASC 842”). ASC Topic 842 requires a lessee to record a right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. The main difference between previous U.S. GAAP and ASC Topic 842 is the recognition under ASC 842 of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance was effective for the Company on January 1, 2019. We adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective method with a practical expedient through a cumulative-effect adjustment at the beginning of the first quarter of 2019. As a result, on January 1, 2019, we recognized a right-of-use asset and lease liability for an operating lease of approximately $0.3 million on our consolidated balance sheet.

3.   Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

​	Pension and Other Post- retirement Benefits			Equity in Telesat- related Other Comprehensive Loss			Accumulated Other Comprehensive Loss
Balance, January 1, 2018	​	$	(16,454)	​	$	(20,824)	​	$	(37,278)
Other comprehensive income before reclassification	​	​	953	​	​	22,033	​	​	22,986
Amounts reclassified from accumulated other comprehensive loss	​	​	845	​	​	—	​	​	845
Net current-period other comprehensive income	​	​	1,798	​	​	22,033	​	​	23,831
Tax Cuts and Jobs Act, reclassification of tax effect from accumulated other comprehensive loss to accumulated deficit	​	​	—	​	​	(4,173)	​	​	(4,173)
Balance, December 31, 2018	​	​	(14,656)	​	​	(2,964)	​	​	(17,620)
Other comprehensive loss before reclassification:	​	​	​	​	​	​	​	​	​
Prior periods (see Note 5)	​	​	—	​	​	(22,050)	​	​	(22,050)
Current period	​	​	(2,307)	​	​	(13,733)	​	​	(16,040)
Other comprehensive loss before reclassification	​	​	(2,307)	​	​	(35,783)	​	​	(38,090)
Amounts reclassified from accumulated other comprehensive loss	​	​	796	​	​	—	​	​	796
Net current-period other comprehensive loss	​	​	(1,511)	​	​	(35,783)	​	​	(37,294)
Balance, December 31, 2019	​	$	(16,167)	​	$	(38,747)	​	$	(54,914)

F-206

The components of other comprehensive (loss) income and related tax effects are as follows (in thousands):

​	Before-Tax Amount			Tax Benefit (Provision)			Net-of-Tax Amount
Year ended December 31, 2019	​	​	​	​	​	​	​	​	​
Pension and other post-retirement benefits:	​	​	​	​	​	​	​	​	​
Net actuarial loss and prior service credits	​	$	(2,921)	​	$	614	​	$	(2,307)
Amortization of prior service credits and net actuarial loss	​	​	1,008(a)	​	​	(212)	​	​	796
Pension and other post-retirement benefits:	​	​	(1,913)	​	​	402	​	​	(1,511)
Equity in Telesat-related other comprehensive loss:	​	​	​	​	​	​	​	​	​
Prior periods (See Note 5)	​	​	(22,056)	​	​	6	​	​	(22,050)
Current period	​	​	(13,737)	​	​	4	​	​	(13,733)
Equity in Telesat-related other comprehensive loss	​	​	(35,793)	​	​	10(b)	​	​	(35,783)
Other comprehensive loss	​	$	(37,706)	​	$	412	​	$	(37,294)
Year ended December 31, 2018	​	​	​	​	​	​	​	​	​
Pension and other post-retirement benefits:	​	​	​	​	​	​	​	​	​
Net actuarial gain and prior service credits	​	$	1,208	​	$	(255)	​	$	953
Amortization of prior service credits and net actuarial loss	​	​	1,071(a)	​	​	(226)	​	​	845
Pension and other post-retirement benefits:	​	​	2,279	​	​	(481)	​	​	1,798
Equity in Telesat-related other comprehensive income	​	​	22,033	​	​	—(b)	​	​	22,033
Other comprehensive income	​	$	24,312	​	$	(481)	​	$	23,831

(a)

Reclassifications are included in other expenses.

(b)

See Note 7, Income Taxes

4.   Other Current Assets

Other current assets consist of (in thousands):

​	December 31,
​	2019			2018
Indemnification receivable from SSL for pre-closing taxes (see Note 13)	​	$	598	​	$	2,410
Due from affiliates	​	​	186	​	​	161
Prepaid expenses	​	​	164	​	​	151
Other	​	​	374	​	​	510
​	​	$	1,322	​	$	3,232

5.   Investments in Affiliates

Investments in affiliates consist of (in thousands):

​	December 31,
​	2019			2018
Telesat	​	$	90,184	​	$	24,574

F-207

Equity in net income (loss) of affiliates consists of (in thousands):

​	Year Ended December 31,
​	2019			2018
Telesat	​	$	101,403	​	$	(24,412)

Telesat

As of December 31, 2019, we held a 62.7% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 32.6% of the voting stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our economic interest as our holdings consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to dividends, return of capital and surplus distributions, but have no voting rights.

In addition to recording our share of equity in net income (loss) of Telesat, we also recorded our share of equity in other comprehensive (loss) income of Telesat of $(35.8) million and $22.0 million for the years ended December 31, 2019 and 2018, respectively.

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to December 31, 2018. The adjustment resulted from translating our share of Telesat’s equity from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, Foreign Currency Matters, as required by ASC 323, Investments — Equity Method and Joint Ventures. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.

On January 1, 2019, Telesat adopted ASC 842, Leases, for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new guidance using the modified retrospective approach with the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its consolidated balance sheet. Comparative summary financial information of Telesat presented below has not been restated and continues to be reported under the accounting standards in effect for those periods presented.

On January 1, 2018, Telesat adopted ASC 606, Revenue from Contracts with Customers, for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new standard using the modified retrospective approach with a cumulative effect adjustment to reduce Telesat’s retained earnings by $42.2 million. As a result, we recorded our share of the cumulative effect adjustment by reducing our investment in Telesat by $26.5 million and increasing our accumulated deficit by $26.5 million.

On January 1, 2018, Telesat adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs, for its U.S. GAAP reporting. Adoption of the new guidance did not affect Telesat’s previously reported financial position or net income.

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.

F-208

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.

In March 2018, Telesat made a $50 million voluntary payment on the U.S. TLB Facility.

In April 2018, Telesat amended the former senior secured credit facilities, resulting in a reduction of the margin on the U.S. TLB Facility to 2.5% from 3.0%.

The ability of Telesat to pay dividends or certain other restricted payments in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Telesat’s credit agreement governing its senior secured credit facilities limits, among other items, Telesat’s ability to incur debt and make dividend payments if the total leverage ratio (“Total Leverage Ratio”) is above 4.50:1.00, with certain exceptions. As of December 31, 2019, Telesat’s Total Leverage Ratio was 4.63:1.00. Telesat is, however, permitted to pay annual consulting fees of $5 million to Loral in cash (see Note 14).

The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities is proportionately eliminated in determining our share of the net income or losses of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP, for the years ended December 31, 2019 and 2018 and as of December 31, 2019 and 2018 (in thousands):

​	Year Ended December 31,
​	2019			2018
Statement of Operations Data:	​	​	​	​	​	​
Revenues	​	$	687,868	​	$	699,596
Operating expenses	​	​	(129,770)	​	​	(137,400)
Depreciation, amortization and stock-based compensation	​	​	(212,282)	​	​	(205,451)
Other operating (expense) income	​	​	(649)	​	​	576
Operating income	​	​	345,167	​	​	357,321
Interest expense	​	​	(186,394)	​	​	(176,873)
Loss on refinancing	​	​	(86,166)	​	​	—
Foreign exchange gain (loss)	​	​	122,002	​	​	(203,005)
(Loss) gain on financial instruments	​	​	(42,039)	​	​	15,795
Other income	​	​	16,360	​	​	11,335
Income tax provision	​	​	(12,741)	​	​	(45,423)
Net income (loss)	​	$	156,189	​	$	(40,850)

​	December 31,
​	2019			2018
Balance Sheet Data:	​	​	​	​	​	​
Current assets	​	$	877,294	​	$	628,125
Total assets	​	​	4,130,337	​	​	3,942,847

F-209

​	December 31,
​	2019		2018
Current liabilities	​	124,217	​	139,401
Long-term debt, including current portion	​	2,836,700	​	2,764,599
Total liabilities	​	3,504,594	​	3,474,504
Shareholders’ equity	​	625,743	​	468,343

Other

We own 56% of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. We account for our ownership interest in XTAR under the equity method of accounting because we do not control certain of its significant operating decisions. We have also concluded that XTAR is not a variable interest entity for which we are the primary beneficiary. As of December 31, 2019 and 2018, the carrying value of our investment in XTAR was zero. Beginning January 1, 2016, we discontinued providing for our allocated share of XTAR’s net losses as our investment was reduced to zero and we have no commitment to provide further financial support to XTAR.

XTAR owns and operates an X-band satellite, XTAR-EUR, located at 29° E.L., which is designed to provide X-band communications services exclusively to United States, Spanish and allied government users throughout the satellite’s coverage area, including Europe, the Middle East and Asia. XTAR also leases 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L., owned by Hisdesat. These transponders, designated as XTAR-LANT, provide capacity to XTAR for additional X-band services and greater coverage and flexibility.

As of December 31, 2019 and 2018, the Company also held an indirect ownership interest in a foreign company that currently serves as the exclusive service provider for Globalstar service in Mexico. The Company accounts for this ownership interest using the equity method of accounting. As of December 31, 2019 and 2018, the carrying value of this investment was zero. Loral has written-off its investment in this company and has no future funding requirements relating to this investment. Accordingly, there is no requirement for us to provide for our allocated share of this company’s net losses. This company is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with this company upon completion of this process.

6.   Other Current Liabilities

Other current liabilities consists of (in thousands):

​	December 31,
​	2019			2018
Operating lease liability	​	​	652	​	​	—
Due to affiliate	​	$	5	​	$	164
Accrued professional fees	​	​	1,419	​	​	1,206
Pension and other post-retirement liabilities	​	​	77	​	​	69
Income taxes payable	​	​	673	​	​	—
Accrued liabilities	​	​	57	​	​	56
​	​	$	2,883	​	$	1,495

7.   Income Taxes

The following summarizes our income tax (provision) benefit (in thousands):

F-210

​	Year Ended December 31,
​	2019			2018
Current:	​	​	​	​	​	​
U.S. federal	​	$	(2,918)	​	$	47,761
State and local	​	​	2	​	​	867
Foreign	​	​	(250)	​	​	(250)
Total current	​	​	(3,166)	​	​	48,378
Deferred:	​	​	​	​	​	​
U.S. federal	​	​	(2,990)	​	​	(9,036)
State and local	​	​	3	​	​	6
Total deferred	​	​	(2,987)	​	​	(9,030)
Total income tax (provision) benefit	​	$	(6,153)	​	$	39,348

Our current income tax (provision) benefit includes an (increase) decrease to our liability for UTPs for (in thousands):

​	Year Ended December 31,
​	2019			2018
Unrecognized tax benefits	​	$	(2,467)	​	$	41,115
Interest expense	​	​	(1,570)	​	​	6,752
Total	​	$	(4,037)	​	$	47,867

The deferred income tax provision for each period includes the impact of equity in net income (loss) of affiliates in our consolidated statement of operations and the periodic effect of our accounting for GILTI. After utilization of our net operating loss (“NOL”) carryforward and allowable tax credits, there was no federal income tax on GILTI from Telesat.

For 2018, the statute of limitations for the assessment of additional tax expired with regard to certain of our federal UTPs. As a result, the reduction to our liability for UTPs provided a current tax benefit including the reversal of previously recognized interest, partially offset by an additional provision for the potential payment of interest on our remaining UTPs.

Public Law 117-97, known as the “Tax Cuts and Jobs,” Act made broad and complex changes to the U.S tax code first effective in 2018 including, but not limited to, (1) eliminating U.S federal income taxes on dividends from certain foreign investments, such as Telesat; (2) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, including Telesat, as part of GILTI; (3) limiting the use of foreign tax credits (“FTCs”) to reduce U.S. federal tax liability; (4) creating the base erosion anti-abuse tax, a new minimum tax; (5) creating a new limit on deductible interest expense; and (6) changing the rules related to the use of NOL carryforwards created in tax years beginning after December 31, 2017. During 2018, in accordance with SAB 118, we recognized the income tax effects of additional regulatory guidance issued by the U.S. Treasury and Internal Revenue Service on various provisions of the Tax Cuts and Jobs Act. Based upon our interpretation of this guidance, we determined that, after the utilization of allowable tax credits, federal income tax imposed on the future recognition of GILTI from Telesat will be zero. Since we anticipate that our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets are valued at zero. Therefore, as of December 31, 2018, we reduced deferred tax assets by $1.5 million with a corresponding increase to our deferred income tax provision.

In addition to the income tax (provision) benefit presented above, we also recorded the following items (in thousands):

F-211

​	Year Ended December 31,
​	2019			2018
Tax benefit on loss from discontinued operations	​	$	—	​	$	16
Deferred tax benefit (provision) for adjustments in other comprehensive loss (see Note 3)	​	​	412	​	​	(481)

The (provision) benefit for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate on the loss from continuing operations before income taxes and equity in net income (loss) of affiliates because of the effect of the following items (dollars in thousands):

​	Year Ended December 31,
​	2019			2018
U.S. Statutory Federal Corporate Income Tax Rate	​	​	21%	​	​	21%
Tax benefit	​	$	1,154	​	$	1,104
Permanent adjustments which change statutory amounts:	​	​	​	​	​	​
State and local income taxes, net of federal income tax	​	​	107	​	​	666
Equity in net income (loss) of affiliates	​	​	(5,055)	​	​	(6,241)
Federal (provision) benefit for unrecognized tax benefits	​	​	(1,226)	​	​	46,534
Nondeductible expenses	​	​	(695)	​	​	(957)
Change in valuation allowance	​	​	(118)	​	​	(4,329)
Income tax credits	​	​	—	​	​	4,554
Foreign income taxes	​	​	(250)	​	​	(250)
Effect of U.S. tax law changes	​	​	—	​	​	(1,542)
Other, net	​	​	(70)	​	​	(191)
Total income tax (provision) benefit	​	$	(6,153)	​	$	39,348

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

​	Year Ended December 31,
​	2019			2018
Balance at January 1	​	$	43,055	​	$	70,410
Decreases as a result of statute expirations	​	​	(18)	​	​	(27,355)
Balance at December 31	​	$	43,037	​	$	43,055

8.   Other Liabilities

Other liabilities consists of (in thousands):

​	December 31,
​	2019			2018
Operating lease liability	​	$	345	​	$	—
Indemnification liabilities – other (see Note 13)	​	​	145	​	​	184
Liabilities for uncertain tax positions	​	​	17,352	​	​	13,315
​	​	$	17,842	​	$	13,499

9.   Stock-Based Compensation

Stock Plans

The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed for the grant of several forms of stock-based compensation awards including stock options, stock appreciation

F-212

rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards, had a ten-year term and has expired. The Company granted 75,262 restricted stock units under the Stock Incentive Plan that do not expire and remained unconverted as of December 31, 2019 and December 31, 2018. As of December 31, 2019, there is no unrecognized compensation cost related to non-vested awards.

10. Earnings Per Share

Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s ownership interest in Telesat to approximately 62.3%. The following table presents the dilutive impact of Telesat stock options on Loral’s reported income from continuing operations for the purpose of computing diluted earnings per share (in thousands):

​	Year Ended December 31,
​	2019			2018
Income from continuing operations – basic	​	$	89,755	​	$	9,677
Less: Adjustment for dilutive effect of Telesat stock options	​	​	(528)	​	​	—
Income from continuing operations – diluted	​	$	89,227	​	$	9,677

Telesat stock options are excluded from the calculation of diluted loss per share for the year ended December 31, 2018 as the effect would be antidilutive.

Basic earnings per share is computed based upon the weighted average number of shares of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):

​	Year Ended December 31,
​	2019		2018
Weighted average common shares outstanding	​	30,933	​	30,933
Unconverted restricted stock units	​	75	​	75
Common shares outstanding for diluted earnings per share	​	31,008	​	31,008

11.   Pensions and Other Employee Benefit Plans

Pensions

We maintain a qualified defined benefit pension plan to which members may contribute in order to receive enhanced pension benefits. Employees hired after June 30, 2006 do not participate in the defined benefit pension plan, but participate in our defined contribution savings plan with an additional Company contribution. Benefits are based primarily on members’ compensation and/or years of service. Our funding policy is to fund the qualified pension plan in accordance with the Internal Revenue Code and regulations thereon. Plan assets are generally invested in equity, fixed income and real asset investments. Pension plan assets are managed primarily by Russell Investment Corp. (“Russell”), which allocates the assets into funds as we direct.

Other Benefits

In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. For the years ended December 31, 2019 and 2018 certain of these benefits were provided through plans sponsored or managed by Telesat. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for our pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Medical coverage for retired employees and dependents ends when the retiree reaches age 65.

Funded Status

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2019 and 2018, and a statement of the funded status as of December 31, 2019 and 2018. We use a December 31 measurement date for the pension plan and other post-retirement benefits (in thousands).

F-213

​

Pension Benefits

Other Benefits

​

Year Ended December 31,

Year Ended December 31,

​

2019

2018

2019

2018

Reconciliation of benefit obligation:

​

​

​

​

​

​

​

​

​

​

​

​

Obligation at beginning of period

​

$

49,020

​

$

53,976

​

$

479

​

$

519

Service cost

​

​

722

​

​

715

​

​

—

​

​

1

Interest cost

​

​

2,018

​

​

1,855

​

​

21

​

​

18

Participant contributions

​

​

25

​

​

27

​

​

—

​

​

15

Actuarial loss (gain)

​

​

5,256

​

​

(5,725)

​

​

30

​

​

(36)

Benefit payments

​

​

(1,882)

​

​

(1,828)

​

​

(19)

​

​

(38)

Obligation at December 31,

​

​

55,159

​

​

49,020

​

​

511

​

​

479

Reconciliation of fair value of plan assets:

​

​

​

​

​

​

​

​

​

​

​

​

Fair value of plan assets at beginning of period

​

​

34,263

​

​

35,640

​

​

—

​

​

—

Actual return on plan assets

​

​

4,798

​

​

(1,925)

​

​

—

​

​

—

Employer contributions

​

​

942

​

​

2,349

​

​

19

​

​

23

Participant contributions

​

​

25

​

​

27

​

​

—

​

​

15

Benefit payments

​

​

(1,882)

​

​

(1,828)

​

​

(19)

​

​

(38)

Fair value of plan assets at December 31,

​

​

38,146

​

​

34,263

​

​

—

​

​

—

Funded status at end of period

​

$

(17,013)

​

$

(14,757)

​

$

(511)

​

$

(479)

The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $17.5 million at December 31, 2019 (the “unfunded benefit obligations”). The unfunded benefit obligations were measured using a discount rate of 3.25% and 4.25% at December 31, 2019 and 2018, respectively. For the year ended December 31, 2019, the actuarial loss component of the change in benefit obligation of $5.3 million for the pension plan comprises $6.7 million attributable to the change in the discount rate partially offset by $1.4 million attributable to other factors. For the year ended December 31, 2018, the actuarial gain component of the change in benefit obligation of $5.7 million for the pension plan comprises $5.1 million attributable to the change in the discount rate and $0.6 million attributable to other factors. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations for pension and other post-retirement benefits by approximately $3.7 million and $3.4 million as of December 31, 2019 and 2018, respectively. Market conditions and interest rates will significantly affect future assets and liabilities of Loral’s pension plan and other post-retirement benefits.

The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31, 2019 and 2018 consist of (in thousands):

​	Pension Benefits						Other Benefits
​	December 31,						December 31,
​	2019			2018			2019			2018
Actuarial loss	​	$	(18,613)	​	$	(16,728)	​	$	(32)	​	$	(4)

The amounts recognized in other comprehensive (loss) income during the years ended December 31, 2019 and 2018 consist of (in thousands):

​	Year Ended December 31,
​	2019						2018
​	Pension Benefits			Other Benefits			Pension Benefits			Other Benefits
Actuarial (loss) gain during the period	​	$	(2,891)	​	$	(30)	​	$	1,172	​	$	36
Amortization of actuarial loss	​	​	1,006	​	​	2	​	​	1,041	​	​	8
Amortization of prior service cost	​	​	—	​	​	—	​	​	—	​	​	22
Total recognized in other comprehensive (loss) income	​	$	(1,885)	​	$	(28)	​	$	2,213	​	$	66

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Amounts recognized in the balance sheet consist of (in thousands):

​	Pension Benefits						Other Benefits
​	December 31,						December 31,
​	2019			2018			2019			2018
Current Liabilities	​	$	—	​	$	—	​	$	77	​	$	69
Long-Term Liabilities	​	​	17,013	​	​	14,757	​	​	434	​	​	410
​	​	$	17,013	​	$	14,757	​	$	511	​	$	479

The accumulated pension benefit obligation was $54.2 million and $48.2 million at December 31, 2019 and 2018, respectively.

During 2019, we contributed $0.9 million to the qualified pension plan and our contributions for the other employee post-retirement benefits were not significant. During 2020, based on current estimates, we expect our contributions to the qualified pension plan will be approximately $2.7 million. We expect that our funding of other employee post-retirement benefits during 2020 will not be significant.

The following table provides the components of net periodic cost included in income from continuing operations for the plans for the years ended December 31, 2019 and 2018 (in thousands):

​	Pension Benefits						Other Benefits
​	Year Ended December 31,						Year Ended December 31,
​	2019			2018			2019			2018
Service cost(1)	​	$	722	​	$	715	​	$	—	​	$	1
Interest cost(2)	​	​	2,018	​	​	1,855	​	​	21	​	​	18
Expected return on plan assets(2)	​	​	(2,432)	​	​	(2,628)	​	​	—	​	​	—
Amortization of prior service cost(2)	​	​	—	​	​	—	​	​	—	​	​	22
Amortization of net actuarial loss(2)	​	​	1,006	​	​	1,041	​	​	2	​	​	8
Net periodic cost	​	$	1,314	​	$	983	​	$	23	​	$	49

(1)

Included in general and administrative expenses.

(2)

Included in other expense.

Assumptions

Assumptions used to determine net periodic cost:

​	Year Ended December 31,
​	2019		2018
Discount rate	​	4.25%	​	3.50%
Expected return on plan assets	​	7.25%	​	7.25%
Rate of compensation increase	​	4.25%	​	4.25%

Assumptions used to determine the benefit obligation:

​	December 31,
​	2019		2018
Discount rate	​	3.25%	​	4.25%
Rate of compensation increase	​	4.25%	​	4.25%

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. Our expected long-term rate of return on plan assets for 2020 is 7.00%.

As of December 31, 2019 and 2018, the Company contributions remaining for other benefits were primarily for fixed amounts. Therefore, future health care cost trend rates will not affect Company costs and accumulated post-retirement benefit obligation.

F-215

Plan Assets

The Company has established the pension plan as a retirement vehicle for participants and as a funding vehicle to secure promised benefits. The investment goal is to provide a total return that over time will earn a rate of return to satisfy the benefit obligations given investment risk levels, contribution amounts and expenses. The pension plan invests in compliance with the Employee Retirement Income Security Act 1974, as amended (“ERISA”), and any subsequent applicable regulations and laws.

The Company has adopted an investment policy for the management and oversight of the pension plan. It sets forth the objectives for the pension plan, the strategies to achieve these objectives, procedures for monitoring and control and the delegation of responsibilities for the oversight and management of pension plan assets.

The Company’s Board of Directors has delegated primary fiduciary responsibility for pension assets to an investment committee. In carrying out its responsibilities, the investment committee establishes investment policy, makes asset allocation decisions, determines asset class strategies and retains investment managers to implement asset allocation and asset class strategy decisions. It is responsible for the investment policy and may amend such policy from time to time.

Pension plan assets are invested in various asset classes in what we believe is a prudent manner for the exclusive purpose of providing benefits to participants. U.S. equities are held for their long-term expected return premium over fixed income investments and inflation. Non-U.S. equities are held for their expected return premium (along with U.S. equities), as well as diversification relative to U.S. equities and other asset classes. Fixed income investments are held for diversification relative to equities. Real assets are held for diversification relative to equities and fixed income. Alternative investments are held for both diversification and higher returns than those typically available in traditional asset classes.

Asset allocation policy is the principal method for achieving the pension plan’s investment objectives stated above. Asset allocation policy is reviewed regularly by the investment committee. The pension plan’s actual and targeted asset allocations, are as follows:

​	December 31, 2019 Actual Allocation		Target Allocation
			Target		Target Range
Liquid return-seeking investments	​	61%	​	56.5%	​	45-65%
Alternative investments	​	9%	​	14.5%	​	0-20%
Fixed income investments	​	30%	​	29.0%	​	20-40%
​	​	100%	​	100%	​	100%

The target allocation within the liquid return-seeking portfolio is 75% global equities, 15% marketable real assets and 10% fixed income. Allocations may vary by up to 5% from these targets.

The pension plan’s assets are actively managed using a multi-asset, multi-style, multi-manager investment approach. Portfolio risk is controlled through this diversification process and monitoring of money managers. Consideration of such factors as differing rates of return, volatility and correlation are utilized in the asset and manager selection process. Diversification reduces the impact of losses in single investments. Performance results and fund accounting are provided to the Company by Russell on a monthly basis. Periodic reviews of the portfolio are performed by the investment committee with Russell. These reviews typically consist of a market and economic review, a performance review, an allocation review and a strategy review. Performance is judged by investment type against market indexes. Allocation adjustments or fund changes may occur after these reviews. Performance is reported to the Company’s Board of Directors at quarterly board meetings.

Fair Value Measurements

The values of the fund trusts are calculated using systems and procedures widely used across the investment industry. Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, discounted cash flow methodology, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers.

F-216

The table below provides the fair values of the Company’s pension plan assets, by asset category, at December 31, 2019 and 2018. The Company’s pension plan assets are mainly held in commingled employee benefit fund trusts.

​

Fair Value Measurements

Asset Category

Total

Percentage

Level 1

Level 2

Level 3

Assets Measured at NAV(1)

​

(Dollars in thousands)

At December 31, 2019

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Liquid return-seeking:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Multi-asset fund(2)

​

$

23,127

​

61%

​

​

​

​

​

​

​

​

$

23,127

Fixed income securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commingled funds(3)

​

​

11,463

​

30%

​

​

​

​

​

​

​

​

​

11,463

Alternative investments:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity long/short fund(4)

​

​

1,349

​

4%

​

​

​

​

​

$

1,349

​

​

​

Private equity fund(5)

​

​

48

​

0%

​

​

​

​

​

​

48

​

​

​

Distressed opportunity limited partnership(6)

​

​

463

​

1%

​

​

​

​

​

​

463

​

​

​

Multi-strategy limited partnership(7)

​

​

1,696

​

4%

​

​

​

​

​

​

1,696

​

​

​

​

​

​

3,556

​

9%

​

—

​

—

​

​

3,556

​

​

—

​

​

$

38,146

​

100%

​

—

​

—

​

$

3,556

​

$

34,590

At December 31, 2018

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Liquid return-seeking:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Multi-asset fund(2)

​

$

20,251

​

59%

​

​

​

​

​

​

​

​

$

20,251

Fixed income securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commingled funds(3)

​

​

10,869

​

32%

​

​

​

​

​

​

​

​

​

10,869

Alternative investments:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity long/short fund(4)

​

​

1,002

​

3%

​

​

​

​

​

$

1,002

​

​

​

Private equity fund(5)

​

​

76

​

0%

​

​

​

​

​

​

76

​

​

​

Distressed opportunity limited partnership(6)

​

​

463

​

1%

​

​

​

​

​

​

463

​

​

​

Multi-strategy limited partnership(7)

​

​

1,602

​

5%

​

​

​

​

​

​

1,602

​

​

​

​

​

​

3,143

​

9%

​

—

​

—

​

​

3,143

​

​

—

​

​

$

34,263

​

100%

​

—

​

—

​

$

3,143

​

$

31,120

(1)

Assets measured using the net asset value (“NAV”) practical expedient have not been classified in the fair value hierarchy. The NAV practical expedient is based on the fair value of the underlying assets of the common/collective trust (“CCT”) minus its liabilities, and then divided by the number of units outstanding. The NAV practical expedient of a CCT is calculated based on a compilation of primarily observable market information.

(2)

A single fund that invests in global equities, marketable real assets and fixed income securities. The fund has no limitation on redemptions.

(3)

Investments in bonds representing many sectors of the broad bond market with both short-term and intermediate-term maturities. The fund has no limitation on redemptions.

(4)

Investments primarily in long and short positions in equity securities of U.S. and non-U.S. companies. The fund generally has semi-annual tender offer redemption periods on June 30 and December 31 and is reported on a one month lag.

(5)

Fund invests in portfolios of secondary interest in established venture capital, buyout, mezzanine and special situation funds on a global basis. Fund is valued on a quarterly lag with adjustment for subsequent cash activity. The fund terminates on July 12, 2020, subject to extension for up to two one-year periods. Earlier redemptions are not permitted.

F-217

(6)

Investments mainly in discounted debt securities, bank loans, trade claims and other debt and equity securities of financially troubled companies. This partnership has semi-annual withdrawal rights on June 30 and December 31 with notice of 90 days and is reported on a one month lag.

(7)

Investments in a partnership that has a multi-strategy investment program and does not rely on a single investment model. This partnership has quarterly redemption rights with notice of 65 days and is reported on a one month lag.

Additional information pertaining to the changes in the fair value of the pension plan assets classified as Level 3 for the years ended December 31, 2019 and 2018 is presented below:

​

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

​

Private Equity Fund

Equity Long/Short Fund

Distressed Opportunity Ltd. Partnership

Multi Strategy Fund

Total

​

(In thousands)

Balance, January 1, 2018

​

$

83

​

$

1,067

​

$

504

​

$

1,572

​

$

3,226

Unrealized gain

​

​

10

​

​

(65)

​

​

(41)

​

​

30

​

​

(66)

Sales

​

​

(17)

​

​

—

​

​

—

​

​

—

​

​

(17)

Balance, December 31, 2018

​

​

76

​

​

1,002

​

​

463

​

​

1,602

​

​

3,143

Unrealized gain (loss)

​

​

(23)

​

​

347

​

​

—

​

​

94

​

​

418

Sales

​

​

(5)

​

​

—

​

​

—

​

​

—

​

​

(5)

Balance, December 31, 2019

​

$

48

​

$

1,349

​

$

463

​

$

1,696

​

$

3,556

Both the Equity Long/Short Fund and the Distressed Opportunity Limited Partnership are valued at each month-end based upon quoted market prices by the investment managers.

The Multi-Strategy Fund invests in various underlying securities. The fund’s net asset value is calculated by the fund manager and is not publicly available. The fund manager accumulates all the underlying security values and uses them in determining the fund’s net asset value.

The private equity fund and limited partnership valuations are primarily based on cost/price of recent investments, earnings/performance multiples, net assets, discounted cash flows, comparable transactions and industry benchmarks.

The annual audited financial statements of all funds are reviewed by the Company.

Benefit Payments

The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):

​	Pension Benefits			Other Benefits
2020	​	$	2,103	​	$	78
2021	​	​	2,267	​	​	68
2022	​	​	2,368	​	​	58
2023	​	​	2,527	​	​	50
2024	​	​	2,770	​	​	41
2025 to 2029	​	​	14,831	​	​	128

Employee Savings (401k) Plan

We have an employee savings (401k) plan, to which the Company provides contributions which match up to 6% of a participant’s base salary at a rate of 662∕3%. The Company also makes retirement contributions to the savings (401k) plan, which provide added retirement benefits to employees hired on or after July 1, 2006, as they are not eligible to participate in our defined benefit pension plan. Retirement contributions are

F-218

provided regardless of an employee’s contribution to the savings (401k) plan. Matching contributions and retirement contributions are collectively known as Company contributions. Company contributions are made in cash and placed in each participant’s age appropriate “life cycle” fund. For each of the years ended December 31, 2019 and 2018, Company contributions were $0.1 million. Participants of the savings (401k) plan are able to redirect Company contributions to any available fund within the plan. Participants are also able to direct their contributions to any available fund.

12.   Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.

Foreign Currency

We are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, we attempt to denominate all contracts in U.S. dollars. Where appropriate, derivatives are used to minimize the risk of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or speculative purposes.

Derivatives and Hedging Transactions

There were no derivative instruments as of December 31, 2019 and 2018.

13.   Commitments and Contingencies

Financial Matters

In 2012, we sold our former subsidiary, SSL, to MDA Communications Holdings, Inc., a subsidiary of Maxar Technologies Inc. (formerly known as MacDonald, Dettwiler and Associates Ltd.) (“MDA”) pursuant to the Purchase Agreement. Under the terms of the Purchase Agreement, we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our consolidated balance sheets include an indemnification refund receivable of $0.6 million and $2.4 million as of December 31, 2019 and 2018, respectively. Certain tax assessments against SSL for 2007 to 2010 have been settled, resulting in our having received during the second and third quarters of 2019 refunds of prior indemnification payments totaling $1.8 million. The remaining receivable as of December 31, 2019 represents payments to date over the estimated fair value of the remaining liability for our indemnification of SSL pre-closing taxes where the final amounts have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our consolidated balance sheets include liabilities of $0.1 million and $0.2 million as of December 31, 2019 and 2018, respectively, for indemnification liabilities relating to the sale of GdB.

See Note 14 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies relating to our agreement to indemnify Telesat for certain liabilities.

Lease Arrangements

We lease a facility and certain equipment under agreements expiring at various dates. We may renew, extend or modify a lease covering facilities as needed. We have no sublease income in any of the periods presented.

F-219

We changed our method of accounting for leases in the first quarter of 2019 due to the adoption of ASC 842. We adopted ASC 842 as of January 1, 2019 using the modified retrospective transition method and elected to apply the transition as of the beginning of the period of adoption. Accordingly, financial information as of and for the year ended December 31, 2019 is presented under ASC 842, whereas the financial information as of and for the year ended December 31, 2018 is presented under ASC 840, Leases.

Upon adoption of ASC 842, we recognized a right-of-use asset and lease liability of $0.3 million for an operating lease on our consolidated balance sheet as of January 1, 2019. In March 2019, the operating lease was modified by extending the lease termination date from June 30, 2019 to June 30, 2020 and increasing the rent for the extension period. In December 2019, the operating lease was further modified by extending the lease termination date to June 30, 2021. As a result, the right-of-use asset increased to $1.0 million as of December 31, 2019. The right-of-use asset is being amortized over the life of the lease. Lease costs expensed for the years ended December 31, 2019 and 2018 were as follows (in thousands):

​	Lease Expense
Year ended December 31, 2019	​	$	677
Year ended December 31, 2018	​	​	680

Lease payments for the year ended December 31, 2019 were $0.7 million. The remaining lease term as of December 31, 2019 is 18 months, and we used a discount rate of 7.5% to compute the lease liability at inception and at each modification date.

The following is a reconciliation of the future operating lease payments to operating lease liability as of December 31, 2019 (in thousands):

2020	$	701
2021	​	350
Total operating lease payments	​	1,051
Less: Interest	​	(54)
Operating lease liability	$	997
Amounts recognized in Balance Sheet	​	​
Other current liabilities	$	652
Other liabilities	​	345
​	$	997

Legal Proceedings

We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.

14.   Related Party Transactions

MHR Fund Management LLC

Mark H. Rachesky, President of MHR Fund Management LLC (“MHR”), and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s board of directors.

Various funds affiliated with MHR and Dr. Rachesky held, as of December 31, 2019 and December 31, 2018, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral.

Transactions with Affiliates

Telesat

As described in Note 5, we own 62.7% of Telesat and account for our ownership interest under the equity method of accounting.

F-220

In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and certain of its subsidiaries, our Canadian co-owner, Public Sector Pension Investment Board (“PSP”) and one of its subsidiaries, Telesat and MHR entered into a Shareholders Agreement (the “Shareholders Agreement”). The Shareholders Agreement provides for, among other things, the manner in which the affairs of Telesat and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. The Shareholders Agreement also contains an agreement by Loral not to engage in a competing satellite communications business and agreements by the parties to the Shareholders Agreement not to solicit employees of Telesat or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) provides for, in certain circumstances, tag-along rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Telesat equity securities.

In addition, the Shareholders Agreement provides for either PSP or Loral to initiate the process of conducting an initial public offering of the equity shares of Telesat (a “Telesat IPO”). In connection with our exploration of strategic initiatives to alter the status quo in our ownership of Telesat, in July 2015, we exercised our right under the Shareholders Agreement to require Telesat to conduct a Telesat IPO. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non -voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a strategic transaction to combine Loral and Telesat into one public company that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.

Depending upon the outcome of discussions with PSP relating to Telesat strategic matters, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.

Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) or (ii) there is a change in the composition of a majority of the members of the Loral Board of Directors over a consecutive two-year period without the

F-221

approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat and its subsidiaries. In addition, after either of these events, PSP will have certain rights to enable it to exit from its investment in Telesat, including a right to cause Telesat to conduct an initial public offering in which PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of cooperation from Loral or Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to Loral’s right to call PSP’s shares at fair market value.

The Shareholders Agreement provides for a board of directors of Telesat consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent directors then in office. Each party to the Shareholders Agreement is obligated to vote all of its Telesat shares for the election of the directors nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the Board of Directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.

On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provides to Telesat certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the satellite communications business of Telesat. The Consulting Agreement has a term of seven-years with an automatic renewal for an additional seven-year term if Loral is not then in material default under the Shareholders Agreement. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year term. In exchange for Loral’s services under the Consulting Agreement, Telesat pays Loral an annual fee of $5.0 million, payable quarterly in arrears on the last day of March, June, September and December of each year during the term of the Consulting Agreement. Our general and administrative expenses for each of the years ended December 31, 2019 and 2018, are net of income of $5.0 million related to the Consulting Agreement. Loral received payments in cash from Telesat, net of withholding taxes, of $4.8 million for each of the years ended December 31, 2019 and 2018.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately $0.9 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification. There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes.

Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants.

Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), entered into stock option grant agreements (the “Stock Option Grant Agreements”) and a restricted stock unit grant agreement (the “RSU Grant Agreement,” and, together with the Stock Option Grant Agreements, the “Grant Agreements”) with respect to shares in Telesat with certain executives of Telesat (each, a “Participant” and collectively, the “Participants”). Each of the Participants is or was, at the time, an executive of Telesat.

The Stock Option Grant Agreements document grants to the Participants of Telesat stock options (including tandem SAR rights) and provide for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Stock Option Grant Agreements; and (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s

F-222

Management Stock Incentive Plan in the event of a Participant’s termination of employment; and, in the case of certain executives, (y) the right of each such Participant to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than the minimum withholding amount; and (z) the right of each such Participant to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under Telesat’s Management Stock Incentive Plan at the relevant time, in the event that more than 90% of Loral’s common stock is acquired by an unaffiliated third party that does not also purchase all of PSP’s and its affiliates’ interest in Telesat.

The RSU Grant Agreement documents a grant to the Participant of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the RSU Grant Agreement; and (y) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of the termination of the Participant’s employment.

The Grant Agreements further provide that, in the event the Special Purchaser is required to purchase shares, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat.

In 2017, Loral received a $242.7 million cash distribution from Telesat (see Note 5).

Other

As described in Note 5, we own 56% of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. SSL constructed XTAR’s satellite, which was successfully launched in February 2005. XTAR and Loral have entered into a management agreement whereby Loral provides general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral primarily due to the management agreement were $6.7 million as of December 31, 2019 and 2018. Beginning in 2008, Loral and XTAR agreed to defer amounts owed to Loral under this agreement, and XTAR has agreed that its excess cash balance (as defined), will be applied at least quarterly towards repayment of receivables owed to Loral, as well as to Hisdesat and Telesat. No cash was received under this agreement for the years ended December 31, 2019 and 2018, and we had an allowance of $6.6 million against these receivables as of December 31, 2019 and 2018. Loral and Hisdesat have agreed to waive future management fees for an indefinite period starting January 1, 2014.

Consulting Agreement

On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting fees of $120,000 per month and reimburses the Company for certain expenses. For each of the years ended December 31, 2019 and 2018, Mr. Targoff earned $1,440,000 in consulting fees and reimbursed Loral net expenses of $45,000.

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SCHEDULE II

LORAL SPACE & COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS

For the Year Ended December 31, 2019 and 2018
(In thousands)

​

​

​

​

Additions

​

Description

Balance at Beginning of Period

Charged to Costs and Expenses

Charged to Other Accounts

Balance at End of Period

Year ended December 31, 2018

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for affiliate receivables

​

$

6,692

​

$

—

​

$

—

​

$

6,692

Deferred tax valuation allowance

​

$

124,036

​

$

4,329

​

$

—

​

$

128,365

Year ended December 31, 2019

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for affiliate receivables

​

$

6,692

​

$

—

​

$

—

​

$

6,692

Deferred tax valuation allowance

​

$

128,365

​

$

118

​

$

—

​

$

128,483

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EX-99.8

PRO FORMA FINANCIAL INFORMATION

The accounting of the Transaction depends upon certain key assumptions being upheld. The assessment of Telesat Corporation’s exposure to variable returns from Telesat Partnership is influenced by the assumption of the number of Telesat Partnership Elections and Telesat Corporation Elections made by Loral stockholders and supports the determination of the accounting for the Transaction as either consolidation in accordance with IFRS 10 or equity investment in accordance with IAS 28 at the Telesat Corporation level.

The following two scenarios of pro forma financial information have been prepared to illustrate the potential scenarios as a result of such elections made by Loral stockholders:

Scenario 1 — Consolidated:   Pro Forma Condensed Consolidated Financial Information — In this scenario it has been assumed that where a valid Telesat Partnership Election is required in order to receive Telesat Partnership Units no such valid Telesat Partnership Election can be assured and as a result Telesat Public Shares will be issued as Transaction Consideration. In accordance with consolidation principles of IFRS 10, Pro Forma Condensed Consolidated Financial Information will be presented for Telesat Corporation. This scenario is presented in the Unaudited Pro Forma Condensed Consolidated Financial Information and Financial Statements.

Scenario 2 — Equity Investment:   Pro Forma Financial Information — In this scenario it has been assumed that where a valid Telesat Partnership Election is still required in order to receive Telesat Partnership Units, such a valid Telesat Partnership Election will be made by all existing Loral stockholders and as a result Telesat Partnership Units will be issued as Transaction Consideration. In addition, it has also been assumed that the consolidation principles of IFRS 10 have not been met. As a result, Pro Forma Condensed Financial Information for Telesat Corporation has been prepared in accordance with IAS 28, with the investment in Telesat Partnership accounted for as an equity investment. The Telesat Partnership pro forma financial information reflects the consolidation of each of its controlled subsidiaries. To illustrate the presentation of Pro Forma Financial Information under this scenario, Pro Forma Financial Information has been prepared and presented for both Telesat Corporation and Telesat Partnership. This scenario is presented in the Telesat Corporation Unaudited Pro Forma Condensed and Telesat Partnership Unaudited Pro Forma Condensed Consolidated Financial Information and Financial Statements.

In preparing Pro Forma Financial Information to be presented under the two scenarios, the financial statements of Loral were reclassified in order to align with the historical accounting presentation of Telesat Corporation, which is based on Telesat’s historical accounting presentation.

The following adjustments represent the reclassification of certain balances on the consolidated balance sheet of Loral as at September 30, 2021 to conform to the presentation used by Telesat Corporation and as applied in preparing the Pro Forma Financial Information:

(in millions of Canadian dollars)	Loral			Reclassifications			Historical Loral
Income tax refund receivable	​	$	1.7	​	$	(1.7)	​	$	—
Other current financial assets	​	$	—	​	$	0.4	​	$	0.4
Prepaid expenses and other current assets	​	$	—	​	$	2.8	​	$	2.8
Other current assets	​	$	1.5	​	$	(1.5)	​	$	—
Right-of-use-asset	​	$	0.2	​	$	(0.2)	​	$	—
Satellites, property and other equipment	​	$	—	​	$	0.2	​	$	0.2
Trade and other payables	​	$	—	​	$	12.5	​	$	12.5
Accrued employment costs	​	$	12.4	​	$	(12.4)	​	$	—
Other current liabilities	​	$	3.2	​	$	(0.1)	​	$	3.1
Pension and other post-retirement liabilities	​	$	24.4	​	$	(24.4)	​	$	—
Other long-term liabilities	​	$	26.2	​	$	24.4	​	$	50.6
Accumulated deficit	​	$	(890.3)	​	$	(22.4)	​	$	(912.7)
Reserves	​	$	—	​	$	(62.9)	​	$	(62.9)
Accumulated other comprehensive loss	​	$	(85.3)	​	$	85.3	​	$	—

A-1

The following adjustments represent the reclassification of the statement of operations of Loral for the year ended December 31, 2020 to conform to Telesat Corporation’s condensed consolidated presentation:

(in millions of Canadian dollars)	Loral			Reclassifications			Historical Loral
Operating expenses	​	$	—	​	$	(15.8)	​	$	(15.8)
General and administrative expenses	​	$	(9.0)	​	$	9.0	​	$	—
Recovery of affiliate doubtful receivable	​	$	7.8	​	$	(7.8)	​	$	—
Other expense	​	$	(14.6)	​	$	14.6	​	$	—

The following adjustments represent the reclassification of the statement of operations of Loral for the nine months ended September 30, 2021 to conform to Telesat Corporation’s condensed consolidated presentation:

(in millions of Canadian dollars)	Loral			Reclassifications			Historical Loral
Operating expenses	​	$	—	​	$	(24.1)	​	$	(24.1)
General and administrative expenses	​	$	(15.5)	​	$	15.5	​	$	—
Other expense	​	$	(8.6)	​	$	8.6	​	$	—

A-2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial information (the “Pro Forma Condensed Consolidated Financial Information”) presents the unaudited pro forma condensed consolidated balance sheet of Telesat Corporation (the “Pro Forma Balance Sheet”) as of September 30, 2021 and the unaudited pro forma condensed consolidated statements of income of Telesat Corporation (the “Pro Forma Statements of Income”) for the year ended December 31, 2020 and the nine months ended September 30, 2021, after giving effect to the transactions and adjustments as described in the accompanying notes. The Pro Forma Condensed Consolidated Financial Information includes the results of Telesat Corporation and Telesat Partnership and the historical results of Loral and Telesat, after giving pro forma effect to the following events and equity issuances in connection with the Transaction:

a.

The incorporation of Telesat Corporation, Telesat CanHoldco and Merger Sub and establishment of Telesat Partnership, with Telesat Corporation representing the ultimate parent company of the group.

b.

The issuance to Red Isle of (i) 270,270 Class C Shares in exchange for 653,422 of the Telesat Non-Voting Participating Preferred Shares held by Red Isle and (ii) 17,940,933 Class C Units in exchange for the remaining 43,377,534 Non-Voting Participating Preferred Shares, Voting Participating Preferred Shares and Common Shares of Telesat held by Red Isle.

c.

The issuance to MHR of 18,050,092 Class B Units of Telesat Partnership in exchange for the 18,050,092 Loral Common Shares held by MHR.

d.

The issuance of 12,981,576 Telesat Public Shares to certain other former Loral stockholders in exchange for the 12,981,576 Loral Common Shares held by them in the aggregate.

e.

The issuance of 302,176 Telesat Public Shares to certain members of Telesat management in exchange for the 730,599 shares in the capital of Telesat held by them in the aggregate.

After taking into account the above issuances, the voting rights and ownership interests of Telesat’s direct and indirect shareholders have been materially preserved and no individual party will acquire a majority of the voting or ownership interests in Telesat Corporation. Upon assessment of the voting power attributed to the various shareholders of Telesat Corporation, the Transaction represents a transfer among entities that have a high degree of common ownership as no single party to the Transaction will be considered to control Telesat Corporation, as no individual party will obtain a majority voting or ownership interest therein.

As general partner, Telesat Corporation is committed to operating Telesat Partnership as designed and will direct all relevant activities of Telesat Partnership. On the contrary, limited partners are only able to exercise their influence over the decision making (indirectly via director election and other matters in shareholders meeting) through a special voting arrangement in the Voting Trust at the Telesat Corporation level. As such, it has been determined that Telesat Corporation, as the general partner, has control over Telesat Partnership through its power over relevant decisions of the partnership, exposure to variable returns and ability to use its power to impact its variable returns as provided in the Partnership Agreement. Accordingly, the Pro Forma Condensed Consolidated Financial Information has been prepared on the basis that Telesat Partnership will be consolidated into Telesat Corporation and the investment in Telesat Partnership eliminated fully upon such consolidation. Immediately following the closing of the Transaction, Telesat Partnership Units will be held by Telesat’s former direct and indirect shareholders in the form of newly issued Class A Units and Class B Units and, in the case of Red Isle or its permitted transferees that are wholly owned by PSP Investments, Class C Units. The assessment of Telesat Corporation’s exposure to variable returns from Telesat Partnership is influenced by the assumption of the number of Loral stockholders that will not elect to receive Telesat Partnership Units and will therefore receive Telesat Public Shares. If the assumptions relating to the Telesat Partnership Units elected differ from the assumptions applied in preparing the Pro Forma Condensed Consolidated Financial Information, the consolidation conclusion may need to be reevaluated in accordance with IFRS 10 to determine whether the conclusion is appropriate or if the investment in Telesat Partnership should be accounted for as an equity investment in accordance with IAS 28.

A-3

Subject to the terms and conditions of the Transaction Agreement, at the Effective Time, each Loral Common Share outstanding immediately prior to the Effective Time will be converted into the right to receive (a) if the Loral stockholder makes a Telesat Partnership Election, one newly issued Class A Unit if such Loral stockholder can demonstrate it is Canadian (as such term is defined in the Investment Canada Act), and otherwise one newly issued Class B Unit, or (b) if the Loral stockholder makes a Telesat Corporation Election or does not validly make a Telesat Partnership Election, one newly issued Class A Share if such Loral stockholder can demonstrate it is Canadian (as such term is defined in the Investment Canada Act), otherwise one newly issued Class B Variable Voting Share.

The Telesat Partnership Units are designed to have distribution and voting rights that are substantially equivalent to those of the corresponding classes of Telesat Corporation Shares. Differences include that in the event that any partner other than Telesat Corporation, that is subject to U.S. federal income tax has net cumulative taxable income that exceeds zero, then on the next applicable tax distribution date, Telesat Partnership shall distribute to each partner, whether or not such partner is subject to U.S. federal income tax, its assumed tax liability, less all prior distributions paid in respect of such partner’s units, provided, however, that Telesat Corporation may defer such distribution. See “Description of Telesat Partnership Units and GP Units — Dividend Rights.” In addition, holders of Telesat Partnership Units are entitled to one vote per Telesat Partnership Unit (through the Special Voting Shares) and will vote together with their respective class of Telesat Corporation Shares as a single class. The Telesat Partnership Units are exchangeable for Telesat Corporation Shares as more fully described in the section entitled “Description of Share Capital.”

The Pro Forma Condensed Consolidated Financial Information is based on (i) the audited financial statements of Telesat Corporation, (ii) the audited consolidated financial statements of Telesat and Loral for the year ended December 31, 2020 and (iii) the unaudited condensed consolidated interim financial statements of Telesat and Loral as at and for the nine months ended September 30, 2021, which are included elsewhere in this prospectus.

The historical financial information of Telesat and Loral has been adjusted to give pro forma effect to events that are directly attributable to the Transaction. The Pro Forma Condensed Consolidated Financial Information of Telesat Corporation and explanatory notes present how the consolidated financial statements of Telesat Corporation may have appeared had the businesses actually been combined and had Telesat Corporation’s capital structure reflected the Transaction as of the dates noted below. The Pro Forma Balance Sheet is presented as if the Transaction was completed on September 30, 2021. The Pro Forma Statements of Income for the year ended December 31, 2020 and the nine months ended September 30, 2021 assumes that the Transaction took place as of January 1, 2020. The Pro Forma Financial Information is prepared in accordance with the regulations of the SEC.

The Pro Forma Condensed Consolidated Financial Information has been prepared in accordance with the accounting policies applied by Telesat Corporation and Telesat in preparing their historical consolidated financial statements under IFRS, which reflect the significant accounting policies expected to be used to prepare the consolidated financial statements after the Transaction. Transaction accounting adjustments were made to align accounting policies applied by Loral under U.S. GAAP with the accounting policies applied by Telesat Corporation as well as reclassifications to conform Loral’s historical accounting presentation to Telesat Corporation’s accounting presentation, which is based on Telesat’s historical accounting presentation.

Loral’s historical unaudited interim condensed consolidated balance sheet as of September 30, 2021, audited consolidated statement of operations for the year ended December 31, 2020 and unaudited interim condensed consolidated statement of operations for the nine months ended September 30, 2021 have been converted from United States Dollars (“USD” or “US$”) to Canadian Dollars (“CAD” or “CAD$”). The consolidated balance sheet was converted using the USD to CAD exchange rate on September 30, 2021 of 1.2680. Loral’s historical consolidated statement of operations for the year ended December 31, 2020 was converted using the average USD to CAD exchange rate of 1.3425 and for the nine months ended September 30, 2021 was converted using the average USD to CAD exchange rate of 1.2542. All amounts in the Pro Forma Condensed Consolidated Financial Information are presented in CAD unless otherwise noted.

A-4

The Pro Forma Condensed Consolidated Financial Information has been prepared for illustrative purposes only to show the effect of the Transaction. The unaudited transaction accounting adjustments are based upon available information and certain assumptions that are believed reasonable under the circumstances. The unaudited Pro Forma Condensed Consolidated Financial Information does not purport to represent what Telesat Corporation’s actual consolidated financial performance or consolidated financial condition would have been had the Transaction actually occurred on the dates indicated, nor do they purport to project Telesat Corporation’s future consolidated financial performance or consolidated financial condition for any future period or as of any future date. The Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the information included under the headings “Selected Historical Consolidated Financial Data of Telesat,” “Selected Historical Consolidated Financial Data of Loral,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and related notes included elsewhere in this prospectus. All transaction accounting adjustments and their underlying assumptions are described more fully in the notes to Telesat Corporation’s unaudited pro forma condensed consolidated financial information.

The Transaction will be accounted for as a reorganization, with Telesat being the predecessor entity, as it is considered a capital transaction amongst Telesat’s direct and indirect shareholders, in accordance with interpretative guidance in IFRS 3 and IFRS 10. From an accounting perspective, it is acknowledged that while Telesat has a high degree of common ownership in which no one shareholder controls the entities, there is technically no common control. However, as described above, the Transaction will not result in a material change to the economic and voting interests of the shareholders of Telesat; accordingly, it is considered that the Transaction lacks economic substance. The Transaction will be accounted for in a manner similar to a common control transaction (i.e., as an equity reorganization). As part of the Transaction, an immaterial amount of net assets held by Loral that are unrelated to Telesat are being acquired by Telesat Corporation. Upon the acquisition of Loral, changes to the economic interests in Telesat of Loral and Red Isle as a result of the acquisition will be reflected as changes in equity, representing such stockholders’ residual rights to the acquired assets and liabilities. It is expected that the Transaction will not have a material impact on the tax basis of the combined assets and liabilities. Accordingly, the parties to the Transaction are not expected to enter into a tax receivable or comparable agreement.

The Transaction requires that stockholders of Loral either make a Telesat Corporation Election or a Telesat Partnership Election with respect to the Transaction Consideration they receive in the Transaction. If a Telesat Corporation Election is made, or no valid Telesat Partnership Election is made, such Loral stockholder will receive one Telesat Public Share in exchange for each Loral Common Share then held. Completion of the Transaction will also result in both Class C Units and Class C Shares being issued to Red Isle. Where a valid Telesat Partnership Election is still required by non-MHR shareholders in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed that no such valid Telesat Partnership Election can be assured and as a result Telesat Public Shares will be issued as Transaction Consideration. The accompanying notes to the Pro Forma Financial Information disclose the impact on the Pro Forma Balance Sheet and Pro Forma Statements of Income in the event that Telesat Partnership Elections are made by some Loral stockholders.

The Telesat Partnership Units have been determined to meet the requirements for classification as a non-controlling interest in the equity of the consolidated Telesat group and accordingly are reflected in the Pro Forma Financial Information as a component of equity.

Assumptions and estimates incorporated into the preparation of the Pro Forma Condensed Consolidated Financial Information are described in the following notes, which should be read in conjunction with the Pro Forma Condensed Consolidated Financial Information. Since the Pro Forma Financial Condensed Consolidated Information has been prepared based upon preliminary assumptions and estimates, the final amounts recorded may differ materially from the information presented.

A-5

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars)

​

Telesat Corporation

Historical Telesat

Historical Loral

Inducement payment adjustment

Closing payment mechanism adjustment

Subtotal

Transaction accounting adjustments

​

Telesat Corporation Pro Forma

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents

​

$

—

​

$

1,558.6

​

$

25.3

​

$

(12.7)

​

$

(13.0)

​

$

1,558.2

​

$

(19.8)

(1.2.1), (1.3)

​

$

1,538.4

Trade and other receivables

​

​

—

​

​

56.0

​

​

—

​

​

—

​

​

—

​

​

56.0

​

​

—

​

​

​

56.0

Other current financial assets

​

​

—

​

​

0.5

​

​

0.4

​

​

—

​

​

—

​

​

0.9

​

​

—

​

​

​

0.9

Prepaid expenses and other current assets

​

​

—

​

​

38.1

​

​

2.8

​

​

—

​

​

—

​

​

40.9

​

​

—

​

​

​

40.9

Total current assets

​

​

—

​

​

1,653.2

​

​

28.5

​

​

(12.7)

​

​

(13.0)

​

​

1,656.0

​

​

(19.8)

​

​

​

1,636.2

Satellites, property and other equipment

​

​

—

​

​

1,286.4

​

​

0.2

​

​

—

​

​

—

​

​

1,286.6

​

​

(0.2)

(1.1.1)

​

​

1,286.4

Deferred tax assets

​

​

—

​

​

62.5

​

​

37.2

​

​

—

​

​

—

​

​

99.7

​

​

(2.3)

(1.5)

​

​

97.4

Other long-term financial assets

​

​

—

​

​

16.9

​

​

—

​

​

—

​

​

—

​

​

16.9

​

​

—

​

​

​

16.9

Other long-term assets

​

​

—

​

​

13.5

​

​

—

​

​

—

​

​

—

​

​

13.5

​

​

—

​

​

​

13.5

Intangible assets

​

​

—

​

​

766.0

​

​

—

​

​

—

​

​

—

​

​

766.0

​

​

—

​

​

​

766.0

Goodwill

​

​

—

​

​

2,446.6

​

​

—

​

​

—

​

​

—

​

​

2,446.6

​

​

—

​

​

​

2,446.6

Investments

​

​

—

​

​

—

​

​

306.3

​

​

—

​

​

—

​

​

306.3

​

​

(306.3)

(1.4)

​

​

—

Total assets

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(12.7)

​

$

(13.0)

​

$

6,591.6

​

$

(328.6)

​

​

$

6,263.0

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Trade and other payables

​

$

—

​

$

33.5

​

$

12.5

​

$

—

​

$

—

​

$

46.0

​

$

(8.8)

(1.3)

​

$

37.2

Other current financial liabilities

​

​

—

​

​

63.4

​

​

—

​

​

—

​

​

—

​

​

63.4

​

​

—

​

​

​

63.4

Other current liabilities

​

​

—

​

​

91.3

​

​

3.1

​

​

—

​

​

—

​

​

94.4

​

​

(0.2)

(1.1.1)

​

​

94.2

Total current liabilities

​

—

​

188.2

​

15.6

​

​

—

​

​

—

​

203.8

​

(9.0)

​

​

194.8

Long-term indebtedness

​

​

—

​

​

3,805.3

​

​

—

​

​

—

​

​

—

​

​

3,805.3

​

​

—

​

​

​

3,805.3

Deferred tax liabilities

​

​

—

​

​

290.3

​

​

—

​

​

—

​

​

—

​

​

290.3

​

​

—

​

​

​

290.3

Other long-term financial liabilities

​

​

—

​

​

25.2

​

​

—

​

​

—

​

​

—

​

​

25.2

​

​

—

​

​

​

25.2

Other long-term liabilities

​

​

—

​

​

383.6

​

​

50.6

​

​

—

​

​

—

​

​

434.2

​

​

—

​

​

​

434.2

Total liabilities

​

—

​

4,692.6

​

66.2

​

​

—

​

​

—

​

4,758.8

​

(9.0)

​

​

4,749.8

Shareholders’ equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share capital

​

​

—

​

​

155.7

​

​

1,281.6

​

​

—

​

​

—

​

​

1,437.3

​

​

(1,390.7)

(1.2.2)

​

​

46.6

Accumulated earnings (deficit)

​

​

—

​

​

1,327.1

​

​

(912.7)

​

​

(12.7)

​

​

(13.0)

​

​

388.7

​

​

(36.4)

(1.1.3), (1.2.3), (1.3)

​

​

352.3

Reserves

​

​

—

​

​

69.7

​

​

(62.9)

​

​

—

​

​

—

​

​

6.8

​

​

12.3

(1.1.3), (1.2.4)

​

​

19.1

Non-controlling interest

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

1,095.2

(1.2.5)

​

​

1,095.2

Total shareholders’ equity

​

​

—

​

​

1,552.5

​

​

306.0

​

​

(12.7)

​

​

(13.0)

​

​

1,832.8

​

​

(319.6)

​

​

​

1,513.2

Total liabilities and shareholders’ equity

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(12.7)

​

$

(13.0)

​

$

6,591.6

​

$

(328.6)

​

​

$

6,263.0

See accompanying notes to the unaudited pro forma condensed consolidated financial information

A-6

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars, except share and per share amounts)

​

Telesat Corporation

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Telesat Corporation Pro Forma

Revenue

​

$

—

​

$

570.7

​

$

—

​

$

—

​

​

$

570.7

Operating expenses

​

​

—

​

​

(146.9)

​

​

(24.1)

​

​

14.6

(1.1.1), (1.1.2), (1.2), (1.3)

​

​

(156.4)

Depreciation

​

​

—

​

​

(153.4)

​

​

—

​

​

(0.6)

(1.1.1)

​

​

(154.0)

Amortization

​

​

—

​

​

(12.1)

​

​

—

​

​

—

​

​

​

(12.1)

Other operating losses, net

​

​

—

​

​

(0.7)

​

​

—

​

​

—

​

​

​

(0.7)

Operating income

​

​

—

​

​

257.6

​

​

(24.1)

​

​

14.0

​

​

​

247.5

Interest expense

​

​

—

​

​

(139.2)

​

​

—

​

​

(0.5)

(1.1.2)

​

​

(139.7)

Equity in net income of affiliates

​

​

—

​

​

—

​

​

56.4

​

​

(56.4)

(1.4)

​

​

—

Interest and other income

​

​

—

​

​

2.9

​

​

—

​

​

—

​

​

​

2.9

Loss on changes in fair value of financial instruments

​

​

—

​

​

(20.4)

​

​

—

​

​

—

​

​

​

(20.4)

Gain on foreign exchange

​

​

—

​

​

7.3

​

​

—

​

​

—

​

​

​

7.3

Income before tax

​

​

—

​

​

108.2

​

​

32.3

​

​

(42.9)

​

​

​

97.6

Tax (expense) recovery

​

​

—

​

​

(47.6)

​

​

1.6

​

​

0.1

(1.1.2)

​

​

(45.9)

Net income

​

$

—

​

$

60.6

​

$

33.9

​

$

(42.8)

​

​

$

51.7

Net income per share(1.5)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

$

—

​

$

0.51

​

$

1.09

​

$

0.31

​

​

$

1.04

Diluted

​

$

—

​

$

0.49

​

$

1.05

​

$

0.31

​

​

$

0.91

Weighted average outstanding shares(1.5)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

50

​

​

119,796,321

​

​

30,932,751

​

​

(137,175,100)

​

​

​

13,554,022

Diluted

​

​

50

​

​

124,648,499

​

​

31,031,668

​

​

(140,119,334)

​

​

​

15,560,883

See accompanying notes to the unaudited pro forma condensed consolidated financial information

A-7

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
(all amounts in millions of Canadian dollars, except share and per share amounts)

​

Telesat Corporation

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Telesat Corporation Pro Forma

Revenue

​

$

—

​

$

820.5

​

$

—

​

$

—

​

​

$

820.5

Operating expenses

​

​

—

​

​

(180.9)

​

​

(15.8)

​

​

(25.6)

(1.1.1), (1.1.2), (1.2), (1.3)

​

​

(222.3)

Depreciation

​

​

—

​

​

(216.9)

​

​

—

​

​

(0.8)

(1.1.1)

​

​

(217.7)

Amortization

​

​

—

​

​

(17.2)

​

​

—

​

​

—

​

​

​

(17.2)

Other operating losses, net

​

​

—

​

​

(0.2)

​

​

—

​

​

—

​

​

​

(0.2)

Operating income

​

​

—

​

​

405.3

​

​

(15.8)

​

​

(26.4)

​

​

​

363.1

Interest expense

​

​

—

​

​

(203.8)

​

​

—

​

​

(0.8)

(1.1.1), (1.1.2)

​

​

(204.6)

Equity in net income of affiliates

​

​

—

​

​

—

​

​

156.7

​

​

(156.7)

(1.4)

​

​

—

Interest and other income

​

​

—

​

​

5.2

​

​

1.4

​

​

—

​

​

​

6.6

Loss on changes in fair value of financial instruments

​

​

—

​

​

(13.1)

​

​

—

​

​

—

​

​

​

(13.1)

Gain on foreign exchange

​

​

—

​

​

47.6

​

​

—

​

​

—

​

​

​

47.6

Income before tax

​

​

—

​

​

241.2

​

​

142.3

​

​

(183.9)

​

​

​

199.6

Tax recovery (expense)

​

​

—

​

​

4.4

​

​

(17.3)

​

​

1.0

(1.1.2)

​

​

(11.9)

Net income

​

$

—

​

$

245.6

​

$

125.0

​

$

(182.9)

​

​

$

187.7

Net income per share(1.5)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

$

—

​

$

2.05

​

$

4.04

​

$

1.33

​

​

$

3.79

Diluted

​

$

—

​

$

1.93

​

$

4.01

​

$

1.29

​

​

$

3.06

Weighted average outstanding shares(1.5)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

50

​

​

119,780,531

​

​

30,932,751

​

​

(137,114,294)

​

​

​

13,599,038

Diluted

​

​

50

​

​

127,532,262

​

​

31,020,000

​

​

(141,747,158)

​

​

​

16,805,154

See accompanying notes to the unaudited pro forma condensed consolidated financial information

A-8

NOTES TO THE TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
(all amounts in millions of Canadian dollars, except share amounts or otherwise stated)

Note 1 — Transaction accounting adjustments

1.1: Reconciliation between accounting policies of Telesat and Loral — Historical consolidated financial statements of Loral were prepared in accordance with U.S. GAAP. For the purpose of preparing the Pro Forma Condensed Consolidated Financial Information, Loral’s historical consolidated financial statements have been adjusted to align with IFRS as applied through the accounting policies adopted by Telesat. Differences in the accounting treatment between U.S. GAAP applied by Loral and IFRS as applied by Telesat are as follows:

1.1.1: Leases — Adjustments represent the reconciliation of GAAP differences from ASU 842 Leases under U.S. GAAP to IFRS 16 — Leases for the recognition and measurement of certain operating leases. As at September 30, 2021, the leased asset included on the balance sheet of Loral had a remaining lease term of less than 12 months. Therefore, in accordance with Telesat’s accounting policy of applying the short- term lease exemption available under IFRS an adjustment of ($0.2), was made to both the right-of-use asset and lease liability in the Pro Forma Balance Sheet.

IFRS 16 was adopted in the historical consolidated financial statements of Telesat on January 1, 2019. IFRS 16 requires that each lease liability be accreted through interest expense and each right of use asset be depreciated, which differs from U.S. GAAP which requires the lease expense to be recognized on a straight-line basis over the lease term. As a result, transaction accounting adjustments to the Pro Forma Statements of Income related to the alignment of lease accounting policies for the respective periods are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.6)	​	$	(0.9)
Depreciation	​	$	0.6	​	$	0.8
Interest expense	​	$	—	​	$	0.1

1.1.2: Pensions — The adjustment represents the reconciliation of differences between U.S. GAAP to IFRS for defined benefit plans, whereby presentation of net interest expense, remeasurement of actuarial gains/losses, and other administrative costs are reclassified into other comprehensive income (“OCI”). This also results in an impact to the tax provision and deferred tax assets at the applicable tax rate.

There was no impact on the September 30, 2021 Pro Forma Balance Sheet.

Transaction accounting adjustments to the Pro Forma Statements of Income related to the alignment of pension accounting policies for the respective periods are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.2)	​	$	1.3
Interest expense	​	$	0.5	​	$	0.7
Tax expense	​	$	(0.1)	​	$	(0.4)

1.1.3: Tax expense classification — The adjustments represent reclassification of previously recorded tax provision amounts arising from changes in taxation rates and enacted tax laws. Under U.S. GAAP, the provision for these tax adjustments relating to the rate adjustment on the opening deferred tax asset balance is recorded in the Pro Forma Statements of Income while under IFRS this adjustment is recorded in OCI. This has resulted, as at September 30, 2021, in an increase to accumulated earnings of $0.1 with a corresponding decrease to Reserves.

There was no impact on the Pro Forma Statements of Income for the year ended December 31, 2020 or the nine months ended September 30, 2021.

 

A-9

1.2: Capital transaction — Telesat has a high degree of common ownership in which no one shareholder controls the entities before and after the Transaction. As described above, because the Transaction results in no substantial change to the composition of the ultimate beneficial holders of Telesat and lacks economic substance, the Transaction has been accounted for in a manner similar to a common control transaction (i.e., as an equity reorganization). As part of the Transaction, an immaterial amount of net assets held by Loral, which are unrelated to Telesat, are being acquired by Telesat Corporation. This immaterial acquisition does not represent a business combination and accordingly no goodwill or previously unrecorded intangible assets will be recognized. In consummating the Transaction, a number of holding companies have been incorporated and have been fully consolidated into the Pro Forma Condensed Consolidated Financial Information. Described below are the transaction accounting adjustments recorded to reflect the various transactions to be undertaken in consummating the Transaction.

Cash and cash equivalents	$	(25.7)
Share capital (net of eliminations)	$	(1,390.7)
Accumulated earnings (net of eliminations)	$	(62.1)
Reserves (net of eliminations)	$	12.3
Non-controlling interest	$	1,095.2

1.2.1: Cash and cash equivalents — the adjustments to cash and cash equivalents consist of the following:

a.

Payment of $12.7 (US$10.0) by Loral and Telesat to Red Isle; and

b.

Payment of $13.0 (US$10.3) representing the estimated closing payment mechanism payable by Telesat to PSP Investments.

1.2.2: Share capital — The Transaction will result in the former direct and indirect shareholders of Telesat exchanging their direct and indirect interests in Telesat for either Telesat Corporation Shares or Telesat Partnership Units. As described above, the Transaction will be accounted for as a capital transaction between shareholders and as a result the previous equity interests in Telesat will be represented in Telesat Corporation as either shareholders equity, for those Loral stockholders that receive Telesat Public Shares directly, or non-controlling interest, for those Loral stockholders that elect to receive Telesat Partnership Units. Outlined below are the amounts recorded in the Pro Forma Condensed Consolidated Financial Information to reflect the transfer of previously recorded share capital of Telesat and Loral to the new components of equity in Telesat Corporation.

Historical share capital of Telesat	​	​	$	155.7
Historical share capital of Loral	​	​	​	1,281.6
​	​	​	​	1,437.3
Transaction accounting adjustments:	​	​	​	​
Issuance of Class A&B shares of Telesat Corporation for existing management shareholders	(i)	4.8	​	​
Issuance of Class B variable voting shares of Telesat Corporation to some former Loral stockholders	(ii)	35.5	​	​
Issuance of Class C shares of Telesat Corporation for Red Isle	(i)	6.3	​	​
Issuance of Class B LP units of Telesat Partnership	(ii)	49.4	​	​
Issuance of Class C LP units of Telesat Partnership	(ii)	59.7	​	​
Elimination of share capital of Telesat & Loral	​	​	​	(1,437.3)
Total transaction accounting adjustments	​	​	​	(1,281.6)
Total pro forma share capital (net of elimination)	​	​	$	155.7
Pro forma share capital attributable to owners	​	​	$	46.6
Pro forma share capital attributable to non-controlling interest	​	​	$	109.1

 

A-10

(i)

For purposes of the Pro Forma Condensed Consolidated Financial Information, it has been assumed that the individual shareholders of Telesat will contribute all of the Telesat Non-Voting Participating Preferred Shares held by each shareholder to Telesat Corporation in exchange for Telesat Public Shares.

(ii)

Pursuant to the terms of the Transaction Agreement, Telesat’s direct and indirect shareholders will exchange or contribute their shares of Loral or Telesat for Telesat Public Shares or, if elected, Telesat Partnership Units.

In preparing the Pro Forma Condensed Consolidated Financial Information, effect has been given to elections to receive Telesat Partnership Units that certain Loral stockholders have contractually committed to in the Transaction Agreement and the related agreements entered into by the parties. Where a valid Telesat Partnership Election is still required in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed that no such valid Telesat Partnership Election can be assured and as a result Telesat Public Shares will be issued as Transaction Consideration.

As a result, the allocation of capital between Telesat Corporation Shares and Telesat Partnership Units following the completion of the Transaction may be materially different from that presented in the Pro Forma Condensed Consolidated Financial Information.

​	Telesat Capitalization Pre-Conversion		​	​	Telesat Corporation Capitalization Post Conversion
​	Shares Pre-Conversion*		Conversion Ratio		Class A, Class B and Class C Shares or Class A, B or C Units
Voting Participating Preferred Shares	​	7,034,444	​	0.4136	​	2,909,446
Non-Voting Participating Preferred Shares	​	38,508,717	​	0.4136	​	15,926,045
Common Shares	​	74,252,460	​	0.4136	​	30,709,556
​	​	119,795,621	​	​	​	49,545,047

*

Note: This excludes the Telesat Director Voting Preferred Shares initially held by Cashman and Copeland in the Pre-Conversion structure as they are eliminated prior to the completion of the transaction.

The split of Telesat Corporation Capitalization post conversion is as follows:

​	Class A, Class B or Class C Shares		Class A, Class B or Class C Units
Telesat Corporation	​	13,554,022	​	—
Telesat Partnership LP	​	—	​	35,991,025

1.2.3: Accumulated earnings — The transaction accounting adjustments to accumulated earnings reflect the $12.7 (USD$10.0) payment by Loral and Telesat to Red Isle, the $13.0 (USD$10.3) payable by Telesat under the closing payment mechanism to PSP Investments, $11.0 of estimated transaction costs to the close of the Transaction, $935.5 reclassification of balance to non-controlling interest and the remainder for eliminating the historic accumulated deficit of Loral, including related tax impact on elimination.

1.2.4: Reserves — The transaction accounting adjustments to reserves reflect the $50.6 reclassification to non-controlling interest and the remainder for eliminating the historic reserves of Loral.

1.2.5: Non-controlling interests — The transaction accounting adjustments to non-controlling interest reflect the $109.1 reclassification of the Telesat Partnership Units, $50.6 reclassification from reserves and $935.5 reclassification from accumulated earnings.

1.3: Transaction Costs — represent legal, professional and other fees incurred, associated with the execution of the Transaction. For purposes of the pro forma balance sheet presented as at September 30, 2021, total transaction costs have been estimated to be $43.8, of which $8.8 were previously accrued in the consolidated balance sheets of Telesat and Loral. As at September 30, 2021, $24.0 of the $43.8 estimated

 

A-11

transaction costs have been paid. A reduction in the cash balance as at September 30, 2021 for the unpaid balance of $19.8 and a reduction to the previously accrued balance has been made to reflect the impact of the transaction costs.

1.3.1: For the purposes of the Pro Forma Statements of Income it was assumed that the transaction costs were incurred and paid in full on January 1, 2020. The amount recorded and adjusted is as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(13.8)	​	$	25.3

1.4: Elimination of investment balances — represents the consolidation entry to remove Loral’s investment in Telesat and the associated income and tax related to the equity investment in Telesat.

1.5: Current and deferred tax impact — The tax effect on the transaction accounting adjustments has been recorded using an estimated effective tax rate of 21.02% for the impact to the tax provision of the adjustments relating to the alignment of accounting policies performed for the Transaction. The actual effective tax rate of the combined group could be significantly different from the estimated effective tax rate assumed for purposes of preparing the Pro Forma Condensed Consolidated Financial Information as a result of a variety of factors, including post-Closing activities.

1.6: Earnings per share — Pro forma basic earnings per common share is calculated by dividing net income attributable to owners by the weighted average number of shares outstanding. Pro forma diluted earnings per share is computed by dividing net income attributable to owners by the weighted average number of shares outstanding during the period adjusted for the dilutive effect of the additional stock options and restricted share units. Telesat Partnership Units have been excluded from the calculation as if converted as they are non-dilutive instruments.

Numerator (in millions of Canadian dollars)	Nine months ended September 30, 2021			Year ended December 31, 2020
Net income	​	$	51.7	​	$	187.7
Net income attributable to owners	​	$	14.1	​	$	51.5
Net income attributable to non-controlling interests	​	$	37.6	​	$	136.2
Denominator	​	​	​	​	​	​
Weighted average common shares outstanding – basic(i)	​	​	13,554,022	​	​	13,599,038
Effect of dilutive securities(i)	​	​	2,006,861	​	​	3,206,116
Weighted average common shares outstanding – dilutive securities	​	​	15,560,883	​	​	16,805,154
Earnings per shares – basic	​	$	1.04	​	$	3.79
Earnings per share – dilutive securities	​	$	0.91	​	$	3.06

The Transaction requires that former stockholders of Loral either make a Telesat Corporation Election or a Telesat Partnership Election with respect to the Transaction Consideration they receive in the Transaction. If a Telesat Corporation Election is made, or no valid Telesat Partnership Election is made, such Loral stockholder will receive a Telesat Public Share in exchange for each Loral Common Share then held. Completion of the Transaction will also result in both Class C Shares and Class C Units being issued to Red Isle. In preparing the Pro Forma Condensed Consolidated Financial Information, effect has been given to elections to receive Telesat Partnership Units that certain Loral stockholders have contractually committed to in the Transaction Agreement and the related agreements entered into by the parties. Where a valid Telesat Partnership Election is still required in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed that no such valid Telesat Partnership Election can be assured and as a result Telesat Public Shares will be issued as Transaction Consideration. It has been determined that capital represented by exchangeable Telesat Partnership Units is a non-controlling interest for the purposes of presenting the Pro Forma Balance Sheet. As such, exchangeable Telesat Partnership Units have been excluded from the dilutive earnings per share calculation as they are non-dilutive instruments. In the event that upon completion of the Transaction additional former Loral stockholders elect to receive exchangeable

 

A-12

Telesat Partnership Units than has been assumed in preparing the Pro Forma Financial Statements then the allocation of net income (loss) between owners and non-controlling interest and the amounts representing common shares could be materially different from those presented in the Pro Forma Statements of Income.

Note 2 — Limited Partnership Presentation

The unconsolidated Telesat Partnership column was not separately included in the above Telesat Corporation Unaudited Pro Forma Condensed Consolidated Financial Information as all amounts presented would be nil other than the number of outstanding Telesat Partnership Units or Telesat Partnership GP Units of 50 and 10, respectively.

The Telesat Partnership pro forma financial information has not been presented for the scenario whereby Telesat Corporation is deemed to have control over Telesat Partnership as it will be similar, in all material respects, to that of Telesat Corporation with the exception that the consolidated financial statements of Telesat Partnership will present the Telesat Partnership Units as a financial liability as a result of being exchangeable into Telesat Corporation Shares at the option of the unitholder. This liability will be measured at fair value with changes in value recorded through profit or loss. Upon consolidation into Telesat Corporation, changes in fair value will be eliminated and the Telesat Partnership Units are presented as a non-controlling interest and a component of equity. Other than the described reclassification and elimination, there are no other material differences anticipated between the consolidated financial statements of Telesat Corporation and Telesat Partnership after giving effect to the Transaction.

 

A-13

TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED AND TELESAT
PARTNERSHIP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS

The following unaudited pro forma financial information (the “Telesat Corporation Pro Forma Financial Information” or “Telesat Partnership Pro Forma Financial Information”) presents the unaudited pro forma condensed balance sheet of Telesat Corporation (the “Telesat Corporation Pro Forma Balance Sheet”) and Telesat Partnership unaudited pro forma condensed consolidated balance sheet (the “Telesat Partnership Pro Forma Balance Sheet”) as at September 30, 2021 and the unaudited pro forma condensed statements of income of Telesat Corporation (the “Telesat Corporation Pro Forma Statements of Income”) and unaudited pro forma condensed consolidated statements of income of Telesat Partnership (the “Telesat Partnership Pro Forma Statements of Income”) for the year ended December 31, 2020 and for the nine months ended September 30, 2021, after giving effect to the transactions and adjustments as described in the accompanying notes. The Pro Forma Financial Information presents the alternative view as set out in “Pro Forma Financial Information” whereby Telesat Corporation does not consolidate Telesat Partnership and instead presents its investment in Telesat Partnership using equity method accounting as defined in IAS 28. The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information includes the results of Telesat Corporation and Telesat Partnership and the historical results of Loral and Telesat, after giving pro forma effect to the following events and equity issuances in connection with the Transaction:

a.

The incorporation of Telesat Corporation, Telesat CanHoldco and Merger Sub and establishment of Telesat Partnership.

b.

The issuance to Red Isle of (i) 270,270 Class C Shares in exchange for 653,422 of the Telesat Non-Voting Participating Preferred Shares held by Red Isle and (ii) 17,940,933 Class C Units in exchange for the remaining 43,377,534 Telesat Non-Voting Participating Preferred Shares, Telesat Voting Participating Preferred Shares and Telesat Common Shares held by Red Isle.

c.

The issuance to MHR of 18,050,092 Class B Units of Telesat Partnership in exchange for the 18,050,092 Loral Common Shares held by MHR.

d.

The issuance of 12,981,576 Class B Units of Telesat Partnership to certain other former Loral stockholders in exchange for the 12,981,576 Loral Common Shares held by them in the aggregate.

e.

The issuance of 302,176 Telesat Public Shares to certain members of Telesat management in exchange for the 730,599 shares in the capital of Telesat held by them in the aggregate.

After taking into account the above issuances, the voting rights and ownership interests of Telesat’s direct and indirect shareholders will have been materially preserved and no individual party will have acquired a majority of the voting or ownership interest in Telesat Corporation. Upon assessment of the voting power attributed to the various shareholders of Telesat Corporation, the Transaction represents a transfer among entities that have a high degree of common ownership and no single party to the Transaction will be considered to control Telesat Corporation, as no party will obtain a majority of the voting or ownership interests therein.

As general partner, Telesat Corporation is committed to operating Telesat Partnership as designed and will direct all relevant activities of Telesat Partnership. As such, it has been determined that Telesat Corporation has power over relevant decisions of the partnership. However, based on the alternate scenario assumptions whereby all Loral stockholders elect to exchange for Telesat Partnership Units instead of Telesat Corporation Shares as noted in “Unaudited Pro Forma Condensed Consolidated Financial Information and Financial Statements”, management will need to reassess the consolidation conclusion in order to determine if accounting for the Transaction under IFRS 10 or IAS 28 is more appropriate. For illustrative purposes, it has been assumed that in addition to all individuals electing Telesat Partnership Units where possible that Telesat Corporation also has been determined not to control Telesat Partnership and therefore has presented the Telesat Corporation Pro Forma Financial Information in accordance with IAS 28. The investment will be measured at and accounted for as an equity investment in accordance with IAS 28 as Telesat Corporation will have significant influence over Telesat Partnership as its general partner but will lack sufficient exposure of variable returns to qualify as a controlling party under IFRS 10. If the

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assumptions relating to the Telesat Partnership Units elected differs from the assumptions applied in preparing the Pro Forma Financial Information, the conclusions above may need to be reevaluated in accordance with IFRS 10 to determine whether the equity method accounting conclusion is appropriate or if the investment in Telesat Partnership should be fully consolidated in accordance with IFRS 10.

In preparing the Telesat Partnership Pro Forma Financial Information, it has been assumed that Telesat Partnership will maintain control over all fully owned subsidiary entities through its power over relevant decisions, exposure to variable returns and ability to use its power to impact its variable returns. Accordingly, the Telesat Partnership Pro Forma Financial Information has been prepared on the basis that consolidated pro forma financial information will be presented. Immediately following the closing of the Transaction, Telesat Partnership GP Units will be held by Telesat Corporation in an amount equal to the number of outstanding Telesat Public Shares and will be presented as equity in the Telesat Partnership Pro Forma Financial Information. Telesat Partnership Units will be held by Telesat’s former direct and indirect shareholders in the form of newly issued Class A Units and Class B Units and, in the case of Red Isle or its permitted transferees that are wholly owned by PSP Investments, Class C Units. The Telesat Partnership Pro Forma Financial Information will present the Telesat Partnership Units as a financial liability as a result of being exchangeable into Telesat Corporation Shares at the option of the unitholder. This liability will be measured at fair value with changes in value recorded through profit or loss.

Subject to the terms and conditions of the Transaction Agreement, at the Effective Time, each Loral Common Share outstanding immediately prior to the Effective Time will be converted into the right to receive (a) if the Loral stockholder makes a Telesat Partnership Election, one newly issued Class A Unit if such Loral stockholder can demonstrate it is Canadian (as such term is defined in the Investment Canada Act), and otherwise one newly issued Class B Unit, or (b) if the Loral stockholder makes a Telesat Corporation Election or does not validly make a Telesat Partnership Election, one newly issued Class A Share if such Loral stockholder can demonstrate it is Canadian (as such term is defined in the Investment Canada Act), otherwise one newly issued Class B Variable Voting Share.

The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information is based on (i) the audited financial statements of Telesat Corporation and Telesat Partnership and (ii) the audited consolidated financial statements of Telesat and Loral, which are included elsewhere in this prospectus.

The historical financial information of Telesat and Loral has been adjusted to give pro forma effect to events that are directly attributable to the Transaction. The unaudited Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information and explanatory notes present how the financial statements of Telesat Corporation and Telesat Partnership may have appeared had the businesses actually been combined and had Telesat Corporation/Telesat Partnership’s capital structure reflected the Transaction as of the dates noted below. The Telesat Corporation Pro Forma Balance Sheet and Telesat Partnership Pro Forma Balance Sheet are presented as if the Transaction was completed on September 30, 2021. The Telesat at Corporation Pro Forma Statements of Income and Telesat Partnership Pro Forma Statements of Income for the year ended December 31, 2020 and the nine months ended September 30, 2021 assume that the Transaction took place as of January 1, 2020. The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information are prepared in accordance with the regulations of the SEC.

The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information have been prepared in accordance with the accounting policies applied by Telesat Corporation, Telesat Partnership and Telesat in preparing their historical consolidated financial statements under IFRS, which reflect the significant accounting policies expected to be used to prepare the financial statements after the Transaction. Transaction accounting adjustments were made to align accounting policies applied by Loral under U.S. GAAP with the accounting policies applied by Telesat Corporation and Telesat Partnership.

Loral’s historical unaudited interim condensed consolidated balance sheet as of September 30, 2021, audited consolidated statement of operations for the year ended December 31, 2020 and unaudited interim condensed consolidated statement of operations for the nine months ended September 30, 2021 have been converted from United States Dollars (“USD”) to Canadian Dollars (“CAD”). The consolidated

A-15

balance sheet was converted using the USD to CAD exchange rate on September 30, 2021 of 1.2680. Loral’s historical consolidated statement of operations for the year ended December 31, 2020 was converted using the average USD to CAD exchange rate of 1.3425 and for the nine months ended September 30, 2021 was converted using the average USD to CAD exchange rate of 1.2542. All amounts in the Pro Forma Telesat Corporation and Telesat Partnership Financial Information are presented in CAD unless otherwise noted.

The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information have been prepared for illustrative purposes only to show the effect of the Transaction. The unaudited transaction accounting adjustments are based upon available information and certain assumptions that are believed reasonable under the circumstances. The unaudited pro forma financial information does not purport to represent what Telesat Corporation’s or Telesat Partnership’s actual financial performance or financial condition would have been had the Transaction actually occurred on the dates indicated, nor do they purport to project Telesat Corporation’s or Telesat Partnership’s future financial performance or financial condition for any future period or as of any future date. The Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information should be read in conjunction with the information included under the headings “Selected Historical Consolidated Financial Data of Telesat,” “Selected Historical Consolidated Financial Data of Loral,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and related notes included elsewhere in this prospectus. All transaction accounting adjustments and their underlying assumptions are described more fully in the notes to Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information.

The Transaction will be accounted for as a reorganization, with Telesat being the predecessor entity, as it is considered a capital transaction amongst Telesat’s direct and indirect shareholders, in accordance with interpretative guidance in IFRS 3 and IFRS 10. From an accounting perspective, it is acknowledged that while Telesat has a high degree of common ownership in which no one shareholder controls the entities, there is technically no common control. However, as described above, the Transaction will not result in a material change to the economic and voting interest of the shareholders of Telesat; accordingly, it is considered that the Transaction lacks economic substance. The Transaction will be accounted for in a manner similar to a common control transaction (i.e., as an equity reorganization). As part of the Transaction, an immaterial amount of net assets held by Loral that are unrelated to Telesat are being acquired by an entity within the group of companies. Upon the acquisition of Loral, changes to the economic interests in Telesat of Loral and Red Isle as a result of the acquisition will be reflected as changes in equity, representing such stockholders’ residual rights to the acquired assets and liabilities. It is expected that the Transaction will not have a material impact on the tax basis of the combined assets and liabilities. Accordingly, the parties to the Transaction are not expected to enter into a tax receivable or comparable agreement.

The Transaction requires that stockholders of Loral either make a Telesat Corporation Election or a Telesat Partnership Election with respect to the Transaction Consideration they receive in the Transaction. If a Telesat Corporation Election is made, or no valid Telesat Partnership Election is made, such Loral stockholder will receive one Telesat Public Share in exchange for each Loral Common Share then held. Completion of the Transaction will also result in both Class C Units and Class C Shares being issued to Red Isle. Where a valid Telesat Partnership Election is still required by non-MHR stockholders in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed that all such valid Telesat Partnership Elections will be made and, as a result, Telesat Partnership Units will be issued as Transaction Consideration. The accompanying notes to the Telesat Corporation Pro Forma Financial Information and the Telesat Partnership Pro Forma Financial Information disclose the impact on the Telesat Corporation Balance Sheet and Telesat Partnership Pro Forma Balance Sheet and Telesat Corporation Pro Forma Statement of Income and Telesat Partnership Pro Forma Statement of Income in the event that Telesat Partnership Elections are made by all Loral stockholders.

A-16

Assumptions and estimates incorporated into the preparation of the Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information are described in the following notes, which should be read in conjunction with the Telesat Corporation Pro Forma Financial Information and the Telesat Partnership Pro Forma Financial Information. Since the Telesat Corporation Pro Forma Financial Information and Telesat Partnership Pro Forma Financial Information have been prepared based upon preliminary assumptions and estimates, the final amounts recorded may differ materially from the information presented.

A-17

TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS AT SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars)

​

Telesat Corporation

Historical Telesat

Historical Loral

Transaction Accounting Adjustments

​

Subtotal

Equity consolidation adjustments(1.6)

Telesat Corporation Pro Forma

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents

​

$

—

​

$

1,558.6

​

$

25.3

​

$

—

​

​

$

1,583.9

​

$

(1,583.9)

​

$

—

Trade and other receivables

​

​

—

​

​

56.0

​

​

—

​

​

—

​

​

​

56.0

​

​

(56.0)

​

​

—

Other current financial assets

​

​

—

​

​

0.5

​

​

0.4

​

​

—

​

​

​

0.9

​

​

(0.9)

​

​

—

Prepaid expenses and other current assets

​

​

—

​

​

38.1

​

​

2.8

​

​

—

​

​

​

40.9

​

​

(40.9)

​

​

—

Total current assets

​

​

—

​

​

1,653.2

​

​

28.5

​

​

—

​

​

​

1,681.7

​

​

(1,681.7)

​

​

—

Satellites, property and other equipment

​

​

—

​

​

1,286.4

​

​

0.2

​

​

(0.2)

(1.1.1)

​

​

1,286.4

​

​

1,286.4

​

​

—

Deferred tax assets

​

​

—

​

​

62.5

​

​

37.2

​

​

(2.3)

(1.4)

​

​

97.4

​

​

(97.4)

​

​

—

Other long-term financial assets

​

​

—

​

​

16.9

​

​

—

​

​

—

​

​

​

16.9

​

​

(16.9)

​

​

—

Other long-term assets

​

​

—

​

​

13.5

​

​

—

​

​

—

​

​

​

13.5

​

​

(13.5)

​

​

—

Intangible assets

​

​

—

​

​

766.0

​

​

—

​

​

—

​

​

​

766.0

​

​

(766.0)

​

​

—

Goodwill

​

​

—

​

​

2,446.6

​

​

—

​

​

—

​

​

​

2,446.6

​

​

(2,446.6)

​

​

—

Investments

​

​

—

​

​

—

​

​

306.3

​

​

(295.2)

(1.3)

​

​

11.1

​

​

—

​

​

11.1

Total assets

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(297.7)

​

​

$

6,319.6

​

$

(6,308.5)

​

$

11.1

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Trade and other payables

​

$

—

​

$

33.5

​

$

12.5

​

$

—

​

​

$

46.0

​

$

(46.0)

​

$

—

Other current financial liabilities

​

​

—

​

​

63.4

​

​

—

​

​

—

​

​

​

63.4

​

​

(63.4)

​

​

—

Other current liabilities

​

​

—

​

​

91.3

​

​

3.1

​

​

(0.2)

(1.1.1)

​

​

94.2

​

​

(94.2)

​

​

—

Total current liabilities

​

​

—

​

​

188.2

​

​

15.6

​

​

(0.2)

​

​

​

203.6

​

​

(203.6)

​

​

—

Long-term indebtedness

​

​

—

​

​

3,805.3

​

​

—

​

​

—

​

​

​

3,805.3

​

​

(3,805.3)

​

​

—

Deferred tax liabilities

​

​

—

​

​

290.3

​

​

—

​

​

—

​

​

​

290.3

​

​

(290.3)

​

​

—

Other long-term financial liabilities

​

​

—

​

​

25.2

​

​

—

​

​

—

​

​

​

25.2

​

​

(25.2)

​

​

—

Other long-term liabilities

​

​

—

​

​

383.6

​

​

50.6

​

​

—

​

​

​

434.2

​

​

434.2

​

​

—

Total liabilities

​

​

—

​

​

4,692.6

​

​

66.2

​

​

(0.2)

​

​

​

4,758.6

​

​

(4,758.6)

​

​

—

Shareholders’ equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share capital

​

​

—

​

​

155.7

​

​

1,281.6

​

​

(1,270.5)

(1.2.1), (1.3)

​

​

166.8

​

​

(155.7)

​

​

11.1

Accumulated earnings (deficit)

​

​

—

​

​

1,327.1

​

​

(912.7)

​

​

910.1

(1.1.3), (1.2.2), (1.3)

​

​

1,324.5

​

​

(1,324.5)

​

​

—

Reserves

​

​

—

​

​

69.7

​

​

(62.9)

​

​

62.9

(1.1.3), (1.2.3), (1.3)

​

​

69.7

​

​

(69.7)

​

​

—

Total shareholders’ equity

​

​

—

​

​

1,552.5

​

​

306.0

​

​

(297.5)

​

​

​

1,561.0

​

​

(1,549.9)

​

​

11.1

Total liabilities and shareholders’ equity

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(297.7)

​

​

$

6,319.6

​

$

(6,308.5)

​

$

11.1

See accompanying notes to Telesat Corporation unaudited pro forma condensed financial information

A-18

TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars, except share and per share amounts)

​

Telesat Corporation

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Equity accounting adjustments(1.6)

Telesat Corporation Pro Forma

Revenue

​

$

—

​

$

570.7

​

$

—

​

$

—

​

​

$

(570.7)

​

$

—

Operating expenses

​

​

—

​

​

(146.9)

​

​

(24.1)

​

​

14.6

(1.1.1), (1.1.2), (1.5)

​

​

156.4

​

​

—

Depreciation

​

​

—

​

​

(153.4)

​

​

—

​

​

(0.6)

(1.1.1)

​

​

154.0

​

​

—

Amortization

​

​

—

​

​

(12.1)

​

​

—

​

​

—

​

​

​

12.1

​

​

—

Other operating losses, net

​

​

—

​

​

(0.7)

​

​

—

​

​

—

​

​

​

0.7

​

​

—

Operating income

​

​

—

​

​

257.6

​

​

(24.1)

​

​

14.0

​

​

​

(247.5)

​

​

—

Interest expense

​

​

—

​

​

(139.2)

​

​

—

​

​

(0.5)

(1.1.2)

​

​

139.7

​

​

—

Equity in net income of affiliates

​

​

—

​

​

—

​

​

56.4

​

​

(56.4)

(1.3)

​

​

0.6

​

​

0.6

Interest and other income

​

​

—

​

​

2.9

​

​

​

​

​

—

​

​

​

(2.9)

​

​

—

Loss on changes in fair value of financial instruments

​

​

—

​

​

(20.4)

​

​

—

​

​

—

​

​

​

20.4

​

​

—

Gain on foreign exchange

​

​

—

​

​

7.3

​

​

—

​

​

—

​

​

​

(7.3)

​

​

—

Income before tax

​

​

—

​

​

108.2

​

​

32.3

​

​

(42.9)

​

​

​

(97.0)

​

​

0.6

Tax recovery (expense)

​

​

—

​

​

(47.6)

​

​

1.6

​

​

0.1

(1.1.2)

​

​

45.9

​

—

Net income

​

$

—

​

$

60.6

​

$

33.9

​

$

(42.8)

​

​

$

(51.1)

​

$

0.6

Net income per share(2)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

$

—

​

$

0.51

​

$

1.09

​

$

0.29

​

​

​

—

​

$

1.04

Diluted

​

$

—

​

$

0.49

​

$

1.05

​

$

0.28

​

​

​

—

​

$

0.23

Weighted average outstanding shares

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

50

​

​

119,796,321

​

​

30,932,751

​

​

(150,156,676)

​

​

​

—

​

​

572,446

Diluted

​

​

50

​

​

124,648,499

​

​

31,031,668

​

​

(153,100,910)

​

​

​

—

​

​

2,579,307

See accompanying notes to Telesat Corporation unaudited pro forma condensed financial information

A-19

TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2020
(all amounts in millions of Canadian dollars, except share and per share amounts)

​

Telesat Corporation

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Equity accounting adjustments(1.6)

Telesat Corporation Pro Forma

Revenue

​

$

—

​

$

820.5

​

$

—

​

$

—

​

​

$

(820.5)

​

$

—

Operating expenses

​

​

—

​

​

(180.9)

​

​

(15.8)

​

​

(25.6)

(1.1.1), (1.1.2), (1.5)

​

​

222.3

​

​

—

Depreciation

​

​

—

​

​

(216.9)

​

​

—

​

​

(0.8)

(1.1.1)

​

​

217.7

​

​

—

Amortization

​

​

—

​

​

(17.2)

​

​

—

​

​

—

​

​

​

17.2

​

​

—

Other operating losses, net

​

​

—

​

​

(0.2)

​

​

—

​

​

—

​

​

​

0.2

​

​

—

Operating income

​

—

​

405.3

​

(15.8)

​

(26.4)

​

​

(363.1)

​

​

—

Interest expense

​

​

—

​

​

(203.8)

​

​

—

​

​

(0.8)

(1.1.1), (1.1.2)

​

​

204.6

​

​

—

Equity in net income of affiliates

​

​

—

​

​

—

​

​

156.7

​

​

(156.7)

(1.3)

​

​

2.3

​

​

2.3

Interest and other income

​

​

—

​

​

5.2

​

​

1.4

​

​

—

​

​

​

(6.6)

​

​

—

Loss on changes in fair value of financial instruments

​

​

—

​

​

(13.1)

​

​

—

​

​

—

​

​

​

13.1

​

​

—

Gain on foreign exchange

​

​

—

​

​

47.6

​

​

—

​

​

—

​

​

​

(47.6)

​

​

—

Income before tax

​

​

—

​

​

241.2

​

​

142.3

​

​

(183.9)

​

​

​

(197.3)

​

​

2.3

Tax recovery (expense)

​

​

—

​

​

4.4

​

​

(17.3)

​

​

1.0

(1.1.2)

​

​

11.9

​

​

—

Net income

​

$

—

​

$

245.6

​

$

125.0

​

$

(182.9)

​

​

$

(185.4)

​

$

2.3

Net income per share(2)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

$

—

​

$

2.05

​

$

4.04

​

$

1.22

​

​

​

—

​

$

3.79

Diluted

​

$

—

​

$

1.93

​

$

4.01

​

$

1.18

​

​

​

—

​

$

0.61

Weighted average outstanding shares

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

50

​

​

119,780,531

​

​

30,932,751

​

​

(150,095,870)

​

​

​

—

​

​

617,462

Diluted

​

​

50

​

​

127,532,262

​

​

31,020,000

​

​

(154,728,734)

​

​

​

—

​

​

3,823,578

See accompanying notes to Telesat Corporation unaudited pro forma condensed financial information

A-20

NOTES TO TELESAT CORPORATION UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
(all amounts in millions of Canadian dollars, except share amounts or otherwise stated)

Note 1 — Transaction accounting adjustments

1.1: Reconciliation between accounting policies of Telesat and Loral — Historical consolidated financial statements of Loral were prepared in accordance with U.S. GAAP. For the purpose of preparing the Telesat Corporation Pro Forma Financial Information, Loral’s historical consolidated financial statements have been adjusted to align with IFRS as applied through the accounting policies adopted by Telesat. Differences in the accounting treatment between U.S. GAAP applied by Loral and IFRS as applied by Telesat are as follows:

1.1.1: Leases — Adjustments represent the reconciliation of GAAP differences from ASU 842 Leases under U.S. GAAP to IFRS 16 — Leases for the recognition and measurement of certain operating leases. As at September 30, 2021, the leased asset included on the balance sheet of Loral had a remaining lease term of less than 12 months. Therefore, in accordance with Telesat’s accounting policy of applying the short-term lease exemption available under IFRS an adjustment of ($0.2), was made to both the right-of-use asset and lease liability in the Telesat Corporation Pro Forma Balance Sheet.

IFRS 16 was adopted in the historical consolidated financial statements of Telesat on January 1, 2019. IFRS 16 requires that each lease liability be accreted through interest expense and each right of use asset be depreciated, which differs from U.S. GAAP which requires the lease expense to be recognized on a straight-line basis over the lease term. As a result, transaction accounting adjustments to the Telesat Corporation Pro Forma Statements of Income related to the alignment of lease accounting policies are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.6)	​	$	(0.9)
Depreciation	​	$	0.6	​	$	0.8
Interest expense	​	$	—	​	$	0.1

1.1.2: Pensions — The adjustment represents the reconciliation of differences between U.S. GAAP to IFRS for defined benefit plans, whereby presentation of net interest expense, remeasurement of actuarial gains/losses, and other administrative costs are reclassified into other comprehensive income (“OCI”). This also results in an impact to the tax provision and deferred tax assets at the applicable tax rate.

There was no impact on the September 30, 2021 Telesat Corporation Pro Forma Balance Sheet.

Transaction accounting adjustments to the Telesat Corporation Pro Forma Statements of Income related to the alignment of pension accounting policies are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.2)	​	$	1.3
Interest expense	​	$	0.5	​	$	0.7
Tax expense	​	$	(0.1)	​	$	(0.4)

1.1.3: Tax expense classification — The adjustments represent reclassification of previously recorded tax provision amounts arising from changes in taxation rates and enacted tax laws. Under U.S. GAAP, the provision for these tax adjustments relating to the rate adjustment on the opening deferred tax asset balance is recorded in the Telesat Corporation Pro Forma Statement of Income while under IFRS this adjustment is recorded in OCI. This has resulted, as at September 30, 2021, in an increase to accumulated earnings of $0.1 with a corresponding decrease to Reserves.

There was no Telesat Corporation Pro Forma Statements of Income impact for the year ended December 31, 2020 or for the nine months ended September 30, 2021.

A-21

1.2: Capital transaction — Telesat has a high degree of common ownership, in which no one shareholder controls the entities before and after the Transaction. As described above, because the Transaction results in no substantial change to the composition of the ultimate beneficial holders of Telesat and lacks economic substance, the Transaction has been accounted for in a manner similar to a common control transaction (i.e., as an equity reorganization). As part of the Transaction, an immaterial amount of net assets held by Loral, which are unrelated to Telesat, are being acquired by Telesat Corporation. This immaterial acquisition does not represent a business combination and accordingly no goodwill or previously unrecorded intangible assets will be recognized.

1.2.1: Share capital — The Transaction will result in the former direct and indirect shareholders of Telesat exchanging their direct and indirect interests in Telesat for either Telesat Corporation Shares or Telesat Partnership Units. As described above, the Transaction will be accounted for as a capital transaction between shareholders and as a result the previous equity interests in Telesat will be represented in Telesat Corporation as shareholders equity, for only those members of management and certain of Red Isle’s holdings that receive Telesat Public Shares directly. Outlined below are the amounts recorded in the Telesat Corporation Pro Forma Financial Information to reflect the transfer of previously recorded share capital of Telesat and Loral to the new components of equity in Telesat Corporation.

Historical share capital of Telesat	​	​	$	155.7
Historical share capital of Loral	​	​	​	1,281.6
​	​	​	​	1,437.3
Transaction accounting adjustments:	​	​	​
Issuance of Class A&B shares of Telesat Corporation for existing management shareholders	(i)	4.8	​
Issuance of Class C shares of Telesat Corporation for Red Isle	(ii)	6.3	​
Elimination of share capital of Telesat & Loral	(iii)	(1,437.3)	​
Total transaction accounting adjustments	​	​	​	(1,426.2)
Total pro forma share capital (net of elimination)	​	​	$	11.1

(i)

For purposes of the Telesat Corporation Pro Forma Financial Information, it has been assumed that the individual members of management and shareholders of Telesat will contribute all of the Telesat Non-Voting Participating Preferred Shares held to Telesat Corporation in exchange for Telesat Public Shares.

(ii)

Pursuant to the terms of the Transaction Agreement and assumptions above, Red Isle will exchange certain of their shareholdings of Telesat for Telesat Public Shares in Telesat Corporation.

(iii)

Pursuant to the terms of the Transaction Agreement and assumptions above, Telesat’s other direct and indirect shareholders will exchange or contribute their shares of Loral or Telesat for Telesat Partnership Units whenever possible.

In preparing the Telesat Corporation Pro Forma Financial Information, effect has been given to elections to receive Telesat Partnership Units that certain Loral stockholders have contractually committed to in the Transaction Agreement and the related agreements entered into by the parties. Where a valid Telesat Partnership Election is still required in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed all valid Telesat Partnership Elections will be made and, as a result, Telesat Partnership Units will be issued as Transaction Consideration.

As a result, the allocation of capital between Telesat Corporation Shares and Telesat Partnership Units following the completion of the Transaction may be materially different from that presented in the Telesat Corporation Pro Forma Financial Information.

A-22

​	Telesat Capitalization Pre-Conversion		​	​	Telesat Corporation /​ Partnership Capitalization Post Conversion
​	Shares Pre-Conversion*		Conversion Ratio		Class A, Class B and Class C Shares or Class A, B or C Units
Voting Participating Preferred Shares	​	7,034,444	​	0.4136	​	2,909,446
Non-Voting Participating Preferred Shares	​	38,508,717	​	0.4136	​	15,926,045
Common Shares	​	74,252,460	​	0.4136	​	30,709,556
​	​	119,795,621	​	​	​	49,545,047

*

Note: This excludes the Director Voting Preferred Shares initially held by Cashman and Copeland in the Pre-Transaction structure as they are eliminated prior to the completion of the Transaction.

The split of Telesat Corporation / Partnership Capitalization post conversion is as follows:

​	Class A, Class B or Class C Shares		Class A, Class B or Class C Units
Telesat Corporation	​	572,446	​	—
Telesat Partnership	​	—	​	48,972,601

1.2.2: Accumulated earnings — The transaction accounting adjustments to the accumulated earnings mainly reflect the elimination of the historic accumulated deficit of Loral and accumulated earnings of Telesat.

1.2.3: Reserves — The transaction accounting adjustments to reserves reflect eliminating the historic reserves of Loral.

1.3: Elimination of investment balances — Represents the consolidation entry to remove Loral’s investment in Telesat and the associated income and tax related to the equity investment in Telesat.

1.4: Current and deferred tax impact — The tax effect on the transaction accounting adjustments has been recorded using an estimated effective tax rate of 21.02% for the impact to the tax provision of the adjustments relating to the alignment of accounting policies performed for the Transaction. The actual effective tax rate of the combined group could be significantly different from the estimated effective tax rate assumed for purposes of preparing the Telesat Corporation Pro Forma Financial Information as a result of a variety of factors, including post-Closing activities.

1.5: Transaction Costs — Represent legal, professional and other fees incurred, associated with the execution of the Transaction. For purposes of the Telesat Corporation Pro Forma Balance Sheet presented as at September 30, 2021, no transaction costs were included as they are expected to be incurred by the entities which are not consolidated.

For the purposes of the Telesat Corporation Pro Forma Statements of Income, it was assumed that the transaction costs were incurred and paid in full by non-consolidated entities on January 1, 2020. These balances were later eliminated through the equity accounting adjustments (See Adjustment 1.6). The amount recorded and adjusted in the transaction accounting adjustment is as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(13.8)	​	$	25.3

1.6: Equity accounting adjustments — Under the assumption that all former Loral stockholders elect Telesat Partnership Units where possible and management has reassessed the consolidation conclusion determining that Telesat Corporation does not control Telesat Partnership, Telesat Corporation will account for its investment in Telesat Partnership as an equity investment in accordance with IAS 28 using the equity method. Under this scenario, Telesat Corporation will have power over relevant activities through its

A-23

position and role as the general partner, while it lacks sufficient economic substance to satisfy the definition of control under IFRS 10, resulting in significant influence. Under the equity method, the investment in Telesat Partnership is initially recognized at cost and the carrying amount is increased or decreased to recognize Telesat Corporation’s share of the profit or loss of Telesat Partnership after the date of acquisition.

Telesat Corporation’s share of the equity in net income of affiliates is recognized in Telesat Corporation’s Statements of Income.

Note 2 — Earnings per share

Pro forma basic earnings per share is calculated by dividing net income attributable to owners by the weighted average number of shares outstanding. Pro forma diluted earnings per share is computed by dividing net income attributable to owners by the weighted average number of shares outstanding during the period adjusted for the dilutive effect of the additional stock options and restricted share units.

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Numerator (in millions of Canadian dollars)	​	​	​	​	​	​
Net income	​	$	0.6	​	$	2.3
Denominator	​	​	​	​	​	​
Weighted average common shares outstanding – basic(i)	​	​	572,446	​	​	617,462
Effect of dilutive securities(i)	​	​	2,006,861	​	​	3,206,116
Weighted average common shares outstanding – dilutive securities	​	​	2,579,307	​	​	3,823,578
Earnings per shares – basic	​	$	1.04	​	$	3.79
Earnings per share – dilutive securities	​	$	0.23	​	$	0.61

(i)

The Transaction requires that stockholders of Loral either make a Telesat Corporation Election or a Telesat Partnership Election with respect to the Transaction Consideration they receive in the Transaction. If a Telesat Corporation Election is made, or no valid Telesat Partnership Election is made, such Loral stockholder will receive a Telesat Public Share in exchange for each Loral Common Share then held. Completion of the Transaction will also result in both Class C Shares and Class C Units being issued to Red Isle. In preparing the Telesat Corporation Pro Forma Financial Information, effect has been given to elections to receive Telesat Partnership Units that certain Loral stockholders have contractually committed to in the Transaction Agreement and the related agreements entered into by the parties. While a valid Telesat Partnership Election is still required in order to receive Telesat Partnership Units as Transaction Consideration, it has been assumed that valid Telesat Partnership Elections will be made and, as a result, Telesat Partnership Units will be issued as Transaction Consideration.

Note 3: — Limited Partnership Presentation

As indicated above, this alternative scenario illustrates the impact to the financial statements of Telesat Corporation whereby Telesat Corporation accounts for its investment in Telesat Partnership as an equity investment under IAS 28.

Telesat Partnership is deemed to have control over Telesat through its power over relevant decisions, exposure to variable returns and ability to use its power to impact its variable returns. As such, Telesat Partnership Pro Forma Financial Information has been prepared separately and presented in the subsequent set of pro forma financial statements in order to give effect to the Transaction under the alternative scenario.

A-24

TELESAT PARTNERSHIP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars)

​

Telesat Partnership

Historical Telesat

Historical Loral

Inducement payment adjustment

Closing payment mechanism adjustment

Subtotal

Transaction accounting adjustments

​

Telesat Partnership Pro Forma

Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents

​

$

—

​

$

1,558.6

​

$

25.3

​

$

(12.7)

​

$

(13.0)

​

$

1,558.2

​

$

(19.8)

(1.2.1), (1.3)

​

$

1,538.4

Trade and other receivables

​

​

—

​

​

56.0

​

​

—

​

​

—

​

​

—

​

​

56.0

​

​

—

​

​

​

56.0

Other current financial assets

​

​

—

​

​

0.5

​

​

0.4

​

​

—

​

​

—

​

​

0.9

​

​

—

​

​

​

0.9

Prepaid expenses and other current assets

​

​

—

​

​

38.1

​

​

2.8

​

​

—

​

​

—

​

​

40.9

​

​

—

​

​

​

40.9

Total current assets

​

​

—

​

​

1,653.2

​

​

28.5

​

​

(12.7)

​

​

(13.0)

​

​

1,656.0

​

​

(19.8)

​

​

​

1,636.2

Satellites, property and other equipment

​

​

—

​

​

1,286.4

​

​

0.2

​

​

—

​

​

—

​

​

1,286.6

​

​

(0.2)

(1.1.1)

​

​

1,286.4

Deferred tax assets

​

​

—

​

​

62.5

​

​

37.2

​

​

—

​

​

—

​

​

99.7

​

​

(2.3)

(1.5)

​

​

97.4

Other long-term financial assets

​

​

—

​

​

16.9

​

​

—

​

​

—

​

​

—

​

​

16.9

​

​

—

​

​

​

16.9

Other long-term assets

​

​

—

​

​

13.5

​

​

—

​

​

—

​

​

—

​

​

13.5

​

​

—

​

​

​

13.5

Intangible assets

​

​

—

​

​

766.0

​

​

—

​

​

—

​

​

—

​

​

766.0

​

​

—

​

​

​

766.0

Goodwill

​

​

—

​

​

2,446.6

​

​

—

​

​

—

​

​

—

​

​

2,446.6

​

​

—

​

​

​

2,446.6

Investments

​

​

—

​

​

—

​

​

306.3

​

​

—

​

​

—

​

​

306.3

​

​

(306.3)

(1.4)

​

​

—

Total Assets

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(12.7)

​

$

(13.0)

​

$

6,591.6

​

$

(328.6)

​

​

$

6,263.0

Liabilities

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Trade and other payables

​

$

—

​

$

33.5

​

$

12.5

​

$

—

​

$

—

​

$

46.0

​

$

(8.8)

(1.3)

​

$

37.2

Other current financial liabilities

​

​

—

​

​

63.4

​

​

—

​

​

—

​

​

—

​

​

63.4

​

​

—

​

​

​

63.4

Other current liabilities

​

​

—

​

​

91.3

​

​

3.1

​

​

—

​

​

—

​

​

94.4

​

​

(0.2)

(1.1.1)

​

​

94.2

Total current liabilities

​

—

​

188.2

​

15.6

​

​

—

​

​

—

​

203.8

​

(9.0)

​

​

194.8

Long-term indebtedness

​

​

—

​

​

3,805.3

​

​

—

​

​

—

​

​

—

​

​

3,805.3

​

​

—

​

​

​

3,805.3

Deferred tax liabilities

​

​

—

​

​

290.3

​

​

—

​

​

—

​

​

—

​

​

290.3

​

​

—

​

​

​

290.3

Other long-term financial liabilities

​

​

—

​

​

25.2

​

​

—

​

​

—

​

​

—

​

​

25.2

​

​

—

​

​

​

25.2

Other long-term liabilities

​

​

—

​

​

383.6

​

​

50.6

​

​

—

​

​

—

​

​

434.2

​

​

—

​

​

​

434.2

Partnership units liability

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

1,486.3

(1.2.5)

​

​

1,486.3

Total liabilities

​

—

​

4,692.6

​

66.2

​

​

—

​

​

—

​

4,758.8

​

1,477.3

​

​

6,236.1

Shareholders’ equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share capital/Partnership Interest

​

​

—

​

​

155.7

​

​

1,281.6

​

​

—

​

​

—

​

​

1,437.3

​

​

(1,426.2)

(1.2.2)

​

​

11.1

Accumulated earnings (deficit)

​

​

—

​

​

1,327.1

​

​

(912.7)

​

​

(12.7)

​

​

(13.0)

​

​

388.7

​

​

(373.8)

(1.1.3), (1.2.3), (1.3)

​

​

14.9

Reserves

​

​

—

​

​

69.7

​

​

(62.9)

​

​

—

​

​

—

​

​

6.8

​

​

(5.9)

(1.1.3), (1.2.4)

​

​

0.9

Total shareholders’ equity

​

​

—

​

​

1,552.5

​

​

306.0

​

​

(12.7)

​

​

(13.0)

​

​

1,832.8

​

​

(1,805.9)

​

​

​

26.9

Total liabilities and shareholders’ equity

​

$

—

​

$

6,245.1

​

$

372.2

​

$

(12.7)

​

$

(13.0)

​

$

6,591.6

​

$

(328.6)

​

​

$

6,263.0

See accompanying notes to Telesat Partnership unaudited pro forma condensed consolidated financial information

A-25

TELESAT PARTNERSHIP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(all amounts in millions of Canadian dollars, except share amounts)

​

Telesat Partnership

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Telesat Partnership Pro Forma

Revenue

​

$

—

​

$

570.7

​

$

—

​

$

—

​

​

$

570.7

Operating expenses

​

​

—

​

​

(146.9)

​

​

(24.1)

​

​

14.6

(1.1.1), (1.1.2), (1.3)

​

​

(156.4)

Depreciation

​

​

—

​

​

(153.4)

​

​

—

​

​

(0.6)

(1.1.1)

​

​

(154.0)

Amortization

​

​

—

​

​

(12.1)

​

​

—

​

​

—

​

​

​

(12.1)

Other operating losses, net

​

​

—

​

​

(0.7)

​

​

—

​

​

—

​

​

​

(0.7)

Operating income

​

​

—

​

​

257.6

​

​

(24.1)

​

​

14.0

​

​

​

247.5

Interest expense

​

​

—

​

​

(139.2)

​

​

—

​

​

(0.5)

(1.1.2)

​

​

(139.7)

Equity in net income of affiliates

​

​

—

​

​

—

​

​

56.4

​

​

(56.4)

(1.4)

​

​

—

Interest and other income

​

​

—

​

​

2.9

​

​

—

​

​

—

​

​

​

2.9

Loss on changes in fair value of financial instruments

​

​

—

​

​

(20.4)

​

​

—

​

​

—

​

​

​

(20.4)

Loss on changes in fair value of LP Units

​

​

—

​

​

—

​

​

—

​

​

(51.1)

(1.2.5)

​

​

(51.1)

Gain on foreign exchange

​

​

—

​

​

7.3

​

​

—

​

​

—

​

​

​

7.3

Income before tax

​

​

—

​

​

108.2

​

​

32.3

​

​

(94.0)

​

​

​

46.5

Tax (expense) recovery

​

​

—

​

​

(47.6)

​

​

1.6

​

​

0.1

(1.1.2)

​

​

(45.9)

Net income

​

$

—

​

$

60.6

​

$

33.9

​

$

(93.9)

​

​

$

0.6

See accompanying notes to Telesat Partnership unaudited pro forma condensed consolidated financial information

A-26

TELESAT PARTNERSHIP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
(all amounts in millions of Canadian dollars, except share amounts)

​

Telesat Partnership

Historical Telesat

Historical Loral

Transaction accounting adjustments(1)

​

Telesat Partnership Pro Forma

Revenue

​

$

—

​

$

820.5

​

$

—

​

$

—

​

​

$

820.5

Operating expenses

​

​

—

​

​

(180.9)

​

​

(15.8)

​

​

(25.6)

(1.1.1), (1.1.2), (1.3)

​

​

(222.3)

Depreciation

​

​

—

​

​

(216.9)

​

​

—

​

​

(0.8)

(1.1.1)

​

​

(217.7)

Amortization

​

​

—

​

​

(17.2)

​

​

—

​

​

—

​

​

​

(17.2)

Other operating losses, net

​

​

—

​

​

(0.2)

​

​

—

​

​

—

​

​

​

(0.2)

Operating income

​

—

​

405.3

​

(15.8)

​

(26.4)

(1.1.1)

​

363.1

Interest expense

​

​

—

​

​

(203.8)

​

​

—

​

​

(0.8)

(1.1.2)

​

​

(204.6)

Equity in net income of affiliates

​

​

—

​

​

—

​

​

156.7

​

​

(156.7)

(1.4)

​

​

—

Interest and other income

​

​

—

​

​

5.2

​

​

1.4

​

​

—

​

​

​

6.6

Loss on changes in fair value of financial instruments

​

​

—

​

​

(13.1)

​

​

—

​

​

—

​

​

​

(13.1)

Loss on changes in fair value of LP Units

​

​

—

​

​

—

​

​

—

​

​

(185.4)

(1.2.5)

​

​

(185.4)

Gain on foreign exchange

​

​

—

​

​

47.6

​

​

—

​

​

—

​

​

​

47.6

Income before tax

​

​

—

​

​

241.2

​

​

142.3

​

​

(369.3)

​

​

​

14.2

Tax recovery (expense)

​

​

—

​

​

4.4

​

​

(17.3)

​

​

1.0

(1.1.2)

​

​

(11.9)

Net income

​

$

—

​

$

245.6

​

$

125.0

​

$

(368.3)

​

​

$

2.3

See accompanying notes to Telesat Partnership unaudited pro forma condensed consolidated financial information

A-27

NOTES TO TELESAT PARTNERSHIP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(all amounts in millions of Canadian dollars, except share amounts or otherwise stated)

Note 1 — Transaction accounting adjustments

1.1: Reconciliation between accounting policies of Telesat and Loral — Historical consolidated financial statements of Loral were prepared in accordance with U.S. GAAP. For the purpose of preparing the Telesat Partnership Pro Forma Financial Information, Loral’s historical consolidated financial statements have been adjusted to align with IFRS as applied through the accounting policies adopted by Telesat. Differences in the accounting treatment between U.S. GAAP applied by Loral and IFRS as applied by Telesat are as follows:

1.1.1: Leases — Adjustments represent the reconciliation of GAAP differences from ASU 842 Leases under U.S. GAAP to IFRS 16 — Leases for the recognition and measurement of certain operating leases. As at September 30, 2021, the leased asset included on the balance sheet of Loral had a remaining lease term of less than 12 months. Therefore, in accordance with Telesat’s accounting policy of applying the short-term lease exemption available under IFRS, an adjustment of ($0.2), was made to both the right-of-use asset and lease liability in the Telesat Partnership Pro Forma Balance Sheet.

IFRS 16 was adopted in the historical consolidated financial statements of Telesat on January 1, 2019. IFRS 16 requires that each lease liability be accreted through interest expense and each right of use asset be depreciated. This differs from U.S. GAAP which requires the lease expense to be recognized on a straight-line basis over the lease term. As a result, transaction accounting adjustments to the Telesat Partnership Pro Forma Statements of Income related to the alignment of lease accounting policies are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.6)	​	$	(0.9)
Depreciation	​	$	0.6	​	$	0.8
Interest expense	​	$	—	​	$	0.1

1.1.2: Pensions — The adjustment represents the reconciliation of differences between U.S. GAAP to IFRS for defined benefit plans, whereby presentation of net interest expense, remeasurement of actuarial gains/losses, and other administrative costs are reclassified into other comprehensive income (“OCI”). This also results in an impact to the tax provision and deferred tax assets at the applicable tax rate.

There was no impact on the September 30, 2021 Telesat Partnership Pro Forma Balance Sheet.

Transaction accounting adjustments to the Telesat Partnership Pro Forma Statements of Income related to the alignment of pension accounting policies are as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(0.2)	​	$	1.3
Interest expense	​	$	0.5	​	$	0.7
Tax expense	​	$	(0.1)	​	$	(0.4)

1.1.3: Tax expense classification — The adjustments represent reclassification of previously recorded tax provision amounts arising from changes in taxation rates and enacted tax laws. Under U.S. GAAP, the provision for these tax adjustments relating to the rate adjustment on the opening deferred tax asset balance is recorded in the Telesat Partnership Pro Forma Statements of Income while under IFRS this adjustment is recorded in OCI. This has resulted, as at September 30, 2021, in an increase to accumulated earnings of $0.1 with a corresponding decrease to Reserves.

There was no Telesat Partnership Pro Forma Statements of Income impact for the year ended December 31, 2020 or the nine months ended September 30, 2021.

A-28

1.2: Capital transaction — Telesat has a high degree of common ownership, in which no one shareholder controls the entities before and after the Transaction. As described above, because the Transaction results in no substantial change to the composition of the ultimate beneficial holders of Telesat and lacks economic substance, the Transaction has been accounted for in a manner similar to a common control transaction (i.e., an equity reorganization). As part of the Transaction, an immaterial amount of net assets held by Loral, which are unrelated to Telesat, are being acquired by Telesat Partnership. This immaterial acquisition does not represent a business combination and accordingly no goodwill or previously unrecorded intangible assets will be recognized. In consummating the Transaction, a number of holding companies have been incorporated and have been fully consolidated into the Telesat Partnership Pro Forma Financial Information. Described below are the transaction accounting adjustments recorded to reflect the various transactions to be undertaken in consummating the Transaction.

Cash and cash equivalents	$	(25.7)
Partnership Interest (net of eliminations)	$	(1,426.2)
Accumulated earnings (net of eliminations)	$	(399.5)
Reserves (net of eliminations)	$	(5.9)
Partnership units liability	$	1,486.3

1.2.1 Cash and cash equivalents — the adjustments to cash and cash equivalents consist of the following:

a.

Payment of $12.7 (US$10.0) by Loral and Telesat to Red Isle; and

b.

Payment of $13.0 (US$10.3) representing the estimated closing payment mechanism payable.

1.2.2: Partnership Interest — The Transaction will result in the former direct and indirect shareholders of Telesat exchanging their direct and indirect interests in Telesat for either Telesat Corporation Shares or Telesat Partnership Units. As described above, the Transaction will be accounted for as a capital transaction between shareholders and as a result the previous equity interests in Telesat will be represented in Telesat Partnership as shareholders equity. Outlined below are the amounts recorded in the Telesat Partnership Pro Forma Financial Information to reflect the transfer of previously recorded share capital of Telesat and Loral to the new components of equity in Telesat Partnership.

Historical share capital of Telesat	​	​	$	155.7
Historical share capital of Loral	​	​	​	1,281.6
​	​	​	​	1,437.3
Transaction accounting adjustments:	​	​	​	​
Issuance of GP units of Telesat Partnership	(i),(ii)	11.1	​	​
Elimination of share capital of Telesat & Loral	​	(1,437.3)	​	​
Total transaction accounting adjustments	​	​	​	(1,426.2)
Total pro forma partnership interest (net of elimination)	​	​	$	11.1

(i)

For purposes of the Telesat Partnership Pro Forma Financial Information, it has been assumed that the individual members and former members of management of Telesat will contribute all of the Telesat Non-Voting Participating Preferred Shares held to Telesat Corporation in exchange for Telesat Public Shares. Telesat Partnership will issue Telesat Partnership GP Units to Telesat Corporation in an equivalent amount.

(ii)

Pursuant to the terms of the Transaction Agreement and assumptions above, Red Isle will exchange certain of their shareholdings of Telesat to Telesat Public Shares in Telesat Corporation. Telesat Partnership will issue Telesat Partnership GP Units to Telesat Corporation in an equivalent amount.

The split of Telesat Partnership Capitalization post conversion is as follows:

​	General Partnership Units		Class A, Class B or Class C Units
Telesat Partnership	​	572,446	​	48,972,600

A-29

1.2.3: Accumulated earnings — The transaction accounting adjustments to accumulated earnings reflect the $12.7 (USD$10.0) payment by Loral and Telesat to Red Isle, the $13.0 (USD$10.3) payable by Telesat under the estimated closing payment mechanism to PSP Investments, $11.0 of estimated transaction costs to the close of the Transaction, $1,272.9 reclassification relating to adjustments to Telesat Partnership Unit liability and the remainder for eliminating the historic accumulated deficit of Loral, including the related tax impact on elimination.

1.2.4 Reserves — The transaction accounting adjustments to reserves reflect $68.8 of reclassifications relating to adjustments to Telesat Partnership Unit liability and the remainder related to the elimination of the historic reserves of Loral.

1.2.5: Partnership Unit Liability — The transaction accounting adjustments to Telesat Partnership Unit liability reflect the fair value of the exchangeable features of the Telesat Partnership Units. This fair value is calculated as the portion of profit of the consolidated Telesat Partnership group attributable to the Telesat Partnership GP Units.

The fair value of movement of the liability for the nine months ended September 30, 2021 and for the year ended December 31, 2020 has been recorded through profit or loss, resulting in a loss on changes in fair value of the Telesat Partnership Units of $ 51.1 and $185.4, respectively.

1.3: Transaction Costs — Represent legal, professional and other fees incurred, associated with the execution of the Transaction. For purposes of the Telesat Partnership Pro Forma Balance Sheet presented as at September 30, 2021, total transaction costs have been estimated to be $43.8, of which $8.8 were previously accrued in the consolidated balance sheets of Telesat and Loral. As at September 30, 2021, $24.0 of the $43.8 estimated transaction costs have been paid. A reduction in the cash balance as at September 30, 2021 for the unpaid balance of $19.8 and a reduction to the previously accrued balance has been made to reflect the impact of the transaction costs.

For the purposes of the Telesat Partnership Pro Forma Statements of Income, it was assumed that the transaction costs were incurred and paid in full on January 1, 2020. The amount recorded and adjusted is as follows:

​	Nine months ended September 30, 2021			Year ended December 31, 2020
Operating expenses	​	$	(13.8)	​	$	25.3

1.4: Elimination of investment balances — Represents the consolidation entry to remove Loral’s investment in Telesat and the associated income and tax related to the equity investment in Telesat.

1.5: Current and deferred tax impact — The tax effect on the transaction accounting adjustments has been recorded using an estimated effective tax rate of 21.02% for the impact to the tax provision of the adjustments relating to the alignment of accounting policies performed for the Transaction. The actual effective tax rate of the combined group could be significantly different from the estimated effective tax rate assumed for purposes of preparing the Telesat Partnership Pro Forma Financial Information as a result of a variety of factors, including post-Closing activities.

A-30