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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 17, 2006
Loral Space & Communications Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-14180 87-0748324
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
600 Third Avenue
New York, New York 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 697-1105
_____________________________________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
SECURITIES PURCHASE AGREEMENT
On October 17, 2006, Loral Space & Communications Inc. ("Loral" or the
"Company") entered into a Securities Purchase Agreement (the "Purchase
Agreement") with MHR Fund Management LLC pursuant to which MHR Fund Management
LLC and/or its affiliates ("MHR") would purchase from the Company
$300,000,098 of two newly created series of convertible perpetual preferred
stock of the Company. The Company plans to use the proceeds from this financing,
together with its existing resources, to pursue both internal and external
growth opportunities in the satellite communications industry, including
strategic transactions or alliances.
MHR currently owns, in the aggregate, approximately 36% of the outstanding
common stock of the Company, par value $.01 per share (the "Common Stock") and
three of MHR's employees or officers are directors of Loral's eight-member Board
of Directors (the "Loral Board"), one of whom, who is MHR's President,
serves as the non-executive chairman of the Loral Board. MHR also owns
approximately 38.3% of the Series A 12% Non-Convertible Preferred Stock (the
"Skynet Preferred Stock") and 44.6% of the 14% Senior Secured PIK Notes (the
"Skynet Secured Notes") of Loral Skynet Corporation ("Skynet"), one of Loral's
principal wholly-owned subsidiaries.
A Special Committee of the Loral Board, composed of independent
directors, actively negotiated the terms of the proposed transaction (the
"Transaction") with the advice of its legal and financial advisors, and the
Transaction was unanimously approved by the disinterested members of the Loral
Board with the unanimous affirmative recommendation of the Special Committee.
Pursuant to the Purchase Agreement, MHR will purchase 136,526 shares of
Series A Cumulative 7.50% Convertible Perpetual Preferred Stock (the "Series A
Preferred Stock") and 858,486 shares of Series B Cumulative 7.50% Convertible
Perpetual Preferred Stock (the "Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "Preferred Stock") for an aggregate purchase price
of $300,000,098. Each share of the Series A Preferred Stock will be convertible,
at the option of the holder, into ten shares of Common Stock at an initial
conversion price of $30.1504 per share of Common Stock. Prior to the Majority
Ownership Date (as defined below), each share of the Series B Preferred Stock
will be convertible, at the option of the holder, into ten shares of Class B
Common Stock, par value $.01, of Loral (the "Class B Common Stock"), at an
initial conversion price of $30.1504 per share of Common Stock, which is not
currently authorized but will be proposed as a charter amendment to Loral's
stockholders at Loral's next annual meeting of stockholders expected in the
second quarter of 2007. After the Majority Ownership Date, each share of Series
B Preferred Stock will be convertible, at the option of the holder, into shares
of Common Stock.
Loral has agreed in the Purchase Agreement to make a proposal to its
stockholders at its 2007 annual shareholder meeting to amend its Restated
Certificate of Incorporation to authorize the Class B Common Stock and also to
eliminate its prohibition on the creation of non-voting stock. If the amendment
to eliminate the prohibition on non-voting stock is approved by Loral's
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stockholders, the Class B Common Stock will be non-voting. Otherwise, the Class
B Common Stock will have nominal voting rights of 1/10,000 of a share, as does
each share of Preferred Stock. In addition, the Loral Board has approved for
submission to stockholders at the next annual stockholder meeting, and, in the
Purchase Agreement MHR has agreed to vote in favor of, a proposal to increase
the number of authorized shares of Common Stock of the Company to 60 million.
The terms of both series of Preferred Stock are designed so that, prior to
the Majority Ownership Date, any shares of Common Stock issuable in the
aggregate to MHR upon conversion of the Preferred Stock, when taken together
with MHR's holdings of Common Stock at such time, will not represent more than
39.999% of the aggregate voting power of the securities of Loral. The "Majority
Ownership Date" means the earlier of the date that (i) MHR's beneficial
ownership of Common Stock, not including any of the Common Stock issuable upon
the conversion of the Preferred Stock, represents more than 50% of the Common
Stock of Loral, or (ii) a third party has acquired a majority of Loral's Common
Stock on a fully diluted basis other than pursuant to certain prohibited
transfers of the Series A Preferred Stock from MHR. After the Majority Ownership
Date, this restriction will no longer apply, and all shares of Preferred Stock
will be convertible into Common Stock.
Holders of the Preferred Stock will be entitled to PIK (payment in kind)
dividends through January 2011 (assuming the transaction closes by December
2006). Thereafter, if the Company satisfies certain financial requirements, the
dividend will be payable in cash or in kind at the Company's option. The Company
will be able to cause the Preferred Stock to be converted into Common Stock
after 5.5 years if the Common Stock is trading above certain volume thresholds
and above 125 percent of the conversion price for twenty trading days in a 30
trading day period.
Following the consummation of the Transaction, MHR will have the right to
nominate one new member to the Loral Board so that following the election of
that nominee, MHR's employees, officers or other representatives will hold four
of the nine seats on the Loral Board. If Loral fails to make three dividend
payments when required under the terms of the Preferred Stock, the holders of
the Preferred Stock will have the right to elect two additional directors, but
such additional directors must not be officers or employees of MHR if their
appointment would result in MHR employees, officers or other representatives
constituting a majority of the Loral Board. If the additional directors would
cause a majority of the Board to be appointed by the holders of the Preferred
Stock, then these additional directors will be appointed when they are
reasonably acceptable to Loral.
The transaction is subject to customary closing conditions, including
approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, but is
not subject to stockholder approval other than with respect to approval of the
amendment to Loral's Restated Certificate of Incorporation to authorize the
Class B Common Stock as discussed above.
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REGISTRATION RIGHTS AGREEMENT
In connection with, and upon closing of the Transaction, the Company and
Loral Skynet will enter into an Amended and Restated Registration Rights
Agreement with MHR (the "Amended Registration Rights Agreement"). The Amended
Registration Rights Agreement will provide that the shares of Series A Preferred
Stock and Series B Preferred Stock acquired by MHR in the Transaction, as well
as the shares of Common Stock and Class B Common Stock into which such shares
are convertible, as the case may be, will be registrable securities and entitled
to registration rights under the Amended and Registration Rights Agreement. The
Amended Registration Rights Agreement will also provide that the Company's
obligation to file a shelf registration statement covering resales to the public
of shares of Series A Preferred Stock, Series B Preferred Stock and Class B
Common Stock, and of shares of Common Stock issued upon the conversion or
exchange of any of the foregoing, held from time to time by MHR, will be
deferred until seven days (subject to extension in certain events) after a
request from the selling stockholders or a Loral Board resolution that such
filing be made. In addition, the Amended Registration Rights Agreement will
replace the nine-month period that the Company was required to refrain from
initiating a proposal to register or otherwise conducting an underwritten
offering of equity securities for its own account following the effectiveness of
the MHR shelf registration statement with a period ending on March 1, 2007,
subject to extension, in the event the MHR shelf registration statement is filed
during the period, by the number days that elapse between such filing and the
effectiveness of the registration statement.
This description of the Purchase Agreement, the Series A Preferred Stock,
the Series B Preferred Stock and the Amended and Restated Registration Rights
Agreement is not intended to be complete and is qualified in its entirety by
reference to the full text of the Purchase Agreement and the forms of Series A
Preferred Stock Certificate of Designation, Series B Preferred Stock Certificate
of Designation and Amended and Restated Registration Rights Agreement attached
to this report as Exhibit 10.1.
3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
SERIES A PREFERRED STOCK
The information set forth under Item 1.01 of this Current Report on Form
8-K is incorporated herein by reference. In accordance with the Purchase
Agreement, the Company will, on the closing date of the Transaction, issue to
MHR 136,526 shares of Series A Preferred Stock. The shares of Series A Preferred
Stock carry nominal voting rights of 1/10,000 of a share and will be convertible
into voting Common Stock.
All of the shares of Series A Preferred Stock will be issued pursuant to
the exemption from the registration requirements set forth in Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), on the basis that
the Transaction did not involve any public offering and MHR had access to the
kind of information that registration requirements would provide. The shares of
Series A Preferred Stock will be issued with restricted securities legends and
may not be subsequently offered or sold by MHR in the United States absent
registration or an applicable exemption from the registration requirements.
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SERIES B PREFERRED STOCK
The information set forth under Item 1.01 of this Current Report on Form
8-K is incorporated herein by reference. In accordance with the Purchase
Agreement, the Company will, on the closing date of the Transaction, issue to
MHR 858,486 shares of Series B Preferred Stock. The shares of Series B Preferred
Stock carry nominal voting rights of 1/10,000 of a share. The Series B Preferred
Stock will be convertible into shares of non-voting Class B Common Stock, but
only upon the adoption by the Company's stockholders, following the closing, of
an amendment to the Company's Restated Certificate of Incorporation creating the
Class B common stock and eliminating the non-voting stock prohibition contained
therein. The shares of Series B Preferred Stock and Class B Common Stock will
continue to have nominal or no voting rights and will not be convertible into
voting common stock until the Majority Ownership Date.
All of the shares of Series B Preferred Stock will be issued pursuant to
the exemption from the registration requirements of the Securities Act set forth
in Section 4(2) of the Securities Act,, on the basis that the Transaction did
not involve any public offering and MHR had access to the kind of information
that registration requirements would provide. The shares of Series B Preferred
Stock will be issued with restricted securities legends and may not be
subsequently offered or sold by MHR in the United States absent registration or
an applicable exemption from the registration requirements.
3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS.
The information set forth under Item 1.01 of this Current Report on Form
8-K is incorporated herein by reference. The terms of the principal
modifications to be effectuated by the Amended and Restated Registration Rights
Agreement are described under Item 1.01 above.
9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS:
Exhibit No. Description
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10.1 Securities Purchase Agreement by and between Loral Space &
Communications Inc. and MHR Fund Management LLC, dated October
17, 2006
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SIGNATURES
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 hereunto duly authorized.
Loral Space & Communications Inc.
October 19, 2006 By: /s/ Avi Katz
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Name: Avi Katz
Title: Vice President, General Counsel
and Secretary
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