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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-50262
Intelsat, Ltd. (Exact Name of Registrant as Specified in Its Charter)
N/A Bermuda (Translation of Registrant’s Name Into English) (Jurisdiction of Incorporation or Organization)
Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda (Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of Each Exchange Title of Each Class On Which Registered
N/A N/A
Securities registered or to be registered pursuant to Section 12(g) of the Act:
N/A (Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
5 1/4% Senior Notes due 2008; 7 5/8% Senior Notes due 2012; 6 1/2% Senior Notes due 2013 (Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2004, 167,261,024 ordinary shares, par value $3.00 per share, were issued and outstanding.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☑
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INTRODUCTION 2 FINANCIAL AND OTHER INFORMATION 2 FORWARD-LOOKING STATEMENTS 2 PART I 5 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 5 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 5 ITEM 3. KEY INFORMATION 5 ITEM 4. INFORMATION ON THE COMPANY 20 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 52 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 81 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 92 ITEM 8. FINANCIAL INFORMATION 95 ITEM 9. THE OFFER AND LISTING 95 ITEM 10. ADDITIONAL INFORMATION 96 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 107 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 107 PART II 107 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 107 ITEM 15. CONTROLS AND PROCEDURES 107 ITEM 16. [RESERVED] 108 ITEM 16B. CODE OF ETHICS 108 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 108 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 109 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 109 PART III 109 ITEM 17. FINANCIAL STATEMENTS 109 ITEM 18. FINANCIAL STATEMENTS 109 ITEM 19 EXHIBITS 109 SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES 113 SIGNATURES 114
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INTRODUCTION
References in this annual report to “Intelsat,” “Company,” “we,” “us” and “our” refer to Intelsat, Ltd. and, unless the context requires otherwise, to its subsidiaries. Intelsat is a limited liability company incorporated under the laws of Bermuda. We refer to our wholly owned subsidiary, Intelsat (Bermuda), Ltd. as Intelsat Bermuda, and we refer to Intelsat Bermuda’s wholly owned subsidiary, Intelsat Subsidiary Holding Company, Ltd. as Intelsat Subsidiary Holding. We also refer to our parent, Intelsat Holdings, Ltd. (formerly Zeus Holdings Limited) as Intelsat Holdings.
We are the successor entity to the International Telecommunications Satellite Organization, formerly known as INTELSAT and sometimes referred to as an intergovernmental organization or the IGO, which was created on an interim basis in 1964 to establish and operate a global satellite system and was formally established in February 1973. On July 18, 2001, the IGO privatized by transferring substantially all of its assets and liabilities to Intelsat and its wholly owned subsidiaries. References in this annual report to our business and operations refer to the business and operations of the IGO prior to the privatization and to the business and operations of Intelsat and its subsidiaries subsequent to the privatization. On January 28, 2005, we were amalgamated with Zeus Merger One, Limited and references to our business and operations following this amalgamation refer to the business and operations of the company continuing from this amalgamation.
Our principal executive offices are located at Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda. Our telephone number is (441) 294-1650.
FINANCIAL AND OTHER INFORMATION
Unless otherwise indicated, all references to “dollars” and “$” in this annual report are to, and all monetary amounts in this annual report are presented in, U.S. dollars. Unless otherwise indicated, the financial information contained in this annual report has been prepared in accordance with accounting principles generally accepted in the United States, referred to as U.S. GAAP.
Certain monetary amounts, percentages and other figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
In this annual report, we refer to and rely on publicly available information regarding our industry and our competitors. Although we believe the information is reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it.
FORWARD-LOOKING STATEMENTS
Some of the statements in this annual report constitute forward-looking statements that do not directly or exclusively relate to historical facts. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements as long as they are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward- looking statements.
When used in this annual report, the words “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” and “continue,” and the negative of these terms, and other similar expressions are intended to identify forward-looking statements. Examples of these forward-looking statements include, but are not limited to, statements regarding the following: our goal to sustain our leadership position in the fixed satellite services sector and enhance our free cash flow; our plan to expand the broadcast communities on selected satellites in our fleet; our belief that the direct-to-home transmission of television programming via satellite could contribute to future growth in the demand for satellite services as programmers seek to add programming to established networks and as new networks develop; our intent to continue to evaluate and pursue strategic transactions that can broaden our customer base, provide enhanced geographic presence, provide complementary technical and commercial capabilities, further utilize our infrastructure, modify our service application mix, and create operational efficiencies; our belief that our corporate network customers increasingly require managed services best addressed by a network that combines space and terrestrial infrastructure; our expectation that the fixed satellite services sector will experience relatively flat to moderate growth over the next few years; with respect to video contribution, our intent to expand our hybrid infrastructure to grow our business; our expectation that growth in high-definition television programming will increase the demand for wholesale satellite capacity; the trends
2 Table of Contents that we believe will impact our revenue and operating expenses in the future; our intent to utilize our enhanced North American coverage as a result of the Intelsat Americas Transaction, as defined in this annual report; our expectation that the positive impact of the Intelsat Americas Transaction on our revenue will continue; the length of time it will take for the failure review board established to investigate the cause of the total loss of our IS-804 satellite to reach its conclusion; our current assessment as to how long the IA-7 satellite should be able to provide service on its transponders; our belief that there is no connection between the IS-804 satellite anomaly and the IA-7 satellite anomaly; our expectation to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the value of the IS-804 satellite; our expectation that the operational loss of a portion of IA-7’s transponders will not have a material impact on our revenue, cash operating expenses or backlog; our expectation that the total loss of the IS-804 satellite will not have a material impact on our revenue, cash operating expenses or backlog; our current expectation that the IA-7 anomaly and the total loss of the IS-804 satellite will not result in the acceleration of capital expenditures to replace the IA-7 and IS-804 satellites, respectively; our expectation that we will retain approximately 61% of the revenue associated with the IS-804 satellite; our estimate of the revenue attributable to the IS-804 satellite; our expectation that a one-time cost in 2005 due to the re-pointing of antennas in connection with moving customer traffic to other satellites will not be significant; our estimate of the reduction in our backlog as a result of the loss of the IS-804 satellite; the expected launch date of our IA-8 satellite; our plans for satellite launches in the near to mid term; our expected capital expenditures in 2005 and during the next several years; our belief that our balanced geographic mix provides some protection from adverse regional economic conditions; the impact on our financial position or results of operations of pending legal proceedings; the impact on bad debt expense in future periods of a settlement on pre-petition receivables in connection with MCI, Inc.’s emergence from bankruptcy protection; our intent to utilize our enhanced capabilities as a result of the COMSAT General Transaction, as defined in this annual report, to strengthen our position in the government/military customer segment; our belief that the COMSAT General Transaction will positively impact our revenue from lease services; our expectation that our operating expenses will increase and our operating margins will decrease as a result of the COMSAT General Transaction; the impact of the acquisition of us by Intelsat Holdings, including the incurrence by Intelsat Subsidiary Holding Limited, which we refer to as Intelsat Subsidiary Holding and related guaranty executed by Intelsat (Bermuda), Ltd., which we refer to as Intelsat Bermuda, of substantial debt and interest expense in connection with the acquisition and in connection with a subsequent repurchase of certain preferred stock of Intelsat Holdings; and our belief that the Acquisition Transactions, as defined in this annual report, will satisfy the criteria set forth in the Open-Market Reorganization for the Betterment of International Telecommunications Act, as amended, which we refer to as the ORBIT Act.
The forward-looking statements made in this annual report reflect our intentions, plans, expectations, assumptions and beliefs about future events. These forward- looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and other factors, many of which are outside of our control. These factors could cause actual results or developments to differ materially from the expectations expressed or implied in the forward-looking statements and include known and unknown risks. Known risks include, among others, the risks discussed in Item 3.D — “— Risk Factors,” the political, economic and legal conditions in the markets we are targeting for communications services or in which we operate and other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular.
In connection with our acquisition of the business of COMSAT General Corporation and certain of its affiliates as described in this annual report under in Item 5 — “Operating and Financial Review and Prospects—Related Party Transactions—COMSAT General Transaction,” factors that may cause results or developments to differ materially from the forward-looking statements made in this offering memorandum include, but are not limited to, the inability to retain and continue to serve successfully customers gained in connection with the transaction and the failure to achieve our strategic or financial objectives for the transaction. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, performance or achievements. Because actual results could differ materially from our intentions, plans, expectations, assumptions and beliefs about the future, you are urged not to rely on forward-looking statements in this offering memorandum and to view all forward-looking statements made in this offering memorandum with caution. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Other factors that may cause results or developments to differ materially from the forward-looking statements made in this annual report include, but are not limited to:
• the quality and price of comparable communications services offered or to be offered by other satellite operators;
• the perceptions of our business, operations and financial condition and the industry in which we operate by the financial community and ratings agencies;
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• political, economic and legal conditions in the markets we are targeting for communications services or in which we operate; and
• other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following selected financial data should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and their notes included elsewhere in this annual report. The consolidated statement of operations data for each of the years in the five-year period ended December 31, 2004 and the consolidated balance sheet data as of December 31, 2000, 2001, 2002, 2003 and 2004 have been derived from consolidated financial statements audited by KPMG LLP, Independent Registered Public Accounting Firm. The consolidated statement of operations data for the years ended December 31, 2000 and 2001 and the consolidated balance sheet data as of December 31, 2000, 2001 and 2002 have been derived from financial statements that are not included in this annual report.
In July 2001, Intelsat’s ownership changed from an intergovernmental organization, referred to as the IGO, to a privately owned company in a transaction referred to as the privatization. As an intergovernmental organization, the IGO was exempt from various taxes and enjoyed privileges, exemptions and immunities in many of its member states. After privatization, Intelsat began incurring significant additional operating and other expenses, such as for income taxes and additional staff capabilities in the areas of legal, tax and administration to ensure we were compliant with the regulatory and legal requirements to which we became subject. Therefore, our financial results for the years ended December 31, 2000 and 2001 shown below may not be comparable to our financial results for 2002 and beyond.
Year Ended December 31,
2000 2001 2002 2003 2004
(in thousands, except share and per share data) Consolidated Statement of Operations Data: Revenue $ 1,099,751 $ 1,084,009 $ 991,956 $ 946,118 $ 1,043,906
Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 93,162 101,985 117,405 132,172 178,253 Selling, general and administrative 61,900 95,600 121,077 129,456 152,111 (1) Depreciation and amortization 414,250 340,449 361,322 400,485 457,372 Privatization initiative 21,575 33,576 — — — IS-10-01 contract termination costs — — 34,358 (3,000) — (2) Impairment of asset value — — — — 84,380 Restructuring costs — 7,300 5,522 (837) 6,640
Total operating expenses 590,887 578,910 639,684 658,276 878,756
Income from continuing operations 508,864 505,099 352,272 287,842 165,150 Interest expense 24,859 13,063 55,223 99,002 143,399 Interest income — 13 170 1,972 4,530 Other income, net 20,885 12,293 9,942 18,556 (2,384)
Income from continuing before income taxes 504,890 504,342 307,161 209,368 23,897 (3) Provision for income taxes — 5,359 33,021 26,129 18,647
Income from continuing operations 504,890 498,983 274,140 183,239 5,250 Loss from discontinued operations, net of tax and minority interest — — — 2,120 (43,929)
Net income (loss) $ 504,890 $ 498,983 $ 274,140 $ 181,119 $ (38,679)
(Footnotes on following page)
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Year Ended December 31,
2000 2001 2002 2003 2004
(in thousands) Basic and diluted income from continuing operations per ordinary (4) share $ 3.03 $ 2.99 $ 1.66 $ 1.14 $ 0.03 Basic and diluted loss from discontinued operations per ordinary (4) share $ — $ — $ — $ (0.01) $ (0.27) (4) Basic and diluted net income (loss) per ordinary share $ 3.03 $ 2.99 $ 1.66 $ 1.13 $ (0.24) (4) Basic weighted average ordinary shares outstanding 166,666,755 166,666,755 164,893,283 160,382,120 160,382,120 (4) Diluted weighted average ordinary shares outstanding 166,666,755 166,666,755 164,893,283 160,382,120 160,489,035 Consolidated Statement of Cash Flow Data: Net cash provided by operating activities $ 933,048 $ 856,388 $ 657,985 $ 601,209 $ 659,117 Net cash used in investing activities (546,020) (663,671) (678,222) (966,525) (654,444) Net cash (used in) provided by financing activities (411,828) (191,161) 31,504 955,820 (415,829) Other Data (unaudited): (5) EBITDA $ 943,999 $ 857,841 $ 723,536 $ 704,763 $ 576,209 Reconciliation of net income to EBITDA: Net income $ 504,890 $ 498,983 $ 274,140 $ 181,119 $ (38,679) Add: Interest expense 24,859 13,063 55,223 99,002 143,399 (3) Provision for income taxes — 5,359 33,021 26,129 18,647 Depreciation and amortization 414,250 340,449 361,322 400,485 457,372 Subtract: Interest income — (13) (170) (1,972) (4,530)
(5) EBITDA 943,999 857,841 723,536 704,763 576,209
Add: Loss from discontinued operations, net of tax and minority interest — — — 2,120 43,929
(5) EBITDA from continuing operations $ 943,999 $ 857,841 $ 723,536 $ 706,883 $ 620,138
As of December 31,
2000 2001 2002 2003 2004
(in thousands, except per share data) Consolidated Balance Sheet Data: Total assets $ 3,199,163 $ 3,576,135 $ 3,965,432 $ 5,072,717 $ 4,768,614 Total liabilities and minority interest 1,497,523 1,580,309 1,815,198 2,728,317 2,462,793 Total shareholders’ equity 1,701,640 1,995,826 2,150,234 2,344,400 2,305,821 Book value per ordinary share $ 10.21 $ 11.97 $ 13.41 $ 14.62 $ 14.38
(1) As of January 1, 2001, we revised the estimated useful lives for certain satellites. The effect of these revised estimates was to increase the useful lives of substantially all of our Intelsat VII and VIII series satellites and thereby decrease depreciation expense by approximately $60,507 for the year ended December 31, 2001.
(2) Impairment of asset value in 2004 relates to the non-cash impairment charge recorded in the fourth quarter of 2004 to write down the value of the IA-7 satellite to its fair value after a partial loss of the satellite.
(3) Prior to privatization, the IGO was not subject to income taxes. Upon privatization, Intelsat and its subsidiaries became subject to taxes in various jurisdictions. Results of operations for the period from privatization through December 31, 2004 include a provision for these taxes. Intelsat and its subsidiaries also recognized a deferred tax benefit upon privatization as a result of the change in taxable status.
(4) Basic and diluted net income per ordinary share for each of the three years ended December 31, 2001 has been computed assuming 166,666,755 ordinary shares had been outstanding for those periods. Basic and diluted net income per ordinary share for each of the four years ended December 31, 2002 also assumes that our June 4, 2002 share consolidation occurred at the beginning of the earliest period presented. On June 4, 2002, we amended our bye-laws to decrease the number of authorized ordinary shares from 650,000,000 ordinary shares with a par value of $1.00 per share to 216,666,666 2/3 ordinary shares with a par value of $3.00 per share, and to decrease the number of authorized preference shares from 7,500,000 preference shares with a par value of $1.00 per share to 2,500,000 preference shares with a par value of $3.00 per share. Prior to our share consolidation, we had 500,000,000
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ordinary shares outstanding and no preference shares outstanding. At December 31, 2004, we had, for accounting purposes, 160,382,120 ordinary shares outstanding and no preference shares outstanding. This number of ordinary shares outstanding excludes the 6,284,635 ordinary shares purchased from Teleglobe Inc. by our subsidiary, Intelsat Global Sales & Marketing Ltd., referred to in this annual report as Intelsat Global Sales and 702,650 shares granted to directors and employees as restricted shares under Intelsat’s 2004 Share Incentive Plan. Following the Acquisition Transactions and as a result of the amalgamation of the Company and Zeus Merger One Limited, there were 12,000 ordinary shares outstanding, all of which are owned by Intelsat Holdings.
(5) EBITDA consists of earnings before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in the fixed satellite services sector, and we present EBITDA to enhance your understanding of our operating performance. We use our EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. We also present EBITDA from continuing operations, which is EBITDA less the loss from discontinued operations, net of taxes and minority interest. We present EBITDA from continuing operations, as we believe that this measure is relevant for purposes of comparison to our operating performance in prior periods and to the operating performance of other companies. However, neither EBITDA nor EBITDA from continuing operations is a measurement of financial performance under U.S. GAAP, and either may not be comparable to similarly titled measures of other companies. You should not consider EBITDA or EBITDA from continuing operations as an alternative to operating or net income, determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risk Factors Relating to Our Business
We experience competition both within the satellite industry and from other providers of communications capacity, such as fiber optic cable capacity. For example, we are experiencing erosion of our point-to-point services revenue as a result of the migration of customers to fiber optic cable. Competition from other telecommunications providers could have a material adverse effect on our business and could prevent us from implementing our business strategy and expanding our operations as planned.
We are a global operator in the fixed satellite service sector, referred to as the FSS sector, and provide point-to-point and point-to-multipoint services for voice, data and video communications and for high-speed Internet access. We compete against other global and regional satellite operators and against suppliers of ground-based communications capacity. Because some of our competitors may have greater financial resources than we do, they may be able to respond more quickly to industry trends.
The FSS sector is subject to consolidation and to competition from other forms of communications technology, such as fiber optic cable. The increasing availability of satellite capacity and capacity from other forms of communications technology has created an excess supply of telecommunications capacity that has resulted in a decrease in the prices we are able to charge for our services under new service contracts and thereby negatively affected our profitability. These trends are contributing to reduced growth rates in the FSS sector, which is currently expected to experience relatively flat to moderate growth over the next few years.
We face challenges to our business apart from these industry trends that our competitors may not face. A significant portion of our revenue is derived from point-to- point traffic. Since fiber optic cable capacity, when available, is at substantially lower prices than satellite capacity for the same routes, competition from fiber optic cable has resulted in a migration of our point-to-point customers from satellite to fiber optic cable on certain routes. We have experienced erosion in our revenue from point-to-point services in recent years due to the build-out of fiber optic cable capacity, and we expect this erosion to continue. Some of our
7 Table of Contents competitors in the FSS sector have service mixes that are less dependent on point-to-point connectivity than our current service mix. Our plan to address this erosion and sustain our business includes expanding our customer base in point-to-multipoint services, such as video, and growing our managed services business.
Our ability to increase our share of the video market will depend in part on our ability to successfully integrate the satellites and related assets that we acquired in the Intelsat Americas Transaction. Our ability to increase our share of this market will also depend on our ability to attract customers that do not currently use our system. Because some of our competitors have been able to leverage the use of their satellites by a popular broadcaster to attract other broadcasters to their satellites, a significant number of broadcasters, cable systems and consumers may have satellite access equipment already pointed at our competitors’ satellites. In addition, popular broadcasters may have long- term agreements with our competitors. If we are unable to create new broadcast distribution communities or attract new customers in this segment, we may be unable to offset erosion in our point-to-point services revenue or to achieve future revenue growth.
Our plan to address the erosion in our point-to-point services revenue and to sustain our business also includes providing point-to-point services in areas of the world where fiber optic cable does not yet exist or for which fiber optic cable is believed to be unsuitable and offering integrated satellite/fiber and managed services. However, we may not be able to further penetrate the point-to-point services market in the regions we are targeting. If we continue to experience the erosion of our point-to-point services business and at the same time fail to capture sufficient growth in the market for point-to-multipoint services such as video or fail to increase our revenue by providing point-to- point services in regions where fiber optic cable capacity is unavailable and by offering integrated and managed services, our business could further shrink and our future revenue and profitability would be materially adversely affected.
Failure to compete effectively within the satellite industry or failure to implement our business strategy while maintaining our existing business would result in a loss of revenue and a decline in profitability, a decrease in the value of our business and a downgrade of our credit ratings, which would restrict our access to the capital markets.
The market for fixed satellite services may not grow or may shrink and therefore we may not be able to attract new customers, retain our existing customers or implement our strategies to grow our business.
The FSS sector is currently expected to experience relatively flat to moderate growth over the next few years. However, the market for fixed satellite services may not grow or may shrink. Competing technologies, such as fiber optic cable, are continuing to adversely affect the point-to-point segment of the FSS sector, which has historically represented the largest component of our revenue. In the point-to-multipoint segment, the global economic downturn, the transition of video traffic from analog to digital and continuing improvements in compression technology have negatively impacted demand for certain fixed satellite services. Developments that we expect to support the growth of the satellite services industry, such as continued growth in data traffic and the proliferation of HDTV and niche programming, may fail to materialize or may not occur in the manner or to the extent we anticipate.
Because the market for fixed satellite services may not grow or may shrink, we may not be able to attract customers for the managed services that we are providing as part of our strategy to sustain our business. In addition, reduced growth in the FSS sector may adversely affect our ability to utilize the assets that we acquired in the Intelsat Americas Transaction to achieve our strategic goals of developing a North American franchise and increasing our customer base in the cable television, broadcasting and private data networking segments. Moreover, reduced growth in the FSS sector may adversely affect our ability to retain our existing customers. A shrinking market could reduce the number and value of our customer contracts and would have a material adverse effect on our business and results of operations. In addition, there could be a substantial negative impact on our credit ratings and our ability to access the capital markets.
We have several large customers, and the loss of any one of them could reduce our revenue and materially adversely affect our business. In addition, our revenue backlog and profitability may be negatively affected as a result of financial difficulties experienced by our customers.
For the year ended December 31, 2004, our ten largest customers and their affiliates represented approximately 28% of our revenue. The loss of any of these customers could significantly affect our revenue and profitability. In addition, to the extent the credit quality of our customers deteriorates or these customers seek bankruptcy protection, we may not be able to collect our receivables from these customers, which may adversely affect our operating results. Our expected future revenue from customers that are experiencing financial difficulties may be at risk.
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For example, MCI, Inc. and Teleglobe Inc. are customers of ours that have experienced financial difficulties. On July 21, 2002, WorldCom, Inc., which subsequently changed its name to MCI, Inc., filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. MCI, Inc., referred to as MCI, emerged from bankruptcy protection in April 2004. Our revenue generated from MCI and its affiliates was $43.2 million, or 5% of total revenue, for the year ended December 31, 2003 and $41.9 million, or 4% of total revenue, for the year ended December 31, 2004. As of December 31, 2004, MCI and its affiliates accounted for $43.3 million, or 1%, of our backlog. In March 2004, MCI repudiated some of its service contracts with us in connection with its reorganization, resulting in a $3.3 million reduction in our backlog. As of December 31, 2004, we had receivables of $11.8 million due from MCI and its affiliates, of which $8.4 million related to pre-petition receivables and $6.7 million was reserved for in our allowance for doubtful accounts. The loss of MCI as a customer would further reduce our revenue and backlog and could materially adversely affect our business.
On May 15, 2002, Teleglobe Inc., referred to as Teleglobe, filed for creditor protection under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice. Revenue generated from Teleglobe and its affiliates was approximately $35.1 million in 2002 and $28.1 million in 2003. On August 21, 2002, Intelsat Global Sales & Marketing Ltd., a U.K. company and wholly owned subsidiary of Intelsat Subsidiary Holding (“Intelsat Global Sales”), entered into a share purchase agreement with Teleglobe. The closing of the share purchase transaction occurred on September 20, 2002. In connection with the share purchase transaction, Intelsat Global Sales agreed to terminate some of Teleglobe’s and its affiliate’s service orders with us. These terminated service orders represented approximately $47.4 million, or 1%, of our backlog as of the closing date of the share purchase transaction. The reduction in our backlog due to the termination of service orders pursuant to the share purchase transaction has had a negative impact on our profitability.
If our backlog is reduced due to the financial difficulties of other customers, including the customers we acquired in the Intelsat Americas Transaction, our revenue and profitability would be further negatively impacted.
We may not be able to complete strategic transactions or integrate new businesses successfully into our business, which may prevent us from implementing strategies to grow our business.
We intend to continue to evaluate and pursue strategic transactions that can, among other things, broaden our customer base, provide enhanced geographic presence and provide complementary technical and commercial capabilities. We could be prevented from, or significantly delayed in, achieving our strategic goals if we are unable to complete strategic transactions or to integrate new businesses successfully into our business.
Our ability to engage in strategic transactions depends in the first instance on our ability to identify suitable transactions and partners. Moreover, we may not be able to complete any strategic transaction that we identify. Successful completion of any transaction depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. In addition, we may need to finance any strategic transaction that we identify. If so, we may not be able to obtain the necessary financing on satisfactory terms and within the timeframe that would permit a transaction to proceed. If any of these factors prevents us from completing strategic transactions, we may not be able to implement strategies to expand our business.
We may incur significant costs arising from our efforts to engage in strategic transactions. These costs may exceed the returns that we realize from a given transaction. Moreover, these expenditures may not result in the successful completion of a transaction.
Even if we do complete strategic transactions, we may be unable to integrate successfully the personnel and operations of a new business. In addition, we may be unable to achieve the operational synergies or other benefits that we had anticipated. Moreover, we might fail to discover liabilities of a business or operating or other problems prior to completing a transaction. We could experience adverse accounting and financial consequences, such as the need to make large provisions against the acquired assets or to write down acquired assets. We might also experience a dilutive effect on our earnings. In addition, depending on how any such transaction is structured, there may be an adverse impact on our capital structure. In connection with the COMSAT General Transaction, we made certain business assumptions and determinations based on our investigation of the assets, the COMSAT Sellers and the acquired business as well as other information then available. If these assumptions and determinations are inaccurate, we may not realize the full benefits that we are expecting from this transaction. In addition, we expect that our operating expenses will increase in the near term and that our operating margins will decrease as a result of the COMSAT General Transaction. The increase in our operating expenses may be greater than we anticipate.
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We may not be able to complete strategic transactions successfully in accordance with our business strategy, and any strategic transactions that we do complete may not promote our business strategy, may negatively affect the value of our business or may adversely affect our prospects for long-term growth.
We may not be able to raise adequate capital to finance our currently planned business strategy, or we may be able to do so only on terms that significantly restrict our ability to operate our business.
Implementation of our business strategy has required a substantial outlay of capital. For example, in March 2004 we paid $967.1 million for the satellites and related assets that we acquired in the Intelsat Americas Transaction. In addition, we made a $50 million deposit on a new satellite, the IA-9 satellite, in March 2004 that will be treated as capital to the extent that we actually incur costs under the procurement agreement for the satellite. Approximately $3 million of the IA-9 deposit was classified as capital expense in 2004. The remainder of the deposit made on the IA-9 satellite is expected to be classified as capital expense in 2005. In connection with the recent IA-7 satellite anomaly, we have delayed to the second or third quarter of 2005 the launch of the IA-8 satellite previously scheduled for December 2004. As a result of this delay, approximately $65 million in deposits for launch insurance for the IA-8 satellite are now expected to be classified as capital expenditures in 2005 instead of 2004. Excluding the portion of the IA-9 deposit and the IA-8 launch insurance deposits that are expected to be classified as capital expense in 2005, we plan to spend approximately $85 million in 2005 for capital expenditures. As we pursue our business strategies and seek to respond to opportunities and trends in our industry, our actual capital expenditures may differ from our expected capital expenditures. Other than in connection with the Acquisition Transactions, the repurchase of a portion of the outstanding preferred shares of Intelsat 1 Holdings and the repayment of Intelsat’s $200 million in Eurobond 8 /8% notes due 2005, which we refer to as the 2005 Eurobond Notes, which have all been completed, we expect that the majority of our liquidity requirements in 2005 will be satisfied by cash on hand and cash generated from our operations. However, if we determine we need to obtain additional funds through external financing and are unable to do so, we may be prevented from fully implementing our business strategy.
The availability and cost to us of external financing depend on a number of factors, including our credit rating and financial performance and general market conditions. Both our credit rating, which was most recently downgraded by Moody’s in February 2005 and by Standard & Poor’s in January 2005, and our ability to obtain financing generally may be influenced by the supply and demand characteristics of the telecommunications sector in general and of the FSS sector in particular. Declines in our expected future revenue under contracts with customers and challenging business conditions faced by our customers are among the other factors that may adversely affect our credit. Other factors that could impact our credit rating include the amount of debt in our capital structure, activities associated with our strategic initiatives, our expected future cash flows and the capital expenditures required to execute our business strategy. The overall impact on our financial condition of any transaction that we pursue may be negative or may be negatively perceived by the financial markets and ratings agencies and may result in adverse rating agency actions with respect to our credit rating. A credit rating downgrade or deterioration in our financial performance could limit our ability to obtain financing or could result in any such financing being available only at greater cost or on more restrictive terms than might otherwise be available.
The agreements entered into to obtain financing for the Acquisition Transactions as well as the agreements entered into in connection with the Transfer Transactions, as defined in this annual report, impose restrictions on us that limit our flexibility in conducting our business and implementing our strategies. For example, the Senior Secured Credit Facilities (as defined below) contain financial and operating covenants that, among other things, require us to maintain financial coverage ratios and limit our ability to pledge our assets as security for additional borrowings. These restrictions make it more difficult for us to obtain further external financing if we require it and could significantly restrict our ability to operate our business.
We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness.
We have a significant amount of indebtedness. As of December 31, 2004, our total indebtedness was approximately $1.9 billion. An additional $2.7 billion in indebtedness was incurred in connection with the Acquisition Transactions in January 2005 and an additional $478.7 million due at maturity of the Discount Notes, as defined in this annual report, that were issued in February 2005 yielding approximately $300 million net proceeds at issuance to finance the repurchase of a portion of the outstanding preferred shares of Intelsat Holdings.
Our substantial indebtedness could:
• make it more difficult for us to satisfy our obligations with respect to our indebtedness;
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• require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for working capital,
capital expenditures, acquisitions and other general corporate purposes;
• limit our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
• limit our ability to engage in strategic transactions or implement our business strategy;
• limit our ability to borrow additional funds; and
• place us at a disadvantage compared to any competitors that have less debt.
Any of the factors listed above could materially and adversely affect our business and results of operations. If we do not have sufficient cash flow to service our debt, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do.
In spite of our current indebtedness levels, we may incur additional debt. If we incur additional indebtedness, the related risks, including those described above, could intensify.
We may experience a launch failure or other satellite damage or destruction during launch, which could result in a total or partial satellite loss. A new satellite could also fail to achieve its designated orbital location after launch. Any such loss of a satellite could negatively impact our business plans and could reduce our revenue.
We may experience launch failures with respect to future satellites that could result in the partial or total loss of a satellite. Satellite construction and launch involve complex processes and technology, and we rely on contractors for both the manufacture and the launch of our satellites. Even if launched into orbit, a satellite may fail to enter into its designated orbital location or we may use more fuel than planned to place a satellite into its orbital location and, as a result, reduce the orbital maneuver life of the satellite.
Since 1975, we and our predecessor, the IGO, have launched 52 satellites. Five of these 52 satellites were destroyed as a result of launch failures. In addition, one of these 52 satellites did not achieve the correct orbit upon its launch but was later rescued and placed into the correct orbit. We also experienced several launch failures during the 1960s and early 1970s. Launch failure rates vary according to the launch vehicle used.
The loss of a satellite due to a launch failure could result in significant delays in revenue anticipated to be generated by the satellite. The construction of a satellite can take two years or longer. Even after the satellite has been manufactured, an appropriate launch date may not be available at that time. Any significant delay in the commencement of service of a satellite due to a launch failure would delay and could potentially permanently reduce the revenue anticipated to be generated by the satellite and could give customers who have purchased or reserved capacity on that satellite a right to terminate their service contracts relating to the satellite. We may not be able to accommodate affected customers on other satellites until a replacement satellite is available. A customer’s termination of its service contracts with us as a result of a launch failure would reduce our contracted backlog. Delay caused by launch failures may also preclude us from pursuing new business opportunities and undermine our ability to implement our business strategy.
We may experience in-orbit satellite failures or degradations in performance that could impair the commercial performance of our satellites, which could lead to lost revenue, an increase in our cash operating expenses, lower operating income or lost backlog.
Satellites utilize highly complex technology and, accordingly, are subject to in-orbit failures after they have been successfully put into operation. Potential in-orbit failures that could affect our satellites include circuit and transponder failures and solar array and battery cell failures. Other potential failures include satellite control system failures and propulsion system failures. Failures can result from manufacturing errors or operational errors and can degrade performance, reduce available capacity or decrease the orbital maneuver lives of the affected satellites. Electrostatic or solar storms and collision with space debris or micro-meteoroids could also damage our satellites. We may experience future failures or performance degradation on any of our satellites as a result of any of these or other events.
We have experienced some technical problems with our current satellite fleet. Most of these problems have been component failures and anomalies, such as the failure of several battery cells on our IS-706 and IS-709 satellites, damage to the north solar array
11 Table of Contents structure of our IS-801 satellite, the central processing unit failures on the IA-6 satellite and a recent anomaly in the north electrical distribution system of the IA-7 satellite described elsewhere in this annual report. We participated in a failure review board with manufacturer Space Systems/Loral, Inc., referred to as SS/L, to investigate the cause of the IA-7 satellite anomaly. While the board is expected to issue its final report later this month, the board has identified the likely root cause of the anomaly. This likely root cause is a design flaw that is affected by a number of parameters and in some extreme cases can result in an electrical system anomaly. This design flaw exists on two of our satellites – IA-7 and IA-6. In addition, our IS-804 satellite recently experienced a sudden and unexpected electrical power system anomaly that resulted in the total loss of the satellite. Because our satellites are designed to accommodate an anticipated rate of equipment failure, other than the partial loss of the IA-7 satellite and the loss of the IS-804 satellite, the technical problems experienced with the satellites in our fleet have not had a significant impact on the overall transponder availability in our satellite fleet to date. However, this may not continue to be the case. Our satellites may experience technical problems in the future related either to the component failures or anomalies that have already occurred or to other failures. As described elsewhere in this annual report, the design flaw that the IA-7 failure review board determined was the likely root cause of the IA-7 electrical system anomaly exists on both IA-7 and IA-6. If any of our satellites suffers a total or partial loss, our ability to generate revenue from the affected satellite may be permanently reduced or eliminated. Additionally, such a total or partial loss may increase our cash operating expenses to the extent we are required to reposition ground equipment in connection with moving customers to other satellites, and to the extent we are required to lease additional capacity on satellites we do not own to maintain service to our customers that were leasing capacity on the affected satellite. Further, to the extent any such total or partial loss is uninsured or less than fully insured, any resulting charge, write-down or write-off would negatively impact our operating income. Our backlog may also be negatively impacted if any such total or partial loss results in the termination of customer contracts.
Insurance for the in-orbit operations of our satellites and for future satellite launches will not protect against all satellite-related losses. We have in-orbit insurance coverage on only one of our satellites, which we do not expect to renew. A total loss of a satellite could have a material adverse effect on our business.
We currently insure the in-orbit operations of only one of our 27 satellites, which number excludes the IS-804 satellite we recently lost. Accordingly, we would have to bear the entire cost of any loss to the 26 satellites for which we do not have in-orbit insurance coverage. For example, the IA-7 satellite and the IS-804 satellite, which recently experienced anomalies as described in this annual report, were not insured, and we recorded a non-cash impairment charge of approximately $84 million during the fourth quarter of 2004 to write down the net book value of the IA-7 satellite, and we expect to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the net book value of the IS-804 satellite. Other than the loss of the IS-804 satellite, the net book value as of December 31, 2004 of the 26 satellites for which we do not currently have in-orbit insurance coverage was $2.6 billion. Under the terms of the insurance policy covering our IS-10-02 satellite, which covers the satellite through June 17, 2005 at which time we do not intend to renew the policy, we co-insure approximately $55 million relating to our IS-10-02 satellite. This amount includes the portion of the net book value of the satellite, excluding capitalized performance incentives, corresponding to the portion of the satellite that we own after the sale of 18 Ku-band transponders, measured in 36 MHz equivalent units, to Telenor Inma AS, referred to as Telenor, and the net book value of ground network costs relating exclusively to the satellite. Accordingly, if any significant loss occurred to the IS-10-02 satellite, we would bear the cost up to the amount that we co-insure.
We have in place insurance to cover the launch and 180 days of in-orbit operations of the IA-8 satellite in an amount approximating the net book value of the satellite. This insurance will expire if the satellite is not launched before December 31, 2005.
Even where we have obtained launch and in-orbit insurance for a satellite, this insurance coverage will not protect against all losses to the satellite. Our current insurance policies contain specified exclusions and material change limitations. These exclusions relate to losses resulting from acts of war, insurrection or military action, as well as lasers, directed energy beams, or nuclear or anti-satellite devices. These exclusions also relate to losses resulting from government confiscation and nuclear reaction or radioactive contamination. Material change limitations may be invoked in policies for satellites yet to be launched that permit insurers to renegotiate existing terms and conditions because of changes to the risk associated with the insured satellite or anomalies occurring on similar satellites before risk attaches at launch. In addition, our insurance does not protect us against lost or delayed revenue, business interruption or lost business opportunities. The total or partial loss of an uninsured satellite would cause us to recognize a loss equal to the book value of any such total loss or, in the case of a partial loss, equal to the proportion of the satellite’s book value corresponding to such partial loss.
We also maintain third-party liability insurance. This insurance may not be adequate or available to cover all third-party liability damages that may be caused by any of our satellites, and we may not in the future be able to renew our third-party liability coverage on reasonable terms and conditions, if at all.
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Compliance with the Sarbanes-Oxley Act is likely to increase our operating expenses. If we fail to comply with the Sarbanes-Oxley Act, our business could be materially adversely affected.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, have required, and will require, changes to some of our corporate governance practices. These changes include developing financial and disclosure processes that satisfy Section 404 of the Sarbanes-Oxley Act. We expect that these new rules and regulations will increase our legal and financial compliance costs and will make some activities more difficult, time consuming and costly. We also expect that these new rules and regulations could make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and to attract and retain qualified executive officers. If we are unable to comply with the Sarbanes-Oxley Act and related rules and regulations, our business could be materially adversely affected.
We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Intelsat and certain of its subsidiaries are Bermuda-based companies, and we believe that a significant portion of the income derived from our communications network will not be subject to tax in Bermuda, which currently has no corporate income tax, or in other countries in which we conduct activities or in which our customers are located, including the United States and the United Kingdom. However, this belief is based on the anticipated nature and conduct of our business, which may change. It is also based on our current position under the tax laws of the countries in which we have assets or conduct activities. This position is subject to review and possible challenge by taxing authorities and to possible changes in law that may have retroactive effect. For example, we and our non-U.S. subsidiaries intend to conduct our operations (and believe we have conducted our operations to date) so that we and our non-U.S. subsidiaries will not be (and have not been) engaged in a trade or business within the United States and will not earn (and have not earned) income effectively connected with such a business that would be subject to U.S. federal income tax. However, the U.S. Internal Revenue Service may conclude that we and our non-U.S. subsidiaries have engaged in a trade or business within the United States. Such a determination could result in a substantial unanticipated tax liability for us.
In January 2001, the U.S. Department of the Treasury issued proposed regulations with respect to the source of international communications income. If the regulations are adopted in the form proposed, and if 50% or more of our ordinary shares are owned by U.S. persons, we may become subject to U.S. tax on a substantial portion of our income that is currently not subject to such taxation, possibly even if we are not found to have engaged in a trade or business within the United States.
The extent to which certain taxing jurisdictions may require us to pay tax or to make payments in lieu of tax cannot be determined in advance. In addition, our operations and payments due to us may be affected by changes in taxation, including retroactive tax claims or assessments of withholding on amounts payable to us or other taxes assessed at the source, in excess of the taxation we anticipate based on business contacts and practices and the current tax regimes. Our results of operations could be materially adversely affected if we become subject to a significant amount of unanticipated tax liabilities.
We are subject to risks due to the unique international nature of our operations.
We provide communications services in over 200 countries and territories, and we believe that this fact distinguishes us from other satellite operators. Accordingly, we may be subject to greater risks than other satellite operators as a result of the international nature of our business operations. We could be harmed financially and operationally by tariffs, taxes and other trade barriers that may be imposed on our services, or by political and economic instability in the countries in which we provide service. If we ever need to pursue legal remedies against our customers or our business partners located outside of Bermuda, the United States or the United Kingdom, it may be difficult for us to enforce our rights against them.
Almost all of our customers are required to pay for our services in U.S. dollars. Fluctuations in the value of non-U.S. currencies may make payment in U.S. dollars more expensive for our non-U.S. customers. In addition, our non-U.S. customers may have difficulty obtaining or exporting U.S. currency due to currency exchange controls. For example, the Argentine government has from time to time imposed restrictions on the remittance of payments abroad. Any such restrictions or any events relating to political uncertainty in Argentina or other countries could put some of our backlog represented by contracts with, or receivables due from, customers in these countries at risk.
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We are dependent on services provided by SS/L and its ability to retain highly skilled employees in order provide orbit raising and in-orbit testing for the IA-8 satellite and to complete construction of a new satellite that we have ordered from SS/L.
In connection with our acquisition from Loral Space and Communications Corporation and certain of its affiliates, referred to as Loral, of the IA-8 satellite, we entered into an amended and restated agreement with SS/L relating to the manufacture of IA-8. Pursuant to this agreement, we will rely on SS/L for orbit raising and in-orbit testing for the IA-8 satellite, which we currently expect to launch during the second or third quarter of 2005. If SS/L fails to perform its obligations under the agreement, we may be required to engage an alternative service provider and may incur unexpected costs in connection with the launch and commencement of commercial operations of the IA-8 satellite. In addition, the launch and commencement of commercial operations of the satellite could be delayed. We have also entered into a procurement agreement with SS/L for our new IA-9 satellite. If SS/L fails to perform its obligations under this procurement agreement, construction of the new satellite may not be completed on a timely basis or at all. At the time of the closing of the Intelsat Americas Transaction, we made a deposit of $50 million as prepayment for a portion of the purchase price of this new satellite. SS/L’s obligations under this procurement agreement have been secured by SS/L’s and its affiliates’ interests in an in-orbit satellite, insurance proceeds relating to the satellite and other collateral. If SS/L fails to perform its obligations under the procurement agreement, we may not be able to recover our cash deposit and may be forced to foreclose on the collateral. The in-orbit satellite that is part of our collateral has experienced technical problems, and SS/L has filed an insurance claim relating to these problems. Although we expect that the insurance proceeds assigned to us as part of the collateral will be sufficient to protect our interests, there has been no final resolution of SS/L’s insurance claim. Accordingly, if we are required to foreclose on the collateral, we may not be able to realize the full expected value of the collateral.
Our Investors control us and may have conflicts of interest with us in the future.
The Investors, as defined in this annual report, together with certain members of our existing and prospective management, beneficially own 100% of Intelsat Holdings, which owns Intelsat. As a result, the Investors have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders. For example, the Investors could cause us to make acquisitions that increase the amount of our indebtedness. Additionally, the Investors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. The Investors may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as the Investors continue to own a significant amount of the equity of Intelsat Holdings, they will continue to be able to strongly influence or effectively control our decisions.
Risk Factors Relating to Our Privatization
We believe that our business realized certain advantages as a result of being operated by the IGO. Our business no longer enjoys these advantages following the privatization.
Prior to July 18, 2001, our business was operated by the IGO. We believe that our business realized advantages as a result of being operated by the IGO. The loss of these advantages upon our privatization may adversely affect our business.
The IGO’s owners held investment share in the IGO and were the IGO’s principal customers. Our shareholders prior to the consummation of the Acquisition Transactions, most of which were the IGO’s owners before privatization, accounted for approximately 78% of our revenue in 2002, 53% in 2003 and 43% in 2004. Because the IGO’s owners were able to purchase investment share in the IGO based on their percentage use of the IGO’s satellite system, many of our customers had an incentive to use the IGO’s system. As a result, being operated as an IGO may have provided a competitive advantage to our business. Because ownership of our ordinary shares is no longer connected to our customers’ use of our system, our customers may increase their use of the systems of other telecommunications services providers, which could negatively impact our future revenue and profitability. This risk may be exacerbated as a result of the Acquisition Transactions, as these shareholder customers will no longer have any equity ownership of us.
Some provisions of the service agreements we entered into with customers as part of our privatization are unfavorable to us.
In connection with our privatization, we entered into various contractual arrangements with our customers that contain provisions unfavorable to us. These contractual arrangements may limit our flexibility in marketing our services and introducing new service offerings. We have agreed to provide most favored customer, or MFC, protection for the customer service commitments that were transferred from the IGO to our Intelsat Global Sales subsidiary pursuant to novation agreements. Approximately 23% of the outstanding customer commitments represented in our December 31, 2004 backlog was MFC-protected. From the date of our
14 Table of Contents privatization through December 31, 2004, our MFC terms had resulted in a cumulative negative impact on revenue and backlog of approximately $200,000. MFC protection continues for up to five years after July 18, 2001.
We have also agreed to provide price protection for some of our customers, primarily those from low income or low teledensity countries, pursuant to lifeline connectivity obligation, or LCO, contracts. Approximately 11% of the outstanding customer commitments represented in our December 31, 2004 backlog are LCO-protected. LCO protection can continue until July 18, 2013.
We also agreed to enter into non-exclusive service distribution agreements with our customers who wanted to be authorized distributors of services after privatization. The distribution agreements place conditions on our ability to engage in some types of retail activities during the initial five-year term of the agreements. Because customers have the option of renewing the initial five-year term of a distribution agreement for another five years, we may be subject to these non-discriminatory treatment restrictions for up to ten years after July 18, 2001.
Because the contractual restrictions described above limit our flexibility in the operation of our business and the execution of our business strategy, they could have a material adverse effect on our ability to compete effectively and to implement our business strategies.
Risk Factors Relating to Regulation
Successful deployment and operation of our satellites depend upon our ability to maintain existing regulatory authorizations to operate our satellites at certain locations and to obtain any required authorizations in the future. If we do not obtain all of the authorizations necessary to complete our satellite deployment plans on schedule, we will not be able to implement our business strategy and expand our operations as we currently plan.
The operation of our existing and currently planned satellites is regulated by the Federal Communications Commission, referred to as the FCC, with two exceptions. Specifically, the BSS portion of our Ku-band operations on one satellite is regulated by the U.K. Office of Communications, referred to as Ofcom, and our C-band operations on another satellite are regulated by the Papua New Guinea Telecommunication Authority, referred to as PANGTEL. We have obtained authorizations from the FCC to operate our existing satellites and to construct, launch and operate our planned additional satellites. FCC authorization for our existing and currently planned satellites is conditioned on our compliance with the requirements of the ORBIT Act, described in the risk factor below.
In addition, some of our existing FCC licenses are subject to Section 310(b)(4) of the Communications Act of 1934, as amended, which requires FCC approval of indirect non-U.S. ownership in our FCC-licensed subsidiaries in excess of 25%. In a December 22, 2004 order approving the Acquisition Transactions, the FCC reviewed the level of non-U.S. ownership of our company that existed upon closing of the Acquisition Transactions and determined that such ownership is not inconsistent with the public interest. In addition, the FCC stated that our FCC-licensed subsidiaries may accept up to and including an additional 25% indirect equity and/or voting interest from Intelsat Holdings’ current foreign investors and from other foreign investors, subject, however, to the condition that no single non-U.S. individual or entity (other than Intelsat Holdings) may acquire a greater-than-25% indirect equity and/or voting interest in our FCC-licensed subsidiaries without prior FCC approval. We are also required to seek prior FCC approval before any investor that is not from a World Trade Organization, referred to as the WTO, member country acquires equity or voting interests in our company that, when aggregated with the current ownership in our company by investors from non-WTO member countries, exceeds 25%. Currently, less than 5% of our equity is indirectly held by individuals or entities from non-WTO member countries, including WTO observer countries. We monitor the non-U.S. ownership in our company and would, if necessary, periodically seek FCC approval that the non-U.S. ownership of our company is not inconsistent with the public interest. However, if we fail to obtain such approvals and we exceed the non-U.S. ownership limitations described above, then if the FCC determines that such ownership is inconsistent with the public interest, the FCC could revoke or condition authorizations to operate our existing satellites and to construct, launch and operate our planned additional satellites. Prior to consummation of the Transfer Transactions, we were required to obtain, and have obtained, a ruling from the FCC that the level of non-U.S. ownership resulting from the consummation of certain of the Transfer Transactions is not inconsistent with the public interest.
If we do not maintain FCC, PANGTEL or Ofcom authorizations for our existing and currently planned satellites or do not obtain any required authorizations in the future, we would not be able to operate the satellites covered by those authorizations unless we obtained authorization from another licensing jurisdiction. If we do not maintain our existing FCC authorizations, we may not be able to continue as a going concern.
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The FCC reserves the right to require a satellite to be relocated to a different orbital location if it determines that relocation is in the public interest. In addition, if we do not place a satellite into service in a designated orbital location by the deadline set by the FCC, our rights to this orbital location could expire or be revoked by the FCC. The satellites in our fleet receive and transmit signals using two portions of the electromagnetic spectrum, called the C-band and the Ku-band, and the Marisat-F2 satellite transmits and receives signals in the UHF-band, L-band and C-band. Our currently planned satellites will be able to receive and transmit signals using the C- and Ku-bands, and one of these satellites will also be able to use a portion of the electromagnetic spectrum called the Ka-band. The C-band refers to a range of frequencies in this spectrum from approximately 3,420 MHz to 6,650 MHz, and the Ku-band refers to frequencies from approximately 10,950 MHz to 14,500 MHz. The Ka-band refers to frequencies from approximately 17,700 MHz to 30,000 MHz. If we lose our rights to any of our orbital locations licensed by the FCC, such locations could become available for use by another satellite operator. Similarly, if we lose our rights to our orbital location licensed by PANGTEL or orbital locations licensed by Ofcom, those locations could become available for use by another satellite operator. We cannot operate our satellites without a sufficient number of suitable orbital locations in which to place the satellites. The loss of one or more of our orbital locations or frequency assignments licensed by the FCC, PANGTEL or Ofcom could negatively affect our plans and our ability to implement our business strategy. Loss of an orbital location could cause us to lose the revenue from services located at that orbital location to the extent these services cannot be provided by satellites at other orbital locations.
If we fail to meet the requirements of the ORBIT Act, the FCC could limit or deny our applications for satellite licenses or could limit the use of our satellite capacity for certain types of services. Moreover, because FCC authorizations for our existing satellites are conditional, our failure to comply with the requirements of the ORBIT Act could result in the breach of covenants contained in our debt instruments. As a result, our revenue and the value of our business could be significantly adversely impacted.
The ORBIT Act sets forth criteria that the FCC must evaluate in considering our license and renewal applications and in connection with customer requests for authorization to use our satellite capacity to provide “non-core services” to, from or within the United States and to provide “additional services.” “Non-core services” are defined in the ORBIT Act as any services other than public-switched voice telephony and occasional use television, and “additional services” are defined as direct-to-home or direct broadcast satellite video services or services in the Ka- or V-band.
Prior to a recent amendment, one of the statutory criteria required us to conduct an initial public offering that “substantially dilutes” the ownership interest in us held by the IGO’s former Signatories by June 30, 2005, which the FCC may extend until December 31, 2005, and to list our shares for trading on one or more major stock exchanges with transparent and effective securities regulation. Pursuant to an amendment to the ORBIT Act that became law in October 2004, we may now forgo an initial public offering and a listing of our shares and still achieve the purposes of the ORBIT Act if we certify to the FCC that, among other things, we have achieved substantial dilution of the aggregate amount of financial interest held or controlled by the IGO’s former Signatories and the FCC determines, after notice and comment, that we are in compliance with this certification. Because the existing financial interests of the IGO’s former Signatories were eliminated upon the closing of the Acquisition Transactions, we believe these transactions satisfy the requirements set forth in the ORBIT Act, as amended. On December 23, 2004, Intelsat filed with the FCC the certification required by the ORBIT Act and a petition for declaratory ruling seeking an FCC determination that we are in compliance with the certification requirements of the ORBIT Act. The FCC established deadlines of February 14, 2005, and March 1, 2005, for interested parties to file comments on the petition for declaratory ruling. Two parties filed comments in support of and one party opposed the petition. We filed a reply to the comments in opposition. We cannot be certain how or when the FCC will rule on the petition for declaratory ruling.
If the FCC determines that we have failed to comply with the ORBIT Act, the ORBIT Act directs the FCC to impose limitations on or deny our applications for satellite licenses and for the renewal of satellite licenses, as well as to limit or revoke previous authorizations to use our satellite capacity to provide non-core services to, from or within the United States. The FCC may also deny licensing for additional services in the United States. If we were prevented from providing capacity for non-core services or additional services, our revenue and the value of our business would be significantly adversely impacted. In 2004, we estimate that revenue derived from the use of capacity on the IS and IA satellites for services that could be characterized as non-core services or additional services was approximately $280 million. However, this amount could be higher based on interpretations of the ORBIT Act. We would also be unable to implement important aspects of our business strategy, including our strategy to expand our customer base for video applications. Our failure to comply with the requirements of the ORBIT Act, as amended, could result in the breach of covenants that are contained in or constitute a default under our existing debt instruments or under any future debt instruments.
In connection with our authorization from the FCC relating to the Intelsat Americas Transaction, in February 2004, the FCC interpreted the ORBIT Act to authorize it to preclude us from providing certain “additional services” that we did not provide prior to
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March 17, 2000, the effective date of the ORBIT Act, until we have conducted an initial public offering meeting the requirements of the ORBIT Act. Consequently, the FCC’s authorization relating to this transaction prohibits our Intelsat North America LLC subsidiary from using the Intelsat Americas satellites to provide capacity for direct-to-home services, referred to as DTH services, until we are deemed to have satisfied the initial public offering requirements of the ORBIT Act. However, the FCC has granted Intelsat North America LLC special temporary authority that allows it to continue to provide services to DTH providers pursuant to the customer contracts we acquired in the Intelsat Americas Transaction until April 13, 2005. In March 2004, SES filed an application for review of the FCC’s order relating to the Intelsat Americas Transaction requesting, among other things, that the FCC vacate this special temporary authority. If the FCC’s decision on SES’ application is adverse to us, the FCC could revoke this special temporary authority. In addition, if we are not deemed to have satisfied the initial public offering requirements of the ORBIT Act before the expiration of this special temporary authority, we could be prevented from providing services to DTH providers pursuant to the customer contracts we acquired in the Intelsat Americas Transaction beyond April 13, 2005. In order to continue to provide these services, we would have to obtain from the FCC an extension of this special temporary authority or the FCC would have to reverse its decision to prohibit Intelsat North America LLC from using the satellites acquired from Loral to provide services to DTH providers until we are deemed to have satisfied the initial public offering requirements of the ORBIT Act. If the FCC denies our request for an extension or determines that we have failed to comply with the ORBIT Act, we would no longer be authorized to provide services to DTH providers under the customer contracts we acquired in the Intelsat Americas Transaction. We believe that approximately $20 million of the revenue generated by the IA satellites in 2004 was from the provision of services to DTH providers pursuant to these contracts.
The results of any International Telecommunication Union satellite registration process may interfere with our use of orbital locations for our future satellites or prevent us from operating satellites in those orbital locations as contemplated by our business plan. Also, our rights to orbital locations may change or expire.
We are required to coordinate the use of our satellites at particular orbital locations as part of the satellite registration process of the International Telecommunication Union, referred to as the ITU, in order to prevent interference between our satellite system and other existing or planned satellite systems. We must also submit by specified deadlines due diligence and other information required by the registration process. The ITU’s Radio Regulations do not contain mandatory dispute resolution or enforcement mechanisms and we must rely on the governments of the United States, the United Kingdom, Papua New Guinea and Germany to represent our interests before the ITU, including obtaining new rights to use orbital locations, coordinating frequency use and resolving disputes relating to the ITU’s rules and procedures. Consequently, the registration process may negatively impact our ability to provide the services we intend to provide using a satellite located at a given orbital location. In addition, the registration process may result in modifications of our proposed coverage areas or satellite deployment plans. We may be required to accept modifications that significantly restrict our use of a particular orbital location, possibly to the extent that our use of the orbital location would no longer be financially viable. Moreover, the registration of our future satellites may not be successful and may not allow us to operate our satellites in accordance with our desired satellite deployment plans.
In accordance with the ITU’s Radio Regulations, the FCC has reserved on our behalf rights to 27 C-band and Ku-band orbital locations, including rights to four orbital locations acquired in the Intelsat Americas Transaction, and rights to one C-band, Ku-band and Ka-band location acquired in the Intelsat Americas Transaction. In addition, in the Intelsat Americas Transaction, we acquired rights to operate in the C-band at a sixth orbital location that are reserved by PANGTEL. Finally, as a result of the COMSAT General Transaction, we acquired the rights to operate UHF-band, L-band and C-band at one additional orbital location. Our in-orbit satellites do not currently occupy all of these orbital locations. If we are unable to place satellites into currently unused orbital locations by specified deadlines and in a manner that satisfies ITU or FCC requirements, or if we are unable to maintain satellites at the orbital locations that we currently use, we may lose our rights to use these orbital locations and the locations could become available for other satellite operators to use. As noted above, we cannot operate our satellites without a sufficient number of suitable orbital locations in which to place the satellites. The loss of one or more of our orbital locations or frequency assignments licensed by the FCC, PANGTEL, Ofcom or RegTP, the German regulatory authority for telecommunications and posts, could significantly affect our plans and impact our ability to implement our business strategy. Such a loss could therefore have a material adverse effect on our revenue and profitability, as well as on the value of our business.
Ofcom is responsible for our filings with the ITU for the rights to use the Ka-band at six orbital locations, C-band at five of these same locations, Inter-satellite Link bands at four of these same locations and Ku-band FSS at three of these same orbital locations. We are not currently utilizing any of the filings under Ofcom’s responsibility. Ofcom is also responsible for our ITU filings for the rights to use the BSS portion of the Ku-band at six orbital locations. We have not yet notified the Ku-band BSS filings made on our behalf by Ofcom at two of these locations and have notified and deployed only some of the frequencies covered by these filings at the remaining locations. Under the ITU’s Radio Regulations, which Ofcom applies to satellite operators subject to its jurisdiction, we
17 Table of Contents must notify the filings made on our behalf and deploy the corresponding satellite by specified deadlines or we will lose rights to the associated orbital locations. We are required to use the Ka-band at five of our orbital location under Ofcom’s responsibility by February 2008 and at the remaining orbital location by August 2008. One of the five orbital locations with Ka-band filings expiring in February 2008 also has a more senior filing expiring in October 2005, and five of the six orbital locations have more senior filings for the upper 1 GHz of the Ka-band (up and down links) expiring in May 2007. We are required to use the C-band at the five C-band orbital locations under Ofcom’s responsibility by March 2006. With respect to three of these orbital locations we also have C-band filings that allow deployment in this band by as late as February 2008. We are required to use the Inter-satellite Link bands at the four respective orbital locations under Ofcom’s responsibility by October 2005. Finally, we are required to use the Ku- band FSS at the three orbital locations under Ofcom’s responsibility by February 2008. We are required to use our Ku-band BSS filings by August 2005. If we do not notify and deploy any Ka-band, Ku-band BSS, Ku-band FSS, Inter-satellite Link band or C-band satellites capable of transmitting in the unused frequency assignments reserved on our behalf by the specified dates, we may lose our rights to these frequency assignments. We may decide not to deploy any such Ka-band, Ku-band BSS, Ku-band FSS, Inter- satellite Link band or C-band satellites at all. Even if we do decide to deploy one or more such satellites, we may not be able to manufacture and launch any of them before the expiration of our rights. If we lose our rights to use these frequency assignments and orbital locations, they would then become available for use by other satellite operators.
RegTP is responsible for our filings with the ITU for the rights to use the UHF- and X-bands at three locations and Ka-band at two of the same locations. We are not currently utilizing any of the UHF-, X- and Ka-band filings under RegTP’s responsibility. We are required to use the UHF-, X- and Ka-bands at the locations under RegTP’s responsibility by February 2010. If we do not notify and deploy any UHF-, X- or Ka-band satellites capable of transmitting in the unused frequency assignments reserved on our behalf by the specified dates, we may lose our rights to these frequency assignments. We may decide not to deploy any such UHF-, X- or Ka-band satellites at all. Even if we do decide to deploy one or more such satellites, we may not be able to manufacture and launch any of them before the expiration of our rights. If we lose our rights to use these frequency assignments and orbital locations, they would then become available for use by other satellite operators.
We are subject to regulatory and licensing requirements in each of the countries in which we provide services, and our business is sensitive to regulatory changes in those countries.
The telecommunications industry is highly regulated, and, in connection with operating our business, we need to obtain various local, national and international regulatory approvals from time to time. If we cannot comply with the laws and regulations that apply to us, we could lose our revenue from services provided to the countries and territories covered by these laws and regulations.
Before privatization, our operations were limited primarily to providing wholesale satellite capacity to our customers, and we did not provide any ground network uplinks, downlinks or other value-added services. Pursuant to our business strategy, we have expanded our operations to provide these services for some of our customers, and accordingly have become subject to additional regulatory requirements. If we cannot obtain or are delayed in obtaining the regulatory approvals needed to provide new services to our customers and to engage in these operations, we may not be able to implement elements of our business strategy according to our current schedule. If we are not able to expand into new services and operations, or are significantly delayed in doing so, the revenue associated with these new services will also be delayed or may not be realized at all.
We also need to maintain our existing regulatory approvals, and from time to time obtain new regulatory approvals, in connection with the satellite and other services that we provide to our customers. We are subject to the regulatory and licensing requirements of each of the countries in which we provide our services, as well as to certain international regulatory regimes. For example, we are subject to and need to comply with:
• the laws and regulations administered by the FCC;
• other U.S. laws and regulations, including U.S. export control laws and U.S. sanctions regulations;
• regulation by the Bermuda Monetary Authority and the Minister of Finance of Bermuda and other Bermuda laws and regulations;
• regulation by the U.K.’s Ofcom;
• regulation by PANGTEL;
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• regulation by RegTP;
• the economic sanctions imposed by the United Nations;
• licensing regulations in countries in which we operate our own earth stations;
• the ITU satellite registration process; and
• the laws and regulations of the over 200 countries and territories in which we provide our services.
Obtaining and maintaining these approvals can involve significant time and expense. If we fail to obtain particular regulatory approvals, this failure may delay or prevent our ability to provide services to our customers. In addition, the laws and regulations to which we are subject could change at any time. The countries, territories and institutions that regulate us could adopt new laws, policies or regulations or change their interpretation of existing laws, policies or regulations at any time. Any of these changes could make it more difficult for us to obtain or maintain our regulatory approvals or could cause our existing authorizations to be revoked or terminated. If we fail to obtain regulatory authorizations important to our current business or our business strategy, this failure could result in decreased revenue, increased costs and a decline in our profitability.
Finally, we are subject to fees associated with the regulatory and licensing requirements discussed above. The countries, territories and institutions that regulate us could change these fees at any time. Significant increases in the fees to which we are subject in a particular jurisdiction could negatively impact our plans to provide services in that jurisdiction or our profitability.
If we do not maintain our existing authorizations or obtain necessary future authorizations under the export control laws and regulations of the United States, we may be unable to export technical information or equipment that we are required to provide to non-U.S. persons and companies under our contracts, including our satellite construction, launch and insurance contracts. Additionally, if we do not maintain our existing authorizations or obtain necessary future authorizations under the trade sanctions laws and regulations of the United States, we may not be able to provide satellite capacity and related administrative services to certain countries subject to U.S. sanctions. Failure to obtain authorizations under the U.S. export control and trade sanctions laws and regulations, or revocation of any of these authorizations, could have a material adverse effect on our business.
Satellites and related equipment, as well as technical information relating to satellites, are regulated under U.S. export control laws and regulations. As a company with subsidiaries located in the United States, we are required to comply with these laws and regulations, and many of our current contracts for the manufacture, launch, operation and insurance of our satellites require the export of satellite hardware or technical information to locations outside of the United States or to non-U.S. persons or companies. U.S. export control laws and regulations require that we obtain a license from the U.S. Department of State’s Directorate of Defense Trade Controls in order to export any satellites or related equipment or technical information to non-U.S. persons or to locations outside of the United States. We also have to obtain licenses from the U.S. Department of Commerce’s Bureau of Industry and Security in connection with the export of certain equipment relating to our satellite network. We have obtained the licenses we currently need in order to export the equipment and information required by our contracts and by our current operations, and we believe that the terms of these licenses are sufficient given the scope and duration of the contracts to which they pertain. However, these licenses could be suspended or revoked for cause. Although we do not currently believe we are at risk of having our current licenses suspended or revoked, the U.S. government could nevertheless determine to suspend or revoke these licenses. In addition, we may not be able, on a timely basis or at all, to renew any licenses that are due to expire but are necessary to our business operations or to obtain any new licenses that we require in the future. The average time it takes to obtain an authorization from the Directorate of Defense Trade Controls or the Bureau of Industry and Security is between 30 and 90 business days, although in specific cases authorization may take longer, and timely receipt of authorizations is often critical to our business operations. There could be delays in the processing of renewal or new license applications that we submit in the future, or our applications could be denied. If in the future we are delayed in obtaining or cannot obtain renewals or new licenses, or if any of the licenses already granted to us are suspended or revoked, it could have a significant negative impact on our ability to acquire new satellites, launch new satellites, insure our satellites or operate the satellites in our network, which would have a material adverse effect on our revenue and profitability.
Many of our employees are non-U.S. nationals. Access to technical information relating to our satellites by these non-U.S. national employees is also regulated by U.S. export control laws and regulations. We have obtained export authorization from the Directorate of Defense Trade Controls to allow all necessary non-U.S. national employees to have access to our technical information that is subject to U.S. export control laws. However, this authorization could be revoked for cause, which could prevent us from
19 Table of Contents obtaining a new authorization in the future. In addition, the authorization requires us to maintain certain internal controls relating to this technical information. If we do not properly manage our internal compliance or if any of our employees violates applicable laws or regulations, we could be exposed to civil and criminal liability or could lose our current export authorization. Because of the broad scope of activities covered by this authorization and the functions performed by our non-U.S. national employees covered by the authorization, the loss of the authorization could materially adversely impact our operations.
In addition, because we conduct management activities from Bermuda, our U.S. suppliers must comply with U.S. export control laws and regulations in connection with their export of satellites and related equipment and technical information to us. Our ability to acquire new satellites, launch new satellites or operate our satellites could also be negatively affected if our suppliers do not obtain required U.S. export authorizations.
Because of our history as an intergovernmental organization prior to privatization, the countries to which we provide satellite capacity include Cuba, Iran and the Sudan. We provide services to these countries pursuant to authorizations that we have received from the U.S. Department of the Treasury’s Office of Foreign Assets Control, referred to as OFAC, as these countries are subject to U.S. trade sanctions. However, these licenses are strictly limited to the provision of public international telecommunications services as defined in the INTELSAT Agreement, which is the treaty that established the IGO. If we were to violate the terms of these authorizations, we could be exposed to criminal and civil liability, or OFAC could suspend or revoke our authorizations to provide services to sanctioned countries, and our business could be adversely affected. Changes in the geopolitical environment could result in the modification or revocation of these OFAC authorizations or the imposition of sanctions on other countries, which could adversely affect our business.
If we do not maintain required security clearances from, and comply with our agreements with, the U.S. Department of Defense, we will not be able to continue to perform our obligations under classified U.S. government contracts.
To be able to participate in classified U.S. government programs, we sought and obtained security clearances for one of our subsidiaries from the U.S. Department of Defense as required under the national security laws and regulations of the United States by entering into a proxy agreement with the U.S. government. If we do not maintain these security clearances, we will not be able to perform our obligations under any classified U.S. government contracts to which our subsidiary is a party, the U.S. government would have the right to terminate our contracts requiring access to classified information and we will not be able to enter into new classified contracts. As a result, our business could be materially adversely affected. Further, if we materially violate the terms of the proxy agreement, which limits our ability to control the operations of this subsidiary, the subsidiary holding the security clearances may be suspended or debarred from performing any government contracts, whether classified or unclassified.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Intelsat is a limited liability company incorporated under the laws of Bermuda. Intelsat was incorporated on December 14, 1999 and is subject to the Companies Act 1981 of Bermuda. Our principal executive offices are located at Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda, and our telephone number is (441) 294-1650.
Immediately before the privatization, the IGO had 148 member states, known as the Parties. The Parties designated certain entities, known as the Signatories, to market and use the IGO’s communications system within their territories and to hold investment share in the IGO. Signatories were either private telecommunications entities or governmental agencies of the applicable Party’s country or territory. Some Signatories authorized certain other entities located within their territories that used the IGO’s satellite system, known as the Investing Entities, to invest in the IGO as well. Both Signatories and Investing Entities made capital contributions to the IGO and received capital repayments from the IGO in proportion to their investment share in the IGO. Signatories and Investing Entities were also the IGO’s principal customers. Each Signatory’s and Investing Entity’s investment share in the IGO was based on its level of use of the IGO’s satellite system as compared to the use by other Signatories and Investing Entities.
As a public intergovernmental organization, the IGO was exempt from various taxes and enjoyed privileges, exemptions and immunities in many of its member states. However, due to its status as an intergovernmental organization, the IGO’s business was subject to certain operating restrictions. For example, the IGO could not own or operate its own earth stations or provide retail services directly to end users in certain countries. It also could not set market-based pricing for its services or engage in business relationships with non-Signatories without first obtaining Signatory approval.
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Our management began contemplating privatization in the mid-1990s in order to be able to operate our business free of the restrictions described above and to better position us to be responsive to a number of commercial, competitive and regulatory forces. In November 2000, the Assembly of Parties unanimously approved our management’s specific plan for our privatization and set the date of privatization for July 18, 2001. On July 18, 2001, substantially all of the assets and liabilities of the IGO were transferred to us.
The privatization required the amendment of the two formal agreements establishing the IGO. These two agreements were the Agreement Relating to the International Telecommunications Satellite Organization “INTELSAT,” known as the INTELSAT Agreement, and the Operating Agreement Relating to the International Telecommunications Satellite Organization “INTELSAT,” known as the Operating Agreement, which both entered into force in February 1973. Because the process to formally ratify the amendments to the INTELSAT Agreement was expected to be lengthy, the IGO’s Assembly of Parties decided to provisionally apply, or rapidly implement, the amendments on a consensus basis with effect from July 18, 2001, pending their formal ratification. See Item 3.D — ”Risk Factors” for a discussion of the risks associated with our privatization. Formal entry into force of the amendments to the INTELSAT Agreement occurred on November 30, 2004.
Upon our privatization, the IGO’s Signatories and Investing Entities became the shareholders of all of the outstanding ordinary shares of Intelsat. Ordinary shares were allocated among the IGO’s Signatories and Investing Entities in proportion to their investment share in the IGO. Each Signatory and Investing Entity that executed and delivered the required privatization agreements, including a shareholders agreement, received shares in Intelsat in proportion to its investment share in the IGO. The ordinary shares allocated to those Signatories and Investing Entities that had not executed and delivered the required privatization agreements by July 18, 2001 were transferred to a trust. These former Signatories and Investing Entities generally may receive their shares in Intelsat once they execute and deliver the required agreements and related documentation.
The IGO, referred to post-privatization as ITSO, will continue to exist as an intergovernmental organization for a period of at least 12 years after July 18, 2001, and then may be terminated by a decision of the Assembly of Parties. Pursuant to an agreement among ITSO and Intelsat and certain of our subsidiaries, we have an obligation to provide our services in a manner consistent with the core principles of global coverage and connectivity, lifeline connectivity and non-discriminatory access, and ITSO monitors our implementation of this obligation.
On August 16, 2004, Intelsat and Intelsat Bermuda entered into a transaction agreement, referred to as the Transaction Agreement, with (i) Intelsat Holdings, (ii) a wholly owned direct Bermuda subsidiary of Intelsat Holdings, which we refer to as Zeus Merger 1, and (iii) a wholly owned direct Bermuda subsidiary of Zeus Merger 1, which we refer to as Zeus Merger 2. Pursuant to the Transaction Agreement, Intelsat Holdings agreed to acquire Intelsat for total cash consideration of approximately $3 billion, with pre-acquisition debt of approximately $2 billion remaining outstanding, and with the shareholders of Intelsat generally being entitled to receive $18.75 per ordinary share. In connection with Intelsat Holding’s acquisition of Intelsat, the following transactions occurred:
• Zeus Merger 1 amalgamated with Intelsat, with the resulting company being a direct wholly owned subsidiary of Intelsat Holdings and being named Intelsat, Ltd.
Upon this amalgamation, Intelsat’s equity holders immediately prior to the amalgamation ceased to hold shares or other equity interests in Intelsat
• Zeus Merger 2 amalgamated with Intelsat Bermuda which at that time was the direct or indirect parent of all of our operating subsidiaries, with the resulting
company being a direct wholly owned subsidiary of resulting Intelsat and being named Intelsat Bermuda
Intelsat Holdings, Zeus Merger 1 and Zeus Merger 2 are Bermuda companies that were newly formed for the purpose of consummating the Acquisition Transactions. As part of the transactions referred to above, the Investors and certain members of our existing and prospective management contributed equity to Intelsat Holdings in the aggregate amount of approximately $515 million.
In addition, in connection with the completion of the Acquisition Transactions, Intelsat Bermuda entered into a $300 million revolving credit facility and borrowed approximately $150 million under a new $350 million Term Loan B facility, referred to together as the Senior Secured Credit Facilities. Intelsat Bermuda also issued $1 billion 1 5 of floating rate senior notes due 2012, $875 million of 8 /4% senior notes due 2013 and $675 million of 8 /8% senior notes due 2015, referred to collectively as the Acquisition Finance Notes. The net proceeds from the borrowings under the Senior Secured Credit Facilities and the Acquisition Finance Notes, together with cash on hand, were used to consummate the transactions described above and to pay related fees and expenses. We refer to the amalgamation of Zeus Merger 1 with Intelsat, the amalgamation of Zeus Merger 2 with Intelsat Bermuda, the borrowings under
21 Table of Contents the Senior Secured Credit Facilities, the issuance of the Acquisition Finance Notes and the related contributions of equity as the Acquisition Transactions.
On February 11, 2005, Intelsat and Zeus Special Subsidiary Limited (which we refer to as Finance Co.) issued $478.7 million in aggregate principal amount at maturity of 9 ¼% Senior Discount Notes due 2015, which we refer to as the Discount Notes yielding approximately $300 million net proceeds at issuance to finance the repurchase of a portion of the outstanding preferred shares of Intelsat Holdings.
On February 28, 2005, Intelsat Bermuda drew $200 million under the $350 million Term Loan B facility to fund the payment of Intelsat’s 2005 Eurobond Notes.
On March 3, 2005, Intelsat Bermuda transferred substantially all of its assets to a newly formed wholly owned subsidiary, Intelsat Subsidiary Holding. Intelsat Subsidiary Holding assumed substantially all of the then-existing liabilities of Intelsat Bermuda and Intelsat Bermuda became a guarantor of the obligations under the Acquisition Finance Notes and the Senior Secured Credit Facilities. Following the Transfer Transactions, Finance Co. was amalgamated with Intelsat Bermuda.
The proceeds of the offering of the Discount Notes, net of certain fees and expenses, were distributed by Intelsat Bermuda to its parent, Intelsat and by Intelsat, to Intelsat Holdings. Intelsat Holdings used those funds to repurchase a portion of the outstanding preferred shares of Intelsat Holdings.
See also Item 4.B — “Business Overview” and Item 5 — “Operating and Financial Review and Prospects” for information regarding our capital expenditures and our history and development generally.
B. Business Overview
We are a leading global provider of fixed satellite services, with customers that include leading telecommunications companies, multinational corporations, Internet service providers, media broadcasters and government/military organizations. Founded in 1964, we have provided communications capacity for milestone events in the 20th century, including transmitting worldwide the video signals of the first moon walk, providing the “hot line” connecting the White House and the Kremlin and transmitting live television coverage of every Olympics since 1968.
Our goal is to connect people and businesses around the world with reliable, flexible and innovative communications services. We supply voice, data and video connectivity in over 200 countries and territories for over 700 customers, many of which we have had relationships with for over 30 years. We operate in an attractive, well- developed segment of the satellite communications industry that is characterized by steady and predictable contracted revenue streams and strong free cash flows, which represent cash flows from operating activities less capital expenditures. In 2003, the fixed satellite service or FSS sector generated revenue of approximately $6.6 billion, and by that measure we were the second largest operator, according to Euroconsult. We generate revenue primarily from leasing capacity on our satellites, which is contracted for periods of up to 15 years. Our backlog, which is our expected actual future revenue under our customer contracts, was approximately $4.0 billion as of December 31, 2004, 99% of which related to contracts that are non-cancellable or cancellable only upon payment of substantial termination fees.
We believe that we have one of the largest, most technologically advanced, flexible and reliable satellite fleets in the world. Our in-orbit satellite fleet, which covers 99% of the world’s population, includes 27 satellites and leased capacity on two additional satellites, excluding our IS-804 satellite and our ownership interest in the Marisat- F2 satellite, which we acquired as part of the COMSAT General Transaction. Many of our satellites have steerable beams that can be reconfigured to provide different areas of coverage, and many of our satellites can be relocated to other orbital locations. The flexibility of our fleet allows us to respond quickly to changes in market conditions and customer demand. During the past 30 years, other than the IS-804 satellite which recently experienced an anomaly that resulted in a total loss, each of the station-kept satellites we launched has exceeded, or is expected to exceed, its design life. Our satellite fleet is operated via ground facilities used to monitor and control our satellites and is complemented by a terrestrial network of teleports, points of presence and leased fiber links for the provision of our managed services.
We have invested heavily in our global communications network over the past several years. Consequently, we expect our capital expenditures to be significantly reduced to maintenance levels in the near to mid term. We are nearing the end of our most recent satellite fleet renewal and deployment cycle, at the completion of which we will have spent approximately $2.6 billion on eight satellites launched since June 2001 and on our IA-8 satellite which is expected to be launched during the second or third quarter of 2005. We have no other satellite launch plans in the near to mid term. We believe that we have one of the youngest satellite fleets in
22 Table of Contents the industry. The average remaining orbital maneuver life was twelve years as of December 31, 2004, weighted on the basis of available capacity for the 22 station-kept satellites of the 27 satellites we own.
Recent Events
On January 28, 2005, Intelsat was acquired by Intelsat Holdings, a Bermuda company, for total cash consideration of approximately $3 billion, with pre-acquisition debt of approximately $2 billion remaining outstanding. Intelsat Holdings was formed at the direction of funds advised by or associated with Apax Partners Worldwide LLP and Apax Partners, Inc., referred to jointly as Apax Partners, Apollo Management V, L.P., referred to as Apollo, MDP Global Investors Limited, referred to as Madison Dearborn Partners, and Permira Advisers LLC, referred to as Permira. Each of Apax Partners, Apollo, Madison Dearborn Partners and Permira is referred to as a Sponsor and the funds advised by or associated with each Sponsor are referred to as an Investor Group. The Investor Groups collectively are referred to as the Investors. Prior to the Acquisition Transactions, funds advised by or associated with Madison Dearborn Partners transferred less than 0.1% of their interest in Intelsat Holdings to an unaffiliated investment partnership. References to the Investors include this partnership.
As part of the transactions referred to above, the Investors and certain existing and prospective members of management purchased preferred and ordinary shares of Intelsat Holdings. In addition, in connection with the Acquisition Transactions our wholly owned subsidiary Intelsat Bermuda established a new $300 million revolving credit facility, borrowed approximately $150 million under a new $350 million Term Loan B facility, referred to together as the Senior Secured Credit Facilities, and issued $1 billion 1 5 of floating rate senior notes due 2012, $875 million of 8 /4% senior notes due 2013 and $675 million of 8 /8% senior notes due 2015, referred to collectively as the Acquisition Finance Notes. On February 28, 2005, Intelsat Bermuda borrowed an additional $200 million under the $350 million Term Loan B facility which was used to fund the payment of our 2005 Eurobond Notes. The Acquisition Finance Notes and the Senior Secured Credit Facilities are guaranteed by Intelsat and certain of its direct and indirect subsidiaries. The proceeds from the Investors’ equity contributions and the net proceeds from the borrowing under the Senior Secured Credit Facilities and the Acquisition Finance Notes, together with cash on hand, were used to consummate the transactions described above and to pay related fees and expenses. Approximately $1.7 billion of Intelsat’s existing debt, which we refer to as the Parent Notes, as well as approximately $54 million of other debt and capital lease obligations, remains outstanding following the Acquisition Transactions and after repayment of the 2005 Eurobond Notes.
On February 11, 2005, Intelsat and Finance Co. issued $478.7 million in aggregate principal amount at maturity of Discount Notes yielding approximately $300 million net proceeds at issuance to finance the repurchase of a portion of the outstanding preferred shares of Intelsat Holdings. On March 3, 2005, Intelsat Bermuda transferred substantially all of its assets to Intelsat Subsidiary Holding. Intelsat Subsidiary Holding assumed substantially all of the then-existing liabilities of Intelsat Bermuda, and Intelsat Bermuda became a guarantor of the obligations under the Acquisition Finance Notes and the Senior Secured Credit Facilities. We refer to these transactions, together with the issuance of the Discount Notes, as the Transfer Transactions. Following the Transfer Transactions, Finance Co. was amalgamated with Intelsat Bermuda, and the entity that survived that amalgamation was Intelsat (Bermuda), Ltd. The proceeds of the offering of the Discount Notes, net of certain fees and expenses, were distributed by Intelsat Bermuda to its parent, Intelsat and by Intelsat to Intelsat Holdings. Intelsat Holdings used those funds to repurchase a portion of the outstanding preferred shares of Intelsat Holdings.
Intelsat Holdings has selected David P. McGlade to succeed Conny Kullman as Chief Executive Officer, or CEO, of Intelsat upon termination of his current employment, which will be no later than March 31, 2005. Mr. McGlade is currently the Chief Executive Officer of O2 UK, the largest subsidiary of mmO2 plc and a leading UK cellular telephone company, and an executive director of mmO2 plc. He will cease to occupy his positions with O2 UK and mmO2 no later than March 31, 2005. It is expected that Mr. Kullman will continue as CEO until the date Mr. McGlade begins his employment as CEO and thereafter will continue to serve as Chairman of the board of directors of Intelsat.
In recent months, we experienced two satellite anomalies that could impact our business. On November 28, 2004, our IA-7 satellite experienced a sudden anomaly in its north electrical distribution system that resulted in the loss of control of the satellite and the interruption of customer services on the satellite. The IA-7 satellite is one of the in- orbit satellites acquired by us from Loral in March 2004 as part of the Intelsat Americas Transaction and covers the continental United States, Alaska, Hawaii, Canada, Central America and parts of South America. The IA-7 satellite is an FS 1300 series satellite manufactured by SS/L, and was launched in September 1999. In accordance with our existing satellite anomaly contingency plans, we made alternative capacity available to all of our IA-7 satellite customers, and most of these customers accepted that capacity. We provided alternative capacity primarily on other satellites in the Intelsat Americas fleet and on the IS-707 satellite, and in some cases using capacity that we leased from other satellite operators. On November 30, 2004, following an intensive recovery effort, our engineers were able to regain command and control of
23 Table of Contents the IA-7 satellite and operation of 22 of its 48 transponders, and we restored some customers to service on the satellite. We do not expect that the anomaly will have a material impact on our backlog. During the fourth quarter of 2004 we recorded a non-cash impairment charge of $84.4 million to write down the IA-7 satellite to its estimated fair value following the anomaly. As of December 31, 2004, the net book value of the IA-7 satellite was approximately $49.5 million. The IA-7 satellite anomaly is not currently expected to result in the acceleration of capital expenditures to replace the IA-7 satellite. We participated in a failure review board with manufacturer SS/L to investigate the cause of the anomaly. The failure review board has identified the likely root cause of the anomaly as a design flaw that is affected by a number of parameters and in some extreme cases can result in an electrical system anomaly. This design flaw exists on two of Intelsat’s satellites—IA-7 and IA-6. Intelsat presently believes, based on analysis by the IA-7 failure review board, that the probability of a further, similar anomaly occurrence on the IA-7 satellite, or a similar anomaly occurrence on the IA-6 satellite, is low. The failure review board has determined that the IA-8 satellite does not include the same design flaw that it identified as the most likely cause of the IA-7 anomaly. Therefore, our IA-8 satellite is expected to be launched during the second or third quarter of 2005. Other than the non-cash impairment charge that we recorded in the fourth quarter of 2004, we do not believe that the partial loss of the IA-7 satellite will have a material impact on our revenue or operating expenses in 2005 or on our backlog.
On January 14, 2005, our IS-804 satellite experienced a sudden and unexpected electrical power system anomaly that resulted in the total loss of the satellite. The IS- 804 satellite provided services primarily to telecommunications carriers and government telecommunications administrations in the South Pacific. The IS-804 satellite was manufactured by Lockheed Martin Corporation and was launched in December 1997. In accordance with our existing satellite anomaly contingency plans, we made alternative capacity available to our IS-804 satellite customers on Intelsat’s and other operators’ satellites. We established a failure review board with the manufacturer to investigate the cause of the IS-804 anomaly, and we currently believe it may take until mid-2005 for the failure review board to reach its conclusions. We believe there is no connection between the IS-804 satellite anomaly and the IA-7 satellite anomaly, as the two satellites were manufactured by two different companies and their designs are different. We expect to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the value of the IS-804 satellite. Pending the outcome of the failure review board investigation, we do not currently expect the loss of the IS-804 satellite to result in the acceleration of capital expenditures to replace the satellite. Other than the non-cash impairment charge that we expect to record in the first quarter of 2005, we do not believe that the loss of the IS-804 satellite will have a material impact on our revenue or operating expenses in 2005 or on our backlog.
Our Service Applications
We provide satellite capacity and related communications services for the transmission of voice, data and video traffic. Our customer contracts offer different service commitment types, which fall primarily into three categories: (1) leases, (2) channel and carrier commitments, and (3) managed services. Our services are used for voice and data applications, video applications and government/military applications (for which we began tracking and reporting on January 1, 2003), each of which is described below.
The following table summarizes the service applications supported by our network and the estimated percentage of our revenue generated by the sale of capacity for each service application category. The breakdown of our revenue by service application category is based on our analysis of transmission plans and other information supplied to us by our customers. While we believe that the information provided to us is reliable, it has not been verified by us or any independent sources and we cannot assure you as to its accuracy.
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Percentage of Revenue for the Years Ended December 31,
Service Application Category 2002 2003 2004
Carrier 37% 37% 32% Corporate Network 30% 26% 26% Video 17% 16% 19% (1) Government/Military — 11% 14% Internet 15% 10% 9%
(1) Note that no information is available for the Government/Military service application prior to 2003, although we provided such services prior to that time.
Voice and Data Applications
Our services are used for voice and data service applications in three main categories–corporate network applications, carrier applications and Internet applications–each as described below.
Corporate network applications. Corporate networks include both point-to-point and point-to-multipoint traffic and enable one and two-way communications among multiple business sites. Satellite corporate networks, which often use very small aperture terminals, or VSATs, provide a flexible and effective communications platform, particularly for companies connecting broadly dispersed locations or in areas where terrestrial capabilities are unavailable or unreliable. These networks support a significant number of narrowband and broadband applications including the connection of dispersed locations to corporate intra/extranets, point of sale transactions and credit card authorizations, virtual private networks, LAN/WAN internetworking and voice-over-IP (VoIP).
Our corporate network applications customers include sophisticated satellite end users and integrators. These customers combine satellite capacity and other communications services to create customized networks that address their specific needs or respond to the specific needs of their customers. For a discussion of our strategy with respect to corporate network applications, see “– Our Business Strategy – Grow Our Business in the Corporate Network, Video and Government/ Military Applications.”
Carrier applications. Carrier applications include the use of our satellite capacity by telecommunications carriers for the transmission of voice and data traffic over point-to-point connections between telecommunications hubs. Our customers for carrier applications are primarily large, established communications services providers and government telecommunications administrations around the world.
Because the IGO was created to provide capacity for international public telecommunications services, the use of our capacity for carrier applications has historically been our largest source of revenue. However, the market for satellite-based voice and data services has faced, and is expected to continue to face, competition from fiber optic cable. See Item 3.D — “Risk Factors — Risk Factors Relating to Our Business” for a discussion of the competition from fiber optic cable. Despite the migration to fiber of our point-to-point carrier customers on certain routes, we believe that we will continue to earn a significant portion of our revenue from our carrier applications in the near term. In addition, we believe that the growth of our managed services business will substantially offset the expected decline in our carrier business. For a discussion of our strategy with respect to carrier services, see “— Our Business Strategy – Focus on Growth Areas within the Voice and Data Customer Service Application.”
Internet applications. Our satellite capacity is used by internet service providers or ISPs and other customers for internet protocol or IP trunking and for direct Internet access broadband connectivity. The availability of Internet backbone connectivity via satellite allows our ISP customers to bypass terrestrial networks controlled by incumbents or reach areas that lack adequate terrestrial infrastructure. Our users in this segment include Tier 1 and Tier 2 Internet service providers and other communications services providers that require backbone connectivity and that market Internet-related services to their customers. For a discussion of our strategy with respect to Internet applications, see “—Our Business Strategy – Focus on Growth Areas within the Voice and Data Customer Service Application.”
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Video Applications
We currently offer three types of services to our video customers:
• video distribution services, which include the transmission of television programming for broadcasters, cable networks, direct-to-home service providers and
other redistribution systems;
• video contribution services, which include the transmission of news, sports and other video programming from various locations to a central video production
studio; and
• “direct to home,” or DTH, services, which include the transmission of television channels for household reception.
During 2004, we improved our position in this market with our acquisition of the North America satellites and related customer contracts of Loral. As a result of this transaction, we believe that we are now a leading provider of FSS capacity for the distribution of broadcast video in North America and that we are the leading provider of FSS capacity for non-English language programming distribution in North America, with over 150 channels broadcast. Globally, we are a leading provider of FSS capacity for DTH services, delivering programming to millions of viewers and supporting 11 DTH platforms around the world. For a discussion of our strategy with respect to video applications, see “– Our Business Strategy – Grow Our Business in the Corporate Network, Video and Government/ Military Applications.”
Government/Military Applications
We provide satellite capacity and managed services for a variety of applications to various government and military entities, including the U.S. government and its defense and civilian agencies, as well as NATO members. We believe that we have an advantage in this market because the global nature and reliability of, as well as our ability to move, our fleet allows us to address changing demands for satellite coverage and provide mission-critical communications capability.
We currently serve more than 60 U.S. government and military users and NATO entities, either directly or indirectly, and we improved our position in this market with our 2004 acquisition of COMSAT General, which provides us with a vehicle for further penetrating the government and military market. For a discussion of our strategy with respect to government/ military applications, see “—Our Business Strategy — Grow Our Business in the Corporate Network, Video and Government/ Military Applications.”
Our Strengths
Our business is characterized by the following key strengths:
Strong Free Cash Flow and Near-Term Revenue Visibility
We believe that our increasing revenues, combined with our modest capital expenditures profile, low tax obligations and limited working capital requirements, will result in the generation of significant free cash flow. The FSS sector requires sizable up-front investment to develop and launch satellites. However, once satellites are operational, the costs of sales and operations do not vary significantly as usage of our system increases and are, with sufficient scale, low relative to the revenue that may be generated, typically resulting in high margins and strong free cash flow. We are nearing the end of our most recent satellite fleet renewal and deployment cycle, at the completion of which we will have spent approximately $2.6 billion on eight new satellites launched since June 2001 and on our IA-8 satellite which is expected to be launched during the second or third quarter of 2005. Due to available capacity in our fleet, we have the potential to add customers and increase revenue without near- to mid-term satellite investment or a significant increase in our costs of operations, which should increase cash flow. Aside from the planned launch of our IA-8 satellite, we currently have no launches planned in the near to mid term. As a result, excluding $114 million in deposits made in 2004 that we expect to be classified as capital expenditures in 2005, we expect to significantly reduce capital expenditures to levels of less than $100 million per year over the near to mid term.
Our backlog was approximately $4 billion as of December 31, 2004. Taking into account the impact of the IA-7 satellite anomaly and the recent loss of the IS-804 satellite, we currently expect to generate approximately $882 million of revenue from this backlog over the twelve months ending December 31, 2005. Our backlog provides significant near-term revenue visibility, particularly since 99% of our total backlog relates to contracts that either are non-cancellable or have substantial termination fees. In each of the last three years, the revenue that we expected to generate from our backlog at the beginning of the year represented in excess of 70% of
26 Table of Contents that year’s actual revenue. See Item 5 — “Operating and Financial Review and Prospects — Backlog” for further information regarding our backlog.
Global Fleet of Reliable, Flexible, Healthy Satellites
We believe that we have one of the most technologically advanced, largest and youngest fleets of satellites in the FSS sector. Other than the IS-804 satellite which recently experienced an anomaly resulting in a total loss, the average remaining orbital maneuver life was twelve years as of December 31, 2004, weighted on the basis of available capacity for the 22 station-kept satellites we own. Our high engineering standards, with built-in redundancies on all of our satellites, provide for a reliable, flexible, generally healthy fleet. For the year ended December 31, 2004, the transponder availability rate for satellites owned and operated by us, referred to as the IS Satellites, was 99.9998%, excluding the Intelsat Americas satellites and the Marisat-F2 satellite in which we acquired an ownership interest as a result of the COMSAT General Transaction, and which does not give effect to the recent loss of our IS-804 satellite that occurred after that date. Including the Intelsat Americas satellites and taking into account the anomaly which resulted in the partial loss of the IA-7, the transponder availability rate dropped to 99.9946%. For the 12-month period ending January 31, 2005, the 12-month rolling average transponder availability rate for the IS and Intelsat Americas satellites, taking into account the IA-7 and IS-804 anomalies, was 99.9925%. During the past 30 years, other than the IS-804 satellite, each of our station-kept satellites has exceeded, or is expected to exceed, its design life.
Our satellites cover 99% of the world’s population, and we provide satellite capacity in the C- and Ku-bands in over 200 countries and territories. Our fleet includes satellites in prime orbital locations with coverage of key regions such as North America and the Middle East. We also have terrestrial assets consisting of teleports, points of presence and leased fiber connectivity that complement our satellite network and enable us to provide customized managed services.
We believe that the flexibility and global coverage provided by our satellite network and the rights we hold to use strategic orbital locations distinguish us from most other satellite operators. Many of our satellites are equipped with steerable beams that can be moved to cover areas with higher demand. In addition, many of our satellites can be relocated to different orbital locations. The design flexibility of our satellites enables us to respond rapidly to changing market conditions and to changes in demand for satellite capacity. As an example, in 2004 the consolidation of our fleet in the Pacific Ocean Region and deployment of the 10-02 satellite to 359°E resulted in the release of two Intelsat satellites that were redeployed to address the increased demand for satellite capacity in the Africa and Middle East regions.
Diversified Revenue and Backlog
Our revenue and backlog are diversified among service applications, geographic regions, satellites and customers. None of our satellites generated more than 10% of our revenue for the year ended December 31, 2004, and no single customer accounted for more than approximately 4% of our revenue during this period. The diversity of our revenue allows us to benefit from changing market conditions and minimizes our risk from fluctuations in any one of these categories and from difficulties that any one customer may experience.
Our historical revenue in terms of the geographic location of our customers is approximately as follows:
Years Ended December 31,
Geographic Region 2002 2003 2004
North America and the Caribbean 24% 27% 37% Europe 29% 25% 22% Asia Pacific 17% 17% 12% Sub-Saharan Africa 11% 13% 14% Latin America 13% 11% 9% Middle East and North Africa 6% 7% 6%
The geographic diversity of our backlog is approximately the same as that of our revenues. We determine the geographic location of a customer based on the customer’s billing address. However, in most cases our customers use the services that we provide either to send information to, or to receive information from, areas outside of the country or territory in which they are located.
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Established Relationships with Premier Customers
We provide satellite services to over 700 customers, including many of the world’s leading telecommunications companies, multinational corporations, ISPs, media broadcasters and government/military organizations. We have served many of our largest customers, including the majority of our top ten customers and their predecessors, for over 30 years. The following table includes examples of our customers for each service application:
Service Application Category Customers
Voice and Data: Corporate Network Central Bank of the Russian Federation, Equant, Hughes Network Services, Schlumberger, United Nations, World Bank
Carrier AT&T, British Telecommunications, China Telecom, Global Crossing, Vodacom
Internet Cable and Wireless, Link Africa, Sprint Video BBC World, Canal Digital, CBS, CNN International, MTV3, Playboy Entertainment Government/Military U.S. Department of Defense’s Armed Forces Radio & Television Service, Artel, National Oceanic and Atmospheric Administration, U.S. Department of State, U.S. Navy
Strong Position in Growing Corporate Network and Government/Military Service Applications
We have strong positions in areas of the FSS sector that are experiencing growth, such as data applications, primarily for corporate and broadband data, and government/military applications. We believe that the market for satellite corporate network services will continue to grow as corporations and value-added network service providers seek to connect thousands of locations across a region or across several countries into a single, managed network. We expect growth in the use of VSATs in particular to continue as businesses further globalize and realize the benefits of communicating via a comprehensive satellite-based network. We also believe growth in our corporate network business will be facilitated by the continued growth of VPNs and emerging applications such as voice over Internet protocol and video over Internet protocol. Satellites are inherently well suited to deliver multiregional IP networks due to their multicasting capabilities and large geographic footprints.
We believe, based on the most recently available Euroconsult report, that we are the largest provider of wholesale commercial satellite capacity to the U.S. government and military. Government/military customers currently rely on commercial satellite capacity for a growing portion of their mission-critical communications and customized managed services. As a result of the current geopolitical environment and the increasing homeland security requirements of the U.S. government, government/military customers are expected to require greater commercial communications capacity for mission-critical defense and civilian applications. We attribute our strength in this area to the flexibility and global nature of our fleet, and the reliability of our satellites in transmitting mission-critical communications. We intend to utilize our well-established customer relationships, our enhanced capabilities as a result of the COMSAT General Transaction and our enhanced North American coverage as a result of the Intelsat Americas Transaction to strengthen our position in this customer segment.
Strong Position in Growing Video Service Applications
We are a leading provider of FSS capacity for broadcast video distribution in North America and for video contribution and DTH services around the world. We believe that growth will be driven by, among other things, the demand for high-definition television or HDTV and non-English language programming in developed countries and the expansion of DTH services in several regions around the world.
HDTV programming, which requires significantly more satellite capacity to transmit a given amount of content than standard-definition programming requires, is expected to grow rapidly in the near to mid term, especially in North America, as programmers seek to increase their audiences by offering high-definition sports and other entertainment programming where the high-definition
28 Table of Contents format can enhance the content. As one of the leaders in serving North American broadcast networks, we are using our position to enable early high-definition adopters, such as CBS Sports, to move high-definition content from the creation source to their studios via our satellite network and terrestrial networks. We believe that our Intelsat Americas satellites are well positioned to serve both the cable and broadcast communities and to meet any expected increase in demand for distribution of HDTV programming.
Non-English language programming in the United States has increased dramatically in the last few years to over 300 channels. The growth in non-English language programming in the United States is driven by the demand for tailored channels from different ethnic groups within the country’s diverse population, including the desire to access sports, news and entertainment programming from non-U.S. countries. Our IA-5 satellite carries over 150 international channels, including many that are brought to the United States on our system, and we believe that IA-5 carries more non-English language programming than any other satellite in North America. In addition, our global network carries non-English language programming from the source and delivers it to our North American distribution system for customers that include GlobeCast WorldTV, the largest international content aggregator in North America.
We believe that we are well positioned in another growing video application, the distribution of DTH programming around the world. Currently, our network supports 11 DTH platforms, providing content to millions of households. We will continue our focus on higher-growth regions including Eastern Europe, Africa and parts of Asia, where we believe we are well positioned. Given the flexible nature of our capacity, including the ability to reconfigure beam coverage on a number of our satellites in response to customer demand, we believe we will be able to respond to new customer requirements as they develop. Our position in the video market is further strengthened by the fact that, on a system-wide basis, Intelsat carries video services which are 90% digital. In addition, the launch of the IA-8 satellite offers additional capacity for further growth in Intelsat’s successful non-English language DTH programming and for expanded TV Broadcast services from this strategic location.
Our Business Strategy
Our goal is to sustain our leadership position in the FSS sector and enhance our free cash flow by pursuing the following key business strategies:
Grow Our Business in the Corporate Network, Video and Government/Military Applications
We believe that corporate network, video and government/military applications represent opportunities for consistent revenue growth over the long term for operators in the FSS sector. We intend to focus our resources on penetrating these service applications further in order to increase our revenue and cash flow and to continue to diversify our customer base.
Corporate Network Applications
We believe, based on the most recently available Euroconsult report, that we are a leading provider of capacity for satellite corporate network services. Our strategy is to expand our customer base for corporate network applications by establishing new relationships, and broadening our existing relationships, with satellite-oriented service providers and by marketing our managed services to network integrators with less experience in satellite services. We expect to utilize these relationships to increase the use of satellite services as extensions of, and overlays to, the networks of private network providers. We also intend to use our capabilities to expand our service offerings to address vertical markets, such as the finance, manufacturing, mining and oil and gas industries. We believe that we are well positioned with our extensive satellite and terrestrial infrastructure to support the high service levels that corporate network customers require.
Our corporate network customers offer advanced services to their end users and increasingly require managed services that we believe are best addressed by a network that combines satellite and terrestrial infrastructure. As we further extend our marketing reach to medium-sized and small distributors, we expect to be serving a customer base that requires our expertise to integrate and manage the many communications media that comprise a high-performance network.
We believe that broadband access is a corporate network application that represents a long-term opportunity for growth. We believe that the evolution of the Internet and the digitization of media and entertainment properties have increased the demand for broadband connectivity. Based on discussions with customers in our distribution network and market research, we believe that enterprises, particularly in developing regions, have broadband service requirements that are currently not being met. We believe that VSAT and other satellite-based networks are well positioned to meet these requirements, offering services that can be implemented quickly in locations where terrestrial alternatives are either not available, unreliable or too expensive.
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We are addressing opportunities to provide satellite broadband direct access by using an incremental approach that utilizes our existing infrastructure to gain experience and build strategic relationships with customers and service partners. In addition to our investment in WildBlue Communications Inc., referred to as Wildblue, we are analyzing various partnering and alliance strategies in this area to gain access to next-generation technology while limiting our business risks.
Video Applications
We believe that we are well positioned to grow both the distribution and contribution portions of our video business. We believe that the demand for transponder capacity dedicated to broadcast content distribution will grow as the demand for HDTV programming increases over the next several years, particularly in the United States and Western Europe. We intend to use our available North American satellite capacity to establish a new HDTV neighborhood (i.e., a satellite that has a community of customers serving similar applications where the customer perceives value through utilizing common equipment or accessing common content) with some of our most important broadcasting and entertainment customers as anchor tenants. We also intend to expand our ability to offer high-definition programmers an end-to-end service, using our terrestrial network with points of presence at sports stadiums and top media centers to capture content in high definition at the creation source and to transport it through our satellite and terrestrial networks. This strategy proved successful when NHK, the global leader in HDTV programming, chose to work with us for the 2004 Republican and Democratic national conventions.
Because broadcasters, cable systems and other television content redistribution systems install a large number of fixed antennas in order to be able to access popular programming for their viewers and subscribers, the use of our satellites by a popular broadcaster could attract other broadcasters to distribute their programming using the same satellites and thereby create distribution neighborhoods on these satellites. As a result of the Intelsat Americas Transaction, we currently operate several neighborhoods for the distribution of broadcast network video content in the United States. We also serve a number of video communities worldwide, including a cable distribution neighborhood in Latin America and DTH platforms in Europe and the Middle East. In Latin America, we successfully created a new cable distribution community on our IS-805 satellite by securing anchor customers such as Telefe of Argentina and TV Globo of Brazil and by providing antennas to facilitate access to the satellite from cable head-ends. By attracting additional broadcasters of popular television programming to selected satellites in our fleet, we plan to expand the broadcast communities on those satellites.
We also believe we have the ability to further strengthen our position in the distribution of non-English language programming. Our IA-5 satellite carries over 150 such channels, including many that are brought to the United States on our system, and we believe that IA-5 carries more non-English language programming than any other satellite in North America. We intend to expand the non-English language programming neighborhood on our IA-5 satellite to accommodate demand. In addition, many U.S. cable operators are increasingly faced with the need to offer non-English language programming to compete effectively with providers of direct broadcast satellite services in the United States. We believe we can offer cable operators a rebroadcast package of international channels that is attractive from the standpoint of both cost and technical efficiency.
Our satellite system currently distributes DTH programming for a number of regional providers. We will continue to develop our DTH platform business, targeting Eastern Europe, Africa and regions within Asia where we can use our available capacity and the flexibility of our satellite fleet to capture opportunities. In particular, we intend to grow our share of the DTH distribution market by building on our success with existing customers as programmers seek to add programming to established networks and as new networks develop.
With respect to video contribution, we intend to expand our hybrid infrastructure and distribution partnerships to grow our business. Our end-to-end, managed contribution service addresses the needs of broadcasters and video programmers and provides customers with the ability, on demand, to move video content around the world using a cost-effective infrastructure that integrates the global coverage of our satellite fleet and our network of teleports and fiber interconnections to major video exchange points. Our North American network infrastructure was upgraded during the first quarter of 2004 to add video points of presence. Our upgraded infrastructure provides redundancy for both transmission media and associated equipment and includes updated centralized management and monitoring for both network status and service quality.
Government/Military Applications
We believe, based on the most recently available Euroconsult report, that we are the largest provider of wholesale commercial satellite capacity (directly and indirectly) to the U.S. government and military. We believe that the defense and civilian agencies of various governments are experiencing an increased need for commercial satellite communications services, due in part to
30 Table of Contents anti-terrorism efforts, conflicts in the Middle East and increased worldwide military activity. We believe we are well positioned to increase our leading position in the growing area of commercial satellite-based government/military service applications as we continue to capitalize on our strong government relationships, serving more than 60 U.S. government and NATO users, and our flexible, reliable and global network.
We believe that our acquisition of the Intelsat Americas fleet has strengthened our position in this service application by providing us with greater coverage of North America, which allows us to offer additional satellite capacity and services to various defense and civilian agencies of the U.S. government. The COMSAT General Transaction should also further strengthen our leading position serving this customer segment with the addition of managed services capability and high-level personnel who have security clearances and long-standing government customer relationships. We believe that our expanded service capability as a result of the Intelsat Americas and COMSAT General Transactions and our emphasis on managed services will attract additional government business and enable us to work with a broader scope of government contractors and integrators.
Focus on Growth Areas within the Voice and Data Customer Service Applications
We believe the primary growth area within voice and data customer service applications will be our managed services business. Customers are increasingly looking for more integrated services to meet their communications needs. We intend to use our leadership in providing voice and data services for carriers, as well as our global network, technical expertise and well-established customer relationships, to offer new services, such as our managed services, to existing customers and to broaden the types of customers we serve. For example, we are offering integrated services to our Tier 1 ISP customers. Tier 1 ISPs are carriers whose Internet traffic is sufficiently large that they exchange traffic at no cost with other carriers of similar size. In addition, we are expanding our marketing directly to regional Tier 2 and Tier 3 ISPs, which must pay Tier 1 providers to exchange their traffic. We are providing these ISPs with complete Internet backbone access services, including hardware from third-party resellers, satellite capacity, Internet backbone connections and network management.
We are also planning to increase our marketing focus on, and to target customers in, newly deregulated regions. We believe new carrier companies and providers of competitive services, such as wireless communications and Internet services, in these regions are seeking to introduce their services quickly and independently of the established local carriers. In addition, there are still many regions of the world that lack direct access to cable interconnects or whose internal infrastructure either does not exist or is unreliable. We intend to increase our focus on customers requiring satellite capacity for reliable connections between low-traffic communications hubs in smaller cities and from cable interconnects and communications hubs to telecommunications central offices in remote and underserved areas where we can provide a critical portion of the telecommunications infrastructure. We also intend to introduce new, more cost-effective technologies and managed services to our existing customers, which we believe will enhance our retention rates and provide our customers with more efficient use of our network.
Because satellite capacity is often the most strategic and complex part of a communications network, we believe that we are well positioned as compared with ground- based communications service providers to offer cost-effective global connectivity services. We will use our global network, technical expertise and established customer relationships, as well as the opportunities resulting from deregulation and from our privatization, to implement the specific initiatives discussed above in order to sustain our leadership in voice and data services.
Capitalize on Opportunities in the Next Phase of our Transition from an IGO
We are the successor to the IGO, which was created in 1964. In July 2001, the IGO privatized by transferring substantially all of its assets and liabilities to Intelsat and its subsidiaries. Prior to the privatization, as the IGO, we were restricted in terms of both the services we could offer and the pricing for our services. Since privatization, we have sought to expand our service offerings, improve our sales and marketing organization and diversify our revenue through targeted acquisitions in growth areas. We believe actions in the last 12 to 18 months, many of which have only recently begun to translate into financial results, have positioned us to improve our commercial operations.
Our sales and marketing team was strengthened through increased technical skills and substantially reorganized in April 2003 to better focus on capturing a larger amount of the demand in growing customer applications, where we are well positioned with the necessary capacity, and on growing our managed services business, which we were previously restricted in offering. Our backlog has stabilized over the last nine months, which we attribute to the improved performance of our sales and marketing team, expanded market opportunities as a result of the Intelsat Americas Transaction and the success of our managed services business, which has grown rapidly since its introduction in 2001.
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We intend to manage our operating expenses to optimize margins and free cash flow. During the last few years, we had higher staffing levels than we believe are required today to efficiently run our business. Our staffing level for 2004 peaked at June 1, 2004, with 981 full-time regular employees. By December 31, 2004, we had 808 full-time regular employees, or nearly 18% fewer employees than we had at June 1, 2004, excluding the 31 employees we hired in connection with the COMSAT General Transaction. The full-year savings from these reductions have yet to be realized in our financial results.
Pursue a Disciplined Acquisition Strategy
Over the past several years, the FSS sector has been, and continues to be, reshaped as a result of consolidation, deregulation, privatization and, more recently, the increase in private equity ownership of satellite operators. Post-privatization, we have sought to strengthen our business through targeted acquisitions, and we have a successful track record of executing strategic transactions. For example, the Intelsat Americas Transaction provided us with comprehensive coverage of North America, which has significantly enhanced our video business, and the COMSAT General Transaction is expected to strengthen our ability to provide services to government and other customers. In connection with our acquisition of the Intelsat Americas assets, we have integrated the acquired customers and assumed full control and operation of the acquired satellites, with minimal increases in operational and sales staff and ahead of schedule. We have also pursued the strategic acquisition of rights to operate at certain new orbital locations.
We intend to continue to evaluate and pursue strategic transactions that we believe could:
• broaden our customer base, including in corporate network, video and government/military applications;
• provide enhanced landmass coverage of strategic geographic regions, including regions experiencing growth;
• provide us with complementary technical and commercial capabilities, including a video or a government/military business complementary to the businesses we
are seeking to grow organically;
• further utilize our existing hybrid infrastructure;
• shift our service application mix to include more point-to-multipoint traffic; and
• create operational and capital spending efficiencies.
Our Network
Our in-orbit fleet is currently comprised of 27 satellites owned by us and leased capacity on two satellites owned by other satellite operators in the Asia-Pacific region, as well as ground facilities related to the operation and control of our satellites. In the COMSAT General Transaction, we also acquired an ownership interest in a partnership that owns the Marisat-F2 satellite. The IS-804 satellite was recently removed from our in-orbit fleet when it experienced an anomaly that resulted in a total loss. Our IA-8 satellite is expected to be launched during the second or third quarter of 2005, which will provide additional capacity in the Americas. Our network also includes ground assets consisting of teleports or leased teleport facilities supporting commercial services in Germany, the United States, Australia, China, Colombia, Argentina, UAE, Italy, and South Africa and points of presence in New York, Hong Kong, Frankfurt, Los Angeles and London. Our satellite operations are supported by ground assets and leased facilities in the United States, Germany, Italy, South Korea, Australia, and South Africa. We upgraded our North American infrastructure in 2004 to include an expanded number of video points of presence as we seek to grow our video business following the completion of the Intelsat Americas Transaction.
Our customers depend on our global communications network and our operational and engineering leadership, including our:
• nearly 40-year operating history and pioneering achievements in satellite communications;
• highly redundant network;
• ability to relocate or reconfigure capacity on many satellites to cover different geographic regions; and
• consistently high transponder availability levels.
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We believe that our operational and engineering achievements are due primarily to our satellite procurement and operations philosophy, which we believe has been different from that of other satellite operators. Our operations and engineering staff is involved from the design through the decommissioning of each satellite that we procure. With our own staff working on site to monitor progress, we maintain close technical collaboration with our contractors during the process of designing, manufacturing and launching a satellite. We continue our engineering involvement throughout the operating lifetime of each satellite. Extensive monitoring of earth station operations and around- the-clock satellite control and network operations support ensure our consistent operational quality, as well as timely corrections when problems occur. In addition, we have in place contingency plans for technical problems that may occur during the lifetime of a satellite.
At the time that we acquired the IA satellites from Loral, four of these satellites had already been designed, manufactured and launched and were operating in orbit, and the construction of the IA-8 satellite was nearly complete. Following the closing of the Intelsat Americas Transaction, we worked closely with Loral to monitor the operations of the IA satellites in orbit and to effect an orderly transition of the control and operation of all of these satellites to our network, which we completed on March 1, 2005, ahead of our original schedule.
Satellite Systems
There are three primary types of commercial communications satellite systems: low-earth orbit systems, medium-earth orbit systems and geosynchronous systems. Geosynchronous communications satellites such as ours are located approximately 22,300 miles, or 35,700 kilometers, above the equator. These satellites can receive radio frequency communications from an origination point, relay those signals over great distances and distribute those signals to a single receiver or multiple receivers within the coverage areas of the satellites’ transmission beams.
Geosynchronous satellites send these signals using various parts of the electromagnetic spectrum. The satellites in our fleet are designed to provide capacity using the C- and Ku-bands of this spectrum. A third frequency band, the Ka-band, is not widely used at this time, but is being considered for use in new projects, especially broadband services. A Ka-band satellite may be accessed by a smaller antenna, which is an important consideration for residential and small business markets. Our IA-8 satellite, which is expected to be launched during the second or third quarter of 2005, will have transponders available for transmitting and receiving in the C-, Ku- and Ka-bands.
A geosynchronous satellite is referred to as geostationary, or station-kept, when it is operated within an assigned orbital control, or station-keeping box, which is defined by a specific range of latitudes and longitudes. Geostationary satellites revolve around the earth with a speed that corresponds to that of the earth’s rotation and appear to remain above a fixed point on the earth’s surface at all times. Geosynchronous satellites that are not station-kept are in inclined orbit. The daily north-south motion of a satellite in inclined orbit exceeds the specified range of latitudes of its assigned station-keeping box, and the satellite appears to oscillate slowly, moving above and below the equator every day. An operator will typically operate a satellite in inclined orbit toward the end of its useful life because the operator is able to save significant amounts of fuel by not controlling the north-south position of the satellite and is thereby able to extend substantially the useful life of the satellite. However, the types of services and customers that can access an inclined orbit satellite are limited due to the daily variations in the satellite’s footprint, and we typically offer capacity on these satellites at a discount. As a result, the revenue we can earn from these satellites is limited. In order to extend the orbital maneuver lives of our five Intelsat VI series satellites, we are operating these satellites in inclined orbit and, as a result, are continuing to earn revenue beyond our original estimates for these satellites.
In-Orbit Satellites
With our satellites located over North America and over all of the principal ocean regions—the Atlantic, Pacific and Indian—and leased capacity available in the Asia- Pacific region, we provide coverage of 99% of the world’s population. The following diagram shows the locations as of December 31, 2004 of our owned 27 satellites. This diagram does not include the IS-804 satellite which recently experienced an anomaly and was declared a total loss.
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Our fleet has been designed to provide a high level of redundancy for our customers. The features of our network that provide this redundancy are as follows:
• most places on the surface of the earth are covered by more than one of our satellites;
• many of our satellites have flexible design features and steerable beams that enable us to reconfigure capacity to provide different areas of coverage;
• many of our satellites also have the ability to be relocated to different orbital locations; and
• subject to availability, our in-orbit fleet includes sparing capacity on operational satellites.
The design flexibility of some of our satellites enables us to meet customer demand and respond to changing market conditions. As noted above, these features also contribute to the redundancy of our network, which enables us to ensure the continuity of service that is important for our customers and to retain revenue in the event that we need to move customers to alternative capacity.
We measure the reliability of our network over a given period of time by calculating the total transponder hours in service for satellites owned and operated by us as a percentage of the total number of potential transponder hours during that time period, including hours during which transponders were not in service due to interruption or other outage. We exclude from this calculation the transponders on our satellites that are unusable due to satellite orbital location, inter-system coordination issues or beam configurations or that are permanently unusable due to the impact of certain anomalies. See “—In-Orbit Satellites” below and Item 3.D — “Risk Factors” elsewhere in this annual report for a discussion of anomalies. For the year ended December 31, 2004, the transponder availability rate for satellites owned and operated by us, excluding the Intelsat Americas satellites and the Marisat-F2 in which we acquired an ownership interest as a result of the COMSAT General Transaction, was 99.9998%. Including the Intelsat Americas satellites and taking into account the anomaly which resulted in the partial loss of the IA-7, the transponder availability rate for the year ended December 31, 2004, dropped to 99.9946%. For the 12-month period ending January 31, 2005, the 12-month rolling average transponder availability rate for the IS and Intelsat Americas satellites, taking into account the IA-7 and IS-804 anomalies, was 99.9925%. This availability rate was achieved by accumulating nearly 7.6 million transponder hours in service, with approximately 16 hours of accumulated transponder outage. Our transponder availability rate has averaged 99.997% from 1985 through 2004, and during the past 30 years, other than the IS-804 satellite which had completed more than 70% of its design life before experiencing an anomaly which resulted in a total loss, each of the station-kept satellites has exceeded, or is expected to exceed, its design life.
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Our system fill factor represents the percentage of our total available station-kept transponder capacity, including the capacity that we lease, that is in use or that is reserved at a given time. As of December 31, 2004, we had an average system fill factor, including guaranteed reservations for service, of nearly 62.5%. This figure includes the transponders on IS-10-02 sold to Telenor.
As of December 31, 2004, other than our IS-804 satellite which recently experienced an anomaly resulting in a total loss, our in-orbit fleet had 1,043 and 438 36 MHz equivalent transponders available for transmitting in the C-band and the Ku-band, respectively. These totals measure transponders on station-kept satellites, including the transponders that we lease from other satellite operators. Except as otherwise indicated, and other than our IS-804 satellite, which recently experienced an anomaly and was declared a total loss, the table below provides a summary of our in-orbit satellite fleet as of December 31, 2004.
Estimated End of Orbital End of Orbital Orbital Maneuver Satellite Manufacturer Location Launch Date Design Life Life (1)
Station Kept: IS-701 SS/L 180.0°E 10/93 8/04 4/12 (2)(3) IS-702 SS/L 54.85°E 6/94 4/05 10/12 IS-704 SS/L 66.0°E 1/95 11/05 10/11 IS-705 SS/L 310.0°E 3/95 1/06 12/09 (2)(3) IS-706 SS/L 50.25°E 5/95 3/06 1/13 IS-707 SS/L 307.0°E 3/96 1/07 3/13 IS-709 SS/L 85.15°E 6/96 4/07 9/12 (4) IS-801 LMC 328.5°E 3/97 3/07 9/09 IS-802 LMC 32.9°E 6/97 6/07 11/14 IS-805 LMC 304.5°E 6/98 6/08 7/16 IS-901 SS/L 342.0°E 6/01 6/14 7/19 IS-902 SS/L 62.0°E 8/01 8/14 2/20 IS-903 SS/L 325.5°E 3/02 3/15 3/19 IS-904 SS/L 60.0°E 2/02 2/15 3/20 IS-905 SS/L 335.5°E 6/02 6/15 1/21 IS-906 SS/L 64.15°E 9/02 9/15 11/21 IS-907 SS/L 332.5°E 2/03 2/16 10/21 (5) IS-10-02 EADS Astrium 359.0°E 6/04 8/17 6/21 IA-5 SS/L 97.0°W 5/97 7/09 4/21 IA-6 SS/L 93.0°W 2/99 3/11 6/22 (6) IA-7 SS/L 129.0°W 9/99 11/11 11/15 (7) IA-13 SS/L 121.0°W 8/03 8/18 2/24 (8) (9) APR-1 ISRO 83.0°E N/A N/A N/A (8) APR-2 Alcatel 110.5°E N/A N/A N/A Inclined Orbit: (10) IS-601 Hughes 64.25°E 10/91 10/01 6/10 (2)(11) IS-602 Hughes 150.5°E 10/89 10/99 9/07 IS-603 Hughes 340.05°E 3/90 3/00 12/08 IS-604 Hughes 157.0°E 6/90 6/00 7/05 (12) (12) IS-605 Hughes 77.0°W 8/91 8/01 1/12
(1) Engineering estimates as of December 31, 2004 determined by remaining fuel levels and consumption rates and assuming no relocation of the satellite.
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(2) Rights to use this orbital location are held by one of our customers.
(3) Authorization to operate at this location is limited to operation on a non-interference basis.
(4) Lockheed Martin Corporation.
(5) Telenor Inma AS owns 18 of this satellite’s Ku-band transponders.
(6) The IA-7 satellite recently experienced an anomaly, as described in “—Owned Satellites.” The end of orbital maneuver life shown above for this satellite was our estimate prior to the occurrence of the anomaly. The orbital maneuver life of IA-7 was not materially impacted as a direct result of either the anomaly or our efforts to recover the satellite. Although there may be a reduction in the satellite’s orbital maneuver life as a result of new operational constraints, we do not currently believe that any such reduction will be significant.
(7) EchoStar Communications Corporation owns all of this satellite’s Ku-band transponders and a portion of the common elements of the satellite.
(8) Operated by another satellite operator with capacity leased by us.
(9) Indian Space Research Organization.
(10) Boeing Satellite Systems, Inc.
(11) The satellite is drifting toward the listed orbital location where it will operate subject to receipt of FCC approval.
(12) After December 31, 2004, the satellite began drifting toward the 174.0°E orbital location. After this transition, the revised end of maneuver life will be August 2009.
In addition to the satellites shown in the table above, we own an interest in Marisat-F2, an older satellite in inclined orbit that we acquired in the COMSAT General Transaction and that is currently used to provide services to Antarctica.
Owned Satellites. The design life of a satellite is the length of time that the satellite’s hardware is designed by the manufacturer to remain operational under normal operating conditions. In contrast, a satellite’s orbital maneuver life is the length of time the satellite has enough fuel to remain operational. Over the past 30 years, other than the IS-804 satellite which exceeded 70% of its design life before experiencing an anomaly which resulted in a total loss, each of our station-kept satellites has exceeded or is expected to exceed its design life. We believe we have one of the youngest satellite fleets in the FSS sector. Excluding the IS-804 satellite, the average remaining orbital maneuver life was twelve years as of December 31, 2004, weighted on the basis of available capacity for the 22 station-kept satellites we own.
Other than the IS-804 satellite which recently experienced an anomaly resulting in a total loss,
• we have experienced some technical problems with our current fleet but have been able to minimize the impact of these problems on our customers, our
operations and our business.
• most of these problems have been component failures and anomalies that have had little long-term impact to date on the overall transponder availability in our
satellite fleet.
• all of our satellites have been designed to accommodate an anticipated rate of equipment failures with adequate redundancy to meet or exceed their orbital design
lives, and to date, this redundancy design scheme has proven effective.
The most notable anomalies, losses and risks to our fleet at this time, and the measures we have taken to minimize the impact of some of these anomalies, are described below.
On January 14, 2005, our IS-804 satellite experienced a sudden and unexpected electrical power system anomaly that resulted in the total loss of the satellite. The IS- 804 satellite provided services primarily to telecommunications carriers and government telecommunications administrations in the South Pacific. The IS-804 satellite was manufactured by Lockheed Martin Corporation and was launched in December 1997. In accordance with our existing satellite anomaly contingency plans, we made alternative capacity available to our IS-804 satellite customers both on other Intelsat satellites and on other operators’ satellites.
We have established a failure review board with manufacturer Lockheed Martin Corporation to investigate the cause of the IS-804 anomaly, and currently believe that it may take until mid-2005 for the failure review board to reach its conclusions. We believe there is no connection between the IS-804 satellite anomaly and the IA-7 satellite anomaly described below that occurred in
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November 2004, as the two satellites were manufactured by two different companies and their designs are different. The IS-804 satellite was a 7000 series satellite, and the failure review board will evaluate whether the anomaly experienced by the IS-804 satellite is related to other anomalies experienced by satellites in the 7000 series. We operate three other satellites in the 7000 series, the IS-801, IS-802 and IS-805 satellites, manufactured by Lockheed Martin Corporation. None of these three satellites has exhibited any evidence of the type of problem experienced by the IS-804 satellite, and, other than as described below, all three are operating normally.
We did not have in-orbit insurance for the IS-804 satellite. We expect to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the net book value of the IS-804 satellite. Pending the outcome of the failure review board investigation, we do not currently expect the loss of the IS-804 satellite to result in the acceleration of capital expenditures to replace the satellite.
Other than the non-cash impairment charge that we expect to record in the first quarter of 2005, we do not believe that the loss of the IS-804 satellite will have a material impact on our revenue or operating expenses in 2005 or on our backlog. We expect to retain approximately 61% of the revenue associated with the IS-804 satellite prior to its loss, which includes revenue expected under a revenue share agreement with New Skies Satellites N.V. (which we refer to as New Skies), and estimate that 2004 revenue attributable to the IS-804 satellite was approximately $40 million. We expect to incur a one-time cost in 2005 due to the re-pointing of antennas in connection with moving customer traffic to other satellites, but currently believe that the resulting increase in our operating expenses will not be material. We estimate that the reduction in our $4.0 billion backlog as of December 31, 2004 as a result of the loss of the IS-804 satellite will be approximately $62 million, or approximately 1.6%.
On November 28, 2004, our IA-7 satellite experienced a sudden anomaly in its north electrical distribution system that resulted in the loss of control of the satellite and the interruption of customer services on the satellite. The IA-7 satellite is one of the in-orbit satellites acquired by us from Loral in March 2004 as part of the Intelsat Americas Transaction and covers the continental United States, Alaska, Hawaii, Canada, Central America and parts of South America. IA-7 is an FS 1300 series satellite manufactured by SS/L and was launched in September 1999. In accordance with our existing satellite anomaly contingency plans, we made alternative capacity available to all of our IA-7 satellite customers, and most of these customers accepted that capacity. We provided alternative capacity primarily on other satellites in the Intelsat Americas fleet and on the IS-707 satellite, and in some cases using capacity that we purchased from other satellite operators.
On November 30, 2004, following an intensive recovery effort, our engineers were able to regain command and control of the IA-7 satellite, and it was placed back in service following operational testing. We have determined that the north electrical distribution system on the IA-7 satellite and the communications capacity associated with it are not operational, but the south electrical distribution system and associated communications capacity are operating normally. In addition, the IA-7 satellite has lost redundancy in nearly all of its components. As a result, the IA-7 satellite faces an increased risk of loss in the future. Currently, 22 of the IA-7 satellite’s 48 C-band and Ku- band transponders, which are all powered by the south electrical distribution system, have been tested, are performing normally and are available for service to our customers. In addition, some of these transponders are currently being used by our customers.
We participated in a failure review board with manufacturer SS/L to investigate the cause of the anomaly. The failure review board has identified the likely root cause of the anomaly as a design flaw that is affected by a number of parameters and in some extreme cases can result in an electrical system anomaly. This design flaw exists on two of Intelsat’s satellites – IA-7 and IA-6. Intelsat presently believes, based on analysis by the IA-7 failure review board, that the probability of a further, similar anomaly occurrence on the IA-7 satellite, or a similar anomaly occurrence on the IA-6 satellite, is low.
We did not have in-orbit insurance coverage for the IA-7 satellite. During the fourth quarter of 2004 we recorded a non-cash impairment charge of $84.4 million to write down the IA-7 satellite to its estimated fair value following the anomaly. As of December 31, 2004, the net book value of the IA-7 satellite was approximately $49.5 million. We do not currently expect the IA-7 anomaly to result in the acceleration of capital expenditures to replace the IA-7 satellite. We do not believe that the anomaly that affected the IA-7 satellite will have a material impact on our revenue or cash operating expenses for 2005 or on our backlog. In order to maintain service to some of the affected customers, we expect to continue to purchase capacity from other operators in the near term but believe that the resulting increase in our operating expenses will not be material. Based on our backlog as of December 31, 2004, we estimate that the reduction in our backlog as a result of this anomaly was approximately 1%.
Our IA-8 satellite, also manufactured by SS/L, is a newer generation FS 1300 series satellite than the IA-7 satellite. We delayed the launch of the IA-8 satellite until the causes of the IA-7 anomaly were fully understood. The failure review board has determined
37 Table of Contents that the IA-8 satellite does not include the same design flaw that the board identified as the most likely cause of the IA-7 anomaly. Therefore, we expect that the IA-8 satellite will be launched during the second or third quarter of 2005. The successful launch and placement into service of the IA-8 satellite will add 24 C-band and 36 Ku-band transponders to the Intelsat Americas fleet. As a result of this delay, approximately $65 million in deposits for launch insurance for the IA-8 satellite are now expected to be classified as capital expenditures in 2005 instead of 2004. The decision to delay the launch of the IA-8 satellite does not result in any customer contract terminations or other penalties.
Our IA-6 satellite has experienced recurring failures of one of its two CPUs, including most recently in January 2004. The IA-6 satellite is currently being operated using its second CPU, with no back-up available from the failed CPU.
Our IS-706 and IS-709 satellites have experienced battery cell failures that have reduced the energy available for operating the satellites during solar eclipse periods. A satellite relies on its battery power during these periods, which occur twice per year and can last up to 72 minutes per day over a 45-day period. Available capacity on our IS- 706 satellite has been reduced by approximately 30% during eclipse periods due to its battery cell failures. A limited number of additional battery cell failures on either of these satellites could lead to the affected satellite being able to support only half of its nominal traffic load during eclipse periods.
The spare attitude system processor on our IS-802 satellite has failed, resulting in the loss of redundancy. We have deployed a back-up system for controlling the IS-802 satellite’s attitude, or orientation in space, from the ground. This system should allow us to continue operating the satellite in the event the remaining processor fails.
Our IS-904 satellite has experienced the failure of one of its two earth sensors, which are used by the satellite’s on-board control system to keep the satellite pointed in the proper direction. Should the second earth sensor fail, we may not be able to keep the IS-904 satellite pointed properly toward the earth. We have developed a ground-based process that we believe will provide adequate capability to keep the satellite pointed properly should the redundant earth sensor fail.
Our IS-801 satellite experienced an anomaly after its launch and before being put into service that resulted in damage to the satellite’s north solar array structure and a reduction in the satellite’s orbital life. See “—Capacity Sparing and Satellite Insurance” below for a description of an insurance settlement relating to this anomaly. The damage to the north solar array structure has limited our use of certain control equipment on the satellite and necessitated the use of thrusters for continuous attitude corrections. Although there is currently no evidence of further damage to the satellite’s north solar array, it is possible that the damaged array may not continue to perform as it has since the occurrence of the anomaly. In addition, the use of thrusters for continuous attitude corrections may result in premature failure, as they are not designed for this operation. We have made changes in our operation of the IS-801 satellite to minimize the impact on the thrusters and the satellite’s propulsion system. The IS-801 satellite has also experienced degraded performance on four receivers. As a result, one of the satellite’s beams has been configured to use a receiver experiencing degraded performance. This beam is still capable of carrying our current traffic but may be unable to carry additional traffic. The failure of an additional receiver would result in the loss of five or six transponders depending on which receiver fails.
Some of the momentum wheel assemblies on our IS-701, IS-702, IS-704 and IS-709 satellites have been experiencing degraded performance. These wheel assemblies are used to control a satellite’s attitude, and in normal operating mode two of a satellite’s three assemblies must be operating in order for the satellite to use its normal mode of attitude control. We are currently using the redundant momentum wheel assemblies on some of these satellites in order to minimize the risk of wheel failure. In addition, we have developed an alternative thruster control system that would enable us to maintain attitude control, with minimum fuel consumption, in the event that two of a satellite’s three wheels fail. These measures are expected to permit the IS-701, IS-702, IS-704 and IS-709 satellites to exceed their orbital design lives, despite any wheel failures.
See Item 3.D — “Risk Factors” for a discussion of the impact of various satellite anomalies on our business.
Leased Satellite Capacity. One of the two satellites on which we lease capacity is the INSAT 2E, leased pursuant to an agreement with the Government of India, Department of Space, INSAT Programme Office. Under this agreement with the Government of India, we have leased eleven 36 MHz equivalent transponders on INSAT 2E through May 30, 2009. We have the right to extend this lease term until the INSAT 2E has reached the end of its orbital maneuver life, which is currently expected to be May 2012. The other satellite on which we lease capacity is the SINOSAT-1, which we lease pursuant to an agreement with China’s SINO Satellite Communications Company Limited, referred to as SINOSAT. Under this agreement with SINOSAT, we have the option to lease, on a space-available basis, up to six 36 MHz transponders on the SINOSAT-1 satellite. Under this option agreement with SINOSAT, we have leased capacity under one agreement through August 31, 2006.
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Planned Satellites. We began a fleet renewal and deployment cycle in 2001, at the completion of which we will have spent approximately $2.6 billion on eight satellites launched since June 2001 and on our IA-8 satellite which is expected to be launched during the second or third quarter of 2005. We believe that these eight satellites and the IA-8 satellite have, on average, more transponders and significantly greater frequency reuse than many of the satellites of other FSS operators. Other than the expected launch of IA-8, we have no launches planned for the near to mid term. In addition, we currently have only one satellite, the IA-9 satellite, under construction.
The IA-8 satellite, which we acquired from Loral, was manufactured by SS/L. The launch of our IA-8 satellite was delayed pending completion of an investigation by the failure review board established to investigate the recent anomaly on our IA-7 satellite, which was also manufactured by SS/L. The failure review board has now determined that the IA-8 satellite does not include the same design flaw that it identified as the likely root cause of the IA-7 anomaly. Therefore, the launch of our IA-8 satellite is expected to occur during the second or third quarter of 2005. We expect this satellite to be deployed at the 89.0° West orbital location. The IA-8 satellite has an orbital design life of 13 years. Assuming no relocation of the satellite from the orbital location to which it is initially deployed, the IA-8 satellite is expected to have an orbital maneuver life of nearly 17 years. The IA-8 satellite will further strengthen our North American coverage and provide additional capacity to allow us to execute our business strategy, particularly for video, corporate networks and government/military applications.
In connection with the Intelsat Americas Transaction, we have entered into a procurement agreement with SS/L for a new satellite, which we refer to as the IA-9 satellite. SS/L is proceeding with construction of the satellite, which is expected to be used in the North American arc.
We would expect to replace existing satellites, as necessary, with more technologically advanced satellites that meet customer needs and that have a compelling economic rationale. We periodically conduct evaluations to determine the current and projected strategic and economic value of our existing and any planned satellites and to guide us in redeploying satellite resources as appropriate.
Construction Agreements. In March 2004, we entered into an agreement with SS/L for the manufacture of the IA-9 satellite and paid to SS/L a deposit in the amount of $50 million as prepayment for a portion of the total satellite purchase price. Our deposit and SS/L’s obligations under the satellite construction agreement are secured by SS/L’s and its affiliates’ interest in an in-orbit satellite, insurance proceeds relating to the satellite and certain other collateral. The in-orbit satellite that is part of our collateral has experienced technical problems, and SS/L has filed an insurance claim relating to these problems. Although we expect that the insurance proceeds assigned to us as part of the collateral will be sufficient to protect our interests, there has been no final resolution of SS/L’s insurance claim. In addition, Loral SpaceCom Corporation, SS/L’s parent company, has provided a guarantee of SS/L’s obligations under this agreement. We are required to pay the majority of the purchase price in the form of progress payments during the period of the satellite’s construction. Our $50 million deposit will be applied against the first $50 million of these progress payments as they are earned by SS/L. The remainder of the purchase price is payable over multiple construction milestones and includes a significant payment that will be due only when the satellite has operated satisfactorily for a specified period of time after the successful completion of in-orbit testing, as well as in the form of incentive payments to SS/L following the launch of the satellite based on the satellite’s orbital performance over its design life. However, the payments described in the preceding sentence will become due and payable to SS/L in the event that we accept the satellite but do not launch it within a specified period of time after acceptance. We are entitled to price reductions or payments by SS/L if it fails to meet agreed-upon milestones in the contract, including in the event of the late delivery of the satellite due to the fault of SS/L. Under this agreement, we have the option to purchase an additional satellite within a specified period of time following the launch of this satellite. SS/L has agreed to defer payment of a portion of the purchase price under the IA-9 construction contract and may waive this payment subject to specified conditions.
We may terminate the IA-9 satellite procurement agreement with SS/L with or without cause. If we terminate the agreement without cause, we are subject to a substantial termination liability that escalates with the passage of time, but which in the first 18 months years after commencement of construction would be substantially less than the cost of completing construction of the satellite. If we terminate for cause, we are entitled to take over any work remaining with respect to the satellite. In this event, SS/L will be required to refund a specified portion of the $50 million deposit we made. In addition, we can recover payments we have made, including the deposit, if the delivery of the satellite has been delayed by more than a specified period of time.
In connection with our acquisition from Loral of the IA-8 satellite, we entered into an amended and restated agreement with SS/L relating to the manufacture of the IA- 8 satellite. Under this agreement, SS/L is required to arrange for the launch of the IA-8 satellite on a Sea Launch launch vehicle. Prior to our entering into this agreement, Loral had paid a majority of the purchase price for the IA-8
39 Table of Contents satellite. The agreement required us to pay the remaining purchase price for the satellite in the form of progress payments during the period of the satellite’s construction. In connection with the Intelsat Americas Transaction, we have assumed SS/L’s remaining payment obligations under its launch services agreement with Sea Launch relating to the IA-8 satellite.
Launch Services Agreements. In connection with the construction agreement for our Intelsat X series satellites, we entered into launch services agreements with Sea Launch and Lockheed Martin Commercial Launch Services, Inc. At the time that we entered into these launch services agreements, we had two Intelsat X series satellites on order, but later terminated our order for the IS-10-01 satellite. In connection with this termination, we amended our launch services agreement with Sea Launch to provide for the launch of an unspecified future satellite. We and Sea Launch agreed that we would treat most of the payments made for the launch vehicle that could have been used for the launch of the IS-10-01 satellite as a credit for the future launch and that the price of the launch vehicle would remain fixed. We also agreed, however, that Sea Launch has the right to terminate our launch services agreement if we do not place an order for a future launch by July 31, 2005. We are presently in discussions with Sea Launch regarding an extension of that date. If Sea Launch terminates our agreement, we will incur a termination liability and will forfeit our credit for a future launch. See Item 5 — “Operating and Financial Review and Prospects —Results of Operations—Years Ended December 31, 2002, 2003 and 2004—Operating Expenses—IS-10-01 Contract Termination Costs” for a discussion of the impact of this agreement on our financial condition and results of operations.
In connection with the COMSAT General Transaction, we have entered into an agreement with Lockheed Martin Commercial Launch Services for the launch of an unspecified future satellite. This agreement provides that we may terminate it at our option, subject to the payment of a termination fee that is the greater of: (a) 50% of the launch service price and accommodation fee paid or due as of the effective date of the termination; or (b) $30 million.
Network Operations and Current Ground Facilities
We control and operate each of our IS satellites and manage the communications services for which each IS satellite is used from the time of its initial deployment through the end of its operational life, and we believe that our technical skill in performing these critical operations differentiates us from our competition. We provide most of these services from our Washington, D.C.-based satellite control center and network management center. We have assumed the control and operation of all of the IA satellites that are currently in orbit; the transition from Loral to Intelsat operations was completed ahead of our original schedule.
We operate a single satellite control center that is responsible for the monitoring and control of our entire satellite fleet 24 hours per day, every day of the year. Our operations philosophy, which we believe has been different from that of other satellite operators, centralizes the global control and operation of our fleet, regardless of the satellite manufacturer or series, in a single facility staffed by specialized personnel. Centralizing these functions enables our staff to become proficient in the management of multiple satellite series, thereby improving our operational redundancy and response times and increasing the cost efficiency of our satellite operations. As a result, we can operate additional satellites with minimal additional cost, a capability that we believe makes our company an attractive platform for future industry consolidation opportunities. Utilizing state-of-the-art satellite command and control hardware and software, the satellite control center analyzes telemetry from our satellites in order to monitor the status and track the location of our satellites. As necessary, our satellite control center sends commands to the satellites for station-keeping maneuvers and equipment reconfigurations.
Our network management center, which includes a specialized video operations center, is responsible for managing the communications services that we provide to our customers and is the first point of contact for customers needing assistance in using our network. Daily tasks include managing uplinks to our satellites and monitoring customer traffic and the quality of our customer communications services. Our network management center also conducts measurements of transponder performance and transmission power and resolves interference issues and other customer concerns. The network management center coordinates satellite configuration changes and satellite transitions, as well as back-up operations for customers’ cable failures. The various monitoring systems that the network management center uses to perform these functions are in continuous, remote-controlled operation 24 hours per day. Our network management center also monitors the end-to-end services that we provide to our customers, including the terrestrial infrastructure used to provide these services. We began to transition the management of customer traffic on the IA satellites to our network management center upon the closing of the Intelsat Americas Transaction. In August 2004, we assumed full control of the management and operations of all customer traffic on the IA satellites without any disruption to our customers. By December 31, 2004, we had assumed full control and operation of two of the four currently in-orbit IA satellites. We assumed full control and operation of the remaining two satellites by March 1, 2005.
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Our satellite control center and network management center use a network of ground facilities to perform their functions. This network includes eight primary earth stations that provide tracking, telemetry and command services (which we refer to as TT&C services) for our satellites, referred to as our TT&C stations, and various other earth stations worldwide. We also maintain a back-up operations facility and data center a relatively short distance from our Washington, D.C. facility. In addition to housing the full-time operations center that manages uplinks to the Intelsat Americas satellites for satellite news gathering services, this facility provides back-up emergency operational services in the event that our Washington, D.C. operations areas experience interruption. See “—Property, Plant and Equipment” for a description of this property and the locations of our ground network facilities.
In the past few years, we have established a ground network to complement our satellite fleet and to enable us to provide managed services. Communications providers around the world are seeking to optimize their networks and focus resources on their core competencies. Our managed services combine satellite capacity, terrestrial fiber capacity, communications hardware, ground facilities and network performance monitoring services to provide customers with a complete communications solution. Our terrestrial network includes six teleports or leased teleport facilities, leased fiber connections and strategically located points of presence, which are drop- off points for our customers’ traffic that are close to major interconnection hubs for telecommunications applications, video transmissions and trunking to the Internet backbone. We manage our terrestrial network infrastructure for high technical performance, and in less than two years have grown the amount of traffic on our ground network to over 4 Gigabits, which is equivalent to the capacity of an entire satellite.
Capacity Sparing and Satellite Insurance
Both in-orbit sparing capability and insurance are important components of our risk mitigation strategy for satellite-related malfunctions. While insurance provides cash proceeds in the event of an insured loss, in-orbit sparing provides capacity to meet customers’ needs in the event of a launch failure or an in-orbit failure.
Capacity Sparing
We believe that the availability of spare capacity, together with the overlapping coverage areas of our satellites and flexible satellite design features described in “— Network—Our Satellites” above, are important aspects of our ability to provide reliable service to our customers. In addition, these factors would enable us to mitigate the financial impact to our operations attributable to the loss of a satellite. Our system accommodates in-orbit sparing through the use of capacity on satellites that are less than fully utilized. In addition, we sell some capacity on a preemptible basis and could preempt the use of this capacity in the event of a loss of a satellite. This approach enables us to optimize our fleet and to minimize potential revenue loss. See Item 3.D — “Risk Factors” for a discussion of the impact of a launch or in-orbit failure on our business.
Satellite and Other Insurance
As of December 31, 2004, we had in place an insurance policy that covered the in-orbit operations of our Intelsat IX series satellites. We chose to co-insure $150 million of the net book value of each covered satellite, and insurers covered the balance of the net book value of each satellite, excluding capitalized performance incentives relating to the satellites. This policy expired on March 8, 2005, and we do not currently have insurance on our in-orbit satellites with the exception of the IS-10-02 satellite.
We have in place an insurance policy covering the in-orbit operations of our IS-10-02 satellite through June 17, 2005, which we do not intend to renew. Under this policy, we co-insure approximately $55 million relating to the satellite. This amount includes the portion of the net book value of the satellite, excluding capitalized performance incentives, corresponding to the portion of the satellite that we own after the sale of certain transponders to Telenor and the net book value of ground network costs relating exclusively to the satellite. If a total loss to IS-10-02 occurs, we would bear the cost up to the amount that we co-insure. If a partial loss occurs, we would bear nearly 20% of the loss. In either case, we would bear the cost of performance incentives, if any, earned in connection with continued performance of the satellite. We have in place insurance to cover the launch and 180 days of in-orbit operations of the IA-8 satellite in an amount approximating the net book value of the satellite. This insurance will expire if the satellite is not launched before December 31, 2005.
We also have insurance in place through March 31, 2005 for losses to our IS-801 satellite if the cause is related to the satellite’s north solar array. In March 1997, the satellite experienced an anomaly that resulted in a reduction in the satellite’s orbital life. Pursuant to settlement agreements with the IGO, insurers paid $33.3 million based on an estimated orbital life that we currently expect the IS-801 satellite to exceed. If it does so, we will be required to pay insurers 10% of our gross revenue from the satellite, up to
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$33.3 million, for the period from the end of orbital life estimated in connection with the settlement agreements to the satellite’s actual end of orbital maneuver life.
We do not have, and do not intend to obtain, in-orbit insurance coverage for the other satellites in orbit, including all of the IA satellites in orbit, not covered by the insurance policies described above. Excluding the IS-804 satellite, the aggregate net book value of these 26 satellites as of December 31, 2004 was $2.6 billion, which includes five satellites with no book value.
In addition to the satellite insurance described above, we currently maintain third-party liability insurance up to a limit of $300 million per occurrence or in the aggregate per year for damages for physical injury and property damage to third parties caused by our satellites. Our current policy expires in early June 2005. We do not insure against lost revenue in the event of a total or partial loss of a satellite.
Sales, Marketing and Distribution Channels
Our sales and marketing effort is designed to build long-term relationships with our customers, with the objectives of sustaining and growing our core fixed satellite services business, diversifying our service portfolio and expanding our customer base. As a customer-focused organization, we work with our customers to ensure that we provide services responsive to their needs. Our Intelsat Global Sales subsidiary, located in London, England, is our global sales and marketing headquarters. In addition, we have established local sales and marketing support offices in the following locations around the world:
• Brazil
• China
• France
• Germany
• India
• Singapore
• South Africa
• the United Arab Emirates
• the United States
We have established these local offices in order to be closer to our customers and thereby to enhance our responsiveness as customer needs arise. Our sales force has evolved in recent years to reflect our corporate focus on our three principal service application areas of voice and data, video and government/military. In addition, as we developed and began marketing more managed services to our customers, we enhanced our sales team to include greater technical marketing and sales engineering expertise and a sales approach focused on creating integrated solutions for our customers’ communications requirements. By establishing local offices closer to our customers and staffing those offices with experienced personnel, we believe that we are able to provide flexible and responsive service and technical support to our customers.
We believe that we enjoy significant brand recognition with current and potential users of our satellite services. We use our brand name, superior network performance and technical support to market our services to a broad spectrum of customers seeking to communicate globally. We use a range of distribution methods to sell our services, depending upon the region, applicable regulatory requirements and customer application. Our wholesale distributors include the incumbent telecommunications providers in a number of countries, competitive communications providers and network integrators. In addition, we sell our services directly to broadcasters, other media companies, major institutions and other customers, particularly in North America.
Backlog
As of December 31, 2004, we had backlog of approximately $4 billion. See Item 5 — “Operating and Financial Review and Prospects —Backlog” for additional information regarding our backlog. Taking into account the impact of the IA-7 satellite anomaly and the recent loss of the IS-804 satellite, we currently expect to deliver services associated with $862 million, or 22%, of our December 31, 2004 backlog over the twelve months ending December 31, 2005.
Satellite Communications Industry
Fixed Satellite Services Sector
We compete in the global communications market for the provision of voice, data, video and wholesale Internet connectivity. Communications services are provided using various communications technologies, including satellite networks, which provide services as a substitute for, or as a complement to, the capabilities of terrestrial networks. We currently operate in the FSS sector of the satellite industry. Operators in the FSS sector, which is the most established sector in the satellite industry, provide
42 Table of Contents communications links between fixed points on the earth’s surface. These services include the provision of satellite capacity between two fixed points, referred to as point-to- point services, and the simultaneous provision of satellite capacity from one fixed point to multiple fixed points, referred to as point-to-multipoint services. Point-to-point applications include telephony, video contribution and data transmission, such as Internet backbone connectivity. Point-to-multipoint applications include DTH and corporate networks.
Over the last several years, deregulation, privatization and consolidation have significantly reshaped the FSS sector. The FSS sector has undergone significant changes in ownership over the past several years as intergovernmental organizations such as our predecessor, the IGO, and the European Telecommunications Satellite Organization, or Eutelsat, have privatized. In addition, the sector has undergone consolidation, with regional and national operators being acquired by larger companies and smaller operators exiting the business or seeking to partner with other providers. We believe that these changes are the result of the increasing globalization of the telecommunications market, customers’ demand for more robust distribution platforms with network redundancies and worldwide reach, and the desire of some FSS operators to secure and improve their market access in key regions. In addition, the scarcity of desirable orbital locations may lead operators to seek to acquire other operators with specific coverage or capacity capabilities. Consolidation may also occur because of the economies of scale from operational and capital expenditure and from marketing efficiencies that can be achieved. There has also been a recent increase in private equity ownership of FSS operators, which is expected to lead to further consolidation and capacity rationalization.
Competitive Advantages of Satellites
Satellites provide a number of advantages over terrestrial communications systems that we believe will result in the continued use of fixed satellite services in the global communications market, particularly for point-to-multipoint applications such as video and corporate data networking. These advantages include satellites’ ubiquitous coverage, their ability to broadcast signals to many locations simultaneously and the seamless transmission afforded by the ability of satellites to broadcast directly to telecommunications services providers and avoid points of congestion. These advantages also include the ability of satellites to operate independently of other telecommunications infrastructures, as well as rapid deployment through the quick installation of the terrestrial hardware necessary to access satellite capacity.
Challenges for New Entrants
There are significant challenges for new entrants into the global satellite communications industry, including the limited number of desirable orbital locations and frequencies that can be coordinated for use and the approvals from numerous national telecommunications authorities required to operate a global satellite communications system. These challenges also include the significant time, large capital investment and high level of technical expertise required to design, construct, launch and operate a satellite. These factors lead us to believe that the number of new entrants to the sector will remain low in the near future.
Competition
We are a global satellite operator. Our competitors include global providers of fixed satellite services, as well as regional satellite operators. We also face significant competition from suppliers of terrestrial communications capacity. We compete with other satellite operators for both point-to-multipoint and point-to-point services. We compete with fiber optic cable operators principally for point-to-point services.
Satellite Operators
We compete with other global satellite operators based on several factors, including price, access, coverage, availability of service and service quality and reliability. The other large global satellite operators are:
SES GLOBAL. SES GLOBAL S.A., referred to as SES, was formed in November 2001 by the combination of ASTRA, Europe’s leading provider of satellite capacity for DTH reception, and AMERICOM, one of the FSS operators based in the United States. SES GLOBAL has a fleet of 28 wholly owned satellites in commercial operation and holds strategic investments in companies that together operate an additional 10 satellites. As of December 31, 2004, SES was a publicly traded company with listings on the Luxembourg Stock Exchange and Euronext Paris. Other major shareholders in SES Global include the Luxembourg government and GE Capital.
PanAmSat. PanAmSat Corporation owns and operates 24 wholly owned satellites with global coverage. PanAmSat is a leading provider of satellite capacity for television program distribution to network and cable systems in North and South
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America, Africa, South Asia and the Asia-Pacific region. In August 2004, affiliates of Kohlberg Kravis Roberts & Co., The Carlyle Group and Providence Equity Partners, Inc. and certain members of PanAmSat Corporation’s management completed the acquisition of this company. During 2004, the parent company of PanAmSat filed its initial S-1 registration statement with the SEC in connection with an initial public offering.
New Skies. New Skies, whose predecessor was spun off from the IGO in 1998, owns a fleet of five satellites. New Skies offers voice, data, video and Internet communications services to a range of customers. In November 2004, affiliates of The Blackstone Group completed their acquisition of New Skies. During 2005, the parent company of New Skies filed an S-1 registration statement with the SEC in connection with an initial public offering.
We also compete with a number of companies and governments that operate domestic or regional satellite systems around the world. Competition from these satellite operators is usually limited to service within one country or region, depending on the operator’s satellite coverage and market activities. In addition, some countries limit access to their markets in order to protect their national satellite systems. As regulations in various foreign markets are liberalized, we believe that we will be better able to compete in those markets. Other regional operators are:
Eutelsat. Eutelsat S.A. operates a fleet of 20 owned satellites and leases capacity on four satellites that together primarily provide broadcast video and radio services across its core market of Europe and certain other regions around the world. As of December 31, 2004, about 86% of Eutelsat’s shares were held by private equity controlled entities, with the largest shareholders being Eurazeo and Nebozzo, which together own, individually and through joint ownership, about 58% of Eutelsat’s outstanding shares. About 14% of Eutelsat’s shares are owned by its former signatories.
Loral. Loral Space & Communications Ltd. is a diversified satellite company with substantial activities in satellite manufacturing and satellite-based communications. On July 15, 2003, Loral Space & Communications Ltd. and several of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In March 2004, we completed the purchase of this company’s North American satellite assets. Loral currently operates a fleet of five satellites and provides services primarily to broadcasters in Asia, Europe and the Americas.
While the five companies described above offer services similar to those that we offer, all of these companies have historically derived a greater share of their total revenue from the provision of video services than we have. However, we believe that our long history of high-quality, reliable service and the redundancy and flexibility of our network distinguish us from other satellite operators.
We expect consolidation in the industry to continue. See Item 3.D — “Risk Factors” for information on the effect of consolidation in our industry on our competitive environment.
Fiber Optic Cables
We compete with providers of terrestrial fiber optic cable capacity on certain routes. As a result, we have been experiencing, and expect to continue to experience, a decline in our channel and carrier product revenue due to the build-out of fiber optic cable capacity. However, we believe that satellites have advantages over fiber optic cables in certain regions and for certain applications. The primary use of fiber optic cables is carrying high-volume communications traffic from point to point, and fiber capacity is available at substantially lower prices than satellite capacity once operational. Consequently, the growth in fiber optic cable capacity on point-to-point transoceanic routes, particularly across the Atlantic Ocean, has led voice, data and video contribution customers that require service between major city hubs to migrate from satellite to fiber optic cable. However, satellite capacity remains competitive for signals that need to be transmitted beyond the main termination points of fiber optic cables, for point-to-multipoint transmissions and for signals seeking to bypass congested terrestrial networks. Satellite capacity is also competitive in parts of the world where providing fiber optic cable capacity is not yet cost-effective or is physically not feasible. We believe that the competition we face from fiber optic cable companies is based primarily on price.
Regulation
We are regulated by the FCC under the Communications Act of 1934, as amended. We also are subject to the requirements of the ORBIT Act and the export control laws, sanctions regulations and other laws and regulations of governmental entities in the countries in which we operate. In addition, we are subject to the satellite registration process of the International Telecommunication Union.
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Regulation by the FCC
Except for our use of the Broadcast Satellite Services or BSS portion of the Ku-band on one satellite, which is subject to U.K. regulation as described below, and our use of the C-band on one satellite, which is subject to regulation by PANGTEL, all of our currently operating satellites are licensed in the United States. Our ownership and operation of these satellites is regulated by the FCC, the government agency with primary authority in the United States over the commercial use of satellite radio communications. Violations of the FCC’s rules may result in various sanctions, including fines, loss of authorizations and the denial of applications for new authorizations or the renewal of existing authorizations.
Authorization to Launch and Operate Satellites
The FCC will issue licenses to launch and operate satellites to satellite operators that meet the FCC’s legal and technical requirements. The FCC requires applicants for satellite licenses to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites and expects adjacent satellite operators to coordinate with one another to avoid or minimize harmful interference. The FCC does not become involved unless the operators are unable to resolve their conflicts.
On August 8, 2000, the FCC conditionally authorized our Intelsat LLC subsidiary to operate the IGO’s 17 C-band and Ku-band satellites existing at that time and to construct, launch and operate the satellites that were then planned. These authorizations are conditioned on our compliance with the requirements of the ORBIT Act, which are discussed below under “—The ORBIT Act.” These conditional authorizations provided Intelsat LLC with access to a total of 22 orbital locations and granted multiple waivers of the FCC’s technical rules to accommodate the existing design and operations of our satellite system. For example, the FCC waived its two-degree spacing requirement to allow operation of those of our satellites that did not conform to this requirement. The FCC also waived certain financial requirements. The FCC’s waivers with respect to a particular satellite will apply for the entire term of the satellite license. However, the FCC is not required to grant additional waivers to us in connection with future satellite applications.
Intelsat LLC’s conditional authorizations for the IS satellites became effective on July 18, 2001, the date on which the IGO, in connection with the privatization, transferred ownership of its satellites to Intelsat LLC. This was also the date on which the IGO transferred its International Telecommunication Union network filings for 22 orbital locations associated with the operation of these satellites to the U.S. national registry. Pursuant to these conditional FCC licenses, Intelsat LLC may use its orbital locations and satellites to provide services in the United States and internationally.
In February 2004, the FCC conditionally approved the transfer to our Intelsat North America LLC subsidiary of licenses to operate at five orbital locations associated with the Intelsat Americas assets acquired from Loral. This approval is conditioned on our compliance with the requirements of the ORBIT Act. In addition, this approval is conditioned on our compliance with our security-related commitments to the Department of Justice, Department of Homeland Security and Federal Bureau of Investigation, including our commitment to establish a security committee of the board of directors of our Intelsat Global Service Corporation subsidiary to establish and oversee policies relating to U.S. national security and law enforcement concerns. In connection with the FCC’s approval of the transfer of the Loral licenses to us, we also voluntarily committed to ensure continuity of broadband service to certain customers existing at that time in Alaska and Hawaii. In March 2004, SES filed an application for review of the FCC’s order relating to the Intelsat Americas Transaction. SES’ application requests that the FCC vacate the special temporary authority to provide capacity for DTH services to customers we acquired from Loral and requests that the FCC reconsider its decision not to impose conditions on our ability to provide services to the U.S. government using the acquired satellites. See “—The ORBIT Act” for a description of the special temporary authority. The comment period relating to SES’ application has ended, and the FCC has not yet acted on the application.
With the exception of the IS-702 satellite, which is discussed below, the license term for each of our 17 IS satellites that was in operation on the date of the FCC’s August 8, 2000 licensing order is 15 years or end of life, whichever comes first, with the license term commencing on July 18, 2001. The license term for each of our other satellites in orbit, including the IA satellites, is 15 years from the date of certification to the FCC that the satellite had been successfully placed into orbit and that the satellite’s operations conformed to the requirements of the FCC licenses. On March 19, 2004, the FCC modified Intelsat LLC’s license for the IS-702 satellite to allow for its operation at its current orbital location, subject to conditions, and provided for expiration of the license term for such operation on March 8, 2009. The license term for the IA-8 satellite that we acquired from Loral is 15 years from the date that we certify to the FCC that the satellite has been successfully placed into orbit and that the satellite’s operations conform to the requirements of the FCC license.
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At the end of a license term, we can request special temporary authorization to continue operating a satellite. The FCC generally grants such authorization after the expiration of the initial license term. However, such authorization is not guaranteed. We can also request licenses to launch and operate replacement satellites. The FCC’s rules do not guarantee that it will grant licenses for replacement satellites. In practice, however, the FCC generally grants requests for replacement satellites. If the FCC does not issue us a license to launch and operate a replacement satellite in any of our 27 orbital locations that are regulated by the FCC, the orbital location could become available for use by other satellite operators. The FCC is currently considering our request for one replacement satellite, which is the IA-9 satellite that we have on order.
Changes to our licensed satellite system generally require FCC approval. The FCC, at our request, has previously approved a number of modifications to our conditional licenses. These modifications have included changes in satellite orbital locations and revised orbital relocation dates. The FCC has also granted periodic requests by us for special temporary authority to conduct in-orbit testing of newly launched satellites and to operate our licensed satellites in different orbital locations on a temporary basis.
Not including our IS-804 satellite, which recently experienced an anomaly that resulted in a total loss, or the Marisat-F2 satellite in which we acquired an ownership interest in connection with the COMSAT General Transaction, we own and operate 27 C-band and Ku-band satellites and have plans for two additional satellites. See “—Our Network—Planned Satellites” for a description of these planned satellites. We must construct, launch and operate additional satellites licensed by the FCC by specified target dates, referred to as milestones. The failure to meet these milestones for a satellite will render our FCC license for that satellite null and void and could result in our losing access to the orbital location associated with that satellite. The FCC imposes these milestones on all U.S.-licensed satellite operators in order to prevent the warehousing of orbital locations. If we experience delays in meeting a milestone, we can apply to the FCC for an extension. The FCC will generally grant an extension if the delays are due to circumstances outside of a satellite operator’s control, such as the late delivery of a satellite by a satellite manufacturer. The FCC is currently considering our request for extension of the launch milestone for our IA-8 satellite.
Other FCC Authorizations
We have subsidiaries that hold other Title III licenses, including earth station and experimental earth station licenses associated with technical facilities located in several states and in Washington, D.C. In addition, certain of our subsidiaries hold Title II common carrier authorizations. As a result, we are subject to FCC common carrier requirements, including traffic and revenue, international circuit status and international interconnected private line reporting. These requirements also include notification and approval for foreign carrier affiliations, filing of contracts with international carriers, annual financial reports and equal employment opportunity reports. We currently qualify for exemptions from several of these reporting requirements. Finally, we are subject to requirements to provide communications assistance for law enforcement and to maintain customer billing records for 18 months.
FCC Fees
We must pay FCC filing fees in connection with our satellite and earth station applications and annual regulatory fees that are intended to defray the FCC’s regulatory expenses. In addition, we may be subject to universal service contributions in connection with our provision of interstate or international telecommunications services.
FCC Non-U.S. Ownership Restrictions
Some of our existing FCC licenses are subject to Section 310(b)(4) of the Communications Act of 1934, as amended. Section 310(b)(4) establishes a 25% benchmark for indirect ownership by non-U.S. individuals, corporations and governments in U.S. common carrier radio licensees, but grants the FCC the discretion to allow for higher levels of non-U.S. ownership if it determines that such ownership is not inconsistent with the public interest. Accordingly, we were required to obtain, and have obtained in the FCC’s December 22, 2004 order approving the Acquisition Transactions, FCC approval of the non-U.S. ownership in our company that existed upon closing of the Acquisition Transactions. In addition, the FCC stated in that order that our FCC-licensed subsidiaries may accept up to and including an additional 25% indirect equity and/or voting interest from Intelsat Holdings’ current foreign investors and from other foreign investors, subject, however, to the condition that no single non-U.S. individual or entity (other than Intelsat Holdings) may acquire a greater-than-25% indirect equity and/or voting interest in our FCC-licensed subsidiaries without prior FCC approval. We are also required to seek prior FCC approval before any investor from a non-World Trade Organization or WTO member country acquires equity or voting interests in our company that, when aggregated with the current ownership in our company by investors from non-WTO member countries, exceeds 25%. Currently, less than 5% of our equity is indirectly held by individuals or entities from non-WTO member countries, including WTO observer countries. We monitor the non-U.S. ownership in our company and would, if necessary, periodically seek FCC approval that the non-U.S. ownership of our company is not inconsistent
46 Table of Contents with the public interest. The FCC has noted that, with respect to non-U.S. investment by WTO member countries, there is a rebuttable presumption that such investment raises no competitive concerns. See Item 3.D — “Risk Factors” for a discussion of the risk associated with exceeding the non-U.S. ownership limitations. Prior to consummation of the Transfer Transactions, we were required to obtain, and have obtained, a ruling from the FCC that the level of non-U.S. ownership resulting from the consummation of certain of the Transfer Transactions is not inconsistent with the public interest.
The ORBIT Act
The stated purpose of the ORBIT Act, which entered into force in March 2000, is “to promote a fully competitive global market for satellite communication services for the benefit of consumers and providers of satellite services and equipment by fully privatizing the intergovernmental satellite organizations, INTELSAT and Inmarsat.” The ORBIT Act sets forth criteria that the FCC must evaluate in considering our license and renewal applications and in connection with customer requests for authorization to use our satellite capacity to provide “non-core services” to, from or within the United States. “Non-core services” are defined in the ORBIT Act as any services other than public- switched voice telephony and occasional use television. We must comply with the ORBIT Act in order to obtain required authorizations from the FCC and to avoid limitations on the types of services for which our capacity may be used.
Prior to a recent amendment, the ORBIT Act required us to conduct an initial public offering that would “substantially dilute” the ownership interest in our company held by the IGO’s former Signatories by June 30, 2005, which may be extended to December 31, 2005 by the FCC. In addition, the ORBIT Act required that our shares be listed for trading on one or more major stock exchanges with transparent and effective securities regulation. Pursuant to an amendment to the ORBIT Act that became law in October 2004, we may now forgo an initial public offering and a listing of our shares and still achieve the purposes of the ORBIT Act if we certify to the FCC that, among other things, a majority financial interest in us is no longer held or controlled by the IGO’s former Signatories and the FCC determines, after notice and comment, that we are in compliance with this certification.
In connection with our authorization from the FCC relating to the Intelsat Americas Transaction, the FCC interpreted the ORBIT Act to authorize it to preclude us from providing “additional services” that we did not provide prior to March 17, 2000, the effective date of the ORBIT Act, until we are deemed to have satisfied the initial public offering requirements of the ORBIT Act. “Additional services” are direct-to-home or direct broadcast satellite video services or services in the Ka- or V-band. Consequently, the FCC’s authorization relating to the Intelsat Americas Transaction prohibits our Intelsat North America LLC subsidiary from using the satellites acquired from Loral to provide capacity for DTH services until the FCC has determined that we have satisfied the initial public offering requirements of the ORBIT Act. Nevertheless, the FCC has granted special temporary authority to Intelsat North America LLC to provide services to DTH providers pursuant to the customer contracts we acquired in the Intelsat Americas Transaction until April 13, 2005. As noted above, SES has filed an application for review of the FCC’s order relating to the Intelsat Americas Transaction. If the FCC’s decision on SES’ application is adverse to us, the FCC could revoke this special temporary authority. The FCC’s authorization relating to the Intelsat Americas Transaction was issued before the October 2004 amendment to the ORBIT Act.
Because the existing financial interests of the IGO’s former Signatories were eliminated upon the closing of the Acquisition Transactions, we believe these transactions satisfy the requirements set forth in the ORBIT Act, as amended. On December 23, 2004, Intelsat filed with the FCC the certification required by the ORBIT Act and a petition for declaratory ruling seeking an FCC determination that we are in compliance with the certification requirements of the ORBIT Act. The FCC established deadlines of February 14, 2005, and March 1, 2005, for interested parties to file comments on the petition for declaratory ruling. Two parties filed comments in support of and one party opposed the petition. We filed a reply to the comments in opposition. We believe that the restriction on Intelsat North America LLC’s ability to provide capacity for DTH services will cease to apply if the FCC determines that we are in compliance with these certification requirements. However, we cannot be certain how or when the FCC will rule on the petition for declaratory ruling. If the FCC determines that we have failed to comply with the criteria set forth in the ORBIT Act, the ORBIT Act directs the FCC to limit through conditions or deny our applications for satellite licenses or the renewal of these licenses and to limit or revoke previous authorizations to use our capacity for non- core services to, from or within the United States. The FCC may also deny licensing for additional services in the United States. See Item 3.D — “Risk Factors” for a discussion of the risks associated with a determination by the FCC that we are not in compliance with the ORBIT Act.
U.S. Export Control Requirements and Sanctions Regulations
As a company with subsidiaries located in the United States, we must comply with U.S. export control laws and regulations, specifically the Arms Export Control Act, the International Traffic in Arms Regulations, also known as the ITAR, the Export
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Administration Regulations and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Controls, referred to as OFAC, in the operation of our business. The export of satellites, satellite hardware, defense services and technical information relating to satellites to non-U.S. satellite manufacturing firms, launch services providers, insurers, customers, employees and other non-U.S. persons is regulated by the U.S. Department of State’s Directorate of Defense Trade Controls under the ITAR. Many of our contracts for the manufacture, launch, operation and insurance of our satellites involve the export to non-U.S. persons of technical data or hardware regulated by the ITAR. Our U.S. subsidiaries have obtained all of the specific Directorate of Defense Trade Controls authorizations currently needed in order to fulfill their obligations under their contracts with non-U.S. entities, and we believe that the terms of these licenses are sufficient given the scope and duration of the contracts to which they pertain.
Because of our history as a public international organization, many of our employees are non-U.S. nationals. Our provision of technical information relating to our satellites to these non-U.S. national employees is also regulated by the ITAR. We have obtained a license from the Directorate of Defense Trade Controls to allow certain of our non-U.S. national employees access to our technical information that is controlled under the ITAR.
Additionally, since Intelsat is based in Bermuda and it and its employees are non-U.S. persons for purposes of the ITAR, some of our suppliers located in the United States must also comply with U.S. export control laws and regulations in order to provide to us ITAR-controlled technical data or hardware.
The U.S. Department of Commerce’s Bureau of Industry and Security also regulates some of our activities under the Export Administration Regulations. The Bureau regulates our export of equipment to earth stations in our ground network located outside of the United States. It is our practice to obtain all licenses necessary for the furnishing of original or spare equipment for the operation of our TT&C earth station facilities in a timely manner in order to facilitate the shipment of this equipment when needed.
With U.S. subsidiaries subject to U.S. laws and regulations, we cannot provide services to certain countries subject to U.S. trade sanctions unless we first obtain the necessary authorizations from the U.S. Department of the Treasury’s Office of Foreign Assets Control. Where required, OFAC has granted our U.S. subsidiaries the authorizations needed to provide satellite capacity and related administrative services to U.S.-sanctioned countries. However, these licenses are strictly limited to the provision of public international telecommunications services as defined in the treaty governing the IGO. The provision of additional telecommunications services would require separate authorization from OFAC.
See Item 3.D — “Risk Factors” for a discussion of risks relating to U.S. export control requirements and sanctions regulations.
U.S. Department of Defense Security Clearances
To be able to participate in classified U.S. government programs, we sought and obtained security clearances for one of our subsidiaries from the U.S. Department of Defense under the federal rules and regulations relating to the National Industrial Security Program. Because Intelsat is a Bermuda company, we were required to take action to mitigate the impact of the non-U.S. ownership of the subsidiary seeking these clearances before the U.S. Department of Defense would issue the required security clearances. Specifically, we put in place a proxy agreement relating to the corporate governance of this subsidiary to ensure that its parent companies do not exert influence over decisions that could negatively impact the security of the U.S. government’s classified information. This subsidiary has also established a government security committee that sets procedures to ensure that no classified information is transmitted between it and its affiliates. If we do not maintain the security clearances that we have obtained from the U.S. Department of Defense, we will not be able to perform our obligations under any classified U.S. government contracts to which our subsidiary is a party, the U.S. government would have the right to terminate our contracts requiring access to classified information and we will not be able to enter into new classified contracts. Further, if we materially violate the terms of the proxy agreement, the subsidiary holding the security clearances may be suspended or debarred from performing any government contracts, whether classified or unclassified.
U.K. Regulation
The United Kingdom is the licensing jurisdiction for all but one of our orbital registrations in the Ka-band and for our registrations in the Ku-band spectrum allocated for BSS in the applicable International Telecommunication Union plans. We do not currently operate any satellites in the Ka-band. Our IA-8 satellite expected to be launched during the second or third quarter of 2005 will have transponders available for transmitting in the Ka-band, but we currently plan to deploy IA-8 at an orbital location licensed by the FCC. We currently use the BSS portion of the Ku-band on one of our satellites to provide fixed satellite services. Satellite
48 Table of Contents operators in the United Kingdom are regulated by the U.K.’s Office of Communications. Ofcom has reserved Ka-band and BSS orbital registrations for our benefit and use and has indicated that the licenses held by the IGO before privatization continue to apply to us after privatization. See Item 3.D — “Risk Factors—Risk Factors Relating to Regulation” for a discussion of risks associated with U.K. regulatory requirements.
Papua New Guinea Regulation
One of our orbital locations has been reserved for our use by PANGTEL. Accordingly, this orbital location and the satellite that occupies this location are subject to regulation by PANGTEL. We are required to pay fees to PANGTEL in connection with our use of this orbital location. If we fail to keep a satellite at this location, our rights to use the location could be terminated.
Regulation by Other Countries
As a provider of satellite capacity in over 200 countries and territories, we are subject to the national communications and broadcasting laws and regulations of many countries. Most countries that we serve require us to obtain a license or other form of written authorization from the regulator prior to offering service. We have obtained or are obtaining these licenses or other written authorizations in all countries in which they are required.
Many countries have liberalized their regulations to permit multiple entities to seek licenses to provide voice, data or video services. They also increasingly permit multiple entities to seek licenses to own and operate earth station equipment and to choose their providers of satellite capacity. We believe that this trend should continue due to commitments by many World Trade Organization members, in the context of the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Most countries allow authorized telecommunications providers to own their own transmission facilities and to purchase satellite capacity without restriction, facilitating customer access to our services.
Other countries, however, have maintained strict monopoly regimes or otherwise regulate the provision of our services. In these countries, a single entity, often the government-owned telecommunications authority, may hold a monopoly on the ownership and operation of telecommunications facilities or on the provision of communications or broadcasting services to, from or within the country, including via satellite. As a result, end users may be required to access our services through this monopoly entity. In order to provide services in these countries, we may need to negotiate an operating agreement with that monopoly entity that covers the types of services to be offered by each party, the contractual terms for service and each party’s rates.
As we have developed our global communications network and expanded our service offerings, we have been required to obtain additional licenses and authorizations. The type of authorization required, if any, has depended on the type of service provided and the extent to which the ground network component is owned and operated by us. To date, we believe that we have identified and complied with all of the regulatory requirements applicable to us in connection with our ground network and expanded services.
Notwithstanding the variety of regulatory regimes existing in the over 200 countries and territories to which we provide our services, we believe that we comply in all material respects with all applicable laws and regulations governing our operations.
International Telecommunication Union Regulation
Our use of our orbital locations is subject to the frequency coordination and notification process of the International Telecommunication Union, also known as the ITU. In order to protect satellite systems from harmful radio frequency interference from other satellite systems, the ITU maintains a Master International Frequency Register of radio frequency assignments and their associated orbital locations. In order to have a satellite network registered with the ITU, a notifying administration is required by treaty to file, coordinate and give notice of its proposed use of radio frequency assignments and associated orbital locations with the ITU’s Radiocommunication Bureau.
When the coordination part of the process is completed, the ITU formally notifies all proposed users of the frequencies and orbital location in order to protect the registered user of the orbital location from subsequent or nonconforming interfering uses by other nations. The ITU’s Radio Regulations do not contain mandatory dispute resolution or enforcement mechanisms. The Radio Regulations’ arbitration procedure is voluntary and neither the ITU specifically, nor international law generally, provides clear remedies if this voluntary process fails. Only nations have full standing as ITU members. Therefore, we must rely on the governments of the United States, the United Kingdom, Papua New Guinea and Germany to represent our interests before the ITU, including obtaining new rights to use orbital locations and resolving disputes relating to the ITU’s rules and procedures.
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Certain Customer Service Agreements
Our Intelsat Global Sales subsidiary is the contracting party for most of our customer service agreements. For regulatory reasons, our Brazilian customers contract with Intelsat Brasil Ltda., a Brazilian subsidiary. Our U.S., Canadian and Caribbean customers enter into agreements with certain of our U.S. subsidiaries. References to “our,” “we” and “us” below in our discussion of our service agreements are to the Intelsat entities that are the actual contracting parties to the service agreements.
Our customers generally obtain satellite capacity from us by placing an order pursuant to one of several master customer service agreements. These agreements offer different service commitment types, including lease, channel and carrier, and managed services. For a description of these service commitment types and a breakdown of our revenue by service commitment type, see Item 5 — “Operating and Financial Review and Prospects —Overview” and Item 5 — “Operating and Financial Review and Prospects —Results of Operations.”
Most customer service commitments entered into prior to our privatization were transferred to us from the IGO pursuant to novation agreements. Since the privatization, our customers generally order services pursuant to master service agreements. The novation agreements and the master service agreements that we entered into in connection with the privatization contain provisions that restrict certain aspects of our business. These provisions are described below. Following our privatization, we have entered into master service agreements that do not contain these types of restrictions.
Novation Agreements
Each novation agreement sets forth the terms and conditions upon which the service commitments entered into prior to the privatization are provided. The same form of novation agreement was offered to all of the IGO’s customers. Accordingly, the same terms and conditions generally apply to all customer service commitments transferred by the IGO pursuant to a novation agreement. Approximately one third of the outstanding customer commitments that are represented in our December 31, 2004 backlog are covered by novation agreements and, therefore, are subject either to most favored customer (“MFC”) or lifeline connectivity obligation (“LCO”) protections. MFC protection continues for up to five years after July 18, 2001. LCO protection can continue until July 18, 2013. As of December 31, 2004, approximately 23% of the outstanding customer commitments in our backlog were MFC-protected and approximately 11% of the outstanding customer commitments in our backlog were LCO-protected. Although our backlog could be reduced if our MFC or LCO protection obligations are triggered, neither MFC nor LCO has had a significant impact on our backlog to date. See Item 3.D — “Risk Factors—Risk Factors Relating to Our Privatization” for a description of the risks to our business relating to our obligations to provide MFC and LCO protection.
C. Organizational Structure
All of our ordinary shares are owned by Intelsat Holdings, a holding company incorporated under the laws of Bermuda. Intelsat, Ltd., a company incorporated under the laws of Bermuda, is also a holding company. The principal subsidiaries of Intelsat, Ltd. are as follows:
Intelsat Bermuda, a company incorporated under the laws of Bermuda, is a wholly owned subsidiary of Intelsat. Intelsat Bermuda is a holding company.
Intelsat Subsidiary Holding is a company incorporated under the laws of Bermuda, is a wholly owned subsidiary of Intelsat Bermuda, and is responsible for the oversight of satellite procurement and operational matters. This subsidiary contracts with Intelsat LLC to buy all of Intelsat LLC’s satellite capacity and sells satellite capacity to Intelsat Global Sales and Intelsat General Corporation.
Intelsat Holdings LLC, a limited liability company organized under the laws of Delaware, is a wholly owned subsidiary of Intelsat Subsidiary Holding that in turn holds all of the membership interests in Intelsat LLC.
Intelsat LLC, a limited liability company organized under the laws of Delaware, holds our satellites, satellite licenses, rights to use orbital locations and other related assets. Intelsat LLC sells all of its satellite capacity to Intelsat Subsidiary Holding. Intelsat LLC is wholly owned by Intelsat Holdings LLC.
Intelsat Global Sales & Marketing Ltd., a company organized under the laws of England and Wales, buys all of the satellite capacity that it requires from Intelsat Subsidiary Holding. Intelsat Global Sales, as the contracting party to most of our customer
50 Table of Contents contracts, sells this satellite capacity directly to our customers and also sells satellite capacity to certain of our subsidiaries. Intelsat Global Sales is a wholly owned subsidiary of Intelsat Subsidiary Holding.
Intelsat Global Service Corporation, a corporation organized under the laws of Delaware, provides technical, marketing and business support services to Intelsat and its subsidiaries pursuant to intercompany contracts. Intelsat Global Service Corporation is a wholly owned subsidiary of Intelsat Subsidiary Holding.
Intelsat USA Sales Corp., a corporation organized under the laws of Delaware, is the contracting party with our U.S., Canadian and Caribbean customers. Intelsat USA Sales Corp. is a wholly owned subsidiary of Intelsat Global Sales.
Intelsat USA License Corp., a corporation organized under the laws of Delaware, holds FCC authorizations to provide common carrier services and associated customer contracts that we assumed in connection with the COMSAT World Systems transaction. Intelsat USA License Corp. is a wholly owned subsidiary of Intelsat USA Sales Corp.
Intelsat General Corporation, a corporation organized under the laws of Delaware, is the contracting party for our government customers in North America and Europe. Intelsat General Corporation is a wholly owned subsidiary of Intelsat USA Sales Corp.
D. Property, Plants and Equipment
Most of our employees and satellite operations facilities are located in Washington, D.C. Our Intelsat Global Service Corporation subsidiary owns the building in Washington, D.C. in which these facilities are located, but leases the land underlying the building from the U.S. government pursuant to a lease that expires in 2081. We have an option to purchase the land underlying the building that may be exercised on or after July 18, 2005, provided that the U.S. Congress authorizes legislation to enable the conveyance of the land to us. The building has approximately 917,000 gross square feet, of which approximately 546,500 square feet houses office space and the satellite operations facilities based in the building. See “—Network—Network Operations and Current Ground Facilities” for descriptions of these facilities. The building also houses the majority of our sales and marketing support staff and other administrative personnel. We also lease approximately 15,000 square feet of additional office space at another location in Washington, D.C.
We use a worldwide ground network to operate our satellite fleet and to manage the communications services that we provide to our customers. This network is comprised of a number of earth station facilities, including eight primary earth stations that perform TT&C and other services, located around the world. Our network also consists of the communications links that connect the earth stations to our satellite control center located at our Washington, D.C. building and to our back-up operations facility.
The eight primary TT&C earth stations in our ground network are located in Australia, Germany, Italy, Korea, South Africa and three U.S. locations. We own four of the primary TT&C earth stations in our ground network and contract with the owners of the other four primary TT&C stations for the provision of certain services. The contracts with the owners of these four stations have expiration dates ranging from May 31, 2005 to October 21, 2008. These contracts are in the final stages of having the options renewed for an additional five years. Other earth stations in our ground network include earth stations located in Argentina, Australia, Bahrain, the Caribbean, China, Colombia, Costa Rica, India, Italy, Korea, Russia, South Africa, Tahiti, the United Arab Emirates and another U.S. location.
In addition to providing TT&C services for the operation of our satellite fleet, three of the four earth stations that we own provide teleport services. Two of these three earth stations are in the United States and one is in Germany. We lease teleport facilities in Australia and China. We have also established points of presence connected by leased fiber at key traffic exchange points around the world, including Los Angeles, New York, Hong Kong and London. We lease our facilities at these traffic exchange points. We use our teleports and points of presence in combination with our satellite network to provide our customers with managed services. We have established video points of presence connected by leased fiber at key video exchange points around the world, including Baltimore, Los Angeles, Denver, New York, McLean, Hartford and London. We lease our facilities at these video exchange points. We use our teleports and points of presence in combination with our satellite network to provide our customers with video services.
We have an approximately 39,000 square foot facility located a relatively short distance from our Washington, D.C. facility. We have also leased approximately 18,000 square feet of office space and 9,300 square feet of storage space at this location. This facility includes a full-time operations center managing uplinks to the Intelsat Americas satellites. The facility also includes a back-up facility and data center that we use as back-up for our satellite and other business operations.
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We lease office space in Hamilton, Bermuda and London, England. Our Bermuda office was established in 2001 and serves as the headquarters for Intelsat Holdings, Intelsat and Intelsat Bermuda. Our London office houses the employees of Intelsat Global Sales, our sales and marketing subsidiary, and functions as our global sales headquarters. We also lease office space in New York, Brazil, China, France, Germany, India, Singapore, South Africa and the United Arab Emirates for our local sales and marketing support offices.
Our operations are subject to various laws and regulations relating to the protection of the environment, including those governing the management, storage and disposal of hazardous materials and the cleanup of contamination. As an owner or operator of property and in connection with current and historical operations at some of our sites, we could incur significant costs, including cleanup costs, fines, sanctions and third-party claims, as a result of violations of or liabilities under environmental laws and regulations. For instance, some of our operations require continuous power supply, and, as a result, current and past operations at our teleport and other technical facilities include fuel storage and batteries for back-up power systems. However, we believe that our operations are in substantial compliance with environmental laws and regulations.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read together with the Item 3.A — “Selected Financial Data” and our consolidated financial statements and their notes included elsewhere in this annual report. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. See Item 3.D — “Risk Factors” and “Forward-Looking Statements” for a discussion of factors that could cause our future financial condition and results of operations to be different from those discussed below.
Overview
We are a leading provider of fixed satellite communications services worldwide, supplying voice, data and video connectivity in over 200 countries and territories. Not including our IS-804 satellite, which recently experienced an anomaly that resulted in its total loss, or the Marisat-F2 satellite in which we acquired an ownership interest in connection with the COMSAT General Transaction, our global communications network includes 27 satellites in orbit, leased capacity on two additional satellites owned by other satellite operators in the Asia-Pacific region and ground facilities related to the operation and control of our satellites. Our network also includes ground network assets consisting of teleports, points of presence and fiber connectivity in locations around the world that we are using to provide managed services. Our network includes the North American satellite assets of Loral that we acquired in March 2004. In October 2004, we acquired the COMSAT Sellers’ business of providing satellite-based communications services to the U.S. government and other customers as well as an interest in the Marisat-F2 satellite. See “—Related Party Transactions—Pre-Acquisition Transactions— COMSAT General Transaction” for a description of this transaction.
In September 2004, we entered into an agreement to dispose of our investment in Galaxy. Accordingly, our consolidated financial statements reflect our investment in Galaxy as a discontinued operation. We completed the disposition of our investment in Galaxy in December 2004. Refer to Note 5 to our consolidated financial statements appearing elsewhere in this annual report for a discussion of our investment in Galaxy. Certain prior period amounts discussed below have been reclassified to conform to the current period’s presentation.
Impact of the Acquisition Transactions and the Transfer Transactions
Intelsat Holdings acquired Intelsat for total cash consideration of approximately $3 billion, with pre-acquisition debt of approximately $2 billion remaining outstanding. The Acquisition Transactions, completed on January 28, 2005, will be accounted for under the purchase method of accounting. In accordance with applicable accounting guidelines, the purchase price to be paid by Intelsat Holdings to acquire Intelsat and related purchase accounting adjustments will be “pushed down” and recorded in Intelsat and its subsidiaries’ financial statements and will result in a new basis of accounting for the “successor” period beginning on the day after the Acquisition Transactions were consummated. As a result, the purchase price and related costs will be allocated to the estimated fair values of the assets acquired and liabilities assumed at the time of the acquisition based on management’s best estimates, which will be based in part on the work of third-party appraisers. More specifically, our assets and liabilities will be adjusted to fair value as of the closing date of the Acquisition Transactions. The excess of the fair value of our net assets over the total purchase price, if any, will be allocated to reduce our non-current tangible and intangible assets. As a result of these adjustments, our depreciation and amortization expense will increase significantly, primarily due to increases in the fair value of our amortizable intangible assets. Also, our interest expense will increase due to interest on the Acquisition Finance Notes, the Discount Notes and non-cash interest from the
52 Table of Contents amortization of the net discount applied to the face value of Intelsat’s outstanding long-term debt. This discount results from a lower estimated fair value of this long-term debt under purchase accounting.
We are a highly leveraged company. As part of the Acquisition Transactions, our subsidiary Intelsat Bermuda incurred substantial debt, which has since been assumed by Intelsat Bermuda’s subsidiary Intelsat Subsidiary Holding, including debt under the Senior Secured Credit Facilities and the Acquisition Finance Notes, which will result in a significant increase in our interest expense in future periods. In addition, Intelsat and Intelsat Bermuda incurred significant additional indebtedness on February 3, 2005, in connection with the issuance of the Discount Notes, which will further increase our interest expense. Payments required to service all of this indebtedness will substantially increase our liquidity requirements as compared to prior years. The Senior Secured Credit Facilities and the Acquisition Finance Notes are guaranteed by Intelsat, Intelsat Bermuda and certain subsidiaries of Intelsat Subsidiary Holding. For more information regarding our debt structure, see “—Liquidity and Capital Resources.”
Revenue
Revenue Overview
We earn revenue primarily by leasing satellite transponder capacity to our customers. Communications satellites, including the satellites in our fleet, have components referred to as transponders that receive communications signals from the ground, convert signal frequency and amplify and retransmit signals back to earth. The number of transponders on a satellite can be used as a measure of the communications capacity of that satellite.
Our customers generally obtain satellite capacity from us by placing an order pursuant to one of several master customer service agreements. The master customer agreements and related service orders under which we sell services specify, among other things, the amount of satellite capacity to be provided, whether service will be preemptible or non-preemptible and the service term. The service term can vary from occasional use service measured in minutes to periods ranging from one day to as long as 15 years. These agreements offer different service commitment types, including lease, channel and carrier, and managed services. The following table describes our primary service commitment types:
Service Commitment Type Description
Leases • Commitments by customers to lease capacity on particular designated transponders according to specified technical and commercial terms Channel and Carrier Services • Commitments by customers to purchase an overall amount or level of service, without committing to particular designated transponders for specified terms within the commitment period • Services are offered “off the shelf,” so technical terms are not specially tailored to a given customer Managed Services • Combine satellite capacity, teleport facilities, satellite communications hardware and fiber optic cable and other ground facilities to provide broadband, video and private network services to customers
• Include monitoring the performance of customers’ networks
According to transmission plans and traffic information supplied by our customers, we believe that our satellite capacity is used by our customers for several principal service applications: corporate network services, which primarily use leases but also use some channel and carrier commitments; carrier services, which are primarily point-to- point services that use both channel and carrier commitments and leases; Internet services; video services; and government/military services. Customers use primarily our lease services for video, Internet and government/military service applications. We also provide managed services in all of these service application categories. We have included government/military services as a fifth service application category since January 1, 2003. We believe that the range of service applications for which our capacity is used contributes to the relatively high level of stability of
53 Table of Contents our business. See Item 4.B — “Business Overview — Our Service Applications” for descriptions of these principal service applications.
We operate our business on a global basis, with almost every populated region of the world contributing significantly to our revenue. The diversity of our revenue allows us to benefit from changing market conditions and minimizes our risk from revenue fluctuations in our service applications and geographic regions.
Trends Impacting Our Revenue
Our revenue at any given time is partially dependent on the supply of communications capacity available in a geographic region, including capacity from other satellite providers and from competing technologies such as fiber optic cable networks, as well as the level of demand for that capacity. Excluding the increase in our revenue associated with the Intelsat Americas and COMSAT General Transactions, since 2001, we have been experiencing an overall decline in revenue that we expect will continue in the near term. In addition, although not expected to have a material impact on our revenue, the recent loss of the IS-804 satellite and of 26 transponders on the IA-7 satellite will further contribute to the overall revenue decline. There are a number of factors affecting our revenue, including trends relating to the applications for which our capacity is used and the service commitment types we offer, as well as pricing trends.
Service Applications and Commitment Types
Our revenue from channel and carrier services and the use of our capacity for carrier applications have been declining in recent years. This trend is principally due to the build-out of fiber optic cable capacity, which is generally less expensive for users than satellite capacity when it is available to provide service between two fixed points. We expect this trend to continue. In addition, our revenue from channel and carrier services has been negatively impacted by the general downturn in the telecommunications sector, which has impacted a number of telecommunications providers, including our customers MCI, Teleglobe and Verestar. We believe that the market and financial pressures faced by telecommunications providers have resulted in these providers seeking to optimize their networks, in part by consolidating their use of our capacity, particularly their traditional carrier service commitments, into service commitments that are more economical to them and that reduce our revenue. See Item 3.D — “Risk Factors” for a discussion of the potential impact of competition on our revenue and a description of the risks associated with our customers that are telecommunications services providers.
We believe we will continue to generate revenue from carrier service commitments by, among other things, servicing our backlog, serving customers using satellite capacity for point-to-point and managed services connections between low-traffic communications hubs in smaller cities and from cable interconnects and communications hubs to telecommunications central offices in remote and underserved areas, and developing relationships with new customers in deregulating markets. We also believe that we will generate this revenue by supporting customers providing alternatives to traditional voice and data services and by offering more cost-effective technologies and managed services. As the IGO, we were restricted solely to providing satellite capacity to our customers to the exclusion of other service offerings, such as managed services. As a result of the privatization, we are no longer limited by these restrictions, and we currently provide a number of managed services. For the year ended December 31, 2004, revenue from managed services almost entirely offset the decline in revenue from channel and carrier services. We believe that managed services will continue to have a positive effect on our revenue over the long term. See Item 4.B — “Business Overview—Our Strategy” for a discussion of our strategies with respect to our voice and data service offerings.
Our revenue from lease services has also been declining in recent years. This trend is due to a number of factors, including a reduction in the amount of capacity purchased by our distributors for future resale and the reduced capacity requirements of our customers due to the optimization of their networks. However, the Intelsat Americas Transaction has positively impacted our revenue from lease services since we completed the transaction in March 2004, and we expect that this positive impact on our revenue will continue. We believe that the COMSAT General Transaction will also positively impact our revenue from lease services.
The Intelsat Americas Transaction has expanded our customer base in North America, thereby enhancing the geographic diversity of our revenue. As described above, we believe that our balanced geographic mix provides some protection from adverse regional economic conditions. Further, this transaction has increased the use of our system for broadcasting, cable television, private data networking and other point-to-multipoint applications. Enhancing our service application mix to include more point-to- multipoint traffic has had, and should continue to have, a positive impact on our revenue, as this traffic is less susceptible to competition from fiber optic cable than point-to- point traffic and as certain point-to-multipoint applications are expected to increase demand for
54 Table of Contents wholesale satellite capacity in the future. In addition, the Intelsat Americas satellites have expanded our coverage of the continental United States. This expanded coverage has enhanced our ability to provide customers with the managed services described above.
As we grow our presence as a provider of satellite capacity for video services in North America, we believe we will benefit from expected growth in HDTV services in developed markets. HDTV programming requires approximately two to three times as much satellite capacity to transmit a given amount of content as digital programming requires. As a result, growth in HDTV programming is expected to increase the demand for wholesale satellite capacity. Any increase in the demand for wholesale satellite capacity may be offset in the near term for some FSS operators as broadcasters complete the migration of their transmission signals from analog to digital, which require less satellite capacity than analog to transmit a given amount of content. However, we believe we will be less susceptible than other FSS operators to any such offset in demand, as approximately 90% of the channels on our IA satellites and virtually all of the channels on our IS satellites have completed the migration from analog to digital.
Pricing
We believe that the flexibility that we have to help our customers optimize their services and in pricing services in new markets has positively affected our revenue. Although the pricing of our services is fixed for the duration of existing service commitments, we have sought to price new service commitments competitively to reflect regional demand and other differentiating factors, subject to the contractual restrictions noted in the paragraph below. We believe that this flexibility in pricing our services will positively affect our revenue from certain geographic regions over the long term. However, pricing trends in recent years have negatively impacted our revenue. For example, pricing pressure for services in the Asian and Latin American markets has negatively impacted FSS operators’ revenue in these markets.
We are subject to contractual restrictions that constrain our ability to price services in some circumstances. These contractual restrictions include the MFC and LCO protection provisions described in “Business—Certain Customer Service Agreements.” From the date of our privatization through December 31, 2004, our MFC terms had resulted in a cumulative negative impact on revenue and backlog of approximately $200,000, and we had not been required to reduce prices for our LCO-protected service commitments. See Item 3.D — “Risk Factors—Risk Factors Relating to Our Privatization” for a description of risks relating to these restrictions.
Operating Expenses
Our ongoing operating expenses include direct costs of revenue (exclusive of depreciation and amortization); selling, general and administrative expenses; and depreciation and amortization. Direct costs of revenue (exclusive of depreciation and amortization) and selling, general and administrative expenses have increased substantially in recent years. The increases reflect our transition from the IGO, which was restricted solely to providing satellite capacity and which benefited from certain privileges, exemptions and immunities, including exemption from taxation and limited regulatory oversight, to a shareholder-owned company capable of offering expanded services and addressing new customers and market segments. These new activities require a higher level of operating expenses than those required by our historical business. For example, as discussed below under “—Direct Costs of Revenue (Exclusive of Depreciation and Amortization),” we have incurred additional costs associated with providing our managed services. Our managed services revenue has grown rapidly since we introduced these services in 2001. At the same time, these services have higher direct costs of revenue and lower margins than those associated with our leases and carrier services.
Depreciation and amortization has also increased in recent years. This increase has been due primarily to depreciation expense associated with the seven Intelsat IX series satellites that we launched during the period from June 2001 through February 2003, the IS-10-02 satellite that we launched in June 2004 and the Intelsat Americas satellites that we acquired in March 2004.
Given the size of our business, we believe that our existing organizational and operational structure is sufficient to implement our current plans to expand our business without incurring significant additional costs. For example, we have added to our business the customer contracts and associated revenue acquired in the Intelsat Americas Transaction with only incremental increases in our operating expenses. As a result, we operate these assets at margins higher than those at which we operate our business as a whole.
Because the business that we acquired from the COMSAT Sellers provides integrated communications services, we expect that the overall positive impact on our financial results from the COMSAT General Transaction will be associated with proportionately higher operating expenses and significantly lower margins than those associated with our business as a whole. For example, the COMSAT Sellers purchased capacity from a number of satellite operators, including us, and then resold this capacity to their customers. In connection with operating the acquired business, we anticipate that we will continue to purchase capacity from other satellite providers in some cases, including in instances where a customer requires alternate capacity. We believe that the cost of this
55 Table of Contents capacity will increase our operating expenses and will result in lower operating margins for this business than the margins associated with our traditional business of leasing wholesale satellite capacity. We believe that our operating expenses will also increase as a result of costs associated with employees we have hired from the COMSAT Sellers in connection with the transaction.
We intend to manage our operating expenses going forward to optimize margins and free cash flow. For example, we have recently made significant changes in our staffing levels by combining certain positions and eliminating positions in areas of limited growth potential. Staff costs have historically been a major component of our operating expenses. During the last few years, we had higher staffing levels than we believe are required today to efficiently run our business. Our staffing level peaked at June 1, 2004, with 981 full-time regular employees. By the end of 2004, we had 808 full-time regular employees, or nearly 18% fewer employees than we had at June 1, 2004, excluding the 31 employees we hired in connection with the COMSAT General Transaction. The full-year savings from these reductions have yet to be realized in our financial results. We expect to continue to aggressively manage our costs going forward.
Direct Costs of Revenue (Exclusive of Depreciation and Amortization)
Direct costs of revenue (exclusive of depreciation and amortization) relate to costs associated with the operation and control of our satellites, our communications network and engineering support and consist principally of salaries and related employment costs, in-orbit insurance premiums, earth station operating costs and facilities costs. Our direct costs of revenue fluctuate based on the number and type of services offered and under development. In connection with our transition to a shareholder-owned company, our direct costs of revenue grew because of increased spending on the development of new services, such as our managed services. In connection with the development of these services, we acquired three teleport facilities in 2002 and built an additional teleport facility in 2003. We also lease fiber capacity to connect these teleports with our satellite network and to provide network connectivity to our managed services customers. During 2003, we incurred additional personnel, maintenance and other infrastructure costs associated with operating these facilities. We have also incurred costs in connection with designing and implementing customized communications services for our managed services customers, such as establishing a customized broadband service platform for a direct-to-home service provider in the Middle East.
We expect our direct costs of revenue to increase as we add customers, expand our managed services and provide customized communications services to our customers. However, with the build-out of our terrestrial infrastructure substantially complete, we expect that this increase will be incremental in nature. Due to the higher costs of providing managed services to our customers, managed services typically have lower gross margins than the other services we provide. Accordingly, to the extent that we are successful in our strategy to replace part of our declining carrier business with our new managed services business, we expect our gross margins to decrease in the future.
We have incrementally increased our direct costs of revenue in order to operate the business acquired in the Intelsat Americas Transaction. For example, we have added antennas and established and staffed a specialized video operations center in order to manage customer transmissions on the IA satellites. In addition, we have obtained technical support and training from Loral. However, some of these expenses are temporary in nature. For example, we recently assumed full operational control of the Intelsat Americas satellites in orbit, and on or around March 15, 2005 we expect to terminate our transition services agreement with Loral and cease making any further payments thereunder. As a result of the COMSAT General Transaction, as described above, we expect that we will continue to purchase capacity from other satellite providers in some instances, including in cases where it is required by a customer, and therefore our direct costs of revenue will increase. Additionally, as a result of the anomalies experienced by our IA-7 and IS-804 satellites, we were required to make certain short-term purchases of capacity from other satellite providers, which will result in an increase in our direct costs of revenue in the near term that is not expected to be significant.
Selling, General and Administrative Expenses
Selling, general and administrative expenses relate to costs associated with our sales and marketing staff and our administrative staff, which includes legal, finance and human resources staff. Selling, general and administrative expenses also include building maintenance and rent expenses and the provision for uncollectible accounts. The staff expenses consist primarily of salaries and related employment costs, travel costs and office occupancy costs. Other costs include advertising expenses and third-party consultant costs associated with sales and marketing and administrative activities.
Selling, general and administrative expenses fluctuate with the number of customers served and the number and types of services offered. These costs also fluctuate with the number of jurisdictions and markets in which we operate, as well as the number of regional
56 Table of Contents offices we operate. However, fluctuations in these expenses are not always directly proportional to changes in these factors, because our systems have been designed to accommodate some level of growth.
Selling, general and administrative expenses increased significantly following privatization. The increases resulted primarily from our efforts to improve our competitive position following the privatization and from changes in our legal structure. These increases were driven by the objectives of decentralizing our marketing activities by expanding regional support offices, expanding the core skill sets of our marketing team by recruiting new marketing staff, including staff acquired in connection with our November 2002 acquisition of COMSAT Corporation’s World Systems business unit, referred to as COMSAT World Systems, as described below, and enhancing brand awareness by engaging in new promotional activities. This decentralization included establishing additional offices, and we now have sales-related offices in 10 different countries. We have also added product management capabilities in order to accelerate the introduction of new services and entry into new markets. In addition, we incurred higher levels of spending on marketing, advertising and other promotional activities. In connection with the Intelsat Americas Transaction, we have added sales staff and incurred other sales and marketing costs in response to the increased level of activity in the North American region. In connection with the COMSAT General Transaction that we completed in October 2004, we will incur costs associated with employees we have hired from the COMSAT Sellers in connection with the transaction.
Depreciation and Amortization
Our capital assets consist primarily of our satellites and associated ground network infrastructure. Included in capitalized satellite costs are the costs for satellite construction and launch services and the insurance premiums for satellite launch and the satellite in-orbit testing period. These costs also include the net present value of satellite performance incentives payable to satellite manufacturers, as described under “—Critical Accounting Policies—Satellites and Other Property and Equipment.” Other expenses directly associated with satellite construction and interest incurred during the period of satellite construction are also included in these costs.
Capital assets are depreciated or amortized on a straight-line basis over their estimated useful lives. These estimates are subject to change. The depreciable lives of our satellites currently range from 11 years to 15 years. As a result of the Intelsat Americas Transaction, our depreciation and amortization costs have increased and will continue to increase, principally due to depreciation costs we incur on the acquired satellites and the amortization of acquired intangible assets. In addition, we expect our depreciation and amortization costs to increase as a result of the Acquisition Transactions primarily due to increases in the fair value of our amortizable intangible assets.
Non-Cash Impairment Charges
As a result of the anomaly on our IA-7 satellite, we recorded a non-cash impairment charge of approximately $84.4 million during the fourth quarter of 2004 to write down the IA-7 satellite, which was not insured, to its estimated fair value following the anomaly. As of December 31, 2004, the net book value of the IA-7 satellite was approximately $49.5 million. As a result of the recent loss of our IS-804 satellite, we expect to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the value of the IS-804 satellite, which was not insured. See “—Critical Accounting Policies—Satellites and Other Property and Equipment” for a description of how we account for satellite losses.
Insurance
As of December 31, 2004, we had in place an insurance policy that covered the in-orbit operations of our seven Intelsat IX series satellites. Under the terms of this policy, we co-insured $150.0 million of the net book value of each covered satellite, and the insurers covered the balance of the net book value of each satellite, excluding capitalized performance incentives relating to the satellites. This insurance expired on March 8, 2005, and we do not currently have insurance on our in-orbit satellites with the exception of the IS-10-02 satellite. We have in place an insurance policy covering our IS-10-02 satellite through June 17, 2005, which we do not intend to renew. Under the terms of this policy, we co-insure approximately $55 million relating to our IS-10-02 satellite. This amount includes the portion of the net book value of the satellite, excluding capitalized performance incentives, corresponding to the portion of the satellite that we own after the sale of certain transponders to Telenor and the net book value of ground network costs relating exclusively to the satellite. We have in place insurance to cover the launch and 180 days of in-orbit operations of the IA-8 satellite in an amount approximating the net book value of the satellite. This insurance will expire if the satellite is not launched before December 31, 2005. We do not have in-orbit insurance coverage for our other satellites in orbit, including all of the Intelsat Americas satellites in orbit. Other than the IS-804 satellite, our currently uninsured satellites had a net book value of $2.6 billion in the
57 Table of Contents aggregate as of December 31, 2004. For a further discussion of the insurance we have relating to our satellites, see Item 4.B — “Business Overview—Our Network—Capacity Sparing and Satellite Insurance.”
Insurance premiums related to satellite launches and subsequent in-orbit testing are capitalized and amortized over the lives of the related satellites. In the past three years, in-orbit insurance costs in general have ranged from 1.60% to 3.25% of the insured value of a satellite per year. These insurance premiums may increase in the future as a result of future launch vehicle failures or in-orbit satellite failures or due to other factors. As the insurance currently in place for our satellites expires, our decision to purchase additional in-orbit insurance will depend on a number of factors, and we do not currently plan to renew any such insurance. See Item 3.D — “Risk Factors” for a further discussion of our insurance.
Backlog
Our backlog, which is our expected actual future revenue under our customer contracts, was approximately $3.6 billion and $4.0 billion as of each of December 31, 2003 and December 31, 2004. From December 31, 2003 to December 31, 2004, our backlog was positively impacted primarily by the addition of expected future revenue under customer contracts assumed in connection with the Intelsat Americas and COMSAT General Transactions. At the same time, our backlog was negatively impacted during this period as a result of the renewal of expiring contracts under different terms and conditions, including shorter contract durations, the expiration of contracts that were not renewed due to our customers’ optimization of their networks and the migration of our point-to-point customers from satellite to fiber optic cable on certain routes as their contracts expired. Recently, we have seen a stabilization of our backlog, which has been approximately $4 billion at the end of each month from April 2004 through December 2004. As of December 31, 2004, the weighted average remaining duration of the outstanding customer agreements included in our backlog was approximately 4.2 years. Taking into account the impact of the IA-7 anomaly and the loss of the IS-804 satellite, we currently expect to deliver services associated with $882 million, or 22%, of our December 31, 2004 backlog over the twelve months ending December 31, 2005.
Backlog includes both non-cancellable contracts and contracts that are cancellable. The amount included in backlog represents the full service charge for the duration of the contract and does not include termination fees. As of December 31, 2004, 99% of our total backlog relates to contracts that either are non-cancellable or have substantial termination fees.
Our expected future revenue under contracts with customers as of December 31, 2004 (excluding the impact of the IA-7 and IS-804 satellite anomalies) was approximately as follows:
Period ($ in millions)
2005 $ 899 2006 655 2007 513 2008 417 2009 333 2010 and thereafter 1,148
Total $ 3,965
Our backlog by service commitment type as of December 31, 2004 was as follows (in millions, except percentages):
Service Commitment Type ($ in millions) Percentages
Lease services $ 2,670 67% Channel and carrier services 1,180 30 Managed services 115 3
Total $ 3,965 100%
Our backlog as of December 31, 2004 reflects the impact of the COMSAT General Transaction. In operating the business that we acquired, the COMSAT Sellers purchased capacity from a number of satellite operators, including us, and then resold this capacity to
58 Table of Contents their customers. Upon the closing of this transaction, we terminated our customer contracts with the COMSAT Sellers and added to our backlog the expected future revenue under the customer contracts of the acquired business. The net change in our backlog was an increase of approximately $55 million upon the closing of this transaction.
We do not believe that the recent loss of our IS-804 satellite will have a material impact on our December 31, 2004 backlog. The reduction in our backlog as of December 31, 2004 as a result of this event is expected to be less than 2%.
Approximately one third of our backlog as of December 31, 2004 was eligible for either MFC protection or LCO protection. Our backlog could potentially be reduced if our MFC or LCO protection obligations are triggered and we are required to lower the prices for certain of our existing customer service commitments. Our backlog could also be impacted by financial difficulties experienced by our customers. See Item 3.D — “Risk Factors—Risk Factors Relating to Our Business” for a discussion of the potential risks to our revenue and backlog.
Results of Operations
The following table sets forth our comparative statements of operations data for the years ended December 31, 2003 and 2004, and the increase or decrease and percentage change between the periods presented:
Year Ended December 31, 2004 Compared to Year Year Ended December 31, Ended December 31, 2003
Increase Percentage 2003 2004 (Decrease) Change
(in thousands) Revenue $ 946,118 $1,043,906 $ 97,788 10%
Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 132,172 178,253 46,081 35 Selling, general and administrative 129,456 152,111 22,655 18 Depreciation and amortization 400,485 457,372 56,887 14 IS-10-01 contract termination costs (3,000) — 3,000 — Impairment of asset value — 84,380 84,380 — Restructuring costs (837) 6,640 7,477 893
Total operating expenses 658,276 878,756 220,480 33
Operating income from continuing operations 287,842 165,150 (122,692) (43) Interest expense 99,002 143,399 44,397 45 Interest income 1,972 4,530 2,558 130 Other income (expense), net 18,556 (2,384) (20,940) 113
Income from continuing operations before income taxes 209,368 23,897 (185,471) (89) Provision for income taxes 26,129 18,647 (7,482) (29)
Income from continuing operations 183,239 5,250 (177,989) (97) Loss from discontinued operations, net of minority interest (2,120) (43,929) (41,809) (1,972)
Net income (loss) $ 181,119 $ (38,679) ($219,798) (121%)
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The following table sets forth our comparative statement of operations data for the years ended December 31, 2002 and 2003, and the increase or decrease and percentage change between the periods presented:
Year Ended December 31, 2003 Compared to Year Ended Year Ended December 31, December 31, 2002
Increase Percentage 2002 2003 (Decrease) Change
(in thousands) Revenue $ 991,956 $ 946,118 ($45,838) (5)%
Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 117,405 132,172 14,767 13 Selling, general and administrative 121,077 129,456 8,379 7 Depreciation and amortization 361,322 400,485 39,163 11 IS-10-01 contract termination costs 34,358 (3,000) (37,358) (109) Restructuring costs 5,522 (837) (6,359) (115)
Total operating expenses 639,684 658,276 18,592 3
Income from operations 352,272 287,842 (64,430) (18) Interest expense 55,223 99,002 43,779 79 Interest income 170 1,972 1,802 1,060 Other income, net 9,942 18,556 8,614 87
Income from continuing operations before income taxes 307,161 209,368 (97,793) (32) Provision for income taxes 33,021 26,129 (6,892) (21)
Income from continuing operations 274,140 183,239 (90,901) (33) Loss from discontinued operations — (2,120) (2,120) —
Net income $ 274,140 $ 181,119 ($93,021) (34)%
The following table sets forth our revenue by service commitment type and the percentage of our total revenue represented by each.
Year Ended December 31,
2002 2003 2004
(in thousands, except percentages) Lease services $643,479 65% $600,446 63% $ 690,598 66% Channel and carrier services 339,668 34 306,041 32 264,616 26 Managed services 7,604 <1 35,196 4 75,556 7 Other services 1,205 <1 4,435 1 13,136 1
Total $991,956 100% $ 946,118 100% $1,043,906 100%
Revenue
Revenue increased $97.8 million, or 10%, for the year ended December 31, 2004 from the year ended December 31, 2003. The increase was primarily attributable to an increase in lease service revenue of $90.1 million, which reflected lease services revenue on the Intelsat Americas satellites and incremental revenue from contracts acquired in connection with the COMSAT General Transaction. The increase in lease services revenue was offset by a $40.9 million reduction in revenue due to lease services commitments that expired during the period and were not renewed and to a reduction in the amount of capacity purchased by our distributors for future resale. The increase in revenue was also partially offset by a decline in the volume of capacity sold as channel and carrier services of $41.4 million. This decrease in revenue from channel and carrier services was primarily due to a decline in the volume of capacity sold as channel and carrier services, which reflects the continued migration of point-to-point satellite traffic to fiber optic cables across transoceanic routes, the reduced capacity requirements of our customers due to the general economic downturn and the optimization of their networks. Because fiber connectivity on major point-to-point routes is generally more cost-effective than satellite connectivity, we expect this trend in our channel business to continue. See Item 3.D — “Risk Factors” for a discussion of the factors impacting our revenue, such as competition from fiber optic cable. The decline in revenue from channel and carrier services was almost entirely offset by a $40.4 million increase in revenue associated with growth of our managed services, which included $3.9 million associated with the assets acquired in the Intelsat Americas Transaction. See “— Overview — Revenue” above for a discussion of the factors expected to impact our revenue in the future.
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Revenue decreased $45.8 million, or 5%, for the year ended December 31, 2003 from the year ended December 31, 2002. Of this decrease in revenue, lease services revenue decreased by $43.0 million during the year as compared to the same period in 2002. The decrease was primarily due to the expiration of lease service agreements since December 31, 2002, lower prices due to price pressure in the Asian and Latin American markets and a decrease in the volume of capacity sold as leases, reflecting the reduced capacity requirements of our customers due to the optimization of their networks. Also contributing to the overall decline was a decrease in revenue from channel and carrier services of $33.6 million. This decrease in revenue from channel and carrier services was primarily due to a decline in the volume of capacity sold as channel and carrier services, which reflects the continued migration of point-to-point satellite traffic to fiber optic cables across transoceanic routes, the reduced capacity requirements of our customers due to the general economic downturn and the optimization of their networks, and a reduction in the amount of capacity held in inventory by distributors for future sale. Partially offsetting the overall decline in our revenue during the year ended December 31, 2003 was a $27.6 million increase in revenue from our managed services and an increase in revenue relating to the COMSAT World Systems transaction. The increase in revenue relating to that transaction is due to the fact the contracts that COMSAT World Systems assigned to us, although for shorter durations than our contracts with COMSAT World Systems, were for higher values. See “— Overview — Revenue” above for a discussion of the factors expected to impact our revenue in the future.
Operating Expenses
Direct Costs of Revenue (Exclusive of Depreciation and Amortization)
Direct costs of revenue (exclusive of depreciation and amortization) increased $46.1 million, or 35%, for the year ended December 31, 2004 from the year ended December 31, 2003. The increase was principally due to increases in costs of services of $35.1 million that were primarily associated with the COMSAT General transaction and additional leased fiber capacity costs due to growth in our managed services. The increase was also due to compensation costs of $5.0 million related to equity incentive plan expense related to employees and $4.3 million of service fees primarily related to our transition services agreements with Loral. The expenses we incurred under our transition services agreement with Loral were temporary in nature, and we will not incur these expenses beyond mid-2005.
Direct costs of revenue (exclusive of depreciation and amortization) increased $14.8 million, or 13%, for the year ended December 31, 2003 from the year ended December 31, 2002. The increase was principally due to increases in costs of services of $5.0 million, facility and operational costs of $2.5 million, staff costs of $0.8 million, and other expenses of $6.5 million. The increase in costs of services was primarily due to costs relating to our lease of communications capacity from third-party providers, as well as expenses incurred during the year for customer incentives and promotional equipment that we did not incur during the year ended December 31, 2002. The increase in facility and operational costs during 2003 are associated primarily with our managed services initiatives, as discussed above under “— Overview — Operating Expenses — Direct Costs of Revenue (Exclusive of Depreciation and Amortization).” These facility and operational costs include the personnel cost of technical support contractors who support these communications services, the cost of operating two tracking, telemetry, command and monitoring stations, referred to as TTC&M stations, and a teleport facility that we acquired during the fourth quarter of 2002 and the cost of activating an additional teleport. The increase in facility and operational costs for the year ended December 31, 2003 from the year ended December 31, 2002 was also due in part to our acquisition of the business of COMSAT World Systems in November 2002. We incurred a full twelve months of operating and maintenance expense during the year ended December 31, 2003 for the facilities we acquired in the COMSAT World Systems transaction. This expense was partially offset by the elimination after the closing of the COMSAT World Systems transaction of the amounts that we incurred in connection with the provision to us of certain services by COMSAT Corporation, referred to as COMSAT, and its lease to us of certain facilities. The increase in staff costs is due in large part to an increase in the number of our employees to support our new service initiatives, as well as higher employee benefit costs associated with these employees. In addition, we incurred increased staff costs due to the completion of our Intelsat IX satellite construction program in 2003. In prior years, some of our employees were directly involved in on-site supervision of the construction of the Intelsat IX satellites, and the costs associated with these employees were considered part of the cost of the satellites and included in the depreciation and amortization expense relating to these satellites. Following the completion of the Intelsat IX satellite construction program in 2003, the role of these employees changed to the maintenance of the satellites’ operations and accordingly costs associated with these employees are now categorized as direct costs of revenue.
We anticipate that our direct costs of revenue (exclusive of depreciation and amortization) will continue to increase as we continue to develop and invest in managed services initiatives. See “— Overview — Operating Expenses — Direct Costs of Revenue (Exclusive of Depreciation and Amortization)” above for a discussion of the expected impact of our provision of managed services on our direct costs of revenue (exclusive of depreciation and amortization), as well as other factors expected to impact our direct costs of revenue (exclusive of depreciation and amortization) in the future such as the COMSAT General Transaction.
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Selling, General and Administrative
Selling, general and administrative expenses increased $22.7 million, or 18%, for the year ended December 31, 2004 from the year ended December 31, 2003. The increase was due primarily to increases in professional fees of $11.9 million mainly due to the acquisition of us by Intelsat Holdings and the withdrawal during the second quarter of 2004 of our contemplated initial public offering. The increase was also partly due to $6.3 million of equity incentive plan expense related to employees and board members and a $3.0 million increase in sales incentive bonuses.
Selling, general and administrative expenses increased $8.4 million, or 7%, for the year ended December 31, 2003 from the year ended December 31, 2002. The increase was due primarily to increases in staff costs of $8.4 million, the provision for uncollectible accounts of $4.4 million, other expenses of $0.2 million and a $2.5 million charge related to the resolution of a contract dispute. The increase in staff costs was due primarily to an increase in our sales and marketing staff, as we continue to deploy additional sales staff to regional offices to provide increased customer contact, and higher employee benefit costs. In addition, in connection with the COMSAT World Systems acquisition, we added 64 employees to our payroll in 2002 following the closing of the acquisition, for whom we incurred a full twelve months of personnel and benefits costs during the year ended December 31, 2003, as compared to only one month of these expenses during the year ended December 31, 2002. Offsetting these increases in selling, general and administrative expenses was a decrease in professional fees of $7.1 million. The higher professional fees in the year ended December 31, 2002 were due to fees associated with, among other things, merger and acquisition activities and our share purchase agreement with Teleglobe Inc.
Depreciation and Amortization
Depreciation and amortization increased $56.9 million, or 14%, for the year ended December 31, 2004 from the year ended December 31, 2003. This increase was primarily due to depreciation of $38.9 million recorded on the Intelsat Americas satellites acquired from Loral in March 2004 and $4.7 million recorded on an Intelsat IX series satellite that did not become operational until the end of the first quarter of 2003. Also contributing to this increase was depreciation of $7.0 million recorded on the IS-10-02 satellite, which went into service in September 2004. This increase was partially offset by a decrease of $5.1 million attributable to a reduction in satellite performance incentives paid on the Intelsat VII series satellites and an increase in the depreciable life of the IS-801 satellite. Also contributing to the increase in depreciation and amortization was an increase in depreciation of $11.4 million relating to ground segment and infrastructure costs and amortization of intangible assets.
Depreciation and amortization increased $39.2 million, or 11%, for the year ended December 31, 2003 from the year ended December 31, 2002. This increase was primarily due to depreciation of $46.2 million recorded on Intelsat IX series satellites that were not in service during the comparable period in 2002. Partially offsetting this increase was a decrease of $18.1 million attributable to two Intelsat VI series satellites being fully depreciated during 2002. Also contributing to the increase during the period was a net increase in depreciation and amortization expense relating to the ground segment and infrastructure to support our Intelsat IX series satellites and managed services and other satellites and intangible assets totaling $11.1 million.
For a discussion of factors expected to impact depreciation and amortization expense in the future, see “— Overview — Operating Expenses — Depreciation and Amortization.”
IS-10-01 Contract Termination Costs
In November 2002, we terminated our order for the IS-10-01 satellite, due to the manufacturer’s significant postponement in the delivery date of the satellite. As a result of this termination, we recorded a charge to our consolidated statement of operations of approximately $34.4 million, representing the write-off of capitalized satellite program costs, including satellite construction costs, launch vehicle costs, program office costs, capitalized interest and ground network costs, net of the refund due from the manufacturer of the satellite and the launch vehicle deposit described below. In connection with our decision to terminate our order for the IS-10-01 satellite, we agreed with one of our launch vehicle providers, Sea Launch Limited Partnership, referred to as Sea Launch, to treat most of the payments made for the launch vehicle that could have been used for the launch of the IS-10-01 satellite as a credit for a future launch. We recorded a deposit of the minimum possible credit under our agreement with Sea Launch, net of certain expenses, of approximately $23.2 million. During 2003, we were notified by Sea Launch that under the terms of the agreement the credit to which we are entitled would not be subject to further reduction. Because our credit with Sea Launch was fixed at an amount greater than the expected credit based on which we recorded our $23.2 million deposit, during the year ended December 31, 2003, we reversed $3.0 million of the $34.4 million charge recorded for the year ended December 31, 2002. In addition, during 2003 and 2004, we paid guarantee payments which resulted in increasing our deposit amount. As of December 31, 2004, we have recorded a deposit of $27.7
62 Table of Contents million. However, if we do not place an order for a future launch by July 31, 2005, Sea Launch has the right to terminate the agreement, in which case we will incur a termination liability of up to $16.4 million, in addition to forfeiture of our deposit, for a total obligation of not greater than $44.1 million. We are presently in discussions with Sea Launch regarding an extension of the July 31, 2005 expiration date.
Impairment of Asset Value
In November 2004 the Company’s IA-7 satellite experienced an anomaly in its north electrical distribution system that resulted in the partial loss of the satellite. As a result of this anomaly the Company recorded a non-cash impairment charge of $84.4 million during the fourth quarter of 2004 to write down the IA-7 satellite to its estimated fair value. We expect to record a non-cash impairment charge of approximately $73 million during the first quarter of 2005 to write off the net book value of the IS-804 satellite.
Restructuring Costs
During 2004, we incurred restructuring costs of $6.6 million for severance and related benefit costs as a result of reducing the size of our workforce by 140 employees, or approximately 18% of the employees at June 1, 2004. The workforce reduction resulted from combining certain positions and eliminating positions in areas of limited growth potential.
In December 2002, we incurred restructuring costs of $5.5 million for severance and related benefit costs as a result of reducing the size of our workforce by 130 employees, or approximately 12%. Due to a change in estimate of our restructuring costs, during the year ended December 31, 2003, we reversed $0.8 million of the $5.5 million accrued in 2002. All costs were substantially paid by the end of the second quarter of 2003. We believe these actions have improved our competitive position by better aligning the capabilities of our staff to our business strategy.
Interest Expense
We incurred $164.9 million of gross interest costs during 2004. Interest expense consists of the gross interest costs we incur less the amount of interest we capitalize related to capital assets under construction. Interest expense increased $44.4 million, or 45%, for the year ended December 31, 2004 from the year ended December 31, 2003. This increase was principally due to the increase of $57.1 million in interest costs associated with our 5¼% Senior Notes due 2008, also referred to as the 2008 Senior Notes, and our 6½% Senior Notes due 2013, also referred to as the 2013 Senior Notes, sold in November 2003 and a $1.9 million write-off of credit facility fees associated with the $400 million term loan portion of our credit facility as this amount is no longer available for borrowing. This increase was partially offset by an increase in interest capitalized during the year ended December 31, 2004 as compared to the amount capitalized during the year ended December 31, 2003. The increase in interest capitalized was attributable to the construction-in-progress balances relating to the IA-8 satellite as compared to those balances in 2003, as the IA-8 satellite was acquired in the Loral transaction in 2004 and was not included in our balances in 2003.
Interest expense increased $43.8 million, or 79%, for the year ended December 31, 2003 from the year ended December 31, 2002. This increase was principally due to a $34.5 million decrease in interest capitalized during the year ended December 31, 2003 as compared to the amount capitalized during the year ended December 31, 2002. The decrease in interest capitalized was attributable to lower construction-in-progress balances in 2003 as compared to those balances in 2002, principally due to the placement into service during 2002 and 2003 of five Intelsat IX series satellites that were under construction during the year ended December 31, 2002. Also contributing to the increase in interest expense in 2003 was $11.1 million in interest costs associated with our 5¼% Senior Notes due 2008, also referred to as the 2008 Senior Notes, and our 6½% Senior Notes due 2013, also referred to as the 2013 Senior Notes, sold in November 2003.
We anticipate that interest expense will increase significantly as a result of the Acquisition Finance Notes issued in January 2005 in connection with the Acquisition Transactions and the Discount Notes issued in February 2005 in order for Intelsat Holdings to repurchase a portion of its outstanding preferred shares from its shareholders. For more information regarding our debt structure, see “—Liquidity and Capital Resources.” Additionally, we expect the amount of interest capitalized to decrease as a result of our expected lower construction-in-progress activity.
Interest Income
Interest income of $4.5 million for the year ended December 31, 2004 reflects an increase of $2.6 million, or 130%, from $2.0 million for the same period in the prior year. This increase was principally due to cash on hand prior to the closing of the Intelsat Americas
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1 1 Transaction in 2004 as a result of the issuance in November 2003 of the 5 /4% Senior Notes due 2008 and the 6 /2% Senior Notes due 2013.
Interest income of $2.0 million for the year ended December 31, 2003 reflects an increase from $0.2 million for the year ended December 31, 2002. This increase was due to cash on hand prior to the closing of the Intelsat Americas Transaction as a result of the issuance in November 2003 of the 2008 Senior Notes and the 2013 Senior Notes.
Other Income, Net
Other income (expense), net consists of non-operating income less non-operating expenses. Other expense, net of $2.4 million for the year ended December 31, 2004 reflects a decrease of $20.9 million, or 113%, from other income, net of $18.5 million for the year ended December 31, 2003. The decrease was primarily due to other income of $19.8 million recorded in 2003 in connection with a reduction in an obligation payable by us under a share purchase agreement with Teleglobe Inc. that was not recorded in 2004. Also contributing to the decrease was an increase in our equity in the losses of an affiliate of $3.6 million.
Other income, net increased $8.6 million, or 87%, for the year ended December 31, 2003 from the year ended December 31, 2002. The increase was principally due to an increase in other income of $13.7 million during the year ended December 31, 2003 in connection with a reduction in an obligation payable by us under our share purchase agreement with Teleglobe Inc. See — “Related Party Transactions—Teleglobe Share Purchase Agreement” for a discussion of our transaction with Teleglobe, Inc. and Note 23(b) to our audited consolidated financial statements included elsewhere in this annual report for a discussion of the accounting of this transaction. At December 31, 2003, we have no further obligation payable by us to Teleglobe Inc. under the share purchase agreement. The increase in other income, net was partially offset by a decrease of $3.5 million associated with a decrease in rental income as compared to 2002 from our building tenants.
Income Taxes
Our provision for income taxes totaled $18.6 million for the year ended December 31, 2004 as compared to $26.1 million for the prior year. The effective tax rate on taxable income was 73% for 2004 and 13% for 2003. The increase in our effective tax rate was primarily due to the relatively consistent level of pre-tax earnings in the jurisdictions in which we are subject to income taxes, principally the United States and the United Kingdom, despite the overall decline in our consolidated taxable income.
Our provision for income taxes totaled $26.1 million for the year ended December 31, 2003 and $33.0 million for the year ended December 31, 2002. Our effective tax rate was approximately 13% for the year ended December 31, 2003 and approximately 11% for the year ended December 31, 2002. This increase in our effective tax rate for 2003 as compared to 2002 was due to the proportion of our income taxable in higher rate jurisdictions.
Because Bermuda does not currently impose an income tax, our statutory tax rate was zero. The difference between tax expense reported in our statements of operations and tax computed at statutory rates was attributable to the provision for foreign taxes, which were principally U.S. and U.K. taxes.
Income from continuing operations
Income from continuing operations of $5.3 million for the year ended December 31, 2004 reflects a decrease of $178.0 million, or 97%, from income from continuing operations of $183.2 million for the year ended December 31, 2003. The decrease during the period was due to higher operating expenses and interest expense as compared to the same period in 2003, as discussed above (see “—Operating Expenses” and “—Interest Expense”).
Income from continuing operations of $183.2 million for the year ended December 31, 2003 reflects a decrease of $90.9 million, or 33%, from income from continuing operations of $274.1 million for the year ended December 31, 2002. The decrease during the period was due to higher operating expenses and interest expense as compared to the same period in 2002, as discussed above.
Loss from discontinued operations, net of tax and minority interest
Loss from discontinued operations, net of tax and minority interest of $43.9 million for the year ended December 31, 2004 reflects an increase of $41.8 million from $2.1 million for the year ended December 31, 2003. The $43.9 million loss in 2004 includes
64 Table of Contents a $21.5 million charge to write down the long-lived asset group of the discontinued operations to its estimated fair value. There was no loss from discontinued operations for the year ended December 31, 2002 as we had not yet invested in Galaxy Holdings.
Net income (loss)
Net loss of $38.7 million for the year ended December 31, 2004 reflects a decrease of $219.8 million, or 121%, from $181.1 million of net income for the year ended December 31, 2003. The decrease during the period was primarily due to higher operating expenses, the IA-7 impairment charge, higher interest expense, lower other income (expense), net and the loss from discontinued operations, partially offset by higher revenue, as discussed above.
Net income decreased by $93.0 million, or 34%, for the year ended December 31, 2003 from the year ended December 31, 2002. The decrease in net income during the year ended December 31, 2003 was primarily due to lower revenue, higher total operating expenses and higher interest expense as compared to the same period in 2002, as discussed above.
We expect that the Acquisition Transactions and the issuance of the Discount Notes issued in connection with the Transfer Transactions will negatively impact our net income, principally due to the interest expense associated with the Acquisition Finance Notes and the imputed interest on the Discount Notes. The impact on our results of operations that we anticipate in connection with the Acquisition Transactions is described above.
EBITDA
EBITDA consists of earnings before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in the fixed satellite services sector, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. We also present EBITDA from continuing operations, which is EBITDA less the loss from discontinued operations, net of taxes and minority interest. We present EBITDA from continuing operations, as we believe that this measure is relevant for purposes of comparison to our operating performance in prior periods and to the operating performance of other companies. However, neither EBITDA nor EBITDA from continuing operations is a measurement of financial performance under U.S. GAAP, and either may not be comparable to similarly titled measures of other companies. You should not consider EBITDA or EBITDA from continuing operations as an alternative to operating or net income, determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
EBITDA of $576.2 million for the year ended December 31, 2004 reflects a decrease of $128.6 million, or 18%, from $704.8 million for the same period in 2003. This decrease was principally due to higher operating expenses, the IA-7 impairment charge and lower other income (expense), net, partially offset by higher revenue, as compared to the same period in 2003. The lower other income (expense), net is partially the result of other income of $19.8 million recorded in 2003 in connection with a reduction in an obligation payable by us under a share purchase agreement with Teleglobe Inc. that was not recorded in 2004.
EBITDA decreased $18.8 million, or 3%, for the year ended December 31, 2003 from the year ended December 31, 2002. The decrease was primarily due to lower revenue and higher total operating expenses, excluding depreciation and amortization, during the year ended December 31, 2003 as compared to the same period in 2002, as discussed above.
EBITDA from continuing operations of $620.1 million for the year ended December 31, 2004 reflects a decrease of $86.8 million, or 12%, from $706.9 million for the same period in 2003. EBITDA from continuing operations decreased $16.7 million, or 2%, for the year ended December 31, 2003 from the year ended December 31, 2002. The decreases were due to the same factors discussed above which caused a decrease in EBITDA.
The trends we have experienced in EBITDA, EBITDA from continuing operations and Adjusted EBITDA (as discussed below) are a direct result of the trends we have experienced in revenue and operating expenses. See “— Overview — Revenue” for a further explanation of trends in our revenue and “— Overview — Operating Expenses” for a further explanation of trends in our operating expenses. We expect EBITDA, EBITDA from continuing operations and Adjusted EBITDA to continue to be directly impacted by the trends that we experience in revenue and operating expenses and that such trends will have a more pronounced effect on EBITDA, EBITDA from continuing operations and Adjusted EBITDA than on revenue or operating expenses individually.
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A reconciliation of net income to EBITDA and to EBITDA from continuing operations for the three-year period ended December 31, 2004, is as follows:
Year Ended December 31,
2002 2003 2004
(in thousands) Net income $274,140 $ 181,119 $ (38,679) Add: Interest expense 55,223 99,002 143,399 Provision for income taxes 33,021 26,129 18,647 Depreciation and amortization 361,322 400,485 457,372 Subtract: Interest income (170) (1,972) (4,530)
EBITDA 723,536 704,763 576,209
Add: Loss from discontinued operations, net of tax and minority interest — 2,120 43,929
EBITDA from continuing operations $723,536 $706,883 $620,138
Adjusted EBITDA
In addition to EBITDA and EBITDA from continuing operations, we calculate a measure of EBITDA called Adjusted EBITDA, as defined by the covenants of our credit agreement dated January 28, 2005 establishing the Senior Secured Credit Facilities. Adjusted EBITDA consists of EBITDA as adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under our credit agreement used to fund the Acquisition Transactions. Similar measures are used under the indentures relating to the Acquisition Finance Notes and the Discount Notes. Adjusted EBITDA is presented on a pro forma basis, as if our March 2004 acquisition of the Intelsat Americas assets and October 2004 acquisition of the COMSAT General business had occurred as of January 1, 2004. The measure also adjusts for certain operating expense items. Adjusted EBITDA is a material component of certain covenants in our Senior Secured Credit Facilities. For instance, Adjusted EBITDA is used to determine compliance with the financial ratio maintenance covenants in the Senior Secured Credit Facilities, non-compliance with which could result in the requirement that Intelsat Subsidiary Holding immediately repay all amounts outstanding under those facilities. Adjusted EBITDA is also used in determining our ability under the Senior Secured Credit Facilities to incur additional debt, suffer liens, make new investments and is also used to determine the maximum amount of the monitoring fee payable to the Sponsors. Similar measures are used to test the permissibility of certain types of transactions under the indentures relating to the Acquisition Finance Notes and the Discount Notes. See Item 10 — ”Additional Information — Material Contracts” for a more detailed description of the credit agreement, the Acquisition Finance Notes, the Discount Notes and Adjusted EBITDA. We expect Adjusted EBITDA to be affected by the same trends that affect EBITDA and EBITDA from continuing operations. However, Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP, and our Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to operating or net income, determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
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Adjusted EBITDA was $800.2 million for the year ended December 31, 2004. A reconciliation of EBITDA to Adjusted EBITDA for the year ended December 31, 2004, is as follows:
Year Ended December 31, 2004
(in thousands) EBITDA $ 576,209 (Subtract) Add: (1) Loral pro forma 22,027 (1) COMSAT General pro forma 21,473 (2) Non-cash compensation and benefits 18,401 (3) Restructuring costs 6,640 (4) Acquisition Transactions-related expenses 7,462 (5) Equity investment losses 4,670 (6) IA-7 satellite impairment charge 84,380 (7) Loss from discontinued operations 43,929 (8) Non-recurring and unusual gains/losses 15,029
Adjusted EBITDA $ 800,220
(1) Represents pro forma adjustments to reflect the Intelsat Americas and COMSAT General Transactions as if they had occurred as of January 1, 2004.
(2) Reflects the non-cash portion of the expenses incurred relating to our equity compensation plans, defined benefit pension plan and other post-retirement benefits.
(3) Reflects the severance costs associated with headcount reductions that were implemented during 2004.
(4) Reflects expenses incurred in connection with the Acquisition Transactions, consisting of retention bonuses to key employees and legal and other professional fees.
(5) Represents losses incurred under the equity method of accounting relating to our investment in WildBlue Communications, Inc.
(6) Represents the non-cash impairment charge recorded in the fourth quarter of 2004 to write down the net book value of the IA-7 satellite to its estimated fair value due to the anomaly experienced in November 2004.
(7) Reflects the loss from discontinued operations of our investment in Galaxy Holdings.
(8) Adjusted EBITDA includes certain non-recurring and unusual gains and losses. The adjustments applied in calculating Adjusted EBITDA principally reflect the write- off of costs relating to a contemplated initial public offering that was withdrawn, temporary expenses incurred for transition services relating to the Intelsat Americas Transaction, a litigation reserve and a net loss from the curtailment of benefit plans.
Liquidity and Capital Resources
Cash Flow Items
Net Cash Provided By Operating Activities
Net cash provided by operating activities of $659.1 million for the year ended December 31, 2004 reflects an increase of $57.9 million, or 10%, from $601.2 million for the year ended December 31, 2003. For the year ended December 31, 2004, net cash provided by operating activities was principally comprised of $5.3 million in income from continuing operations, $457.4 million in depreciation and amortization, an impairment charge of $84.4 million and an increase in cash flows from operating assets and liabilities of $74.8 million. The increase in cash flows from operating assets and liabilities was due in part to a customer prepayment for services of $87.7 million.
Net cash provided by operating activities decreased $56.8 million, or 9%, to $601.2 million for the year ended December 31, 2003 from $658.0 million for the year ended December 31, 2002. The decrease was primarily due to a $40.0 million payment we made to our defined benefit retirement plan in 2003 and reduced customer payments associated with our $45.8 million reduction in revenue during the year ended December 31, 2003 as compared to the prior year. For the year ended December 31, 2003, net cash provided by operating activities was principally comprised of $183.2 million in income from continuing operations and $400.5 million in depreciation and amortization, partially offset by non-cash other income of $19.8 million recorded in connection with a decrease in the amount due to Teleglobe, as discussed above, and a $40.0 million contribution to our defined benefit retirement plan.
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Net cash provided by operating activities for the year ended December 31, 2002 was principally comprised of $274.1 million in net income and $361.3 million in depreciation and amortization. In addition, an increase in non-cash items of $46.8 million, offset by a decrease in operating assets and liabilities of $24.3 million, contributed to the net cash provided by operating activities in 2002.
During the year ended December 31, 2004, we recorded a foreign currency exchange loss of $0.6 million. During the year ended December 31, 2003, we recorded a foreign currency exchange loss of $0.9 million. The loss in each period was primarily attributable to the conversion of our Brazilian reais cash balances held in Brazil and other working capital account balances to U.S. dollars at the exchange rate in effect on the last day of the applicable period or, with respect to exchange transactions effected during the period, at the time the exchange transactions occurred. Because of continuing business in Brazil under customer contracts denominated in Brazilian reais, our exposure to foreign exchange fluctuations is ongoing. In each of the years ended December 31, 2004, 2003 and 2002, our Brazilian customers represented approximately 1%, 2% and 2% of our revenue, respectively.
Net Cash Used In Investing Activities
Net cash used in investing activities decreased $312.1 million, or 32%, to $654.4 for the year ended December 31, 2004 from $966.5 million for the year ended December 31, 2003. Our investing activities during 2004 consisted primarily of $1,057.6 million paid to acquire assets in the Intelsat Americas and COMSAT General Transactions, $288.6 million of capital expenditures mainly for satellites and associated launch services, a $50.0 million deposit on a future satellite ordered in connection with the Intelsat Americas Transaction, a $32.0 million payment relating to rights to an orbital location and a $58.3 million payment for an insurance receivable. These amounts were partially offset by the elimination of $700.0 million of restricted cash that was no longer restricted following the closing of the Intelsat Americas Transaction and $141.0 million of insurance proceeds received in connection with a receivable acquired as part of the Intelsat Americas Transaction.
Net cash used in investing activities increased $288.3 million, or 43%, to $966.5 million for the year ended December 31, 2003 from $678.2 million for the year ended December 31, 2002. The increase was primarily due to the inclusion of $700.0 million in restricted cash relating to the portion of our senior notes issued in November 2003 that was subject to mandatory redemption as of December 31, 2003. Our investing activities during the year ended December 31, 2003 consisted of $72.9 million of capital expenditures for satellites and associated launch services, $111.9 million of capital expenditures for infrastructure projects and other ground network costs, $17.9 million of capitalized interest, $700.0 million of restricted cash and a $58.0 million investment in WildBlue.
Our investing activity in 2002 consisted of $467.4 million of capital expenditures for satellites and associated launch services, $97.0 million of capital expenditures for infrastructure projects and other ground network costs, $52.4 million of capitalized interest and $61.4 million for payments on asset acquisitions.
Net Cash Provided By (Used In) Financing Activities
Net cash used in financing activities decreased $1,371.6 million to $415.8 million net cash used in financing activities for the year ended December 31, 2004 from $955.8 million net cash provided by financing activities for the year ended December 31, 2003. Our financing activities for 2004 consisted primarily of the repayment of long- term debt of $600.0 million and proceeds from a credit facility term loan borrowing of $200.0 million. At December 31, 2004, we had no commercial paper borrowings outstanding.
Net cash provided by financing activities increased $924.3 million to $955.8 million for the year ended December 31, 2003 from $31.5 million for the year ended December 31, 2002. This increase was principally due to our issuance of a greater amount of indebtedness during the year ended December 31, 2003 as compared to the prior year, together with the payment during the prior year of $200.0 million in outstanding bonds upon their maturity and $266.1 million in commercial paper borrowings. Our financing activities for the year ended December 31, 2003 consisted primarily of the receipt of $1,097.8 million in net proceeds from the issuance of our 2008 Senior Notes and 2013 Senior Notes, repayments of commercial paper borrowings of $44.0 million and principal payments on deferred satellite performance incentives of $65.8 million. These payments on deferred satellite performance incentives of $65.8 million consisted primarily of a $60.0 million cash payment made under an agreement to extinguish a portion of our deferred satellite performance incentive liability, as discussed below.
5 Our financing activity in 2002 principally consisted of $595.8 million in proceeds, net of discount, received from the issuance of our 7 /8% Senior Notes due 2012, 3 offset by repayment of commercial paper borrowings of $266.1 million, repayment of our $200.0 million Eurobond 7 /8% Notes due 2002, payment of $65.0 million for the purchase of our ordinary shares from Teleglobe Inc. and
68 Table of Contents principal payments on deferred satellite performance incentives of $15.3 million. At December 31, 2002, commercial paper borrowings outstanding totaled $44.0 million.
Historical Debt and Other Liabilities
At December 31, 2004, we had debt, including the current portion of such debt, of $1,948.1 million, all of which was denominated in U.S. dollars. Our debt at 1 1 5 December 31, 2004 consisted of $200.0 million of Eurobond 8 /8% notes due 2005, $400.0 million of 5 /4% Senior Notes due 2008, $600.0 million of 7 /8% Senior Notes due 1 2012, $700.0 million of 6 /2% Senior Notes due 2013, $33.5 million in capital lease obligations and a $20.0 million note payable to Lockheed Martin Corporation. The 2008 Senior Notes, 2012 Senior Notes and 2013 Senior Notes were issued at a discount, representing the difference between the issue price and the face value of the notes on the date of issuance. Both the discounts and the debt issuance costs relating to these notes are amortized as interest expense over the lives of the notes utilizing the effective interest method. The unamortized discount for these notes totaled $5.4 million as of December 31, 2004.
The proceeds from Intelsat’s issuance in November 2003 of the 2008 Senior Notes and the 2013 Senior Notes were approximately $1,074.5 million, net of discount and after deducting $23.3 million of debt issuance costs. We used substantially all of the net proceeds from the sale of the 2008 Senior Notes and the 2013 Senior Notes to finance the Intelsat Americas Transaction and to make our $50.0 million prepayment for a portion of the purchase price of our new IA-9 satellite as described in “—Capital Expenditures.” We used the proceeds from the issuance in April 2002 of the 2012 Senior Notes to repay commercial paper borrowings outstanding at the time of receipt of 3 those proceeds, for general corporate purposes and to repay on August 6, 2002 the $200.0 million principal amount of Eurobond 7 /8% notes due 2002 that had been outstanding. We incurred debt issuance costs of $7.6 million associated with issuance of the 2012 Senior Notes.
In connection with the Acquisition Transactions in 2005, Intelsat Bermuda entered into the Senior Secured Credit Facilities, including a new $350.0 million Term Loan B facility and a new $300.0 million revolving credit facility. $150.0 million of the Term Loan B facility was drawn in connection with the Acquisition Transactions. On February 28, 2005, Intelsat Bermuda borrowed an additional $200 million under the $350 million Term Loan B facility to fund the payment of $200 million of Eurobond 8 1 /8% notes due 2005. Additionally, in connection with the Acquisition Transactions, Intelsat Bermuda issued $1.0 billion of Floating Rate Senior Notes due 2012, $875 million 5 of 8¼% Senior Notes due 2013 and $675 million of 8 /8% Senior Notes due 2015. These notes are guaranteed by Intelsat, Intelsat Bermuda and certain subsidiaries of Intelsat Subsidiary Holding. The net proceeds from these borrowings under the Senior Secured Credit Facilities and the issuance of these notes were used as part of the funding to consummate the Acquisition Transactions. On February 11, 2005, Intelsat and Finance Co. issued $478.7 million in aggregate principal amount at maturity of Discount Notes, which yielded approximately $300 million of net proceeds at issuance. On March 3, 2005, Intelsat Bermuda transferred substantially all of its assets to Intelsat Subsidiary Holding. Intelsat Subsidiary Holding assumed substantially all of the then-existing liabilities of Intelsat Bermuda and Intelsat Bermuda became a guarantor of the obligations under the Acquisition Finance Notes and the Senior Secured Credit Facilities. Following the Transfer Transactions, Finance Co. was amalgamated with Intelsat Bermuda. The proceeds of the offering of the Discount Notes, net of certain fees and expenses, were distributed by Intelsat Bermuda to its parent, Intelsat and by Intelsat to Intelsat Holdings. Intelsat Holdings used those funds to repurchase a portion of the outstanding preferred shares of Intelsat Holdings.
Our cost of satellite construction includes an element of deferred consideration to satellite manufacturers referred to as satellite performance incentives. We are contractually obligated to make these payments over the lives of the satellites, provided the satellites continue to operate in accordance with contractual specifications. We capitalize the present value of these payments as part of the cost of the satellites and record a corresponding liability to the satellite manufacturers. This asset is amortized over the useful lives of the satellites and the liability is reduced as the payments are made. Our total satellite performance incentive payment liability was $56.8 million as of December 31, 2004 and $51.8 million as of December 31, 2003.
On June 26, 2003, our Intelsat LLC subsidiary entered into amendments to its satellite construction agreements with SS/L, pursuant to which we extinguished a portion of our liability to SS/L to make satellite performance incentive payments for the Intelsat VII/VIIA and IX series satellites manufactured by SS/L in exchange for a total cash payment of $60.0 million. In connection with this transaction, we recorded a $95.0 million reduction in our total satellite performance incentive payment liability. This transaction with SS/L is discussed further in Note 13 to our audited consolidated financial statements included elsewhere in this annual report.
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Receivables
Our receivables, net totaled $202.7 million at December 31, 2004 and $201.2 million at December 31, 2003. Of these amounts, our gross trade receivables, consisting of total billed and unbilled service charges, were $226.7 million at December 31, 2004 and $221.6 million at December 31, 2003. The remaining balance in both periods represented the allowance for doubtful accounts and other receivables.
Our pre-privatization billing policy required payments from customers to be made quarterly in arrears. Our billing policy applicable to service agreements entered into after privatization generally requires payments to be made monthly in arrears. We expect a downward trend in receivables as the portion of our services being provided under service agreements with monthly, as compared to quarterly, in arrears payment terms increases. In addition to our billing policy, our collateral profile has changed as a result of the Acquisition Transactions. Previously, the investment share of the Signatories and Investing Entities, which were also our principal customers, was considered to be collateral for services provided. As a result of the Acquisition Transactions, we no longer have this investment share as collateral. To the extent we are unable to obtain collateral or other financial support for customer receivables, we may see an increase in bad debt.
Liquidity and Capital Resources
We have had significant cash outlays in 2005 in connection with the Acquisition Transactions, the repurchase of a portion of the outstanding preferred shares of Intelsat Holdings and repayment of Intelsat’s 2005 Eurobond Notes. On February 28, 2005, Intelsat Bermuda borrowed an additional $200 million under the $350 million Term Loan B facility which was used to fund the payment of the 2005 Eurobond Notes at their maturity. We expect our most significant cash outlays for the remainder of 2005 to be the payment of interest on our outstanding debt.
We have incurred substantial debt, with payments to service this indebtedness substantially increasing our liquidity requirements as compared to prior years. In connection with the Acquisition Transactions, Intelsat Bermuda issued the Acquisition Finance Notes which are comprised of $1.0 billion of Floating Rate Senior Notes due 5 2012, $875 million of 8¼% Senior Notes due 2013 and $675 million of 8 /8% Senior Notes due 2015 and entered into the Senior Secured Credit Facilities. The Senior Secured Credit Facilities, which are the obligation of Intelsat Subsidiary Holding, are comprised of a $350.0 million Term Loan B facility maturing in 6.5 years and a $300.0 million revolving credit facility maturing in six years. Intelsat Subsidiary Holding is now the obligor, and Intelsat Bermuda is a guarantor, of each of the Acquisition Finance Notes and of the Senior Secured Credit Facilities. The credit agreement relating to the Senior Secured Credit Facilities contains financial and operating covenants that, among other things, require Intelsat Subsidiary Holding to maintain financial coverage ratios, limit Intelsat Subsidiary Holding’s ability to pledge assets as security for additional borrowings and limit Intelsat Subsidiary Holding’s ability to pay dividends on Intelsat Subsidiary Holding’s ordinary shares. On February 11, 2005, Intelsat and Finance Co. issued $478.7 million in aggregate principal amount at maturity of Discount Notes, which yielded approximately $300 million of net proceeds at issuance. The Discount Notes have no cash interest requirement for the first five years. In connection with the Transfer Transactions, Finance Co. was amalgamated with Intelsat Bermuda and Intelsat Bermuda has become the obligor on the Discount Notes.
Excluding the portion of our deposit on the IA-9 satellite and IA-8 launch insurance deposits described below that are expected to be classified as capital in 2005, we plan to spend approximately $85 million in 2005 for capital expenditures. We intend to fund these requirements through cash on hand, cash provided by operating activities and, if necessary, borrowings under the revolving facility of the Senior Secured Credit Facilities.
In March 2004, we paid $967.1 million for the satellites and related assets that we acquired in the Intelsat Americas Transaction. We financed the Intelsat Americas Transaction and our deposit of $50.0 million as prepayment for a portion of the purchase price of our new IA-9 satellite described in “—Capital Expenditures” below with cash on hand from Intelsat’s issuance of the 2008 Senior Notes and the 2013 Senior Notes. Other significant liquidity requirements in 2004 arose in connection with the payment at maturity of the Dragon bond 6 5/8% notes due March 22, 2004 and the 2004 Eurobond Notes and the funding of capital expenditures. In March 2004, we borrowed $200.0 million under the term loan portion of our $800.0 million three-year unsecured credit facility obtained in December 2003 to repay the Dragon bond 6 5/8% notes. We repaid this $200.0 million term loan borrowing in September 2004. We also repaid the 2004 Eurobond Notes and we paid for the assets we acquired in the COMSAT General Transaction using cash on hand. Our other liquidity requirements in 2004 were funded with cash on hand and cash provided by operating activities.
We have historically had and currently have a substantial backlog, which provides some assurance regarding our future revenue expectations. This backlog and the predictable level of non-cash depreciation expense in the FSS sector reduce the volatility of the net
70 Table of Contents cash provided by operating activities more than would otherwise be the case. However, we may have unplanned projects requiring significant capital expenditures or our capital requirements may be greater than we currently anticipate. Accordingly, we may be required to seek additional external financing. In addition, the ongoing consolidation in the FSS sector may require that we obtain funding for currently unplanned strategic transactions.
See Item 3.D — “Risk Factors—Risk Factors Relating to Our Business” for a discussion of the factors that could influence our ability to obtain any such financing.
The following table sets forth the contractual obligations and capital commitments of as of December 31, 2004:
Less than After 5 Contractual Obligations 1 year 1-3 years 3-5 years years Total
(dollars in millions) (1) Long-term debt $ 324.0 $ 249.4 $ 647.5 $1,601.4 $2,822.2 (2) Capital commitments 181.7 128.5 90.9 32.7 433.7 Operating leases and other expense commitments 37.4 20.4 2.2 20.5 80.7
Total contractual obligations $ 542.8 $ 398.3 $ 740.6 $1,654.6 $3,336.6
(1) Includes principal and interest on long-term debt. This table does not include the $1.0 billion of Floating Rate Senior Notes due 2012, $875 million of 8 ¼% Senior 5 Notes due 2013 and $675 million of 8 /8% Senior Notes due 2015 issued in 2005 in connection with the Acquisition Transactions and the $478.7 million in aggregate principal amount at maturity of Discount Notes issued in 2005 yielding approximately $300 million net proceeds at issuance to finance the repurchase of a portion of the outstanding preferred shares of Intelsat Holdings.
(2) Includes contractual commitments for satellites and principal and interest on deferred satellite performance incentives.
Capital Expenditures
Our capital expenditures depend on the means by which we pursue our business strategies and seek to respond to opportunities and trends in our industry. Our actual capital expenditures may differ from our expected capital expenditures if, among other things, we enter into any currently unplanned strategic transactions. Levels of capital spending from one year to the next are also influenced by the nature of the satellite life cycle and by the capital-intensive nature of the satellite industry. For example, we incur significant capital expenditures during the years in which we determine to procure new satellites and have satellites under construction. We typically procure a new satellite within a timeframe that would allow the satellite to be deployed at least one year prior to the end of the orbital maneuver life of the satellite to be replaced. As a result, we frequently experience significant variances in our capital expenditures from year to year. The following table compares our satellite-related capital expenditures to total capital expenditures from 2000 through 2004:
Satellite-Related Capital Total Capital Year Expenditures Expenditures
(dollars in thousands) 2000 $ 478,708 $ 546,020 2001 592,163 663,671 2002 509,418 616,806 2003 87,496 202,781 2004 213,219 290,589
Total $ 1,881,004 $ 2,319,867
In connection with the recent IA-7 satellite anomaly, we have delayed to the second or third quarter of 2005 the launch of the IA-8 satellite previously scheduled for December 2004. As a result of this delay, approximately $65 million in deposits for launch
71 Table of Contents insurance for the IA-8 satellite are now expected to be classified as capital expenditures in 2005 instead of 2004. Excluding the portion of the IA-9 deposit and the IA-8 launch insurance deposits that are expected to be classified as capital in 2005, we plan to spend approximately $85 million in 2005 for capital expenditures. In the mid term, we expect that our level of capital expenditures will be significantly lower than that of the past several years. We are nearing the end of our most recent satellite fleet renewal and deployment cycle, at the completion of which we will have spent nearly $2.6 billion on eight new satellites launched since June 2001 and our IA-8 satellite expected to be launched during the second or third quarter of 2005. The IA-9 satellite is currently our only satellite under construction, and, as noted above, we have no plans to launch this satellite in the near to mid term. We do not currently expect the IA-7 satellite anomaly or the loss of our IS-804 satellite to result in the acceleration of capital expenditures to replace the IA-7 satellite or the IS-804 satellite. As a result of these factors, excluding approximately $114 million in deposits made in 2004, we expect that our capital expenditures will be reduced to levels of less than $100 million per year in the mid term.
Our capital expenditures totaled $290.6 million in 2004 and consisted of $269.2 million of asset costs and $21.4 million of capitalized interest. Of the total $290.6 million, $134.2 million related to the IS-10-02 satellite launched in June 2004 and placed into service in September 2004, $75.4 million related to the IA-8 satellite expected to be launched during the second or third quarter of 2005, as discussed above, and $81.0 million related to infrastructure and other projects. These projects primarily related to our integration efforts in connection with the Loral transaction as well as teleport and other facilities for our managed services.
In addition to the capital expenditures described above, in connection with the Intelsat Americas Transaction, in March 2004 we entered into a procurement agreement with SS/L for a new satellite, which we refer to as the IA-9 satellite, and made a $50.0 million deposit on the satellite. This deposit is secured by SS/L’s and its affiliates’ interests in an in-orbit satellite, insurance proceeds relating to the satellite and certain other collateral. The deposit is accounted for in our financial statements in other assets and will only be treated as capital expense to the extent that we actually incur costs under the procurement agreement for the satellite. Approximately $3.0 million of this deposit was classified as capital expense in 2004. The remainder of the deposit made on the IA-9 satellite is expected to be classified as capital expense in 2005. We currently have no plans to launch the IA-9 satellite in the near to mid term, but we will continue to review the business case for additions to our satellite fleet over time.
Currency and Exchange Rates
Substantially all of our customer contracts, capital expenditure contracts and operating expense obligations are denominated in U.S. dollars. Consequently, we are not exposed to material currency exchange risk. However, our service contracts with our Brazilian customers provide for payment in Brazilian reais. Accordingly, we are subject to the risk of a reduction in the value of the Brazilian real as compared to the U.S. dollar in connection with payments made by Brazilian customers, and our exposure to fluctuations in the exchange rate for Brazilian reais is ongoing. However, the rates payable under our service contracts with Brazilian customers are adjusted annually to account for inflation in Brazil, thereby mitigating our risk. For the year ended December 31, 2004, our Brazilian customers represented approximately 1% of our revenue. Transactions in other currencies are converted into U.S. dollars using rates in effect on the dates of the transactions.
Disclosures about Market Risk
As of December 31, 2004, we had obligations related to our long-term debt agreements. These financial instruments are discussed further in Note 14 to our audited consolidated financial statements included elsewhere in this annual report. As of December 31, 2004, we did not have significant cash flow exposure to changing interest rates on our long-term debt because the interest rates of those securities are fixed. However, the estimated fair value of the fixed-rate debt is subject to market risk. As of December 1 31, 2004, we had approximately $1.9 billion in fixed-rate debt. At December 31, 2004, these outstanding fixed-rate borrowings bore interest at rates ranging from 5 /4% to 8 1 /8%.
We are subject to interest rate and related cash flow risk in connection with the $1.0 billion Floating Rate Senior Notes due 2012 issued in January 2005 and borrowings under the Senior Secured Credit Facilities in January 2005 in connection with the Acquisition Transactions and February 2005 in connection with the payment at maturity of certain outstanding Eurobonds. The $875 million Fixed Rate Senior Notes due 2013, the $675 million Fixed Rate Senior Notes due 2015 and the $478.7 million Discount Notes are not subject to interest rate fluctuations because the interest rate is fixed for the term of those notes. The $875 million Senior Notes and the $675 million Senior Notes were issued in January 2005, and the $478.7 million Discount Notes were issued in February 2005.
Presented below is an analysis of our financial instruments as of December 31, 2004 that are sensitive to changes in interest rates. The tables demonstrate the change in market value of the instruments calculated for an instantaneous parallel shift in interest rates, plus or minus 50 basis points, or BPS, 100 BPS and 150 BPS. With respect to our fixed-rate debt, the sensitivity table below
72 Table of Contents illustrates “market values,” or the price at which the debt would trade should interest rates fall or rise in the range indicated, assuming similar terms and similar assessment of risk by our lenders. Market values are determined using market rates on comparable instruments as of December 31, 2004.
Interest Rate Risk (in millions) as of December 31, 2004
Valuation of Securities No Change Valuation of Securities Given an Interest Rate Decrease in Interest Given an Interest Rate Increase of X Basis Points Rates of X Basis Points
(150 BPS) (100 BPS) (50 BPS) Fair Value (50 BPS) (100 BPS) (150 BPS)
$700 million principal 6.5% senior notes due 11/01/13 $ 691.1 $ 668.7 $ 647.2 $ 626.5 $ 606.7 $ 587.6 $ 569.3 $600 million principal 7.625% senior notes due 04/15/12 $ 627.3 $ 610.1 $ 593.5 $ 577.5 $ 562.0 $ 547.0 $ 532.5 $400 million principal 5.25% senior notes due 11/01/08 $ 405.3 $ 398.4 $ 391.6 $ 385.0 $ 378.5 $ 372.2 $ 365.9 $200 million principal Eurobond 8.125% notes due 02/28/05 $ 201.6 $ 201.4 $ 201.3 $ 201.1 $ 200.9 $ 200.8 $ 200.6
1 The $200 million principal Eurobond 8 /8% notes due February 28, 2005 were repaid at their maturity date using borrowings under the Term Loan B portion of our Senior Secured Credit Facilities. With respect to our $1.0 billion Floating Rate Senior Notes due 2012 that were issued in January 2005, an increase or decrease of 100 BPS to our current interest rate would increase or decrease our interest expense by $10 million. This sensitivity analysis provides only a limited, point-in-time view of the market risk sensitivity of certain of our financial instruments. The actual impact of market interest rate changes on our financial instruments may differ significantly from the impact shown in the sensitivity analysis.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our significant accounting policies are described fully in Note 2 to our audited consolidated financial statements included elsewhere in this annual report. We consider a number of accounting policies to be critical to the understanding of our results of operations. These accounting policies relate to revenue recognition, our satellites and other property and equipment, business combinations, goodwill, impairment of long-lived and amortizable intangible assets, income taxes, deferred satellite performance incentives, retirement plans and other postretirement benefits and investments in affiliated companies. The impact of any risks related to these policies on our business operations is discussed in this “—Operating and Financial Review and Prospects” where these policies affect our reported and expected financial results. Our preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
We recognize revenue primarily from satellite utilization charges and, to a lesser extent, from providing managed services to our customers. We recognize revenue over the period during which services are provided, as long as collection of the related receivable is reasonably assured. We make estimates regarding the likelihood of collection based upon an evaluation of the customer’s creditworthiness, the customer’s payment history and other conditions or circumstances that may affect the likelihood of payment, such as political and economic conditions in the country in which the customer is located. When we have determined that the collection of payments for satellite utilization or managed services is not reasonably assured at the time the service is provided, we defer recognition of the revenue until such time that collection is believed to be reasonably assured or the payment is received. We also maintain an allowance for doubtful accounts for customers’ receivables where the collection of these receivables is uncertain. If our estimate of the likelihood of collection is not accurate, we may experience lower revenue or an increase in our bad debt expense. We receive payments from some customers in advance of our providing services. Amounts received from customers pursuant to satellite capacity prepayment options are recorded in the financial statements as deferred revenue. These deferred amounts are recognized as revenue on a straight-line basis over the agreement terms. Our revenue recognition policy as described above complies
73 Table of Contents with the criteria set forth in Staff Accounting Bulletin No. 101, Revenue Recognition, as amended by Staff Accounting Bulletin No. 104.
Satellites and Other Property and Equipment
Satellites and other property and equipment are stated at cost. These costs consist primarily of the cost of satellite construction and launch, including premiums for launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives expected to be payable to the satellite manufacturers, costs directly associated with the monitoring and support of satellite construction and interest costs incurred during the period of satellite construction. Satellite construction and launch services are generally procured under long-term contracts that provide for payments by us over the contract periods. Satellite construction and launch services costs are capitalized to reflect progress toward completion, which typically coincides with contract milestone payment schedules. Insurance premiums related to satellite launches and subsequent in-orbit testing are capitalized and amortized over the lives of the related satellites. Insurance premiums associated with in-orbit operations are expensed as incurred. Performance incentives payable in future periods are dependent on the continued satisfactory performance of the satellites in service.
Satellites and other property and equipment are depreciated and amortized on a straight-line basis over their estimated useful lives. The depreciable lives of our satellites range from 11 years to 15 years. We make estimates of the useful lives of our satellites for depreciation and amortization purposes based upon an analysis of each satellite’s performance, including its orbital design life and its estimated orbital maneuver life. The orbital design life of a satellite is the length of time that the manufacturer has contractually committed that the satellite’s hardware will remain operational under normal operating conditions. In contrast, a satellite’s orbital maneuver life is the length of time the satellite is expected to remain operational as determined by remaining fuel levels and consumption rates. Our in-orbit satellites generally have orbital design lives ranging from 10 years to 13 years and orbital maneuver lives as high as 20 years. The useful lives of our satellites generally exceed the orbital design lives and are less than the orbital maneuver lives. Although the orbital maneuver lives of our satellites have historically extended beyond their depreciable lives, this trend may not continue. We periodically review the remaining estimated useful lives of our satellites to determine if any revisions to our estimates are necessary based on the health of the individual satellites. Changes in our estimate of the useful lives of our satellites could have a material effect on our financial position or results of operations.
We charge to operations the carrying value of any satellite lost as a result of a launch or in-orbit failure upon the occurrence of the loss. In the event of a partial failure, we record an impairment charge to operations upon the occurrence of the loss if the undiscounted future cash flows were less than the carrying value of the satellite. We measure the impairment charge as the excess of the carrying value of the satellite over its estimated fair value as determined by the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved. We reduce the charge to operations resulting from either a complete or a partial failure by the amount of any insurance proceeds that were either due and payable to or received by us. We record any insurance proceeds received in excess of the carrying value of the satellite as a gain and no impairment loss would be recognized. In the event the insurance proceeds equal the carrying value of the satellite, neither a gain nor an impairment loss would be recognized.
Business Combinations
Our business combinations are accounted for in accordance with the provisions set forth in SFAS No. 141, Business Combinations, whereby the net tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their estimated fair market values at the acquisition date. The portion of the purchase price in excess of the estimated fair market value of the net tangible and separately identifiable intangible assets acquired represents goodwill. The allocation of the purchase price related to our business combinations involves estimates and judgments by our management that may be adjusted during the allocation period, but in no case beyond one year from the acquisition date. These allocations are made on the basis of appraisals prepared by independent third-party appraisers.
Goodwill and Other Intangible Assets
Goodwill arising from our acquisitions represents the excess of costs over the estimated fair value of net tangible and separately identifiable intangible assets acquired. Our goodwill and other intangible assets are accounted for in accordance with the provisions set forth in SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized and that they instead be tested for impairment at least annually by applying a fair value-based test. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
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As of December 31, 2004, there had been no events or changes in circumstances leading us to believe that a possible impairment of the goodwill we recorded in connection with our acquisition of certain assets and liabilities of COMSAT World Systems or our acquisition of the COMSAT General business existed as of that date. We will perform the impairment analysis as required under SFAS No. 142, on an annual basis or more frequently if circumstances indicate a possible impairment has occurred, by assessing the fair value of our acquired assets using a discounted cash flow approach. An impairment loss would be recognized to the extent that the carrying amount of the assets exceeds the amount of the assets’ fair value. We have determined that we have one reporting unit, the enterprise level, under the criteria set forth by SFAS No. 142. If we are required to record an impairment charge in the future because of changes to the acquired business, it could have an adverse impact on our results of operations.
Impairment of Long-Lived and Amortizable Intangible Assets
We review our long-lived and amortizable intangible assets to assess whether an impairment has occurred using the guidance established under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate, in our judgment, that the carrying amount of an asset may not be recoverable. The recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value.
As of December 31, 2004, other than our $84.4 million write down of our IA-7 satellite and our $21.5 million write down of the long-lived asset group of our discontinued operations as a result of our disposal of our investment in Galaxy, there had been no events or changes in circumstances leading us to believe that a possible impairment to any of our long-lived and amortizable intangible assets existed as of that date. Refer to Notes 9 and 5 to our consolidated financial statements appearing elsewhere in this annual report for a discussion of our write down of the IA-7 satellite and our investment in Galaxy, respectively.
Income Taxes
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.
Deferred Satellite Performance Incentives
Our cost of satellite construction includes an element of deferred consideration to satellite manufacturers referred to as satellite performance incentives. We are contractually obligated to make these payments over the lives of the satellites, provided the satellites continue to operate in accordance with contractual specifications. Historically, the satellite manufacturers have earned substantially all of these payments. Therefore, we account for these payments as deferred financing. Consequently, we capitalize the present value of these payments as part of the cost of the satellites and record a corresponding liability to the satellite manufacturers. These costs are amortized over the useful lives of the satellites and the liability is reduced as the payments are made.
Retirement Plans and Other Postretirement Benefits
Defined Benefit Plan
We maintain a noncontributory defined benefit retirement plan called the Intelsat Staff Retirement Plan. This plan covers, among others, substantially all of our employees hired before July 19, 2001. The cost under this plan is calculated by an actuary using a formula that is based on employees’ remuneration, dates of hire and years of service. In 2001 and 2002, global capital market conditions resulted in negative returns on the plan’s assets. Primarily due to this occurrence and to a reduction in the discount rate assumption for our plan as discussed further below, the plan’s accumulated benefit obligation at September 30, 2002 exceeded the fair value of its assets, which required us to record an additional minimum pension liability in accordance with SFAS No. 87, Employer’s Accounting for Pensions. The effect of this non-cash adjustment was to increase accrued retirement benefits by $23.8 million, increase other assets by $2.3 million and increase other comprehensive loss by $21.5 million, or $12.9 million after tax. During 2003, we made $40.0 million in cash contributions to the plan, which were reflected as reductions in accrued retirement benefits in our consolidated balance sheet at December 31, 2003, to improve the plan’s funded position. However, for our non-qualified pension plan, referred to as the Intelsat Restoration Plan, the accumulated benefit obligation at the end of the plan year in 2003 still exceeded
75 Table of Contents the fair value of its assets. As a result, we adjusted the minimum pension liability such that, as of December 31, 2003, $19.5 million of the net additional minimum pension liability of $21.5 million was reversed along with the $2.3 million recorded in other assets. The effect of this adjustment resulted in us having an additional minimum pension liability of $2.1 million, or $1.3 million after tax, recorded as other comprehensive loss at December 31, 2003. We also recorded an additional minimum pension liability of $0.1 million as of December 31, 2004 related to the Intelsat Restoration Plan. See Item 6.B — “Compensation—Pension Benefits” for information regarding the Intelsat Restoration Plan. The amounts provided above and below for our noncontributory defined benefit retirement plan include amounts for the Intelsat Restoration Plan. During 2004, we recorded a curtailment loss related to our 2004 workforce reductions, as discussed in Note 21 to our audited consolidated financial statements, which resulted in a $1.6 million increase in our accrued retirement benefits.
We have historically funded the plan based on actuarial advice using the projected unit credit cost method. Concurrent with our privatization in 2001, our plan became subject to the provisions of the U.S. Employee Retirement Income Security Act of 1974, as amended, and, as such, we expect that our future contributions to the plan will be based on the minimum requirements of the U.S. Internal Revenue Service and on the plan’s funded position.
Other Postretirement Benefits
We currently provide postretirement health benefits for employees hired prior to January 1, 2004 who retire at or after age 60 with five years of consecutive service or after age 55 with ten years of consecutive service. These benefits are paid from our general assets, as they become due, although we have obtained “stop-loss” insurance coverage for significant claims expenses. The cost of these postretirement health benefits is calculated by an actuary based on the level of benefits provided, years of service and other specified factors. A governing body of the IGO adopted a resolution prior to privatization stating that the retirees eligible for these benefits as of the date of the IGO’s privatization, as well as an additional number of named employees, would continue to receive the level of health benefits provided as of January 1, 2001. See Item 8 — “Financial Information” for a discussion of litigation we are facing in connection with this resolution. In addition, this resolution stated that (1) if the consolidated net worth, referred to in our financial statements as shareholders’ equity, of Intelsat or its successors with continuing obligations under the resolution falls below $500 million, then such obligated entity would be required to establish an irrevocable trust to accept funds for payment of these health benefits and to obtain a letter of credit in an amount equal to 150% of the Financial Accounting Standards Board, or FASB, valuation of the benefit liability and (2) if such obligated entity’s consolidated net worth falls below $300 million, then the trust will exercise this letter of credit. It is our position that the resolution, including its letter of credit provisions, does not create obligations that are enforceable against Intelsat or Intelsat Global Service Corporation. During 2003, we recorded a curtailment gain related to our December 2002 workforce reduction, as discussed in Note 21 to our audited consolidated financial statements, which resulted in a $2.6 million reduction in our accrued retirement benefits. During 2004, we recorded a curtailment gain related to our 2004 workforce reductions, as discussed in Note 21 to our audited consolidated financial statements, which resulted in a $0.9 million reduction in our accrued retirement benefits.
Defined Contribution Plans
We maintain two defined contribution retirement plans in the United States, one such plan in Bermuda and one such plan in the United Kingdom. One of the U.S. plans provides benefits to, among others, employees based in the United States hired before July 19, 2001, and the other U.S. plan provides benefits to employees based in the United States hired on or after July 19, 2001. The Bermuda plan provides benefits to most of our employees based in Bermuda. The U.K. plan provides benefits to our employees based in the United Kingdom. We also maintain a deferred compensation plan for executives. However, benefit accruals under this plan were discontinued during 2001.
Key Plan Assumptions
Net periodic pension and other postretirement benefits costs under our defined benefit and other postretirement benefits plans, as well as the related plan liabilities, are determined each year on an actuarial basis. As part of this process, we review our plans’ actual experience and make adjustments to key plan assumptions, if necessary. Hence, to reflect the decline in long-term interest rates, we lowered the discount rate applicable to both our defined benefit plan and our other postretirement benefits plan as of September 30, 2003, from 7.25% to 6.75% and again as of September 30, 2004, from 6.75% to 6.00%. Our discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality, fixed-income investments. For our defined benefit plan, we elected to maintain the expected rate of return on pension assets at 9% for the plan years that began October 1, 2002 and October 1, 2003. Our expected rates of return are based on historical capital market performance and on our investment policy. Notwithstanding the negative returns on plan assets that we experienced in 2001 and 2002, we believed at October 1, 2002
76 Table of Contents and October 1, 2003 that the historical performance of the capital markets indicated that 9% was a reasonable expectation for long-term returns. For our other postretirement benefits plan, we elected to maintain the health care cost trend rate at 7% for the plan years that began October 1, 2002 and October 1, 2003 because our review of claims data and expectations for the future indicated that this assumption was valid. As a result of our assumptions for the plan year ended September 30, 2004, our pension expense as measured in accordance with SFAS No. 87, Employers’ Accounting for Pensions, decreased by $0.2 million, or 6%, to $3.2 million in 2004 from $3.4 million in 2003. In addition, our other postretirement benefits expense as measured in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, decreased by $0.8 million, or 10%, to $7.3 million in 2004 from $8.1 million in 2003. Also, increasing the assumed health care cost trend rate by 1% each year would increase the other post-retirement benefits obligation as of September 30, 2004 by approximately $7.0 million. Decreasing this trend rate by 1% each year would reduce the other post- retirement benefits obligation as of September 30, 2004 by approximately $6.2 million. A 1% increase or decrease in the assumed health care cost trend rate would increase or decrease the aggregate service and interest cost components of net periodic other post-retirement benefits cost for 2004 by approximately $0.7 million and $0.6 million, respectively.
Under the accounting guidance for pension plans and other postretirement benefit plans just described, the effects of revisions to assumptions or differences between assumed and actual experience are not immediately recognized as expense in the year of occurrence. Instead, both the favorable and the unfavorable effects of these revisions and differences that fall within an acceptable range are reflected as unrecognized net gains and losses and are amortized into pension expense and other postretirement benefits expense over a predetermined amortization period. For our defined benefit retirement plan, we had an unrecognized net loss of $57.2 million at December 31, 2004, compared to an unrecognized net loss of $56.8 million at December 31, 2003. For our other postretirement benefits plan, we had an unrecognized net gain of $1.2 million at December 31, 2004, compared to an unrecognized net loss of $7.6 million at December 31, 2003. A portion of these unrecognized net losses has been amortized into pension expense and other postretirement benefits expense, respectively, in 2004. However, the impact of the amortization on expense in future years will depend in large part on the actual experience of the plans in those years and, consequently, cannot be estimated.
Investments in Affiliated Companies
We apply the equity method to account for investments in entities that are not variable interest entities under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised in December 2003 and referred to as FIN 46R, and in which we have an ownership interest of between 20% and 50% and exercise significant influence over operating and financial policies. FIN 46R is described under “—New Accounting Pronouncements” below. Under the equity method, we record our share of an affiliate’s net income or loss in our consolidated financial statements.
We consolidate the financial statements of our affiliates in which we have an ownership stake of greater than 50% and exercise control over operating and financial policies, or which are variable interest entities in which we are the primary beneficiary. We record the minority shareholders’ interests in the net assets of a consolidated affiliate as a minority interest in our consolidated financial statements. We recognize the minority interest’s share of losses in our consolidated financial statements if the minority shareholders have made a commitment to fund the affiliate’s operations.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, any goodwill arising from the excess of the cost of our investment over the fair value of net assets acquired at the acquisition date is not amortized. Any decline in value in the investment that is deemed to be other than a temporary decline would result in the recognition of a loss during the period in which the decline in value occurs.
Related Party Transactions
Post Acquisition Transactions
Acquisition and Transfer Transactions
On January 28, 2005, Intelsat was acquired by Intelsat Holdings for total cash consideration of approximately $3 billion with pre-acquisition debt of approximately $2 billion remaining outstanding. Intelsat Holdings was formed at the direction of funds advised by or associated with Apax Partners, Apollo, Madison Dearborn Partners and Permira.
As part of the transactions referred to above, the Investors and certain members of management purchased preferred and ordinary shares of Intelsat Holdings. In addition, in connection with the Acquisition Transactions our wholly owned subsidiary Intelsat
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Bermuda established a new $300 million revolving credit facility, borrowed approximately $150 million under a new $350 million Term Loan B facility, referred to together as 1 5 the Senior Secured Credit Facilities, and issued $1 billion of floating rate senior notes due 2012, $875 million of 8 /4% senior notes due 2013 and $675 million of 8 /8% senior notes due 2015, referred to collectively as the Acquisition Finance Notes. On February 28, 2005, Intelsat Bermuda borrowed an additional $200 million under the $350 million 1 Term Loan B facility which was used to fund the payment of our previously existing $200 million in Eurobond 8 /8% notes due 2005, which we refer to as the 2005 Eurobond Notes. The Acquisition Finance Notes and the Senior Secured Credit Facilities are guaranteed by Intelsat and certain of its direct and indirect subsidiaries. The proceeds from the Investors’ equity contributions and the net proceeds from the borrowing under the Senior Secured Credit Facilities and the Acquisition Finance Notes, together with cash on hand, were used to consummate the transactions described above and to pay related fees and expenses. Approximately $1.7 billion of Intelsat’s existing debt pursuant to the Parent Notes remains outstanding following the Acquisition Transactions and after repayment of the 2005 Eurobond Notes.
On February 11, 2005, Intelsat and Finance Co. issued $478.7 million in aggregate principal amount at maturity of Discount Notes yielding approximately $300 million net proceeds at issuance. On March 3, 2005, Intelsat Bermuda transferred substantially all of its assets to a newly formed wholly owned subsidiary, Intelsat Subsidiary Holding. Intelsat Subsidiary Holding assumed substantially all of the then-existing liabilities of Intelsat Bermuda, and Intelsat Bermuda became a guarantor of the obligations under the Acquisition Finance Notes and the Senior Secured Credit Facilities. Following the Transfer Transactions, Finance Co. was amalgamated with Intelsat Bermuda, and we refer to the entity surviving that amalgamation as Intelsat Bermuda. The proceeds of the offering of the Discount Notes, net of certain fees and expenses, were distributed by Intelsat Bermuda to its parent, Intelsat, and by Intelsat to Intelsat Holdings. Intelsat Holdings used those funds to repurchase a portion of the outstanding preferred shares of Intelsat Holdings.
See Item 7.B — “Related Party Transactions” for a description of the voting agreement, shareholders agreement, monitoring fee agreement and transaction fee, which we entered into in connection with the Acquisition Transactions.
Pre-Acquisition Transactions
Until the consummation of the Acquisition Transactions on January 28, 2005, certain of our shareholders and their affiliates, as described below, were related parties of ours. Following the Acquisition Transactions, they no longer are.
COMSAT General Transaction
On October 29, 2004, we and certain of our subsidiaries completed our acquisition of the business of providing satellite-based communications services to the U.S. government and other customers of the COMSAT Sellers. We acquired this business for a purchase price of approximately $90 million, net of assumed liabilities of approximately $30 million and estimated transaction costs of approximately $2 million. The $30 million in assumed liabilities includes a $10 million accommodation fee to be paid in connection with our purchase of a launch vehicle from an affiliate of the COMSAT Sellers. We funded the acquisition by using cash on hand. The assets that we acquired include certain customer and vendor contracts and accounts receivable, as well as rights to FCC and other governmental licenses, leased business premises and other related assets, including an ownership interest in a partnership that owns the Marisat-F2 satellite, which operates at 33.9ºWest, with an orbital inclination in excess of 13 degrees. In addition, we assumed certain contractual commitments related to the business. We believe that this transaction was completed on arm’s-length terms.
Pursuant to our transaction agreement with the COMSAT Sellers, we and the COMSAT Sellers or their affiliates have entered into a number of agreements, including the launch services agreement with an affiliate as noted above and agreements relating to the provision of transition services by the COMSAT Sellers for a specified period of time after the closing of the transaction. See Item 4.B — “Business Overview—Our Network—Planned Satellites” for further information regarding the launch services agreement.
WildBlue Subscription Agreement
In December 2002, we entered into an agreement to acquire a minority stake in WildBlue for a purchase price of $58.0 million. On April 21, 2003, we contributed $56.5 million in cash to WildBlue. This amount represented the $58.0 million purchase price net of a loan receivable for interim funding to WildBlue, plus accrued interest, and net of certain expenses we incurred that were reimbursable by WildBlue. In connection with this investment, we have agreed to purchase 50% of any shares sold by one of the minority investors, at the investor’s option, up to a maximum purchase price of $5.0 million. Other investors in this round of financing, which totalled $156.0 million including our investment, included the National Rural Telecommunications Cooperative and
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Liberty Satellite & Technology, Inc. One of our directors before the closing of the Acquisition Transactions was a director of Liberty Media Corporation, which indirectly owns a minority interest in WildBlue and is the parent company of Liberty Satellite & Technology, Inc. Two of our executive officers are directors of WildBlue.
COMSAT Asset Purchase Agreement
On November 25, 2002, we acquired most of the assets and certain liabilities of COMSAT World Systems, a business unit of COMSAT, and of COMSAT Digital Teleport, Inc., a subsidiary of COMSAT. COMSAT is a wholly owned subsidiary of Lockheed Martin Corporation, which, prior to the consummation of the Acquisition Transactions, was our largest shareholder. COMSAT World Systems was a reseller of our capacity to customers located in the United States. The assets that we acquired included substantially all of COMSAT World Systems’ customer contracts for the sale of our capacity, two earth stations located in Clarksburg, Maryland and Paumalu, Hawaii that provide tracking, telemetry, command and monitoring services for our satellites, and a digital teleport facility located in Clarksburg, Maryland. The purchase price for this transaction consisted of $56.0 million in cash, the assumption of $57.7 million in liabilities and a $20.0 million 7% note payable due in four installments of $5.0 million each on January 1, 2007, 2008, 2009 and 2010. However, if as of the second, third or fourth of such installment payment dates, we are not operating tracking, telemetry, command and monitoring facilities at the Clarksburg, Maryland location and certain triggering events described in the note have occurred, we will not be obligated to pay the $5.0 million installment due on such payment date or any other installment payments that would otherwise become due on subsequent payment dates. In addition, we incurred approximately $1 million in transaction costs in connection with this acquisition. We accounted for the acquisition under the purchase method of accounting, whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair market values at the date of acquisition. Independent third-party appraisers were engaged to perform valuations of certain of the tangible and intangible assets acquired. The purchase price allocation was finalized during the fourth quarter of 2003. We believe that this transaction was completed on arm’s-length terms. For a further discussion of the asset purchase agreement with COMSAT, see Item 7 — “Major Shareholders and Related Party Transactions—COMSAT Asset Purchase Agreement.”
Teleglobe Share Purchase Agreement
On May 15, 2002, one of our largest customers and, prior to the closing of the Acquisition Transactions, one of our shareholders, Teleglobe filed for creditor protection under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice. As a result, we recorded a reserve of $12.8 million against all of our accounts receivable from Teleglobe as of March 31, 2002, and did not recognize any revenue from Teleglobe from April 1, 2002 through May 15, 2002 because collection was not ensured. Revenue generated from Teleglobe and its affiliates was $35.1 million in 2002 and $28.1 million in 2003.
On September 20, 2002, Intelsat Global Sales acquired Teleglobe’s 6,284,635 shares in Intelsat for $65.0 million. Pursuant to the share purchase agreement and a related escrow agreement, title to the shares acquired from Teleglobe was transferred to an escrow agent, which held the shares in trust for Intelsat Global Sales, subject to specified limited rights of Teleglobe. The share purchase agreement provided that, among other things, if we had not conducted a registered offering of our ordinary shares by December 31, 2003, the escrowed shares and any cash held as escrow property would be distributed to Intelsat Global Sales up to the amount that would result in Intelsat Global Sales having received a total amount of shares and cash under the agreement valued at $90.1 million. The share purchase agreement provided that any shares or cash remaining after this distribution to Intelsat Global Sales would be transferred to Teleglobe. We did not conduct a registered offering of our ordinary shares by December 31, 2003 and, pursuant to an amendment to the share purchase agreement entered into in March 2004, the shares held in escrow were valued pursuant to a formula based on the proposed range for the initial public offering price of our ordinary shares set forth on the cover page of the prospectus filed in connection with our contemplated initial public equity offering. Based on this amendment, all of the shares held in escrow were distributed to Intelsat Global Sales in April 2004, and thereafter we and Teleglobe had no remaining rights or obligations under the share purchase agreement. These shares were then transferred to Intelsat Bermuda in June 2004.
We believe that the share purchase transaction between Teleglobe and Intelsat Global Sales was executed on arm’s-length terms. See Note 23(b) to our audited consolidated financial statements included elsewhere in this annual report for a description of how we accounted for the share purchase transaction with Teleglobe.
Relationships with Prior Shareholders
Prior to privatization, the IGO’s owners made capital contributions to and received capital repayments from the IGO in proportion to their ownership in the IGO. The IGO’s owners were also its principal customers, and they were able to purchase ownership interests in the IGO based on their percentage use of the IGO’s satellite system. As we are the successor entity to the IGO, a
79 Table of Contents significant number of our customers became shareholders in our company. Following completion of the Acquisition Transactions, these customers are no longer our shareholders.
Our customers that were also our shareholders, most of which were formerly the IGO’s owners, accounted for approximately 53% of revenue for the year ended December 31, 2003 and 43% of revenue for the year ended December 31, 2004. See Item 3.D — “Risk Factors” for a discussion of the potential impact of the privatization on our customer base.
Shareholder Collateral and Other Deposits
Included in accounts payable and accrued liabilities in the consolidated balance sheets appearing elsewhere in this annual report are collateral and other deposits held from customers that were also shareholders prior to the consummation of the Acquisition Transactions in the amounts of $19.0 million at December 31, 2003 and $14.2 million at December 31, 2004. Collateral generally represents cash balances held in accordance with service agreements. Deposits generally represent cash balances held to secure future capacity under right of first refusal arrangements. Associated cash balances contain no restrictions and generally are non-interest bearing.
TT&C Contracts
Some of our customers also provide TT&C services for our ground network or provide us with monitoring or host station facilities and services. We believe that these transactions are on arm’s-length terms and are not significant to our results of operations. See Item 4.B — “Business Overview—Our Network—Network Operations and Current Ground Facilities” for additional information regarding the TT&C services.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(r), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions with employees, with limited exceptions. A non-public entity, as defined in SFAS No. 123(r), also may choose to measure its liabilities under share-based payment arrangements at intrinsic value. This statement is effective for us on January 1, 2006, and we are currently evaluating the impact that adoption of this statement will have on our results of operations and financial position.
In December 2004, the FASB issued Statement No. 153 (FAS 153), Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB 29). FAS 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at fair value of the assets exchanged, with certain exceptions. This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance (as defined). This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of FAS 153 is not expected to have a material impact on our results of operations or financial position.
Investment in Galaxy
In February 2003, we entered into an agreement to acquire a 51% stake in Galaxy for a total of approximately $69.5 million, comprised of approximately $53 million in cash payable in installments in 2003, 2004 and 2005 and approximately $16.5 million in kind in the form of satellite capacity provided to a subsidiary of Galaxy. This subsidiary is licensed to provide pay television and teleport services in Hong Kong and launched a pay television service in February 2004. TVB Holdings held the remaining 49% interest in Galaxy.
On September 16, 2004, we entered into an agreement to dispose of our investment in Galaxy in order to focus on our core business of providing satellite capacity and related communications services. Under this agreement, we transferred to TVB Holdings all of our right, title and interest in our shares in Galaxy on December 28, 2004. In addition, we are no longer required to make a cash contribution of approximately $10.3 million that would have been due in February 2005. An agreement relating to our in- kind contribution of satellite capacity on the IS-709 satellite will terminate on March 31, 2005.
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As a result of the disposition agreement, our consolidated financial statements reflect the investment in Galaxy as a discontinued operation. TVB Holdings’ interest in the net assets of Galaxy is reflected in our consolidated financial statements as a minority interest in discontinued operations. We have restated our financial statements for all prior periods contained in this annual report to reflect Galaxy as a discontinued operation.
During September 2004, we reviewed our investment in Galaxy for impairment given our plan to dispose of the investment. As a result of this review, we recorded a charge of approximately $21.5 million to write down the long-lived asset group of the discontinued operations to its estimated fair value. Given Intelsat’s transfer of its right, title and interest in its shares in Galaxy Holdings on December 28, 2004, Intelsat removed all the assets and liabilities of Galaxy Holdings from its books as of December 31, 2004. For further information regarding the disposal of our investment in Galaxy, see Note 5 to our consolidated financial statements included elsewhere in this annual report.
Resolution of ITU Priority Issue
On April 29, 2004, we entered into an agreement with New Skies in order to resolve an ITU priority issue relating to the 121° West orbital location to which we acquired rights in the Intelsat Americas Transaction. Specifically, we agreed to pay New Skies $32 million, in exchange for which New Skies agreed not to use any C-band frequencies at the 120.8° West orbital location that would interfere with our C-band operations at the 121° West location, whether on the IA-13 satellite that we currently operate at this location or on any replacement satellite using the same C-band frequencies as IA-13. Our $32 million payment to New Skies was made on May 6, 2004 and has been accounted for as an addition to an existing intangible asset. In connection with our agreement with New Skies, the Netherlands administration has entered into an intersystem coordination agreement with Papua New Guinea, which is our notifying administration for the 121° West orbital location. Prior to the closing of the Intelsat Americas Transaction, we and Loral had agreed to a reduction in the purchase price for the Intelsat Americas fleet that was intended to represent Loral’s share of the estimated cost of resolving this ITU priority issue. Because our actual cost under the agreement with New Skies was less than we had estimated, we owed Loral $4.0 million, which was paid on May 14, 2004. This amount has been accounted for as an adjustment to the purchase price allocation.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below is information concerning our current executive officers and directors:
The Company is party to an agreement with Intelsat Holdings pursuant to which, for so long as Intelsat Holdings holds a majority of the outstanding voting stock of the Company, the Board of Directors of the Company shall consist solely of individuals selected by the shareholders of Intelsat Holdings as being eligible to serve as directors of the Company. All of the directors of the Company have been so selected by the shareholders of Intelsat Holdings.
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Set forth below is information concerning our current executive officers and directors:
Name Age Position
Conny Kullman 54 Chairman, Director and Chief Executive Officer, Intelsat Chairman, Director and CEO of Intelsat Bermuda Ramu Potarazu 43 Chief Operating Officer, Intelsat William Atkins 43 Chief Financial Officer, Intelsat Phillip Spector 54 Executive Vice President, General Counsel and Assistant Secretary, Intelsat Kevin Mulloy 46 Chairman and President, Intelsat Global Service Corporation Tony Trujillo, Jr. 47 Executive Vice President and Chief Administrative Officer, Intelsat Global Service Corporation Noah Asher 43 Senior Vice President, Finance, Intelsat Global Service Corporation Mark Moyer 45 Senior Vice President and Controller, Intelsat Global Service Corporation G. Randall Bonney, Jr. 50 Treasurer, Intelsat Global Service Corporation Andrew Africk 38 Director Douglas Grissom 37 Director Richard Haight 42 Director Alan Peyrat 35 Director James Perry, Jr. 44 Director Andrew Sillitoe 32 Director Aaron Stone 32 Director Nicola Volpi 33 Director
Intelsat Holdings has selected David P. McGlade to succeed Conny Kullman as Chief Executive Officer, or CEO, of Intelsat upon termination of his current employment, which will be no later than March 31, 2005. It is expected that Mr. Kullman will continue as Chairman and CEO until the date Mr. McGlade begins his employment as CEO and thereafter will remain Chairman of the board of directors of Intelsat. Intelsat Holdings and certain of its subsidiaries also entered into new employment agreements with certain existing senior officers of Intelsat and its subsidiaries. Certain members of existing and prospective management contributed equity to and/or were granted equity interests in Intelsat Holdings in connection with the Acquisition Transactions. These employment agreements and share grants are described below.
The following is a brief biography of Mr. McGlade and each of our current executive officers:
Mr. McGlade will become the Chief Executive Officer of Intelsat, Ltd. upon termination of his current employment. Mr. McGlade is currently the Chief Executive Officer of O2 UK, the largest subsidiary of mmO2 plc and a leading UK cellular telephone company, a position he took in October 2000. He is also an Executive Director of mmO2 plc. He will cease to occupy his positions with O2 UK and mmO2 no later than March 31, 2005. Mr. McGlade is currently a director of Skyworks Solutions, Inc. During his tenure at O2 UK and mmO2, Mr. McGlade was a director of the GSM Association, a trade association for GSM mobile operators, and served as Chairman of its Finance Committee from February 2004 to February 2005. He was also a director of Tesco Mobile from September 2003 to March 2005 and a director of The Link, a distributor of mobile phones and other high technology consumer merchandise, from December 2000 to May 2004. Mr. McGlade was the Chairman of the Board and Chief Executive Officer of Pure Matrix, Inc., a software company that serves the mobile communications market, from February 2000 to September 2000, and non-executive Chairman to August 2004. Mr. McGlade also served as the President and Chief Executive Officer of CatchTV, an interactive television/Web company, from December 1998 to December 1999. Mr. McGlade was employed by Sprint PCS as West Region President from February 1996 to July 1998, and as Vice President, Operations from September 1995 to January 1996.
Mr. Kullman has been Chief Executive Officer of Intelsat since July 2001 and was appointed Chairman of the board of directors of Intelsat and Chairman of the board of directors and CEO of Intelsat Bermuda on January 28, 2005. Prior to that, Mr. Kullman was Chief Executive Officer of the IGO from October 1998 to July 2001. He has been a director of U.S. Friends of Chalmers University of Technology, Inc. since April 2002. Mr. Kullman previously served as Vice President of Operations and Engineering of the IGO from December 1997 to October 1998, Vice President of Operations of the IGO from April 1996 to December 1997, Vice President and Chief Information Officer of the IGO from September 1994 to April 1996, Director of Operations Plans/Sales Operation of the IGO from July 1992 to September 1994, Director of Systems Operation of the IGO from August 1990 to July 1992 and a systems engineer
82 Table of Contents for the IGO from August 1983 to August 1990. Mr. Kullman’s business address is Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda.
Mr. Potarazu has been Chief Operating Officer of Intelsat since March 2003. He previously served as President of Intelsat Bermuda and Managing Director of Intelsat Global Sales and Marketing Ltd. from March 2003 to January 2004; President and Chief Operating Officer of Intelsat Global Service Corporation from July 2001 to March 2003; Vice President, Global Operations and Chief Technical Officer of the IGO from November 2000 to July 2001; Vice President, Commercial Restructuring of the IGO from December 1999 to November 2000; Vice President, Operations and Chief Information Officer of the IGO from December 1998 to December 1999; Director of Information Systems of the IGO from April 1996 to December 1998; and Manager of Business Systems of the IGO from July 1995 to April 1996 and was a satellite software engineer for the IGO from May 1990 to July 1995. Prior to that time, Mr. Potarazu served in a senior technical consultant role with Contel Business Networks, Inc. Mr. Potarazu is currently a director of WildBlue. Mr. Potarazu’s business address is Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda.
Mr. Atkins has been Chief Financial Officer of Intelsat since March 2004 and an Executive Vice President since May 2004. Prior to joining Intelsat, Mr. Atkins was Managing Director of Morgan Stanley & Co. Incorporated from December 1998 to October 2003. During that time, Mr. Atkins held various positions within Morgan Stanley, including serving as Group Head of the Corporate Finance Execution Group in London from November 2000 to October 2003, Deputy Head of the Investment Banking Division in Tokyo from January 2001 to November 2001 and Head of European Telecommunications Corporate Finance from March 1997 to November 2000. Mr. Atkins joined Morgan Stanley in September 1994, having previously been employed by S.G. Warburg & Co., Ltd. Mr. Atkins’ business address is Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda.
Mr. Spector became the Executive Vice President and General Counsel of Intelsat in February 2005. He was previously the managing partner of the Washington, D.C. office of the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, and chair of the firm’s Communications & Technology Group. He is the former Chairman of the American Bar Association’s International Communications Committee, and served in the U.S. government as Associate Assistant to the President and as a law clerk to a Supreme Court justice. Mr. Spector is a magna cum laude graduate of the Harvard Law School and holds a Master in Public Policy degree from Harvard’s Kennedy School of Government. Mr. Spector’s business address is Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda.
Mr. Mulloy has been President and Chairman of Intelsat Global Service Corporation since March 2003. He previously served as Senior Vice President, Strategy and Business Development of Intelsat Global Service Corporation from September 2001 to March 2003; Vice President, Strategy and Business Development of Intelsat Global Service Corporation from July 2001 to September 2001; and Vice President, Strategy and Business Development of the IGO from May 2001 to July 2001. Prior to joining Intelsat Global Service Corporation, Mr. Mulloy was employed by McKinsey & Company, Inc. from June 1990 to April 2001 and was a partner from April 1996 to April 2001. Mr. Mulloy’s business address is 3400 International Drive, N.W., Washington, D.C. 20008, United States.
Mr. Trujillo has been Executive Vice President and Chief Administrative Officer of Intelsat Global Service Corporation since May 2004. He previously served as Senior Vice President and Chief Administrative Officer of Intelsat Global Service Corporation from March 2003 to May 2004; Senior Vice President, Corporate Services of Intelsat Global Service Corporation from September 2001 to March 2003; Acting Vice President, Corporate Services of Intelsat Global Service Corporation from June 2001 to September 2001; Senior Director of the Corporate Communications and Government Affairs Department of the IGO from December 2000 to June 2001; and Director of Corporate Communications of the IGO from June 1997 to December 2000. Mr. Trujillo’s business address is 3400 International Drive, N.W., Washington, D.C. 20008, United States.
Mr. Asher has been Senior Vice President, Finance of Intelsat Global Service Corporation since May 2004. He previously served as Vice President, Finance of Intelsat Global Service Corporation from August 2002 to May 2004. Prior to joining Intelsat Global Service Corporation, Mr. Asher was Vice President, Finance at America Online Inc. from January 2001 through August 2002. He was Chief Financial Officer for RMH Teleservices, Inc. from February 1999 to January 2001. Mr. Asher was Vice President, Latin America Operations at Bell Atlantic International Wireless from September 1996 to February 1999. Mr. Asher’s business address is 3400 International Drive, N.W., Washington, D.C. 20008, United States.
Mr. Moyer has been Senior Vice President and Controller of Intelsat Global Service Corporation since May 2004. He previously served as Vice President and Controller of Intelsat Global Service Corporation from March 2004 to May 2004. Prior to joining Intelsat Global Service Corporation, Mr. Moyer was Senior Vice President, Financial Operations from July 2001 to December 2003 and Vice President and Chief Accounting Officer from June 2000 to June 2001 for Equant N.V. He was Vice President and Controller
83 Table of Contents for Ziff-Davis Inc. from November 1995 to May 2000. Mr. Moyer’s business address is 3400 International Drive, N.W., Washington, D.C. 20008, United States.
Mr. Bonney has been Treasurer of Intelsat Global Service Corporation since July 2001. He previously served as Treasurer of the IGO from June 1997 to July 2001, Head of Treasury Operations of the IGO from July 1995 to May 1997 and Assistant Treasurer of the IGO from October 1992 to June 1995. Mr. Bonney’s business address is 3400 International Drive, N.W., Washington, D.C. 20008, United States.
The following is a brief biography of each of our current directors:
Mr. Africk is a senior partner of Apollo Advisors, L.P., which, together with its affiliates, acts as managing general partner of the Apollo Investment Funds, a series of private securities investment funds, where he has worked since 1992. He serves on the boards of directors of SkyTerra Communications, Inc. and Superior Essex Inc.
Mr. Grissom has been employed by Madison Dearborn Partners, a private equity firm, since 1999 and has served as a Director for more than the past five years. Prior to that, Mr. Grissom was with Bain Capital, Inc., in private equity, McKinsey & Company, Inc., and Goldman, Sachs & Co. He serves on the board of directors of Cbeyond Communications, LLC and Great Lakes Dredge & Dock Corporation.
Mr. Haight has been a Managing Director of Permira Advisers LLC since 2002. Prior to that, Mr. Haight was a Director of Permira Advisers Limited, and he has been employed by Permira since 1989.
Mr. Peyrat joined Apax Partners Inc. in 2001 and has been a Principal since 2003. Prior to joining Apax Partners, he earned an MBA degree from Stanford University from 1999 to 2001. Mr. Peyrat was employed by Telephia, a wireless technology company, from 1998 to 1999 and from 1995 through 1998, he was employed by A.T. Kearney, Inc., a management consulting firm.
Mr. Perry co-founded Madison Dearborn Partners, a private equity firm, in 1993 and has been Managing Director for more than the past five years. Prior to that, Mr. Perry was employed by First Chicago Venture Capital, and prior to that by The First National Bank of Chicago. He is on the board of directors of Cbeyond Communications, LLC, Cinemark, Inc. and Nextel Partners, Inc.
Mr. Sillitoe joined Apax Partners Limited in 1998 and has been a Director since 2003. Prior to joining Apax Partners Limited, Mr. Sillitoe received an MBA from INSEAD and was a strategy consultant with The L.E.K. Partnership.
Mr. Stone is a principal of Apollo Advisors, L.P., which, together with its affiliates, acts as managing general partner of the Apollo Investment Funds, a series of private securities investment funds, where he has worked since 1997. Prior to joining Apollo, Mr. Stone was a member of the Mergers and Acquisition Group at Smith Barney Inc. Mr. Stone is currently a director of AMC Entertainment Inc. and Educate Inc.
Mr. Volpi has been employed by Permira Advisers, LLC as an investment advisory professional since May 2004. Prior to that, he was Vice President of Brera Capital Partners, a private equity firm, from March 2000 to April 2004.
Other than Mr. Volpi who became a director of Intelsat in March of 2005 and Mr. McGlade who will become a director of Intelsat in March of 2005 on the termination of his current employment, each of our directors has been a director since the closing of the Acquisition Transactions in January of 2005.
Audit Committee
Intelsat has an audit committee consisting of Messrs. Grissom, Haight, Sillitoe and Stone. The members are not independent since they are associated with the Investor Groups. Pursuant to its charter and the authority delegated to it by the board of directors, the Audit Committee has sole authority for the engagement, compensation and oversight of our independent auditors. In addition, the Audit Committee reviews the results and scope of the audit and other services provided by our independent auditors, and also reviews our accounting and control procedures and policies. The Audit Committee meets as often as it determines necessary but not less than once every fiscal quarter. Our board of directors has determined that each member of the Audit Committee is an audit committee financial expert.
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During 2004 and through the January 28, 2005 acquisition by Intelsat Holdings, the Company had an audit committee consisting of at least three members who were independent members of the Board of Directors. During 2004, the Audit Committee met 11 times.
B. Compensation
The following table provides certain summary information concerning compensation earned by our chief executive officer and the next four highest paid executive officers identified on the summary compensation table below for services rendered in such capacities to us during each of the last three fiscal years:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Restricted Securities Other Annual Stock Underlying LTIP All Other Salary Bonus Compensation Awards Options Payout Compensation Name and Principal Position Year ($) ($)(2) ($) ($) (#) ($) ($)
Conny Kullman 2004 571,154(1) 323,400 1,275,000(6) 665,143 — 1,011,210(7) (3) Chairman, Director and Chief Executive Officer 2003 550,000 319,575 (3) — 184,143 — 24,827 2002 533,077 — (3) — 169,143 — 6,295
Ramanarayan Potarazu 2004 430,961(1) 244,020 80,832(4) 750,000(6) 374,687 — 590,685(8) Chief Operating Officer 2003 335,192 195,354 68,078 — 91,859 — 9,974 2002 381,560 17,170 11,232 — 79,859 — 6,000
Kevin Mulloy 2004 356,923(1) 165,375 562,500(6) 270,600 — 437,869(9) (3) Chairman and President, Intelsat Global Service Corporation 2003 305,915 131,122 (3) — 58,479 — 1,373 2002 284,526 12,804 (3) — 48,879 — — David Meltzer (11) 2004 330,776(1) 140,470 (3) 375,000(6) 200,673 — 298,004(10) (3) General Counsel, Senior Vice President, Government and Regulatory 2003 316,169 120,460 (3) — 59,173 — 6,986
Affairs 2002 302,649 13,619 — 51,973 — 6,000
William Atkins 2004 330,769 235,200 171,884(5) 649,031(6) 242,308 — 502,358(11) Executive Vice President and Chief Financial Officer 2003 — — — — — — — 2002 — — — — — — —
(1) On February 24, 2003, Mr. Potarazu’s salary increased from $390,000 to $415,000, Mr. Mulloy’s salary increased from $288,757 to $310,000, and Mr. Meltzer’s salary increased from $306,274 to $318,525. On June 14, 2004, Mr. Mulloy’s salary increased from $310,000 to $375,000. Due to the timing of pay periods, the salaries in 2004 include 27 pay periods.
(2) 2004 bonuses were paid in January 2005.
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(3) Other annual compensation was less than $50,000.
(4) This amount includes $69,600 for overseas housing allowance and an auto allowance of $11,232.
(5) This amount includes an auto allowance of $8,856, $66,192 for excludable relocation expenses and $96,836 for taxable relocation expenses.
(6) Restricted stock awards granted on June 11, 2004 to Messrs. Kullman, Potarazu, Mulloy, Meltzer and Atkins of 68,000, 40,000, 30,000, 20,000 and 34,615 shares, respectively. The amounts shown are based upon a fair value of $18.75 per share on December 31, 2004. Restricted stock awards vest 100% on the third anniversary of the date of the grant.
(7) This amount includes $985,941 for long-term incentive compensation earned during 2004, $18,181 for key officer life insurance, $6,500 for the company match on 401(k) contributions and $588 for group term life insurance premiums.
(8) This amount includes $579,732 for long-term incentive compensation earned during 2004, $4,576 for key officer life insurance and $6,387 for the company match on 401(k) contributions.
(9) This amount includes $434,798 for long-term incentive compensation earned during 2004, $1,989 for key officer life insurance, $946 for the company match on 401(k) contributions and $135 for group term life insurance premiums.
(10) This amount includes $290,042 for long-term incentive compensation earned during 2004, $1,576 for key officer life insurance and $6,387 for the company match on 401(k) contributions.
(11) This amount includes $496,674 for long-term incentive compensation earned during 2004, $638 for key officer life insurance and $5,046 for the company match on 401(k) contributions.
(12) Mr. Meltzer’s employment terminated effective February 14, 2005, and he was replaced by Mr. Spector effective February 15, 2005.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options granted during fiscal 2004 to the executive officers listed in the Summary Compensation Table above, referred to as Named Executive Officers:
Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Terms
Number of Percent of Total Securities Options/SAR’s Exercise Underlying Granted to Price Options/SAR’s Employees in per Name Granted Fiscal Year Share Expiration Date 5% 10%
Conny Kullman 481,000 13.6% $13.00 June 11, 2014 (1) (1) Ramanarayan Potarazu 282,828 8.0% 13.00 June 11, 2014 (1) (1) Kevin Mulloy 212,121 6.0% 13.00 June 11, 2014 (1) (1) (2) David Meltzer 141,500 4.0% 13.00 June 11, 2014 (1) (1) William Atkins 242,308 6.8% 13.00 June 11, 2014 (1) (1)
(1) As a result of the Acquisition Transactions, all of the above options will be paid at $18.75 per share giving effect to a maximum realizable value per option of $5.75. Therefore, the potential realized values of the stock options above for Messrs. Kullman, Potarazu, Mulloy, Meltzer and Atkins were $2,765,750, $1,626,261, $1,219,696, $813,625 and $1,393,271, respectively
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(2) Mr. Meltzer’s employment terminated effective February 14, 2005, and he was replaced by Mr. Spector effective February 15, 2005.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year–End Option/SAR Values
The following table sets forth certain information concerning the number and value of unexercised options to purchase shares of our common stock held at the end of fiscal 2004 by the Named Executive Officers and the number and value of the shares received from the exercise of options during fiscal 2004 by such Named Executive Officers:
Number of Unexercised Value of Unexercised Securities Underlying In-the-Money Options/SARs Fiscal Options/SARs at Shares Year-End Fiscal Year-End ($) Acquired on Value Realized (#)Exercisable / Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable (1)(2)
Conny Kullman — — 157,143 /508,000 0 / $2,854,460 Ramanarayan Potarazu — — 71,939 /302,748 0 / $1,692,895 Kevin Mulloy — — 43,652 / 226,948 0 / $1,270,141 (3) David Meltzer — — 46,746 / 153,927 0 / $854,831 William Atkins — — 0 / 242,308 0 / $1,393,271
(1) Based on the value of our ordinary shares on December 31, 2004 of $18.75 per share.
(2) The amounts paid to the Named Executive Officers in connection with the Acquisition Transactions were as follows: Mr. Kullman ($1,098,897), Mr. Potarazu ($2,442,895), Mr. Atkins ($2,042,302), Mr. Mulloy ($1,832,642) and Mr. Meltzer ($1,229,831). In addition, $3,030,561 will be accrued as deferred compensation for Mr. Kullman.
(3) Mr. Meltzer’s employment terminated effective February 14, 2005, and he was replaced by Mr. Spector effective February 15, 2005.
Pension Plan Table
The table below shows the estimated annual pension annuity benefits payable from the combined qualified and nonqualified pension plans based on years of service and average annual compensation. These amounts assume retirement at December 31, 2004 at age 65. The average annual compensation represents the average base pay for the highest three consecutive years if hired prior to January 4, 1995, and the average base pay for the highest five consecutive years if hired after January 3, 1995.
Years of Service
Remuneration 5 10 15 20 25 30
$300,000 $ 25,500 $ 59,700 $ 92,700 $ 125,700 $ 158,700 $ 191,700 $350,000 29,750 69,650 108,150 146,650 185,150 223,650 $400,000 34,000 79,600 123,600 167,600 211,600 255,600 $450,000 38,250 89,550 139,050 188,550 238,050 287,550 $500,000 42,500 99,500 154,500 209,500 264,500 319,500 $550,000 46,750 109,450 169,950 230,450 290,950 351,450 $600,000 51,000 119,400 185,400 251,400 317,400 383,400
Employment Agreements
As of the closing of the Acquisition Transactions, each of Messrs. David P. McGlade, Conny Kullman, Ramu Potarazu, William Atkins, Kevin Mulloy and Tony Trujillo entered into an employment agreement with Intelsat Holdings and one of its affiliates. In addition, Mr. Phillip L. Spector entered into an employment agreement dated as of January 31, 2005 with Intelsat Holdings and
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Intelsat as described below. Pursuant to the employment agreements, Mr. McGlade will serve as Chief Executive Officer of Intelsat upon termination of his current employment, which will be no later than March 31, 2005; Mr. Kullman will remain as Chairman and Chief Executive Officer of Intelsat until Mr. McGlade becomes Chief Executive Officer, following which time Mr. Kullman will remain as Chairman of Intelsat and will also continue to be employed and serve as a director and officer of Intelsat Bermuda; Mr. Potarazu serves as Chief Operating Officer of Intelsat; Mr. Atkins serves as Chief Financial Officer of Intelsat; Mr. Mulloy serves as President, Intelsat Global Service Corporation; Mr. Spector serves as Executive Vice President and General Counsel for Intelsat; and Mr. Trujillo serves as Executive Vice President and Chief Administrative Officer of Intelsat Global Service Corporation.
Intelsat Holdings and one of our subsidiaries also entered into an employment agreement with Mr. Meltzer for his employment as General Counsel, Senior Vice President, Government and Regulatory Affairs, and which provided for a base salary of $350,000 and annual and discretionary bonuses. Mr. Meltzer was granted restricted shares and provided with the opportunity to purchase preferred and ordinary shares of Intelsat Holdings. On February 14, 2005, Mr. Meltzer’s employment was terminated without cause and he received a severance payment of $923,723 pursuant to this employment agreement, the restricted shares were forfeited and the ordinary and preferred shares of Intelsat Holdings that he had purchased were repurchased at the price he paid for them.
Term
Each of the agreements (other than Mr. Kullman’s) has an initial term of one year, which will renew automatically for an additional year unless a notice not to renew is provided by either party. Mr. Kullman’s agreement has a two-year term with no automatic renewal feature.
Compensation and Benefits
The employment agreements provide that each of the executives will be paid an annual base salary during the term, which will be reviewed for increase no less frequently than annually. The amount of the annual base salaries for Messrs. McGlade, Kullman, Potarazu, Atkins, Mulloy, Spector and Trujillo is $750,000, $600,000, $500,000, $400,000, $400,000, $450,000 and $320,000, respectively. The employment agreements also provide that each of Messrs. McGlade, Kullman, Potarazu, Atkins, Mulloy, Spector and Trujillo will be eligible for an annual discretionary bonus with a maximum payment of 100%, 100%, 75%, 60%, 60%, 65% and 50%, respectively, of each executive’s respective annual base salary, based on meeting pre-established performance targets, except that Mr. Kullman will receive a bonus only for the first year of his agreement pro rated through the date that Mr. McGlade commences as Chief Executive Officer plus an additional six months. A compensation committee of our board of directors (or the board of directors of the applicable subsidiary), in its sole discretion, may award an additional bonus to each executive of up to 50% of his maximum bonus (or in the case of Messrs. McGlade and Spector, his annual base salary) in the event of significant performance beyond pre-established performance targets. In addition, each of Messrs. Kullman, Potarazu, Atkins, Mulloy and Trujillo is eligible to receive (or has received) a special cash bonus, based upon the achievement of performance goals. The maximum amount payable under this special cash bonus program to Messrs. Kullman, Potarazu, Atkins, Mulloy and Trujillo is an amount equal to 145% of such person’s target bonus for 2004. Mr. McGlade’s employment agreement provides that prior to the commencement of his employment, Mr. McGlade will receive an aggregate initial bonus of $1,500,000 ($300,000 of which has been paid), in order to provide him with liquidity in light of our emphasis on compensating our employees with non-cash long- term incentives. As of the closing, Mr. McGlade was paid $520,000 pursuant to the terms of his employment agreement to fund the purchase of ordinary shares and preferred shares of Intelsat Holdings. Mr. Spector received upon commencement of his employment an initial bonus of $120,000. During the employment term, the executives are generally eligible to participate in our employee benefit plans and programs and will receive certain expatriate benefits and perquisites set forth in the employment agreement. In addition, Mr. Potarazu’s agreement specifies that, in the event that during the term an executive is employed by Intelsat (other than a chief executive officer) with an annual base salary, target bonus percentage or grant of restricted shares of Intelsat Holdings that is greater than Mr. Potarazu’s annual base salary, target bonus percentage or grant of restricted shares, Mr. Potarazu’s annual base salary, target bonus percentage or grant of restricted shares, as applicable, shall be increased such that it is no less than that payable or awarded to such executive.
Prior Equity Compensation
Upon closing of the Acquisition Transactions, each of Messrs. Potarazu, Atkins, Mulloy and Trujillo’s share options and restricted shares that were outstanding as of immediately prior to the closing of the Acquisition Transactions were cancelled in exchange for a payment upon closing of the Acquisition Transactions equal to $18.75 per share, in the case of restricted shares, and the excess, if any, of $18.75 over the per share exercise price of each share option, in the case of share options. Mr. Kullman’s share options and restricted shares were cancelled as described above, except that the amounts otherwise due to Mr. Kullman with respect to his cancelled options that were outstanding under the 2001 Share Option Plan were cancelled in exchange for a cash payment to be
88 Table of Contents paid on January 16, 2006. With respect to 75% of Mr. Kullman’s options and restricted shares under the 2004 Share Incentive Plan, an amount has been credited to a deferred compensation account two-thirds of which will be payable on January 16, 2006, and one-third of which will be payable on the second anniversary of closing of the Acquisition Transactions. With respect to the remainder of Mr. Kullman’s awards, the payment was made as of closing of the Acquisition Transactions. As of the closing, 50% in the case of Messrs. Potarazu, Mulloy and Trujillo; 64.02716% in the case of Mr. Atkins; and 100% in the case of Mr. Kullman; of the after-tax proceeds payable to the executive upon closing of the Acquisition Transactions from his options and restricted shares granted under the 2004 Share Incentive Plan were applied to purchase ordinary shares and preferred shares of Intelsat Holdings. Proceeds from certain management equity contributions have been used to purchase preferred shares of Intelsat Holdings.
New Equity Compensation
Under the employment agreements, each of Messrs. McGlade, Kullman, Potarazu, Atkins, Mulloy, Spector and Trujillo has received a grant of ordinary shares of Intelsat Holdings equal to approximately 1.8333%, .4%, 1.22%, .81%, .81%, .81% and .41%, respectively, of the outstanding ordinary shares of Intelsat Holdings, as of the closing of the Acquisition Transactions. Except for shares granted to Messrs. McGlade, Kullman and Spector, 40.9% of such shares will vest over sixty months with 10% of the shares vesting on the first day of the seventh month following the closing of the Acquisition Transactions and the remainder of the shares vesting in fifty-four equal monthly installments of 1.66% commencing on the first day of the eighth month following such closing, subject to the executive’s continued employment through the applicable vesting date. In the case of Messrs. McGlade and Spector, 40.9% of such shares will vest over sixty months in equal monthly installments commencing on the last day of the first month following the closing, subject to the executive’s continued employment through the applicable vesting date. The vesting of these shares will accelerate in the event that the Sponsors (or other private equity investors) cease to own 40% of Intelsat Holdings. An additional 40.9% of the shares granted to the executives will vest if and when the Sponsors have received a “cumulative total return” (as defined in the employment agreements) between 2.5 and 3 times the amount invested by the Sponsors collectively during the period over which the cumulative total return is measured, if any, subject to the executive’s continued employment through the applicable vesting date. The remainder of the shares will vest (less any such percent of shares that have already vested) if and when the Sponsors have received a cumulative total return between 4 and 4.5 times the amount invested by the Sponsors, if any, subject to the executive’s continued employment through the applicable vesting date. If the cumulative total return goals have not been achieved by the eighth anniversary of closing, the performance shares will be forfeited. For Mr. Kullman, 50% of the shares will vest during the two-year term of his employment agreement in equal monthly installments commencing on February 27, 2005. The remaining 50% of the shares will vest at the later of (x) the six-month anniversary of the closing of the Acquisition Transactions or (y) the transition to a new CEO of Intelsat, so long as Mr. Kullman reasonably cooperates in the implementation of such transition. In connection with the Transfer Transactions, the following executives received the following amounts in consideration of Intelsat Holdings’ repurchase of certain preferred shares held by such executives: Mr. McGlade ($405,224), Mr. Kullman ($332,619), Mr. Potarazu ($391,210), Mr. Atkins ($430,556), Mr. Mulloy ($293,408), Mr. Trujillo ($195,686) and Mr. Spector ($448,998).
Severance and Termination Benefits
Except as described below, if an executive’s employment is terminated by his applicable employer without cause (or if we provide a notice of non-renewal) or if he resigns for good reason, subject to his continued compliance with the restrictive covenants described below, the executive will be paid an amount equal to the sum of his annual base salary and maximum bonus amount (and in the case of Mr. Potarazu, two times the sum of his annual base salary and maximum bonus amount). In the event that Mr. McGlade’s or Mr. Spector’s employment is terminated by his applicable employer without cause or by Mr. McGlade or Mr. Spector for good reason within six months after a “change of control” (as defined in the applicable employment agreement), the annual bonus severance component will be the higher of the maximum bonus amount or the executive’s annual bonus for the immediately preceding year.
In the event that, within six months following the closing of the Acquisition Transactions, any of Messrs. Kullman, Potarazu, Atkins, Mulloy or Trujillo’s employment is terminated by his applicable employer without cause or by the executive for good reason, in lieu of the severance benefits described above, the executive will be entitled to a lump sum cash amount equal to two times (or in the case of Messrs. Kullman and Potarazu, 2.5 times) the sum of the executive’s annual base salary and target bonus amount (each, as in effect as of immediately prior to the closing of the Acquisition Transactions). In the event that such termination for Messrs. Potarazu, Atkins, Mulloy or Trujillo is on or after the date that is six months after the closing of the Acquisition Transactions but prior to the first anniversary of such closing, in lieu of the benefit described above, the executive will be entitled to two times the sum of the executive’s annual base salary plus the executive’s maximum bonus amount (as in effect as of the date of termination).
In the event that any of the payments made to Messrs. Kullman, Potarazu, Atkins, Mulloy or Trujillo under these agreements or otherwise become subject to the so- called “golden parachute” excise tax imposed under Section 4999 of the U.S. Internal Revenue
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Code, as amended, the payments under the agreements will be reduced such that the executive will receive the maximum amount that he could receive without being subject to the tax. If, however, the executive would be placed in a better after-tax position by receiving all payments and paying the tax than he would be after having his payments reduced in the manner described in the immediately preceding sentence, then the executive’s payments will not be reduced and, solely in connection with the Acquisition Transactions, the executive will receive an additional payment such that the executive will be placed in the same after-tax position that he would have been in had no excise tax been imposed.
In addition upon a termination of any of the executives’ employment by his applicable employer without cause (or if we provide a notice of non-renewal) or by the executive for good reason, the time-vesting restricted shares will be forfeited unless such termination is within six months following a “change of control” (as defined in the agreement), in which case they will vest in full. Any restricted shares that vest based on performance goals will remain outstanding for 180 days and, if the performance goals are not then met, the shares will be forfeited unless the termination is within six months following certain corporate transactions with entities specified in the agreement, in which case the executive will have the opportunity to earn a portion of his performance shares pro rated through the executive’s date of termination. Upon termination of Mr. Kullman’s employment by his applicable employer without cause or by Mr. Kullman for good reason, Mr. Kullman will be entitled to payment of his deferred compensation account on the later of the date of termination or January 16, 2006. In addition, Mr. Kullman and his spouse will be eligible for retiree medical benefits on the same basis and at the same level as similarly situated senior executives of Intelsat generally for so long as such plan or program remains in effect.
Restrictive Covenants
Each of the employment agreements contains restrictive covenants providing that the executives will not disclose or otherwise use any confidential information concerning us or our businesses and, for a one-year period following termination of employment, will not compete with us and our affiliates and will not solicit our customers or employees.
C. Board Practices
At December 31, 2004, our board consisted of 17 directors. In connection with the Acquisition Transactions on January 28, 2005, the directors of Zeus Merger One, Ltd., which amalgamated with Intelsat, became our directors replacing our previously existing directors. Our current board of directors consists of those individuals listed above. See Item 6.A — “Directors and Senior Management.”
Prior to the Acquisition Transactions, our bye-laws provided that our board was classified into three classes and at each annual general meeting of shareholders, the successors to the class of directors whose terms expired at that meeting were to be re-elected for a three-year term and until their successors were elected and qualified. Under our current bye-laws our board is not classified. The Company is party to an agreement with Intelsat Holdings pursuant to which, for so long as Intelsat Holdings holds a majority of the outstanding voting stock of the Company, the Board of Directors of the Company shall consist solely of individuals selected by the shareholders of Intelsat Holdings as being eligible to serve as directors of the Company. All of the directors of the Company have been so selected by the shareholders of Intelsat Holdings. Prior to the Acquisition Transactions, our bye-laws provided that at least a majority of our directors had to be independent directors. Our current bye-laws contain no such requirement.
Except for Mr. Kullman and Mr. McGlade, none of our directors has a contract with us or any of our subsidiaries providing for benefits upon termination of employment. See Item 6.A — “Directors and Senior Management.”
Our board of directors has an Audit Committee which currently consists of Messrs. Grissom, Haight, Sillitoe and Stone, each of whom is associated with one of the Sponsors. Pursuant to its charter and the authority delegated to it by the board of directors, the Audit Committee has authority for the engagement, compensation and oversight of our independent auditors. In addition, the Audit Committee reviews the results and scope of the audit and other services provided by our independent auditors, and also reviews our accounting and control procedures and policies. Our board of directors has determined that each member of the Audit Committee is an audit committee financial expert.
Our board of directors has a Compensation Committee, which currently consists of Messrs. Africk, Grissom, Haight and Sillitoe, each of whom is associated with one of the Sponsors. Pursuant to its charter and the authority delegated to it by the board of directors, the Compensation Committee oversees the compensation and benefit policies of our management and our employees, including incentive plans and share option plans. In addition, the Compensation Committee approves goals and objectives relevant to our chief
90 Table of Contents executive officer’s compensation, evaluates this officer’s performance relative to these goals and objectives and approves the chief executive officer’s compensation based on this evaluation.
During 2004 and through the January 28, 2005 acquisition by Intelsat Holdings our board of directors had a Strategic Affairs and Finance Committee which had responsibility for reviewing and recommending our long-term strategy to the board of directors, including reviewing and making recommendations with respect to strategic acquisitions and joint ventures. The Strategic Affairs and Finance Committee was also responsible for reviewing and making recommendations to the board of directors regarding proposed changes to our capital structure, including the incurrence of long-term debt and the issuance of equity securities. Effective upon the Acquisition Transactions, the Strategic Affairs and Finance Committee was disbanded. During 2004 and through the January 28, 2005 acquisition by Intelsat Holdings our board of directors also had a Nominating Committee. Effective upon the Acquisition Transactions, the Nominating Committee was also disbanded.
Our board of directors may from time to time establish other committees to facilitate our management.
Bermuda law permits a Bermuda company to indemnify its directors and officers, except in respect of their fraud or dishonesty. We have provided in our bye-laws that our directors and officers and their heirs, executors and administrators will be indemnified and held harmless to the full extent permitted by law out of our assets for all actions, costs, charges, losses, damages and expenses incurred by them in connection with any act done, concurred in or omitted to be done in the execution of their duties, other than in the case of their fraud or dishonesty. In addition, we have provided in our bye-laws that each of our shareholders agrees to waive any claim or right of action, individually or in the right of Intelsat, against any director or officer of Intelsat on account of any action taken by such director or officer, or the failure of such director or officer to take any action, in the performance of his duties with us, other than with respect to any matter involving any fraud or dishonesty by the director or officer. The indemnification provided for in the bye-laws is not exclusive of other indemnification rights to which a director or officer may be entitled, provided that these rights do not extend to his fraud or dishonesty.
Bermuda law also permits us to purchase insurance for the benefit of our directors and officers against any liability incurred by them for the failure to exercise the requisite care, diligence and skill in the exercise of their powers and the discharge of their duties, or indemnifying them in respect of any loss arising or liability incurred by them by reason of negligence, default, breach of duty or breach of trust, as long as this indemnification does not extend to their fraud or dishonesty. Our insurance policy indemnifying our directors and officers as described above does not extend to their fraud or dishonesty.
D. Employees
During the last few years, we had higher staffing levels than we believe are required today to efficiently run our business. Our staffing level for 2004 peaked at June 1, 2004, with 981 full-time regular employees. By the end of 2004, we had 808 full-time regular employees, or nearly 18% fewer employees than we had at June 1, 2004, excluding the 31 employees we hired in connection with the COMSAT General Transaction.
These 808 employees consisted of:
• 235 employees in sales and marketing;
• 434 employees in engineering, operations and information systems; and
• 139 employees in finance, legal and other administrative functions.
As of December 31, 2004, approximately 728 of these employees were located in the United States, 22 were located in London, England and 10 were located in Bermuda. The remainder of our employees were in various other locations around the world.
As of December 31, 2003, we and our subsidiaries had a total of 934 employees.
We believe that our relations with employees are good. None of our employees is represented by a union or covered by a collective bargaining agreement.
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E. Share Ownership
There is no established public trading market for our ordinary shares. As of March 10, 2005, Intelsat Holdings was the holder of record of all of our ordinary shares.
As of December 31, 2004, securities authorized for issuance under equity compensation plans were as follows:
Number of securities Number of securities to be issued upon Weighted-average remaining available exercise of outstanding exercise price of for future issuance options, warrants and outstanding options, under equity Plan Category Plan Name rights warrants and rights compensation plans
Equity compensation plans approved by 2001 Share Option Plan 2,852,538 $ 18.27 480,795 security holders Equity compensation plans approved by 2004 Share Incentive Plan 4,262,815 $ 13.00 2,457,185 security holders Total 7,115,353 2,937,980
Upon closing of the Acquisition Transactions, all share options, restricted shares and restricted share units granted under our 2001 share option plan and 2004 share incentive plan and outstanding as of closing were cancelled. In consideration for such cancellation, our employees were paid $15.2 million in cash in the aggregate at the closing and up to a maximum of $19.5 million will be accrued as deferred compensation and will generally be payable in cash to the employees in accordance with the vesting schedules of the original awards with respect to which the payments will be made. Of this maximum amount, $6.6 million was accrued as of the closing date.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
As of March 10, 2005, all of our ordinary shares were beneficially owned by Intelsat Holdings. Intelsat Holdings was formed at the direction of funds advised by or associated with Apax Partners, Apollo, Madison Dearborn Partners and Permira. Prior to the Acquisition Transactions, funds advised by or associated with Madison Dearborn transferred less than 0.1% of their interest in Intelsat Holdings to an unaffiliated investment partnership. Other than ordinary shares owned by certain members of existing and prospective management as described below, and the unaffiliated investment partnership described above, funds advised by or associated with the Sponsors own all of our ordinary shares. See Item 6.A — “Directors and Senior Management — Compensation — New Equity Compensation.”
B. Related Party Transactions
Post-Acquisition Transactions with Sponsors
Voting Agreement
The Company is party to an agreement with Intelsat Holdings pursuant to which, for so long as Intelsat Holdings holds a majority of the outstanding voting stock of the Company, the Board of Directors of the Company shall consist solely of individuals selected by the shareholders of Intelsat Holdings as being eligible to serve as directors of the Company. All of the directors of the Company have been so selected by the shareholders of Intelsat Holdings.
Shareholders Agreement
The Investor Groups, including each of the Sponsors, have entered into a shareholders agreement relating to Intelsat Holdings, and Intelsat Holdings has adopted bye- laws implementing this agreement. The shareholders agreement and these bye-laws are referred to as the Governing Documents. The Governing Documents, among other things, (1) provide for the governance of Intelsat
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Holdings and its subsidiaries, (2) provide specific rights to and limitations upon the holders of Intelsat Holdings’ share capital with respect to shares held by such holders, such as tag-along and drag along rights, and (3) provide specific rights and limitations with respect to sales of shares of Intelsat Holdings, such as transfer restrictions, registration rights and other rights relating to certain liquidity events. The parties to the shareholders agreement hold 100% of the share capital of Intelsat Holdings.
Monitoring Fee Agreement and Transaction Fee
In connection with the closing of the Acquisition Transactions, we entered into a monitoring fee agreement, referred to as the MFA, with Intelsat Holdings and/or the Sponsors, or affiliates of, or entities advised by, designated by or associated with, the Sponsors, as the case may be, referred to collectively as the MFA parties, pursuant to which the MFA parties provide certain monitoring, advisory and consulting services to us. Pursuant to the MFA, we are obligated to pay an annual fee equal to the greater of $6.25 million and 1.25% of adjusted EBITDA (as defined in the indenture governing the Acquisition Finance Notes), and to reimburse the MFA parties for their out-of-pocket expenses. We have also agreed to indemnify the MFA parties and their directors, officers, employees, agents and representatives for losses relating to the services contemplated by the MFA and the engagement of the MFA parties pursuant to, and the performance by them of the services contemplated by, the MFA. As payment for certain structuring and advisory services rendered, we paid an aggregate transaction and advisory fee of $50 million to the MFA parties, upon the closing of the Acquisition Transactions.
Sponsor Investment
SkyTerra Communications, Inc., an affiliate of Apollo Management, L.P., one of the Sponsors, announced in December 2004 an agreement in which SkyTerra will be the managing member of and acquire 50% of a new entity that will contain certain assets and liabilities of Hughes Network Systems, one of our corporate network services customers. This transaction is expected to close in the first half of 2005, and is subject to certain regulatory approvals and other closing conditions.
Pre-Acquisition Transactions Relationships with Prior Shareholders
In connection with the privatization, we entered into several contracts with entities that were at that time shareholders or their affiliates, including Videsh Sanchar Nigam Limited, France Telecom and COMSAT Corporation, a subsidiary of Lockheed Martin Corporation. Prior to the closing of the Acquisition Transactions, as of October 1, 2004, France Telecom, Lockheed Martin Corporation and Tata Sons Limited, which holds a controlling interest in Videsh Sanchar Nigam Limited, each had beneficial ownership of greater than 5% of our outstanding ordinary shares. In addition, on the privatization date, the IGO transferred certain contracts with Videsh Sanchar Nigam Limited, France Telecom and its affiliates, and various subsidiaries and affiliates of Lockheed Martin Corporation to our subsidiaries Intelsat LLC, Intelsat Global Service Corporation and Intelsat Global Sales. We have also entered into several agreements with COMSAT Corporation and other subsidiaries of Lockheed Martin Corporation since the privatization date. Some of these contracts are summarized below. Also described below is an agreement entered into with Teleglobe, one of our shareholders prior to the closing of the Acquisition Transactions, and an agreement entered into with WildBlue. We believe that, in all cases, these contracts were entered into on an arm’s-length basis and on normal commercial terms.
Restructuring Agreement
We entered into the Restructuring Agreement with most of the IGO’s former Signatories and Investing Entities on July 17, 2001. The Restructuring Agreement provided for the transfer by the IGO of substantially all of its assets and liabilities to us and our subsidiaries. In consideration for the transfer of these assets, we issued ordinary shares directly to each former Signatory or Investing Entity that was a party to the Restructuring Agreement in an amount proportional to its investment share in the IGO. Under the terms of the Restructuring Agreement, we agreed to indemnify each Signatory and Investing Entity party thereto for any liability arising out of any activity conducted or authorized by the IGO prior to July 18, 2001.
Pre-Acquisition Transactions Shareholders Agreement
On July 18, 2001, we entered into the Shareholders Agreement with most of the IGO’s former Signatories and Investing Entities. The Shareholders Agreement includes an agreement by each shareholder prior to the closing of the Acquisition Transactions to vote in favor of any action requiring a shareholder vote that is reasonably necessary in connection with the implementation of a timely initial public equity offering that has been recommended by our board of directors. The Shareholders Agreement also contains restrictions on these shareholders’ ability to transfer their ordinary shares and an agreement by them not to sell or otherwise transfer their ordinary shares for a “lock-up” period of 180 days following the date of our initial public equity offering. In addition, the Shareholders
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Agreement regulates certain other matters of corporate governance and provides these shareholders with certain information rights, including the right to receive periodic reports from management on the business and quarterly and annual financial reports. Under the terms of the Shareholders Agreement, we agreed to provide our services in a manner consistent with the core public service principles of global coverage and connectivity, lifeline connectivity and non-discriminatory access.
Novation Agreements
Intelsat Global Sales has entered into novation agreements with Videsh Sanchar Nigam Limited, France Telecom, several France Telecom affiliates and various subsidiaries and affiliates of Lockheed Martin Corporation, all of which were shareholders prior to the closing of the Acquisition Transactions. For a detailed description of the terms and conditions of the novation agreements, see Item 4.B — “Business Overview—Certain Customer Service Agreements—Novation Agreements.”
COMSAT Asset Purchase Agreement
On March 15, 2002, we entered into an asset purchase agreement with COMSAT Corporation and COMSAT Digital Teleport, Inc. On November 25, 2002, pursuant to this agreement, we purchased most of the assets of COMSAT World Systems, a business unit of COMSAT, and of COMSAT Digital Teleport, Inc., a subsidiary of COMSAT. COMSAT is a wholly owned subsidiary of Lockheed Martin Corporation, which, prior to the consummation of the Acquisition Transactions, was our largest shareholder. The assets that we acquired in this transaction include substantially all of COMSAT World Systems’ customer contracts for the sale of our capacity, a digital teleport facility in Clarksburg, Maryland, and earth stations located in Clarksburg, Maryland and Paumalu, Hawaii that provide tracking, telemetry, command and monitoring services for our satellites.
We have also entered into contracts with other Lockheed Martin Corporation entities relating to the provision to these entities of tracking, telemetry, command and monitoring and other services that had been previously provided to these entities by COMSAT or COMSAT Digital Teleport, Inc.
We paid a total purchase price of approximately $135 million for the assets we acquired. This purchase price was comprised of cash, the assumption of net liabilities, a $5 million payment due in 2007 and a contingent payment of $15 million, payable in three installments of $5 million per year in 2008, 2009 and 2010. See Item 5— “Operating and Financial Review and Prospects —Related Party Transactions—COMSAT Asset Purchase Agreement” for information regarding the total purchase price upon closing and our accounting for the transaction. We will not be required to pay installments of the $15 million contingent payment if we are not operating tracking, telemetry, command and monitoring facilities at the Clarksburg location and potential local development initiatives have occurred that have had or are reasonably expected to have a material adverse effect on our use of the Clarksburg facilities. However, if we relocate a substantial portion of our tracking, telemetry, command and monitoring operations conducted at Clarksburg to another location and no such local development initiatives have occurred, then any unpaid installments of this contingent payment become payable immediately. We have assumed most of the liabilities, including contingent liabilities, relating to the assets we have acquired.
The two earth stations that we have acquired are among the primary TT&C stations used in our ground network. In addition, we have assumed from COMSAT the lease for the building and the land for the Clarksburg earth station, which expires in 2012.
COMSAT General Transaction
On October 29, 2004, we and certain of our subsidiaries completed our acquisition of the business of providing satellite-based communications services to the U.S. government and other customers of the COMSAT Sellers. The COMSAT Sellers are directly or indirectly wholly owned by Lockheed Martin Corporation, our largest shareholder before the closing of the Acquisition Transactions. In addition, the COMSAT Sellers were collectively one of our largest customers before the closing of the COMSAT General Transaction.
We acquired this business for a purchase price of approximately $90 million, net of assumed liabilities of approximately $30 million and estimated transaction costs of $2 million. The $30 million of assumed liabilities includes a $10 million accommodation fee to be paid in connection with our purchase of a launch vehicle from an affiliate of the COMSAT Sellers. We funded the acquisition by using cash on hand. The assets that we acquired include certain customer and vendor contracts and accounts receivable, as well as rights to FCC and other governmental licenses, leased business premises and other related assets, including an ownership interest in a partnership that owns the Marisat-F2 satellite, which operates at 33.9ºWest with an orbital inclination in excess of 13 degrees. In addition, we assumed certain contractual commitments related to the business. Pursuant to our transaction agreement with
94 Table of Contents the COMSAT Sellers, we and the COMSAT Sellers or their affiliates have entered into a number of agreements, including the launch services agreement with an affiliate noted above and agreements relating to the provision of transition services by the COMSAT Sellers for a specified period of time after the closing of the transaction. See Item 4.B — “Business Overview—Our Network—Planned Satellites” for further information regarding the launch services agreement.
Lockheed Launch Support Agreement and Other Lockheed Agreements
On February 13, 2002, we entered into a master ordering agreement with Lockheed Martin Commercial Space Systems, referred to as LMCSS, for our provision to LMCSS of commercial launch support systems, referred to as CLASS, services. LMCSS is an affiliate of Lockheed Martin Corporation, which, prior to the consummation of the Acquisition Transactions, was our largest shareholder. Under this agreement, we will provide in-orbit testing and launch and early orbit phase support of LMCSS’ missions. The agreement will be in effect for four years, through February 12, 2006, and offers a menu of CLASS services at predetermined rates. Our first service order under the agreement was for payload in-orbit testing services for a New Skies satellite built by Lockheed Martin Corporation. In-orbit testing under this service order was completed on May 23, 2002, and final documentation was delivered and accepted.
We have also entered into other agreements with subsidiaries of Lockheed Martin Corporation pursuant to which these subsidiaries provide services to us, including lifecycle testing of some of the batteries used in our satellites and the development and installation of new infrastructure relating to our time division multiple access services.
Teleglobe Share Purchase Agreement
On August 21, 2002, our Intelsat Global Sales subsidiary entered into a share purchase agreement with Teleglobe. Teleglobe was a shareholder prior to the closing of the Acquisition Transactions and is one of our largest customers. In addition, at the time the share purchase agreement was entered into, one of our directors was an executive officer of Teleglobe. Pursuant to this agreement, on September 20, 2002, Intelsat Global Sales acquired Teleglobe’s 6,284,635 shares in Intelsat for $65 million in accordance with the terms set forth in the share purchase agreement. For a detailed description of the Teleglobe transaction, see Item 5 — “Operating and Financial Review and Prospects —Related Party Transactions—Teleglobe Share Purchase Agreement.”
WildBlue Subscription Agreement
On April 21, 2003, we acquired a minority stake in WildBlue for a purchase price of $58 million. One of our directors before the closing of the Acquisition Transactions was a director of Liberty Media Corporation, which indirectly owns a minority interest in WildBlue, and two of our executive officers are directors of WildBlue. For more information about the WildBlue transaction, see Item 5 — “Operating and Financial Review and Prospects —Related Party Transactions—WildBlue Subscription Agreement.”
We have also entered into agreements pursuant to which we provide services to WildBlue, including consulting services relating to earth station construction.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
See Item 18 — “Financial Statements” for our consolidated financial statements and other financial information, as well as for information regarding changes since the date of our consolidated financial statements.
Other than as discussed below, there are no pending or threatened material legal actions against us. We are subject to litigation in the normal course of business, but we do not believe that the resolution of any of these proceedings will have a material impact on our financial position or profitability.
Two putative class action complaints regarding postretirement health benefits have been filed against Intelsat in the U.S. District Court for the District of Columbia. The first was filed on June 24, 2004, against Intelsat Global Service Corporation, and the second was filed on September 20, 2004 against Intelsat and Intelsat Global Service Corporation. In each case, the named plaintiffs are Intelsat retirees, spouses of retirees or surviving spouses of deceased retirees. These complaints arise out of the resolution adopted by the governing body of the IGO prior to privatization. The complaints allege, among other things, that we do not have the right to amend or modify the postretirement health benefits described in the resolution, that the provision in the health plan for these retirees reserving to the Company the right to amend, modify or terminate the benefits is ineffective and contrary to our alleged obligations under the resolution, and that Intelsat wrongfully modified health plan terms to deny coverage to surviving spouses and dependents of deceased Intelsat retirees. Both groups of plaintiffs also seek a declaratory ruling that putative class members are entitled to receive, in perpetuity, postretirement health plan benefits at the same level that was in effect on January 1, 2001, and that changing the health plan terms would constitute a breach of fiduciary duty under the U.S. Employee Retirement Income Security Act of 1974, as amended, and a breach of contract. Both groups of plaintiffs seek injunctive relief and monetary damages, which are unspecified in the first case. In the later case, plaintiffs also allege fraudulent misrepresentation and estoppel claims and seek compensatory and punitive damages in the amount of $250 million. We have moved to dismiss both complaints and have argued that the resolution is not enforceable, that we have the right to modify the terms of any postretirement health benefits being provided, and that the damages claim is without merit. We intend to defend vigorously against the claims of both cases. A hearing on the motions to dismiss in both cases has been scheduled for April 12, 2005.
See Item 10.F — “Dividends and Paying Agents” for information relating to our dividend policy and restrictions on our ability to declare dividends.
I TEM 9. THE OFFER AND LISTING
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following is a summary of some of the rights of the holders of our shares. These rights are set out in our memorandum of association and bye-laws or are provided under applicable Bermuda law and may differ from those typically provided to shareholders of U.S. corporations under the corporations laws of some states of the United States. This summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of our memorandum of association and bye-laws. For more information, you should read our memorandum of association and bye-laws, copies of which have been incorporated by reference as exhibits to this annual report.
General
Intelsat is incorporated as a limited liability company under the Companies Act 1981 of Bermuda, referred to in this annual report as the Companies Act. We are registered with the Registrar of Companies in Bermuda under registration number 27484. Our registered office in Bermuda is located at Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda. The objects of our business are set out in paragraph six of our memorandum of association. These objects include providing telecommunications services of all kinds and carrying on business as a holding company. We also have the power according to our memorandum of association to conduct activities that are incidental to the furtherance of our objects, such as borrowing money and providing financing and financial services to any entity in our group.
Share Capital
As of December 31, 2004, our authorized share capital consisted of 216,666,666 2/3 ordinary shares, par value $3.00 per share, and 2,500,000 preference shares, par value $3.00 per share. Following the Acquisition Transactions, our authorized share capital was reduced to $12,000 divided into shares of $1.00 each, all of which are held by Intelsat Holdings.
On July 18, 2001, we issued 500,000,000 ordinary shares, par value $1.00 per share, in connection with our privatization. On June 4, 2002, our shareholders approved a share consolidation that became effective on that date. Pursuant to the share consolidation, every three of our ordinary shares of $1.00 par value each were consolidated into one ordinary share of $3.00 par value and every three of our preference shares of $1.00 par value each were consolidated into one preference share of $3.00 par value. To reflect the share consolidation, we amended our bye-laws to decrease the number of authorized ordinary shares from 650,000,000 ordinary shares with a par value of $1.00 per share to 216,666,666 2/3 ordinary shares with a par value of $3.00 per share, and to decrease the number of authorized preference shares from 7,500,000 preference shares with a par value of $1.00 per share to 2,500,000 preference shares with a par value of $3.00 per share. Any holder who would have held a fraction of an ordinary share after the share consolidation was issued an additional fraction of an ordinary share so as to round such holder’s shareholding up to the next whole number. Accordingly, after our share consolidation we had 166,666,755 ordinary shares, par value $3.00 per share, issued and outstanding. As of December 31, 2004, we had 167,261,024 ordinary shares, par value $3.00 per share, issued and outstanding. Pursuant to the Acquisition Transactions, outstanding shares held by persons other than Intelsat Holdings or the Company were generally converted into the right to receive $18.75 in cash.
Dividend Rights
Under Bermuda law, a company’s board of directors may declare and pay dividends from time to time unless there are reasonable grounds for believing that the company is or, after the payment, would be unable to pay its liabilities as they become due or that the realizable value of the company’s assets would thereby be less than the aggregate of its liabilities and issued share capital and share premium accounts. Under our bye-laws, each ordinary share is entitled to dividends if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the holders of any issued and outstanding preference shares.
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Modifications of Shareholder Rights
Our bye-laws provide that if our share capital is divided into different classes of shares, the rights attached to any class of shares, unless otherwise provided for by the terms of issue of the shares of that class, may be varied by the written consent of holders of three fourths of the issued shares of that class or by a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of that class in accordance with Section 47(7) of the Companies Act. Our bye-laws specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided by the terms of issue of those existing shares, vary the rights attached to existing shares.
Transfers of Shares
A holder of our ordinary shares may transfer shares to another person by completing an instrument of transfer in such common form as our board of directors may approve. The form must be signed by the transferor and transferee. However, in the case of fully paid shares, our board of directors may accept a form signed only by the transferor. The transferor will remain the holder of the shares until the transfer has been recorded in our register of shareholders. Our board of directors may refuse to recognize an instrument of transfer unless it is accompanied by the certificate for the shares to which it pertains and by such other evidence the board of directors may reasonably require to evidence the transferor’s right to make the transfer.
Changes in Capital
We may from time to time by shareholder resolution passed by a simple majority of the votes cast at a general meeting of shareholders change the currency of our share capital or increase, alter or reduce our share capital in accordance with Sections 45 and 46 of the Companies Act and as provided in our bye-laws.
Rights Upon Dissolution
Our bye-laws state that in the event of Intelsat’s dissolution or winding up, the holders of our ordinary shares are entitled to share in our surplus assets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares. Our bye-laws state that if we are wound up, the liquidator may, upon the approval of the shareholders, divide all or any part of our assets among our shareholders. The liquidator may, for the purpose of distributing our assets to our shareholders, set the value of our assets and determine how the division of our assets shall be carried out as between our shareholders or any different classes of our shareholders.
Meetings of Shareholders
Under Bermuda law, we are required to convene at least one general shareholders’ meeting per calendar year. Under Bermuda law and under our bye-laws, general meetings of our shareholders may be either annual or special. Under Bermuda laws special general meetings may be called if requested by shareholders holding not less than 10% of the paid-up share capital of the company carrying the right to vote at general meetings. Under our bye-laws and in accordance with Bermuda law, the chairman, the president, any two directors, any director and the secretary, or the board of directors may convene a special general meeting whenever in their judgment it is deemed necessary.
Our bye-laws require that shareholders be given at least five days notice of an annual general meeting or a special general meeting called by the chairman, the president, any two directors, any director and the secretary, or the board of directors.
Unless required by Bermuda law or specifically provided in our bye-laws, voting at any general meeting of shareholders is generally decided by a simple majority of the votes cast at a meeting at which a quorum is present. If an equal number of votes are cast for and against a resolution, the resolution will fail.
Access to Books and Records and Dissemination of Information
Members of the general public have the right to inspect the public documents of a Bermuda company, which are available at the office of the Registrar of Companies in Bermuda. These documents include the company’s memorandum of association, including its objects and powers, and any alterations to its memorandum of association. The shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings of the company and the company’s audited financial statements, which must be presented at the annual general meeting. The register of shareholders of a company is also open to inspection by shareholders without
97 Table of Contents charge and by members of the general public on the payment of a fee. The register of shareholders is required to be open for inspection for not less than two hours in any business day. However, companies are entitled to close their register of shareholders for up to 30 days in a year. A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside Bermuda. A company is required to keep at its registered office a register of directors and officers that is open for inspection for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.
Proceedings of Board of Directors
Our bye-laws provide that our business is to be managed and conducted by our board of directors. The board of directors’ management authority includes full borrowing authority. Our directors are not subject to any age limit or mandatory retirement provisions in our bye-laws. Bermuda law requires that our directors be individuals, but there is no requirement in our bye-laws or Bermuda law that our directors hold any of our shares.
As required by Bermuda law and as provided by our bye-laws, a director who is directly or indirectly interested in a contract or proposed contract or arrangement with us must declare the nature of the interest. Following this declaration, and unless disqualified by the chairman of the relevant board meeting, a director may vote in respect of any contract or proposed contract or arrangement in which that director is interested and may be counted in the quorum at the meeting of directors.
Repurchase Rights
Under Bermuda law, a company may repurchase its issued and outstanding shares out of funds legally available for the repurchase of shares. No repurchase may be effected if there are reasonable grounds for believing that the company is, or after effecting the share repurchase would be, unable to pay its liabilities as they become due or if as a result of the repurchase, the issued share capital of the company would be reduced below the minimum capital specified for the company in its memorandum of association. In general, a repurchase of our securities can be authorized by our board of directors.
Amendment of Memorandum of Association and Bye-laws
Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. An amendment to the memorandum of association that alters the company’s business objects may require the approval of the Bermuda Minister of Finance, who may grant or withhold approval at his or her discretion. Our bye-laws provide that no bye-law shall be rescinded, altered or amended, and no new bye-law shall be made, unless it shall have been approved by a resolution of our board of directors and by a resolution of the shareholders.
Annulment of Amendments of the Memorandum of Association
Under Bermuda law, the holders of an aggregate of not less than 20% in par value of any class of a company’s share capital have the right to apply to the Bermuda courts for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment that alters or reduces a company’s share capital as provided in the Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda court. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the company’s memorandum of association is passed and may be made on behalf of persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose. No application may be made by shareholders voting in favor of the amendment.
Appraisal Rights and Shareholder Suits
Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who is not satisfied that fair value has been offered for that shareholder’s shares may apply to a Bermuda court within one month of notice of the shareholders’ meeting to appraise the fair value of those shares.
Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result
98 Table of Contents in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some part of the shareholders, one or more of those shareholders may petition a Bermuda court for relief. The court may then make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
Compulsory Acquisition of Shares Held by Minority Holders
Under Bermuda law, minority shareholders can be compelled, in some circumstances, to sell their shares under statutory procedures under the Companies Act. These circumstances include, in general terms, the following:
• Pursuant to a specified “scheme of arrangement” under the Companies Act. The scheme of arrangement must be effected by obtaining the agreement of the Bermuda company and the holders of shares representing in the aggregate a majority in number and at least 75% in value of the shares held by shareholders present and voting in a court ordered meeting held to consider the scheme of arrangement. In addition, the scheme of arrangement must receive all necessary approvals, including the approval, by court order, of the Bermuda Supreme Court. Upon the filing of such court order with the Registrar of Companies in Bermuda, all holders of shares could be compelled to sell their shares under the terms of the scheme of arrangement.
• If an acquiring party has, within four months after the making of a tender offer for all of the shares or class of shares not owned by it, any of its subsidiaries or any of their respective nominees, obtained the approval of the holders of 90% or more of all of the shares or class of shares to which the offer relates, the acquiring party may, at any time within two months beginning with the date on which the approval was obtained, require by notice any nontendering shareholder
to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholders will be compelled to sell their shares unless the Bermuda Supreme Court, on application made within a one-month period from the date of the acquiring party’s notice of its intention to acquire such shares, orders otherwise.
• Where the acquiring party or acquiring parties hold not less than 95% of the shares or any class of shares of a Bermuda company, such acquiring party or acquiring parties may acquire, pursuant to a notice given to the remaining shareholders or class of shareholders, the shares of such remaining shareholders or class of shareholders on the same terms. The acquiring party is entitled and bound to acquire the shares of the remaining shareholders or class of shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Bermuda Supreme Court for an appraisal of the value of their shares.
Certain Provisions of Bermuda Law
See “— Exchange Controls” for information regarding exchange controls.
The Bermuda Monetary Authority consent is required for the issue and transferability of all of our outstanding ordinary shares.
C. Material Contracts
Contracts relating to our indebtedness are described below. For a description of other material contracts to which the Company is a party, see Item 5 — “Operating and Financial Review and Prospects — Related Party Transactions” and other items in this annual report for information regarding our material contracts.
Senior Secured Credit Facilities of Intelsat Subsidiary Holding
In connection with the Acquisition Transactions, Intelsat Bermuda entered into Senior Secured Credit Facilities with Deutsche Bank Securities Inc., Credit Suisse First Boston and Lehman Brothers Inc., as joint lead arrangers. In connection with the issuance of the Discount Notes and the transfer of substantially all of the assets and liabilities of Intelsat Bermuda to Intelsat Subsidiary Holding and Intelsat Subsidiary Holding became the obligor under the Senior Secured Credit Facilities.
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The Senior Secured Credit Facilities consist of:
• $350 million senior secured Term Loan B Facility with a six-and-one-half-year maturity; and
• $300 million senior secured revolving credit facility with a six-year maturity.
Revolving loans under the revolving credit facility are available so long as the aggregate amount to be incurred, together with other loans outstanding under the Term Loan B facility and certain other debt, does not exceed an amount that is $1,000 less than 15% of our consolidated net tangible assets as described in the indenture related to the Parent Notes. The revolving credit facility is available on a revolving basis and will terminate 6 years from the date of the closing of the Acquisition Transactions. No drawings have been made under the revolving credit facility. $200 million of the revolving credit facility is available for issuance of letters of credit. Additionally, a portion of the revolving credit facility is available for swing line loans. Both the face amount of any outstanding letters of credit and any swing line loans reduce availability under the revolving credit facility on a dollar for dollar basis.
A $150 million loan under the Term Loan B facility was drawn upon the closing date of the Acquisition Transactions and the initial funding of the Senior Secured Credit Facilities and $200 million under the Term Loan B facility was drawn in connection with the repayment of Intelsat’s 2005 Eurobond Notes.
The interest rates with respect to loans under the Senior Secured Credit Facilities are based, at the option of Intelsat Subsidiary Holding, on (i) the higher of (a) the prime rate of Deutsche Bank Trust Company Americas (or an affiliate thereof) and (b) the federal funds effective rate plus 0.5%; in each case plus an applicable margin as determined in accordance with the credit agreement or (ii) the rate (as adjusted) at which eurodollar deposits for one, two, three, six or, with the prior written consent of each lender with outstanding loans and/or commitments under the respective tranche, nine or twelve months, as selected by Intelsat Subsidiary Holding, are offered in the interbank eurodollar market, plus an applicable margin as determined in accordance with the credit agreement. The obligations under the Senior Secured Credit Facilities are guaranteed by Intelsat, Intelsat Bermuda and certain of Intelsat Subsidiary Holding’s subsidiaries.
The obligations under the Senior Secured Credit Facilities are secured by a perfected first priority security interest to the extent legally permissible in substantially all of Intelsat Subsidiary Holding’s and the guarantors’ tangible and intangible assets, with certain exceptions.
Covenants
The Senior Secured Credit Facilities contain customary representations, warranties and covenants for the type and nature of the Acquisition Transactions and a borrower such as Intelsat Subsidiary Holding, including limitations on Intelsat Subsidiary Holding’s or its subsidiaries’ ability to:
• incur or guarantee additional debt or issue disqualified stock, subject to certain exceptions;
• pay dividends, or make redemptions and repurchases, with respect to ordinary shares or capital stock, subject to certain specified thresholds and
exceptions;
• create or incur certain liens;
• make certain loans or investments;
• make acquisitions or investments, engage in mergers, acquisitions, amalgamations, asset sales and sale lease-back transactions; and
• engage in transactions with affiliates.
The Senior Secured Credit Facilities do not contain a limitation on capital expenditures.
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Adjusted EBITDA
In general, dividends can only be paid under the Senior Secured Credit Facilities in an amount equal to the cumulative credit less 1.4 times the cumulative interest expense from January 1, 2005 (including interest on the Senior Notes due 2008 and Senior Notes due 2013 of Intelsat and Senior Notes due 2012 of Intelsat, which collectively comprise the Parent Notes). Cumulative credit is defined as sum of, among other things, (i) the aggregate net cash proceeds and the fair market value of property received by Intelsat Subsidiary Holding after January 28, 2005 from the issuance or sale of any equity interest of Intelsat Subsidiary Holding or any parent of Intelsat Subsidiary Holding and (ii) cumulative Adjusted EBITDA from and after January 1, 2005, to the end of the fiscal quarter immediately preceding the date of the proposed dividend, or, if cumulative Adjusted EBITDA for such period is negative, minus the amount by which the cumulative Adjusted EBITDA is less than zero.
The Senior Secured Credit Facilities prohibit Intelsat Subsidiary Holding and its subsidiaries’ from incurring additional debt other than pursuant to certain exceptions, one of those exceptions permits Intelsat Subsidiary Holding and its subsidiaries’ to incur additional debt to the extent that the ratio of the debt of Intelsat Subsidiary Holding and its subsidiaries to Adjusted EBITDA does not exceed 4.75 to 1.0 on a pro forma basis. The Senior Secured Credit Facilities also prohibit Intelsat Subsidiary Holding and its subsidiaries from suffering additional liens other than pursuant to certain exceptions, one of those exceptions permits Intelsat Subsidiary Holding and its subsidiaries’ to suffer additional liens to the extent that the ratio of secured debt of Intelsat Subsidiary Holding and its subsidiaries to Adjusted EBITDA does not exceed 1.5 to 1.0 on a pro forma basis. The Senior Secured Credit Facilities also prohibit Intelsat Subsidiary Holding and its subsidiaries’ ability from making investments other than pursuant to certain exceptions, one of those exceptions permits Intelsat Subsidiary Holding and its subsidiaries’ to make investments in the amount of $250 million plus 5% of cumulative Adjusted EBITDA from January 1, 2005. Under the Senior Secured Credit Facilities the annual monitoring fee payable to the Sponsors may not exceed the greater of $12.5 million and 2.5% of Adjusted EBITDA. See Item 7.B — “Related Party Transactions — Post-Acquisition Transactions with Sponsors– Monitoring Fee Agreement and Transaction Fee.”
The Senior Secured Credit Facilities include financial covenants, including requirements that Intelsat Subsidiary Holding maintain a minimum ratio of interest expense to Adjusted EBITDA of 1.50 to 1.0 and that Intelsat Subsidiary Holding not exceed a maximum ratio of senior secured debt to Adjusted EBITDA of 1.5 to 1.0. Failure to maintain these ratios would be an event of default under the Senior Secured Credit Facilities.
Events of Default
The Senior Secured Credit Facilities will contain events of default with respect to:
• default in payment of principal when due;
• default in the payment of interest, fees or other amounts after a specified grace period;
• material breach of the representations or warranties;
• default in the performance of specified covenants;
• failure to make any payment when due, under any indebtedness with a principal amount in excess of a specified amount;
• certain bankruptcy events;
• certain ERISA violations;
• invalidity of any security agreement or guarantee;
• material judgments; or
• a change of control event (as defined in the Senior Secured Credit Facilities).
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Floating Rate Senior Notes due 2012, Senior Notes due 2013 and Senior Notes due 2015 of Intelsat Subsidiary Holding
On January 28, 2005, Intelsat Bermuda issued $875 million in aggregate principal amount of its 8 ¼% Senior Notes due 2013 and $675 million in aggregate principal amount of its 8 5/8% Senior Notes due 2015, referred to together as the Fixed Rate Notes, and $1,000 million in aggregate principal amount of its Floating Rate Senior Notes due 2012, referred to as the Floating Rate Notes, and together with the Fixed Rate Notes, the Acquisition Finance Notes, in each case in a private placement to initial purchasers who resold the notes pursuant to Rule 144A in the United States and in accordance with Regulation S outside of the United States. In connection with the Transfer Transactions, Intelsat Subsidiary Holding became the obligor and Intelsat Bermuda became a guarantor on the Acquisition Finance Notes.
Interest is payable on the Acquisition Finance Notes semi-annually on January 15 and July 15, beginning on July 15, 2005. Intelsat Subsidiary Holding may redeem some or all of the Floating Rate Notes at any time at the redemption prices set forth in the Floating Rate Notes. Intelsat Subsidiary Holding may also redeem up to 35% of the outstanding Fixed Rate Notes before July 15, 2005 and up to 100% of the outstanding Floating Rate Notes before January 15, 2008 with the proceeds of certain equity offerings and capital contributions subject to limitations and at redemption prices set forth in the Acquisition Finance Notes.
The Acquisition Finance Notes are senior unsecured obligations of Intelsat Subsidiary Holding and rank equally with Intelsat Subsidiary Holding’s other senior unsecured indebtedness. The Acquisition Finance Notes are guaranteed by Intelsat, Intelsat Bermuda and certain subsidiaries of Intelsat Subsidiary Holding.
Covenants
The terms of the Acquisition Finance Notes include the following covenants:
• a limitation on Intelsat Subsidiary Holding’s and some of its subsidiaries’ ability to incur additional debt;
• a limitation on Intelsat Subsidiary Holding’s and some of its subsidiaries’ ability to pay dividends or repurchase Intelsat Subsidiary Holding’s ordinary
shares, subject to certain specified thresholds and exceptions;
• a limitation on Intelsat Subsidiary Holding’s and some of its subsidiaries’ ability to make certain investments;
• a limitation on Intelsat Subsidiary Holding’s and some of its subsidiaries’ ability to enter into transactions with affiliates;
• a limitation on merger, consolidation and sale of our assets;
• a limitation on incurrence of liens on assets securing other indebtedness in excess of a specified amount, unless the Acquisition Finance Notes are equally
and ratably secured; and
• a limitation on sale leaseback transactions.
Adjusted EBITDA
The indenture pursuant to which the Acquisition Finance Notes were issued generally prohibits payments of dividends by Intelsat Subsidiary Holding in excess of an amount equal to the cumulative credit less 1.4 times the cumulative interest expense from January 1, 2005. Cumulative credit is defined as sum of, among other things, (i) the aggregate net cash proceeds and the fair market value of property received by Intelsat Subsidiary Holding after January 28, 2005 from the issuance or sale of any equity interest of Intelsat Subsidiary Holding or any parent of Intelsat Subsidiary Holding and (ii) cumulative Adjusted EBITDA from and after January 1, 2005, to the end of the fiscal quarter immediately preceding the date of the proposed dividend, or, if cumulative Adjusted EBITDA for such period is negative, minus the amount by which the cumulative Adjusted EBITDA is less than zero. The calculation of Adjusted EBITDA is similar in the Acquisition Finance Notes and Senior Secured Credit Facilities. The indenture governing the Acquisition Finance Notes prohibit Intelsat Subsidiary Holding and its restricted subsidiaries’ from incurring additional debt and making restricted payments other than pursuant to certain exceptions, one of those exceptions permits Intelsat Subsidiary Holding and its restricted
102 Table of Contents subsidiaries’ to incur additional debt and make restricted payments to the extent that the debt to Adjusted EBITDA of Intelsat Subsidiary Holding does not exceed 4.75 to 1.00 on a pro forma basis. Under the indenture governing the Acquisition Finance Notes the annual monitoring fee payable to the Sponsors may not exceed the greater of $6.25 million and 1.25% of Adjusted EBITDA of Intelsat Subsidiary Holding and its restricted subsidiaries. See Item 7.B — “Related Party Transactions –Post-Acquisition Transactions with Sponsors – Monitoring Fee Agreement and Transaction Fee.”
Events of Default
The Acquisition Finance Notes contain events of default with respect to:
• default in payments of interest after a 30-day grace period or a default in the payment of principal when due;
• default in the performance of any covenant in the indenture that continues for more than 60 days after notice of default has been provided to Intelsat
Subsidiary Holding;
• failure to make any payment when due, including applicable grace periods, under any indebtedness for money borrowed by Intelsat Subsidiary Holding or
a significant subsidiary thereof having a principal amount of at least $50 million;
• the acceleration of the maturity of any indebtedness for money borrowed by Intelsat Subsidiary Holding or a significant subsidiary thereof having a
principal amount in excess of $50 million; or
• insolvency or bankruptcy of Intelsat Subsidiary Holding or one of its significant subsidiaries.
If any of these events of default occurs and is continuing with respect to the Acquisition Finance Notes, the trustee or the holders of not less than 25% in principal amount of the Acquisition Finance Notes may declare the entire principal amount of the Acquisition Finance Notes to be immediately due and payable. If any event of default with respect to the Acquisition Finance Notes occurs because of events of bankruptcy, insolvency or reorganization, the entire principal amount of the Acquisition Finance Notes will be automatically accelerated, without any action by the trustee or any holder.
Senior Discount Notes due 2015 of Intelsat Bermuda
On February 11, 2005, Intelsat and Finance Co. issued $478,700,000 in aggregate principal amount at maturity of 9 ¼% Senior Discount Notes due 2015. Finance Co. amalgamated with Intelsat Bermuda following the Transfer Transactions, with the result being that Intelsat Bermuda became an obligor on the Discount Notes.
The notes will mature on February 1, 2015. Until February 1, 2010, interest will accrue on the notes at the rate of 9 ¼% per annum in the form of an increase in the Accreted Value representing amortization of original issue discount) between the date of original issuance and February 1, 2010, on a semi-annual basis using a 360-day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount at maturity of the notes on February 1, 2010 (the “Full Accretion Date”). Beginning on the Full Accretion Date, cash interest on the notes will accrue at the rate of 9 1/4% per annum and will be payable semiannually on February 1 and August 1 of each year to holders of record at the close of business on the January 15 or July 15 immediately preceding such interest payment dates, commencing August 1, 2010.
The Discount Notes are senior unsecured obligations of Intelsat and Intelsat Bermuda and rank equally with Intelsat’s and Intelsat Bermuda’s other senior unsecured indebtedness.
Covenants
The terms of the Discount Notes include the following covenants:
• a limitation on Intelsat Bermuda’s and some of its subsidiaries’ ability to incur additional debt;
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• a limitation on Intelsat Bermuda’s and some of its subsidiaries’ ability to pay dividends or repurchase Intelsat Bermuda’s ordinary shares, subject to
certain specified thresholds and exceptions;
• a limitation on Intelsat Bermuda’s and some of its subsidiaries’ ability to make certain investments;
• a limitation on Intelsat Bermuda’s and some of its subsidiaries’ ability to enter into transactions with affiliates;
• a limitation on merger, consolidation and sale of our assets;
• a limitation on incurrence of liens on assets securing other indebtedness in excess of a specified amount, unless the Discount Notes are equally and ratably
secured; and
• a limitation on sale leaseback transactions, applicable to Intelsat Bermuda and some of its subsidiaries.
Adjusted EBITDA
The indenture pursuant to which the Discount Notes were issued generally prohibits payments of dividends by Intelsat Bermuda in excess of an amount equal to the cumulative credit less 1.4 times the cumulative interest expense from January 1, 2005. The definition of cumulative credit and Adjusted EBITDA are the same in the Acquisition Finance Notes and the Discount Notes. The indenture governing the Discount Notes prohibit (i) Intelsat Bermuda and its restricted subsidiaries’ (other than Intelsat Subsidiary Holding and any of its restricted subsidiaries) from incurring additional debt and making restricted payments to the extent that the debt to Adjusted EBITDA of Intelsat Bermuda does not exceed 5.25 to 1.00 on a pro forma basis and (ii) Intelsat Subsidiary Holding and its restricted subsidiaries to incur additional debt and make restricted payments to the extent that the debt to Adjusted EBITDA of Intelsat Subsidiary Holding does not exceed 4.75 to 1.00 on a pro forma basis. Under the indenture governing the Acquisition Finance Notes the annual monitoring fee payable to the Sponsors may not exceed the greater of $6.25 million and 1.25% of Adjusted EBITDA of Intelsat Subsidiary Holding and its restricted subsidiaries. See Item 7.B — “Related Party Transactions –Post-Acquisition Transactions with Sponsors – Monitoring Fee Agreement and Transaction Fee.”
Events of Default
The Discount Notes contain events of default with respect to:
• default in payments of interest after a 30-day grace period or a default in the payment of principal when due;
• default in the performance of any covenant in the indenture that continues for more than 60 days after notice of default has been provided to Intelsat
Bermuda;
• failure to make any payment when due, including applicable grace periods, under any indebtedness for money borrowed by Intelsat Bermuda or a
significant subsidiary thereof having a principal amount in excess of $50 million;
• the failure to pay within any applicable grace period after maturity or the acceleration of the maturity of any indebtedness for money borrowed by Intelsat
Bermuda or a significant subsidiary thereof having a principal amount in excess of $50 million; or
• insolvency or bankruptcy of Intelsat Bermuda Intelsat Bermuda or one of its significant subsidiaries.
If any of these events of default occurs and is continuing with respect to the Discount Notes, the trustee or the holders of not less than 25% in principal amount at maturity of the Discount Notes may declare the entire principal amount of the Discount Notes to be immediately due and payable. If any event of default with respect to the Discount Notes occurs because of events of bankruptcy, insolvency or reorganization, the entire principal amount of the Discount Notes will be automatically accelerated, without any action by the trustee or any holder.
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Senior Notes due 2008 and Senior Notes due 2013 of Intelsat
On November 7, 2003, Intelsat issued $400 million in aggregate principal amount of our 5 1/4% Senior Notes due 2008, referred to as the Original 2008 Senior Notes, and $700 million in aggregate principal amount of our 6 1/2% Senior Notes due 2013, referred to as the Original 2013 Senior Notes, in each case in a private placement to initial purchasers who resold the notes pursuant to Rule 144A in the United States and in accordance with Regulation S outside of the United States. In February 2004, Intelsat exchanged substantially all of these notes for notes registered under the Securities Act, referred to as the 2008 Senior Notes and the 2013 Senior Notes, respectively, after an exchange offer conducted pursuant to a registration rights agreement we entered into with the initial purchasers of the Original 2008 Senior Notes and the Original 2013 Senior Notes. Interest is payable on the 2008 Senior Notes and the 2013 Senior Notes semi-annually on May 1 and November 1 of each year. Intelsat may redeem some or all of the 2008 Senior Notes and the 2013 Senior Notes at any time at the redemption prices set forth in the 2008 Senior Notes and the 2013 Senior Notes, respectively. Intelsat may also redeem the outstanding 2008 Senior Notes and the 2013 Senior Notes in whole in the event of certain tax changes affecting the Senior Notes, as set forth in the indenture to the 2008 Senior Notes and the 2013 Senior Notes.
The 2008 Senior Notes and the 2013 Senior Notes are senior unsecured obligations of Intelsat and rank equally with Intelsat’s other senior unsecured indebtedness.
Covenants
The terms of the 2008 Senior Notes and the 2013 Senior Notes each include the following covenants:
• a limitation on merger, consolidation and sale of our assets;
• a limitation on incurrence of liens on certain assets securing other indebtedness in excess of a specified amount, unless the 2008 Senior Notes and the
2013 Senior Notes are equally and ratably secured; and
• a limitation on sale leaseback transactions.
Events of Default
The 2008 Senior Notes and the 2013 Senior Notes each contain events of default with respect to:
• default in payments of interest after a 30-day grace period or a default in the payment of principal when due;
• default in the performance of any covenant in the indenture that continues for more than 90 days after notice of default has been provided to Intelsat;
• failure to make any payment when due, including applicable grace periods, under any indebtedness for money borrowed by Intelsat or a significant
subsidiary thereof having a principal amount in excess of $50 million;
• the acceleration of the maturity of any indebtedness for money borrowed by Intelsat or a significant subsidiary thereof having a principal amount in excess
of $50 million; or
• insolvency or bankruptcy of Intelsat or one of its significant subsidiaries.
If any of these events of default occurs and is continuing with respect to the 2008 Senior Notes, the trustee or the holders of not less than 25% in principal amount of the 2008 Senior Notes may declare the entire principal amount of the 2008 Senior Notes to be immediately due and payable. If any event of default with respect to the 2008 Senior Notes occurs because of events of bankruptcy, insolvency or reorganization, the entire principal amount of the 2008 Senior Notes will be automatically accelerated, without any action by the trustee or any holder. Similarly, if any of these events of default occurs and is continuing with respect to the 2013 Senior Notes, the trustee or the holders of not less than 25% in principal amount of the 2013 Senior Notes may declare the entire principal amount of the 2013 Senior Notes to be immediately due and payable. If any event of default with respect to the 2013 Senior Notes
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Senior Notes due 2012 of Intelsat
On April 15, 2002, Intelsat issued $600 million in aggregate principal amount of our 75/8% Senior Notes due April 15, 2012, referred to as the Original 2012 Senior Notes, in a private placement to initial purchasers who resold the notes pursuant to Rule 144A in the United States and in accordance with Regulation S outside of the United States. In January 2003 we exchanged these notes for notes registered under the Securities Act, referred to as the 2012 Senior Notes, after an exchange offer conducted pursuant to a registration rights agreement Intelsat entered into with the initial purchasers of the Original 2012 Senior Notes. Interest is payable on the 2012 Senior Notes semi- annually on April 15 and October 15 of each year. Intelsat may redeem some or all of the 2012 Senior Notes at any time at the redemption prices set forth in the 2012 Senior Notes. Intelsat may also redeem the outstanding 2012 Senior Notes in whole in the event of certain tax changes affecting the 2012 Senior Notes, as set forth in the indenture to the 2012 Senior Notes.
The 2012 Senior Notes are senior unsecured obligations of Intelsat and rank equally with Intelsat’s other senior unsecured indebtedness.
Because the 2012 Senior Notes were issued under the same indenture as the 2008 Senior Notes and the 2013 Senior Notes noted above, the terms of the 2012 Senior Notes include substantially the same covenants and events of default as noted above with respect to the 2008 Senior Notes and the 2013 Senior Notes.
D. Exchange Controls
Intelsat, Intelsat Bermuda and Intelsat Subsidiary Holding have each been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows Intelsat, Intelsat Bermuda and Intelsat Subsidiary Holding to engage in transactions in currencies other than the Bermuda dollar, and there are no Bermuda Monetary Authority restrictions on Intelsat’s, Intelsat Bermuda’s and Intelsat Subsidiary Holding’s ability to transfer funds, other than funds denominated in Bermuda dollars, in and out of Bermuda, to pay dividends to United States residents who are holders of our ordinary shares or to pay interest to United States residents who 1 1 5 1 are holders of our 6 /2% Senior Notes due 2013, our 5 /4% Senior Notes due 2008, our 7 /8% Senior Notes due 2012, our floating rate senior notes due 2012, our 8 /4% senior 5 notes due 2013, our 8 /8% senior notes due 2015 and our 9¼% Senior Discount Notes due 2015 (when and if dividends are payable on such notes).
E. Taxation
We are wholly owned by a Bermuda corporation and do not have any U.S. holders who, as shareholders, would be subject to U.S. federal income tax. At the date of this annual report, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our shareholders in respect of our ordinary shares. At the present time, neither Intelsat, Intelsat Bermuda nor Intelsat Subsidiary Holding is subject to stamp duty on the issue, transfer or redemption of our ordinary shares. Intelsat, Intelsat Bermuda and Intelsat Subsidiary Holding have each obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 of Bermuda that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits, income or any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to it or to any of its operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by it in respect of real property or leasehold interests in Bermuda held by it.
As an exempted company, we are liable to pay an annual fee to the Bermuda government which is based upon the aggregate of our authorized share capital and share premium account. Currently such annual fee payable is $27,825.
F. Dividends and Paying Agents
Other than as described below, since our formation in connection with the privatization of the IGO, we have not declared or paid cash dividends on our ordinary shares. The holders of ordinary shares will share proportionately on a per share basis in all dividends and other distributions, if any, declared by our board of directors. The declaration of dividends by Intelsat is subject to the discretion of our board of directors.
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Intelsat’s Board of Directors has not adopted a dividend policy with respect to Intelsat’s ordinary shares. However, in connection with the Transfer Transactions, on March 3, 2005 Intelsat distributed the net proceeds of the offering of the Discount Notes to its parent, Intelsat Holdings. The credit agreement relating to the Senior Secured Credit Facilities and the Acquisition Finance Notes contain financial covenants that limit the ability of Intelsat Subsidiary Holding to pay dividends on its ordinary shares. The Discount Notes contain similar restrictions on the ability of Intelsat Bermuda to pay dividends on its ordinary shares. For more information, see Item 5 — “Operating and Financial Review and Prospects —Historical Debt and Other Liabilities.”
Under Bermuda law, a Bermuda company may not declare or pay dividends if there are reasonable grounds for believing that the company is or, after the payment, would be unable to pay its liabilities as they become due or that the realizable value of the company’s assets would be less than the aggregate of its liabilities and issued share capital and share premium accounts.
G. Statement by Experts
Not applicable.
H. Documents on Display
You can read our SEC filings at the SEC’s website at www.sec.gov. You may also read and copy, at prescribed rates, any document we file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information set forth in Item 5 — “Operating and Financial Review and Prospects” for quantitative and qualitative disclosures about market risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
We periodically review the design and effectiveness of our disclosure controls and internal control over financial reporting worldwide, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls and internal control structure, and may take other corrective action, if our reviews identify a need for such modifications or actions. In designing and evaluating the disclosure controls and procedures and internal control of financial reporting, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In connection with the COMSAT General Transaction in October 2004, we integrated their significant accounting systems and internal controls into our current internal control environment.
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An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the Securities and Exchange Commission rules and forms. No changes occurred during the quarter ended December 31, 2004 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Subsequent to the end of the quarter, we revised our disclosure controls and procedures to improve our ability to monitor disclosure requirements in situations in which personnel changes occur at or about the time that public disclosures are made.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that each member of the Audit Committee is an audit committee financial expert. See Item 6.A — ”Directors, Senior Management and Employees—Audit Committee”
ITEM 16B. CODE OF ETHICS
You may review the Company’s Code of Ethics for Senior Financial Officers on our corporate website at www.intelsat.com in the Governance section of the Investor webpage.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
Our audit fees for 2004 were $1,446,245, and our audit fees for 2003 were $936,553.
Audit-Related Fees
Our 2004 audit-related fees included services performed for audits of employee benefit plans, due diligence associated with the Loral transaction and the Acquisition Transactions, accounting research associated with proposed transactions, and agreed-upon procedures related to our MFC contractual obligations entered into at privatization. Our 2003 audit-related fees included services performed for audits of employee benefit plans, due diligence associated with the Loral transaction, accounting research associated with proposed transactions, and agreed-upon procedures related to our MFC contractual obligations entered into at privatization. Our audit-related fees for 2004 were $134,179, and our audit-related fees for 2003 were $114,845.
Tax Fees
Our tax fees during 2004 and 2003 related to the preparation or review of U.S. federal, state and foreign statutory tax returns and miscellaneous research related to these tax returns. Our tax fees for 2004 were $109,183, and our tax fees for 2003 were $99,585.
All Other Fees
None.
Audit Committee Pre-Approval Policies and Procedures
Consistent with SEC requirements regarding auditor independence, the Audit Committee has adopted a policy to pre-approve services prior to commencement of the specified service. Under the policy, the Audit Committee must pre-approve the provision of services by our principal auditor. The requests for pre-approval are submitted to the Audit Committee, or a designated member of the Committee, by the Chief Financial Officer of Intelsat or the Controller of Intelsat Global Service Corporation, and the Audit Committee Chairman executes engagement letters from the principal auditor following approval by committee members, or the designated member of the Committee.
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All services performed by KPMG LLP during 2004 were pre-approved by the Audit Committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 to F-40.
ITEM 19 EXHIBITS
(a) Index to consolidated financial statements:
Page
Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2003 and 2004 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2003 and 2004 F-4 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2002, 2003 and 2004 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004 F-6 Notes to Consolidated Financial Statements F-7 Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2002, 2003 and 2004 F-40
(b) Exhibits to this Annual Report:
Exhibit Number Exhibit
1.1 Certificate of Incorporation of Intelsat, Ltd. (incorporated by reference to Exhibit 3.1 of Intelsat, Ltd.’s Registration Statement on Form F-4, filed on September 5, 2002).
1.2 Memorandum of Association of Intelsat, Ltd.* 1.3 Amended and Restated Bye-laws of Intelsat, Ltd. (incorporated by reference to Exhibit 3.1 of Intelsat, Ltd.’s Report filed on Form 8-K, filed on March 7, 2005). 2.1 Indenture, dated as of April 1, 2002, between Intelsat, Ltd. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form F-4, filed on September 5, 2002). 2.2 Officers’ Certificate dated April 15, 2002 relating to Intelsat, Ltd.’s 7 5/8% Senior Notes due 2012 (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form F-4, filed on September 5, 2002).
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Exhibit Number Exhibit
2.3 Officers’ Certificate dated November 7, 2003 relating to Intelsat, Ltd.’s 5 1/4% Senior Notes due 2008 and its 6 1/2% Senior Notes due 2013, including the forms of Notes (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form F-4, filed on November 21, 2003).
2.4 Form of 7 5/8% Senior Notes due 2012 (incorporated by reference to Exhibit 4.4 of the Registration Statement on Form F-4, filed on September 5, 2002). 2.5 Indenture, dated as of January 28, 2005, by and among Zeus Merger Two Limited, as Issuer, Zeus Merger One Limited, as Parent Guarantor, and Wells Fargo, as Trustee (incorporated by reference to Exhibit 4.1 of Intelsat Ltd.’s Report on Form 8-K, filed on February 4, 2005). 2.6 Supplemental Indenture, dated as of January 28, 2005, by and among Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation and Wells Fargo Bank, National Association.* 2.7 Second Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat Subsidiary Holding Company, Ltd., Intelsat (Bermuda), Ltd., Intelsat, Ltd., Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation and Wells Fargo Bank, National Association.* 2.8 Third Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat (Bermuda), Ltd., Intelsat Subsidiary Holding Company, Ltd. and Wells Fargo Bank, National Association.* 2.9 Registration Rights Agreement, dated as of January 28, 2005, by and among Zeus Merger One Limited, Zeus Merger Two Limited and the other parties named therein (incorporated by reference to Exhibit 4.2 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 2.10 Eurobond Guaranty dated as of January 28, 2005 by and among Intelsat (Bermuda), Ltd., Intelsat Holdings LLC, Intelsat LLC, Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation, and Intelsat Global Sales & Marketing Ltd., in favor of Deutsch Bank Trust Company America (incorporated by reference to Exhibit 4.3 of Intelsat Ltd.’s Report on Form 8-K, filed on February 4, 2005).
2.11 Indenture, dated as of February 11, 2005, by and among Zeus Special Subsidiary Limited, Intelsat, Ltd. and Wells Fargo Bank, National Association.*
2.12 Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat (Bermuda), Ltd., Intelsat, Ltd. and Wells Fargo Bank, National Association.*
2.13 Registration Rights Agreement, dated as of February 11, 2005, among Zeus Special Subsidiary Limited, Intelsat, Ltd. and Deutsche Bank Securities Inc.* 3.1 Transaction Agreement and Plan of Amalgamation, dated as of August 16, 2004, by and among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Intelsat Holdings, Ltd. (formerly Zeus Holdings Limited), Zeus Merger One Limited and Zeus Merger Two Limited (incorporated by reference to Exhibit 99.1 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.2 Asset Purchase Agreement, dated as of July 15, 2003, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc., as amended (incorporated by reference to Exhibit 1 of Intelsat, Ltd.’s Quarterly Report on Form 6-K for the period ended June 30, 2003, submitted on August 14, 2003 and Exhibits 1, 2 and 3 of Intelsat, Ltd.’s Quarterly Report on Form 6-K for the period ended September 30, 2003, submitted on October 29, 2003). 3.3 Amendment No. 4, dated as of March 5, 2004, to Asset Purchase Agreement among Intelsat, Ltd., Intelsat (Bermuda), Ltd., and Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc. (incorporated by reference to Exhibit 4.35 of Intelsat, Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2003, filed on March 15, 2004). (1)
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Exhibit Number Exhibit
3.4 $800,000,000 Credit Agreement, dated as of December 17, 2003, among Intelsat, Ltd., Citigroup Global Markets Inc., BNP Paribas, Morgan Stanley Senior Funding, Inc., ABN AMRO Bank N.V., Credit Lyonnais, New York Branch, Citicorp North America, Inc. and the lenders named therein (incorporated by reference to Exhibit 4.11 of Intelsat, Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2003, filed on March 15, 2004). 3.5 Credit Agreement dated as of January 28, 2005 among Zeus Merger One Limited, Zeus Merger Two Limited and the other parties named therein (incorporated by reference to Exhibit 10.1 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.6 Headquarters Land Lease, dated as of June 8, 1982, between the International Telecommunications Satellite Organization and the U.S. Government, as amended (incorporated by reference to Exhibit 10.16 of the Registration Statement on Form F-4, filed on September 5, 2002). 3.7 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat (Bermuda), Ltd. and Conny Kullman (incorporated by reference to Exhibit 10.2 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.8 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat, Ltd. and William Atkins (incorporated by reference to Exhibit 10.3 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.9 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat, Ltd. and Ramu Potarazu (incorporated by reference to Exhibit 10.4 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.10 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and Kevin Mulloy (incorporated by reference to Exhibit 10.5 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.11 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and Tony Trujillo (incorporated by reference to Exhibit 10.6 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.12 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and David Meltzer (incorporated by reference to Exhibit 10.7 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005).
3.13 Employment Agreement, dated as of January 28, 2005, between Intelsat Holdings, Ltd. and David McGlade. *
3.14 Letter Agreement, dated as of December 22, 2004, between Zeus Holdings Limited and David McGlade. *
3.15 Letter Agreement, dated as of February 25, 2005, between Zeus Holdings Limited and David McGlade. * 3.16 Employment Agreement, dated as of January 31, 2005, between Intelsat Holdings, Ltd., Intelsat, Ltd. and Phillip Spector (incorporated by reference to Exhibit 10.8 of Intelsat, Ltd.’s Report on Form 8-K, filed on February 4, 2005). 3.17 Business Transition Services Agreement, dated as of July 15, 2003, among Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation and Loral SpaceCom Corporation.* 3.18 TT&C Transition Services Agreement, dated as of July 15, 2003, among Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation and Loral SpaceCom Corporation.* 3.19 Purchase Agreement, dated as of January 24, among Zeus Merger One Limited, Zeus Merger Two Limited, and Deutsche Bank Securities Inc., Credit Suisse First Boston LLC and Lehman Brothers Inc.*
3.20 Transaction and Monitoring Fee Agreement, dated as of January 28, 2005, by and among Zeus Merger Two Limited and the other parties names therein.*
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Exhibit Number Exhibit
3.21 Subsidiary Flow Through Voting Agreement, dated as of January 28, 2005, by and between Zeus Holdings Limited and Intelsat, Ltd.*
7.1 Statement re computation of ratio of earnings to fixed charges.*
8.1 List of subsidiaries.*
11.1 Code of Ethics for Senior Financial Officers.*
12.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
12.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
13.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
13.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
* Filed herewith.
(1) Portions of this exhibit have been omitted pursuant to an application for confidential treatment filed with the Securities and Exchange Commission under separate cover on March 12, 2004.
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SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
We are incorporated under the laws of Bermuda. In addition, certain of our directors and officers reside outside of the United States and most of our assets and some of their assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. Uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
INTELSAT, LTD.
By /s/ Conny Kullman Conny Kullman Chief Executive Officer
Date: March 15, 2005
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Index to Consolidated Financial Statements of Intelsat, Ltd.
Page
Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2003 and 2004 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2003 and 2004 F-4 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2002, 2003 and 2004 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004 F-6 Notes to Consolidated Financial Statements F-7 Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2002, 2003 and 2004 F-40
F-1 Table of Contents
R eport of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders Intelsat, Ltd.
We have audited the consolidated financial statements of Intelsat, Ltd. and subsidiaries (Intelsat) as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Intelsat’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Intelsat as of December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
McLean, Virginia March 14, 2005
F-2 Table of Contents
I NTELSAT, LTD. CONSOLIDATED BALANCE SHEETS
As of December 31,
2003 2004
(in thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents $ 576,793 $ 141,320 Restricted cash 700,000 — Receivables, net of allowance of $32,110 and $35,343, respectively 201,202 202,652 Insurance receivable — 58,320 Deferred income taxes 14,524 12,854 Assets of discontinued operations 57,680 —
Total current assets 1,550,199 415,146 Satellites and other property and equipment, net 3,262,870 3,637,357 Amortizable intangible assets, net 25,205 104,612 Non-amortizable intangible assets — 255,002 Goodwill 57,608 130,829 Deferred income taxes 1,943 — Investment in affiliate 56,916 52,246 Other assets 117,976 173,422
Total assets $5,072,717 $4,768,614
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Notes payable $1,098,591 $ 200,000 Accounts payable and accrued liabilities 201,632 220,832 Deferred satellite performance incentives 7,118 7,968 Deferred revenue 27,435 39,566 Capital lease obligations 5,290 5,569 Liabilities of discontinued operations 22,391 —
Total current liabilities 1,362,457 473,935 Long-term debt, net of current portion 1,250,467 1,742,566 Deferred satellite performance incentives, net of current portion 44,691 48,806 Deferred revenue, net of current portion 6,801 123,992 Accrued retirement benefits 48,181 56,016 Other long-term liabilities 605 17,478
Total liabilities 2,713,202 2,462,793
Minority interest of discontinued operations 15,115 — Commitments and contingencies Shareholders’ equity: Preference shares, $3.00 par value, 2,500,000 shares authorized, no shares issued or outstanding — — Ordinary shares, $3.00 par value, 216,666,6662/3 shares authorized, 166,666,755 and 167,261,024 shares issued and 160,382,120 and 160,382,120 shares outstanding as of December 31, 2003 and 2004, respectively 500,000 500,000 Paid-in capital 1,301,886 1,301,886 Retained earnings 649,199 610,520 Accumulated other comprehensive (loss) income: Minimum pension liability, net of tax (1,270) (1,367) Unrealized gain on available-for-sale securities, net of tax 1,403 1,600 Ordinary shares purchased by subsidiary, 6,284,635 shares (106,818) (106,818)
Total shareholders’ equity 2,344,400 2,305,821
Total liabilities and shareholders’ equity $5,072,717 $4,768,614
See accompanying notes to consolidated financial statements.
F-3 Table of Contents
I NTELSAT, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2002 2003 2004
(in thousands, except share and per share amounts) Revenue $ 991,956 $ 946,118 $ 1,043,906
Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 117,405 132,172 178,253 Selling, general and administrative 121,077 129,456 152,111 Depreciation and amortization 361,322 400,485 457,372 IS-10-01 contract termination costs 34,358 (3,000) — Impairment of asset value — — 84,380 Restructuring costs 5,522 (837) 6,640
Total operating expenses 639,684 658,276 878,756
Operating income from continuing operations 352,272 287,842 165,150 Interest expense 55,223 99,002 143,399 Interest income 170 1,972 4,530 Other income (expense), net 9,942 18,556 (2,384)
Income from continuing operations before income taxes 307,161 209,368 23,897 Provision for income taxes 33,021 26,129 18,647
Income from continuing operations 274,140 183,239 5,250 Loss from discontinued operations, net of tax and minority interest — (2,120) (43,929)
Net income (loss) $ 274,140 $ 181,119 $ (38,679)
Basic and diluted income from continuing operations per ordinary share $ 1.66 $ 1.14 $ 0.03
Basic and diluted loss from discontinued operations per ordinary share $ — $ (0.01) $ (0.27)
Basic and diluted net income per ordinary share $ 1.66 $ 1.13 $ (0.24)
Basic weighted average ordinary shares outstanding 164,893,283 160,382,120 160,382,120
Diluted weighted average ordinary shares outstanding 164,893,283 160,382,120 160,489,035
See accompanying notes to consolidated financial statements.
F-4 Table of Contents
I NTELSAT, LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Ordinary Shares Accumulated Shares Other Purchased Total Total Paid-in Retained Comprehensive By Shareholders’ Comprehensive Shares Amount Capital Earnings Income (Loss) Subsidiary Equity Income (Loss)
(in thousands, except share amounts) Balance, December 31, 2001 166,666,755 500,000 1,301,886 193,940 — — 1,995,826 Purchase of ordinary shares by subsidiary, 6,284,635 shares (6,284,635) — — — — (106,818) (106,818) Net income — — — 274,140 — — 274,140 $ 274,140 Minimum pension liability, net of tax — — — — (12,914) — (12,914) (12,914)
Total comprehensive income — — — — — — — $ 261,226
Balance, December 31, 2002. 160,382,120 500,000 1,301,886 468,080 (12,914) (106,818) 2,150,234 Net income — — — 181,119 — — 181,119 181,119 Change in minimum pension liability, net of tax — — — — 11,644 — 11,644 11,644 Unrealized gain on available-for-sale securities, net of tax — — — — 1,403 — 1,403 1,403
Total comprehensive income — — — — — — — $ 194,166
Balance, December 31, 2003 160,382,120 $ 500,000 $ 1,301,886 $ 649,199 $ 133 $ ($106,818) $ 2,344,400
Net loss — — — (38,679) — — (38,679) (38,679) Change in minimum pension liability, net of tax — — — — (97) — (97) (97) Unrealized gain on available-for-sale securities, net of tax — — — — 197 — 197 197
Total comprehensive loss — — — — — — — $ (38,579)
Balance, December 31, 2004 160,382,120 $ 500,000 $ 1,301,886 $ 610,520 $ 233 $ ($106,818) $ 2,305,821
See accompanying notes to consolidated financial statements.
F-5 Table of Contents
I NTELSAT, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2002 2003 2004
(in thousands) Cash flows from operating activities: Net income (loss) $ 274,140 $ 181,119 $ (38,679) Loss from discontinued operations, net of minority interest — 2,120 43,929
Income from continuing operations 274,140 183,239 5,250 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 361,322 400,485 457,372 Impairment charge for IA-7 satellite — — 84,380 IS-10-01 contract termination costs 34,358 (3,000) — Provision for doubtful accounts 9,472 13,897 11,009 Foreign currency transaction loss 4,113 883 562 Deferred income taxes 4,257 18,041 15,105 Amortization of bond discount and issuance costs 658 1,372 5,328 Decrease in amount due to Teleglobe Inc. (6,080) (19,780) — Equity in losses of affiliate — 1,084 4,670 Net (gain) loss from curtailment of benefit plans — (2,315) 628 Changes in operating assets and liabilities, net of effects of acquisitions and investment in discontinued operations: Receivables (13,465) 54,842 16,877 Other assets (12,978) 1,226 5,329 Accounts payable and accrued liabilities (3,886) (25,726) (27,697) Deferred revenue 1,629 7,932 67,934 Accrued retirement benefits 4,445 (31,576) 7,110 Other long-term liabilities — 605 5,260
Net cash provided by operating activities 657,985 601,209 659,117
Cash flows from investing activities: Payments for satellites and other property and equipment (616,806) (202,781) (288,589) Payment for future satellite — — (50,000) Payment for rights to orbital location — — (32,000) Change in restricted cash — (700,000) 700,000 Investment in and advances to affiliate — (58,000) — Payment for insurance receivable — — (58,320) Proceeds from insurance receivable — — 141,000 Payments for asset acquisitions (61,416) — (1,057,574) Other — (5,744) (8,961)
Net cash used in investing activities (678,222) (966,525) (654,444)
Cash flows from financing activities: Repayments of long-term debt (200,000) — (600,000) Proceeds from bond issuance 595,788 1,097,758 — Proceeds from (repayments of) commercial paper borrowings, net (266,144) (43,978) — Proceeds from credit facility borrowings — — 200,000 Bond issuance costs (7,621) (23,308) (4,000) Payments to shareholders (5,170) — — Purchase of ordinary shares by subsidiary (65,000) — — Principal payments on deferred satellite performance incentives (15,271) (66,419) (5,107) Principal payments on capital lease obligations (5,078) (8,233) (6,722)
Net cash provided by (used in) financing activities 31,504 955,820 (415,829)
Effect of exchange rate changes on cash (4,500) (883) (562) Effect of discontinued operations on cash — (22,294) (23,755)
Net change in cash and cash equivalents 6,767 567,327 (435,473) Cash and cash equivalents, beginning of year 2,699 9,466 576,793
Cash and cash equivalents, end of year $ 9,466 $ 576,793 $ 141,320
Supplemental cash flow information: Interest paid, net of amount capitalized $ 40,560 $ 91,401 $ 146,750 Income taxes paid 25,902 8,931 5,601 Supplemental disclosure of non-cash investing and financing activities: Capitalization of deferred satellite performance incentives $ 57,019 $ 10,063 $ 10,072 Receivables recovered in purchase of ordinary shares by subsidiary 15,958 — — Obligation to Teleglobe Inc. arising in consideration of ordinary share purchase 25,860 — — Net liabilities assumed in investment in consolidated affiliate, net of cash — 1,373 — Minority interest in consolidated affiliate at the date of acquisition — 17,153 — Net asset reduction on termination of deferred satellite performance incentive liability — 36,455 — Receivables arising from termination of IS-10-01 satellite construction contract 47,828 — — Other asset arising from termination of IS-10-01 satellite construction contract 23,150 — — Minimum pension liability, net of tax 12,914 1,270 97 Assets acquired in acquisitions — 4,061 1,095,317 Liabilities assumed in acquisitions 51,541 4,870 95,106 Note payable arising from acquisition 20,000 — — Unrealized gain on available-for-sale securities, net of tax — 1,403 197
See accompanying notes to consolidated financial statements.
F-6 Table of Contents
I NTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 1 General
The International Telecommunications Satellite Organization “INTELSAT,” referred to as the IGO, was established on an interim basis in 1964. The IGO was formally established on February 12, 1973 in accordance with the provisions of an intergovernmental agreement, referred to as the INTELSAT Agreement, and an operating agreement, referred to as the Operating Agreement. The parties to the INTELSAT Agreement were the IGO’s 148 member countries and the parties to the Operating Agreement, referred to as the Signatories, were either the member countries or the telecommunications entities they designated to market and use the IGO’s communications system within their territories and to invest in the IGO. Certain Signatories authorized other entities within their countries, referred to as Investing Entities, to access the IGO’s space segment and to invest in the IGO as well. Signatories and Investing Entities, referred to collectively as the IGO’s shareholders, were also the IGO’s principal customers.
Substantially all of the IGO’s assets, liabilities, rights, obligations and operations were transferred to Intelsat, Ltd. and its wholly owned subsidiaries on July 18, 2001, in a transaction referred to as the privatization. The IGO’s shareholders received shares in Intelsat, a company organized under the laws of Bermuda, in proportion to their ownership in the IGO on the privatization date and became holders of 100% of the outstanding ordinary shares of Intelsat. Because of the continuity of ownership, Intelsat accounted for the privatization at historical cost. The accompanying financial statements include the accounts of Intelsat and its subsidiaries. References to Intelsat or to the Company refer to Intelsat, Ltd. and, unless the context requires otherwise, to its subsidiaries.
Through its global communications network of 27 satellites in orbit (which excludes the IS-804 satellite – see Note 9 for discussion), leased capacity on 2 additional satellites owned by other satellite operators in the Asia-Pacific region and ground facilities related to the operation and control of its satellites and the provision of teleport and related traffic management services, Intelsat provides satellite communications services worldwide. These satellite communications services include voice, data and video connectivity services.
As further discussed in Note 3, on January 28, 2005, Intelsat was acquired by Intelsat Holdings, Ltd., a Bermuda company formed by a consortium of four private equity investment groups (“Intelsat Holdings”).
Note 2 Summary of significant accounting policies
(a) Basis of presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and (2) the reported amounts of revenue and expenses during the reporting period. Examples include the allowance for doubtful accounts, the estimated useful lives of satellites and other property and equipment, and the fair value of Intelsat’s ordinary shares. Actual results could differ from results based on those estimates and assumptions. The financial statements for all periods presented have been restated to present the results of operations of Galaxy Holdings as discontinued operations (as discussed in Note 5 below).
(b) Principles of consolidation
The consolidated financial statements include the accounts of Intelsat its wholly owned subsidiaries and its affiliates in which the Company has an ownership stake greater than 50% and has the ability to exercise control over operating and financial policies, or which are variable interest entities in which Intelsat is the primary beneficiary. All significant intercompany account balances and transactions have been eliminated in consolidation.
F-7 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
(c) Revenue recognition
Revenue results primarily from satellite utilization charges and, to a lesser extent, from providing managed services to Intelsat’s customers. Managed services combine satellite capacity, teleport facilities, satellite communications hardware and fiber optic cable and other ground facilities to provide bundled, broadband and private network services to Intelsat’s customers. Revenue is recognized over the period during which services are provided as long as collection of the related receivable is reasonably assured. Amounts received from customers pursuant to satellite capacity prepayment options are recorded in the consolidated financial statements as deferred revenue. These deferred amounts are recognized as revenue on a straight-line basis over the respective agreement terms. The Company maintains an allowance for doubtful accounts for customers’ receivables where the collection of such receivables is uncertain.
(d) Cash and cash equivalents
Cash and cash equivalents include short-term, highly liquid investments with original maturities of 90 days or less. Cash equivalents consist of investments in treasury bills and time deposits with banks. Carrying amounts approximate market value.
(e) Investments
The Company accounts for its investments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. All investments have been classified as available-for-sale securities as of December 31, 2004 and are included in other assets in the accompanying consolidated balance sheets. Available-for-sale securities are stated at fair value, with the unrealized gains and losses reported as accumulated other comprehensive income (loss). Realized gains and losses and declines in fair value that are determined to be other than temporary on available-for-sale securities are included in other income, net. The cost of securities sold is based on the specific identification method. Interest and dividends on available-for-sale securities are included in interest expense, net and other income, net, respectively. As of each of December 31, 2003 and 2004, the cost basis of available-for-sale securities was $10,203. As of December 31, 2003 and 2004, the fair value of available-for-sale securities was $12,466 and $13,678, respectively.
(f) Satellites and other property and equipment
Satellites and other property and equipment are stated at cost and consist primarily of the costs of satellite construction and launch, including premiums for launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives expected to be payable to the satellite manufacturers, costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction.
Satellite construction and launch services are generally procured under long-term contracts that provide for payments by Intelsat over the contract periods. Satellite construction and launch services costs are capitalized to reflect progress toward completion. Capitalizing these costs typically coincides with contract milestone payment schedules. Insurance premiums related to satellite launches and subsequent in-orbit testing are capitalized and amortized over the lives of the related satellites. Insurance premiums associated with in-orbit operations are expensed as incurred. Performance incentives payable in future periods are dependent on the continued satisfactory performance of the satellites in service and are accounted for as described in Note 2(u).
F-8 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
(f) Satellites and other property and equipment (continued)
Satellites and other property and equipment are depreciated and amortized on a straight-line basis over the following estimated useful lives:
Years
Satellites and related costs 11-15 Ground segment equipment and software 10 Furniture, equipment, computer hardware and software 3-12 Buildings 40
The cost of retired satellites and related assets and the related accumulated depreciation and amortization are removed from the accounts as the satellites are decommissioned. During 2003, the Company decommissioned the last of the Intelsat V series satellites and removed from the accounts $558,495 of satellites and related assets and $558,495 of related accumulated depreciation.
The carrying value of a satellite lost as a result of a launch or in-orbit failure is charged to operations upon the occurrence of the loss. In the event of a partial failure, an impairment charge is recorded to operations upon the occurrence of the loss if the undiscounted future cash flows were less than the carrying value of the satellite. The impairment charge is measured as the excess of the carrying value of the satellite over its estimated fair value as determined by the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved. The charge to operations resulting from either a complete or a partial failure is reduced by insurance proceeds that were either due and payable to or received by Intelsat. Insurance proceeds received in excess of the carrying value of the satellite are recorded as a gain and no impairment loss would be recognized. In the event the insurance proceeds equal the carrying value of the satellite, neither a gain nor an impairment loss is recognized.
During 2004, the Company recorded an impairment charge of $84,380 relating to the anomaly experienced by the IA-7 satellite. The details of the anomaly are described in Note 9.
(g) Business combinations
The Company’s business combinations are accounted for in accordance with the provisions set forth in SFAS No. 141, Business Combinations, whereby the net tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their estimated fair market values at the acquisition date. The portion of the purchase price in excess of the estimated fair market value of the net tangible and separately identifiable intangible assets acquired represents goodwill. The allocation of the purchase price related to a business combination involves estimates and judgments made by management that may be adjusted during the allocation period, but in no case beyond one year from the date of the business combination.
(h) Goodwill and other intangible assets
Goodwill represents the excess of costs over the estimated fair value of net tangible and separately identifiable intangible assets of businesses acquired. Intelsat accounts for goodwill and other intangible assets in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill and other intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
F-9 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
(i) Impairment of long-lived and amortizable intangible assets
Intelsat accounts for long-lived and amortizable intangible assets in accordance with SFAS No. 144, which provides a single accounting model for long-lived assets to be held and used or to be disposed of by sale. SFAS No. 144 also changes the criteria for classifying an asset as held for sale, broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations.
In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.
Goodwill and other intangible assets not subject to amortization are tested annually for impairment in accordance with SFAS No. 142, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intelsat has determined that it has one reporting unit, the enterprise level, under the criteria set forth by SFAS No. 142. During the fourth quarter of 2004, the Company completed its annual required assessment and determined no impairment of goodwill existed.
(j) Shareholders’ equity
On June 4, 2002, Intelsat amended its bye-laws to decrease the number of authorized ordinary shares from 650,000,000 ordinary shares with a par value of $1.00 per share to 216,666,666 2/3 ordinary shares with a par value of $3.00 per share, and to decrease the number of authorized preference shares from 7,500,000 preference shares with a par value of $1.00 per share to 2,500,000 preference shares with a par value of $3.00 per share. Accordingly, all share and per share amounts in these notes and the accompanying consolidated financial statements have been retroactively adjusted to reflect the share consolidation.
Following the Acquisition Transactions (as defined below), the number of authorized ordinary shares was reduced to 12,000. All of the Company’s shares are owned by Intelsat Holdings.
(k) Income taxes
Intelsat accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.
F-10 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
(l) Fair value of financial instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires management to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial instruments. Financial instruments are generally defined by SFAS No. 107 as cash, evidence of ownership interest in equity, or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. Management believes that the carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values because of the short maturity of these financial instruments. The fair values of the Company’s debt instruments are determined based on quoted market prices, as shown in Note 14.
(m) Concentration of credit risk
Intelsat provides satellite services and extends credit to numerous customers in the telecommunications industry, which has experienced a downturn, including a significant number of bankruptcies. To the extent that the credit quality of Intelsat’s customers deteriorates, Intelsat may have exposure to credit losses. Management monitors its exposure to credit losses and maintains allowances for anticipated losses. Management believes it has adequate reserves to cover its exposure.
(n) Currency and exchange rates
Substantially all customer contracts, capital expenditure contracts and operating expense obligations are denominated in U.S. dollars. Consequently, Intelsat does not believe that it is exposed to material currency exchange risk. However, contracts with Intelsat’s customers in Brazil are denominated in Brazilian reais. Transactions in other currencies are converted into U.S. dollars using rates in effect on the dates of the transactions.
(o) Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, established standards for the reporting and displaying of comprehensive income and its components. Total comprehensive income for the years ended December 31, 2002, 2003 and 2004 included the Company’s net income (loss), the change in the market value of available-for-sale securities, and changes in the minimum pension liability.
(p) Stock-based compensation
The Company has two stock-based employee compensation plans, the 2001 Share Option Plan and the 2004 Share Incentive Plan, which are described more fully in Note 16. As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company uses the intrinsic method of measuring and recognizing employee stock- based transactions under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. Consequently, as all options granted under the 2001 Share Option Plan had an exercise price equal to the estimated fair value of the underlying ordinary shares on the date of grant, no stock-based employee compensation cost is reflected in net income for the 2001 Share Option Plan. However, stock-based employee compensation cost is reflected in net income for the 2004 Share Incentive Plan as it contained a liquidity mechanism which resulted in variable accounting and the requirement for recognition of compensation expense. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock-based compensation.
F-11 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
Years Ended December 31,
2002 2003 2004
Net income (loss), as reported $274,140 $ 181,119 ($38,679) Add: compensation expense recognized in net income (loss), as reported — — 8,330
Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (2,567) (2,709) (5,402)
Pro forma net income (loss) $271,573 $178,410 ($35,751)
Earnings (loss) per share: Basic and diluted-as reported $ 1.66 $ 1.13 $ (0.24)
Basic and diluted-pro-forma $ 1.65 $ 1.11 $ (0.22)
Upon closing of the Acquisition Transactions, all share options, restricted shares and restricted share units were cancelled. In consideration for such cancellation, our employees were paid $15,232 in cash in the aggregate at the closing and up to a maximum of $19,531 will be accrued as deferred compensation and will generally be payable in cash to the employees in accordance with the vesting schedules of the original awards with respect to which the payments will be made. Of this maximum amount, $6,579 was accrued as of the closing date.
(q) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
(r) Income per ordinary share
Basic net income per ordinary share includes no dilution and is computed by dividing net income by the weighted average number of ordinary shares outstanding for the period. Diluted net income per ordinary share includes potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares. Basic and diluted net income per ordinary share are identical for all periods presented as the dilutive effect of share options outstanding during the respective periods had no effect on earnings per share.
(s) Research and development
Research and development costs are expensed as incurred. These costs were insignificant in 2002, 2003 and 2004.
(t) Advertising costs
Advertising costs are expensed as incurred. These costs were insignificant in 2002, 2003 and 2004.
(u) Deferred satellite performance incentives
The cost of satellite construction includes an element of deferred consideration to satellite manufacturers referred to as satellite performance incentives. Intelsat is contractually obligated to make these payments over the lives of the satellites, provided the satellites continue to operate in accordance with contractual specifications. Historically, the satellite manufacturers have earned substantially all of these payments. Therefore, the Company accounts for these payments as deferred financing. The Company capitalizes the present value of these payments as part of the cost of the satellites and records a corresponding liability to the satellite manufacturers. These costs are amortized over the useful lives of the satellites and the liability is reduced as the payments are made.
F-12 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 2 Summary of significant accounting policies (continued)
(v) New accounting pronouncements
In December 2004, the Financial Accounting Standards Board, referred to as FASB, issued FASB Statement No. 123R (revised 2004), Share-Based Payment (SFAS 123R), which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share- based payment transactions with employees except for equity instruments held by employee share ownership plans. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 for public entities that do not file as a small business; and for nonpublic entities as of the beginning of the first annual reporting period that begins after December 15, 2005. The impact of this statement to Intelsat’s financial condition or results of operations have not yet been determined.
(v) New accounting pronouncements (continued)
In December 2004, the FASB issued Statement No. 153 (FAS 153), Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB 29). FAS 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at fair value of the assets exchanged, with certain exceptions. This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance (as defined). This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Intelsat does not expect this statement to have a material impact on its financial condition or results of operations.
Note 3 Acquisition of Intelsat by Intelsat Holdings
On January 28, 2005, Intelsat was acquired by Intelsat Holdings, a Bermuda company, for total cash consideration of approximately $3 billion, with pre-acquisition debt of approximately $1.9 billion remaining outstanding. Intelsat Holdings was formed at the direction of funds advised by or associated with Apax Partners Worldwide LLP and Apax Partners, Inc., referred to jointly as Apax Partners, Apollo Management V, L.P., referred to as Apollo, MDP Global Investors Limited, referred to as Madison Dearborn Partners, and Permira Advisers LLC, referred to as Permira. Each of Apax Partners, Apollo, Madison Dearborn Partners and Permira is referred to as a Sponsor and the funds advised by or associated with each Sponsor are referred to as an Investor Group. The Investor Groups collectively are referred to as the Investors and the transactions pursuant to which we were acquired by Intelsat Holdings, including the related financing transactions, are referred to as the Acquisition Transactions. Prior to the Acquisition Transactions, funds advised by or associated with Madison Dearborn Partners transferred less than 0.1% of their interest in Intelsat Holdings to an unaffiliated investment partnership. References to the Investors include this partnership.
As part of the acquisition transaction, the Investors contributed preferred and common equity to Intelsat Holdings. In addition, in connection with the acquisition transaction, Intelsat (Bermuda), Ltd. (“Intelsat Bermuda”) established a new $300,000 revolving credit facility, borrowed approximately $150,000 under a new $350,000 Term Loan B facility, referred to together as the Senior Secured Credit Facilities, and issued $1,000,000 of floating rate senior notes due 2012, $875,000 of 8 1/4% senior notes due 2013 and $675,000 of 8 5/8% senior notes due 2015, referred to collectively as the acquisition finance notes. Intelsat and certain subsidiaries of Intelsat Bermuda guaranteed the acquisition finance notes and the Senior Secured Credit Facilities. The proceeds from this equity contribution and the net proceeds from the borrowing under the Senior Secured Credit Facilities and the acquisition finance notes, together with cash on hand, were used to consummate the transactions described above and to pay related fees and expenses.
F-13 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 3 Acquisition of Intelsat by Intelsat Holdings (continued)
On February 11, 2005, Intelsat and one of its subsidiaries, Zeus Special Subsidiary Limited, referred to as Finance Co., issued $478,700 in aggregate principal amount at maturity of 9 ¼% senior discount notes due 2015 yielding approximately $300 million net proceeds at issuance, referred to as the senior discount notes. On March 3, 2005, Intelsat Bermuda transferred substantially all of its assets to Intelsat Subsidiary Holding Company, Ltd. (“Intelsat Subsidiary Holdings”). Intelsat Subsidiary Holding assumed substantially all of the then-existing liabilities of Intelsat Bermuda and Intelsat Bermuda became a guarantor of the obligations under the acquisition finance notes described above and the Senior Secured Credit Facilities. Following these transactions, Finance Co. was amalgamated with Intelsat Bermuda, and Intelsat Bermuda became an obligor on the senior discount notes. The proceeds of the offering of the senior discount notes, net of certain fees and expenses, were distributed by Intelsat Bermuda to its parent, Intelsat and by Intelsat to Intelsat Holdings. Intelsat Holdings used those funds to repurchase a portion of the outstanding preferred shares of Intelsat Holdings.
Note 4 Acquisitions
(a) COMSAT General Corporation transaction
On October 29, 2004, Intelsat acquired from COMSAT General Corporation, Lockheed Martin Global Telecommunications, LLC and COMSAT New Services, Inc. (collectively, the “COMSAT Sellers”) the COMSAT Sellers’ business of providing satellite-based communications services to the U.S. government and other customers in order to strengthen our position in providing services for government and other military service applications. Intelsat acquired this business for a purchase price of $90,330, net of assumed liabilities of $30,337 and estimated transaction costs of $1,500. The $30,337 in assumed liabilities includes a $10,000 accommodation fee to be paid in connection with Intelsat’s purchase of a launch vehicle from an affiliate of the COMSAT Sellers. Intelsat funded the acquisition by using cash on hand. The assets Intelsat acquired include certain customer and vendor contracts and accounts receivable, as well as rights to Federal Communications Commission, referred to as the FCC, and other governmental licenses, leased business premises and other related assets, including an ownership interest in a partnership that owns the Marisat-F2 satellite, which operates at 33.9º West with an orbital inclination in excess of 13 degrees. In addition, Intelsat assumed certain contractual commitments related to the business. We believe that this transaction was completed on arm’s-length terms. The financial results associated with the assets acquired in connection with the COMSAT General transaction are included in the Company’s consolidated financial statements beginning on October 29, 2004. In connection with the COMSAT General Transaction, Intelsat LLC entered into an agreement with Lockheed Martin Commercial Launch Services for the launch of an unspecified future satellite. This agreement provides that Intelsat LLC may terminate the agreement at its option, subject to the payment of a termination fee that is the greater of: (a) 50% of the launch service price and accommodation fee paid or due as of the effective date of the termination; or (b) $30,000.
The COMSAT General transaction was accounted for under the purchase method of accounting, whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair market values at the date of acquisition. Independent third-party appraisers were engaged to perform valuations of certain of the tangible and intangible assets acquired. Based upon the appraisals received and management’s estimates, the purchase price was preliminarily allocated to the assets and liabilities acquired as follows:
Accounts receivable, net of allowance $ 29,336 Customer relationships 19,400 Property and equipment 210 Goodwill 73,221 Accounts payable and accrued liabilities (30,337) Transaction costs (1,500)
Total cash consideration, net of assumed liabilities and transaction costs $ 90,330
The customer relationships above are estimated to have useful lives of four years. The goodwill resulting from this transaction is attributed to the value of an established business that provides services to the U.S. government and military.
F-14 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 4 Acquisitions (continued)
Pursuant to the transaction agreement, the parties entered into a number of agreements, including the launch services agreement with an affiliate noted above and agreements relating to the provision of transition services by the COMSAT Sellers for a specified period of time after the closing of the transaction.
(b) Agreement to purchase the North American satellite assets of Loral Space & Communications Corporation
On March 17, 2004, Intelsat completed its purchase of certain of the satellites and related assets of Loral Space & Communications Corporation and certain of its affiliates (collectively, “Loral” or the “Sellers”) in order to enhance our global market position by adding full coverage of North America to the Intelsat satellite fleet and expanding our customer base in the broadcasting, cable television, corporate networking and government/military areas. Intelsat acquired these satellites and related assets for a purchase price of $967,063, net of assumed liabilities of $64,769 and transaction costs estimated at $14,538 in connection with the transaction, pursuant to an asset purchase agreement with the Sellers dated as of July 15, 2003. The assets that Intelsat acquired included four in-orbit satellites, one satellite under construction, the rights to six orbital locations and various assets relating to the satellites and the business that the Sellers conducted on the satellites, including customer contracts. In addition, Intelsat assumed certain specified contractual commitments of the Sellers relating to the acquired assets. Intelsat financed the Loral transaction with the proceeds from its issuance in November 2003 of its 5.25% senior notes due 2008 and its 6.50% senior notes due 2013. The financial results associated with the assets acquired in connection with the Loral transaction are included in the Company’s condensed consolidated financial statements beginning on March 17, 2004.
Under the original terms of the asset purchase agreement, Intelsat had also agreed to acquire the Telstar 4 satellite, which was declared a total loss in September 2003 due to a significant anomaly. In October 2003, the asset purchase agreement was amended to provide that Intelsat would not acquire ownership of Telstar 4. The Telstar 4 satellite was insured for $141,000, and in 2003 the Sellers filed an insurance claim for that amount. Under the asset purchase agreement, Intelsat was entitled to any insurance proceeds paid in respect of the Telstar 4 failure, net of warranty payments to customers, and was required to reimburse the Sellers for payments made in respect of warranty claims made after Intelsat’s receipt of these insurance proceeds. Intelsat currently expects the warranty payments owed to customers to be approximately $1,157. At the date of acquisition, Intelsat recorded the $141,000 of expected insurance proceeds as an insurance receivable, and the $1,157 of expected warranty claims were included in accounts payable and accrued liabilities. Intelsat received all $141,000 of the insurance receivable during the second quarter of 2004.
The Loral transaction was accounted for under the purchase method of accounting, whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair market values at the date of acquisition. Independent third-party appraisers were engaged to perform valuations of certain of the tangible and intangible assets acquired. The purchase price allocation was finalized during the fourth quarter of 2004. Based upon the appraisals received and management’s estimates, the purchase price was allocated to the assets and liabilities acquired as follows:
Insurance receivable $141,000 Satellites 597,403 Other assets 18,019 Customer relationships 66,946 Orbital locations 223,002 Deferred revenue (61,388) Accounts payable and accrued liabilities (3,381) Transaction costs (14,538)
Total cash consideration, net of assumed liabilities and transaction costs $967,063
The appraised fair value of the assets acquired exceeded the purchase price plus liabilities assumed resulting in negative goodwill, which was allocated proportionately among the acquired long-lived assets.
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INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 4 Acquisitions (continued)
The customer relationships above are estimated to have useful lives of 14 years.
Pursuant to the asset purchase agreement, in March 2004 Intelsat entered into a procurement agreement with Space Systems/Loral, Inc. (“SS/L”) for a new satellite. At the time of the closing of the Loral transaction, Intelsat paid to SS/L a deposit of $50,000, which is recorded in other assets, as prepayment for a portion of the purchase price of the new satellite. SS/L’s obligations under the procurement agreement have been secured by SS/L and its affiliates’ interests in an in-orbit satellite, insurance proceeds relating to the satellite and other collateral.
The unaudited pro forma results of operations provided below for the years ended December 31, 2003 and 2004 are presented as though the Loral and COMSAT General transactions had occurred at the beginning of the periods presented, after giving effect to purchase accounting adjustments relating to depreciation and amortization of the Loral acquired assets, elimination of intercompany revenue and cost of sales for the COMSAT General business and other acquisition-related adjustments in connection with the Loral and COMSAT General transactions. The pro forma results of operations are not necessarily indicative of the combined results that would have occurred had the acquisition been consummated at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
Year ended Year Ended December 31, 2003 December 31, 2004
(unaudited) Revenue $ 1,204,217 $ 1,177,435 Income from continuing operations $ 198,411 $ 35,869 Basic and diluted income from continuing operations per ordinary share $ 1.24 $ 0.22
(c) COMSAT World Systems acquisition
On November 25, 2002, Intelsat acquired most of the assets and certain liabilities of COMSAT World Systems, a business unit of COMSAT Corporation (“COMSAT”), and of COMSAT Digital Teleport, Inc., a subsidiary of COMSAT. COMSAT is a wholly owned subsidiary of Lockheed Martin Corporation, which, prior to the consummation of the Acquisition Transactions, was Intelsat’s largest shareholder. COMSAT World Systems was a reseller of Intelsat capacity to customers located in the United States. The assets acquired included substantially all of COMSAT World Systems’ customer contracts for the sale of Intelsat’s capacity; two tracking, telemetry, command and monitoring (TTC&M) stations located in Clarksburg, Maryland and Paumalu, Hawaii; and a digital teleport facility in Clarksburg, Maryland. The purchase price for this transaction consisted of $56,033 in cash, the assumption of $57,687 in liabilities and a $20,000 7% note payable due in four installments of $5,000 each on January 1, 2007, 2008, 2009, and 2010. However, if as of the second, third or fourth of such installment payment dates, we are not operating TTC&M facilities at the Clarksburg, Maryland location and certain triggering events described in the note have occurred, we will not be obligated to pay the $5,000 installment due on such payment date or any other installment payments that would otherwise become due on subsequent payment dates. Additionally, Intelsat incurred $1,047 in transaction costs in connection with this acquisition.
The acquisition was accounted for under the purchase method of accounting, whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair market values at the date of acquisition. Independent third-party appraisers were engaged to perform valuations of certain of the tangible and intangible assets acquired. The purchase price allocation was finalized during the fourth quarter of 2003.
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INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 4 Acquisitions (continued)
Based upon the appraisals received and management’s estimates, the purchase price was allocated to the assets and liabilities acquired as follows:
Receivables, net of allowance of $13,734 $ 13,069 Property and equipment 26,812 Deferred tax asset 8,236 Other assets 1,580 Goodwill 57,608 Intangible assets 27,462 Accounts payable and accrued expenses (57,687)
Total consideration, net of assumed liabilities $ 77,080
(d) Other acquisitions
During 2002, the Company acquired teleport operations in Riverside, California and Fuchsstadt, Germany, in two separate transactions for a total purchase price of $6,416. In each of these transactions, substantially all of the purchase price was allocated to property and equipment acquired.
Note 5 Disposal of investment in consolidated affiliate
In February 2003, Intelsat Hong Kong LLC (“Intelsat Hong Kong”) entered into a subscription and shareholders agreement with TVB Satellite TV Holdings Limited (“TVB Holdings”) and Galaxy Satellite TV Holdings Limited, referred to as Galaxy Holdings, pursuant to which Intelsat Hong Kong agreed to acquire a 51% stake in Galaxy Holdings. In connection with the agreement, Galaxy Holdings acquired the outstanding shares of Galaxy Satellite Broadcasting Limited, referred to as Galaxy Satellite, which holds licenses to provide pay television and teleport services in Hong Kong and launched a pay television service in February 2004. TVB Holdings held the remaining 49% stake in Galaxy Holdings. Under the agreement, Intelsat Hong Kong’s total contribution was approximately $69,500, comprised of approximately $53,000 in cash payable in installments in 2003, 2004 and 2005 and approximately $16,500 in kind in the form of satellite capacity to be provided to Galaxy Satellite.
On September 16, 2004, Intelsat entered into an agreement to dispose of its investment in Galaxy Holdings in order to focus on its core business of providing satellite capacity and related communications services. Under the agreement, Intelsat transferred to TVB Holdings all of Intelsat’s right, title and interest in its shares in Galaxy Holdings on December 28, 2004. In addition, Intelsat is no longer required to make a cash contribution of approximately $10,300 that would have been due in February 2005. An agreement relating to Intelsat’s in-kind contribution of satellite capacity on the IS-709 satellite will terminate on March 31, 2005.
During September 2004, Intelsat reviewed its investment in Galaxy Holdings for impairment given its plan to dispose of the investment. As a result of this review, Intelsat recorded a non-cash impairment charge of $21,501 to write down the long-lived asset group of the discontinued operations to its estimated fair value. Given Intelsat’s transfer of its right, title and interest in its shares in Galaxy Holdings on December 28, 2004, Intelsat removed all assets and liabilities of Galaxy Holdings from its books as of December 31, 2004.
As a result of the disposition agreement, Intelsat’s condensed consolidated financial statements reflect the investment in Galaxy Holdings as a discontinued operation. TVB Holdings’ interest in the net assets of Galaxy Holdings and Galaxy Satellite is reflected in the consolidated financial statements as a minority interest in discontinued operations. Intelsat has restated its financial statements for all prior periods contained in this annual report to reflect Galaxy Holdings as a discontinued operation.
F-17 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 5 Disposal of investment in consolidated affiliate (continued)
The summary of operating results from discontinued operations is as follows:
Year ended Year ended December 31, December 31, 2003 2004
Revenue $ 6,770 $ 9,593 Operating expenses (7,452) (46,140) Depreciation and amortization (2,749) (6,477) Interest and other expense, net (726) (1,160)
Net loss (4,157) (44,184) Minority interest 2,037 21,756 Impairment of long-lived assets — (21,501)
Net loss from discontinued operations, net of tax and minority interest $ (2,120) $ (43,929)
Assets and liabilities of discontinued operations consisted of the following:
December 31, 2003
Cash and cash equivalents $ 24,502 Property, plant and equipment 30,732 Other assets 2,446
Assets of discontinued operations $ 57,680
Accounts payable and accrued expenses $ 5,280 Deferred revenue 1,201 Loans payable 15,910
Liabilities of discontinued operations $ 22,391
Minority interest of discontinued operations $ 15,115
Intelsat does not allocate interest to discontinued operations.
Note 6 Restricted cash
Restricted cash as of December 31, 2003 related to $700,000 of the $1,100,000 in aggregate principal amount of Intelsat’s senior notes issued in November 2003 that mature in 2008 and 2013. An aggregate of $700,000 in principal amount of the 2008 notes and 2013 notes was subject to mandatory redemption as at December 31, 2003 upon the occurrence of specified mandatory redemption events. The remaining $400,000 in aggregate principal amount of the 2008 notes and 2013 notes was not subject to mandatory redemption.
As of December 31, 2004, the $700,000 in restricted cash was no longer subject to mandatory redemption, as none of the mandatory redemption events had occurred by the date specified for their occurrence. Substantially all of the proceeds from the Company’s issuance in November 2003 of the 5.25% senior notes due 2008 and the 6.50% senior notes due 2013, including the $700,000 in restricted cash, were used to pay the $967,063 cash purchase price for the Loral transaction and the $50,000 deposit for the new satellite procured from SS/L.
F-18 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 7 Receivables
Receivables were comprised of the following:
As of December 31,
2003 2004
Service charges: Unbilled $ 87,381 $ 75,212 Billed 134,234 151,440 Other 11,697 11,343 Allowance for doubtful accounts (32,110) (35,343)
Total $201,202 $202,652
Unbilled satellite utilization charges represent amounts earned and accrued as receivable from customers for their usage of the Intelsat satellite system in the fourth quarter of the year. These amounts were billed in January of the following year.
The insurance receivable of $58,320 represents a refund from insurers in connection with the IA-8 satellite launch insurance. We have in place insurance to cover the launch and 180 days of in-orbit operations of the IA-8 satellite in an amount approximating the net book value of the satellite. This insurance will expire if the satellite is not launched before December 31, 2005. Due to the delay in launching the IA-8 satellite (see Note 9 for further discussion), the insurers agreed to refund 90% of the premiums previously paid. Intelsat received the $58,320 refund during the first quarter of 2005.
Note 8 Satellites and other property and equipment
Satellites and other property and equipment were comprised of the following:
As of December 31,
2003 2004
Satellites, launch vehicles and services $ 6,329,749 $ 7,055,520 Information systems and ground segment 681,797 681,252 Washington, D.C. building and other 224,856 235,490
Total cost 7,236,402 7,972,262 Less: accumulated depreciation (3,973,532) (4,334,905)
Total $ 3,262,870 $ 3,637,357
Satellites and other property and equipment as of December 31, 2003 and 2004 included construction-in-progress of $197,228 and $227,403, respectively. These amounts relate primarily to satellites under construction and related launch services. Interest costs of $52,406, $17,912 and $21,452 were capitalized in 2002, 2003 and 2004, respectively.
Note 9 Satellite developments
On November 28, 2004, the Company’s IA-7 satellite experienced a sudden anomaly in its north electrical distribution system that resulted in the loss of control of the satellite and the interruption of customer services on the satellite. In accordance with its existing satellite anomaly contingency plan, the Company made alternative capacity available to all of its IA-7 satellite customers, and most of these customers accepted that capacity. The Company provided alternative capacity primarily on other satellites in the Intelsat Americas fleet and on the IS-707 satellite, and in some cases using capacity that it purchased from other satellite operators. On November 30, 2004, following an intensive recovery effort, the Company was able to regain command and control of the IA-7 satellite, and it was placed back in service following extensive testing. The Company has determined that the north electrical distribution system on
F-19 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 9 Satellite developments (continued) the IA-7 satellite and the communications capacity associated with it are not operational, but the south electrical distribution system and associated communications capacity are operating normally. In addition, the IA-7 satellite has lost redundancy in nearly all of its components. As a result, the IA-7 satellite faces an increased risk of loss in the future. Currently, 22 of the IA-7 satellite’s 48 C-band and Ku-band transponders, which are all powered by the south electrical distribution system, have been tested, are performing normally and are available for service to Intelsat’s customers. In addition, some of these transponders are currently being used by Intelsat’s customers. The Company recorded an $84,380 non-cash impairment charge during the fourth quarter of 2004 to write down the IA-7 satellite, which was not insured, to its estimated fair value following the anomaly. The estimated fair value of the IA-7 satellite was determined based on a cost method with the assistance of an independent third-party appraiser.
The Company temporarily delayed the launch of the IA-8 satellite (acquired in connection with the Loral transaction described in Note 4 above), previously scheduled for December 2004, pending the outcome of a failure review board investigation of the IA-7 anomaly. The failure review board has determined that the IA-8 satellite does not include the same design flaw that it identified as the likely root cause of the IA-7 anomaly. The Company currently expects the launch of the IA-8 satellite to occur during the second or third quarter of 2005, although the exact launch date has not yet been determined.
On January 14, 2005, the Company’s IS-804 satellite experienced a sudden and unexpected electrical power system anomaly that resulted in the total loss of the satellite. In accordance with its existing satellite anomaly contingency plans, the Company has made alternative capacity available to its IS-804 satellite customers both on other Intelsat satellites and on other operators’ satellites. As a result, the Company has leased capacity from New Skies Satellites N.V. (“New Skies”). The Company expects to record a non-cash impairment charge of approximately $73,000 during the first quarter of 2005 to write off the value of the IS-804 satellite, which was not insured.
Note 10 Termination of Intelsat’s order for the IS-10-01 satellite
In November 2002, Intelsat terminated its order for the IS-10-01 satellite, due to the manufacturer’s significant postponement in the delivery date of the satellite. As a result of this termination, Intelsat recorded a charge to its consolidated statement of operations of $34,358, representing the write-off of capitalized satellite program costs, including satellite construction costs, launch vehicle costs, program office costs, capitalized interest and ground network costs, net of the refund due from the manufacturer of the satellite and the launch vehicle deposit described below. In connection with its decision to terminate its order for the IS-10-01 satellite, Intelsat agreed with one of its launch vehicle providers, Sea Launch Limited Partnership (“Sea Launch”), to treat most of the payments made for the launch vehicle that could have been used for the launch of the IS-10-01 satellite as a credit for a future launch. Intelsat recorded a deposit of the minimum possible credit under its agreement with Sea Launch, net of certain expenses, of $23,150. During 2003, Intelsat was notified by Sea Launch that under the terms of the agreement the credit to which Intelsat is entitled would not be subject to further reduction. Because Intelsat’s credit with Sea Launch was fixed at an amount greater than the expected credit based on which Intelsat recorded the $23,150 deposit, during the year ended December 31, 2003, Intelsat reversed $3,000 of the $34,358 charge recorded for the year ended December 31, 2002, resulting in a deposit of $26,150 as of December 31, 2003. In addition, Intelsat made guarantee payments through December 31, 2004, which are reflected as increases to the deposit, of $1,400 and there was an adjustment made of $100, together resulting in a deposit of $27,650 as of December 31, 2004. However, if Intelsat does not place an order for a future launch by July 31, 2005, Sea Launch has the right to terminate the agreement, in which case Intelsat will incur a termination liability of up to $16,475, in addition to forfeiture of the $27,650 deposit, for a total obligation of not greater than $44,125. We are presently in discussions with Sea Launch regarding an extension of the July 31, 2005 expiration date.
F-20 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 11 Investment in affiliate
In December 2002, Intelsat entered into an agreement with WildBlue Communications, Inc. (“WildBlue”) to acquire a minority stake in WildBlue for a purchase price of $58,000. WildBlue is a company that plans to offer broadband Internet access services in the continental United States via Ka-band satellite capacity. The transaction closed on April 21, 2003, at which time the Company contributed $56,513 in cash to WildBlue. This amount represented the $58,000 total purchase price for the Company’s investment in WildBlue net of a loan receivable for interim funding to WildBlue, plus accrued interest, and net of certain expenses incurred by Intelsat that were reimbursable by WildBlue. Intelsat applies the equity method to account for its investment in WildBlue. Therefore, Intelsat’s share in the losses of WildBlue, which were not significant to the Company’s consolidated results of operations for the years ended December 31, 2003 and 2004, are included in other income, net in Intelsat’s consolidated statements of operations. Intelsat’s consolidated balance sheets at December 31, 2003 and 2004 reflect the investment in WildBlue and the Company’s share of the results of operations of WildBlue from the date of Intelsat’s initial investment through December 31, 2004 as an investment in affiliate.
Note 12 Goodwill and other intangible assets
The carrying amount and accumulated amortization of acquired intangible assets subject to amortization consisted of the following:
As of December 31,
2003 2004
Customer relationships $26,824 $ 113,170 Business application software 638 638
Subtotal 27,462 113,808 Less: accumulated amortization (2,257) (9,196)
Total $25,205 $104,612
During the year ended December 31, 2004, the Company acquired customer relationships in connection with the closing of the Company’s purchase of certain satellites and related assets from Loral (as described in Note 4). These customer relationships were valued at $66,946 as part of the purchase price allocation.
During the year ended December 31, 2004, the Company acquired customer relationships in connection with the closing of the Company’s purchase of COMSAT General (as described in Note 4). These customer relationships were valued at $19,400 as part of the purchase price allocation.
Customer relationships have average lives ranging from four to fourteen years. Business application software has an average life of two years and was fully amortized at December 31, 2004. The Company recorded no amortization expense for the year ended December 31, 2002. The Company recorded amortization expense of $2,257 and $6,939 for the years ended December 31, 2003 and 2004, respectively.
F-21 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 12 Goodwill and other intangible assets (continued)
Scheduled amortization charges for the intangible assets as of December 31, 2004 are as follows:
Customer Relationships
2005 $ 11,521 2006 11,548 2007 11,548 2008 10,739 2009 6,698 2010 and thereafter 52,558
Total $ 104,612
The carrying amount of acquired intangible assets not subject to amortization consisted of the following:
As of December 31,
2003 2004
Goodwill $57,608 $130,829
Orbital locations $ — $255,002
On January 1, 2002, the Company adopted SFAS No. 142, which provides that intangible assets with finite useful lives be amortized and that goodwill and other intangible assets with indefinite lives not be amortized but rather be tested for impairment annually or when a change in circumstances occurs. Intelsat has determined under the criteria set forth by SFAS No. 142 that, for such impairment testing, the Company has only one reporting unit, which is at the enterprise level.
During the year ended December 31, 2004, the Company acquired rights to six orbital locations in connection with the closing of the Loral transaction, as described in Note 4 above. The rights to these orbital locations were valued at $223,002 at the date of acquisition. In addition, as described in Note 24 below, Intelsat paid $32,000 to New Skies to resolve a priority issue relating to rights to one of these orbital locations. Because the rights to these six orbital locations have been deemed to have indefinite useful lives, they will not be subject to amortization expense. However, they will be tested for impairment annually or when a change in circumstances occurs.
During the fourth quarters of 2003 and 2004, the Company completed its required annual assessment of any potential impairment of goodwill and determined that there were no impairments.
Note 13 Termination of portion of deferred satellite performance incentive liability
In June 2003, Intelsat LLC entered into amendments to its satellite construction agreements with SS/L, pursuant to which Intelsat terminated a portion of its liability to SS/L to make satellite performance incentive payments for the Intelsat VII/VIIA and IX series satellites manufactured by SS/L in exchange for a total cash payment of $60,000. Intelsat’s obligation to pay the portions of these incentive payments that are payable by SS/L to its subcontractors has not been terminated, and Intelsat will continue to be required to make payments as due with respect to these portions.
F-22 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 13 Termination of portion of deferred satellite performance incentive liability (continued)
The amendments provide for SS/L to remain liable under its satellite construction agreements with Intelsat LLC for amounts that may become due in connection with SS/L’s failure to provide satellite anomaly support as requested by Intelsat or in connection with other specified matters. As security for SS/L’s obligation to pay any such amounts that become due, $5,000 of the $60,000 cash payment is being held in escrow, and SS/L is obligated to maintain a minimum balance of $5,000 in the escrow account until the orbital design lives of all of the Intelsat VII/VIIA and IX series satellites have ended. Other than with respect to the specified situations in which SS/L remains liable, Intelsat has no further financial recourse to SS/L under the terms of the amended satellite construction agreements. On June 30, 2003, Intelsat paid $53,351 of the $60,000 cash payment due in connection with the amendments to the satellite construction agreements. At the time that this payment was made, Intelsat recorded a $95,051 reduction in its total satellite performance incentive payment liability, a $36,455 net reduction in the cost of its satellites and other property and equipment and a $1,404 reduction in accrued interest. In July 2003, Intelsat paid the $6,649 remaining to be paid of the $60,000 total cash payment.
This accounting treatment reflects the renegotiation of a contract pursuant to which a portion of Intelsat’s existing satellite performance incentive liability was terminated, the portion of the Company’s satellite costs that was attributable to these performance incentives was written off and the amount of the Company’s payment was treated as the renegotiated value of these performance incentives and capitalized as part of the cost of the satellites.
F-23 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 14 Notes payable, long-term debt and other financing arrangements
The carrying amounts and estimated fair values of notes payable and long-term debt were as follows:
As of December 31,
2003 2004
Amount Fair Value Amount Fair Value
Commercial paper $ — $ — $ — $ — Eurobond 8.125% Notes due February 28, 2005 200,000 211,832 200,000 201,100 5.25% Senior Notes due November 1, 2008 400,000 409,968 400,000 385,000 Discount, net of amortization, on the 5.25% Senior Notes due November 1, 2008 (98) — (79) — 7.625% Senior Notes due April 15, 2012 600,000 678,660 600,000 577,500 Discount, net of amortization, on the 7.625% Senior Notes due April 15, 2012 (3,700) — (3,368) — 6.50% Senior Notes due November 1, 2013 700,000 734,020 700,000 626,500 Discount, net of amortization, on the 6.50% Senior Notes due November 1, 2013 (2,117) — (1,958) — Note payable to Lockheed Martin Corporation, 7%, payable in annual installments of $5,000, beginning January 1, 2007 20,000 20,000 20,000 20,000 Capital lease obligations 40,263 40,263 33,540 33,540
Total long-term debt $ 2,354,348 $ 2,505,615 $ 1,948,135 $ 1,843,640
Less: Commercial paper — — — — Current portion of capital lease obligations 5,290 5,290 5,569 5,569 Notes payable 1,098,591 1,140,156 200,000 201,100
Total current portion $ 1,103,881 $ 1,145,446 $ 205,569 $ 206,669
Total long-term debt, excluding current portion $ 1,250,467 $ 1,360,169 $ 1,742,566 $ 1,636,971
Note 14 Notes payable, long-term debt and other financing arrangements (continued)
The fair values of the $400,000 in aggregate principal amount of 5.25% senior notes due 2008, the $600,000 in aggregate principal amount of 7.625% senior notes due 2012 and the $700,000 in aggregate principal amount of 6.50% senior notes due 2013 were based on publicly quoted prices. The fair value of the note payable to Lockheed Martin Corporation is assumed to be equal to the book value of such note. The payment of up to $15,000 of the $20,000 note payable to Lockheed Martin Corporation is contingent upon the non-occurrence of certain events that are outside the control of the Company, such as certain governmental actions relating to use of the Clarksburg, Maryland facility that the Company acquired in connection with the COMSAT World Systems transaction (see Note 4(c)). Because of the contingency associated with the note payable to Lockheed Martin Corporation, the Company does not believe that it is practicable to determine the fair value of this note. The Company believes the carrying values of the capital leases approximate their fair value.
During 2003, the average daily balance of commercial paper borrowings outstanding was approximately $17,884, at an average effective borrowing rate of 1.4% per annum. During 2004 there were no commercial paper borrowings outstanding. In December 2004, Intelsat canceled its commercial paper program.
F-24 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
In November 2003, Intelsat issued $400,000 in aggregate principal amount of 5.25% senior notes due 2008 and $700,000 in aggregate principal amount of 6.50% senior notes due 2013. Intelsat used the net proceeds from the sale of such notes to finance the Loral transaction and for general corporate purposes. The discount on the senior notes represents the difference between the issue price and the face value of the notes. Additionally, the Company incurred debt issuance costs of approximately $23,600. Both the discount and the debt issuance costs are amortized as interest expense over the life of the senior notes utilizing the effective interest method. An aggregate of $700,000 in principal amount of the senior notes was subject to mandatory redemption at December 31, 2003 upon the occurrence of specified mandatory redemption events. The remaining $400,000 in aggregate principal amount of the senior notes was not subject to mandatory redemption. As of December 31, 2004, the $700,000 was no longer subject to mandatory redemption as none of the mandatory redemption events had occurred by the date specified for their occurrence.
In December 2003, Intelsat entered into a credit agreement with a group of banks for an $800,000 three-year unsecured credit facility, consisting of a $400,000 term loan facility and a $400,000 revolving facility. The credit facility was to expire in March 2007. Upon the closing of the $800,000 credit facility in March 2004, the $400,000 revolving facility replaced a $500,000 three-year unsecured revolving credit facility that Intelsat had previously had in place and under which no funds had been borrowed. Intelsat borrowed $200,000 under the $400,000 term loan facility to repay its $200,000 in principal amount of Dragon bond 6.625% notes due March 22, 2004. This borrowing under the term loan facility was repaid in September 2004 using cash on hand. The Company could only have used the remaining $200,000 of the term loan portion of the facility to repay the $200,000 in principal amount of Eurobond 8.375% notes due October 14, 2004. Instead of borrowing under the term loan portion of the facility, Intelsat repaid the $200,000 in principal amount of Eurobond 8.375% notes due October 14, 2004 using cash on hand. As of December 31, 2004, Intelsat had no borrowings outstanding under the credit facility. Intelsat’s $800,000 credit facility contained financial and operating covenants that, among other things, require the Company to maintain financial coverage ratios, limit the Company’s ability to pledge assets as security for additional borrowings and limit the Company’s ability to pay dividends on its ordinary shares. As of December 31, 2004, Intelsat was in compliance with these covenants.
F-25 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 14 Notes payable, long-term debt and other financing arrangements (continued)
In January 2005, the $800,000 credit facility was replaced with a $650,000 secured credit facility, consisting of a $350,000 six-and-one-half-year term loan facility and a $300,000 six-year revolving facility. On January 28, 2005, at the close of the Acquisition Transactions, Intelsat borrowed $150,000 under the term loan facility. An additional $200,000 was borrowed on February 28, 2005 under the term loan facility to repay the $200,000 in principal amount of Eurobond 8.125% notes maturing on that day. Intelsat’s $650,000 secured credit facility contains financial and operating covenants that, among other things, require the Company to maintain financial coverage ratios, limit the Company’s ability to pledge assets as security for additional borrowings and limit the Company’s ability to pay dividends on its ordinary shares. The obligations under the $650,000 secured credit facility are guaranteed by Intelsat, Intelsat Bermuda and certain of Intelsat Subsidiary Holding’s subsidiaries. The obligations under the $650,000 secured credit facility are also secured by a perfected first priority security interest to the extent legally permissible in substantially all of Intelsat Subsidiary Holding’s and the guarantors’ tangible and intangible assets, with certain exceptions.
Of Intelsat’s capital leases, one had an obligation of $65,757, incurred in 1999, in connection with a lease agreement to acquire additional satellite capacity. The remaining capital leases are insignificant to the consolidated financial statements. As of December 31, 2004, the remaining capital lease obligations amounted to $33,540, of which $27,971 was long-term and $5,569 was current.
Note 15 Retirement plans and other retiree benefits
(a) Pension and other post-retirement benefits
Intelsat maintains a noncontributory defined benefit retirement plan covering substantially all employees hired prior to July 19, 2001. The cost under the defined benefit retirement plan is calculated by an actuary using a formula based upon employees’ remuneration, dates of hire and years of eligible service. Intelsat has historically funded the defined benefit retirement plan based on actuarial advice using the projected unit credit cost method. Concurrent with Intelsat’s privatization in 2001, the defined benefit retirement plan became subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and, as such, Intelsat expects that its future contributions to the defined benefit retirement plan will be based on the minimum requirements of the Internal Revenue Service and on the plan’s funded position. Employees hired on or after July 19, 2001 are eligible to participate in a defined contribution plan (see Note 15(b)). In addition, Intelsat provides health benefits for employees hired prior to January 1, 2004 who retire at or after age 60 with five years of consecutive service or after age 55 with ten years of consecutive service. The cost under this unfunded plan is calculated by an actuary based on the level of benefits provided, years of service and certain other factors. The Medicare drug program was enacted as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare Act”) and generally takes effect on January 1, 2006. Intelsat has not yet assessed the effect of the Medicare Act on the obligations and costs of the retiree medical plan.
F-26 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 15 Retirement plans and other retiree benefits (continued)
The following tables provide summaries of the projected benefit obligations, plan assets and funded status of the plans as of December 31, 2003 and 2004 based on valuation dates of September 30, 2003 and 2004.
Other Post-retirement Pension Benefits Benefits
2003 2004 2003 2004
Change in benefit obligation Benefit obligation, October 1, $ 280,269 $ 308,127 $ 54,389 $ 80,538 Service cost 5,765 5,942 5,177 4,179 Interest cost 19,030 18,078 3,780 4,009 Benefits paid (18,056) (19,891) (2,515) (2,675) Plan amendments — — (1,733) (4,411) Acquisitions 7,149 — 5,154 — Curtailment — 1,356 (2,584) (521) Actuarial (gain)/loss 13,969 17,695 18,870 (8,847)
Benefit obligation, September 30, $ 308,126 $ 331,307 $ 80,538 $ 72,272
Change in plan assets Plan assets at fair value October 1, $ 211,939 $ 279,034 $ — $ — Actual return on plan assets 38,671 38,147 — — Acquisitions 6,031 — — — Contributions by Intelsat 40,000 — — — Benefits paid (17,607) (19,441) — —
Plan assets at fair value September 30, $ 279,034 $ 297,740 $ — $ —
Funded status of the plans Funded status of the plans ($29,092) ($33,567) ($80,538) ($72,272) Unrecognized net (gain)/loss 56,827 57,241 7,609 (1,238) Unrecognized prior service cost 1,216 948 (1,733) (4,839) Unrecognized transition obligation 326 285 — — Fourth-quarter contributions to the plans 114 129 699 1,004 Intangible asset — — — — Amount included in other comprehensive income (2,067) (2,164) — —
Accrued benefits costs, December 31, $ 27,324 $ 22,872 ($73,963) ($77,345)
Discount rate 6.00% 5.75% 6.00% 5.75% Expected rate of return on plan assets 9.00% 9.00% — — Rate of compensation increase 3.75% 3.50% — —
During 2003, the Company made $40,000 in cash contributions to the defined benefit retirement plan. However, the plan’s accumulated benefit obligation at September 30, 2003 still exceeded the fair value of its assets. As a result, the Company adjusted the minimum pension liability such that as of December 31, 2003, $19,457 of the net additional minimum pension liability of $21,524 was reversed along with the $2,340 previously recorded in other assets. The effect of this adjustment resulted in the Company having an additional minimum pension liability of $2,067, or $1,270 after tax, recorded as accumulated other comprehensive loss as of December 31, 2003. During 2004, the Company recorded an additional minimum pension liability of $97.
Plan assets include investments in equity and bond funds, U.S. government securities and liquid reserve funds.
F-27 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 15 Retirement plans and other retiree benefits (continued)
The weighted-average asset allocation of our pension plan assets at September 30 were:
Asset Category 2003 2004
Equity securities 63% 66% Debt securities 33 34 Cash equivalents 4 —
Total 100% 100%
The Company’s pension plan assets are managed in accordance with an investment policy adopted by the pension committee. The investment policy currently includes target allocation percentages of 65% for investments in equity securities and 35% for investments in fixed income securities. There is typically no allocation to cash but there was a cash contribution made on September 30, 2003 to the pension plan assets that had yet to be invested as of that date. There are restrictions on investment managers to prevent the concentration of investments in the securities of any one company or industry, the purchase of tax-exempt securities, direct investments in commodities and short sales and to impose other restrictions. The expected long-term rate of return on plan assets was based on historical returns.
The Company expects to contribute $515 to its defined benefit retirement plan during 2005 and it does not expect to make any contributions to its post-retirement health insurance plan, which is an unfunded plan.
Net periodic pension and other post-retirement benefits costs include the following components for 2002, 2003 and 2004:
Other Post-retirement Pension Benefits Benefits
2002 2003 2004 2002 2003 2004
Service cost $ 4,002 $ 5,765 $ 5,942 $3,647 $5,177 $4,179 Interest cost 18,943 19,030 18,078 3,706 3,780 4,009 Expected return on plan assets (22,179) (22,054) (23,811) — — — Amortization of unrecognized transition asset 41 41 41 — — — Amortization of unrecognized prior service cost 66 49 46 — — (877) Amortization of unrecognized net loss (gain) 181 595 2,946 (531) (809) —
Total costs $ 1,054 $ 3,426 $ 3,242 $6,822 $8,148 $ 7,311
Depending upon actual future health care claims experience, Intelsat’s actual costs may vary significantly from those projected above. As of September 30, 2003, the assumed health care cost trend rate was a constant 7%. As of September 30, 2004, the assumed health care cost trend rate was 10%. This rate was assumed to decrease gradually to 6% by the year 2008 and to remain at that level of annual increase thereafter.
Increasing the assumed health care cost trend rate by 1% each year would increase the other post-retirement benefits obligation as of September 30, 2004 by $6,974. Decreasing this trend rate by 1% each year would reduce the other post-retirement benefits obligation as of September 30, 2004 by $6,202. A 1% increase or decrease in the assumed health care cost trend rate would have increased or decreased the net periodic other post-retirement benefits cost for 2004 by $651 and $599, respectively.
F-28 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 15 Retirement plans and other retiree benefits (continued)
The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are as follows:
Pension Other Post-retirement Benefits Benefits
2005 $ 19,100 $ 3,715 2006 19,844 3,771 2007 20,788 4,111 2008 21,823 4,451 2009 23,523 4,765 2010 and thereafter 155,178 29,620
$260,256 $ 50,433
(b) Other retirement plans
Intelsat maintains two defined contribution retirement plans in the United States. One of these plans provides benefits to employees based in the United States who were hired before July 19, 2001, and the other plan provides benefits to employees based in the United States hired on or after July 19, 2001. The Company recognized compensation expense of $2,167, $2,666 and $3,042 during 2002, 2003 and 2004 related to these defined contribution retirement plans. Intelsat also maintains an unfunded deferred compensation plan for executives; however, benefit accruals under the plan were discontinued during 2001. The accrued liability for the deferred compensation plan for executives was $1,542 and $1,544 as of December 31, 2003 and 2004, respectively. Intelsat maintains other defined contribution retirement plans in several non-U.S. jurisdictions.
Note 16 Share option plan
In July 2001, Intelsat established a share option plan. Under the share option plan, employees, directors, independent contractors, advisors and consultants are eligible to receive awards of share options. The maximum number of ordinary shares that may be issued under the share option plan is 3,333,333.
The share option plan enables the holder of options to purchase ordinary shares at a specified exercise price. The exercise price is established on the date of grant and may not be less than the fair market value of the ordinary shares on that date. Options generally vest over a three-year period, in equal one-third installments on each of the first, second and third anniversaries of the date of grant, with a term not to exceed ten years. In general, the options granted, once vested, may be exercised only after the earlier of the first anniversary of Intelsat’s initial public equity offering and the third anniversary of the date of grant. As of December 31, 2004 options to purchase 2,852,538 ordinary shares were outstanding under the share option plan.
In January 2004, Intelsat’s board of directors approved a 2004 share incentive plan and the reservation of ordinary shares for issuance under the plan, subject to the approval of the Company’s shareholders. The 2004 share incentive plan, the reservation of ordinary shares for issuance under the plan and the issuance of ordinary shares under the plan were approved by Intelsat’s shareholders at a special general meeting of shareholders held in March 2004. As of December 31, 2004, there were 594,269 restricted shares, 128,381 restricted share units and options to purchase 3,540,165 ordinary shares outstanding under this plan, as amended. The 594,269 restricted shares are included in the accompanying consolidated balance sheet as issued as of December 31, 2004 but are excluded from the computation of basic earnings per share.
F-29 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 16 Share option plan (continued)
The awards under the 2004 share incentive plan provided a liquidity feature whereby the holders of the equity awards could require the Company to repurchase the underlying ordinary shares at any time after vesting at the then estimated fair market value. This liquidity mechanism resulted in variable accounting, measured in accordance with FIN 28, Accounting for Stock Appreciation Rights and other Variable Stock Option or Award Plans, for the equity awards that required the Company to re-measure the intrinsic value of the equity awards at each reporting period and recognize compensation expense, along with a corresponding liability due to the share repurchase features, based on the equity awards’ vesting schedules. In connection with the acquisition of Intelsat by Intelsat Holdings, as described in Note 3, the fair value of these awards was fixed at $18.75 as of December 31, 2004.
Upon closing of the Acquisition Transactions, all share options, restricted shares and restricted share units granted under our 2001 share option plan and 2004 share incentive plan and outstanding as of closing were cancelled. In consideration for such cancellation, Intelsat’s employees were paid $15,232 in cash in the aggregate at the closing and up to a maximum of $19,531 will be accrued as deferred compensation and will generally be payable in cash to the employees in accordance with the vesting schedules of the original awards with respect to which the payments will be made. Of this maximum amount, $6,579 was accrued as of the closing date of the Acquisition Transactions.
A summary of the share option activity is presented below:
Weighted- Average Share Options Exercise Outstanding Price
Options outstanding at January 1, 2002 2,937,639 $ 19.05 Options granted 248,739 $ 16.17 Options canceled (279,033) $ 19.05
Options outstanding at December 31, 2002 2,907,345 $ 18.80 Options granted 397,564 $ 14.90 Options canceled (76,523) $ 18.76
Options outstanding at December 31, 2003 3,228,386 $ 18.32 Options granted 3,542,268 $ 13.00 Options canceled (377,951) $ 18.71
Options outstanding at December 31, 2004 6,392,703 $ 15.35
The following table summarizes information about share options outstanding at December 31, 2004:
Weighted-Average Share Options Share Options Remaining Contractual Option Price Per Share Outstanding Exercisable Life (years)
$19.05 2,244,410 2,244,410 6.8 $18.75 3,540,165 — 9.4 $16.17 232,801 — 8.0 $14.90 375,327 — 8.6
6,392,703 2,244,410 8.4
F-30 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 16 Share option plan (continued)
SFAS No. 123, Accounting for Stock-Based Compensation, defines a “fair value based method” of accounting for stock-based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. Prior to the issuance of SFAS No. 123, stock-based compensation was accounted for under the “intrinsic value method” as defined by APB Opinion No. 25, Accounting for Stock Issued to Employees. Under the intrinsic value method, compensation is the excess, if any, of the market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. SFAS No. 123 allows an entity to continue to use the intrinsic value method. However, entities electing the accounting in APB Opinion No. 25 are required to make pro forma disclosures as if the fair value based method of accounting had been applied. Intelsat applies APB Opinion No. 25 and the related interpretations in accounting for its stock-based compensation. Accordingly, as all options granted under the Company’s 2001 share option plan had an exercise price equal to the estimated fair value of the underlying ordinary shares on the date of grant, no compensation expense was recognized for the 2001 plan. However, stock-based compensation expense was recognized for the 2004 share incentive plan as it contained a liquidity mechanism which resulted in variable accounting and the requirement for recognition of compensation expense.
The weighted-average fair value per share of the options granted during 2002, 2003 and 2004 was $2.26, $2.78 and $2.58 at the respective grant dates. In determining pro forma net income, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. During the years ended December 31, 2002, 2003 and 2004, Intelsat used the minimum value method for the expected volatility assumption. In addition, the following weighted-average assumptions were used for grants made during the years ended December 31, 2002, 2003 and 2004:
Years Ended December 31,
2002 2003 2004
Risk-free interest rate 3.0% 4.2% 4.47% Expected term 5 years 5 years 5 years Dividend yield — — — Expected volatility — — —
Note 17 Income taxes
The provision for income taxes from continuing operations consisted of the following:
Years Ended December 31,
2002 2003 2004
Current $ 28,764 $ 8,088 $ 5,947 Deferred 4,257 18,041 12,700
Total provision for income taxes $ 33,021 $ 26,129 $ 18,647
Because Bermuda does not currently impose an income tax, Intelsat’s statutory tax rate is zero. The difference between tax expense reported in the accompanying consolidated statements of operations and tax computed at statutory rates is attributable to the provision for foreign taxes, which were principally U.S. and U.K. taxes.
F-31 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 17 Income taxes (continued)
The components of Intelsat’s net deferred tax asset were as follows:
Years Ended December 31,
2003 2004
Deferred tax assets: Accrued liabilities $ 8,705 $ 2,920 Bad debt reserve 5,446 9,098 Accrued retirement benefits 18,315 21,582 Net operating loss carry forward 3,176 1,081 Alternative minimum tax credit carryforward 745 745 Other 379 —
Total deferred tax assets 36,766 35,426 Deferred tax liabilities: Basis difference of depreciation (17,898) (30,617) Basis difference of intangibles (1,541) (2,340) Basis difference of accrued liabilities — (245) Unrealized gain on available-for-sale securities (860) (983)
Total deferred tax liabilities (20,299) (34,185)
Total net deferred tax asset $ 16,467 $ 1,241
On the balance sheet, current deferred tax assets and liabilities net to a current deferred tax asset of $14,524 and $12,854 as of December 31, 2003 and 2004, respectively, which is separately stated as such under current assets. Non-current deferred tax assets and liabilities net to a non-current deferred tax asset of $1,943 as of December 31, 2003 and a non-current deferred tax liability of $11,613 as of December 31, 2004, which is not separately stated, but instead included in other long-term liabilities. We have fully valued our deferred tax assets as such assets are expected to be realized by the respective taxable entities on which such assets have been recorded.
Note 18 Contractual commitments
In the further development and operation of Intelsat’s commercial global communications satellite system, significant additional expenditures are anticipated.
The portion of these additional expenditures represented by contractual commitments as of December 31, 2004 and the expected year of payment are as follows:
Satellite performance incentives Capital and other leases capital Expense Total
2005 $ 7,712 $ 181,661 $37,465 $226,838 2006 9,260 58,390 16,547 84,197 2007 9,200 70,102 3,919 83,221 2008 9,200 45,901 1,364 56,465 2009 3,817 44,992 875 49,684 2010 and thereafter — 32,703 20,498 53,201
39,189 433,749 80,668 553,606
Less: amount representing interest on capital lease obligations and deferred satellite performance incentives (5,649) (20,705) — (26,354)
Total net commitments $33,540 $ 413,044 80,668 $527,252
F-32 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 18 Contractual commitments (continued)
Due to the nature of its business, Intelsat has large contracts for satellite construction and launch services and pays significant amounts to a limited number of suppliers for assets and services scheduled for future delivery.
In the table above, capital commitments in 2005 include the cash deposit related to termination of Intelsat’s order for the IS-10-01 satellite that will be applied against the cost of a future launch or will be forfeited if Intelsat does not place a launch order by July 31, 2005. See Note 10 for further discussion.
Intelsat leases space in its Washington, D.C. building to various tenants. As of December 31, 2004, the minimum rental income anticipated with respect to these leases is approximately $19,504, of which $9,920 is expected to be received during the next five years. Rental income is included in other income in the accompanying consolidated statements of operations.
Note 19 Contingencies
(a) Insurance
At December 31, 2004, Intelsat had insurance covering the in-orbit operations of seven Intelsat IX series satellites. Under the terms of this policy, Intelsat co-insured $150,000 of the net book value of each satellite, and the insurers covered the balance of the net book value of each satellite, excluding capitalized performance incentives relating to the satellites. This insurance policy expired in March 2005 and was not renewed. Intelsat currently does not have in-orbit insurance coverage for 26 of its 27 satellites (which excludes the IS-804 satellite which recently experienced an anomaly resulting in the total loss of the satellite). These 26 satellites had a net book value in aggregate of $2,568,759 as of December 31, 2004.
At December 31, 2004, the IS-10-02 satellite was insured under a policy covering its launch and first year of in-orbit operations in an amount equal to its cost, excluding satellite performance incentives. This policy expires on June 17, 2005. Under the terms of this policy, Intelsat co-insures approximately $55 million relating to the IS-10-02 satellite.
(b) Litigation and claims
The Company is subject to litigation in the normal course of business, but management does not believe that the resolution of any pending proceedings would have a material adverse effect on the Company’s financial position or results of operations.
Two putative class action complaints regarding postretirement health benefits have been filed against Intelsat in the U.S. District Court for the District of Columbia. The first was filed on June 24, 2004, against Intelsat Global Service Corporation, and the second was filed on September 20, 2004 against Intelsat and Intelsat Global Service Corporation. In each case, the named plaintiffs are Intelsat retirees, spouses of retirees or surviving spouses of deceased retirees. These complaints arise out of the resolution adopted by the governing body of the IGO prior to privatization. The complaints allege, among other things, that Intelsat does not have the right to amend or modify the postretirement health benefits described in the resolution, that the provision in the health plan for these retirees reserving to the Company the right to amend, modify or terminate the benefits is ineffective and contrary to the Company’s alleged obligations under the resolution, and that Intelsat wrongfully modified health plan terms to deny coverage to surviving spouses and dependents of deceased Intelsat retirees. Both groups of plaintiffs also seek a declaratory ruling that putative class members are entitled to receive, in perpetuity, postretirement health plan benefits at the same level that was in effect on January 1, 2001, and that changing the health plan terms would constitute a breach of fiduciary duty under the U.S. Employee Retirement Income Security Act of 1974, as amended, and a breach of contract. Both groups of plaintiffs seek injunctive relief and monetary damages, which are unspecified in the first case. In the later case, plaintiffs also allege fraudulent misrepresentation and estoppel claims and seek compensatory and punitive damages in the amount of $250 million. Intelsat has moved to dismiss both complaints and has argued that the resolution is not enforceable, that Intelsat has the right to modify the terms of any postretirement health benefits being provided, and that the damages claim is without merit. The Company intends to defend vigorously against the claims of both cases. A hearing on the motions to dismiss in both cases has been scheduled for April 12, 2005.
F-33 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 19 Contingencies (continued)
(c) MFC and LCO protections
Most of the customer service commitments entered into prior to the privatization were transferred to Intelsat pursuant to novation agreements. These agreements contain provisions, including provisions for most favored customer (“MFC”) and lifeline connectivity obligation (“LCO”) protections, that constrain Intelsat’s ability to price services in some circumstances. MFC protection entitles eligible customers to the lowest rate Intelsat charges after July 18, 2001 for satellite capacity having substantially the same technical and commercial terms, subject to limited exceptions. MFC protection continues until July 18, 2006. Intelsat management does not believe that the MFC terms significantly restrict the Company’s ability to price services competitively. Intelsat’s LCO contracts require the Company to provide customers with the right to renew their service commitments covered by LCO contracts at prices no higher than the prices charged for those services on the privatization date. Under some circumstances, Intelsat may also be required by an LCO contract to reduce the price for a service commitment covered by the contract. LCO protection may continue until July 18, 2013.
(d) ORBIT Act
Intelsat is subject to the requirements of the Open-Market Reorganization for the Betterment of International Telecommunications Act (the “ORBIT Act”), which sets forth criteria that the FCC must evaluate in considering Intelsat’s license and renewal applications and in connection with customer requests for authorization to use Intelsat’s satellite capacity to provide “non-core services” to, from or within the United States and to provide “additional services.” “Non-core services” are defined in the ORBIT Act as any services other than public-switched voice telephony and occasional use television. The FCC defines “additional services” as direct-to-home or direct broadcast satellite video services or services in the Ka- or V-band. One of the statutory criteria requires Intelsat to make an initial public offering that “substantially dilutes” the ownership interest in it held by the IGO’s former Signatories, which were its primary owners, by June 30, 2005 (which may be extended to December 31, 2005 by the FCC) and to list its shares for trading on one or more major stock exchanges with transparent and effective securities regulation. Pursuant to an amendment to the ORBIT Act that became law in October 2004, Intelsat may forgo an initial public offering and a listing of its shares and still achieve the purposes of the ORBIT Act if Intelsat certifies to the FCC that, among other things, it has achieved substantial dilution of the aggregate amount of financial interest held or controlled by the former Signatories and the FCC determines that Intelsat is in compliance with this certification. If the FCC determines that Intelsat has failed to comply with the requirements of the ORBIT Act, the FCC may impose limitations on or deny Intelsat’s applications for satellite licenses and for the renewal of these licenses and may limit or revoke previous authorizations to provide “non-core services” to, from or within the United States. The FCC may also deny licensing for “additional services.”
The FCC’s order relating to the Loral transaction prohibits Intelsat North America LLC from using the satellites acquired from Loral to provide capacity for direct-to- home (“DTH”) services until Intelsat is deemed to have satisfied the initial public offering requirements of the ORBIT Act. However, the FCC granted special temporary authority to Intelsat North America LLC to provide capacity for DTH services pursuant to the customer contracts acquired in the Loral transaction. This special temporary authority was twice extended and currently expires on April 13, 2005. In March 2004, one of Intelsat’s competitors, SES AMERICOM, Inc. (“SES”), filed an application for review of the FCC’s order relating to the Loral transaction. SES’ application requests that the FCC vacate the special temporary authority to provide capacity for DTH services and requests that the FCC reconsider its decision not to impose conditions on Intelsat’s ability to provide services to the U.S. government using the acquired satellites. The comment period relating to SES’ application has ended, and the FCC has not yet acted on the application. If the FCC’s decision on SES’ application is adverse to Intelsat, the FCC could revoke the special temporary authority under which Intelsat North America LLC is providing capacity for DTH services.
F-34 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 19 Contingencies (continued)
Intelsat believes that the acquisition of the Company by Intelsat Holdings, as described in Note 3 above, satisfies the requirements set forth in the ORBIT Act, as amended, and Intelsat provided the FCC with the certification required under the ORBIT Act on December 23, 2004, along with a petition for declaratory ruling seeking an FCC determination that Intelsat is in compliance with the certification requirements of the ORBIT Act. The FCC established deadlines of February 14, 2005 and March 1, 2005 for interested parties to file comments on the petition for declaratory ruling. Two parties filed comments in support of Intelsat’s petition for declaratory ruling, and one party filed comments in opposition thereof. Intelsat filed a reply to the comments in opposition. Intelsat believes that the restriction on Intelsat North America LLC’s ability to provide capacity for DTH services would cease to apply if the FCC determines, after notice and comment, that Intelsat is in compliance with these certification requirements. However, Intelsat cannot be certain how or when the FCC will rule on the petition.
Note 20 Business segment and geographic information
Intelsat operates in a single industry segment, in which it provides satellite services to its communications customers around the world. Intelsat’s shareholders generated approximately 78%, 53% and 43% of revenue in 2002, 2003 and 2004, respectively. Subsequent to the Acquisition Transactions on January 28, 2005, Intelsat does not provide significant services to its shareholders.
The geographic distribution of Intelsat’s revenue was as follows:
Years Ended December 31,
2002 2003 2004
North America and the Caribbean 24% 27% 37% Europe 29% 25% 22% Asia Pacific 17% 17% 12% Sub-Saharan Africa 11% 13% 14% Latin America 13% 11% 9% Middle East and North Africa 6% 7% 6%
Approximately 12%, 5%, and 4% of Intelsat’s revenue was derived from its largest customer in 2002, 2003 and 2004, respectively. No other single customer accounted for more than 5% of revenue in any of those years. The ten largest customers accounted for approximately 36% of Intelsat’s revenue in 2002, approximately 35% of Intelsat’s revenue in 2003, and approximately 28% of Intelsat’s revenue in 2004. Revenue by region is based on the locations of customers to which services are billed.
Intelsat’s satellites are in geosynchronous orbit, and consequently are not attributable to any geographic location. Of Intelsat’s remaining assets, substantially all are located in the United States.
F-35 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 21 Restructuring costs
Accrued restructuring costs, January 1, 2002 $ 3,700 Restructuring costs charged 5,522 Amounts paid (4,598)
Accrued restructuring costs, December 31, 2002 4,624 Restructuring costs charged — Amounts paid (3,787) Reversal of accrual (837)
Accrued restructuring costs, December 31, 2003 — Restructuring costs charged 6,640 Amounts paid (5,146)
Accrued restructuring costs, December 31, 2004 $ 1,494
In December 2002, Intelsat reduced the size of its workforce by 130 employees, or approximately 12%, reflecting efforts to streamline operations in response to market and industry conditions. As a result of the workforce reduction, severance costs of $5,522 were incurred in 2002. At December 31, 2002, accrued restructuring costs of $4,624 were included in accounts payable and accrued liabilities reflected in the accompanying consolidated balance sheet. Due to a change in estimate of the restructuring costs accrued during 2002, the Company reversed $837 during 2003. All costs were paid by the end of 2003. During 2004, Intelsat had a reduction in its workforce of 140 employees or approximately 18% of employees at June 1, 2004, at which time Intelsat’s staffing level had peaked for 2004. This reduction reflects efforts to further streamline operations. As a result of the workforce reduction, severance costs of $6,640 were incurred in 2004. At December 31, 2004, accrued restructuring costs of $1,494 were included in accounts payable and accrued liabilities reflected in the accompanying consolidated balance sheet.
Note 22 Customer reorganizations
(a) MCI reorganization
In July 2002, WorldCom, Inc., which subsequently changed its name to MCI, Inc. (“MCI”), filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. MCI emerged from bankruptcy protection in April 2004. Intelsat’s revenue generated from MCI and its affiliates as direct customers was $43,200, or 5% of total revenue, for the year ended December 31, 2003 and $41,898, or 4% of total revenue, for the year ended December 31, 2004. As of December 31, 2004, Intelsat had receivables of $11,845 due from MCI and its affiliates, of which $8,416 related to pre-petition receivables and $6,676 was reserved for in the Company’s allowance for doubtful accounts. In connection with MCI’s emergence from bankruptcy protection, Intelsat could receive settlement on pre-petition receivables in excess of the net receivables recorded, which could result in a reduction in bad debt expense in future periods. The Company cannot currently estimate the amount of any such settlement.
(b) Verestar, Inc. reorganization
Verestar, Inc. (“Verestar”), one of Intelsat’s largest customers, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code on December 22, 2003. Revenue generated from Verestar and its affiliates was $19,800, or 2% of total revenue for the year ended December 31, 2002, $24,900, or 3% of total revenue for the year ended December 31, 2003, and $20,735, or 2% of total revenue for the year ended December 31, 2004. As of December 31, 2004, Intelsat had receivables of $2,764 due from Verestar and its affiliates. This amount was not included in Intelsat’s net receivables balance, as revenue from Verestar was being recorded on a cash basis. Intelsat’s competitor SES made a bid to buy substantially all of the assets of Verestar that was approved by the bankruptcy court in April 2004, and the transaction was completed in December 2004. Pursuant to an agreement with SES, Intelsat received $2,000 in August 2004 in satisfaction of any cure costs that Verestar would otherwise have been obligated to pay to Intelsat for amounts owed for periods prior to Verestar’s bankruptcy court filing with respect to contracts with Intelsat
F-36 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 22 Customer reorganizations (continued) that Verestar assumed in its bankruptcy proceeding. Because Intelsat would have been required to return the $2,000 to SES if SES’ acquisition of Verestar had not been successfully completed, Intelsat did not record the $2,000 as revenue until the fourth quarter of 2004, when this contingency was removed.
Note 23 Related party transactions
Until the consummation of the Acquisition Transactions on January 28, 2005, certain of Intelsat’s shareholders and their affiliates, as described below, were related parties of Intelsat. Following the Acquisition Transactions, they no longer are related parties.
(a) Shareholder collateral and other deposits
Included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets are collateral and other deposits held from customers that were also shareholders in the amounts of $18,976 and $14,204 at December 31, 2003 and 2004, respectively. Collateral generally represents cash balances held in accordance with service agreements. Deposits generally represent cash balances held to secure future capacity under right of first refusal arrangements. Associated cash balances contain no restrictions and generally are non-interest bearing.
(b) Teleglobe Insolvency and Share Purchase Agreement
On May 15, 2002, one of Intelsat’s largest customers and one of its shareholders, Teleglobe Inc., referred to as Teleglobe, filed for creditor protection under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice. As a result of financial difficulties experienced by Teleglobe, Intelsat recorded a reserve of $12,836 against all of its account receivable from Teleglobe as of March 31, 2002, and did not recognize any revenue from Teleglobe from April 1, 2002 through May 15, 2002, because collection was not assured. Revenue generated from Teleglobe and its affiliates was approximately $35,100 in 2002, $28,100 in 2003, and $23,558 in 2004.
On September 20, 2002, Intelsat Global Sales & Marketing Ltd. (“Intelsat Global Sales”) acquired Teleglobe’s 6,284,635 shares in Intelsat for $65,000. Pursuant to the share purchase agreement and a related escrow agreement, title to the shares acquired from Teleglobe was transferred to an escrow agent, which held the shares in trust for Intelsat Global Sales, subject to specified limited rights of Teleglobe. The share purchase agreement provided that, among other things, if Intelsat had not conducted a registered offering of its ordinary shares by December 31, 2003, the escrowed shares and any cash held as escrow property would be distributed to Intelsat Global Sales up to the amount that would result in Intelsat Global Sales having received a total amount of shares and cash under the agreement valued at $90,139. The share purchase agreement provided that any shares or cash remaining after this distribution to Intelsat Global Sales would be transferred to Teleglobe. Intelsat did not conduct a registered offering of its ordinary shares by December 31, 2003 and, pursuant to an amendment to the share purchase agreement entered into in March 2004, the shares held in escrow were valued pursuant to a formula and were distributed to Intelsat Global Sales in April 2004. Thereafter Intelsat and Teleglobe had no remaining rights or obligations under the share purchase agreement. These shares were then transferred to Intelsat Bermuda in June 2004.
F-37 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 23 Related party transactions (continued)
Intelsat has accounted for the share purchase transaction similar to an acquisition of treasury stock. Under FASB Technical Bulletin No. 85-6, Accounting for a Purchase of Treasury Shares at a Price Significantly in Excess of the Current Market Price of the Shares and the Income Statement Classification of Costs Incurred in Defending against a Takeover Attempt, amounts paid for treasury stock above fair value and additional rights and consideration received are allocated to the various components received. The estimated aggregate market value of the shares acquired by Intelsat Global Sales exceeded the cash payments made to Teleglobe on September 20, 2002 by more than the amounts due to Intelsat Global Sales. As a result, Intelsat was able to recover the $15,958 of receivables owed by Teleglobe, consisting of $12,836 that was fully reserved in the first quarter of 2002 as well as $3,122 related to revenue that had not been previously recognized since its collection was not certain. Intelsat believes that the closing of the share purchase transaction enabled it to change its estimated reserve for uncollectible accounts and recognize the previously unrecognized service fees for which collection was uncertain, in accordance with APB Opinion No. 20, Accounting Changes. The shares acquired by Intelsat Global Sales are deemed not to be outstanding for the purposes of Intelsat’s consolidated financial statements.
Teleglobe’s remaining interest in the shares was deemed to be a free-standing derivative in accordance with Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. This resulted in Intelsat recording an obligation to Teleglobe on September 20, 2002 of $25,860, which reflected the estimated fair value of this derivative on that date. On December 31, 2002, the Company reduced its obligation to Teleglobe to $19,780 based on a valuation of the derivative on that date. At December 31, 2003, Intelsat no longer had an obligation to Teleglobe based on a valuation of the derivative on that date, and recorded other income of $19,780 for the year ended December 31, 2003, for the amount of the adjustment, in the accompanying consolidated statement of operations. The distribution of the shares held in escrow as provided under the share purchase agreement with Teleglobe did not impact the Company’s accounting for the share purchase transaction as of December 31, 2003.
(c) Lockheed Launch Support Agreement and Other Lockheed Agreements
On February 13, 2002, Intelsat entered into a master ordering agreement with Lockheed Martin Commercial Space Systems, referred to as LMCSS, for its provision to LMCSS of commercial launch support systems, referred to as CLASS, services. LMCSS is an affiliate of Lockheed Martin Corporation, which, prior to the consummation of the Acquisition Transactions, was Intelsat’s largest shareholder. Under this agreement, Intelsat will provide in-orbit testing and launch and early orbit phase support of LMCSS’ missions. The agreement will be in effect for four years, through February 12, 2006, and offers a menu of CLASS services at predetermined rates. Intelsat’s first service order under the agreement was for payload in-orbit testing services for a New Skies satellite built by Lockheed Martin Corporation. In-orbit testing under this service order was completed on May 23, 2002, and final documentation was delivered and accepted.
Intelsat has also entered into other agreements with subsidiaries of Lockheed Martin Corporation pursuant to which these subsidiaries provide services to Intelsat, including lifecycle testing of some of the batteries used in the Company’s satellites and the development and installation of new infrastructure relating to the Company’s time division multiple access services.
Note 24 Resolution of ITU priority issue
On April 29, 2004, the Company entered into an agreement with New Skies in order to resolve an International Telecommunication Union (“ITU”) priority issue relating to the 121° West orbital location to which the Company acquired rights in connection with the Loral transaction. Specifically, the Company agreed to pay New Skies $32,000, in exchange for which New Skies agreed not to use any C-band frequencies at the 120.8° West orbital location that would interfere with the Company’s C-band operations at the 121° West orbital location, whether on the IA-13 satellite currently operated at this location or on any replacement satellite using the same C-band frequencies as IA-13. The Company’s $32,000 payment to New Skies was made on May 6, 2004 and has been accounted for as an addition to an existing intangible asset.
F-38 Table of Contents
INTELSAT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except percentages and share and per share amounts)
Note 24 Resolution of ITU priority issue (continued)
In connection with the Company’s agreement with New Skies, the Netherlands administration has entered into an intersystem coordination agreement with Papua New Guinea, which is the Company’s notifying administration for the 121° West orbital location. Prior to the closing of the Loral transaction, the Company and Loral had agreed to a reduction in the purchase price for the Loral assets that was intended to represent Loral’s share of the estimated cost of resolving this ITU priority issue. Because the Company’s actual cost under the agreement with New Skies was less than had previously been estimated, the Company owed Loral $4,000, which was paid on May 14, 2004. This amount has been accounted for as an adjustment to the purchase price allocation.
Note 25 Quarterly Financial Information - Unaudited
Intelsat’s summary financial information on a quarterly basis for 2004 and 2003 is as follows:
For the three months ended
March 31, June 30, September 30, December 31, 2004 2004 2004 2004
Revenue $233,913 $260,377 $ 266,247 $ 283,368 Operating income (loss) 63,085 64,589 64,610 (27,134) Income (loss) from continuing operations 20,607 24,667 10,714 (50,738) Loss from discontinued operations (3,852) (6,163) (27,794) (6,120) Net income (loss) 16,755 18,504 (17,080) (56,858) Income (loss) from continuing operations per share – basic 0.13 0.15 0.07 (0.32) Income (loss) from continuing operations per share – diluted 0.13 0.15 0.07 (0.31) Loss from discontinued operations per share – basic and diluted (0.02) (0.04) (0.17) (0.04) Net income (loss) per share – basic and diluted 0.10 0.12 (0.11) (0.35)
For the three months ended
March 31, June 30, September 30, December 31, 2003 2003 2003 2003
Revenue $238,325 $242,406 $ 235,079 $ 230,308 Operating income 79,641 77,832 72,258 58,112 Income from continuing operations 64,139 42,934 48,909 27,258 Loss from discontinued operations (58) (327) (538) (1,198) Net income (loss) 64,081 42,607 48,371 26,060 Income from continuing operations per share – basic and diluted 0.40 0.27 0.30 0.17 Loss from discontinued operations per share – basic and diluted — — — (0.01) Net income per share – basic and diluted 0.40 0.27 0.30 0.16
All periods above reflect Intelsat’s investment in Galaxy Holdings as a discontinued operation.
F-39 Table of Contents
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged Balance at Beginning of Costs and to Other End of Description Period Expenses Accounts Deductions Adjustments Period
(in thousands) Year ended December 31, 2002: Allowance for doubtful accounts $ — $ 9,472 $18,628(1) $ 3,277(2) $ — $ 24,823 Other $ — $ — $ — $ — $ 3,277(2) $ 3,277 Restructuring reserve $ 3,700 $ 5,522 $ — $ 4,598 $ — $ 4,624 Year ended December 31, 2003: (3) Allowance for doubtful accounts $ 24,823 $ 13,897 $ — $ 1,716 ($4,894) $ 32,110 Other $ 3,277 $ — $ — $ 3,277(4) $ — $ — Restructuring reserve $ 4,624 $ — $ — $ 3,787 $ 837(5) $ — Year ended December 31, 2004: Allowance for doubtful accounts $ 32,110 $ 11,009 $ — $ 7,798 $ 22(6) $ 35,343 Other $ — $ — $ — $ — $ — $ — Restructuring reserve $ — $ 6,640 $ — $ 5,146 $ — $ 1,494
(1) Allowance for doubtful accounts recorded in connection with the acquisition of assets of COMSAT World Systems.
(2) Represents reclassification.
(3) Adjustment to reflect finalization of the allocation of the purchase price in connection with the acquisition of assets of COMSAT World Systems.
(4) Represents asset written off against reserve.
(5) Reversal of 2002 restructuring costs due to a change in estimate.
(6) Adjustment to reflect change in allocation of the purchase price in connection with the COMSAT General transaction.
F-40 Table of Contents
(b) Exhibits to this Annual Report:
Exhibit Number Exhibit
1.1 Certificate of Incorporation of Intelsat (incorporated by reference to Exhibit 3.1 of Intelsat’s Registration Statement on Form F-4, filed on September 5, 2002).
1.2 Memorandum of Association of Intelsat*
1.3 Amended and Restated Bye-laws of Intelsat (incorporated by reference to Exhibit 3.1 of Intelsat’s Report filed on Form 8-K, filed on March 7, 2005). 2.1 Indenture, dated as of April 1, 2002, between Intelsat and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form F-4, filed on September 5, 2002). 2.2 Officers’ Certificate dated April 15, 2002 relating to Intelsat’s 7 5/8% Senior Notes due 2012 (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form F-4, filed on September 5, 2002). 2.3 Officers’ Certificate dated November 7, 2003 relating to Intelsat’s 5 1/4% Senior Notes due 2008 and its 6 1/2% Senior Notes due 2013, including the forms of Notes (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form F-4, filed on November 21, 2003).
2.4 Form of 7 5/8% Senior Notes due 2012 (incorporated by reference to Exhibit 4.4 of the Registration Statement on Form F-4, filed on September 5, 2002). 2.5 Indenture, dated as of January 28, 2005, by and among Zeus Merger Two Limited, as Issuer, Zeus Merger One Limited, as Parent Guarantor, and Wells Fargo, as Trustee (incorporated by reference to Exhibit 4.1 of Intelsat Ltd.’s Report on Form 8-K, filed on February 4, 2005). 2.6 Supplemental Indenture, dated as of January 28, 2005, by and among Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation and Wells Fargo Bank, National Association.* 2.7 Second Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat Subsidiary Holding Company, Ltd., Intelsat (Bermuda), Ltd., Intelsat, Ltd., Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation and Wells Fargo Bank, National Association.* 2.8 Third Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat (Bermuda), Ltd., Intelsat Subsidiary Holding Company, Ltd. and Wells Fargo Bank, National Association.* 2.9 Registration Rights Agreement, dated as of January 28, 2005, by and among Zeus Merger One Limited, Zeus Merger Two Limited and the other parties named therein (incorporated by reference to Exhibit 4.2 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 2.10 Eurobond Guaranty dated as of January 28, 2005 by and among Intelsat (Bermuda), Ltd., Intelsat Holdings LLC, Intelsat LLC, Intelsat USA Sales Corp., Intelsat USA License Corp., Intelsat Global Service Corporation, and Intelsat Global Sales & Marketing Ltd., in favor of Deutsch Bank Trust Company America (incorporated by reference to Exhibit 4.3 of Intelsat Ltd.’s Report on Form 8-K, filed on February 4, 2005).
F-41 Table of Contents
Exhibit Number Exhibit
2.11 Indenture, dated as of February 11, 2005, by and among Zeus Special Subsidiary Limited, Intelsat, Ltd. and Wells Fargo Bank, National Association.*
2.12 Supplemental Indenture, dated as of March 3, 2005, by and among Intelsat (Bermuda), Ltd., Intelsat, Ltd. and Wells Fargo Bank, National Association.*
2.13 Registration Rights Agreement, dated as of February 11, 2005, among Zeus Special Subsidiary Limited, Intelsat and Deutsche Bank Securities Inc.* 3.1 Transaction Agreement and Plan of Amalgamation, dated as of August 16, 2004, by and among Intelsat, Intelsat (Bermuda), Ltd., Intelsat Holdings, Ltd. (formerly Zeus Holdings Limited), Zeus Merger One Limited and Zeus Merger Two Limited (incorporated by reference to Exhibit 99.1 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.2 Asset Purchase Agreement, dated as of July 15, 2003, among Intelsat, Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc., as amended (incorporated by reference to Exhibit 1 of Intelsat’s Quarterly Report on Form 6-K for the period ended June 30, 2003, submitted on August 14, 2003 and Exhibits 1, 2 and 3 of Intelsat’s Quarterly Report on Form 6-K for the period ended September 30, 2003, submitted on October 29, 2003). 3.3 Amendment No. 4, dated as of March 5, 2004, to Asset Purchase Agreement among Intelsat, Intelsat (Bermuda), Ltd., and Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc. (incorporated by reference to Exhibit 4.35 of Intelsat’s Annual Report on Form 20-F for the year ended December 31, 2003, filed on March 15, 2004). (1) 3.4 $800,000,000 Credit Agreement, dated as of December 17, 2003, among Intelsat, Citigroup Global Markets Inc., BNP Paribas, Morgan Stanley Senior Funding, Inc., ABN AMRO Bank N.V., Credit Lyonnais, New York Branch, Citicorp North America, Inc. and the lenders named therein (incorporated by reference to Exhibit 4.11 of Intelsat’s Annual Report on Form 20-F for the year ended December 31, 2003, filed on March 15, 2004). 3.5 Credit Agreement dated as of January 28, 2005 among Zeus Merger One Limited, Zeus Merger Two Limited and the other parties named therein (incorporated by reference to Exhibit 10.1 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.6 Headquarters Land Lease, dated as of June 8, 1982, between the International Telecommunications Satellite Organization and the U.S. Government, as amended (incorporated by reference to Exhibit 10.16 of the Registration Statement on Form F-4, filed on September 5, 2002). 3.7 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat (Bermuda), Ltd. and Conny Kullman (incorporated by reference to Exhibit 10.2 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.8 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat and William Atkins (incorporated by reference to Exhibit 10.3 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.9 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat and Ramu Potarazu (incorporated by reference to Exhibit 10.4 of Intelsat’s Report on Form 8-K, filed on February 4, 2005).
F-42 Table of Contents
Exhibit Number Exhibit
3.10 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and Kevin Mulloy (incorporated by reference to Exhibit 10.5 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.11 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and Tony Trujillo (incorporated by reference to Exhibit 10.6 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.12 Employment Agreement, dated as of January 28, 2005, by and among Intelsat Holdings, Ltd., Intelsat Global Service Corporation and David Meltzer (incorporated by reference to Exhibit 10.7 of Intelsat’s Report on Form 8-K, filed on February 4, 2005).
3.13 Employment Agreement, dated as of January 28, 2005, between Intelsat Holdings, Ltd. and David McGlade. *
3.14 Letter Agreement, dated as of December 22, 2004, between Zeus Holdings Limited and David McGlade. *
3.15 Letter Agreement, dated as of February 25, 2005, between Zeus Holdings Limited and David McGlade. * 3.16 Employment Agreement, dated as of January 31, 2005, between Intelsat Holdings, Ltd., Intelsat and Phillip Spector (incorporated by reference to Exhibit 10.8 of Intelsat’s Report on Form 8-K, filed on February 4, 2005). 3.17 Business Transition Services Agreement, dated as of July 15, 2003, among Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation and Loral SpaceCom Corporation.* 3.18 TT&C Transition Services Agreement, dated as of July 15, 2003, among Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation and Loral SpaceCom Corporation.* 3.19 Purchase Agreement, dated as of January 24, among Zeus Merger One Limited, Zeus Merger Two Limited, and Deutsche Bank Securities Inc., Credit Suisse First Boston LLC and Lehman Brothers Inc.*
3.20 Transaction and Monitoring Fee Agreement, dated as of January 28, 2005, by and among Zeus Merger Two Limited and the other parties names therein.*
3.21 Subsidiary Flow Through Voting Agreement, dated as of January 28, 2005, by and between Zeus Holdings Limited and Intelsat*
7.1 Statement re computation of ratio of earnings to fixed charges.*
8.1 List of subsidiaries.*
11.1 Code of Ethics for Senior Financial Officers.*
12.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
12.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
13.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
13.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
* Filed herewith.
(1) Portions of this exhibit have been omitted pursuant to an application for confidential treatment filed with the Securities and Exchange Commission under separate cover on March 12, 2004.
F-43 Exhibit 1.2
FORM NO. 2
BERMUDA
THE COMPANIES ACT 1981
AMENDED MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES 15.03.01 (Section 7(1) and (2))
MEMORANDUM OF ASSOCIATION
OF
Intelsat, Ltd. (hereinafter referred to as “the Company”)
1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
BERMUDIAN NUMBER OF STATUS SHARES NAME ADDRESS (Yes / No) NATIONALITY SUBSCRIBED
Graham B.R. Collis Clarendon House Yes British One 2 Church Street Hamilton HM 11 Bermuda
Alison R. Guilfoyle “ No British One
Anthony D. Whaley “ Yes British One do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively. 3. The Company is to be an exempted Company as defined by the Companies Act 1981.
4. The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding in all, including the following parcels:-
N/A
5. The authorised share capital of the Company is US$650,000,000 divided into shares of US$3.00 each. The minimum subscribed share capital of the Company is US$12,000.
6. The objects for which the Company is formed and incorporated are:-
1. to provide telecommunications services of all kinds;
2. to carry on business as a holding company and to acquire and hold shares, stocks, debentures, debenture stock, bonds, mortgages, obligations and securities of any kind issued or guaranteed by any company, corporation or undertaking of whatever nature and wherever constituted or carrying on business, and shares, stocks, debentures, debenture stock, bonds, mortgages, obligations and other securities issued or guaranteed by any government, sovereign ruler, commissioners, trust, local authority or other public body, whether in Bermuda or elsewhere, and to vary, transpose, dispose of or otherwise deal with from time to time as may be considered expedient any of the Company’s investments for the time being;
3. to acquire any such shares and other securities as are mentioned in the preceding object by subscription, syndicate participation, tender, purchase, exchange or otherwise and to subscribe for the same, either conditionally or otherwise, and to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incident to the ownership thereof;
4. to co-ordinate the administration, policies, management, supervision, control, research, planning, trading and any and all other activities of, and to act as financial advisers and consultants to, any company or companies now or hereafter incorporated or acquired which may be or may become a Group Company (which expression, in this paragraph 6, means a company, wherever incorporated, which is or becomes a holding company or a subsidiary of, or affiliated with, the Company within the meanings respectively assigned to those terms in The Companies Act 1981) or, with the prior written approval of the Minister of Finance, to any company or companies now or hereafter incorporated or acquired with which the Company may be or may become associated;
5. to provide financing and financial investment, management and advisory services to any Group Company, which shall include but not be limited to granting or providing credit and financial accommodation, lending and making advances with or without interest any Group Company and lending to or depositing with any
bank funds or other assets to provide security (by way of mortgage, charge, pledge, lien or otherwise) for loans or other forms of financing granted to such Group Company by such bank;
6. packaging of goods of all kinds;
7. buying, selling and dealing in goods of all kinds;
8. designing and manufacturing of goods of all kinds;
9. mining and quarrying and exploration for metals, minerals, fossil fuel and precious stones of all kinds and their preparation for sale or use; 10. exploring for, the drilling for, the moving, transporting and refining petroleum and hydro carbon products including oil and oil products;
11. scientific research including the improvement discovery and development of processes, inventions, patents and designs and the construction, maintenance and
operation of laboratories and research centres;
12. land, sea and air undertakings including the land, ship and air carriage of passengers, mails and goods of all kinds;
13. ships and aircraft owners, managers, operators, agents, builders and repairers;
14. acquiring, owning, selling, chartering, repairing or dealing in ships and aircraft;
15. travel agents, freight contractors and forwarding agents;
16. dock owners, wharfingers, warehousemen;
17. ship chandlers and dealing in rope, canvas oil and ship stores of all kinds;
18. all forms of engineering;
19. farmers, livestock breeders and keepers, graziers, butchers, tanners and processors of and dealers in all kinds of live and dead stock, wool, hides, tallow, grain,
vegetables and other produce;
20. acquiring by purchase or otherwise and holding as an investment inventions, patents, trade marks, trade names, trade secrets, designs and the like;
21. buying, selling, hiring, letting and dealing in conveyances of any sort;
22. employing, providing, hiring out and acting as agent for artists, actors, entertainers of all sorts, authors, composers, producers, engineers and experts or specialists
of any kind;
23. to acquire by purchase or otherwise and hold, sell dispose of and deal in real property situated outside Bermuda and in personal property of all kinds wheresoever
situated; and
24. to enter into any guarantee, contract of indemnity or suretyship and to assure, support or secure with or without consideration or benefit the performance of any
obligations of any person or persons and to guarantee the fidelity of individuals filling or about to fill situations of trust or confidence.
7. Powers of the Company
1. The Company shall, pursuant to the Section 42 of the Companies Act 1981, have the power to issue preference shares which are, at the option of the holder, liable
to be redeemed.
2. The Company shall, pursuant to Section 42A of the Companies Act 1981, have the power to purchase its own shares. Signed by each subscriber in the presence of at least one witness attesting the signature thereof:-
/s/ Graham B.R. Collis /s/ Karen O’Connor
Graham B.R. Collis Karen O’Connor
/s/ Alison R. Guilfoyle /s/ Karen O’Connor
Alison R. Guilfoyle Karen O’Connor
/s/ Anthony D. Whaley /s/ Karen O’Connor
Anthony D. Whaley Karen O’Connor
(Subscribers) (Witnesses)
SUBSCRIBED this day of Exhibit 2.6
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”) dated as of January 28, 2005, among Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp. and Intelsat Global Service Corporation (the “New Guarantors”), each a subsidiary of INTELSAT (BERMUDA), LTD. (or its successor), a Delaware corporation (the “Issuer”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H :
WHEREAS the Issuer and the existing Guarantor have heretofore executed and delivered to the Trustee an Indenture (as amended, supplemented or otherwise modified, the “Indenture”) dated as of January 28, 2005, providing for the issuance of the Issuer’s 8- 1/4% Senior Notes due 2013 (the “2013 Notes”), 8- 5/8% Senior Notes due 2015 (the “2015 Notes”) and Senior Floating Rate Notes due 2012 (the “Floating Rate Notes” and, together with the 2013 Notes and the 2015 Notes, the “Notes”), initially in the aggregate principal amount of $875,000,000, $675,000,000 and $1,000,000,000, respectively;
WHEREAS Section 4.11 of the Indenture provides that under certain circumstances the Issuer is required to cause the New Guarantors to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantors shall unconditionally guarantee all the Issuer’s obligations under the Notes pursuant to a Guarantee on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term “Holders” in this Supplemental Indenture shall refer to the term “Holders” as defined in the Indenture and the Trustee acting on behalf of and for the benefit of such Holders. The words “herein,” “hereof” and hereby and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Guarantors hereby agree, jointly and severally with all existing Guarantors (if any), to unconditionally guarantee the Issuer’s obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes applying to a Guarantor and to perform all of the obligations and agreements of a Guarantor under the Indenture.
3. Notices. All notices or other communications to the New Guarantors shall be given as provided in Section 11.02 of the Indenture.
4. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
5. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
7. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
8. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.
-2- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
INTELSAT HOLDINGS LLC
By:
Name: Title:
INTELSAT LLC
By:
Name:
Title:
INTELSAT GLOBAL SALES & MARKETING LTD.
By:
Name:
Title:
INTELSAT USA SALES CORP.
By:
Name:
Title:
INTELSAT USA LICENSE CORP.
By:
Name:
Title:
-3- INTELSAT GLOBAL SERVICE CORPORATION
By:
Name:
Title:
-4- WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE
By: Name: Title:
-5- Exhibit 2.7
SECOND SUPPLEMENTAL INDENTURE (this “Second Supplemental Indenture”) dated as of March 3, 2005, among Intelsat (Bermuda), Ltd., a company organized under the laws of Bermuda (the “Issuer”), Intelsat Subsidiary Holding Company, Ltd., a company organized under the laws of Bermuda (the “Successor”), Intelsat, Ltd. (the “Parent Guarantor”), Intelsat Holdings LLC, Intelsat LLC, Intelsat Global Sales & Marketing Ltd., Intelsat USA Sales Corp., Intelsat USA License Corp. and Intelsat Global Service Corporation (collectively, the “Subsidiary Guarantors”, and together with the Parent Guarantor, the “Guarantors”) and Wells Fargo Bank, National Association, a national banking association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H :
WHEREAS the Issuer and the Parent Guarantor have heretofore executed and delivered to the Trustee an Indenture (as amended, supplemented or otherwise modified, the “Indenture”) dated as of January 28, 2005, providing for the issuance of the Issuer’s 8¼% Senior Notes due 2013, 8 5/8% Senior Notes due 2015 and Senior Floating Rate Notes due 2012 (collectively, the “Notes”), initially in the aggregate principal amount of $875,000,000, $675,000,000 and $1,000,000,000, respectively;
WHEREAS the Subsidiary Guarantors have heretofore executed and delivered to the Trustee a supplemental indenture dated as of January 28, 2005, providing for their guarantee of the Issuer’s obligations under the Notes;
WHEREAS, on the date hereof, the Issuer has transferred its assets and liabilities to the Successor (the “Transfer”);
WHEREAS Section 5.01 of the Indenture provides that in connection with the Transfer, the Successor is required to execute and deliver to the Trustee a supplemental indenture pursuant to which the Successor expressly assumes all of the obligations of the Issuer under the Indenture and the Notes on the terms and conditions set forth herein;
WHEREAS Section 5.01 of the Indenture provides that in connection with the Transfer, the Successor is required to be organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof, under the laws of the jurisdiction of the Issuer or under the laws of any country that is a member of the European Union;
WHEREAS the Successor is organized under the laws of Bermuda and the Issuer is organized under the laws of Bermuda;
WHEREAS Section 5.01 of the Indenture provides that in connection with the Transfer the Issuer is required to cause the Guarantors to execute and deliver to the Trustee a supplemental indenture pursuant to which each Guarantor shall confirm that its guarantee shall apply to the Successor’s obligations under the Indenture and the Notes;
WHEREAS the Indenture provides that in connection with the Transfer, the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that the Transfer and this Second Supplemental Indenture comply with the Indenture, and such Officers’ Certificate and Opinion of Counsel have been delivered to the Trustee on the date hereof;
WHEREAS pursuant to Section 5.02 of the Indenture, concurrently with the Transfer in accordance with or permitted by Section 5.01 of the Indenture, the Successor shall succeed to and be substituted for, and may exercise every right and power of, the Issuer under the Indenture with the same effect as if such Successor has been named as the Issuer in the Indenture, and the Issuer shall thereby be released of its obligations under the Indenture and the Notes;
WHEREAS in accordance with Section 9.01 of the Indenture, the parties hereto desire to amend the Indenture as described below; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Issuer and the Trustee are authorized to execute and deliver this Second Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the Successor, the Guarantors, and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms. As used in this Second Supplemental Indenture, capitalized terms defined in the Indenture and not otherwise defined herein have the meanings assigned such terms in the Indenture. The words “herein,” “hereof” and hereby and other words of similar import used in this Second Supplemental Indenture refer to this Second Supplemental Indenture as a whole and not to any particular section hereof.
2. Agreement to Assume Obligations. The Successor hereby agrees to assume the Issuer’s obligations under the Indenture and the Notes on the terms and subject to the conditions set forth in the Indenture and the Notes, and succeed to and be substituted for, and may exercise every right and power of, the Issuer under the Indenture and the Notes with the same effect as if such Successor has been named as the Issuer in the Indenture and the Notes, and the Issuer shall thereby be released of its obligations under the Indenture and the Notes.
3. Confirmation of Guarantee. Each of the Guarantors hereby confirms that its guarantee shall apply to the Successor’s obligations under the Indenture and the Notes on the terms and subject to the conditions set forth in the Indenture and the Notes.
4. Amendment to the Indenture. Section 6.01(f) of the Indenture is hereby amended by deleting all references to “any Significant Subsidiary of Holdings” and replacing such references with “any Significant Subsidiary”.
2 5. Notices. All notices or other communications to the Successor or a Guarantor shall be in writing and delivered in person, via facsimile or mailed by first-class mail addressed as follows, with copies as provided in Section 11.02 of the Indenture:
Intelsat Subsidiary Holding Company, Ltd. c/o Intelsat, Ltd. Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke, Bermuda HM 08
6. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
7. Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Second Supplemental Indenture.
9. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
10. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.
3 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first above written.
INTELSAT SUBSIDIARY HOLDING COMPANY, LTD.
By: Name:
Title:
INTELSAT (BERMUDA), LTD.
By: Name:
Title:
INTELSAT, LTD.
By: Name:
Title:
INTELSAT HOLDINGS LLC
By: Name:
Title:
INTELSAT LLC
By: Name:
Title:
4 INTELSAT GLOBAL SALES & MARKETING LTD.
By: Name:
Title:
INTELSAT USA SALES CORP.
By: Name:
Title:
INTELSAT USA LICENSE CORP.
By: Name:
Title:
INTELSAT GLOBAL SERVICE CORPORATION
By: Name:
Title:
5 WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name:
Title:
6 Exhibit 2.8
THIRD SUPPLEMENTAL INDENTURE (this “Third Supplemental Indenture”) dated as of March 3, 2005, among Intelsat (Bermuda), Ltd., a company organized under the laws of Bermuda (the “New Guarantor”), Intelsat Subsidiary Holding Company, Ltd., a company organized under the laws of Bermuda (the “Issuer”) and Wells Fargo Bank, National Association, a national banking association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H :
WHEREAS Intelsat (Bermuda), Ltd. as it existed prior to the Transfer described below (“Intelsat Bermuda”) and Intelsat, Ltd. have heretofore executed and delivered to the Trustee an Indenture (as amended, supplemented or otherwise modified, the “Indenture”) dated as of January 28, 2005, providing for the issuance of 8¼% Senior Notes due 2013, 8 5/8% Senior Notes due 2015 and Senior Floating Rate Notes due 2012 (collectively, the “Notes”), initially in the aggregate principal amount of $875,000,000, $675,000,000 and $1,000,000,000, respectively;
WHEREAS the Subsidiary Guarantors have heretofore executed and delivered to the Trustee a supplemental indenture dated as of January 28, 2005, providing for their guarantee of the Notes;
WHEREAS prior hereto Intelsat Bermuda transferred its assets and liabilities to the Issuer (the “Transfer”);
WHEREAS Intelsat Bermuda, the Issuer, Intelsat, Ltd. and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee a Second Supplemental Indenture dated as of March 3, 2005, whereby the Issuer assumed all of Intelsat Bermuda’s obligations under the Indenture and the Notes, and Intelsat, Ltd. and the Subsidiary Guarantors confirmed that each of their guarantees applies to the Issuer’s obligations under the Indenture and the Notes on the terms and subject to the conditions set forth in the Indenture and the Notes;
WHEREAS the New Guarantor desires to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all of the Issuer’s obligations under the Indenture and the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
WHEREAS the Indenture provides that in connection with this Third Supplemental Indenture, the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, and such Officers’ Certificate and Opinion of Counsel have been delivered to the Trustee on the date hereof; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Issuer and the Trustee are authorized to execute and deliver this Third Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Issuer and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms. As used in this Third Supplemental Indenture, capitalized terms defined in the Indenture and not otherwise defined herein have the meanings assigned such terms in the Indenture. The words “herein,” “hereof” and hereby and other words of similar import used in this Third Supplemental Indenture refer to this Third Supplemental Indenture as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and severally with all existing Guarantors, to unconditionally guarantee the Issuer’s obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes applying to a Guarantor and to perform all of the obligations and agreements of a Guarantor under the Indenture; provided, that the Issuer may, upon notice to the Trustee, automatically release and discharge the New Guarantor’s Guarantee if and for so long as the new Guarantor was not obligated to become a Guarantor pursuant to the terms of the Indenture.
3. Notices. All notices or other communications to the New Guarantor shall be in writing and delivered in person, via facsimile or mailed by first-class mail addressed as follows, with copies as provided in Section 11.02 of the Indenture:
Intelsat (Bermuda), Ltd. c/o Intelsat, Ltd. Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke, Bermuda HM 08
4. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Third Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
5. Governing Law. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture.
7. Counterparts. The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
8. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.
2 IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the date first above written.
INTELSAT (BERMUDA), LTD.
By:
Name:
Title:
INTELSAT SUBSIDIARY HOLDING COMPANY, LTD.
By:
Name:
Title:
3 WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name:
Title:
4 Exhibit 2.11
ZEUS SPECIAL SUBSIDIARY LIMITED as Issuer
and
INTELSAT, LTD. as Co-Obligor
9 1/4% Senior Discount Notes due 2015
INDENTURE
Dated as of February 11, 2005
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions 2 SECTION 1.02. Other Definitions 2 SECTION 1.03. Incorporation by Reference of Trust Indenture Act 2 SECTION 1.04. Rules of Construction 2
ARTICLE 2
THE SECURITIES
SECTION 2.01. Amount of Notes; Issuable in Series 2 SECTION 2.02. Form and Dating 2 SECTION 2.03. Execution and Authentication 2 SECTION 2.04. Registrar and Paying Agent 2 SECTION 2.05. Paying Agent to Hold Money in Trust 2 SECTION 2.06. Holder Lists 2 SECTION 2.07. Transfer and Exchange 2 SECTION 2.08. Replacement Notes 2 SECTION 2.09. Outstanding Notes 2 SECTION 2.10. Temporary Notes 2 SECTION 2.11. Cancellation 2 SECTION 2.12. Defaulted Interest 2 SECTION 2.13. CUSIP Numbers, ISINs, etc. 2 SECTION 2.14. Joint and Several Liability 2
ARTICLE 3
REDEMPTION
SECTION 3.01. Redemption 2 SECTION 3.02. Applicability of Article 2 SECTION 3.03. Notices to Trustee 2 SECTION 3.04. Selection of Notes to Be Redeemed 2 SECTION 3.05. Notice of Optional Redemption 2 SECTION 3.06. Effect of Notice of Redemption 2 SECTION 3.07. Deposit of Redemption Price 2 SECTION 3.08. Notes Redeemed in Part 2 SECTION 3.09. Redemption for Taxation Reasons 2 SECTION 3.10. Special Mandatory Redemption 2 SECTION 3.11. Notice of Special Mandatory Redemption 2
-i- Page
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes 2 SECTION 4.02. Reports and Other Information 2 SECTION 4.03. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock 2 SECTION 4.04. Limitation on Restricted Payments 2 SECTION 4.05. Dividend and Other Payment Restrictions Affecting Subsidiaries 2 SECTION 4.06. Asset Sales 2 SECTION 4.07. Transactions with Affiliates 2 SECTION 4.08. Change of Control 2 SECTION 4.09. Compliance Certificate 2 SECTION 4.10. Further Instruments and Acts 2 SECTION 4.11. Future Guarantors 2 SECTION 4.12. Liens 2 SECTION 4.13. Maintenance of Office or Agency 2 SECTION 4.14. Maintenance of Insurance. 2 SECTION 4.15. Matters Relating to Intelsat General Corporation 2 SECTION 4.16. Suspension of Covenants 2 SECTION 4.17. Payment of Additional Amounts 2 SECTION 4.18. Special Account; Special Mandatory Redemption 2 SECTION 4.19. Limitation on Business Activities of Zeus Special Subsidiary Limited. 2
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. When Issuer May Merge or Transfer Assets 2 SECTION 5.02. Successor Company Substituted 2
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default 2 SECTION 6.02. Acceleration 2 SECTION 6.03. Other Remedies 2 SECTION 6.04. Waiver of Past Defaults 2 SECTION 6.05. Control by Majority 2 SECTION 6.06. Limitation on Suits 2 SECTION 6.07. Rights of the Holders to Receive Payment 2 SECTION 6.08. Collection Suit by Trustee 2 SECTION 6.09. Trustee May File Proofs of Claim 2 SECTION 6.10. Priorities 2
-ii- Page
SECTION 6.11. Undertaking for Costs 2 SECTION 6.12. Waiver of Stay or Extension Laws 2
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee 2 SECTION 7.02. Rights of Trustee 2 SECTION 7.03. Individual Rights of Trustee 2 SECTION 7.04. Trustee’s Disclaimer 2 SECTION 7.05. Notice of Defaults 2 SECTION 7.06. Reports by Trustee to the Holders 2 SECTION 7.07. Compensation and Indemnity 2 SECTION 7.08. Replacement of Trustee 2 SECTION 7.09. Successor Trustee by Merger 2 SECTION 7.10. Eligibility; Disqualification 2 SECTION 7.11. Preferential Collection of Claims Against Issuer 2
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Notes; Defeasance 2 SECTION 8.02. Conditions to Defeasance 2 SECTION 8.03. Application of Trust Money 2 SECTION 8.04. Repayment to Issuer 2 SECTION 8.05. Indemnity for U.S. Government Obligations 2 SECTION 8.06. Reinstatement 2
ARTICLE 9
AMENDMENTS AND WAIVERS
SECTION 9.01. Without Consent of the Holders 2 SECTION 9.02. With Consent of the Holders 2 SECTION 9.03. Compliance with Trust Indenture Act 2 SECTION 9.04. Revocation and Effect of Consents and Waivers 2 SECTION 9.05. Notation on or Exchange of Notes 2 SECTION 9.06. Trustee to Sign Amendments 2 SECTION 9.07. Payment for Consent 2 SECTION 9.08. Additional Voting Terms 2
-iii- Page
ARTICLE 10
GUARANTEES
SECTION 10.01. Guarantees 2 SECTION 10.02. Limitation on Liability 2 SECTION 10.03. Successors and Assigns 2 SECTION 10.04. No Waiver 2 SECTION 10.05. Modification 2 SECTION 10.06. Execution of Supplemental Indenture for Future Guarantors 2 SECTION 10.07. Non-Impairment 2
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls 2 SECTION 11.02. Notices 2 SECTION 11.03. Communication by the Holders with Other Holders 2 SECTION 11.04. Certificate and Opinion as to Conditions Precedent 2 SECTION 11.05. Statements Required in Certificate or Opinion 2 SECTION 11.06. When Notes Disregarded 2 SECTION 11.07. Rules by Trustee, Paying Agent and Registrar 2 SECTION 11.08. Legal Holidays 2 SECTION 11.09. GOVERNING LAW 2 SECTION 11.10. No Recourse Against Others 2 SECTION 11.11. Successors 2 SECTION 11.12. Multiple Originals 2 SECTION 11.13. Table of Contents; Headings 2 SECTION 11.14. Indenture Controls 2 SECTION 11.15. Severability 2 SECTION 11.16. Jurisdiction 2 SECTION 11.17. Immunity 2 SECTION 11.18. Currency of Account; Conversion of Currency; Foreign Exchange Restrictions 2
Appendix A – Provisions Relating to Initial Notes, Additional Notes and Exchange Notes
EXHIBIT INDEX
Exhibit A – Form of Initial Note Exhibit B – Form of Exchange Note Exhibit C – Form of Transferee Letter of Representation Exhibit D – Form of Supplemental Indenture
-iv- CROSS-REFERENCE TABLE
Indenture TIA Section Section
310 (a)(1) 7.10; 7.11 (a)(2) 7.10; 7.11 (a)(3) N.A. (a)(4) N.A. (a)(5) 7.10 (b) 7.08; 7.10 (c) N.A. 311 (a) 7.11 (b) 7.11 (c) N.A. 312 (a) 2.06 (b) 11.03 (c) 11.03 313 (a) 7.06 (b)(1) N.A. (b)(2) 7.06 (c) 7.06 (d) 4.02; 4.09; 7.06 314 (a) 4.02; 4.09 (b) N.A. (c)(1) 11.04 (c)(2) 11.04 (c)(3) N.A. (d) N.A. (e) 11.05 (f) 4.10 315 (a) 7.01 (b) 7.05 (c) 7.01 (d) 7.01 (e) 6.11 316 (a) (last sentence) 11.06 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) N.A. (b) 6.07 (c) 2.06 317 (a)(1) 6.08 (a)(2) 6.09 (b) 2.05 318 (a) 11.01
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be part of this Indenture. INDENTURE dated as of February 11, 2005 among ZEUS SPECIAL SUBSIDIARY LIMITED, a company incorporated under the laws of Bermuda (the “Issuer”), INTELSAT, LTD., a company incorporated under the laws of Bermuda (“Holdings”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as trustee (the “Trustee”).
Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders (as defined herein) of (a) $478,700,000 aggregate principal amount at maturity of 9 1/4% senior discount notes due 2015 (the “Original Notes”), issued by the Issuer and Holdings on the date hereof, (b) any Additional Notes (as defined herein) that may be issued after the date hereof in the form of Exhibit A (all such notes in clauses (a) and (b) being referred to collectively as the “Initial Notes”) and (c) if and when issued as provided in the Registration Rights Agreement (as defined in Appendix A hereto (the “Appendix”)) or otherwise registered under the Securities Act (as defined herein) and issued, the Issuer’s and Holdings’ 9 1/4% senior discount notes due 2015 (the “Exchange Notes” and, together with the Initial Notes and the Original Notes, the “Notes”) issued in the Registered Exchange Offer (as defined in the Appendix) in exchange for any Initial Notes or otherwise registered under the Securities Act and issued in the form of Exhibit B. The Original Notes shall be issued in the form of Initial Notes and references herein to Initial Notes shall include the Original Notes. Subject to the conditions and compliance with the covenants set forth herein, the Issuer and Holdings may issue an unlimited aggregate principal amount of Additional Notes.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
“Acceptable Exclusions” means
(1) war, invasion or hostile or warlike action in time of peace or war, including action in hindering, combating or defending against an actual, impending or expected attack by:
(a) any government or sovereign power (de jure or de facto),
(b) any authority maintaining or using a military, naval or air force,
(c) a military, naval or air force, or
(d) any agent of any such government, power, authority or force;
(2) any anti-satellite device, or device employing atomic or nuclear fission or fusion, or device employing laser or directed energy beams;
(3) insurrection, strikes, labor disturbances, riots, civil commotion, rebellion, revolution, civil war, usurpation or action taken by a government authority in hindering, combating or defending against such an occurrence, whether there be declaration of war or not; (4) confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any government or governmental authority or agent (whether secret or otherwise or whether civil, military or de facto) or public or local authority or agency;
(5) nuclear reaction, nuclear radiation or radioactive contamination of any nature, whether such loss or damage be direct or indirect, except for radiation naturally occurring in the space environment;
(6) electromagnetic or radio frequency interference, except for physical damage to the Satellite directly resulting from such interference;
(7) willful or intentional acts of the directors or officers of the named insured, acting within the scope of their duties, designed to cause loss or failure of the Satellite;
(8) an act of one or more individuals, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss, damage or failure resulting therefrom is accidental or intentional;
(9) any unlawful seizure or wrongful exercise of control of the Satellite made by any individual or individuals acting for political or terrorist purposes;
(10) loss of revenue, incidental damages or consequential loss;
(11) extra expenses, other than the expenses insured under such policy;
(12) third party liability;
(13) loss of a redundant component(s) that does not cause a transponder failure; and
(14) such other similar exclusions or modifications to the foregoing exclusions as may be customary for policies of such type as of the date of issuance or renewal of such coverage.
“Accreted Value” means, as of any date (the “Specified Date”), the amount provided below for each $1,000 principal amount at maturity of notes:
(1) if the Specified Date occurs on one of the following dates (each, a “Semi-Annual Accrual Date”), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
Accreted Semi-Annual Accrual Date Value
February 11, 2005 $ 637.87 August 1, 2005 $ 665.70 February 1, 2006 $ 696.49 August 1, 2006 $ 728.70 February 1, 2007 $ 762.41 August 1, 2007 $ 797.67 February 1, 2008 $ 834.56 August 1, 2008 $ 873.16 February 1, 2009 $ 913.54 August 1, 2009 $ 955.79 February 1, 2010 $1,000.00
-2- (2) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (A) the original issue price of a Note and (B) an amount equal to the product of (x) the Accreted Value for the first Semi-Annual Accrual Date less such original issue price multiplied by (y) a fraction, the numerator of which is the number of days from the Issue Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days elapsed from the Issue Date to the first Semi-Accrual Date, using a 360-day year of twelve 30-day months;
(3) if the Specified Date occurs between two Semi-Accrual Dates, the Accreted Value will equal the sum of (A) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (B) an amount equal to the product of (x) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date multiplied by (y) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or
(4) if the Specified Date occurs on or after the Full Accretion Date, the Accreted Value will equal $1,000.
The foregoing Accreted Values shall be increased, if necessary, to reflect any accretion of premium payable as pursuant to a Registration Rights Agreement. As a result, in the event that additional interest or premium accrues on the Notes, the principal amount at maturity of the Notes will be in excess of $1,000.
“Acquired Indebtedness” means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Restricted Subsidiary of such specified Person, and
-3- (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, in each case, other than Indebtedness Incurred as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by such Person, or such asset was acquired by such Person, as applicable.
“Acquisition” means the transactions pursuant to which Zeus Holdings Limited became the owner of all of the outstanding share capital of Intelsat, Ltd. pursuant to the Transaction Agreement.
“Acquisition Date” means January 28, 2005, the date of the consummation of the Acquisition pursuant to the Acquisition Documents.
“Acquisition Documents” means the Transaction Agreement, the Credit Agreement, the indenture for the Existing Notes and, in each case, any other document entered into in connection therewith, in each case as amended, supplemented or modified from time to time.
“Additional Notes” means 9 1/4% senior discount notes due 2015 issued under the terms of this Indenture subsequent to the Issue Date.
“Adjusted EBITDA” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, to the extent the same was deducted in calculating Consolidated Net Income:
(1) Consolidated Taxes; plus
(2) Consolidated Interest Expense (including any interest expense set forth in clause (4) of the definition thereof, whether or not the same was deducted in calculating Consolidated Net Income); plus
(3) Consolidated Non-cash Charges; plus
(4) the amount of any restructuring charges or expenses (which, for the avoidance of doubt, shall include retention, severance, systems establishment costs or excess pension charges); plus
(5) (a) the amount of any fees or expenses incurred or paid in such period for transition services related to satellites or other assets or businesses acquired and (b) the amount of management, monitoring, consulting and advisory fees and related expenses paid to the Sponsors or any other Permitted Holder (or any accruals relating to such fees and related expenses) during such period; provided that such amount pursuant to subclause (b) shall not exceed in any four-quarter period the greater of (x) $6.25 million and (y) 1.25% of Adjusted EBITDA of such Person and its Restricted Subsidiaries; less, without duplication,
-4- (6) non-cash items increasing Consolidated Net Income for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and any items for which cash was received in any prior period).
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
“Applicable Premium” means, with respect to any Note on any applicable redemption date, the greater of:
(1) 1.0% of the then outstanding Accreted Value of such Note; and
(2) the excess of:
(a) the present value at such redemption date of the redemption price of such Note at February 1, 2010 (such redemption price being set forth in the table appearing in Paragraph 5 on the reverse side of the applicable Note attached as Exhibit A or Exhibit B hereto), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over
(b) the then outstanding Accreted Value of such Note.
“Asset Sale” means:
(1) the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of property or assets (including by way of a Sale/Leaseback Transaction) of the Issuer or any Restricted Subsidiary of the Issuer (each referred to in this definition as a “disposition”) or
(2) the issuance or sale of Equity Interests (other than directors’ qualifying shares or shares or interests required to be held by foreign nationals) of any Restricted Subsidiary (other than to the Issuer or another Restricted Subsidiary of the Issuer) (whether in a single transaction or a series of related transactions), in each case other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities or obsolete or worn out property or equipment in the ordinary course of business including the sale or leasing (including by way of sales-type lease) of transponders or transponder capacity and the leasing or licensing of teleports;
-5- (b) the disposition of all or substantially all of the assets of the Issuer in a manner permitted pursuant to Section 5.01 or any disposition that constitutes a Change of Control;
(c) any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under Section 4.04;
(d) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary with an aggregate Fair Market Value of less than $20.0 million;
(e) any disposition of property or assets or the issuance of securities by a Restricted Subsidiary of the Issuer to the Issuer or by the Issuer or a Restricted Subsidiary of the Issuer to a Restricted Subsidiary of the Issuer;
(f) any exchange of assets for assets (including a combination of assets and Cash Equivalents) related to a Similar Business of comparable or greater market value or usefulness to the business of the Issuer and its Restricted Subsidiaries as a whole, as determined in good faith by the Issuer, which in the event of an exchange of assets with a Fair Market Value in excess of (1) $20.0 million shall be evidenced by an Officers’ Certificate, and (2) $40.0 million shall be set forth in a resolution approved in good faith by at least a majority of the Board of Directors of the Issuer;
(g) foreclosures on assets or property of the Issuer or its Subsidiaries;
(h) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(i) any disposition of inventory or other assets (including transponders, transponder capacity and teleports) in the ordinary course of business;
(j) the lease, assignment or sublease of any real or personal property in the ordinary course of business;
(k) a sale of accounts receivable (including in respect of sales-type leases) and related assets (including contract rights) of the type specified in the definition of “Receivables Financing” to a Receivables Subsidiary in a Qualified Receivables Financing or in factoring or similar transactions;
(l) a transfer of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Financing;
(m) the grant in the ordinary course of business of any license of patents, trademarks, know-how and any other intellectual property;
(n) any Event of Loss;
-6- (o) any sale or other disposition of assets or property in connection with a Specified Sale/Leaseback Transaction;
(p) any sale of an Excluded Satellite; provided, that for purposes of this clause (p) of this definition of “Asset Sale,” references in the definition of “Excluded Satellite” to $37.5 million shall be deemed to be $25.0 million; provided, further, that any cash and Cash Equivalents received in connection with the sale of an Excluded Satellite shall be treated as Net Proceeds of an Asset Sale and shall be applied as provided for in Section 4.06;
(q) any transfer or disposition of any assets or equity of Galaxy Satellite TV Holdings Limited or Galaxy Satellite Broadcasting Limited; and
(r) any disposition of assets in connection with the Transactions.
“Bank Indebtedness” means any and all amounts payable under or in respect of the Credit Agreement or the other Senior Credit Documents, as amended, restated, supplemented, waived, replaced, restructured, repaid, refunded, refinanced or otherwise modified from time to time (including after termination of the Credit Agreement), including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Issuer whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof.
“Board of Directors” means as to any Person, the board of directors or managers, as applicable, of such Person (or, if such Person is a partnership, the board of directors or other governing body of the general partner of such Person) or any duly authorized committee thereof.
“Business Day” means a day other than a Saturday, Sunday or other day on which banking institutions are authorized or required by law to close in New York City.
“Capital Stock” means:
(1) in the case of a corporation or a company, corporate stock or shares;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
“Capitalized Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
-7- “Cash Contribution Amount” means the aggregate amount of cash contributions made to the capital of the Issuer or any Guarantor described in the definition of “Contribution Indebtedness.”
“Cash Equivalents” means:
(1) U.S. Dollars, pounds sterling, Euros, national currency of any participating member state in the European Union or, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by it from time to time in the ordinary course of business;
(2) securities issued or directly and fully guaranteed or insured by the government of the United States or any country that is a member of the European Union or any agency or instrumentality thereof, in each case with maturities not exceeding two years from the date of acquisition;
(3) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances, in each case with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $250.0 million, or the foreign currency equivalent thereof, and whose long-term debt is rated “A” or the equivalent thereof by Moody’s or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency);
(4) repurchase obligations for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) commercial paper issued by a corporation (other than an Affiliate of the Issuer) rated at least “A-1” or the equivalent thereof by Moody’s or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency) and in each case maturing within one year after the date of acquisition;
(6) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody’s or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency) in each case with maturities not exceeding two years from the date of acquisition;
(7) Indebtedness issued by Persons (other than the Sponsors or any of their Affiliates) with a rating of “A” or higher from S&P or “A-2” or higher from Moody’s (or reasonably equivalent ratings of another internationally recognized ratings agency) in each case with maturities not exceeding two years from the date of acquisition; and
(8) investment funds investing at least 95% of their assets in securities of the types described in clauses (1) through (7) above.
“Code” means the Internal Revenue Code of 1986, as amended.
-8- “Consolidated Interest Expense” means, with respect to any Person for any period, the sum, without duplication, of:
(1) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, the interest component of Capitalized Lease Obligations, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations and excluding amortization of deferred financing fees, expensing of any bridge or other financing fees and any interest under Satellite Purchase Agreements);
(2) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued;
(3) commissions, discounts, yield and other fees and charges Incurred in connection with any Receivables Financing which are payable to Persons other than such Person and its Restricted Subsidiaries; and
(4) with respect to any Person, consolidated interest expense of any Parent of such Person for such period with respect to the Existing Holdings Notes or any refinancing thereof to the extent cash interest is paid thereon pursuant to Section 4.04(b)(xiii)(C) hereof; less interest income for such period; provided, that for purposes of calculating Consolidated Interest Expense, no effect shall be given to the effect of any purchase accounting adjustments in connection with the Transactions; provided, further, that for purposes of calculating Consolidated Interest Expense, no effect shall be given to the discount and/or premium resulting from the bifurcation of derivatives under Statement of Financial Accounting Standards No. 133 and related interpretations as a result of the terms of the Indebtedness to which such Consolidated Interest Expense relates.
“Consolidated Net Income” means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis; provided, however, that:
(1) any net after-tax extraordinary or nonrecurring or unusual gains or losses (less all fees and expenses relating thereto), or income or expense or charge (including, without limitation, any severance, relocation or other restructuring costs) and fees, expenses or charges related to any offering of equity interests of such Person, Investment, acquisition or Indebtedness permitted to be Incurred by this Indenture (in each case, whether or not successful), including any such fees, expenses, charges or change in control payments related to the Transactions, in each case, shall be excluded;
(2) any increase in amortization or depreciation or any one-time non-cash charges resulting from purchase accounting in connection with the Transactions or any acquisition that is consummated prior to, on or after January 28, 2005 shall be excluded;
-9- (3) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period;
(4) any net after-tax income or loss from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations shall be excluded;
(5) any net after-tax gains or losses (less all fees and expenses or charges relating thereto) attributable to business dispositions or asset dispositions other than in the ordinary course of business (as determined in good faith by the Board of Directors of the Issuer) shall be excluded;
(6) any net after-tax gains or losses (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of indebtedness shall be excluded;
(7) the Net Income for such period of any Person that is not a Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;
(8) solely for the purpose of determining the amount of Cumulative Credit, the Net Income for such period of any Restricted Subsidiary (other than any Subsidiary Guarantor) shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders, unless (x) such restrictions with respect to the payment of dividends or similar distributions have been legally waived or (y) such restriction is permitted by Section 4.05 hereof; provided that the Consolidated Net Income of such Person shall be increased by the amount of dividends or other distributions or other payments actually paid in cash (or converted into cash) by any such Restricted Subsidiary to such Person, to the extent not already included therein;
(9) any non-cash impairment charge or asset write-off resulting from the application of Statement of Financial Accounting Standards No. 142 and 144, and the amortization of intangibles arising pursuant to No. 141, shall be excluded;
(10) any non-cash expenses realized or resulting from employee benefit plans or post-employment benefit plans, grants of stock appreciation or similar rights, stock options or other rights to officers, directors and employees of such Person or any of its Restricted Subsidiaries shall be excluded;
(11) any (a) severance or relocation costs or expenses, (b) one-time non-cash compensation charges, (c) solely for purposes of calculating the Debt to Adjusted EBITDA Ratio, the costs and expenses after January 28, 2005, related to employment of terminated employees, (d) costs or expenses realized in connection with, resulting from or in anticipation of the Transactions or (e) costs or expenses realized in connection with
-10- or resulting from stock appreciation or similar rights, stock options or other rights existing on January 28, 2005 or on the Issue Date, of officers, directors and employees, in each case of such Person or any of its Restricted Subsidiaries, shall be excluded;
(12) accruals and reserves that are established within twelve months after January 28, 2005, and that are so required to be established in accordance with GAAP shall be excluded;
(13) (a) (i) the non-cash portion of “straight-line” rent expense shall be excluded and (ii) the cash portion of “straight-line” rent expense which exceeds the amount expensed in respect of such rent expense shall be included and (b) non-cash gains, losses, income and expenses resulting from fair value accounting required by Statement of Financial Accounting Standards No. 133 and related interpretations shall be excluded; and
(14) an amount equal to the amount of tax distributions actually made to the holders of Capital Stock of such Person or any Parent of such Person in respect of such period in accordance with clause (xii) of Section 4.04(b) shall be included as though such amounts had been paid as income taxes directly by such Person for such period.
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from the calculation of Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to such Person or a Restricted Subsidiary of such Person in respect of or that originally constituted Restricted Investments to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under Section 4.04 pursuant to clause (5) or (6) of the definition of “Cumulative Credit.”
“Consolidated Non-cash Charges” means, with respect to any Person for any period, the aggregate depreciation, amortization, impairment, compensation, rent and other non-cash expenses of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP, but excluding (i) any such charge which consists of or requires an accrual of, or cash reserve for, anticipated cash charges for any future period and (ii) the non-cash impact of recording the change in fair value of any embedded derivatives under Statement of Financial Accounting Standards No. 133 and related interpretations as a result of the terms of any agreement or instrument to which such Consolidated Non-Cash Charges relate.
“Consolidated Taxes” means, with respect to any Person and its Restricted Subsidiaries on a consolidated basis for any period, provision for taxes based on income, profits or capital, including, without limitation, state franchise and similar taxes and including an amount equal to the amount of tax distributions actually made to the holders of Capital Stock of such Person or any Parent of such Person in respect of such period in accordance with Section 4.04(b)(xii), which shall be included as though such amounts had been paid as income taxes directly by such Person.
“Consolidated Total Indebtedness” means, as at any date of determination, an amount equal to the sum of (1) the aggregate amount of all outstanding Indebtedness of such
-11- Person and its Restricted Subsidiaries and (2) the aggregate amount of all outstanding Disqualified Stock of such Person and all Preferred Stock of its Restricted Subsidiaries, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP.
For purposes hereof, the “maximum fixed repurchase price” of any Disqualified Stock or Preferred Stock that does not have a fixed price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the Issuer.
“Contingent Obligations” means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor;
(2) to advance or supply funds:
(a) for the purchase or payment of any such primary obligation; or
(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
“Contribution” means the transfer of all of the assets, and assumption of all liabilities, of Intelsat (Bermuda), Ltd. to, and by, Intelsat Sub Holdco and either the subsequent amalgamation of Intelsat (Bermuda), Ltd. with the Issuer or the subsequent transfer of all of the Issuer’s assets to, and the assumption of all of the Issuer’s liabilities and obligations by, Intelsat (Bermuda), Ltd., in each case, as described in the Offering Memorandum.
“Contribution Indebtedness” means Indebtedness of the Issuer or any Restricted Subsidiary in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made (without duplication) to the capital of the Issuer or such Restricted Subsidiary after January 28, 2005 (other than any cash contributions in connection with the Transactions); provided that:
(1) if the aggregate principal amount of such Contribution Indebtedness is greater than the aggregate amount of such cash contributions to the capital of the Issuer
-12- or such Restricted Subsidiary, as applicable, the amount in excess shall be Indebtedness (other than Secured Indebtedness) that ranks subordinate to the Notes with a Stated Maturity later than the Stated Maturity of the Notes, and
(2) such Contribution Indebtedness (a) is Incurred within 210 days after the making of such cash contributions and (b) is so designated as Contribution Indebtedness pursuant to an Officers’ Certificate on the date of Incurrence thereof.
“Credit Agreement” means (i) the credit agreement dated as of January 28, 2005, entered into in connection with the consummation of the Acquisition, among Intelsat (Bermuda), Ltd., Holdings, the financial institutions named therein and Deutsche Bank Trust Company Americas (or an affiliate thereof), as Administrative Agent, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any one or more agreements or indentures extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or indenture or indentures or any successor or replacement agreement or agreements or indenture or indentures or increasing the amount loaned or issued thereunder or altering the maturity thereof, and (ii) whether or not the credit agreement referred to in clause (i) remains outstanding, if designated by the Issuer to be included in the definition of “Credit Agreement,” one or more (A) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, (B) debt securities, indentures or other forms of debt financing (including convertible or exchangeable debt instruments or bank guarantees or bankers’ acceptances), or (C) instruments or agreements evidencing any other Indebtedness, in each case, with the same or different borrowers or issuers and, in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.
“Cumulative Credit” means the sum of (without duplication):
(1) cumulative Adjusted EBITDA of the Issuer for the period (taken as one accounting period) from and after January 1, 2005 to the end of the Issuer’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in the case such Adjusted EBITDA for such period is a negative, minus the amount by which cumulative Adjusted EBITDA is less than zero), plus
(2) 100% of the aggregate net proceeds, including cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash, received by the Issuer after January 28, 2005 from the issue or sale of Equity Interests of the Issuer or any Parent of the Issuer (excluding (without duplication) Refunding Capital Stock, Designated Preferred Stock, Excluded Contributions, Disqualified Stock and the Cash Contribution Amount), including Equity Interests issued upon conversion of Indebtedness or upon exercise of warrants or options (other than an issuance or sale to a Restricted Subsidiary of the Issuer or an employee stock ownership plan or trust established by the Issuer or any of its Subsidiaries), plus
-13- (3) 100% of the aggregate amount of contributions to the capital of the Issuer received in cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash after January 28, 2005 (other than Excluded Contributions, Refunding Capital Stock, Designated Preferred Stock, Disqualified Stock and the Cash Contribution Amount), plus
(4) the principal amount of any Indebtedness, or the liquidation preference or maximum fixed repurchase price, as the case may be, of any Disqualified Stock, of the Issuer or any Restricted Subsidiary thereof issued after January 28, 2005 (other than Indebtedness or Disqualified Stock issued to a Restricted Subsidiary) which has been converted into or exchanged for Equity Interests in the Issuer or any Parent of the Issuer (other than Disqualified Stock), plus
(5) 100% of the aggregate amount received by the Issuer or any Restricted Subsidiary in cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash received by the Issuer or any Restricted Subsidiary from:
(A) the sale or other disposition (other than to the Issuer or a Restricted Subsidiary of the Issuer) of Restricted Investments made by the Issuer and its Restricted Subsidiaries and from repurchases and redemptions of such Restricted Investments from the Issuer and its Restricted Subsidiaries by any Person (other than the Issuer or any of its Restricted Subsidiaries) and from repayments of loans or advances which constituted Restricted Investments (other than in each case to the extent that the Restricted Investment was made pursuant to Section 4.04(b)(vii) or (x)),
(B) the sale (other than to the Issuer or a Restricted Subsidiary of the Issuer) of the Capital Stock of an Unrestricted Subsidiary or
(C) a distribution, dividend or other payment from an Unrestricted Subsidiary, plus
(6) in the event any Unrestricted Subsidiary of the Issuer has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary of the Issuer, the Fair Market Value (as determined in accordance with the next succeeding sentence) of the Investments of the Issuer in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable) (other than in each case to the extent that the designation of such Subsidiary as an Unrestricted Subsidiary was made pursuant to Section 4.04(b)(vii) or (x) or constituted a Permitted Investment).
The Fair Market Value of property other than cash covered by clauses (2), (3), (4), (5) and (6) above shall be determined in good faith by the Issuer and
(A) in the event of property with a Fair Market Value in excess of $20.0 million, shall be set forth in an Officers’ Certificate or
-14- (B) in the event of property with a Fair Market Value in excess of $40.0 million, shall be set forth in a resolution approved by at least a majority of the Board of Directors of the Issuer.
“Cumulative Interest Expense” means, in respect of any Restricted Payment, the sum of the aggregate amount of Consolidated Interest Expense of the Issuer and the Restricted Subsidiaries for the period from and after January 1, 2005 to the end of the Issuer’s most recently ended fiscal quarter for which internal financial statements are available and immediately preceding the proposed Restricted Payment.
“Debt to Adjusted EBITDA Ratio” means, with respect to any Person for any period, the ratio of (i) Consolidated Total Indebtedness as of the date of calculation (the “Calculation Date”) to (ii) Adjusted EBITDA of such Person for the four consecutive fiscal quarters immediately preceding such Calculation Date. In the event that such Person or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness (other than in the case of revolving credit borrowings, in which case interest expense shall be computed based upon the average daily balance of such Indebtedness during the applicable period) or issues or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Debt to Adjusted EBITDA Ratio is being calculated but prior to the Calculation Date, then the Debt to Adjusted EBITDA Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness, or such issuance or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period.
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (as determined in accordance with GAAP), in each case with respect to an operating unit of a business, and other operational changes that such Person or any of its Restricted Subsidiaries has both determined to make and made after January 28, 2005 and during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, amalgamations, consolidations, discontinued operations and other operational changes (and the change of any associated fixed charge obligations and the change in Adjusted EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into such Person or any Restricted Subsidiary since the beginning of such period shall have made any Investment, acquisition, disposition, merger, amalgamation, consolidation, discontinued operation or operational change, in each case with respect to an operating unit of a business, that would have required adjustment pursuant to this definition, then the Debt to Adjusted EBITDA Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger, amalgamation, consolidation or operational change had occurred at the beginning of the applicable four- quarter period.
For purposes of this definition, whenever pro forma effect is to be given to any transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Issuer. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect
-15- on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness if such Hedging Obligation has a remaining term in excess of 12 months). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate. Any such pro forma calculation may include adjustments appropriate, in the reasonable determination of the Issuer as set forth in an Officers’ Certificate, to reflect, among other things, (1) operating expense reductions and other operating improvements or synergies reasonably expected to result from any acquisition, amalgamation, merger or operational change (including, to the extent applicable, from the Transactions) and (2) all adjustments used in connection with the calculation of “Adjusted EBITDA” as set forth in footnote 4 to the “Summary Historical and Pro Forma Consolidated Financial Data” under “Offering Memorandum Summary” in the Offering Memorandum to the extent such adjustments, without duplication, continue to be applicable to such four-quarter period.
“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Designated Non-cash Consideration” means the Fair Market Value of non-cash consideration received by the Issuer or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, less the amount of Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.
“Designated Preferred Stock” means Preferred Stock of the Issuer, Intelsat Sub Holdco or any Parent of the Issuer or Intelsat Sub Holdco, as applicable (other than Disqualified Stock), that is issued for cash (other than to the Issuer or any of its Subsidiaries or an employee stock ownership plan or trust established by the Issuer or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers’ Certificate, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in the definition of “Cumulative Credit.”
“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is redeemable or exchangeable), or upon the happening of any event:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a change of control or asset sale; provided that the relevant asset sale or change of control provisions, taken as a whole, are no more favorable in any material respect to holders of such Capital Stock than the asset sale and change of control provisions applicable to the Notes and any purchase requirement triggered
-16- thereby may not become operative until compliance with the asset sale and change of control provisions applicable to the Notes (including the purchase of any Notes tendered pursuant thereto)),
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock, or
(3) is redeemable at the option of the holder thereof, in whole or in part, in each case prior to 91 days after the maturity date of the Notes; provided, however, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided, further, however, that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability; provided, further, that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Equity Offering” means any public or private sale after the Issue Date of common stock or ordinary shares or Preferred Stock of the Issuer or any Parent of the Issuer, as applicable (other than Disqualified Stock), other than:
(1) public offerings with respect to the Issuer’s or such Parent’s common stock or ordinary shares registered on Form S-8; and
(2) any such public or private sale that constitutes an Excluded Contribution.
“Eurobond Notes” means the 8 1/8% notes due 2005 of Holdings.
“Event of Loss” means any event that results in the Issuer or its Restricted Subsidiaries receiving proceeds from any insurance covering any Satellite, or in the event that the Issuer or any of its Restricted Subsidiaries receives proceeds from any insurance maintained for it by any Satellite Manufacturer or any launch provider covering any of such Satellites.
“Event of Loss Proceeds” means, with respect to any proceeds from any Event of Loss, all Satellite insurance proceeds received by the Issuer or any of the Restricted Subsidiaries in connection with such Event of Loss, after
(1) provision for all income or other taxes measured by or resulting from such Event of Loss,
-17- (2) payment of all reasonable legal, accounting and other reasonable fees and expenses related to such Event of Loss,
(3) payment of amounts required to be applied to the repayment of Indebtedness secured by a Lien on the Satellite that is the subject of such Event of Loss,
(4) provision for payments to Persons who own an interest in the Satellite (including any transponder thereon) in accordance with the terms of the agreement(s) governing the ownership of such interest by such Person (other than provision for payments to insurance carriers required to be made based on projected future revenues expected to be generated from such Satellite in the good faith determination of the Issuer as evidenced by an Officers’ Certificate), and
(5) deduction of appropriate amounts to be provided by the Issuer or such Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the Satellite that was the subject of the Event of Loss.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Exchange Offer Registration Statement” means the registration statement filed with the SEC in connection with the Registered Exchange Offer.
“Excluded Contributions” means the Cash Equivalents or other assets (valued at their Fair Market Value as determined by the Issuer in good faith) received by the Issuer after January 28, 2005 from:
(1) contributions to its common equity capital, and
(2) the sale (other than to a Subsidiary of the Issuer or pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Issuer or any of its Subsidiaries) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Issuer, in each case designated as Excluded Contributions pursuant to an Officers’ Certificate, which are excluded from the calculation set forth in the definition of “Cumulative Credit.”
“Excluded Satellite” means any Satellite (or, if the entire Satellite is not owned by the Issuer or any Restricted Subsidiary, as the case may be, the portion of the Satellite it owns or for which it has risk of loss) (i) that is not expected or intended, in the good faith determination of the Board of Directors of the Issuer as evidenced by a resolution of the Board of Directors, to earn revenue from the operation of such Satellite (or portion, as applicable) in excess of $37.5 million for the immediately succeeding 12-month calendar period or (ii) that has a net book value not in excess of $150.0 million or (iii) that (1) the procurement of In-Orbit Insurance therefor in the amounts and on the terms required by this Indenture would not be available for a price that is, and on other terms and conditions that are, commercially reasonable or (2) the procurement of such In-Orbit Insurance therefor would be subject to exclusions or limitations of coverage that would make the terms of the insurance commercially unreasonable, in either case, in the
-18- good faith determination of the Board of Directors of the Issuer and evidenced by a resolution of the Board of Directors delivered to the Trustee, or (iv) for which In-Orbit Contingency Protection is available or (v) whose primary purpose is to provide In-Orbit Contingency Protection for the Issuer’s or its Subsidiaries’ other Satellites (or portions) and otherwise that is not expected or intended, in the good faith determination of the Board of Directors of the Issuer as evidenced by a resolution of the Board of Directors, to earn revenue from the operation of such Satellite (or portion, as applicable) in excess of $37.5 million for the immediately succeeding 12-month calendar period.
“Existing Holdings Notes” means (a) the 5 1/4% Senior Notes due 2008, (b) the 7 5/8% Senior Notes due 2012, (c) the 6 1/2% Senior Notes due 2013, in each case, of Holdings and (d) the Eurobond Notes.
“Existing Notes” means (a) the Floating Rate Senior Notes due 2012, (b) the 8 1/4% Senior Notes due 2013 and (c) the 8 5/8% Senior Notes due 2015, in each case, of, prior to consummation of the Transfer Transactions, Intelsat (Bermuda), Ltd., and after consummation of the Transfer Transactions, Intelsat Sub Holdco.
“Fair Market Value” means, with respect to any asset or property, the price which could be negotiated in an arm’s-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction.
“FCC Licenses” shall mean all authorizations, licenses and permits issued by the Federal Communications Commission or any governmental authority substituted therefor to the Issuer or any of its Subsidiaries, under which the Issuer or any of its Subsidiaries is authorized to launch and operate any of its Satellites or to operate any of its TT&C Earth Stations (other than authorizations, orders, licenses or permits that are no longer in effect).
“Flow Through Entity” means an entity that is treated as a partnership not taxable as a corporation, a grantor trust or a disregarded entity for U.S. federal income tax purposes or subject to treatment on a comparable basis for purposes of state, local or foreign tax law.
“Foreign Subsidiary” means a Restricted Subsidiary not organized or existing under the laws of the United States of America or any state or territory thereof or the District of Columbia and any direct or indirect subsidiary of such Restricted Subsidiary.
“FSS Operators” means each of (i) PanAmSat Corporation, (ii) New Skies Satellites B.V., (iii) SES Global S.A., (iv) Eutelsat S.A. and (v) any successor entities of each of the foregoing (whether by consolidation, amalgamation, merger with or winding up into another Person, or through the sale, transfer, lease, conveyance or other disposition of all or substantially all its equity, assets or properties in one or more related transactions to another Person or otherwise).
“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant
-19- segment of the accounting profession, which are in effect on January 28, 2005. For the purposes of this Indenture, the term “consolidated” with respect to any Person shall mean such Person consolidated with its Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary, but the interest of such Person in an Unrestricted Subsidiary will be accounted for as an Investment.
“guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
“Guarantee” means any guarantee of the obligations of the Issuer and Holdings under this Indenture and the Notes by any Person in accordance with the provisions of this Indenture.
“Guarantor” means any Person that Incurs a Guarantee; provided that upon the release or discharge of such Person from its Guarantee in accordance with this Indenture, such Person ceases to be a Guarantor.
“Hedging Obligations” means, with respect to any Person, the obligations of such Person under:
(1) currency exchange or interest rate swap agreements, cap agreements and collar agreements; and
(2) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange or interest rates.
“Holder” means the Person in whose name a Note is registered on the registrar’s books.
“Holdings” means Intelsat, Ltd., a company organized under the laws of Bermuda, until a successor replaces it and, thereafter, means the successor.
“Incur” means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, amalgamation, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary.
“Indebtedness” means, with respect to any Person:
(1) the principal and premium (if any) of any indebtedness of such Person, whether or not contingent, (a) in respect of borrowed money, (b) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers’ acceptances (or, without duplication, reimbursement agreements in respect thereof), (c) representing the deferred and unpaid purchase price of any property, except any such balance that constitutes a current account payable, trade payable or similar obligation Incurred, (d) in respect of Capitalized Lease Obligations, or (e) representing any Hedging Obligations, if
-20- and to the extent that any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP;
(2) to the extent not otherwise included, any obligation of such Person to be liable for, or to pay, as obligor, guarantor or otherwise, the Indebtedness of another Person (other than by endorsement of negotiable instruments for collection in the ordinary course of business);
(3) to the extent not otherwise included, Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided, however, that the amount of such Indebtedness will be the lesser of: (a) the Fair Market Value of such asset at such date of determination, and (b) the amount of such Indebtedness of such other Person; and
(4) to the extent not otherwise included, with respect to the Issuer and its Restricted Subsidiaries, the amount then outstanding (i.e., advanced, and received by, and available for use by, the Issuer or any of its Restricted Subsidiaries) under any Receivables Financing (as set forth in the books and records of the Issuer or any Restricted Subsidiary and confirmed by the agent, trustee or other representative of the institution or group providing such Receivables Financing); provided, however, that notwithstanding the foregoing, Indebtedness shall be deemed not to include (1) Contingent Obligations incurred in the ordinary course of business and not in respect of borrowed money; (2) deferred or prepaid revenues; (3) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the respective seller; (4) obligations to make payments to one or more insurers under satellite insurance policies in respect of premiums or the requirement to remit to such insurer(s) a portion of the future revenue generated by a satellite which has been declared a constructive total loss, in each case in accordance with the terms of the insurance policies relating thereto; (5) Obligations under or in respect of any Qualified Receivables Financing; or (6) any obligations to make progress or incentive payments or risk money payments under any satellite manufacturing contract or to make payments under satellite launch contracts in respect of launch services provided thereunder, in each case, to the extent not overdue by more than 90 days.
Notwithstanding anything in this Indenture, Indebtedness shall not include, and shall be calculated without giving effect to, the effects of Statement of Financial Accounting Standards No. 133 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness; and any such amounts that would have constituted Indebtedness under this Indenture but for the application of this sentence shall not be deemed an Incurrence of Indebtedness under this Indenture.
“Indenture” means this Indenture as amended or supplemented from time to time.
“Independent Financial Advisor” means an accounting, appraisal or investment banking firm or consultant to Persons engaged in a Similar Business, in each case of nationally recognized standing that is, in the good faith determination of the Issuer, qualified to perform the task for which it has been engaged.
-21- “Initial Purchaser” means Deutsche Bank Securities Inc.
“In-Orbit Contingency Protection” means transponder capacity that in the good faith determination of the Board of Directors of the Issuer as evidenced by a resolution of the Board of Directors, is available on a contingency basis by the Issuer or its Subsidiaries, directly or by another satellite operator pursuant to a contractual arrangement, to accommodate the transfer of traffic representing at least 25% of the revenue-generating capacity with respect to any Satellite (or, if the entire Satellite is not owned by the Issuer or any Restricted Subsidiary, as the case may be, the portion of the Satellite it owns or for which it has risk of loss) that may suffer actual or constructive total loss and that meets or exceeds the contractual performance specifications for the transponders that had been utilized by such traffic; provided that the Satellite (or portion, as applicable) shall be deemed to be insured for a percentage of the Satellite’s (or applicable portion’s) net book value for which In-Orbit Contingency Protection is available.
“In-Orbit Insurance” means, with respect to any Satellite (or, if the entire Satellite is not owned by the Issuer or any Restricted Subsidiary, as the case may be, the portion of the Satellite it owns or for which it has risk of loss), insurance (subject to a right of co-insurance in an amount up to $150.0 million) or other contractual arrangement providing for coverage against the risk of loss of or damage to such Satellite (or portion, as applicable) attaching upon the expiration of the launch insurance therefor (or, if launch insurance is not procured, upon the initial completion of in-orbit testing) and attaching, during the commercial in-orbit service of such Satellite (or portion, as applicable), upon the expiration of the immediately preceding corresponding policy or other contractual arrangement, as the case may be, subject to the terms and conditions set forth in this Indenture.
“Intelsat Sub Holdco” means Intelsat Subsidiary Holding Company Ltd., a company organized under the laws of Bermuda, a wholly-owned direct subsidiary of Intelsat (Bermuda), Ltd. and to which it is expected that the assets and liabilities of Intelsat (Bermuda), Ltd. will be transferred in connection with the Transfer Transactions.
“Investment Grade Rating” means a rating equal to or higher than Baa3 (or equivalent) by Moody’s or BBB- (or equivalent) by S&P, or an equivalent rating by any other Rating Agency.
“Investment Grade Securities” means:
(1) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof (other than Cash Equivalents),
(2) securities that have an Investment Grade Rating, but excluding any debt securities or loans or advances between and among the Issuer and its Subsidiaries,
(3) investments in any fund that invests exclusively in investments of the type described in clauses (1) and (2) which fund may also hold immaterial amounts of cash pending investment and/or distribution, and
-22- (4) corresponding instruments in countries other than the United States customarily utilized for high quality investments and in each case with maturities not exceeding two years from the date of acquisition.
“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit and advances to customers and commission, travel and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet of the Issuer in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of “Unrestricted Subsidiary” and Section 4.04:
(1) “Investments” shall include the portion (proportionate to the Issuer’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of a Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Issuer shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to:
(a) the Issuer’s “Investment” in such Subsidiary at the time of such redesignation less
(b) the portion (proportionate to the Issuer’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Issuer.
“Issue Date” means February 11, 2005, the date on which the Notes are originally issued.
“Issuer” means the party named as such in the Preamble to this Indenture until a successor replaces it and, thereafter, means the successor.
“Joint Venture” means any Person, other than an individual or a Subsidiary of the Issuer, (i) in which the Issuer or a Restricted Subsidiary of the Issuer holds or acquires an ownership interest (whether by way of Capital Stock or otherwise) and (ii) which is engaged in a Similar Business.
“License Subsidiary” shall mean one or more wholly-owned Restricted Subsidiaries of the Issuer (i) that holds, was formed for the purpose of holding or is designated to hold FCC Licenses for the launch and operation of Satellites or for the operation of any TT&C Earth Station (other than any FCC License held by Intelsat General Corporation or any of its Subsidiaries) and (ii) all of the shares of capital stock and other ownership interests of which are held directly by the Issuer or a Subsidiary Guarantor.
-23- “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien.
“Lockheed Note” means the $20.0 million note, dated November 25, 2002 from Intelsat Global Service Corporation to COMSAT Corporation.
“Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.
“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
“Net Proceeds” means the aggregate cash proceeds received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale, including, without limitation, any cash received in respect of or upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale, net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration (including, without limitation, legal, accounting and investment banking fees, and brokerage and sales commissions), and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements related thereto), amounts required to be applied to the repayment of principal, premium (if any) and interest on Indebtedness required (other than pursuant to Section 4.06(b)) to be paid as a result of such transaction (including to obtain any consent therefor), and any deduction of appropriate amounts to be provided by the Issuer as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Issuer after such sale or other disposition thereof, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
“Net Transponder Capacity” means the aggregate transponder capacity for all in-orbit transponders then owned by the Issuer and its Restricted Subsidiaries.
“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements (including, without limitation, reimbursement obligations with respect to letters of credit and bankers’ acceptances), damages and other liabilities payable under the documentation governing any Indebtedness; provided that Obligations with respect to the Notes shall not include fees or indemnifications in favor of the Trustee and other third parties other than the Holders of the Notes.
-24- “Offering Memorandum” means the offering memorandum relating to the offering of the Original Notes dated February 3, 2005.
“Officer” means the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of the Issuer, any Parent of the Issuer or any of the Issuer’s Restricted Subsidiaries.
“Officers’ Certificate” means a certificate signed on behalf of the Issuer and Holdings by two Officers of the Issuer, any Parent of the Issuer or any of the Issuer’s Restricted Subsidiaries, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Issuer, any Parent of the Issuer or any of the Issuer’s Restricted Subsidiaries, that meets the requirements set forth in this Indenture.
“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer, Holdings or the Trustee.
“Parent” means, with respect to any Person, any direct or indirect parent company of such Person.
“Pari Passu Indebtedness” means:
(1) with respect to the Issuer, the Notes and any Indebtedness which ranks pari passu in right of payment with the Notes; and
(2) with respect to any Guarantor, its Guarantee and any Indebtedness which ranks pari passu in right of payment with such Guarantor’s Guarantee.
“Permitted Holders” means, at any time, each of (i) the Sponsors and (ii) any FSS Operator; provided, that, with respect to clause (ii), the Debt to Adjusted EBITDA Ratio for the Issuer and its Restricted Subsidiaries would be equal to or less than such ratio for the Issuer and its Restricted Subsidiaries immediately prior to the transaction involving such FSS Operator that causes a Change of Control to occur (including any incurrence of indebtedness used to finance the acquisition thereof). Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of this Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.
“Permitted Investments” means:
(1) any Investment in the Issuer or any Restricted Subsidiary;
(2) any Investment in Cash Equivalents or Investment Grade Securities;
(3) any Investment by the Issuer or any Restricted Subsidiary of the Issuer in a Person that is primarily engaged in a Similar Business if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Issuer, or (b) such Person, in one
-25- transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary of the Issuer;
(4) any Investment in securities or other assets not constituting Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of Section 4.06 or any other disposition of assets not constituting an Asset Sale;
(5) any Investment existing on January 28, 2005 or the Issue Date and any Investments made pursuant to binding commitments in effect on January 28, 2005 or the Issue Date;
(6) advances to employees not in excess of $15.0 million outstanding at any one time in the aggregate;
(7) any Investment acquired by the Issuer or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Issuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable, or (b) as a result of a foreclosure by the Issuer or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(8) Hedging Obligations permitted under Section 4.03(b)(x);
(9) any Investment by the Issuer or any of its Restricted Subsidiaries in a Similar Business having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (9) that are at that time outstanding, not to exceed the greater of (x) $125.0 million and (y) 2.5% of Total Assets of the Issuer at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided, however, that if any Investment pursuant to this clause (9) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary of the Issuer after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (9) for so long as such Person continues to be a Restricted Subsidiary;
(10) additional Investments by the Issuer or any of its Restricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (10) that are at that time outstanding, not to exceed the greater of (x) $125.0 million and (y) 2.5% of Total Assets of the Issuer at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(11) loans and advances to officers, directors and employees for business-related travel expenses, moving and relocation expenses and other similar expenses, in each case Incurred in the ordinary course of business;
-26- (12) Investments the payment for which consists of Equity Interests of the Issuer or any Parent of the Issuer (other than Disqualified Stock); provided, however, that such Equity Interests will not increase the amount available for Restricted Payments under the calculation set forth in the definition of the term “Cumulative Credit”;
(13) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of Section 4.07(b) (except transactions described in clauses (ii)(a), (vi), (vii) and (xi)(B) of such Section);
(14) Investments consisting of the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(15) guarantees not prohibited by or required pursuant to, as the case may be, Sections 4.03 and 4.11;
(16) any Investments by Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries of the Issuer;
(17) Investments consisting of purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of intellectual property, in each case in the ordinary course of business;
(18) any Investment in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Receivables Financing or any related Indebtedness; provided, however, that any Investment in a Receivables Subsidiary is in the form of a Purchase Money Note, contribution of additional receivables or an equity interest;
(19) Investments resulting from the receipt of non-cash consideration in a sale of assets or property that does not constitute an Asset Sale or in an Asset Sale received in compliance with Section 4.06;
(20) additional Investments in Joint Ventures of the Issuer or any of its Restricted Subsidiaries existing on January 28, 2005 in an aggregate amount not to exceed $20.0 million outstanding at any one time;
(21) Investments of a Restricted Subsidiary of the Issuer acquired after the Issue Date or of an entity merged into, amalgamated with, or consolidated with a Restricted Subsidiary of the Issuer in a transaction that is not prohibited by Section 5.01 after the Issue Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(22) Investments in Subsidiaries or Joint Ventures formed for the purpose of selling or leasing transponders or transponder capacity to third-party customers in the ordinary course of business of the Issuer and its Restricted Subsidiaries which investments are in the form of transfers to such Subsidiaries or Joint Ventures for fair market value
-27- transponders or transponder capacity sold or to be sold or leased or to be leased by such Subsidiaries or Joint Ventures; provided that all such Investments in Subsidiaries and Joint Ventures do not exceed 10% of Net Transponder Capacity;
(23) any Investment in the Notes; and
(24) any Investments made in connection with the Special Account and any Investments made in connection with the consummation of the Transfer Transactions.
“Permitted Liens” means with respect to any Person:
(1) pledges or deposits by such Person under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review;
(3) Liens for taxes, assessments or other governmental charges not yet due or payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of performance and surety bonds or bid bonds or with respect to other regulatory requirements or letters of credit issued at the request of and for the account of such Person in the ordinary course of its business;
(5) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(6) (A) Liens securing an aggregate principal amount of Pari Passu Indebtedness not to exceed the greater of (x) the aggregate principal amount of Pari Passu Indebtedness permitted to be Incurred pursuant to Section 4.03(b)(i) and (y) the maximum principal amount of Indebtedness that, as of such date, and after giving effect to the Incurrence of such Indebtedness and the application of the proceeds therefrom on such date, would not cause the Secured Indebtedness Leverage Ratio of the Issuer to exceed 2.00 to 1.00 and (B) Liens securing Indebtedness permitted to be Incurred pursuant to Sections
-28- 4.03(b)(ii), (iv) (provided that such Liens do not extend to any property or assets that are not property being purchased, leased, constructed or improved with the proceeds of such Indebtedness being Incurred pursuant to Section 4.03(b)(iv)), (xii) or (xx);
(7) Liens existing on the Issue Date or date of consummation of the Transfer Transactions;
(8) Liens on assets, property or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided, further, however, that such Liens may not extend to any other property owned by the Issuer or any Subsidiary Guarantor of the Issuer;
(9) Liens on assets or property at the time the Issuer or a Restricted Subsidiary of the Issuer acquired the assets or property, including any acquisition by means of a merger, amalgamation or consolidation with or into the Issuer or any Restricted Subsidiary of the Issuer; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided, further, however, that the Liens may not extend to any other assets or property owned by the Issuer or any Restricted Subsidiary of the Issuer;
(10) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Issuer or another Restricted Subsidiary of the Issuer permitted to be Incurred in accordance with Section 4.03;
(11) Liens securing Hedging Obligations permitted to be Incurred under Section 4.03(b)(x);
(12) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(13) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries;
(14) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Issuer and its Restricted Subsidiaries in the ordinary course of business;
(15) Liens in favor of the Issuer or any Restricted Subsidiary;
(16) Liens on equipment of the Issuer or any Restricted Subsidiary granted in the ordinary course of business to the Issuer’s client at which such equipment is located;
-29- (17) Liens on accounts receivable and related assets of the type specified in the definition of “Receivables Financing” Incurred in connection with a Qualified Receivables Financing;
(18) deposits made in the ordinary course of business to secure liability to insurance carriers;
(19) Liens on the Equity Interests of Unrestricted Subsidiaries;
(20) grants of software and other technology licenses in the ordinary course of business;
(21) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6)(B), (7), (8), (9), (10), (11) and (15); provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property), and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (6)(B), (7), (8), (9), (10), (11) and (15) at the time the original Lien became a Permitted Lien under this Indenture, and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement;
(22) other Liens securing obligations Incurred in the ordinary course of business which obligations do not exceed $20.0 million at any one time outstanding; and
(23) Liens securing the Indebtedness in respect of the Eurobond Notes.
“Person” means any individual, corporation, partnership, limited liability company, Joint Venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
“Preferred Stock” means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution or winding up.
“Presumed Tax Rate” means the highest effective marginal statutory combined U.S. federal, state and local income tax rate prescribed for an individual residing in New York City (taking into account (i) the deductibility of state and local income taxes for U.S. federal income tax purposes, assuming the limitation of Section 68(a)(2) of the Code applies and taking into account any impact of Section 68(f) of the Code, and (ii) the character (long-term or short-term capital gain, dividend income or other ordinary income) of the applicable income).
“Purchase Money Note” means a promissory note of a Receivables Subsidiary evidencing a line of credit, which may be irrevocable, from the Issuer or any Subsidiary of the Issuer to a Receivables Subsidiary in connection with a Qualified Receivables Financing, which note is intended to finance that portion of the purchase price that is not paid by cash or a contribution of equity.
-30- “Qualified Receivables Financing” means any Receivables Financing of a Receivables Subsidiary that meets the following conditions:
(1) the Board of Directors of the Issuer shall have determined in good faith that such Qualified Receivables Financing (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to the Issuer and the Receivables Subsidiary,
(2) all sales of accounts receivable and related assets to the Receivables Subsidiary are made at Fair Market Value (as determined in good faith by the Issuer), and
(3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the Issuer) and may include Standard Securitization Undertakings.
The grant of a security interest in any accounts receivable of the Issuer or any of its Restricted Subsidiaries (other than a Receivables Subsidiary) to secure Bank Indebtedness or the Eurobond Notes shall not be deemed a Qualified Receivables Financing.
“Rating Agency” means (1) each of Moody’s and S&P and (2) if Moody’s or S&P ceases to rate the Notes for reasons outside of the Issuer’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act selected by the Issuer or any Parent of the Issuer as a replacement agency for Moody’s or S&P, as the case may be.
“Receivables Fees” means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Financing.
“Receivables Financing” means any transaction or series of transactions that may be entered into by the Issuer or any of its Subsidiaries pursuant to which the Issuer or any of its Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by the Issuer or any of its Subsidiaries), and (b) any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of the Issuer or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and any Hedging Obligations entered into by the Issuer or any such Subsidiary in connection with such accounts receivable.
“Receivables Repurchase Obligation” means any obligation of a seller of receivables in a Qualified Receivables Financing to repurchase receivables arising as a result of a
-31- breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.
“Receivables Subsidiary” means a Wholly Owned Restricted Subsidiary of the Issuer (or another Person formed for the purposes of engaging in a Qualified Receivables Financing with the Issuer in which the Issuer or any Subsidiary of the Issuer makes an Investment and to which the Issuer or any Subsidiary of the Issuer transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of the Issuer and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business, and which is designated by the Board of Directors of the Issuer (as provided below) as a Receivables Subsidiary and:
(a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Issuer or any other Subsidiary of the Issuer (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Issuer or any other Subsidiary of the Issuer in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of the Issuer or any other Subsidiary of the Issuer, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings,
(b) with which neither the Issuer nor any other Subsidiary of the Issuer has any material contract, agreement, arrangement or understanding other than on terms which the Issuer reasonably believes to be no less favorable to the Issuer or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Issuer, and
(c) to which neither the Issuer nor any other Subsidiary of the Issuer has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Issuer shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Issuer giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing conditions.
“Relevant Tax Jurisdiction” means Bermuda, or another jurisdiction in which the Issuer, Holdings or a Guarantor, if any, or a successor of any of them, is organized, is resident or engaged in business for tax purposes or through which payments are made on or in connection with the Notes.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Subsidiary” means, with respect to any Person, any Subsidiary of such Person other than an Unrestricted Subsidiary of such Person. Unless otherwise indicated in this Indenture, all references to Restricted Subsidiaries shall mean Restricted Subsidiaries of the Issuer.
-32- “S&P” means Standard & Poor’s Ratings Group or any successor to the rating agency business thereof.
“Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired by the Issuer or a Restricted Subsidiary whereby the Issuer or a Restricted Subsidiary transfers such property to a Person and the Issuer or such Restricted Subsidiary leases it from such Person, other than leases between the Issuer and a Restricted Subsidiary of the Issuer or between Restricted Subsidiaries of the Issuer.
“Satellite” means any satellite owned by the Issuer or any of its Restricted Subsidiaries and any satellite purchased by the Issuer or any of its Restricted Subsidiaries pursuant to the terms of a Satellite Purchase Agreement, whether such satellite is in the process of manufacture, has been delivered for launch or is in orbit (whether or not in operational service).
“Satellite Manufacturer” means, with respect to any Satellite, the prime contractor and manufacturer of such Satellite.
“Satellite Purchase Agreement” means, with respect to any Satellite, the agreement between the applicable Satellite Purchaser and the applicable Satellite Manufacturer relating to the manufacture, testing and delivery of such Satellite.
“Satellite Purchaser” means the Issuer or Restricted Subsidiary that is a party to a Satellite Purchase Agreement.
“SEC” means the Securities and Exchange Commission.
“Secured Indebtedness” means any Indebtedness secured by a Lien.
“Secured Indebtedness Leverage Ratio” means, with respect to any Person, at any date the ratio of (1) Secured Indebtedness of such Person and its Restricted Subsidiaries as of such date of calculation (determined on a consolidated basis in accordance with GAAP) to (2) Adjusted EBITDA of such Person for the four full fiscal quarters for which internal financial statements are available immediately preceding such date on which such additional Indebtedness is Incurred. In the event that the Issuer or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness subsequent to the commencement of the period for which the Secured Indebtedness Leverage Ratio is being calculated but prior to the event for which the calculation of the Secured Indebtedness Leverage Ratio is made (the “Secured Leverage Calculation Date”), then the Secured Indebtedness Leverage Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness as if the same had occurred at the beginning of the applicable four-quarter period.
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (as determined in accordance with GAAP), in each case with respect to an operating unit of a business, and other operational changes that such Person or any of its Restricted Subsidiaries has both
-33- determined to make and made after January 28, 2005 and during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Secured Leverage Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, consolidations, discontinued operations and other operational changes (and the change in Adjusted EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into such Person or any Restricted Subsidiary since the beginning of such period shall have made any Investment, acquisition, disposition, merger, amalgamation, consolidation, discontinued operation or operational change, in each case with respect to an operating unit of a business, that would have required adjustment pursuant to this definition, then the Secured Indebtedness Leverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger, consolidation or operational change had occurred at the beginning of the applicable four-quarter period.
For purposes of this definition, whenever pro forma effect is to be given to any transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Issuer. Any such pro forma calculation may include adjustments appropriate, in the reasonable determination of the Issuer as set forth in an Officers’ Certificate, to reflect, among other things, (1) operating expense reductions and other operating improvements or synergies reasonably expected to result from any acquisition, merger or operational change (including, to the extent applicable, from the Transactions) and (2) all adjustments used in connection with the calculation of “Adjusted EBITDA” as set forth in footnote 4 to the “Summary Historical and Pro Forma Consolidated Financial Data” under “Offering Memorandum Summary” in the Offering Memorandum, to the extent such adjustments, without duplication, continue to be applicable to such four-quarter period.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Senior Credit Documents” means the collective reference to any Credit Agreement, the notes issued pursuant thereto and the guarantees thereof, and the collateral documents relating thereto, as amended, supplemented or otherwise modified from time to time.
“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Issuer within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC or any successor provision.
“Similar Business” means any business or activity of the Issuer or any of its Subsidiaries currently conducted or proposed as of the Issue Date or the date of consummation of the Transfer Transactions, or any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof, or is complementary, incidental, ancillary or related thereto.
“Special Mandatory Redemption Event” means, unless the Transfer Transactions have been consummated prior to such time, the earlier to occur of (1) 5:00 p.m. on the date that is 90 days following the Issue Date and (2) such earlier time and date as the Issuer shall determine prior to the time and date in the foregoing clause (1).
-34- “Specified Sale/Leaseback Transaction” means one Sale/Leaseback Transaction pursuant to which the Issuer or its Restricted Subsidiaries sell one Satellite and related assets that is designated as a Specified Sale/Leaseback Transaction pursuant to an Officers’ Certificate.
“Sponsors” means (1) one or more investment funds advised, managed or controlled by Apax Partners Worldwide LLP and Apax Partners, Inc., (2) one or more investment funds advised, managed or controlled by Apollo Management V, L.P., (3) one or more investment funds advised, managed or controlled by Madison Dearborn Partners and (4) one or more investment funds advised, managed or controlled by Permira Advisers LLC and, in each case, (whether individually or as a group) their Affiliates.
“Standard Securitization Undertakings” means representations, warranties, covenants, indemnities and guarantees of performance entered into by the Issuer or any Subsidiary of the Issuer which the Issuer has determined in good faith to be customary in a Receivables Financing including, without limitation, those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchase Obligation shall be deemed to be a Standard Securitization Undertaking.
“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).
“Subordinated Indebtedness” means (a) with respect to the Issuer, any Indebtedness of the Issuer which is by its terms subordinated in right of payment to the Notes, and (b) with respect to any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated in right of payment to its Guarantee.
“Subsidiary” means, with respect to any Person, (1) any corporation, association or other business entity (other than a partnership, joint venture or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, (2) any partnership, joint venture or limited liability company of which (x) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (y) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity and (3) any Person that is consolidated in the consolidated financial statements of the specified Person in accordance with GAAP.
-35- “Subsidiary Guarantor” means each Subsidiary of the Issuer that is a Guarantor.
“Tax-affected Investor” means any holder of capital stock in any Parent of the Issuer that is subject (or if such holder is a Flow-Through Entity, any partner in which is subject) to a tax regime (for example, as a United States shareholder within the meaning of section 951(b) of the Code) that requires such person to recognize on a current basis taxable income attributable to earnings and profits of the Issuer, or its Subsidiaries in advance of any distribution of such earnings and profits.
“TIA” means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
“Total Assets” means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet. Notwithstanding the foregoing, until a consolidated balance sheet of the Issuer is available following the consummation of the Transfer Transactions, Total Assets of the Issuer shall mean Total Assets of Holdings.
“Transaction Agreement” means the Transaction Agreement and Plan of Amalgamation, dated as of August 16, 2004, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Zeus Holdings Limited, Zeus Merger One Limited and Zeus Merger Two Limited, as amended, supplemented or modified from time to time.
“Transactions” means the Transfer Transactions, the Acquisition and, in each case, the transactions related thereto, including as contemplated by the Acquisition Documents (including any Equity Interest payments made in connection therewith (whether on January 28, 2005 or thereafter)), the offering of the Existing Notes, borrowings made pursuant to the Credit Agreement on the Acquisition Date, the issuance of the Original Notes on the Issue Date and the use of proceeds thereof as described in the Offering Memorandum.
“Transfer Transactions” means the receipt from the Federal Communications Commission of approval of the Contribution and the consummation of the Contribution.
“Treasury Rate” means with respect to the Notes, as of the applicable redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to February 1, 2010; provided, however, that if the period from such redemption date to February 1, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
“Trust Officer” means any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject, and who shall have direct responsibility for the administration of this Indenture.
-36- “Trustee” means the respective party named as such in this Indenture until a successor replaces it and, thereafter, means the successor.
“TT&C Earth Station” shall mean any earth station licensed for operation by the FCC or by any international, federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body, authority, agency or commission or legislative body or other governmental entity outside of the United States used for the provision of TT&C Services that is owned and operated by the Issuer or any of its Subsidiaries.
“TT&C Services” shall mean the provision of tracking, telemetry and command services for the purposes of operational control of any Satellite.
“Uniform Commercial Code” means the New York Uniform Commercial Code as in effect from time to time.
“Unrestricted Subsidiary” means:
(1) any Subsidiary of the Issuer that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Issuer may designate any Subsidiary of the Issuer (including any newly acquired or newly formed Subsidiary of the Issuer) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on any property of, the Issuer or any other Subsidiary of the Issuer that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that the Subsidiary to be so designated and its Subsidiaries do not at the time of designation have and do not thereafter Incur any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer or any of its Restricted Subsidiaries (other than Equity Interests of Unrestricted Subsidiaries); provided, further, however, that either:
(a) the Subsidiary to be so designated has total consolidated assets of $1,000 or less; or
(b) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under Section 4.04.
The Board of Directors of the Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation no Event of Default shall have occurred and be continuing and:
(x) in the case of any Subsidiary of the Issuer (other than Intelsat Sub Holdco and any of its Subsidiaries), (i) the Issuer could Incur $1.00 of additional Indebtedness
-37- pursuant to the Debt to Adjusted EBITDA Ratio test described in Section 4.03(a)(1) or (ii) the Debt to Adjusted EBITDA Ratio for the Issuer and its Restricted Subsidiaries would be less than such ratio for the Issuer and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation, and
(y) in the case of any Restricted Subsidiary of Intelsat Sub Holdco, (i) Intelsat Sub Holdco could Incur $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test described in Section 4.03(a)(2) hereof or (ii) the Debt to Adjusted EBITDA Ratio for Intelsat Sub Holdco and its Restricted Subsidiaries would be less than such ratio for Intelsat Sub Holdco and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation.
Any such designation by the Board of Directors of the Issuer shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of the Issuer giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing provisions.
“U.S. Dollar Equivalent” means, with respect to any monetary amount in a currency other than U.S. Dollars, at any time for the determination thereof, the amount of U.S. Dollars obtained by converting such foreign currency involved in such computation into U.S. Dollars at the spot rate for the purchase of U.S. Dollars with the applicable foreign currency as quoted by Reuters at approximately 10:00 A.M. (New York City time) on such date of determination (or if no such quote is available on such date, on the immediately preceding Business Day for which such a quote is available).
“U.S. Government Obligations” means securities that are:
(1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged, or
(2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in each case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt.
-38- “Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the quotient obtained by dividing (1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock multiplied by the amount of such payment, by (2) the sum of all such payments.
“Wholly Owned Restricted Subsidiary” is any Wholly Owned Subsidiary that is a Restricted Subsidiary.
“Wholly Owned Subsidiary” of any Person means a Subsidiary of such Person 100% of the outstanding Capital Stock or other ownership interests of which (other than directors’ qualifying shares or shares or interests required to be held by foreign nationals) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Other Definitions.
Defined in Term Section
“Additional Interest” Appendix A “Affiliate Transaction” 4.07(a) “Appendix” Preamble “Asset Sale Offer” 4.06(b) “Authorized Agent” 11.16 “Bankruptcy Law” 6.01 “Base Currency” 11.18(b) “Calculation Date” 1.01 “Change of Control” 4.08(a) “Change of Control Offer” 4.08(b) “Clearstream” Appendix A “control” 1.01 “consolidated” 1.01 “covenant defeasance option” 8.01(c) “Covenant Suspension Event” 4.16 “Custodian” 6.01 “Definitive Note” Appendix A “Depository” Appendix A “disposition” 1.01 “Euroclear” Appendix A “Event of Default” 6.01 “Excess Proceeds” 4.06(b) “Exchange Notes” Preamble “Global Notes Legend” Appendix A
-39- Defined in Term Section
“Guaranteed Obligations” 10.01(a) “Holdings” Preamble “IAI” Appendix A “incorporated provision” 11.01 “Initial Notes” Preamble “Initial Purchaser” 1.01 and Appendix A “Intelsat General” 4.15 “Issuer” Preamble “Judgment Currency” 11.18(b) “legal defeasance option” 8.01 “maximum fixed repurchase price” 1.01 “Net Payment” 4.17 “Notes” Preamble “Offer Period” 4.06(d) “Original Notes” Preamble “Paying Agent” 2.04 “Permitted Debt” 4.03(b) “primary obligations” 1.01 “primary obligor” 1.01 “protected purchaser” 2.08 “Proxy Agreement” 4.15 “Purchase Agreement” Appendix A “QIB” Appendix A “rate(s) of exchange” 11.18(d) “Refinancing Indebtedness” 4.03(b) “Refunding Capital Stock 4.04(b) “Registered Exchange Offer” Appendix A “Registrar” 2.04 “Registration Rights Agreement” Appendix A “Regulation S” Appendix A “Regulation S Notes” Appendix A “Restricted Notes Legend” Appendix A “Restricted Payments” 4.04(a) “Restricted Period” Appendix A “Retired Capital Stock” 4.04(b) “Reversion Date” 4.16 “Rule 144A” Appendix A “Rule 144A Notes” Appendix A “Rule 501” Appendix A “Secured Leverage Calculation Date” 1.01 “Securities Custodian” Appendix A “Shelf Registration Statement” Appendix A “Special Account” 4.18
-40- Defined in Term Section
“Special Mandatory Redemption” 3.10 “Special Mandatory Redemption Date” 3.10 “Specified Merger/Transfer Transaction” 5.01(a) “Successor Company” 5.01(a) “Successor Guarantor” 5.01(b) “Successor Parent” 5.01(c) “Suspended Covenants” 4.16 “Suspension Date” 4.16 “Suspension Period” 4.16 “Transfer Restricted Notes” Appendix A “Trustee” Preamble “Unrestricted Definitive Notes” Appendix A
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture incorporates by reference certain provisions of the TIA. The following TIA terms have the following meanings:
“Commission” means the SEC.
“indenture securities” means the Notes.
“indenture security holder” means a Holder.
“indenture to be qualified” means this Indenture.
“indenture trustee” or “institutional trustee” means the Trustee.
“obligor” on the indenture securities means the Issuer, the Guarantors and any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) “or” is not exclusive;
(d) “including” means including without limitation;
-41- (e) words in the singular include the plural and words in the plural include the singular;
(f) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness;
(g) unless otherwise specified herein, the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP;
(h) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater;
(i) unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP;
(j) “$” and “U.S. Dollars” each refer to United States dollars, or such other money of the United States of America that at the time of payment is legal tender for payment of public and private debts;
(k) “€” and “Euros” each refer to the lawful currency of the member states of the European Union that adopt the single currency in accordance with the Treaty establishing the European Communities;
(l) whenever in this Indenture there is mentioned, in any context, Accreted Value, principal, interest or any other amount payable under or with respect to any Notes, such mention shall be deemed to include mention of the payment of Additional Interest, to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof; and
(m) for any fiscal quarters, periods or dates for which the Issuer or Intelsat Sub Holdco does not have historical financial statements available, it shall be entitled to use and rely on the financial statements of Intelsat (Bermuda), Ltd., as such entity existed prior to the Transfer Transactions or the Acquisition, as the case may be, (but giving pro forma effect to any transactions required to be given such effect under this Indenture) as if such financial statements were its own.
ARTICLE 2
THE SECURITIES
SECTION 2.01. Amount of Notes; Issuable in Series. The aggregate principal amount at maturity of Original Notes which may be authenticated and delivered under this Indenture on the Issue Date is $478,700,000. The Notes may be issued in one or more series. All Notes of any one series shall be substantially identical except as to denomination.
-42- The Issuer and Holdings may from time to time after the Issue Date issue Additional Notes under this Indenture in an unlimited principal amount at maturity, so long as (i) the Incurrence of the Indebtedness represented by such Additional Notes is at such time permitted by Section 4.03 and (ii) such Additional Notes are issued in compliance with the other applicable provisions of this Indenture. With respect to any Additional Notes issued after the Issue Date (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 2.07, 2.08, 2.09, 2.10, 3.06, 4.06(g), 4.08(c) or the Appendix), there shall be (a) established in or pursuant to a resolution of the Board of Directors and (b) (i) set forth or determined in the manner provided in an Officers’ Certificate or (ii) established in one or more indentures supplemental hereto, prior to the issuance of such Additional Notes:
(1) whether such Additional Notes shall be issued as part of a new or existing series of Notes and the title of such Additional Notes (which shall distinguish the Additional Notes of the series from Notes of any other series);
(2) the aggregate Accreted Value and principal amount at maturity of such Additional Notes which may be authenticated and delivered under this Indenture,
(3) the issue price and issuance date of such Additional Notes, including the date from which Accreted Value of, premium, if any, or interest on such Additional Notes shall accrete or accrue, as the case may be;
(4) if applicable, that such Additional Notes shall be issuable in whole or in part in the form of one or more Global Notes and, in such case, the respective depositaries for such Global Notes, the form of any legend or legends which shall be borne by such Global Notes in addition to or in lieu of those set forth in Exhibit A hereto and any circumstances in addition to or in lieu of those set forth in Section 2.2 of the Appendix in which any such Global Note may be exchanged in whole or in part for Additional Notes registered, or any transfer of such Global Note in whole or in part may be registered, in the name or names of Persons other than the depositary for such Global Note or a nominee thereof; and
(5) if applicable, that such Additional Notes that are not Transfer Restricted Notes shall not be issued in the form of Initial Notes as set forth in Exhibit A, but shall be issued in the form of Exchange Notes as set forth in Exhibit B.
If any of the terms of any Additional Notes are established by action taken pursuant to a resolution of the Board of Directors, a copy of an appropriate record of such action shall be certified by the Secretary or Director or any Assistant Secretary or Assistant Director of each of the Issuer and Holdings and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate or the indenture supplemental hereto setting forth the terms of the Additional Notes.
SECTION 2.02. Form and Dating. Provisions relating to the Initial Notes and the Exchange Notes are set forth in the Appendix, which is hereby incorporated in and expressly
-43- made a part of this Indenture. The Original Notes, Initial Notes, any Additional Notes (if issued as Transfer Restricted Notes) and the Trustee’s certificate of authentication for each shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Notes, any Additional Notes issued other than as Transfer Restricted Notes and the Trustee’s certificate of authentication for each shall each be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which either the Issuer or Holdings is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Issuer and Holdings). Each Note shall be dated the date of its authentication. The Notes shall be issuable only in registered form without interest coupons and only in denominations of $1,000 principal amount at maturity and any integral multiples thereof.
SECTION 2.03. Execution and Authentication. The Trustee shall authenticate and make available for delivery upon a written order of the Issuer and Holdings signed by one Officer of each of the Issuer and Holdings (a) Original Notes for original issue on the date hereof in an aggregate principal amount at maturity of $478,700,000 (Accreted Value of $305,348,369 on the Issue Date), (b) subject to the terms of this Indenture, Additional Notes in an aggregate Accreted Value and principal amount at maturity to be determined at the time of issuance and specified therein and (c) the Exchange Notes for issue in a Registered Exchange Offer pursuant to the Registration Rights Agreement for a like Accreted Value and principal amount at maturity of Initial Notes exchanged pursuant thereto or otherwise pursuant to an effective registration statement under the Securities Act. Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes or Exchange Notes. Notwithstanding anything to the contrary in this Indenture or the Appendix, any issuance of Additional Notes after the Issue Date shall be in a principal amount at maturity of at least $1,000, whether such Additional Notes are of the same or a different series than the Original Notes.
One Officer of each of the Issuer and Holdings shall sign the Notes for the Issuer and Holdings by manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee may appoint one or more authenticating agents reasonably acceptable to the Issuer and Holdings to authenticate the Notes. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Issuer and Holdings. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.
-44- The Trustee is hereby authorized to enter into a letter of representations with the Depository in the form provided by the Issuer and to act in accordance with such letter.
SECTION 2.04. Registrar and Paying Agent.
(a) The Issuer and Holdings shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (the “Registrar”), and (ii) an office or agency where Notes may be presented for payment (the “Paying Agent”) which, for so long as required by any national securities exchange (whether or not the Issuer and Holdings have any securities listed on such exchange), shall be in the Borough of Manhattan, the City of New York, the State of New York. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Issuer and Holdings may have one or more co-registrars and one or more additional paying agents. The term “Registrar” includes any co-registrars. The term “Paying Agent” includes the Paying Agent and any additional paying agents. The Issuer and Holdings initially appoint the Trustee as (i) Registrar and Paying Agent in connection with the Notes and (ii) the Securities Custodian with respect to the Global Notes.
(b) The Issuer and Holdings shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuer and Holdings shall notify the Trustee of the name and address of any such agent. If the Issuer and Holdings fail to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. Either Issuer or any of their Wholly Owned Subsidiaries organized in the United States may act as Registrar or Paying Agent.
(c) The Issuer and Holdings may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; provided, U, that no such removal shall become effective until (i) if applicable, acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by the Issuer and Holdings and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to the Issuer, Holdings and the Trustee; provided, however, that the Trustee may resign as Registrar or Paying Agent only if the Trustee also resigns as Trustee in accordance with Section 7.08.
SECTION 2.05. Paying Agent to Hold Money in Trust. Prior to each due date of the payment of Accreted Value of, premium, if any, or interest on any Note, the Issuer or Holdings shall deposit with each Paying Agent (or if an Issuer or a Wholly Owned Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such Accreted Value of, premium, if any, or interest when so becoming due. The Issuer and Holdings shall require each Paying Agent (other than the Trustee) to agree in writing that a Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by a Paying Agent for the payment of Accreted Value of, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Issuer in making any such payment. If an Issuer or a Wholly Owned Subsidiary of an Issuer acts as Paying Agent, it shall
-45- segregate the money held by it as Paying Agent and hold it in trust for the benefit of the Persons entitled thereto. The Issuer and Holdings at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section, a Paying Agent shall have no further liability for the money delivered to the Trustee.
SECTION 2.06. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Issuer and Holdings shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders.
SECTION 2.07. Transfer and Exchange. The Notes shall be issued in registered form and shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with the Appendix. When a Note is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements therefor are met. When Notes are presented to the Registrar with a request to exchange them for an equal principal amount at maturity of Notes of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Issuer and Holdings shall execute and the Trustee shall authenticate Notes at the Registrar’s request. The Issuer and Holdings may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Issuer and Holdings shall not be required to make, and the Registrar need not register, transfers or exchanges of Notes selected for redemption (except, in the case of Notes to be redeemed in part, the portion thereof not to be redeemed) or of any Notes for a period of 15 days before a selection of Notes to be redeemed.
Prior to the due presentation for registration of transfer of any Note, the Issuer, Holdings, any Guarantor, the Trustee, each Paying Agent and the Registrar may deem and treat the Person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of Accreted Value of, premium, if any, or interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Issuer, Holdings, any Guarantor, the Trustee, a Paying Agent or the Registrar shall be affected by notice to the contrary.
Any Holder of a beneficial interest in a Global Note shall, by acceptance of such beneficial interest, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by (a) the Holder of such Global Note (or its agent) or (b) any Holder of a beneficial interest in such Global Note, and that ownership of a beneficial interest in such Global Note shall be required to be reflected in a book entry.
All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
-46- SECTION 2.08. Replacement Notes. If a mutilated Note is surrendered to the Registrar or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Issuer and Holdings shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Holder (a) satisfies the Issuer and Holdings or the Trustee within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Issuer and Holdings or the Trustee prior to the Note being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any other reasonable requirements of the Trustee. If required by the Trustee, Holdings or the Issuer, such Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect the Issuer, the Trustee, a Paying Agent and the Registrar from any loss that any of them may suffer if a Note is replaced. The Issuer, Holdings and the Trustee may charge the Holder for their expenses in replacing a Note (including, without limitation, attorneys’ fees and disbursements in replacing such Note). In the event any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Issuer and Holdings in their discretion may pay such Note instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Issuer and Holdings.
The provisions of this Section 2.08 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Notes.
SECTION 2.09. Outstanding Notes. Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 11.06, a Note does not cease to be outstanding because the Issuer, Holdings or an Affiliate of the Issuer or Holdings holds the Note.
If a Note is replaced pursuant to Section 2.08 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee, Holdings and the Issuer receive proof satisfactory to them that the replaced Note is held by a protected purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.08.
If a Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all Accreted Value of, premium, if any, or interest payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and no Paying Agent is prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue.
SECTION 2.10. Temporary Notes. In the event that Definitive Notes are to be issued under the terms of this Indenture, until such Definitive Notes are ready for delivery, the Issuer and Holdings may prepare and the Trustee shall authenticate temporary Notes. Temporary
-47- Notes shall be substantially in the form of Definitive Notes but may have variations that the Issuer and Holdings consider appropriate for temporary Notes. Without unreasonable delay, the Issuer and Holdings shall prepare and the Trustee shall authenticate Definitive Notes and make them available for delivery in exchange for temporary Notes upon surrender of such temporary Notes at the office or agency of the Issuer and Holdings, without charge to the Holder. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as Definitive Notes.
SECTION 2.11. Cancellation. The Issuer and Holdings at any time may deliver Notes to the Trustee for cancellation. The Registrar and each Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and shall dispose of canceled Notes in accordance with its customary procedures. The Issuer and Holdings may not issue new Notes to replace Notes they have redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall not authenticate Notes in place of canceled Notes other than pursuant to the terms of this Indenture.
SECTION 2.12. Defaulted Interest. If the Issuer and Holdings default in a payment of interest on the Notes, the Issuer and Holdings shall pay the defaulted interest then borne by the Notes (plus interest on such defaulted interest to the extent lawful), in any lawful manner. The Issuer and Holdings may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Issuer and Holdings shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each affected Holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.13. CUSIP Numbers, ISINs, etc. The Issuer and Holdings in issuing the Notes may use CUSIP numbers, ISINs and “Common Code” numbers (if then generally in use) and, if so, the Trustee shall use CUSIP numbers, ISINs and “Common Code” numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers, either as printed on the Notes or as contained in any notice of a redemption, that reliance may be placed only on the other identification numbers printed on the Notes and that any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer and Holdings shall advise the Trustee of any change in the CUSIP numbers, ISINs and “Common Code” numbers.
SECTION 2.14. Joint and Several Liability. Except as otherwise provided or indicated herein, the Issuer and Holdings shall be jointly and severally liable for the performance of all obligations under this Indenture and the Notes. For the avoidance of doubt, the covenants in Article 4 (other than Sections 4.01, 4.08, 4.10, 4.13, 4.17 and 4.18) shall be obligations only of the Issuer and shall not be obligations or, nor binding on, Holdings.
-48- ARTICLE 3
REDEMPTION
SECTION 3.01. Redemption. The Notes may be redeemed, in whole, or from time to time in part, subject to the conditions and at the redemption prices set forth in Paragraph 5 of the form of Notes set forth in Exhibit A and Exhibit B hereto, which are hereby incorporated by reference and made a part of this Indenture, together with accrued and unpaid interest to the redemption date.
SECTION 3.02. Applicability of Article. Redemption of Notes at the election of the Issuer or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article.
SECTION 3.03. Notices to Trustee. If the Issuer elects to redeem Notes pursuant to the optional redemption provisions of Paragraph 5 of the Notes, it shall notify the Trustee in writing of (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the Accreted Value or principal amount at maturity, as the case may be, of Notes to be redeemed and (iv) the redemption price. The Issuer shall give notice to the Trustee provided for in this paragraph at least 45 days (unless a shorter period is acceptable to the Trustee) but not more than 60 days before a redemption date if the redemption is pursuant to Paragraph 5 of the applicable Note (except in the case of a Special Mandatory Redemption, in which case notice shall be given promptly after any Special Mandatory Redemption Event), unless a shorter period is acceptable to the Trustee. Such notice shall be accompanied by an Officers’ Certificate and Opinion of Counsel from the Issuer to the effect that such redemption will comply with the conditions herein. The record date relating to any redemption shall be selected by the Issuer and given to the Trustee, which record date shall be not fewer than 15 days after the date of notice to the Trustee (except in the case of a Special Mandatory Redemption). Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.04. Selection of Notes to Be Redeemed. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed, or if such Notes are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate (and in such manner as complies with applicable legal requirements); provided that no Notes of a principal amount at maturity of $1,000 or less shall be redeemed in part. The Trustee shall make the selection from outstanding Notes not previously called for redemption. The Trustee may select for redemption portions of the principal amount at maturity of Notes that have denominations larger than $1,000. Notes and portions of them the Trustee selects shall be in amounts of $1,000 principal amount at maturity or a whole multiple of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Issuer promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.05. Notice of Optional Redemption.
(a) At least 30 days but not more than 60 days before a redemption date pursuant to Paragraph 5 of the applicable Note, the Issuer shall mail or cause to be mailed by first-class mail a notice of redemption to each Holder whose Notes are to be redeemed.
-49- Any such notice shall identify the Notes to be redeemed and shall state:
(i) the redemption date;
(ii) the redemption price and the amount of accrued interest to the redemption date;
(iii) the name and address of a Paying Agent;
(iv) that Notes called for redemption must be surrendered to a Paying Agent to collect the redemption price, plus accrued interest;
(v) if fewer than all the outstanding Notes are to be redeemed, the certificate numbers and principal amount at maturity of the particular Notes to be redeemed, the aggregate Accreted Value and aggregate principal amount at maturity of Notes to be redeemed and the aggregate principal amount at maturity of Notes to be outstanding after such partial redemption;
(vi) that, unless the Issuer and Holdings default in making such redemption payment or any Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, Accreted Value and interest on Notes (or portion thereof) called for redemption ceases to accrete or accrue on and after the redemption date;
(vii) the CUSIP number, ISIN and/or “Common Code” number, if any, printed on the Notes being redeemed;
(viii) that no representation is made as to the correctness or accuracy of the CUSIP number or ISIN and/or “Common Code” number, if any, listed in such notice or printed on the Notes; and
(ix) the record date.
(b) At the request of the Issuer, the Trustee shall give the notice of redemption in the name and at the expense of the Issuer. In such event (except in the case of a Special Mandatory Redemption), the Issuer shall provide the Trustee with the information required by this Section, at least 45 days (unless a shorter period is acceptable to the Trustee) prior to the proposed redemption date.
(c) Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may (other than with respect to a Special Mandatory Redemption), at the discretion of the Issuer, be subject to one or more conditions precedent, including, but not limited to, in the case of any Equity Offering, completion of the related Equity Offering.
-50- SECTION 3.06. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.05, Notes called for redemption become due and payable on the redemption date and at the redemption price, including any premium, plus accrued interest, if any, to the redemption date. Upon surrender to any Paying Agent, such Notes shall be paid at the redemption price, including any premium, plus accrued interest, if any, to the redemption date, provided, however, that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued interest shall be payable to the Holder of the redeemed Notes registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.07. Deposit of Redemption Price Prior to 10:00 a.m., New York City time, on the redemption date, the Issuer shall deposit with the Paying Agent (or, if the Issuer, Holdings or a Wholly Owned Subsidiary of either is a Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Notes or portions thereof to be redeemed on that date other than Notes or portions of Notes called for redemption that have been delivered by the Issuer to the Trustee for cancellation. On and after the redemption date, Accreted Value will cease to accrete or interest shall cease to accrue, as the case may be, on Notes or portions thereof called for redemption so long as the Issuer has deposited with the Paying Agent funds sufficient to pay the Accreted Value of, plus accrued and unpaid interest on, the Notes to be redeemed, unless a Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Issuer and Holdings shall execute and the Trustee shall authenticate for the Holder (at the Issuer’s expense) a new Note equal in Accreted Value and principal amount at maturity to the unredeemed portion of the Note surrendered.
SECTION 3.09. Redemption for Taxation Reasons.
(a) The Issuer and Holdings each may, at its option, redeem the Notes in whole if at any time it becomes obligated to pay additional amounts on any Notes on the next interest payment date with respect to such Notes, but only if its obligation results from a change in, or an amendment to, the laws or treaties (including any regulations or rulings promulgated thereunder) of a Relevant Tax Jurisdiction (or a political subdivision or taxing authority thereof or therein), or from a change in any official position regarding the interpretation, administration or application of those laws, treaties, regulations or rulings (including a change resulting from a holding, judgment or order by a court of competent jurisdiction), that becomes effective or is announced after the Issue Date and provided the Issuer or Holdings, as the case may be, cannot avoid the obligation after taking reasonable measures to do so. If the Issuer or Holdings redeems the Notes in these circumstances, it shall do so at a redemption price equal to 100% of the Accreted Value of the Notes redeemed, plus accrued and unpaid interest, if any, and any other amounts due to the redemption date.
(b) If the Issuer or Holdings becomes entitled to redeem the Notes pursuant to Section 3.09(a), it may do so at any time on a redemption date of its choice. However, the Issuer or Holdings, as the case may be, must give the Holders of the Notes being redeemed notice of the redemption not less than 30 days or more than 60 days before the redemption date and not more than 90 days before the next date on which it would be obligated to pay additional amounts.
-51- (c) The Issuer’s or Holdings’ obligation to pay additional amounts shall remain in effect when it gives the notice of redemption. Notice of the Issuer’s intent to redeem the Notes shall not be effective until such time as it delivers to the Trustee both a certificate signed by two of its Officers stating that the obligation to pay additional amounts cannot be avoided by taking reasonable measures and an opinion of independent legal counsel or an independent auditor stating that the Issuer or Holdings is obligated to pay additional amounts because of an amendment to or change in law, treaties or position as described in Section 3.09(a) hereof.
SECTION 3.10. Special Mandatory Redemption. Unless the Transfer Transactions have been consummated prior thereto, within 10 Business Days following the earliest to occur for whatever reason of any Special Mandatory Redemption Event (the “Special Mandatory Redemption Date”), upon at least two Business Days prior notice to the Holders of the Notes, the Issuer and Holdings shall redeem all of the Notes (the “Special Mandatory Redemption”) at a price equal to 100% of the Accreted Value of the Notes on such redemption date.
SECTION 3.11. Notice of Special Mandatory Redemption. Notice of the Special Mandatory Redemption shall be mailed promptly to each Holder of Notes at its registered address and the Trustee.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes. The Issuer and Holdings shall promptly pay the Accreted Value (and premium, if any) and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of Accreted Value, premium, if any, or interest on the Notes shall be considered paid on the date due if on such date the Trustee or any Paying Agent holds in accordance with this Indenture money sufficient to pay all Accreted Value, premium, if any, and interest then due and the Trustee or any Paying Agent, as the case may be, are not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture.
The Issuer and Holdings shall pay interest on overdue principal at the rate specified therefor in the Notes, and it shall pay interest on overdue installments of interest at the same rate borne by the Notes to the extent lawful.
SECTION 4.02. Reports and Other Information.
(a) After the date of consummation of the Transfer Transactions, notwithstanding that the Issuer may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Issuer shall file with the SEC (unless the SEC will not accept such a filing), and provide the Trustee and Holders with copies thereof, without cost to each Holder, within 15 days after it files or, in the case of a Form 6-K, furnishes (or attempts to file or furnish) them with the SEC,
(i) within 90 days after the end of each fiscal year (or such shorter period as may be required by the SEC), an annual report (which, if permitted under applicable rules of the SEC, may be the annual report of Holdings) on Form 10-K or 20-F (or any successor or comparable forms) containing the information required to be contained therein (or required in such successor or comparable form) and
-52- (ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as may be required by the SEC), a quarterly report (which, if permitted under applicable rules of the SEC, may be the quarterly report of Holdings) on Form 10-Q or 6-K (or any successor or comparable forms), including a Management’s Discussion and Analysis of Financial Condition and Results of Operations or substantially similar section (whether or not required by such form).
(b) The Issuer shall make the information required by Section 4.02(a) available to prospective investors upon request. In addition, the Issuer shall, for so long as any Notes remain outstanding during any period when it is not subject to Section 13 or 15(d) of the Exchange Act, or otherwise permitted to furnish the SEC with certain information pursuant to Rule 12g3-2(b) of the Exchange Act, furnish to Holders of the Notes and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(c) Notwithstanding the foregoing Sections 4.02(a) and (b), the Issuer will be deemed to have furnished the reports required by Sections 4.02(a) and (b) to the Trustee and the Holders if it or Holdings has filed (or, in the case of a Form 6-K, furnished) such reports with the SEC via the EDGAR filing system and such reports are publicly available. In addition, such requirements shall be deemed satisfied prior to the commencement of the exchange offer contemplated by the Registration Rights Agreement or the effectiveness of the Shelf Registration Statement by the filing with the SEC of the Exchange Offer Registration Statement and/or Shelf Registration Statement in accordance with the provisions of the Registration Rights Agreement, and any amendments thereto, with such financial information (other than relating to the Intelsat Americas Transaction) that satisfies Regulation S-X of the Securities Act and such registration statement and/or amendments thereto are filed at times that otherwise satisfy the time requirements set forth in Section 4.02(a) hereof.
(d) In the event that any Parent of the Issuer is or becomes a Guarantor or co-obligor of the Notes, the Issuer may satisfy its obligations under this Section 4.02 with respect to financial information relating to the Issuer by furnishing financial information relating to such Parent; provided that, if required by Regulation S-X under the Securities Act the same is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Parent and any of its Subsidiaries other than the Issuer and its Subsidiaries, on the one hand, and the information relating to the Issuer, the Subsidiary Guarantors, if any, and the other Subsidiaries of the Issuer on a stand-alone basis, on the other hand.
-53- (e) In the event that the Issuer changes its fiscal year end from the fiscal year end used by the Issuer as of the Issue Date, the Issuer shall promptly give notice of such change to the Trustee.
SECTION 4.03. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock. Notwithstanding anything contained in Section 4.03(a) or 4.03(b), prior to the consummation of the Transfer Transactions, the Issuer shall not incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock, except for the Notes.
(a) From and after the consummation of the Transfer Transactions: (i) the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock; and (ii) the Issuer shall not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that (1) the Issuer and any Restricted Subsidiary of the Issuer (other than Intelsat Sub Holdco and any of its Restricted Subsidiaries) may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock and any Restricted Subsidiary may issue shares of Preferred Stock, in each case if the Debt to Adjusted EBITDA Ratio of the Issuer for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would be less than or equal to 5.25 to 1.00 and (2) Intelsat Sub Holdco and any of its Restricted Subsidiaries may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock and any of its Restricted Subsidiaries may issue shares of Preferred Stock, in each case if the Debt to Adjusted EBITDA Ratio of Intelsat Sub Holdco for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would be less than or equal to 4.75 to 1.00, in each case, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period.
(b) The limitations set forth in Section 4.03(a) shall not apply to (collectively, “Permitted Debt”):
(i) the Incurrence by the Issuer or its Restricted Subsidiaries of Indebtedness under any Credit Agreement and the issuance and creation of letters of credit and bankers’ acceptances thereunder (with letters of credit and bankers’ acceptances being deemed to have a principal amount equal to the face amount thereof) up to an aggregate principal amount of $750.0 million outstanding at any one time;
(ii) the Incurrence by the Issuer and any Guarantors of Indebtedness represented by the Notes (not including any Additional Notes) and any Guarantees, as applicable (and any Exchange Notes and Guarantees thereof);
-54- (iii) Indebtedness of the Issuer and its Restricted Subsidiaries existing on the date of consummation of the Transfer Transactions (other than Indebtedness described in clauses (i), (ii) and (xxii) of this Section 4.03(b));
(iv) Indebtedness (including Capitalized Lease Obligations) Incurred by the Issuer or any of its Restricted Subsidiaries, Disqualified Stock issued by the Issuer or any of its Restricted Subsidiaries and Preferred Stock issued by any Restricted Subsidiaries of the Issuer to finance (whether prior to or within 270 days after) the purchase, lease, construction or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets (but no other material assets)) in an aggregate principal amount which, when aggregated with the principal amount of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding that was Incurred pursuant to this clause (iv), does not exceed the greater of (x) $175.0 million and (y) 3.5% of Total Assets of the Issuer at the time of Incurrence;
(v) Indebtedness Incurred by the Issuer or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit and bank guarantees issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers’ compensation claims, health, disability or other benefits to employees or former employees or their families or property, casualty or liability insurance or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims;
(vi) Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred in connection with the Transactions or the disposition of any business, assets or a Subsidiary of the Issuer in accordance with the terms of this Indenture, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition;
(vii) Indebtedness of the Issuer to a Restricted Subsidiary; provided that any such Indebtedness is subordinated in right of payment to the obligations of the Issuer under the Notes; provided, further, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary) shall be deemed, in each case, to be an Incurrence of such Indebtedness;
(viii) shares of Preferred Stock of a Restricted Subsidiary issued to the Issuer or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event that results in any Restricted Subsidiary that holds such shares of Preferred Stock of another Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Issuer or another Restricted Subsidiary) shall be deemed, in each case, to be an issuance of shares of Preferred Stock;
-55- (ix) Indebtedness of a Restricted Subsidiary to the Issuer or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary holding such Indebtedness ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary) shall be deemed, in each case, to be an Incurrence of such Indebtedness;
(x) Hedging Obligations that are Incurred in the ordinary course of business (and not for speculative purposes): (1) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of this Indenture to be outstanding; or (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges;
(xi) obligations (including reimbursement obligations with respect to letters of credit and bank guarantees) in respect of performance, bid, appeal and surety bonds, completion guarantees and the Lockheed Note provided by the Issuer or any Restricted Subsidiary in the ordinary course of business;
(xii) Indebtedness or Disqualified Stock of the Issuer or any Restricted Subsidiary of the Issuer and Preferred Stock of any Restricted Subsidiary of the Issuer not otherwise permitted hereunder in an aggregate principal amount which, when aggregated with the principal amount or liquidation preference of all other Indebtedness and Disqualified Stock then outstanding and Incurred pursuant to this clause (xii), does not exceed $175.0 million at any one time outstanding (it being understood that any Indebtedness, Disqualified Stock or Preferred Stock Incurred or issued under this clause (xii) shall cease to be deemed Incurred or outstanding for purposes of this clause (xii) but shall be deemed Incurred for purposes of Section 4.03(a) from and after the first date on which the Issuer or the Restricted Subsidiary, as the case may be, could have Incurred or issued such Indebtedness, Disqualified Stock or Preferred Stock under Section 4.03(a) without reliance upon this clause (xii));
(xiii) any guarantee by the Issuer or a Restricted Subsidiary of Indebtedness or other obligations of the Issuer or any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness or other Obligations by the Issuer or such Restricted Subsidiary is permitted under the terms of this Indenture; provided that if such Indebtedness is by its express terms subordinated in right of payment to the Notes or any Guarantee of such Restricted Subsidiary, as applicable, any such guarantee of such guarantor with respect to such Indebtedness shall be subordinated in right of payment to the Notes or such Guarantor’s Guarantee, as applicable, substantially to the same extent as such Indebtedness is subordinated to the Notes or the Guarantee of such Restricted Subsidiary, as applicable;
(xiv) the Incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness or Disqualified Stock or Preferred Stock of a Restricted Subsidiary of the Issuer which serves to refund, refinance or defease any Indebtedness Incurred or Disqualified Stock or Preferred Stock as permitted under Section 4.03(a) and clauses (ii), (iii), (iv), (xiv), (xv), (xix) and (xx) of this Section 4.03(b) or any Indebtedness, Disqualified Stock
-56- or Preferred Stock Incurred to so refund or refinance such Indebtedness, Disqualified Stock or Preferred Stock, including any Indebtedness, Disqualified Stock or Preferred Stock Incurred to pay premiums and fees in connection therewith (subject to the following proviso, “Refinancing Indebtedness”) prior to its respective maturity; provided, however, that such Refinancing Indebtedness:
(1) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being refunded or refinanced and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Indebtedness, Disqualified Stock and Preferred Stock being refunded or refinanced that was due on or after the date one year following the last maturity date of any Notes then outstanding were instead due on such date one year following the last date of maturity of any Notes then outstanding;
(2) has a Stated Maturity which is no earlier than the earlier of (x) the Stated Maturity of the Indebtedness being refunded or refinanced or (y) one year following the last maturity date of any Notes then outstanding;
(3) to the extent such Refinancing Indebtedness refinances (a) Indebtedness junior to the Notes, such Refinancing Indebtedness is junior to the Notes or (b) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness is Disqualified Stock or Preferred Stock;
(4) is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus premium and fees Incurred in connection with such refinancing;
(5) shall not include Indebtedness of the Issuer or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and
(6) in the case of any Refinancing Indebtedness Incurred to refinance Indebtedness outstanding under clause (iv) or (xx) of this Section 4.03(b), shall be deemed to have been Incurred and to be outstanding under such clause (iv) or (xx) of this Section 4.03(b), as applicable, and not this clause (xiv) for purposes of determining amounts outstanding under such clauses (iv) and (xx) of this Section 4.03(b); and provided, further, that subclauses (1) and (2) of this clause (xiv) shall not apply to any refunding, refinancing or defeasance of (A) the Notes or (B) any Secured Indebtedness;
(xv) Indebtedness, Disqualified Stock or Preferred Stock of Persons that are acquired by the Issuer or any of its Restricted Subsidiaries or merged or amalgamated into the Issuer or a Restricted Subsidiary in accordance with the terms of this Indenture;
-57- provided, however, that such Indebtedness, Disqualified Stock or Preferred Stock is not Incurred in contemplation of such acquisition, merger or amalgamation; provided, further, however, that after giving effect to such acquisition, merger or amalgamation:
(1) in the case of Indebtedness, Disqualified Stock or preferred stock of the Issuer or any Restricted Subsidiary of the Issuer (other than Intelsat Sub Holdco or any Restricted Subsidiary of Intelsat Sub Holdco), (A) the Issuer would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test set forth in Section 4.03(a)(1) or (B) the Debt to Adjusted EBITDA Ratio of the Issuer would be less than or equal to such ratio immediately prior to such acquisition, merger or amalgamation; or
(2) in the case of Indebtedness, Disqualified Stock or preferred stock of the Intelsat Sub Holdco or any Restricted Subsidiary of Intelsat Sub Holdco (A) Intelsat Sub Holdco would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test set forth in Section 4.03(a)(2) or (B) the Debt to Adjusted EBITDA Ratio of Intelsat Sub Holdco would be less than or equal to such ratio immediately prior to such acquisition, merger or amalgamation;
(xvi) Indebtedness Incurred by a Receivables Subsidiary in a Qualified Receivables Financing that is not recourse (except for Standard Securitization Undertakings) to the Issuer or any Restricted Subsidiary other than a Receivables Subsidiary;
(xvii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of its Incurrence;
(xviii) Indebtedness of the Issuer or any Restricted Subsidiary supported by a letter of credit or bank guarantee issued pursuant to the Credit Agreement, in a principal amount not in excess of the stated amount of such letter of credit or bank guarantee;
(xix) Contribution Indebtedness;
(xx) Indebtedness of Restricted Subsidiaries of the Issuer; provided, however, that the aggregate principal amount of Indebtedness Incurred under this clause (xx), when aggregated with the principal amount of all other Indebtedness then outstanding and Incurred pursuant to this clause (xx), does not exceed the greater of (x) $50.0 million and (y) 10% of the Total Assets of the Restricted Subsidiaries of the Issuer;
(xxi) Indebtedness of the Issuer or any Restricted Subsidiary consisting of (x) the financing of insurance premiums or (y) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business; and
(xxii) Indebtedness of the Issuer or its Restricted Subsidiaries in respect of the Eurobond Notes.
-58- (c) For purposes of determining compliance with this Section 4.03, in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the criteria of one or more of the categories of permitted Indebtedness, Disqualified Stock or Preferred Stock described in clauses (i) through (xxi) above or is entitled to be Incurred pursuant to Section 4.03(a), the Issuer shall, in its sole discretion divide, classify or reclassify or later divide, classify or reclassify such item of Indebtedness, Disqualified Stock or Preferred Stock in any manner that complies with this Section 4.03 and such item of Indebtedness, Disqualified Stock or Preferred Stock shall be treated as having been Incurred pursuant to one or more of such clauses or pursuant to Section 4.03(a); provided that all Indebtedness under the Credit Agreement outstanding on the Acquisition Date shall be deemed to have been Incurred pursuant to clause (i). Accrual of interest, the accretion of accreted value, amortization or original issue discount, the payment of interest in the form of additional Indebtedness with the same terms, the payment of dividends on Preferred Stock in the form of additional shares of Preferred Stock of the same class, the accretion of liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies shall not be deemed to be an Incurrence of Indebtedness for purposes of this Section 4.03. Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included in the determination of such amount of Indebtedness; provided that the Incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this Section 4.03.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. Dollar Equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term debt, or first committed or first Incurred (whichever yields the lower U.S. Dollar Equivalent), in the case of revolving credit debt; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced.
SECTION 4.04. Limitation on Restricted Payments. Notwithstanding anything contained in this Section 4.04, prior to the consummation of the Transfer Transactions, the Issuer will not make any Restricted Payments or any Permitted Investments (other than pursuant to clause (24) of the definition thereof), except to the extent necessary to consummate the Transfer Transactions or the Special Mandatory Redemption contemplated by the placement of the proceeds of the Notes in the Special Account (including any Investments deemed to exist by virtue of the Special Account or the payment of fees and expenses related to the offering of the Notes and the Transfer Transactions).
(a) From and after the consummation of the Transfer Transactions, the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of the Issuer’s or any of its Restricted Subsidiaries’ Equity Interests, including any payment with
-59- respect to such Equity Interests made in connection with any merger, amalgamation or consolidation involving the Issuer (other than (A) dividends or distributions by the Issuer payable solely in Equity Interests (other than Disqualified Stock) of the Issuer; or (B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the Issuer or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities);
(ii) purchase or otherwise acquire or retire for value any Equity Interests of the Issuer or any Parent of the Issuer;
(iii) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case prior to any scheduled repayment or scheduled maturity, any Subordinated Indebtedness of the Issuer or any Restricted Subsidiary (other than the payment, redemption, repurchase, defeasance, acquisition or retirement of (A) Subordinated Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such payment, redemption, repurchase, defeasance, acquisition or retirement and (B) Indebtedness permitted under clauses (vii) and (ix) of Section 4.03(b)); or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as “Restricted Payments”), unless, at the time of such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
(2) [Reserved]; and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after January 28, 2005 (including Restricted Payments permitted by clauses (i), (iv) (only to the extent of one-half of the amounts paid pursuant to such clause), (vi) and (viii) of Section 4.04(b), but excluding all other Restricted Payments permitted by Section 4.04(b)), is less than the amount equal to the difference between (1) the Cumulative Credit and (2) 1.4 times Cumulative Interest Expense (it being understood that for purposes of calculating Cumulative Interest Expense for this purpose only, any of the Issuer’s non-cash interest expense and amortization of original issue discount shall be excluded).
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of this Indenture;
-60- (ii) (A) the repurchase, retirement or other acquisition of any Equity Interests (“Retired Capital Stock”) of the Issuer or any Parent of the Issuer or Subordinated Indebtedness of the Issuer or any Subsidiary Guarantor in exchange for, or out of the proceeds of the substantially concurrent sale (other than the sale of any Disqualified Stock or any Equity Interests sold to a Restricted Subsidiary of the Issuer or to an employee stock ownership plan or any trust established by the Issuer or any of its Subsidiaries) of Equity Interests of the Issuer or any Parent of the Issuer or contributions to the equity capital of the Issuer (collectively, including any such contributions, “Refunding Capital Stock”) and (B) the declaration and payment of accrued dividends on the Retired Capital Stock out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of the Issuer or to an employee stock ownership plan or any trust established by the Issuer or any of its Subsidiaries) of Refunding Capital Stock;
(iii) the redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of the Issuer or any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of the Issuer or any Subsidiary Guarantor which is Incurred in accordance with Section 4.03 so long as
(A) the principal amount of such new Indebtedness does not exceed the principal amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired plus any fees incurred in connection therewith),
(B) such Indebtedness is subordinated to the Notes or the related Guarantee, as the case may be, at least to the same extent as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired for value,
(C) such Indebtedness has a final scheduled maturity date equal to or later than the earlier of (x) final scheduled maturity date of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired or (y) one year following the last maturity date of any Notes then outstanding, and
(D) such Indebtedness has a Weighted Average Life to Maturity at the time Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Subordinated Indebtedness being redeemed, repurchased, acquired or retired that were due on or after the date one year following the last maturity date of any notes then outstanding were instead due on such date one year following the last date of maturity of any notes then outstanding;
(iv) the repurchase, retirement or other acquisition (or dividends to any Parent of the Issuer to finance any such repurchase, retirement or other acquisition) for value of
-61- Equity Interests of the Issuer or any Parent of the Issuer held by any future, present or former employee, director or consultant of the Issuer, any Parent of the Issuer or any Subsidiary of the Issuer pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or other agreement or arrangement; provided, however, that the aggregate amounts paid under this clause (iv) do not exceed $20.0 million in any calendar year (with unused amounts in any calendar year being permitted to be carried over to succeeding calendar years subject to a maximum payment (without giving effect to the following proviso) of $35.0 million in any calendar year); provided, further, however, that such amount in any calendar year may be increased by an amount not to exceed:
(A) the cash proceeds received by the Issuer or any of its Restricted Subsidiaries from the sale of Equity Interests (other than Disqualified Stock) of the Issuer or any Parent of the Issuer (to the extent contributed to the Issuer) to members of management, directors or consultants of the Issuer and its Restricted Subsidiaries or any Parent of the Issuer that occurs after January 28, 2005 (provided that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend shall not increase the amount available for Restricted Payments under Section 4.04(a)(3)); plus
(B) the cash proceeds of key man life insurance policies received by the Issuer, any Parent of the Issuer (to the extent contributed to the Issuer) or the Issuer’s Restricted Subsidiaries after January 28, 2005
(provided that the Issuer may elect to apply all or any portion of the aggregate increase contemplated by clauses (A) and (B) above in any calendar year);
(v) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of the Issuer or any of its Restricted Subsidiaries issued or incurred in accordance with Section 4.03;
(vi) the declaration and payment of dividends or distributions (a) to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued after January 28, 2005, (b) to any Parent of the Issuer, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) of any Parent of the Issuer issued after January 28, 2005 and (c) on Refunding Capital Stock in excess of amounts permitted pursuant to clause (2) of this paragraph; provided, however, that (A) in the case of (a), (b) and (c) of this clause (vi), (x) with respect to Designated Preferred Stock of the Issuer or any Parent of the Issuer, for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock, or the declaration of such dividends on Refunding Capital Stock, after giving effect to such issuance (and the payment of dividends or distributions) on a pro forma basis, the Issuer would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test in Section 4.03(a)(1) or (y) with respect to Designated Preferred Stock of Intelsat Sub Holdco or any Parent of Intelsat Sub Holdco, for the most recently ended four full fiscal quarters for which internal
-62- financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or the declaration of such dividends on Refunding Capital Stock, after giving effect to such issuance (and the payment of dividends or distributions) on a pro forma basis, Intelsat Sub Holdco would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test in Section 4.03(a)(2) and (B) the aggregate amount of dividends declared and paid pursuant to subclauses (a) and (b) of this clause (vi) does not exceed the net cash proceeds actually received by the Issuer from any such sale of Designated Preferred Stock (other than Disqualified Stock) issued after January 28, 2005;
(vii) Investments in Unrestricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (vii) that are at that time outstanding, not to exceed $50.0 million at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(viii) the payment of dividends on the Issuer’s ordinary shares or common stock (or the payment of dividends to any Parent of the Issuer, as the case may be, to fund the payment by any Parent of the Issuer of dividends on such entity’s ordinary shares or common stock) of up to 6.0% per annum of the net proceeds received by the Issuer from any public offering of ordinary shares or common stock or contributed to the Issuer by any Parent of the Issuer from any public offering of ordinary shares or common stock;
(ix) Investments that are made with Excluded Contributions;
(x) other Restricted Payments in an aggregate amount not to exceed $75.0 million;
(xi) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Issuer or a Restricted Subsidiary of the Issuer by, Unrestricted Subsidiaries;
(xii) (A) with respect to any tax year or portion thereof that a Tax-affected Investor would be required to recognize on a current basis taxable income attributable to earnings and profits of the Issuer or its Subsidiaries in advance of any distribution of such earnings and profits by the Issuer, an amount equal to the product of (i) the amount of the income so required to be included (it being understood that for purposes of calculating such income pursuant to clause (A), any of the Issuer’s non-cash interest expense and amortization of original issue discount shall be excluded) and (ii) the Presumed Tax Rate; provided that in the case of any such distribution other than a distribution solely on account of any Parent of the Issuer qualifying as a Flow Through Entity, the Trustee shall have received an opinion of nationally recognized tax counsel to the effect that the earnings and profits of the Issuer and its Subsidiaries are subject to inclusion in income of a Tax-affected Investor on a current basis in advance of any distribution of such earnings and profits; and (B) for any taxable year, payment of dividends or other distributions to any Parent of the Issuer if any Parent of the Issuer is required to file a consolidated, unitary or similar tax return reflecting income of the Issuer or its Restricted Subsidiaries in
-63- an amount equal to the portion of such taxes attributable to the Issuer and/or its Restricted Subsidiaries that are not payable directly by the Issuer or its Restricted Subsidiaries, but not to exceed the amount that the Issuer or such Restricted Subsidiaries would have been required to pay in respect of taxes if the Issuer and such Restricted Subsidiaries had been required to pay such taxes directly as standalone taxpayers (or a standalone group separate from such Parent);
(xiii) the payment of dividends, other distributions or other amounts by the Issuer to, or the making of loans to, any Parent, in amounts required for such Parent to:
(A) pay amounts equal to the amounts required for any Parent of the Issuer to pay fees and expenses (including franchise or similar taxes) required to maintain its corporate existence, customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers and employees of any Parent of the Issuer and general corporate overhead expenses of any Parent of the Issuer, in each case to the extent such fees, expenses, salaries, bonuses, benefits and indemnities are attributable to the ownership or operation of the Issuer and its Subsidiaries;
(B) pay amounts equal to amounts required for any Parent of the Issuer to pay interest and/or principal on Indebtedness the proceeds of which have been contributed to the Issuer or any of its Restricted Subsidiaries and that has been guaranteed by, or is otherwise considered Indebtedness of, the Issuer Incurred in accordance with Section 4.03; and
(C) pay cash interest on the Existing Holdings Notes pursuant to the terms of the agreements governing such Existing Holdings Notes as in effect on the Issue Date and to pay any cash interest on any Indebtedness refinancing the Existing Holdings Notes; provided, that such Indebtedness remains the sole obligation of Holdings and the principal amount of any such Indebtedness redeeming, refinancing or replacing the Existing Holdings Notes does not exceed the principal amount of the Indebtedness refinanced, plus any premiums, fees and expenses payable in connection with such refinancing;
(xiv) any Restricted Payment used to fund the Transactions and the fees and expenses related thereto or made in connection with the consummation of the Transactions (including pursuant to or as contemplated by the Acquisition Documents, whether on January 28, 2005 or thereafter), or owed by the Issuer or any Parent of the Issuer or Restricted Subsidiaries of the Issuer to Affiliates, in each case to the extent permitted by Section 4.07;
(xv) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;
-64- (xvi) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Financing and the payment or distribution of Receivables Fees;
(xvii) the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Indebtedness, Disqualified Stock or Preferred Stock of the Issuer and its Restricted Subsidiaries, pursuant to provisions similar to those described under Sections 4.06 and 4.08; provided that, prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, the Issuer (or a third party to the extent permitted by the indenture) has made a Change of Control Offer or Asset Sale Offer, as the case may be, with respect to the notes as a result of such Change of Control or Asset Sale, as the case may be, and has repurchased all notes validly tendered and not withdrawn in connection with such Change of Control Offer or Asset Sale Offer, as the case may be;
(xviii) any payments made in connection with the consummation of the Transactions or as contemplated by the Acquisition Documents (other than payments to any Permitted Holder or any Affiliate thereof);
(xix) the repurchase, redemption or other acquisition or retirement for value (including repayment at maturity) of (a) Holdings’ Eurobond Notes, (b) Holdings’ 5 1/4% Senior Notes due 2008 and (c) the Lockheed Note (including any payments to any Parent of the Issuer to effect the foregoing); provided that any Indebtedness Incurred in connection with any such redemption, repurchase or other acquisition is Incurred in accordance with Section 4.03;
(xx) the repurchase, redemption or other acquisition or retirement for value of any of the Existing Holdings Notes from the proceeds of a Specified Sale/Leaseback Transaction (including any payments to any Parent of the Issuer to effect the foregoing); and
(xxi) the declaration and payment of dividends to any Parent of the Issuer with the net proceeds received by the Issuer from the sale of the notes on the Issue Date, such payment not to be made prior to the date of consummation of the Transfer Transactions; provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (v), (vi), (vii), (x), (xi), (xiii)(C), (xvii) and (xix) of this Section 4.04(b), no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) As of the date of consummation of the Transfer Transactions, all of the Issuer’s Subsidiaries shall be Restricted Subsidiaries. The Issuer shall not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the definition of “Unrestricted Subsidiary.” For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated shall be deemed to be Restricted Payments or Permitted Investments in an amount determined as set forth in the last sentence of the definition of “Investments.”
-65- Such designation shall only be permitted if Restricted Payments or Permitted Investments in such amount would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
SECTION 4.05. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries (1) on its Capital Stock; or (2) with respect to any other interest or participation in, or measured by, its profits; or (ii) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries;
(b) make loans or advances to the Issuer or any of its Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries; except in each case for such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the Issue Date, or on the date of the consummation of the Transfer Transactions, including pursuant to the Credit Agreement and the other Senior Credit Documents, and pursuant to documents and agreements relating to the Existing Notes, the Existing Holdings Notes and the Lockheed Note;
(2) this Indenture and the Notes (and any Exchange Notes and guarantees thereof);
(3) applicable law or any applicable rule, regulation or order;
(4) any agreement or other instrument of a Person acquired by the Issuer or any Restricted Subsidiary which was in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;
(5) contracts or agreements for the sale of assets, including customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
(6) Secured Indebtedness otherwise permitted to be Incurred pursuant to Sections 4.03 and 4.12 that limit the right of the debtor to dispose of the assets securing such Indebtedness;
-66- (7) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;
(8) customary provisions in joint venture agreements and other similar agreements (including customary provisions in agreements relating to any Joint Venture);
(9) purchase money obligations for property acquired and Capitalized Lease Obligations in the ordinary course of business that impose restrictions of the nature discussed in clause (c) above on the property so acquired;
(10) customary provisions contained in leases, licenses, contracts and other similar agreements entered into in the ordinary course of business that impose restrictions of the type described in clause (c) above on the property subject to such lease;
(11) any encumbrance or restriction of a Receivables Subsidiary effected in connection with a Qualified Receivables Financing that, in the good faith judgment of the Issuer, are necessary or advisable in connection therewith; provided, however, that such restrictions apply only to such Receivables Subsidiary;
(12) other Indebtedness, Disqualified Stock or Preferred Stock of any Restricted Subsidiary of the Issuer that is Incurred subsequent to the Issue Date and permitted pursuant to Section 4.03; provided that either (A) the provisions relating to such encumbrance or restriction contained in such Indebtedness are no less favorable to the Issuer, taken as a whole, as determined by the Board of Directors of the Issuer in good faith, than the provisions contained in the Credit Agreement and the other Senior Credit Documents or in the indenture governing the Existing Notes, in each case, as in effect on the Issue Date or (B) such encumbrances and restrictions contained in any agreement or instrument will not materially affect the Issuer’s ability to make anticipated principal or interest payments on the Notes (as determined by the Issuer in good faith);
(13) any Restricted Investment not prohibited by Section 4.04 and any Permitted Investment; or
(14) any encumbrances or restrictions of the type referred to in clauses (a), (b) and (c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (13) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Issuer, no more restrictive as a whole with respect to such encumbrances and restrictions than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
For purposes of determining compliance with this covenant, (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on ordinary shares shall not be deemed a restriction on the ability to make distributions on Capital Stock and (ii) the subordination of loans or advances made to the Issuer or a Restricted Subsidiary of the Issuer to other Indebtedness Incurred by the Issuer or any such Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances.
-67- SECTION 4.06. Asset Sales. Prior to the consummation of the Transfer Transactions, the Issuer will not consummate an Asset Sale except to the extent necessary to consummate the Transfer Transactions or the Special Mandatory Redemption and the transactions contemplated, in each case, thereby.
(a) From and after the date of consummation of the Transfer Transactions, the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, cause or make an Asset Sale, unless (x) the Issuer or any of its Restricted Subsidiaries, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value (as determined in good faith by the Issuer) of the assets sold or otherwise disposed of and (y) at least 75% of the consideration therefor received by the Issuer or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents; provided that the amount of:
(i) any liabilities (as shown on the Issuer’s or such Restricted Subsidiary’s most recent balance sheet or in the notes thereto) of the Issuer or any Restricted Subsidiary of the Issuer (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets,
(ii) any notes or other obligations or other securities or assets received by the Issuer or such Restricted Subsidiary of the Issuer from such transferee that are converted by the Issuer or such Restricted Subsidiary of the Issuer into cash within 180 days of the receipt thereof (to the extent of the cash received), and
(iii) any Designated Non-cash Consideration received by the Issuer or any of its Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (iii) that is at that time outstanding, not to exceed 5.0% of Total Assets of the Issuer at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value) shall be deemed to be Cash Equivalents for the purposes of this Section 4.06(a).
(b) Within 395 days after the Issuer’s or any Restricted Subsidiary of the Issuer’s receipt of the Net Proceeds of any Asset Sale (or Event of Loss Proceeds), the Issuer or such Restricted Subsidiary of the Issuer may apply the Net Proceeds from such Asset Sale (together with any Event of Loss Proceeds), at its option:
(i) to permanently reduce Obligations under Secured Indebtedness or Pari Passu Indebtedness (provided that if the Issuer or any Guarantor shall so reduce Obligations under Pari Passu Indebtedness (other than Pari Passu Indebtedness that is Secured Indebtedness and other than Pari Passu Indebtedness that is Indebtedness represented by the Issuer’s guarantee of Indebtedness of any Restricted Subsidiary of the Issuer), the Issuer shall equally and ratably reduce Obligations under the Notes if the Notes are then prepayable or, if the Notes may not then be prepaid, by making an offer (in accordance
-68- with the procedures set forth below for an Asset Sale Offer) to all Holders to purchase at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, the pro rata principal amount of Notes that would otherwise be prepaid) or Indebtedness of a Restricted Subsidiary that is not a Guarantor, in each case other than Indebtedness owed to the Issuer or an Affiliate of the Issuer; provided that if an offer to purchase any Indebtedness of Intelsat Sub Holdco or any of its Restricted Subsidiaries is made in accordance with the terms of such Indebtedness, the obligation to permanently reduce Indebtedness of a Restricted Subsidiary will be deemed to be satisfied to the extent of the amount of the offer, whether or not accepted by the holders thereof, and no Net Proceeds in the amount of such offer will be deemed to exist following such offer,
(ii) to an investment in any one or more businesses (provided that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of the Issuer), or capital expenditures or assets, in each case used or useful in a Similar Business, and/or
(iii) to make an investment in any one or more businesses (provided that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of the Issuer), properties or assets that replace the properties and assets that are the subject of such Asset Sale or Event of Loss; provided that in the case of clauses (ii) and (iii) above, a binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment and, in the event such binding commitment is later canceled or terminated for any reason before such Net Proceeds are so applied, the Issuer or such Restricted Subsidiary enters into another binding commitment within nine months of such cancellation or termination of the prior binding commitment. Pending the final application of any such Net Proceeds (or Event of Loss Proceeds), the Issuer or such Restricted Subsidiary of the Issuer may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Proceeds (or Event of Loss Proceeds) in Cash Equivalents or Investment Grade Securities. Any Net Proceeds from any Asset Sale (or Event of Loss Proceeds) that are not applied as provided and within the time period set forth in the first sentence of this Section 4.06(b) (it being understood that any portion of such Net Proceeds (or Event of Loss Proceeds) used to make an offer to purchase Notes, as described in clause (i) above, shall be deemed to have been invested whether or not such offer is accepted) shall be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Issuer shall make an offer to all Holders of Notes and, at the option of the Issuer, to holders of any Pari Passu Indebtedness (an “Asset Sale Offer”) to purchase the maximum principal amount of Notes (and such Pari Passu Indebtedness) that is an integral multiple of $1,000 principal amount at maturity that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the Accreted Value thereof (or in the case of Pari Passu Indebtedness, 100% of the principal amount or accreted value thereof, as applicable), plus accrued and unpaid interest and additional interest, if any (or, in respect of such Pari Passu Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari Passu Indebtedness), to the date fixed for the closing of such offer, in accordance with the procedures set forth in this Section 4.06. The Issuer shall commence an Asset Sale Offer
-69- with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceed $25.0 million by mailing the notice required pursuant to the terms of Section 4.06(f), with a copy to the Trustee. To the extent that the aggregate amount of Notes (and such Pari Passu Indebtedness) tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuer may use any remaining Excess Proceeds for general corporate purposes. If the aggregate Accreted Value of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes (and such Pari Passu Indebtedness) to be purchased in the manner described in Section 4.06(e). Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
(c) The Issuer shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
(d) Not later than the date upon which written notice of an Asset Sale Offer is delivered to the Trustee as provided above, the Issuer shall deliver to the Trustee an Officers’ Certificate as to (i) the amount of the Excess Proceeds, (ii) the allocation of the Net Proceeds from the Asset Sales pursuant to which such Asset Sale Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(b). On such date, the Issuer shall also irrevocably deposit with the Trustee or with a paying agent (or, if the Issuer or a Wholly Owned Restricted Subsidiary is acting as a Paying Agent, segregate and hold in trust) an amount equal to the Excess Proceeds to be invested in Cash Equivalents, as directed in writing by the Issuer, and to be held for payment in accordance with the provisions of this Section 4.06. Upon the expiration of the period for which the Asset Sale Offer remains open (the “Offer Period”), the Issuer shall deliver to the Trustee for cancellation the Notes or portions thereof that have been properly tendered to and are to be accepted by the Issuer. The Trustee (or a Paying Agent, if not the Trustee) shall, on the date of purchase, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the Excess Proceeds delivered by the Issuer to the Trustee is greater than the purchase price of the Notes tendered, the Trustee shall deliver the excess to the Issuer immediately after the expiration of the Offer Period for application in accordance with this Section 4.06.
(e) Holders electing to have a Note purchased shall be required to surrender the Note, with an appropriate form duly completed, to the Issuer at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or the Issuer receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount at maturity of the Note which was delivered by the Holder for purchase and a statement that such Holder is withdrawing his election to have such Note purchased. If at the end of the Offer Period more Notes (and such Pari Passu Indebtedness) are tendered pursuant to an Asset Sale Offer than the Issuer is required to purchase, the principal amount at maturity of the Notes (and Pari Passu Indebtedness) to be purchased will be determined pro rata based on the principal amount at maturity so tendered and the selection of the actual Notes for purchase shall be made by the Trustee on a pro rata basis to the extent practicable; provided, however, that no Notes (or Pari Passu Indebtedness) of $1,000 principal amount at maturity or less shall be purchased in part.
-70- (f) Notice of an Asset Sale Offer shall be mailed by first class mail, postage prepaid, at least 30 but not more than 60 days before the purchase date to each Holder of Notes at such Holder’s registered address. If any Note is to be purchased in part only, any notice of purchase that relates to such Note shall state the portion of the principal amount at maturity thereof that has been or is to be purchased.
(g) A new Note in principal amount at maturity equal to the unpurchased portion of any Note purchased in part shall be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the purchase date, unless the Issuer defaults in payment of the purchase price, Accreted Value shall cease to accrete or interest shall cease to accrue, as applicable, on Notes or portions thereof purchased.
SECTION 4.07. Transactions with Affiliates. Prior to the consummation of the Transfer Transactions, the Issuer will not enter into or permit to exist any Affiliate Transaction other than to the extent necessary to consummate the Transfer Transactions or the Special Mandatory Redemption and Affiliate Transactions related, in each case, thereto.
(a) From and after the date of consummation of the Transfer Transactions, the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction or series of transactions, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an “Affiliate Transaction”) involving aggregate consideration in excess of $5.0 million, unless:
(i) such Affiliate Transaction is on terms that are not materially less favorable to the Issuer or the relevant Restricted Subsidiary than those that could have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person; and
(ii) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, the Issuer delivers to the Trustee a resolution adopted in good faith by the majority of the Board of Directors of the Issuer or any Parent of the Issuer approving such Affiliate Transaction and set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (i) above.
(b) The provisions of Section 4.07(a) shall not apply to the following:
(i) (A) transactions between or among the Issuer and/or any of its Restricted Subsidiaries and (B) any merger or amalgamation of the Issuer and any direct parent company of Issuer; provided that such parent company shall have no material liabilities and no material assets other than cash, Cash Equivalents and the Capital Stock of the Issuer and such merger or amalgamation is otherwise in compliance with the terms of this Indenture and effected for a bona fide business purpose;
-71- (ii) (a) Restricted Payments permitted by Section 4.04 and (b) Investments under the definition of “Permitted Investments”;
(iii) the entering into of any agreement to pay, and the payment of, management, consulting, monitoring and advisory fees and expenses to the Sponsors in an aggregate amount in any fiscal year not to exceed the greater of (x) $6.25 million and (y) 1.25% of Adjusted EBITDA of the Issuer and its Restricted Subsidiaries for the immediately preceding fiscal year;
(iv) the payment of reasonable and customary fees to, and indemnity provided on behalf of officers, directors, employees or consultants of the Issuer or any Restricted Subsidiary of the Issuer or any Parent of the Issuer;
(v) payments by the Issuer or any of its Restricted Subsidiaries to the Sponsors made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures, which payments are (x) approved by a majority of the Board of Directors of the Issuer in good faith or (y) made pursuant to any agreement described under the caption “Certain Relationships and Related Party Transactions” in the Offering Memorandum;
(vi) transactions in which the Issuer or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (i) of Section 4.07(a);
(vii) payments or loans (or cancellation of loans) to employees or consultants that are approved by a majority of the Board of Directors of the Issuer in good faith;
(viii) any agreement as in effect as of the Issue Date or the date of consummation of the Transfer Transactions and any amendment thereto (so long as any such agreement together with all amendments thereto, taken as a whole, is not more disadvantageous to the Holders of the Notes in any material respect than the original agreement as in effect on the Issue Date or the date of consummation of the Transfer Transactions, as the case may be) or any transaction contemplated thereby;
(ix) the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries of its obligations under the terms of, the Acquisition Documents and any amendment thereto or similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries of its obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (ix) to the extent that the terms of any such existing agreement together with all amendments thereto, taken as a whole, or new agreement are not otherwise more disadvantageous to the Holders of the Notes in any material respect than the original agreement as in effect on the Acquisition Date;
-72- (x) transactions to effect the Transactions and the payment of all fees and expenses related to the Transactions, as described in the Offering Memorandum or contemplated by the Acquisition Documents;
(xi) (A) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture, which are fair to the Issuer and its Restricted Subsidiaries, in the reasonable judgment of the Issuer, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and (B) transactions with Joint Ventures or Unrestricted Subsidiaries entered into in the ordinary course of business;
(xii) any transaction effected as part of a Qualified Receivables Financing;
(xiii) the issuance of Equity Interests (other than Disqualified Stock) of the Issuer to any Permitted Holder or to any director, officer, employee or consultant of the Issuer or any Parent of the Issuer;
(xiv) the issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock option and stock ownership plans or similar employee benefit plans approved by the Board of Directors of the Issuer or any Parent of the Issuer or of a Restricted Subsidiary of the Issuer, as appropriate, in good faith;
(xv) the entering into of any tax sharing agreement or arrangement and any payments permitted by clause (xii) of Section 4.04(b);
(xvi) any contribution to the capital of the Issuer;
(xvii) transactions permitted by, and complying with, the provisions of Section 5.01;
(xviii) transactions between the Issuer or any of its Restricted Subsidiaries and any Person, a director of which is also a director of the Issuer or any Parent of the Issuer; provided, however, that such director abstains from voting as a director of the Issuer or such Parent, as the case maybe, on any matter involving such other Person;
(xix) pledges of Equity Interests of Unrestricted Subsidiaries; and
(xx) any employment agreements entered into by the Issuer or any of its Restricted Subsidiaries in the ordinary course of business.
SECTION 4.08. Change of Control.
(a) Upon the occurrence of any of the following events (each, a “Change of Control”), each Holder shall have the right to require the Issuer and Holdings to repurchase all or any part of such Holder’s Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of
-73- Holders of record on the relevant record date to receive interest due on the relevant interest payment date), except to the extent the Issuer has previously elected to redeem Notes in accordance with Article 3 of this Indenture:
(i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all the assets of the Issuer and its Subsidiaries, taken as a whole, to a Person other than any of the Permitted Holders, and other than any transaction in compliance with Article 5 where the Successor Company is a Wholly-Owned Subsidiary of a Parent of the Issuer; or
(ii) the Issuer becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any of the Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, amalgamation, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), of more than 50% of the total voting power of the Voting Stock of the Issuer or any Parent of the Issuer; or
(iii) individuals who on the Acquisition Date constituted the Board of Directors of Holdings (together with any new directors whose election by such Board of Directors of Holdings or whose nomination for election by the shareholders of Holdings was approved by (a) a vote of a majority of the directors of Holdings then still in office who were either directors on the Acquisition Date or whose election or nomination for election was previously so approved or (b) any of the Permitted Holders) cease for any reason to constitute a majority of the Board of Directors of Holdings then in office.
Notwithstanding the foregoing, neither (i) the Contribution nor (ii) any Specified Merger/Transfer Transaction, shall constitute a Change of Control.
(b) Within 60 days following any Change of Control, except to the extent that the Issuer has exercised its right to redeem the Notes in accordance with Article 3 of this Indenture, the Issuer shall mail a notice (a “Change of Control Offer”) to each Holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such Holder has the right to require the Issuer and Holdings to purchase such Holder’s Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest and additional interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date);
(ii) the circumstances and relevant facts and financial information regarding such Change of Control;
-74- (iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions determined by the Issuer and Holdings, consistent with this Section 4.08, that a Holder must follow in order to have its Notes purchased.
A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.
(c) Holders electing to have a Note purchased shall be required to surrender the Note, with an appropriate form duly completed, to the Issuer and Holdings at the address specified in the notice at least three Business Days prior to the purchase date. The Holders shall be entitled to withdraw their election if the Trustee, the Issuer or Holdings receives not later than one Business Day prior to the purchase date a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount at maturity of the Note which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Note purchased. Holders whose Notes are purchased only in part shall be issued new Notes equal in Accreted Value and principal amount at maturity to the unpurchased portion of the Notes surrendered.
(d) On the purchase date, all Notes purchased by the Issuer or Holdings under this Section shall be delivered to the Trustee for cancellation, and the Issuer or Holdings shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section, neither the Issuer nor Holdings be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 4.08(b) applicable to a Change of Control Offer made by the Issuer or Holdings and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(f) At the time the Issuer or Holdings delivers Notes to the Trustee which are to be accepted for purchase, the Issuer or Holdings, as the case may be, shall also deliver an Officers’ Certificate stating that such Notes are to be accepted by the Issuer or Holdings, as the case may be, pursuant to and in accordance with the terms of this Section 4.08. A Note shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder.
(g) Prior to any Change of Control Offer, the Issuer or Holdings, as the case may be, shall deliver to the Trustee an Officers’ Certificate stating that all conditions precedent contained herein to the right of the Issuer or Holdings to make such offer have been complied with.
(h) The Issuer and Holdings shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section 4.08. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.08, the Issuer and Holdings shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under this Section 4.08 by virtue thereof.
-75- SECTION 4.09. Compliance Certificate. If a Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each Holder of the Notes a notice of Default within the earlier of 90 days after the Default occurs or 30 days after the Default is known to a Trust Officer or written notice of the Default is received by the Trustee. In addition, the Issuer shall deliver to the Trustee within 120 days after the end of each fiscal year of the Issuer an Officers’ Certificate stating that in the course of the performance by the signers of their duties as Officers of the Issuer they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Issuer is taking or proposes to take with respect thereto. The Issuer also shall comply with Section 314(a)(4) of the TIA.
SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee, the Issuer and/or Holdings shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
SECTION 4.11. Future Guarantors. The Issuer shall not permit any of its Restricted Subsidiaries (other than a Receivables Subsidiary formed in connection with a Qualified Receivables Financing and other than any License Subsidiary in connection with any guarantee of the Credit Agreement and the Eurobond Notes) that is not a Subsidiary Guarantor to, directly or indirectly, guarantee the payment of any Indebtedness of the Issuer unless such Subsidiary executes and delivers to the Trustee a Guarantee or a supplemental indenture substantially in the form of Exhibit D (together with such opinions or certificates reasonably requested in connection therewith) pursuant to which such Subsidiary will guarantee payment of the Notes. Each Guarantee shall be limited to an amount not to exceed the maximum amount that can be guaranteed by that Restricted Subsidiary without rendering the Guarantee, as it relates to such Restricted Subsidiary, voidable under applicable law relating to fraudulent conveyance, financial assistance or fraudulent transfer or similar laws affecting the rights of creditors generally.
SECTION 4.12. Liens.
(a) Prior to the consummation of the Transfer Transactions, the Issuer shall not, and shall not permit any Restricted Subsidiary to, incur or suffer to exist any Lien upon any of its property (including Capital Stock and intercompany notes), whether owned on the Issue Date or thereafter acquired, or any interest therein or any income or profits therefrom that secures any obligation of the Issuer, except Liens in connection with the Transfer Transactions.
(b) From and after the date of consummation of the Transfer Transactions, the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (other than Permitted Liens) that secures any obligations under Indebtedness of the Issuer against or on any asset or property now owned or hereafter acquired by the Issuer, or any income or profits therefrom, unless:
(1) in the case of Liens securing Indebtedness that is Subordinated Indebtedness, the Notes are secured by a Lien on such property or assets that is senior in priority to such Liens; and
-76- (2) in all other cases, the Notes are equally and ratably secured; provided that any Lien which is granted to secure the Notes under this covenant shall be automatically released and discharged at the same time as the release of the Lien that gave rise to the obligation to secure the Notes under this covenant.
SECTION 4.13. Maintenance of Office or Agency.
(a) The Issuer and Holdings shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar and which, for so long as required by any national securities exchange (whether or not the Issuer or Holdings has any securities listed on such exchange), shall be in the Borough of Manhattan, the City of New York, the State of New York) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuer and Holdings in respect of the Notes and this Indenture may be served. The Issuer and Holdings shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer and Holdings shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the corporate trust office of the Trustee as set forth in Section 11.02.
(b) The Issuer and Holdings may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Issuer and Holdings of their obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Issuer and Holdings shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
(c) The Issuer and Holdings hereby designate the corporate trust office of the Trustee or its Agent, in the Borough of Manhattan, The City of New York, as such office or agency of the Issuer and Holdings in accordance with Section 2.04.
SECTION 4.14. Maintenance of Insurance.
(a) Following the consummation of the Transfer Transactions, the Issuer shall, and shall cause each Restricted Subsidiary to, obtain, maintain and keep in full force and effect at all times (i) with respect to each Satellite procured by the Issuer or any Restricted Subsidiary for which the risk of loss passes to the Issuer or such Restricted Subsidiary at or before launch, and for which launch insurance or commitments with respect thereto are not in place as of the Issue Date, launch insurance with respect to each such Satellite covering the launch of such Satellite and a period of time thereafter, but only to the extent, if at all, and on such terms (including coverage period, exclusions, limitations on coverage, co-insurance, deductibles and coverage amount) as is determined by the Board of Directors of the Issuer, to be in the best interests
-77- of the Issuer as evidenced by a resolution of the Board of Directors, (ii) with respect to each Satellite it currently owns or for which it has risk of loss (or, if the entire Satellite is not owned, the portion it owns or for which it has risk of loss), other than any Excluded Satellite, In-Orbit Insurance and (iii) at all times subsequent to the coverage period of the launch insurance described in clause (i) above, if any, or if launch insurance is not procured, at all times subsequent to the initial completion of in-orbit testing, in each case with respect to each Satellite it then owns or for which it has risk of loss (or portion, as applicable), other than any Excluded Satellite, In-Orbit Insurance; provided, however, that at any time with respect to a Satellite that is not an Excluded Satellite, neither the Issuer nor any Restricted Subsidiary shall be required to maintain In-Orbit Insurance in excess of 33% of the aggregate net book value of all in-orbit Satellites (and portions it owns or for which it has risk of loss) insured (it being understood that any Satellite (or portion, as applicable) protected by In-Orbit Contingency Protection shall be deemed to be insured for a percentage of its net book value as set forth in the definition of “In-Orbit Contingency Protection”).
(b) In the event that the expiration and non-renewal of In-Orbit Insurance for such a Satellite (or portion, as applicable) resulting from a claim of loss under such policy causes a failure to comply with the proviso to Section 4.14(a), the Issuer and its Restricted Subsidiaries shall be deemed to be in compliance with the proviso to Section 4.14(a) for the 120 days immediately following such expiration or non-renewal, provided that the Issuer or a Restricted Subsidiary, as the case may be, procures such In-Orbit Insurance or provides such In-Orbit Contingency Protection as necessary to comply with the preceding proviso within such 120-day period.
(c) Insurance policies obtained or renewed after the Issue Date required by Section 4.14(a) shall:
(i) contain no exclusions other than:
(A) Acceptable Exclusions and such other exclusions or limitations of coverage as may be applicable to a substantial portion of satellites of the same model or relating to systemic failures or anomalies as are then customary in the satellite insurance market and
(B) such specific exclusions applicable to the performance of the Satellite (or portion, as applicable) being insured as are reasonably acceptable to the Board of Directors of the Issuer in order to obtain insurance for a price that is, and on other terms and conditions that are, commercially reasonable and
(ii) provide coverage for all risks of loss of and damage to the Satellite (or portion, as applicable).
(d) The insurance required by this Section 4.14 shall name the Issuer or the applicable Restricted Subsidiary as the named insured.
(e) In the event of the unavailability of any In-Orbit Contingency Protection for any reason, the Issuer or a Restricted Subsidiary, as the case may be, shall, subject to the proviso to Section 4.14(a), within 120 days of such unavailability, be required to have in effect In-Orbit Insurance complying with Section 4.14(a)(ii) or (iii), as applicable, with respect to all Satellites
-78- (or portions, as applicable), other than Excluded Satellites that the unavailable In-Orbit Contingency Protection was intended to protect and for so long as such In-Orbit Contingency Protection is unavailable, provided that the Issuer and its Restricted Subsidiaries shall be considered in compliance with this Section 4.14 for the 120 days immediately following such unavailability.
(f) In the event that the Issuer or any of its Restricted Subsidiaries receives any Event of Loss Proceeds in respect of an Event of Loss, such Event of Loss Proceeds shall be applied in the manner provided for in Section 4.06.
SECTION 4.15. Matters Relating to Intelsat General Corporation. The Issuer shall use its commercially reasonable efforts (as may be permitted under that certain proxy agreement (the “Proxy Agreement”) among Intelsat General Corporation (“Intelsat General”) and the other parties thereto), and shall use its commercially reasonable efforts (as may be permitted under the Proxy Agreement) to cause its Restricted Subsidiaries (other than Intelsat General), not to allow or permit, directly or indirectly, Intelsat General to take, or fail to take, any action that would violate the covenants and terms of this Indenture.
SECTION 4.16. Suspension of Covenants.
(a) During any period of time that: (i) the Notes have Investment Grade Ratings from two Rating Agencies and (ii) no Default or Event of Default has occurred and is continuing (the occurrence of the events described in the foregoing clauses (i) and (ii) being collectively referred to as a “Covenant Suspension Event”), the Issuer and the Restricted Subsidiaries shall not be subject to the provisions of Sections 4.03, 4.04, 4.05, 4.06, 4.07, 5.01(a)(iv), 4.11, and 4.14 (collectively, the “Suspended Covenants”).
(b) Upon the occurrence of a Covenant Suspension Event, the Guarantees of any Subsidiary Guarantors will also be suspended as of such date (the “Suspension Date”).
(c) In the event that the Issuer and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the foregoing, and on any subsequent date (the “Reversion Date”) one or both of the Rating Agencies withdraws its Investment Grade Rating or downgrades the rating assigned to the notes below an Investment Grade Rating, then the Issuer and the Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants with respect to future events and the Guarantees, if any, of any Guarantors will be reinstated if such guarantees are then required by the terms of this Indenture. The period of time between the Suspension Date and the Reversion Date is referred to in this Indenture as the “Suspension Period.”
(d) Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of Default will be deemed to have occurred as a result of a failure to comply with the Suspended Covenants during the Suspension Period (or upon termination of the Suspension Period or after that time based solely on events that occurred during the Suspension Period).
(e) On the Reversion Date, all Indebtedness Incurred, or Disqualified Stock or Preferred Stock issued, during the Suspension Period will be classified as having been Incurred or issued pursuant to Section 4.03(a) or Section 4.03(b) (to the extent such Indebtedness or Disqualified
-79- Stock or Preferred Stock would be permitted to be Incurred or issued thereunder as of the Reversion Date and after giving effect to Indebtedness Incurred or issued prior to the Suspension Period and outstanding on the Reversion Date). To the extent such Indebtedness or Disqualified Stock or Preferred Stock would not be so permitted to be Incurred or issued pursuant to Sections 4.03(a) or (b), such Indebtedness or Disqualified Stock or Preferred Stock will be deemed to have been outstanding on the date of consummation of the Transfer Transactions, so that it is classified as permitted under Section 4.03(b)(iii). Calculations made after the Reversion Date of the amount available to be made as Restricted Payments under Section 4.04 will be made as though Section 4.04 had been in effect since the date of consummation of the Transfer Transactions and throughout the Suspension Period. For the avoidance of doubt, Restricted Payments made during the Suspension Period shall reduce the amount available to be made as Restricted Payments under Section 4.04(a). No Default or Event of Default shall be deemed to have occurred on the Reversion Date as a result of any actions taken by the Issuer or its Restricted Subsidiaries during the Suspension Period.
(f) The Issuer shall deliver promptly to the Trustee an Officer’s Certificate notifying the Trustee of any Covenant Suspension Event or Reversion Date, as the case may be, pursuant to this Section 4.16.
SECTION 4.17. Payment of Additional Amounts.
(a) The Issuer and Holdings (or any Guarantor) shall pay to any holder so entitled all additional amounts that may be necessary so that every Net Payment of interest, principal, premium or other amount on that note will not be less than the amount provided for in that note. “Net Payment” means the amount the Issuer, Holdings or any paying agent pays the Holder after deducting or withholding an amount for or on account of any present or future tax, assessment or other governmental charge imposed with respect to that payment by a taxing authority (including any withholding or deduction attributable to additional amounts payable pursuant to this Section 4.17).
(b) The Issuer and Holdings (and any Guarantor) shall also indemnify and reimburse holders for
(i) taxes (including any interest, penalties and related expenses) imposed on the Holders by a Relevant Tax Jurisdiction if and to the same extent that a Holder would have been entitled to receive additional amounts if the Issuer or Holdings (or any Guarantor) had been required to deduct or withhold those taxes from payments on the Notes; and
(ii) stamp, court, documentary or similar taxes or charges (including any interest, penalties and related expenses) imposed by a Relevant Tax Jurisdiction in connection with the execution, delivery, enforcement or registration of the Notes or other related documents and obligations.
(c) Notwithstanding clauses (a) and (b) of this Section 4.17, the Issuer and Holdings (or any Guarantor) shall not pay additional amounts to any Holder for or on account of:
(i) any tax, assessment or other governmental charge imposed solely because at any time there is or was a connection between the Holder (or between a fiduciary,
-80- settlor, beneficiary, member or shareholder of or possessor of power over the relevant Holder if the Holder is an estate, nominee, trust, partnership, limited liability company, or corporation) and the jurisdiction imposing the tax (other than the mere receipt of a payment or the acquisition, ownership, disposition or holding of, or enforcement of rights under, a Note);
(ii) any estate, inheritance, gift or any similar tax, assessment or other governmental charge;
(iii) any tax, assessment or other governmental charge imposed solely because the Holder (or if the Holder is not the beneficial owner, the beneficial owner) that is legally able to do so fails to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with the taxing jurisdiction of the Holder or any beneficial owner of the Note, if compliance is required by law or by an applicable income tax treaty to which the jurisdiction imposing the tax is a party, as a precondition to exemption from the tax, assessment or other governmental charge and the Issuer has given the holders at least 60 days’ notice that Holders will be required to provide such information and identification;
(iv) any tax, assessment or other governmental charge with respect to a Note presented for payment more than 30 days after the date on which payment became due and payable or the date on which payment thereof is duly provided for and notice thereof given to Holders, whichever occurs later, except to the extent that the Holder of the Note would have been entitled to additional amounts on presenting the Note for payment on any date during the 30-day period; and
(v) any withholding or deduction imposed on a payment to an individual that is required to be made pursuant to the European Union Directive on the taxation of savings income, which was adopted by the ECOFIN Council on June 3, 2003, or any law implementing or complying with, or introduced in order to conform to, such Directive.
SECTION 4.18. Special Account; Special Mandatory Redemption.
(a) Concurrently with the closing of the offering of the Original Notes, the Issuer shall deposit into a special account (the “Special Account”) in the name of the Issuer an amount equal to the gross proceeds of the offering of the Notes sold on the Issue Date.
(b) Unless the Transfer Transactions have been consummated prior thereto, within 10 Business Days following the earliest to occur for whatever reason of any Special Mandatory Redemption Event (the “Special Mandatory Redemption Date”), upon at least two Business Days prior notice to the Holders of the Notes, the Issuer or Holdings shall redeem all of the Notes (the “Special Mandatory Redemption”) at a price equal to 100% of the Accreted Value of the Notes on such redemption date.
-81- SECTION 4.19. Limitation on Business Activities of Zeus Special Subsidiary Limited.
(a) Prior to the consummation of the Transfer Transactions, the Issuer shall be limited in its business activities to those necessary to issue Equity Interests to any Parent of the Issuer, issue the Notes, place the gross proceeds of the Notes in the Special Account, effect the Transfer Transactions, effect the Special Mandatory Redemption (if required), maintain its existence and, in each case, activities reasonably related or incidental thereto. Prior to the consummation of the Transfer Transactions, the Issuer shall extract the net proceeds of the Notes from the Special Account only as advisable to effect the Special Mandatory Redemption, or as required by law, regulation or order.
(b) Upon consummation of the Transfer Transactions, the Issuer shall no longer be subject to the limitations in Section 4.19(a) and shall be permitted to extract the net proceeds of the Notes from the Special Account and use them for any purpose permitted under this Indenture.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. When Issuer May Merge or Transfer Assets.
(a) The Issuer shall not consolidate, amalgamate or merge with or into or wind up into (whether or not the Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions (other than in connection with the Transfer Transactions) to, any Person unless:
(i) the Issuer is a surviving Person or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than the Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof, under the laws of the jurisdiction of organization of the Issuer or under the laws of any country that is a member of the European Union (the Issuer or such Person, as the case may be, being herein called the “Successor Company”);
(ii) the Successor Company (if other than the Issuer) expressly assumes all the obligations of the Issuer under this Indenture and the Notes pursuant to supplemental indentures or other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;
-82- (iv) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period (and treating any Indebtedness which becomes an obligation of the Successor Company or any of its Restricted Subsidiaries as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), either
(a) the Successor Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Debt to Adjusted EBITDA Ratio test set forth in Section 4.03(a)(1); or
(b) the Debt to Adjusted EBITDA Ratio for the Successor Company and its Restricted Subsidiaries would be equal to or less than such ratio for the Issuer and its Restricted Subsidiaries immediately prior to such transaction; and
(v) the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, amalgamation, merger or transfer and such supplemental indentures (if any) comply with this Indenture.
Notwithstanding the foregoing clauses (iii) and (iv) of this Section 5.01(a), (A) the Issuer or any Restricted Subsidiary may consolidate or amalgamate with, merge into, sell, assign or transfer, lease, convey or otherwise dispose of all or part of its properties and assets to the Issuer or to another Restricted Subsidiary and (B) the Issuer may merge, amalgamate or consolidate with an Affiliate incorporated solely for the purpose of reincorporating the Issuer in a (or another) state of the United States, the District of Columbia, any territory of the United States or any country that is a member of the European Union so long as the amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not increased thereby (any transaction described in this sentence a “Specified Merger/Transfer Transaction”).
(b) Subject to the provisions of Section 10.02(b) (which, among other things, govern the release of a Guarantee upon the sale or disposition of a Restricted Subsidiary of the Issuer that is a Subsidiary Guarantor), each Subsidiary Guarantor, if any, shall not, and the Issuer shall not permit any Subsidiary Guarantor to, consolidate, amalgamate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person (other than any such sale, assignment, transfer, lease, conveyance or disposition in connection with the Transactions described in the Offering Memorandum) unless:
(i) such Subsidiary Guarantor is a surviving Person or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than such Subsidiary Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition is made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof, under the laws of the jurisdiction of organization of the Issuer or such Subsidiary Guarantor or under the laws of any country that is a member of the European Union (such Subsidiary Guarantor or such Person, as the case may be, being herein called the “Successor Guarantor”);
-83- (ii) the Successor Guarantor (if other than such Subsidiary Guarantor) expressly assumes all the obligations of such Subsidiary Guarantor under this Indenture and such Subsidiary Guarantor’s Guarantee pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any of its Subsidiaries as a result of such transaction as having been Incurred by the Successor Guarantor or such Subsidiary at the time of such transaction) no Default or Event of Default shall have occurred and be continuing; and
(iv) the Successor Guarantor (if other than such Subsidiary Guarantor) shall have delivered or caused to be delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, amalgamation, merger or transfer and such supplemental indenture (if any) comply with this Indenture.
Notwithstanding the foregoing, (1) a Subsidiary Guarantor may merge, amalgamate or consolidate with an Affiliate incorporated solely for the purpose of reincorporating such Subsidiary Guarantor in a (or another) state of the United States, the District of Columbia, any territory of the United States, any country that is a member of the European Union or the jurisdiction of organization of the Issuer, so long as the amount of Indebtedness of the Subsidiary Guarantor is not increased thereby and (2) a Subsidiary Guarantor may merge, amalgamate or consolidate with, or make transfers or dispositions to, another Subsidiary Guarantor or the Issuer.
(c) Holdings shall not consolidate, amalgamate or merge with or into or wind up into (whether or not Holdings is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person (other than any such sale, assignment, transfer, lease, conveyance or disposition in connection with the Transactions described in the Offering Memorandum) unless:
(i) Holdings is a surviving Person or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than Holdings) or to which such sale, assignment, transfer, lease, conveyance or other disposition is made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof, under the laws of the jurisdiction of organization of the Issuer, Holdings or any Subsidiary Guarantor or under the laws of any country that is a member of the European Union (Holdings or such Person, as the case may be, being herein called the “Successor Parent”);
(ii) the Successor Parent (if other than Holdings) expressly assumes all the obligations of Holdings under this Indenture pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and
-84- (iv) the Successor Parent (if other than Holdings) shall have delivered or caused to be delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, amalgamation, merger or transfer and such supplemental indenture (if any) comply with this Indenture.
Notwithstanding the foregoing, (1) Holdings may merge, amalgamate or consolidate with an Affiliate incorporated solely for the purpose of reincorporating Holdings in a (or another) state of the United States, the District of Columbia, any territory of the United States, any country that is a member of the European Union or the jurisdiction of organization of the Issuer or Holdings and (2) Holdings may merge, amalgamate or consolidate with, or make transfers or dispositions to, a Subsidiary Guarantor or the Issuer.
SECTION 5.02. Successor Company Substituted.
(a) Upon any consolidation, merger or amalgamation, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer in accordance with or permitted by Section 5.01 hereof, the Successor Company (if other than the Issuer) shall succeed to and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Successor Company had been named as the Issuer herein.
(b) Subject to the limitations described in this Indenture, the Successor Guarantor shall succeed to, and be substituted for, such Subsidiary Guarantor under this Indenture and such Subsidiary Guarantor’s Guarantee, and such Subsidiary Guarantor will automatically be released and discharged from its obligations under this Indenture and such Subsidiary Guarantor’s Guarantee.
(c) Subject to the limitations described in this Indenture, the Successor Parent shall succeed to, and be substituted for, Holdings under this Indenture, and Holdings will automatically be released and discharged from its obligations under this Indenture.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. An “Event of Default” occurs if:
(a) the Issuer and Holdings default in any payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days,
(b) the Issuer and Holdings default in the payment of principal or premium, if any, of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise,
(c) the Issuer or any of its Restricted Subsidiaries fails to comply with any of its agreements in the Notes or this Indenture (other than those referred to in (a) or (b)
-85- above) and such failure continues for 60 days after the notice specified below; provided, however, that to the extent such failure relates solely to an action or inaction by Intelsat General, and the Issuer and its Restricted Subsidiaries have otherwise complied with Section 4.15, no Event of Default shall occur,
(d) Holdings, the Issuer or any Significant Subsidiary fails to pay any Indebtedness (other than Indebtedness owing to a Parent of the Issuer or a Restricted Subsidiary of the Issuer) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, in each case, if the total amount of such Indebtedness unpaid or accelerated exceeds $50.0 million or its foreign currency equivalent,
(e) Holdings, the Issuer or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an involuntary case;
(iii) consents to the appointment of a Custodian of it or for any substantial part of its property; or
(iv) makes a general assignment for the benefit of its creditors or takes any comparable action under any foreign laws relating to insolvency,
(f) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against Holdings, the Issuer or any Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of Holdings, the Issuer or any Significant Subsidiary or for any substantial part of its property; or
(iii) orders the winding up or liquidation of Holdings, the Issuer or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days, or
(g) Holdings, the Issuer or any Significant Subsidiary fails to pay final judgments aggregating in excess of $50.0 million or its foreign currency equivalent (net of any amounts which are covered by enforceable insurance policies issued by solvent carriers), which judgments are not discharged, waived or stayed for a period of 60 days following the entry thereof.
-86- The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.
The term “Bankruptcy Law” means Title 11, United States Code, or any similar U.S. Federal, state or any foreign law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.
A Default under clause (c) above shall not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount at maturity of outstanding Notes notify the Issuer of the Default and the Issuer does not cure such Default within the time specified in clause (c) above after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a “Notice of Default”. The Issuer shall deliver to the Trustee, within thirty days after the occurrence thereof, written notice in the form of an Officers’ Certificate of any event which is, or with the giving of notice or the lapse of time or both would become, an Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(e) or (f) with respect to the Issuer) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount at maturity of outstanding Notes by notice to the Issuer and Holdings, may declare the Accreted Value of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such Accreted Value, premium, if any, and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(e) or (f) with respect to the Issuer occurs, the Accreted Value of, premium, if any, and interest on all the Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount at maturity of outstanding Notes by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto.
In the event of any Event of Default specified in Section 6.01(d), such Event of Default and all consequences thereof (excluding, however, any resulting payment default) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders of the Notes, if within 20 days after such Event of Default arose the Issuer delivers an Officers’ Certificate to the Trustee stating that (x) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged or (y) the holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default or (z) the default that is the basis for such Event of Default has been cured, it being understood that in no event shall an acceleration of the Accreted Value of the Notes as described above be annulled, waived or rescinded upon the happening of any such events.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy at law or in equity to collect the payment of Accreted Value, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
-87- The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. Provided the Notes are not then due and payable by reason of a declaration of acceleration, the Holders of a majority in aggregate principal amount at maturity of the Notes by notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of the Accreted Value, premium, if any, or interest on a Note, (b) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Holder affected. When a Default is waived, it is deemed cured and the Issuer, the Trustee and the Holders will be restored to their former positions and rights under this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in aggregate principal amount at maturity of outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action under this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits.
(a) Except to enforce the right to receive payment of Accreted Value, premium (if any) or interest when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless:
(i) the Holder gives to the Trustee written notice stating that an Event of Default is continuing;
(ii) the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer to the Trustee reasonable security or indemnity satisfactory to it against any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and
-88- (v) the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes do not give the Trustee a direction inconsistent with the request during such 60-day period.
(b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.
SECTION 6.07. Rights of the Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of Accreted Value, premium, if any, and interest on the Notes held by such Holder, on or after the respective due dates expressed or provided for in the Notes, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuer or any other obligor on the Notes for the whole amount then due and owing (together with interest on overdue principal and (to the extent lawful) on any unpaid interest at the rate provided for in the Notes) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation, expenses, disbursements and advances of the Trustee (including counsel, accountants, experts or such other professionals as the Trustee deems necessary, advisable or appropriate)) and the Holders allowed in any judicial proceedings relative to the Issuer, Holdings or any Guarantor, their creditors or their property, shall be entitled to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matters and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Holders for amounts due and unpaid on the Notes for Accreted Value, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and
THIRD: to the Issuer and Holdings or, to the extent the Trustee collects any amount from any Subsidiary Guarantor, to such Subsidiary Guarantor.
-89- The Trustee may fix a record date and payment date for any payment to the Holders pursuant to this Section. At least 15 days before such record date, the Trustee shall mail to each Holder and the Issuer a notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the outstanding Notes.
SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Issuer nor any Guarantor (to the extent it may lawfully do so) shall at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer and each Guarantor (to the extent that it may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of certificates or opinions required by any provision hereof to be provided to it, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture.
-90- (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05; and
(iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers.
(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer or Holdings.
(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers’ Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee’s conduct does not constitute willful misconduct or negligence.
-91- (e) The Trustee may consult with counsel of its own selection and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the Holders of not less than a majority in principal amount of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer, personally or by agent or attorney, at the expense of the Issuer and shall incur no liability of any kind by reason of such inquiry or investigation.
(g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer, Holdings or their Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent or Registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee’s Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, any Guarantee or the Notes, it shall not be accountable for the Issuer’s use of the proceeds from the Notes, and it shall not be responsible for any statement of the Issuer or any Guarantor in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee’s certificate of authentication. The Trustee shall not be charged with knowledge of any Default or Event of Default under Section 6.01(c), (d), (e), (f) or (g) or of the identity of any Significant Subsidiary unless either (a) a Trust Officer shall have actual knowledge thereof or (b) the Trustee shall have received notice thereof in accordance with Section 11.02 hereof from the Issuer, Holdings, any Guarantor or any Holder.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is actually known to a Trust Officer
-92- or written notice of it is received by the Trustee. Except in the case of a Default in the payment of Accreted Value of, premium (if any) or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of the Holders.
SECTION 7.06. Reports by Trustee to the Holders. As promptly as practicable after the end of each fiscal year of the Issuer beginning with end of the fiscal year following the date of this Indenture, and in any event within 12 months of the last such report, the Trustee shall mail to each Holder a brief report dated as of such fiscal year end that complies with Section 313(a) of the TIA if and to the extent required thereby. The Trustee shall also comply with Section 313(b) of the TIA.
A copy of each report at the time of its mailing to the Holders shall be filed with the SEC and each stock exchange (if any) on which the Notes are listed. The Issuer agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuer and Holdings shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Issuer, Holdings and each Guarantor (if any), jointly and severally shall indemnify the Trustee against any and all loss, liability, claim, damage or expense (including reasonable attorneys’ fees and expenses) incurred by or in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture or Guarantee against the Issuer, Holdings or a Guarantor (including this Section 7.07) and defending itself against or investigating any claim (whether asserted by the Issuer, any Guarantor, any Holder or any other Person). The Trustee shall notify the Issuer of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; provided, however, that any failure so to notify the Issuer shall not relieve the Issuer, Holdings or any Guarantor of its indemnity obligations hereunder. The Issuer shall defend the claim and the indemnified party shall provide reasonable cooperation at the Issuer’s expense in the defense. Such indemnified parties may have separate counsel and the Issuer, Holdings and the Guarantors, as applicable shall pay the fees and expenses of such counsel; provided, however, that the Issuer shall not be required to pay such fees and expenses if it assumes such indemnified parties’ defense and, in such indemnified parties’ reasonable judgment, there is no conflict of interest between the Issuer, Holdings and the Guarantors, as applicable, and such parties in connection with such defense. The Issuer, Holdings and the Guarantors, if any, need not reimburse any expense or indemnify against any loss, liability or expense incurred by an indemnified party through such party’s own willful misconduct, negligence or bad faith.
To secure the Issuer’s, Holdings’ and the Guarantors’ payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Notes.
-93- The Issuer’s, Holdings’ and the Guarantors’ payment obligations pursuant to this Section shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any bankruptcy law or the resignation or removal of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(e) or (f) with respect to Holdings or the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
(a) The Trustee may resign at any time by so notifying the Issuer. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Issuer or Holdings may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provide by, and subject to the provisions of, the TIA and this Indenture. To the extent permitted by the TIA, the Trustee shall not be deemed to have a conflicting interest by virtue of being a Trustee under this Indenture with respect to Notes of more than one series.
(b) If the Trustee resigns, is removed by the Issuer or Holdings or by the Holders of a majority in principal amount of the outstanding Notes and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuer or Holdings shall promptly appoint a successor Trustee.
(c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer and Holdings. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 7.07.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the outstanding Notes may petition at the expense of the Issuer any court of competent jurisdiction for the appointment of a successor Trustee.
-94- (e) If the Trustee fails to comply with Section 7.10, unless the Trustee’s duty to resign is stayed as provided in Section 310(b) of the TIA, any Holder who has been a bona fide holder of a Note for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) Notwithstanding the replacement of the Trustee pursuant to this Section, the Issuer’s and Holdings’ obligations under Section 7.07 shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of Section 310(a) of the TIA. The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the TIA, subject to its right to apply for a stay of its duty to resign under the penultimate paragraph of Section 310(b) of the TIA; provided, however, that there shall be excluded from the operation of Section 310(b)(1) of the TIA any series of securities issued under this Indenture and any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Issuer are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the TIA are met.
SECTION 7.11. Preferential Collection of Claims Against Issuer. The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated.
-95- ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Notes; Defeasance. This Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights of registration or transfer or exchange of Notes, as expressly provided for in this Indenture) as to all outstanding Notes when:
(a) either (i) all the Notes theretofore authenticated and delivered (other than Notes pursuant to Section 2.08 which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust) have been delivered to the Trustee for cancellation or (ii) all of the Notes (a) have become due and payable, (b) will become due and payable at their Stated Maturity within one year or (c) if redeemable at the option of the Issuer or Holdings, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer or Holdings, as the case may be, and the Issuer or Holdings, as the case may be, has irrevocably deposited or caused to be deposited with the Trustee cash in U.S. Dollars, U.S. Government Obligations or a combination thereof in an amount sufficient in the written opinion of a firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited) to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for Accreted Value of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Issuer or Holdings, as the case may be, directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Issuer, Holdings and/or any Guarantors, if any, have paid all other sums payable under this Indenture; and
(c) the Issuer or Holdings has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with.
Subject to Sections 8.01(c) and 8.02, the Issuer at any time may terminate (i) all of its obligations under the Notes and this Indenture (with respect to such Notes) (“legal defeasance option”) or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12 and 4.14 and the operation of Section 5.01 and Sections 6.01(d), 6.01(e) (with respect to Significant Subsidiaries of the Issuer only), 6.01(f) (with respect to Significant Subsidiaries of the Issuer only) and 6.01(g) (“covenant defeasance option”). The Issuer may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. In the event that the Issuer terminates all of its obligations under the Notes and this Indenture (with respect to such Notes) by exercising its legal defeasance option or its covenant defeasance option, the obligations of each Guarantor, if any, under its Guarantee of such Notes shall be terminated simultaneously with the termination of such obligations.
-96- If the Issuer exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Issuer exercises its covenant defeasance option, payment of the Notes so defeased may not be accelerated because of an Event of Default specified in Section 6.01(c), 6.01(d), 6.01(e) (with respect to Significant Subsidiaries of the Issuer only), 6.01(f) (with respect to Significant Subsidiaries of the Issuer only) or 6.01(g) or because of the failure of the Issuer to comply with Section 4.08 or Section 5.01.
Upon satisfaction of the conditions set forth herein and upon request of the Issuer, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuer terminates.
Notwithstanding clauses (a) and (b) above, the Issuer’s obligations in Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 7.07, 7.08 and in this Article 8 shall survive until the Notes have been paid in full. Thereafter, the Issuer’s obligations in Sections 7.07, 8.05 and 8.06 shall survive such satisfaction and discharge.
SECTION 8.02. Conditions to Defeasance.
(a) The Issuer may exercise its legal defeasance option or its covenant defeasance option only if:
(i) the Issuer or Holdings irrevocably deposits in trust with the Trustee cash in U.S. Dollars or U.S. Government Obligations, the principal of and the interest on which will be sufficient, or a combination thereof sufficient, to pay the Accreted Value of, and premium (if any) and interest on the applicable Notes when due at maturity or redemption, as the case may be, including interest thereon to maturity or such redemption date;
(ii) the Issuer or Holdings delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations, plus any deposited money without investment, will provide cash at such times and in such amounts as will be sufficient to pay the Accreted Value, premium, if any, and interest when due on all the Notes to maturity or redemption, as the case may be;
(iii) 91 days pass after the deposit is made and during the 91-day period no Default specified in Section 6.01(e) or (f) with respect to the Issuer occurs which is continuing at the end of the period;
(iv) the deposit does not constitute a default under any other agreement binding on the Issuer;
(v) the Issuer or Holdings delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended;
-97- (vi) in the case of the legal defeasance option, the Issuer or Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (1) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; provided, however, that such Opinion of Counsel need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable or (y) will become due and payable at their Stated Maturity within one year under arrangements satisfactory to the Trustee for the giving notice of redemption by the Trustee in the name, and at the expense, of the Issuer and/or Holdings;
(vii) in the case of the covenant defeasance option, the Issuer or Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and
(viii) the Issuer or Holdings delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes to be so defeased and discharged as contemplated by this Article 8 have been complied with.
(b) The Issuer shall not be deemed to have breached its obligations under Section 4.03 to the extent the net proceeds from any Indebtedness, Preferred Stock or Disqualified Stock incurred is used in accordance with Section 8.02(a)(i) above for the Issuer to exercise its legal defeasance or covenant defeasance option.
(c) Before or after a deposit, the Issuer may make arrangements satisfactory to the Trustee for the redemption of such Notes at a future date in accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations (including proceeds thereof) deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through each Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Notes so discharged or defeased.
SECTION 8.04. Repayment to Issuer. Each of the Trustee and each Paying Agent shall promptly turn over to the Issuer upon request any money or U.S. Government Obligations held by it as provided in this Article which, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this Article.
-98- Subject to any applicable abandoned property law, the Trustee and each Paying Agent shall pay to the Issuer upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Holders entitled to the money must look to the Issuer for payment as general creditors, and the Trustee and each Paying Agent shall have no further liability with respect to such monies.
SECTION 8.05. Indemnity for U.S. Government Obligations. The Issuer shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or any Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer’s and Holdings’ obligations under this Indenture and the Notes so discharged or defeased shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or any Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Issuer or Holdings has made any payment of Accreted Value, premium, if any, or interest on, any such Notes because of the reinstatement of its obligations, the Issuer and Holdings shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or any Paying Agent.
ARTICLE 9
AMENDMENTS AND WAIVERS
SECTION 9.01. Without Consent of the Holders. The Issuer, Holdings and the Trustee may amend this Indenture or the Notes without notice to or consent of any Holder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5;
(iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code;
(iv) to add Guarantees with respect to the Notes or to secure the Notes;
-99- (v) to add to the covenants of the Issuer or any Parent of the Issuer for the benefit of the Holders or to surrender any right or power herein conferred upon the Issuer or any Parent of the Issuer;
(vi) to comply with any requirement of the SEC in connection with qualifying this Indenture under the TIA;
(vii) to effect any provision of this Indenture (including to release any Guarantees in accordance with the terms of this Indenture);
(viii) to make any change that does not adversely affect the rights of any Holder; or
(ix) to provide for the issuance of the Exchange Notes or Additional Notes.
After an amendment under this Section 9.01 becomes effective, the Issuer or Holdings shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.01.
SECTION 9.02. With Consent of the Holders.
(a) The Issuer and the Trustee may amend this Indenture or the Notes with the written consent of the Holders of at least a majority in aggregate principal amount at maturity of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange for the Notes). However, without the consent of each Holder of an outstanding Note affected, an amendment may not:
(i) reduce the amount of Notes whose Holders must consent to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on any Note,
(iii) reduce the Accreted Value of or change the Stated Maturity of any Note,
(iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with Article 3,
(v) make any Note payable in money other than that stated in such Note,
(vi) make any change in Section 6.04 or 6.07 or the second sentence of this Section 9.02,
(vii) make any change to the provisions of this Indenture providing for the Special Mandatory Redemption that would adversely affect the rights of any of the Holders of the Notes to receive the amounts payable to them upon a Special Mandatory Redemption,
-100- (viii) expressly subordinate the Notes to any other Indebtedness of the Issuer, or
(ix) modify the method of calculation of Accreted Value in any manner adverse to the Holders.
It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.
(b) After an amendment under this Section 9.02 becomes effective, the Issuer shall mail to the Holders a notice briefly describing such amendment. The failure to give such notice to all Holders entitled to receive such notice, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.02.
SECTION 9.03. Compliance with Trust Indenture Act. From the date on which this Indenture is qualified under the TIA, every amendment, waiver or supplement to this Indenture or the Notes shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers.
(a) A consent to an amendment or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder’s Note or portion of the Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers’ Certificate from the Issuer or Holdings certifying that the requisite principal amount of outstanding Notes have consented. After an amendment or waiver becomes effective, it shall bind every Holder. An amendment or waiver becomes effective upon the (i) receipt by the Issuer or the Trustee of consents by the Holders of the requisite principal amount of securities, (ii) satisfaction of conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or supplemental indenture) by the Issuer, Holdings and the Trustee.
(b) The Issuer or Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Issuer or Holdings may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Issuer, Holdings or the Trustee so determines, the Issuer and Holdings in exchange for the Note shall issue and the
-101- Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.06. Trustee to Sign Amendments. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment, the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and shall be provided with, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers’ Certificate and an Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Issuer and the Guarantors, enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Issuer nor any Affiliate of the Issuer shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement.
SECTION 9.08. Additional Voting Terms. All Notes issued under this Indenture shall vote and consent together on all matters (as to which any of such Notes may vote) as one class and no series of Notes will have the right to vote or consent as a separate class on any matter.
ARTICLE 10
GUARANTEES
SECTION 10.01. Guarantees. On the Issue Date, there will exist no Guarantors. With respect to any Person that becomes a Guarantor after the Issue Date, such Guarantor agrees as set forth in this Article 10.
(a) Each Guarantor hereby jointly and severally, irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, to each Holder and to the Trustee and its successors and assigns (i) the full and punctual payment when due, whether at Stated Maturity, by acceleration, by redemption or otherwise, of all obligations of the Issuer and Holdings under this Indenture (including obligations to the Trustee) and the Notes, whether for payment of Accreted Value of, premium, if any, or interest or additional interest in respect of the Notes and all other monetary obligations of the Issuer and Holdings under this Indenture and the Notes and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Issuer and Holdings whether for fees, expenses, indemnification or otherwise under this Indenture and the Notes (all the foregoing being hereinafter collectively called the “Guaranteed Obligations”). Each Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from each such Guarantor, and that each such Guarantor shall remain bound under this Article 10 notwithstanding any extension or renewal of any Guaranteed Obligation.
-102- (b) Each Guarantor waives presentation to, demand of payment from and protest to the Issuer and Holdings of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Notes or the Guaranteed Obligations. The obligations of each Guarantor hereunder shall not be affected by (i) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuer or Holdings or any other Person under this Indenture, the Notes or any other agreement or otherwise; (ii) any extension or renewal of this Indenture, the Notes or any other agreement; (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Notes or any other agreement; (iv) the release of any security held by any Holder or the Trustee for the Guaranteed Obligations or any Guarantor; (v) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranteed Obligations; or (vi) any change in the ownership of such Guarantor, except as provided in Section 10.02(b).
(c) Each Guarantor hereby waives any right to which it may be entitled to have its obligations hereunder divided among the Guarantors, such that such Guarantor’s obligations would be less than the full amount claimed. Each Guarantor hereby waives any right to which it may be entitled to have the assets of the Issuer and Holdings first be used and depleted as payment of the Issuer’s, Holdings’ or such Guarantor’s obligations hereunder prior to any amounts being claimed from or paid by such Guarantor hereunder. Each Guarantor hereby waives any right to which it may be entitled to require that the Issuer or Holdings be sued prior to an action being initiated against such Guarantor.
(d) Each Guarantor further agrees that its Guarantee herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations.
(e) Except as expressly set forth in Sections 8.01, 10.02 and 10.06, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Notes or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor or would otherwise operate as a discharge of any Guarantor as a matter of law or equity.
(f) Except as expressly set forth in Sections 8.01 and 10.02, each Guarantor agrees that its Guarantee shall remain in full force and effect until payment in full of all the
-103- Guaranteed Obligations. Except as expressly set forth in Sections 8.01 and 10.02, each Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Issuer or Holdings or otherwise.
(g) In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Issuer and Holdings to pay the Accreted Value, premium, if any, or interest on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Guaranteed Obligation, each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid Accreted Value and premium, if any, of such Guaranteed Obligations, (ii) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent not prohibited by applicable law) and (iii) all other monetary obligations of the Issuer and Holdings to the Holders and the Trustee in respect of the Guaranteed Obligations.
(h) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranteed Obligations guaranteed hereby until payment in full of all Guaranteed Obligations. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of any Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Article 6, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section 10.01.
(i) Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys’ fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.01.
(j) Upon request of the Trustee, each Guarantor shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
SECTION 10.02. Limitation on Liability.
(a) Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed hereunder by any Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering the Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance, financial assistance or fraudulent transfer or similar laws affecting the rights of creditors generally.
-104- (b) A Guarantee as to any Subsidiary Guarantor shall terminate and be of no further force or effect and such Subsidiary Guarantor shall be deemed to be automatically released from all obligations under this Article 10 upon:
(i) (A) the sale, disposition or other transfer (including through merger, amalgamation or consolidation) of the Capital Stock (including any sale, disposition or other transfer following which the applicable Subsidiary Guarantor is no longer a Restricted Subsidiary), or all or substantially all the assets, of the applicable Subsidiary Guarantor if such sale, disposition or other transfer is made in compliance with this Indenture and (B) such Subsidiary Guarantor being released from its guarantees, if any, of, and all pledges and security, if any, granted in connection with, the Credit Agreement and any other Indebtedness of the Issuer or any Restricted Subsidiary of the Issuer, or
(ii) the Issuer designating such Subsidiary Guarantor to be an Unrestricted Subsidiary in accordance with the provisions set forth under Section 4.04 and the definition of “Unrestricted Subsidiary,” or
(iii) the release or discharge of the guarantee by such Restricted Subsidiary of the Issuer of Indebtedness of the Issuer or the repayment of the Indebtedness or Disqualified Stock, in each case, which resulted in the obligation to guarantee the Notes, or
(iv) the Issuer’s exercise of its legal defeasance option or covenant defeasance option pursuant to Article 8, or if the Issuer’s obligations under this Indenture are discharged in accordance with the terms of this Indenture.
A Guarantee also shall be automatically released and discharged upon the applicable Subsidiary ceasing to be a Subsidiary as a result of any foreclosure of any pledge or security interest securing Bank Indebtedness or other exercise of remedies in respect thereof. In addition, the Guarantees of the Subsidiary Guarantors shall be suspended during any Suspension Period, as provided in Section 4.16 hereof. Further, the Issuer may, upon notice to the Trustee, automatically release and discharge the Guarantee of any Guarantor that was not obligated to become a Guarantor pursuant to the terms of this Indenture.
SECTION 10.03. Successors and Assigns. This Article 10 shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.
SECTION 10.04. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 10 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 10 at law, in equity, by statute or otherwise.
-105- SECTION 10.05. Modification. No modification, amendment or waiver of any provision of this Article 10, nor the consent to any departure by any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances.
SECTION 10.06. Execution of Supplemental Indenture for Future Guarantors. Each Subsidiary and other Person which is required to become a Guarantor pursuant to Section 4.11 shall promptly execute and deliver to the Trustee a supplemental indenture in the form of Exhibit J hereto pursuant to which such Subsidiary or other Person shall become a Guarantor under this Article 10 and shall guarantee the Guaranteed Obligations. Concurrently with the execution and delivery of such supplemental indenture, the Issuer or Holdings shall deliver to the Trustee an Opinion of Counsel and an Officers’ Certificate to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary or other Person and that, subject to customary exception including the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors’ rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Guarantee of such Guarantor is a legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms and/or to such other matters as the Trustee may reasonably request.
SECTION 10.07. Non-Impairment. The failure to endorse a Guarantee on any Note shall not affect or impair the validity thereof.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an “incorporated provision”) included in this Indenture by operation of, Sections 310 to 318 of the TIA, inclusive, such imposed duties or incorporated provision shall control.
SECTION 11.02. Notices.
(a) Any notice or communication required or permitted hereunder shall be in writing and delivered in person, via facsimile or mailed by first-class mail addressed as follows:
if to the Issuer, Holdings or any Guarantor (except as otherwise provided in any Supplemental Indenture):
Intelsat, Ltd. Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke, Bermuda HM 08
-106- with a copy to:
Intelsat Global Service Corporation 3400 International Drive, N.W. Washington, D.C. 20008-3098 Attention: General Counsel
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, New York 10005 Attention: Arnold B. Peinado, III
if to the Trustee:
Wells Fargo Bank, National Association 213 Court Street, Suite 703 Middletown, CT 06457 Attention of: Corporate Trust Department Facsimile: 860-704-6219
The Issuer or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
(b) Any notice or communication mailed to a Holder shall be mailed, first class mail, to the Holder at the Holder’s address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.
(c) Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it, except that notices to the Trustee are effective only if received.
SECTION 11.03. Communication by the Holders with Other Holders. The Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under this Indenture or the Notes. The Issuer, Holdings, the Trustee, the Registrar and other Persons shall have the protection of Section 312(c) of the TIA.
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuer or Holdings to the Trustee to take or refrain from taking any action under this Indenture, the Issuer and/or Holdings, as the case may be, each shall furnish to the Trustee at the request of the Trustee:
(a) an Officers’ Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
-107- (b) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 4.09) shall include:
(a) a statement that the individual making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers’ Certificate or certificates of public officials.
SECTION 11.06. When Notes Disregarded. In determining whether the Holders of the required principal amount at maturity of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, Holdings, any Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer, Holdings or any Guarantor shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee knows are so owned shall be so disregarded. Subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of the Holders. The Registrar and a Paying Agent may make reasonable rules for their functions.
SECTION 11.08. Legal Holidays. If a payment date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on any amount that would have been otherwise payable on such payment date if it were a Business Day for the intervening period. If a regular record date is not a Business Day, the record date shall not be affected.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-108- SECTION 11.10. No Recourse Against Others. No director, officer, employee, incorporator or holder of any Equity Interests in the Issuer (other than Holdings) or any Parent of the Issuer, as such, shall have any liability for any obligations of the Issuer or Holdings under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.
SECTION 11.11. Successors. All agreements of the Issuer, Holdings and each Guarantor, if any, in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.
SECTION 11.14. Indenture Controls. If and to the extent that any provision of the Notes limits, qualifies or conflicts with a provision of this Indenture, such provision of this Indenture shall control.
SECTION 11.15. Severability. In case any provision in this Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 11.16. Jurisdiction. The Issuer, Holdings and each Guarantor, if any, agree that any suit, action or proceeding against the Issuer, Holdings or any Guarantor, if any, arising out of or based upon this Indenture or the transactions contemplated hereby may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Issuer and Holdings hereby appoint CT Corporation System as their authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Indenture or the transactions contemplated herein that may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof and expressly accept the non- exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Issuer and Holdings hereby represent and warrant that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Issuer and Holdings agree to take any and all action, including the filing of any and all documents, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Issuer and Holdings.
-109- SECTION 11.17. Immunity. To the extent that the Issuer or Holdings has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, the Issuer or Holdings hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its obligations under this Indenture.
SECTION 11.18. Currency of Account; Conversion of Currency; Foreign Exchange Restrictions.
(a) U.S. Dollars are the sole currency of account and payment for all sums payable by the Issuer, Holdings and the Guarantors, if any, under the Notes, the Guarantees of Notes, if any, or this Indenture, including damages related thereto. Any amount received or recovered in a currency other than U.S. Dollars by a Holder of Notes (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Issuer or Holdings or otherwise) in respect of any sum expressed to be due to it from the Issuer or Holdings shall only constitute a discharge to the Issuer or Holdings to the extent of the U.S. Dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that U.S. Dollar amount is less than the U.S. Dollar amount expressed to be due to the recipient under the applicable Notes, the Issuer shall indemnify it against any loss sustained by it as a result as set forth in Section 11.18(b). In any event, the Issuer, Holdings and the Guarantors, if any, shall indemnify the recipient against the cost of making any such purchase. For the purposes of this Section 11.18, it will be sufficient for the Holder of a Note to certify in a satisfactory manner (indicating sources of information used) that it would have suffered a loss had an actual purchase of U.S. Dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of U.S. Dollars on such date had not been practicable, on the first date on which it would have been practicable, it being required that the need for a change of date be certified in the manner mentioned above). The indemnities set forth in this Section 11.18 constitute separate and independent obligations from other obligations of the Issuer, Holdings and the Guarantors, if any, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any Holder of the Notes and shall continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under the Notes.
(b) The Issuer, Holdings and the Guarantors, if any, jointly and severally, covenant and agree that the following provisions shall apply to conversion of currency in the case of the Notes, the Guarantees, if any, and this Indenture:
(1) (A) If for the purpose of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert into a currency (the “Judgment Currency”) an amount due in any other currency (the “Base Currency”), then the conversion shall be made at the rate of exchange prevailing on the Business Day before
-110- the day on which the judgment is given or the order of enforcement is made, as the case may be (unless a court shall otherwise determine); and (B) if there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given or an order of enforcement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Issuer and the Guarantors will pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the Judgment Currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in the Base Currency originally due.
(2) In the event of the winding-up of the Issuer, Holdings or any Guarantor, if any, at any time while any amount or damages owing under the Notes, the Guarantees, if any, and this Indenture, or any judgment or order rendered in respect thereof, shall remain outstanding, the Issuer, Holdings and the Guarantors, if any, shall indemnify and hold the Holders and the Trustee harmless against any deficiency arising or resulting from any variation in rates of exchange between (i) the date as of which the U.S. Dollar Equivalent of the amount due or contingently due under the Notes, the Guarantees, if any, and this Indenture (other than under this subsection (b)(2)) is calculated for the purposes of such winding-up and (ii) the final date for the filing of proofs of claim in such winding-up. For the purpose of this subsection (b) (2), the final date for the filing of proofs of claim in the winding-up of the Issuer, Holdings or any Guarantor, if any, shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being the latest practicable date as at which liabilities of the Issuer, Holdings or such Guarantor, if any, may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto.
(c) The obligations contained in subsections (a), (b)(1)(B) and (b)(2) of this Section 11.18 shall constitute separate and independent obligations from the other obligations of the Issuer, Holdings and the Guarantors, if any, under this Indenture, shall give rise to separate and independent causes of action against the Issuer, Holdings and the Guarantors, if any, shall apply irrespective of any waiver or extension granted by any Holder or the Trustee or either of them from time to time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding-up of the Issuer, Holdings or any Guarantor, if any, for a liquidated sum in respect of amounts due hereunder (other than under subsection (b)(2) above) or under any such judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the Holders or the Trustee, as the case may be, and no proof or evidence of any actual loss shall be required by the Issuer, Holdings or any Guarantor, if any, or the liquidator or otherwise or any of them. In the case of subsection (b)(2) above, the amount of such deficiency shall not be deemed to be reduced by any variation in rates of exchange occurring between the said final date and the date of any liquidating distribution.
(d) The term “rate(s) of exchange” shall mean the rate of exchange quoted by Reuters at 10:00 a.m. (New York time) for spot purchases of the Base Currency with the Judgment Currency other than the Base Currency referred to in subsections (b)(1) and (b)(2) above and includes any premiums and costs of exchange payable.
-111- IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.
ZEUS SPECIAL SUBSIDIARY LIMITED
By:
Name:
Title:
INTELSAT, LTD.
By:
Name:
Title:
S-1 WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:
Name: Title:
S-2 APPENDIX A
PROVISIONS RELATING TO INITIAL NOTES, ADDITIONAL NOTES AND EXCHANGE NOTES
1. Definitions.
1.1 Definitions.
For the purposes of this Appendix A the following terms shall have the meanings indicated below:
“Additional Interest” has the meaning set forth in the Registration Rights Agreement.
“Clearstream” means Clearstream Banking, société anonyme, or any successor securities clearing agency.
“Definitive Note” means a certificated Initial Note or Exchange Note (bearing the Restricted Notes Legend if the transfer of such Note is restricted by applicable law) that does not include the Global Notes Legend.
“Depository” means The Depository Trust Company, its nominees and their respective successors.
“Euroclear” means the Euroclear Clearance System or any successor securities clearing agency.
“Global Notes Legend” means the legend set forth under that caption in the applicable Exhibit to this Indenture.
“IAI” means an institutional “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
“Initial Purchaser” means Deutsche Bank Securities Inc.
“Purchase Agreement” means (a) the Purchase Agreement dated February 3, 2005, among the Issuer, Holdings and the Initial Purchaser, as amended as of February 3, 2005, and (b) any other similar Purchase Agreement relating to Additional Notes.
“QIB” means a “qualified institutional buyer” as defined in Rule 144A.
“Registered Exchange Offer” means the offer by the Issuer and/or Holdings, pursuant to the Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for their Initial Notes, a like aggregate principal amount of Exchange Notes registered under the Securities Act.
“Registration Rights Agreement” means (a) the Registration Rights Agreement dated as of February 11, 2005 among the Issuer, Holdings and the Initial Purchaser relating to the Notes and (b) any other similar Registration Rights Agreement relating to Additional Notes.
App. A-1 “Regulation S” means Regulation S under the Securities Act.
“Regulation S Notes” means all Initial Notes offered and sold outside the United States in reliance on Regulation S.
“Restricted Global Note” means a Global Note bearing the Restricted Notes Legend.
“Restricted Period”, with respect to any Notes, means the period of 40 consecutive days beginning on and including the later of (a) the day on which such Notes are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S, notice of which day shall be promptly given by the Issuer to the Trustee, and (b) the Issue Date, and with respect to any Additional Notes that are Transfer Restricted Notes, it means the comparable period of 40 consecutive days.
“Restricted Notes Legend” means the legend set forth in Section 2.2(f)(i) herein.
“Rule 501” means Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
“Rule 144A” means Rule 144A under the Securities Act.
“Rule 144A Notes” means all Initial Notes offered and sold to QIBs in reliance on Rule 144A.
“Securities Custodian” means the custodian with respect to a Global Note (as appointed by the Depository) or any successor person thereto, who shall initially be the Trustee.
“Shelf Registration Statement” means a registration statement filed by the Issuer and/or Holdings in connection with the offer and sale of Initial Notes pursuant to the Registration Rights Agreement.
“Transfer Restricted Notes” means Definitive Notes and any other Notes that bear or are required to bear or are subject to the Restricted Notes Legend.
“Unrestricted Definitive Notes” means Definitive Notes and any other Notes that are not required to bear, or are not subject to, the Restricted Notes Legend.
“Unrestricted Global Note” means a permanent Global Note representing Notes that do not bear the Restricted Notes Legend.
App. A-2 1.2 Other Definitions.
Term: Defined in Section:
“Agent Members” 2.1(b) “Global Notes” 2.1(b) “Regulation S Global Notes” 2.1(b) “Rule 144A Global Notes” 2.1(b)
2. The Notes.
2.1 Form and Dating; Global Notes. (a) The Initial Notes issued on the date hereof will be (i) offered and sold by the Issuer and Holdings pursuant to the Purchase Agreement and (ii) resold, initially only to (1) QIBs in reliance on Rule 144A and (2) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial Notes may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, IAIs in accordance with Rule 501. Additional Notes offered after the date hereof may be offered and sold by the Issuer and Holdings from time to time in accordance with the Indenture and applicable law.
(b) Global Notes. (i) Rule 144A Notes initially shall be represented by one or more Notes in definitive, fully registered, global form without interest coupons (collectively, the “Rule 144A Global Notes”). Regulation S Notes initially shall be represented by one or more Notes in definitive fully registered, global form without interest coupons (collectively, the “Regulation S Global Notes”). The term “Global Notes” means, collectively, the Rule 144A Global Notes and the Regulation S Global Notes. The Global Notes shall bear the Global Note Legend. The Global Notes initially shall (1) be registered in the name of the Depository or the nominee of such Depository, in each case for credit to an account of an Agent Member, (2) be delivered to the Trustee as custodian for such Depository and (3) bear the Restricted Notes Legend.
Members of, or direct or indirect participants in, the Depository, Euroclear or Clearstream (“Agent Members”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes. The Depository may be treated by the Issuer, Holdings, the Trustee and any agent of the Issuer, Holdings or the Trustee as the absolute owner of the Global Notes for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, Holdings, the Trustee or any agent of the Issuer, Holdings or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository, Euroclear or Clearstream, as the case may be, and their respective Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note.
(ii) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Definitive Notes only in accordance with the applicable rules and procedures of the Depository, Euroclear or Clearstream, as the case may be, and the provisions of Section 2.2. In addition, a Global Note shall be exchangeable for
App. A-3 Definitive Notes if (i) the Depository (x) notifies the Issuer and Holdings that it is unwilling or unable to continue as depository for such Global Note and the Issuer or Holdings thereupon fails to appoint a successor depository within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, or (ii) in the case of any Global Note, if requested by a Holder of a beneficial interest in such Global Notes. In all cases, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein shall be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depository in accordance with its customary procedures.
(iii) In connection with the transfer of a Global Note as an entirety to beneficial owners pursuant to subsection (i) of this Section 2.1(b), such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Issuer and Holdings shall execute, and the Trustee shall authenticate and make available for delivery, to each beneficial owner identified by the Depository in writing in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Definitive Notes of authorized denominations.
(iv) Any Transfer Restricted Note delivered in exchange for an interest in a Global Note pursuant to Section 2.2 shall, except as otherwise provided in Section 2.2, bear the Restricted Notes Legend.
(v) Notwithstanding the foregoing, through the Restricted Period, a beneficial interest in such Regulation S Global Note may be held only through Euroclear or Clearstream unless delivery is made in accordance with the applicable provisions of Section 2.2.
(vi) The Holder of any Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.
2.2 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except as set forth in Section 2.1(b). Global Notes will not be exchanged by the Issuer for Definitive Notes except under the circumstances described in Section 2.1(b)(ii). Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.08 and 2.10 of this Indenture. Beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.2(b) or 2.2(g).
(b) Transfer and Exchange of Beneficial Interests in Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depository, in accordance with the provisions of this Indenture and the applicable rules and procedures of the Depository. Beneficial interests in Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Beneficial interests in Global Notes shall be transferred or exchanged only for beneficial interests in Global Notes. Transfers and exchanges of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
App. A-4 (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Restricted Notes Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in a Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). A beneficial interest in an Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.2(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests in any Global Note that are not subject to Section 2.2(b)(i), the transferor of such beneficial interest must deliver to the Registrar (1) a written order from an Agent Member given to the Depository in accordance with the applicable rules and procedures of the Depository directing the Depository to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the applicable rules and procedures of the Depository containing information regarding the Agent Member account to be credited with such increase. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note pursuant to Section 2.2(g).
(iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in a Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.2(b)(ii) above and the Registrar receives the following: if the transferee will take delivery in the form of a beneficial interest in a Global Note, then the transferor must deliver a certificate in the form attached to the applicable Note.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in a Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.2(b)(ii) above and the Registrar receives the following:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note; or
App. A-5 (B) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form attached to the applicable Note,
and, in each such case, if the Registrar so requests or if the applicable rules and procedures of the Depository, Euroclear or Clearstream, as applicable, so require, or if the Issuer or Holdings so request, an Opinion of Counsel in form reasonably acceptable to the Registrar (and the Issuer or Holdings, as the case may be, if requested by either of them) to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer or exchange is effected pursuant to this subparagraph (iv) at a time when an Unrestricted Global Note has not yet been issued, the Issuer and Holdings shall issue and, upon receipt of an written order of the Issuer and Holdings in the form of an Officers’ Certificate in accordance with Section 2.01, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred or exchanged pursuant to this subparagraph (iv).
(v) Transfer and Exchange of Beneficial Interests in an Unrestricted Global Note for Beneficial Interests in a Restricted Global Note. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer and Exchange of Beneficial Interests in Global Notes for Definitive Notes. A beneficial interest in a Global Note may not be exchanged for a Definitive Note except under the circumstances described in Section 2.1(b)(ii). A beneficial interest in a Global Note may not be transferred to a Person who takes delivery thereof in the form of a Definitive Note except under the circumstances described in Section 2.1(b)(ii).
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests in Global Notes. Definitive Notes shall be transferred or exchanged only for beneficial interests in Global Notes. Transfers and exchanges of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i), (ii) or (iii) below, as applicable:
(i) Transfer Restricted Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Transfer Restricted Note proposes to exchange such Transfer Restricted Note for a beneficial interest in a Restricted Global Note or to transfer such Transfer Restricted Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Transfer Restricted Note proposes to exchange such Transfer Restricted Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form attached to the applicable Note;
App. A-6 (B) if such Transfer Restricted Note is being transferred to a Qualified Institutional Buyer in accordance with Rule 144A under the Securities Act, a certificate from such Holder in the form attached to the applicable Note;
(C) if such Transfer Restricted Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate from such Holder in the form attached to the applicable Note;
(D) if such Transfer Restricted Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate from such Holder in the form attached to the applicable Note;
(E) if such Transfer Restricted Note is being transferred to an IAI in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate from such Holder in the form attached to the applicable Note; or
(F) if such Transfer Restricted Note is being transferred to the Issuer, Holdings or a Subsidiary of either of them, a certificate from such Holder in the form attached to the applicable Note; the Trustee shall cancel the Transfer Restricted Note, and increase or cause to be increased the aggregate principal amount of the appropriate Restricted Global Note.
(ii) Transfer Restricted Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Transfer Restricted Note may exchange such Transfer Restricted Note for a beneficial interest in an Unrestricted Global Note or transfer such Transfer Restricted Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if the Registrar receives the following:
(A) if the Holder of such Transfer Restricted Note proposes to exchange such Transfer Restricted Note for a beneficial interest in an Unrestricted Global Note, a certificate from such Holder in the form attached to the applicable Note; or
(B) if the Holder of such Transfer Restricted Notes proposes to transfer such Transfer Restricted Note to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such Holder in the form attached to the applicable Note, and, in each such case, if the Registrar so requests or if the applicable rules and procedures of the Depository, Euroclear or Clearstream, as applicable, so require, or if the Issuer or Holdings so request, an Opinion of Counsel in form reasonably acceptable to the Registrar (and the Issuer or Holdings, as the case may be, if requested by either of them) to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are
App. A-7 no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of this subparagraph (ii), the Trustee shall cancel the Transfer Restricted Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. If any such transfer or exchange is effected pursuant to this subparagraph (ii) at a time when an Unrestricted Global Note has not yet been issued, the Issuer and Holdings shall issue and, upon receipt of an written order of the Issuer and Holdings in the form of an Officers’ Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of Transfer Restricted Notes transferred or exchanged pursuant to this subparagraph (ii).
(iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Unrestricted Definitive Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such transfer or exchange is effected pursuant to this subparagraph (iii) at a time when an Unrestricted Global Note has not yet been issued, the Issuer and Holdings shall issue and, upon receipt of an written order of the Issuer and Holdings in the form of an Officers’ Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of Unrestricted Definitive Notes transferred or exchanged pursuant to this subparagraph (iii).
(iv) Unrestricted Definitive Notes to Beneficial Interests in Restricted Global Notes. An Unrestricted Definitive Note cannot be exchanged for, or transferred to a Person who takes delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder’s compliance with the provisions of this Section 2.2(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.2(e).
(i) Transfer Restricted Notes to Transfer Restricted Notes. A Transfer Restricted Note may be transferred to and registered in the name of a Person who takes delivery thereof in the form of a Transfer Restricted Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form attached to the applicable Note;
App. A-8 (B) if the transfer will be made pursuant to Rule 903 or Rule 904 under the Securities Act, then the transferor must deliver a certificate in the form attached to the applicable Note;
(C) if the transfer will be made pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate in the form attached to the applicable Note;
(D) if the transfer will be made to an IAI in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (A) through (C) above, a certificate in the form attached to the applicable Note; and
(E) if such transfer will be made to the Issuer, Holdings or a Subsidiary of either of them, a certificate in the form attached to the applicable Note.
(ii) Transfer Restricted Notes to Unrestricted Definitive Notes. Any Transfer Restricted Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note if the Registrar receives the following:
(1) if the Holder of such Transfer Restricted Note proposes to exchange such Transfer Restricted Note for an Unrestricted Definitive Note, a certificate from such Holder in the form attached to the applicable Note; or
(2) if the Holder of such Transfer Restricted Note proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form attached to the applicable Note, and, in each such case, if the Registrar or the Issuer and/or Holdings so requests, an Opinion of Counsel in form reasonably acceptable to the Issuer and Holdings to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Restricted Notes Legend are no longer required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of an Unrestricted Definitive Note may transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note at any time. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Note pursuant to the instructions from the Holder thereof.
App. A-9 (iv) Unrestricted Definitive Notes to Transfer Restricted Notes. An Unrestricted Definitive Note cannot be exchanged for, or transferred to a Person who takes delivery thereof in the form of, a Transfer Restricted Note.
At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of this Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount at maturity of Notes represented by such Global Note (and any related Accreted Value) shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such increase.
(f) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) or (iv), each Note certificate evidencing the Global Notes and the Definitive Notes (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only):
“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT (AN “ACCREDITED INVESTOR”), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO EITHER ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
App. A-10 AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF EITHER ISSUER SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUERS SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.”
Each Definitive Note shall bear the following additional legend:
“IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.”
(ii) Upon any sale or transfer of a Transfer Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Definitive Note that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Note if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Note) and, if requested by the Issuer or Holdings, delivers an Opinion of Counsel as to compliance with the Securities Act.
(iii) After a transfer of any Initial Notes during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Notes, all requirements pertaining to the Restricted Notes Legend on such Initial Notes shall cease to apply and the requirements that any such Initial Notes be issued in global form shall continue to apply.
App. A-11 (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, all requirements pertaining to Initial Notes that Initial Notes be issued in global form shall continue to apply, and Exchange Notes in global form without the Restricted Notes Legend shall be available to Holders that exchange such Initial Notes in such Registered Exchange Offer.
(v) Upon a sale or transfer after the expiration of the Restricted Period of any Initial Note acquired pursuant to Regulation S, all requirements that such Initial Note bear the Restricted Notes Legend shall cease to apply and the requirements requiring any such Initial Note be issued in global form shall continue to apply.
(vi) Any Additional Notes sold in a registered offering shall not be required to bear the Restricted Notes Legend.
(g) Cancellation or Adjustment of Global Note. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of this Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount at maturity of Notes represented by such Global Note (and any related Accreted Value) shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such increase.
(h) Obligations with Respect to Transfers and Exchanges of Notes.
(i) To permit registrations of transfers and exchanges, the Issuer and Holdings shall execute and the Trustee shall authenticate, Definitive Notes and Global Notes at the Registrar’s request.
(ii) No service charge shall be made for any registration of transfer or exchange, but the Issuer and Holdings may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 3.06, 3.10, 4.06, 4.08 and 9.05 of this Indenture).
(iii) Prior to the due presentation for registration of transfer of any Note, the Issuer, Holdings, the Trustee, a Paying Agent or the Registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Issuer, Holdings, the Trustee, a Paying Agent or the Registrar shall be affected by notice to the contrary.
App. A-12 (iv) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
(i) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depository or any other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to the Holders under the Notes shall be given or made only to the registered Holders (which shall be the Depository or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
App. A-13 EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Notes Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a) (1), (2), (3), OR (7) UNDER THE SECURITIES ACT (AN “ACCREDITED INVESTOR”), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO EITHER ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM
A-1 OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF EITHER ISSUER SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUERS SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Definitive Note shall bear the following additional legend:
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
A-2 [FORM OF INITIAL NOTE]
No. $
9 1/4% Senior Discount Note due 2015
CUSIP No. [144A: 45822C AA 2 / REG S: G4894C AA 5] ISIN No. [144A: US45822CAA27 / REG S: USG4894CAA56]
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL AMOUNT AT MATURITY OF THIS NOTE, THE ISSUE PRICE IS $637.87. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 11, 2005, AND THE YIELD TO MATURITY IS 9.25%.1
ZEUS SPECIAL SUBSIDIARY LIMITED, a company incorporated under the laws of Bermuda, and INTELSAT, LTD., a company incorporated under the laws of Bermuda, promise to pay to [ ], or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Note attached hereto] on February 1, 2015.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Note are set forth on the other side of this Note.
*/ If the Note is to be issued in global form, add the Global Notes Legend and the attachment from Exhibit A captioned “TO BE ATTACHED TO GLOBAL NOTES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE.”
1 In the case of the Original Notes.
A-3 IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed.
ZEUS SPECIAL SUBSIDIARY LIMITED
By:
Name:
Title:
INTELSAT, LTD.
By:
Name:
Title:
Dated:
A-4 TRUSTEE’S CERTIFICATE OF AUTHENTICATION
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee, certifies that this is one of the Notes referred to in the Indenture.
By:
Authorized Signatory
A-5 [FORM OF REVERSE SIDE OF INITIAL NOTE]
9 1/4% Senior Discount Note due 2015
1. Interest
(a) ZEUS SPECIAL SUBSIDIARY LIMITED, a company incorporated under the laws of Bermuda (such company, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “Issuer”) and INTELSAT, LTD., a company incorporated under the laws of Bermuda (“Holdings”), promise to pay interest on the principal amount at maturity of this Note at the rate per annum shown above. Prior to February 1, 2010, interest on the Note will accrue in the form of an increase in the Accreted Value of the Note, and no cash interest shall be paid. The Accreted Value of the Note will increase from the date of issuance until February 1, 2010 at a rate of 9.25% per annum compounded semi-annually as provided in the definition of “Accreted Value” in the Indenture such that the Accreted Value will (except as otherwise provided in the definition of “Accreted Value”) equal the principal amount at maturity on February 1, 2010. The Issuer and Holdings shall pay cash interest semi-annually on February 1 and August 1 of each year, commencing August 1, 2010. Cash Interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from and including February 1, 2010, until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Issuer and Holdings shall pay interest on overdue principal at the rate borne by the Notes, and shall pay interest on overdue installments of interest at the same rate to the extent lawful.
(b) Registration Rights Agreement. The Holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of February 11, 2005, among the Issuer, Holdings and the Initial Purchaser.
2. Method of Payment
The Issuer and Holdings shall pay interest on the Notes to the Persons who are registered Holders at the close of business on the January 15 and July 15 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date (whether or not a Business Day). The Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuer and Holdings shall pay Accreted Value or principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Notes represented by a Global Note (including Accreted Value or principal, premium, if any, and interest) shall be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company or any successor depositary. The Issuer and Holdings will make all payments in respect of a certificated Note (including Accreted Value or principal, premium, if any, and interest), at the office of each Paying Agent, except that, at the option of the Issuer, payment of interest may be made by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder
A-6 elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, Wells Fargo Bank, National Association, a national banking association (the “Trustee”), will act as Paying Agent and Registrar. The Issuer and Holdings and may appoint and change any Paying Agent or Registrar without notice. The Issuer, Holdings or any of their domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent or Registrar.
4. Indenture
The Issuer and Holdings issued the Notes under an Indenture dated as of February 11, 2005 (the “Indenture”), among the Issuer, Holdings and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “TIA”). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and the Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions; in the event of any conflict between this Note and the Indenture, the terms of the Indenture shall govern.
The Notes are senior unsecured obligations of the Issuer and Holdings. This Note is one of the Initial Notes referred to in the Indenture. The Notes include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes pursuant to the Indenture. The Initial Notes and any Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Issuer and its Restricted Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, issue or sell shares of capital stock of the Issuer and such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens and make asset sales. The Indenture also imposes limitations on the ability of the Issuer, Holdings and each Guarantor to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of its property.
5. Optional Redemption
Except as set forth in the following two paragraphs and in Sections 3.09 and 3.10 of the Indenture, the Notes shall not be redeemable at the option of the Issuer prior to February 1, 2010. Thereafter, the Notes shall be redeemable at the option of the Issuer, in whole at any time or in part from time to time, upon on not less than 30 nor more than 60 days’ prior notice, at the following redemption prices (expressed as a percentage of principal amount at maturity), plus accrued and unpaid interest, to the redemption date (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 1 of the years set forth below:
Year Redemption Price
2010 104.625% 2011 103.083% 2012 101.542% 2013 and thereafter 100.000%
A-7 In addition, prior to February 1, 2010, the Issuer may redeem the Notes at its option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each Holder’s registered address, at a redemption price equal to 100% of the Accreted Value of the Notes redeemed plus the Applicable Premium as of the applicable redemption date (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Notwithstanding the foregoing, at any time and from time to time on or prior to February 1, 2008, the Issuer may redeem in the aggregate up to 35% of the original aggregate principal amount of the Notes (calculated after giving effect to any issuance of Additional Notes) with the net cash proceeds of one or more Equity Offerings by the Issuer or by any Parent of the Issuer, in each case, to the extent the net cash proceeds thereof are contributed to the common equity capital of the Issuer or used to purchase Capital Stock (other than Disqualified Stock) of the Issuer from it, or from the cash contribution of equity capital to the Issuer, at a redemption price equal to 109.25% of the Accreted Value thereof to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the original aggregate principal amount of the Notes (calculated after giving effect to any issuance of Additional Notes) must remain outstanding after each such redemption; and provided, further, that such redemption shall occur within 90 days after the date on which any such Equity Offering or cash contribution of equity capital to the Issuer is consummated upon not less than 30 nor more than 60 days’ notice mailed to each holder of Notes being redeemed and otherwise in accordance with the procedures set forth in the Indenture.
The Notes are subject to a Special Mandatory Redemption as set forth in Article 3 of the Indenture.
Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may (other than with respect to a Special Mandatory Redemption), at the Issuer’s discretion, be subject to one or more conditions precedent, including, but not limited to, in the case of any Equity Offering, completion of the related Equity Offering.
6. Sinking Fund
The Notes are not subject to any mandatory sinking fund.
A-8 7. Notice of Redemption
Notice of redemption (other than with respect to a Special Mandatory Redemption) will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his, her or its registered address. Notes in denominations larger than $1,000 principal amount at maturity may be redeemed in part but only in whole multiples of $1,000 principal amount at maturity. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with a Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date, interest or Accreted Value, as the case may be, ceases to accrue or accrete, as the case may be, on such Notes (or such portions thereof) called for redemption.
8. Repurchase of Notes at the Option of Holders upon Change of Control and Asset Sales
Upon the occurrence of a Change of Control, each Holder shall have the right, subject to certain conditions specified in the Indenture, to cause the Issuer and Holdings to repurchase all or any part of such Holder’s Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date), as provided in, and subject to the terms of, the Indenture.
In accordance with Section 4.06 of the Indenture, the Issuer will be required to offer to purchase Notes upon the occurrence of certain events.
9. Denominations; Transfer; Exchange
The Notes are in registered form, without coupons, in denominations of $1,000 principal amount at maturity and whole multiples of $1,000 principal amount at maturity. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. Upon any registration of transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or to transfer or exchange any Notes for a period of 15 days prior to a selection of Notes to be redeemed.
10. Persons Deemed Owners
The registered Holder of this Note shall be treated as the owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two years, the Trustee and a Paying Agent shall pay the money back to the Issuer at its written request, subject to any abandoned property law. After any such payment, the Holders entitled to the money must look to the Issuer for payment as general creditors and the Trustee and a Paying Agent shall have no further liability with respect to such monies.
A-9 12. Discharge and Defeasance
Subject to certain conditions, the Issuer and Holdings at any time may terminate some of or all their obligations under the Notes and the Indenture if the Issuer and Holdings deposit with the Trustee money or U.S. Government Obligations for the payment of Accreted Value, premium, if any, of, and interest on the Notes to redemption, or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Notes (voting as a single class) and (ii) any past default or compliance with any provisions may be waived with the written consent of the Holders of at least a majority in aggregate principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Issuer and the Trustee may amend this Indenture or the Notes: (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to comply with Article 5 of the Indenture, (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code, (iv) to add Guarantees with respect to the Notes or to secure the Notes, (v) to add to the covenants of the Issuer or any Parent of the Issuer for the benefit of the Holders or to surrender any right or power herein conferred upon the Issuer or any Parent of the Issuer, (vi) to comply with any requirement of the SEC in connection with qualifying the Indenture under the TIA, (vii) to effect any provision of this Indenture (including to release any Guarantees in accordance with the terms of the Indenture), (viii) to make any change that does not adversely affect the rights of any Holder, or (ix) to provide for the issuance of the Exchange Notes or Additional Notes.
14. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Issuer) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Notes, in each case, by notice to the Issuer and Holdings, may declare the Accreted Value of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Issuer occurs, the Accreted Value of, premium, if any, and interest on all the Notes shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
A-10 If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense and certain other conditions are complied with. Except to enforce the right to receive payment of Accreted Value, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or, subject to Section 7.01 of the Indenture, that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.
15. Trustee Dealings with the Issuer and Holdings
Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Issuer, Holdings or their Affiliates and may otherwise deal with the Issuer, Holdings or their Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
No director, officer, employee, incorporator or holder of any Equity Interests in the Issuer (other than Holdings) or any Parent (as defined in the Indenture) of the Issuer, as such, shall have any liability for any obligations of the Issuer or Holdings under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.
17. Authentication
This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note.
18. Abbreviations
Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
A-11 19. Governing Law
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
20. CUSIP Numbers, ISINs and Common Codes
The Issuer has caused CUSIP numbers and ISINs to be printed on the Notes and has directed the Trustee to use CUSIP numbers and ISINs in notices of redemption as a convenience to the Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Issuer will furnish to any Holder of Notes upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note.
A-12 ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
______(Print or type assignee’s name, address and zip code)
______(Insert assignee’s soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.
______
Date: Your Signature:
(Sign exactly as your name appears on the other side of this Note.)
Signature Guarantee:
Date:
Signature must be guaranteed by a Signature of Signature Guarantee participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
A-13 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED NOTES
This certificate relates to $ principal amount at maturity of Notes held in (check applicable space) book-entry or definitive form by the undersigned.
The undersigned (check one box below):
☐ has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depository a Note in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above);
☐ has requested the Trustee by written order to exchange or register the transfer of a Note.
In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) ☐ to the Issuer or Holdings; or
(2) ☐ to the Registrar for registration in the name of the Holder, without transfer; or
(3) ☐ pursuant to an effective registration statement under the Securities Act of 1933; or (4) ☐ inside the United States to a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (5) ☐ outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933 and such Security shall be held immediately after the transfer through Euroclear or Clearstream until the expiration of the Restricted Period (as defined in the Indenture); or (6) ☐ to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or
(7) ☐ pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933.
A-14 Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Issuer has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
Date: Your Signature
Signature Guarantee:
Date:
Signature must be guaranteed by a Signature of Signature Guarantee participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
A-15 TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive officer
A-16 [TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The initial principal amount at maturity of this Global Note is $[ ]. The following increases or decreases in this Global Note have been made:
Amount of decrease Amount of increase in Principal amount at in principal amount at principal amount at maturity of this Global Signature of authorized maturity of this maturity of this Note following such signatory of Trustee or Date of Exchange Global Note Global Note decrease or increase Securities Custodian
A-17 OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.06 (Asset Sales) or 4.08 (Change of Control) of the Indenture, check the box:
Asset Sale ☐ Change of Control ☐
If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 4.06 (Asset Sales) or 4.08 (Change of Control) of the Indenture, state the principal amount at maturity ($1,000 or an integral multiple thereof):
$
Date: Your Signature: (Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
A-18 EXHIBIT B
[FORM OF FACE OF EXCHANGE NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
Each Definitive Note shall bear the following additional legend:
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
B-1 [FORM OF EXCHANGE NOTE]
No. $
9 1/4% Senior Discount Note due 2015
CUSIP No. 45822C AB 0 ISIN No. US45822CAB00
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL AMOUNT AT MATURITY OF THIS NOTE, THE ISSUE PRICE IS $637.87. THE ISSUE DATE OF THIS NOTE IS FEBRUARY 11, 2005, AND THE YIELD TO MATURITY IS 9.25%.1
ZEUS SPECIAL SUBSIDIARY LIMITED, a company incorporated under the laws of Bermuda, and INTELSAT, LTD., a company incorporated under the laws of Bermuda, promise to pay to [ ], or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Note attached hereto] on February 1, 2015.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Note are set forth on the other side of this Note.
*/ If the Note is to be issued in global form, add the Global Notes Legend and the attachment from Exhibit B captioned “TO BE ATTACHED TO GLOBAL NOTES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE.” 1 In the case of the Original Notes.
B-2 IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed.
ZEUS SPECIAL SUBSIDIARY LIMITED
By:
Name:
Title:
INTELSAT, LTD.
By:
Name:
Title:
Dated:
B-3 TRUSTEE’S CERTIFICATE OF AUTHENTICATION
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee, certifies that this is one of the Notes referred to in the Indenture.
By:
Authorized Signatory
B-4 [FORM OF REVERSE SIDE OF EXCHANGE NOTE]
9 1/4% Senior Discount Note due 2015
1. Interest
(a) ZEUS SPECIAL SUBSIDIARY LIMITED, a company incorporated under the laws of Bermuda (such company, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “Issuer”) and INTELSAT, LTD., a company incorporated under the laws of Bermuda (“Holdings”), promise to pay interest on the principal amount at maturity of this Note at the rate per annum shown above. Prior to February 1, 2010, interest on the Note will accrue in the form of an increase in the Accreted Value of the Note, and no cash interest shall be paid. The Accreted Value of the Note will increase from the date of issuance until February 1, 2010 at a rate of 9.25% per annum compounded semi-annually as provided in the definition of “Accreted Value” in the Indenture such that the Accreted Value will (except as otherwise provided in the definition of “Accreted Value”) equal the principal amount at maturity on February 1, 2010. The Issuer and Holdings shall pay cash interest semi-annually on February 1 and August 1 of each year, commencing August 1, 2010. Cash Interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from and including February 1, 2010, until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Issuer and Holdings shall pay interest on overdue principal at the rate borne by the Notes, and shall pay interest on overdue installments of interest at the same rate to the extent lawful.
(b) Registration Rights Agreement. The Holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of February 11, 2005, among the Issuer, Holdings and the Initial Purchaser.
2. Method of Payment
The Issuer and Holdings shall pay interest on the Notes to the Persons who are registered Holders at the close of business on the January 15 and July 15 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date (whether or not a Business Day). The Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuer and Holdings shall pay Accreted Value or principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Notes represented by a Global Note (including Accreted Value or principal, premium, if any, and interest) shall be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company or any successor depositary. The Issuer and Holdings will make all payments in respect of a certificated Note (including Accreted Value or principal, premium, if any, and interest), at the office of each Paying Agent, except that, at the option of the Issuer, payment of interest may be made by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder
B-5 elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, Wells Fargo Bank, National Association, a national banking association (the “Trustee”), will act as Paying Agent and Registrar. The Issuer and Holdings and may appoint and change any Paying Agent or Registrar without notice. The Issuer, Holdings or any of their domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent or Registrar.
4. Indenture
The Issuer and Holdings issued the Notes under an Indenture dated as of February 11, 2005 (the “Indenture”), among the Issuer, Holdings and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “TIA”). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and the Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions; in the event of any conflict between this Note and the Indenture, the terms of the Indenture shall govern.
The Notes are senior unsecured obligations of the Issuer and Holdings. This Note is one of the Exchange Notes referred to in the Indenture. The Notes include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes pursuant to the Indenture. The Initial Notes and any Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Issuer and its Restricted Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, issue or sell shares of capital stock of the Issuer and such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens and make asset sales. The Indenture also imposes limitations on the ability of the Issuer, Holdings and each Guarantor to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of its property.
5. Optional Redemption
Except as set forth in the following two paragraphs and in Sections 3.09 and 3.10 of the Indenture, the Notes shall not be redeemable at the option of the Issuer prior to February 1, 2010. Thereafter, the Notes shall be redeemable at the option of the Issuer, in whole at any time or in part from time to time, upon on not less than 30 nor more than 60 days’ prior notice, at the following redemption prices (expressed as a percentage of principal amount at maturity), plus accrued and unpaid interest, to the redemption date (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 1 of the years set forth below:
Year Redemption Price
2010 104.625% 2011 103.083% 2012 101.542% 2013 and thereafter 100.000%
B-7 In addition, prior to February 1, 2010, the Issuer may redeem the Notes at its option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each Holder’s registered address, at a redemption price equal to 100% of the Accreted Value of the Notes redeemed plus the Applicable Premium as of the applicable redemption date (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Notwithstanding the foregoing, at any time and from time to time on or prior to February 1, 2008, the Issuer may redeem in the aggregate up to 35% of the original aggregate principal amount of the Notes (calculated after giving effect to any issuance of Additional Notes) with the net cash proceeds of one or more Equity Offerings by the Issuer or by any Parent of the Issuer, in each case, to the extent the net cash proceeds thereof are contributed to the common equity capital of the Issuer or used to purchase Capital Stock (other than Disqualified Stock) of the Issuer from it, or from the cash contribution of equity capital to the Issuer, at a redemption price equal to 109.25% of the Accreted Value thereof to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the original aggregate principal amount of the Notes (calculated after giving effect to any issuance of Additional Notes) must remain outstanding after each such redemption; and provided, further, that such redemption shall occur within 90 days after the date on which any such Equity Offering or cash contribution of equity capital to the Issuer is consummated upon not less than 30 nor more than 60 days’ notice mailed to each holder of Notes being redeemed and otherwise in accordance with the procedures set forth in the Indenture.
The Notes are subject to a Special Mandatory Redemption as set forth in Article 3 of the Indenture.
Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may (other than with respect to a Special Mandatory Redemption), at the Issuer’s discretion, be subject to one or more conditions precedent, including, but not limited to, in the case of any Equity Offering, completion of the related Equity Offering.
6. Sinking Fund
The Notes are not subject to any mandatory sinking fund.
B-7 7. Notice of Redemption
Notice of redemption (other than with respect to a Special Mandatory Redemption) will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his, her or its registered address. Notes in denominations larger than $1,000 principal amount at maturity may be redeemed in part but only in whole multiples of $1,000 principal amount at maturity. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with a Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date, interest or Accreted Value, as the case may be, ceases to accrue or accrete, as the case may be, on such Notes (or such portions thereof) called for redemption.
8. Repurchase of Notes at the Option of Holders upon Change of Control and Asset Sales
Upon the occurrence of a Change of Control, each Holder shall have the right, subject to certain conditions specified in the Indenture, to cause the Issuer and Holdings to repurchase all or any part of such Holder’s Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of the Holders of record on the relevant record date to receive interest due on the relevant interest payment date), as provided in, and subject to the terms of, the Indenture.
In accordance with Section 4.06 of the Indenture, the Issuer will be required to offer to purchase Notes upon the occurrence of certain events.
9. Denominations; Transfer; Exchange
The Notes are in registered form, without coupons, in denominations of $1,000 principal amount at maturity and whole multiples of $1,000 principal amount at maturity. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. Upon any registration of transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or to transfer or exchange any Notes for a period of 15 days prior to a selection of Notes to be redeemed.
10. Persons Deemed Owners
The registered Holder of this Note shall be treated as the owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two years, the Trustee and a Paying Agent shall pay the money back to the Issuer at its written request, subject to any abandoned property law. After any such payment, the Holders entitled to the money must look to the Issuer for payment as general creditors and the Trustee and a Paying Agent shall have no further liability with respect to such monies.
B-8 12. Discharge and Defeasance
Subject to certain conditions, the Issuer and Holdings at any time may terminate some of or all their obligations under the Notes and the Indenture if the Issuer and Holdings deposit with the Trustee money or U.S. Government Obligations for the payment of Accreted Value, premium, if any, of, and interest on the Notes to redemption, or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Notes (voting as a single class) and (ii) any past default or compliance with any provisions may be waived with the written consent of the Holders of at least a majority in aggregate principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Issuer and the Trustee may amend this Indenture or the Notes: (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to comply with Article 5 of the Indenture, (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code, (iv) to add Guarantees with respect to the Notes or to secure the Notes, (v) to add to the covenants of the Issuer or any Parent of the Issuer for the benefit of the Holders or to surrender any right or power herein conferred upon the Issuer or any Parent of the Issuer, (vi) to comply with any requirement of the SEC in connection with qualifying the Indenture under the TIA, (vii) to effect any provision of this Indenture (including to release any Guarantees in accordance with the terms of the Indenture), (viii) to make any change that does not adversely affect the rights of any Holder, or (ix) to provide for the issuance of the Exchange Notes or Additional Notes.
14. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Issuer) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Notes, in each case, by notice to the Issuer and Holdings, may declare the Accreted Value of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Issuer occurs, the Accreted Value of, premium, if any, and interest on all the Notes shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
B-9 If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense and certain other conditions are complied with. Except to enforce the right to receive payment of Accreted Value, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) the Holders of at least 25% in aggregate principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in aggregate principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or, subject to Section 7.01 of the Indenture, that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.
15. Trustee Dealings with the Issuer and Holdings
Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Issuer, Holdings or their Affiliates and may otherwise deal with the Issuer, Holdings or their Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
No director, officer, employee, incorporator or holder of any Equity Interests in the Issuer (other than Holdings) or any Parent (as defined in the Indenture) of the Issuer, as such, shall have any liability for any obligations of the Issuer or Holdings under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.
17. Authentication
This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note.
18. Abbreviations
Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
B-10 19. Governing Law
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
20. CUSIP Numbers, ISINs and Common Codes
The Issuer has caused CUSIP numbers and ISINs to be printed on the Notes and has directed the Trustee to use CUSIP numbers and ISINs in notices of redemption as a convenience to the Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Issuer will furnish to any Holder of Notes upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note.
B-11 ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
______(Print or type assignee’s name, address and zip code)
______(Insert assignee’s soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.
______
Date: Your Signature:
(Sign exactly as your name appears on the other side of this Note.)
Signature Guarantee:
Date:
Signature must be guaranteed by a Signature of Signature Guarantee participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
B-12 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED NOTES
This certificate relates to $ principal amount at maturity of Notes held in (check applicable space) book-entry or definitive form by the undersigned.
The undersigned (check one box below):
☐ has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depository a Note in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above);
☐ has requested the Trustee by written order to exchange or register the transfer of a Note.
In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) ☐ to the Issuer or Holdings; or
(2) ☐ to the Registrar for registration in the name of the Holder, without transfer; or
(3) ☐ pursuant to an effective registration statement under the Securities Act of 1933; or (4) ☐ inside the United States to a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (5) ☐ outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933 and such Security shall be held immediately after the transfer through Euroclear or Clearstream until the expiration of the Restricted Period (as defined in the Indenture); or (6) ☐ to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or
(7) ☐ pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933.
B-13 Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Issuer has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
Date: Your Signature
Signature Guarantee:
Date:
Signature must be guaranteed by a Signature of Signature Guarantee participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
B-14 TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive officer
B-15 [TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The initial principal amount at maturity of this Global Note is $[ ]. The following increases or decreases in this Global Note have been made:
Amount of decrease Amount of increase in Principal amount at in principal amount at principal amount at maturity of this Global Signature of authorized Date of maturity of this maturity of this Note following such signatory of Trustee or Exchange Global Note Global Note decrease or increase Securities Custodian
B-16 OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.06 (Asset Sales) or 4.08 (Change of Control) of the Indenture, check the box:
Asset Sale ☐ Change of Control ☐
If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 4.06 (Asset Sales) or 4.08 (Change of Control) of the Indenture, state the principal amount at maturity ($1,000 or an integral multiple thereof):
$
Date: Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor program reasonably acceptable to the Trustee
B-17 EXHIBIT C
Form of Transferee Letter of Representation – Notes
ZEUS SPECIAL SUBSIDIARY LIMITED and INTELSAT, LTD. c/o Wells Fargo Bank, National Association 213 Court Street, Suite 703 Middletown, CT 06457
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $[ ] principal amount at maturity of the 9 1/4% Senior Discount Notes due 2015 (the “Notes”) of ZEUS SPECIAL SUBSIDIARY LIMITED (the “Issuer”) and INTELSAT, LTD. (“Holdings”).
Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the “Securities Act”)), purchasing for our own account or for the account of such an institutional “accredited investor” at least $[ ] principal amount at maturity of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we invest in or purchase Notes similar to the Notes in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date that is two years after the later of the date of original issue and the last date on which the Issuer, Holdings or any affiliate of the Issuer or Holdings was the owner of such Notes (or any predecessor thereto) (the “Resale Restriction Termination Date”) only (a) to the Issuer or Holdings, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act (“Rule 144A”), to a person we
C-1 reasonably believe is a qualified institutional buyer under Rule 144A (a “QIB”) that is purchasing for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional “accredited investor,” or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state Notes laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuer and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Issuer, Holdings and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Issuer, Holdings and the Trustee.
Dated: TRANSFEREE: ,
by
C-2 EXHIBIT D
[FORM OF SUPPLEMENTAL INDENTURE]
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”) dated as of [ ], among [GUARANTOR] (the “New Guarantor”), a subsidiary of ZEUS SPECIAL SUBSIDIARY LIMITED (or its successor), a company organized under the laws of Bermuda (the “Issuer”), and INTELSAT, LTD. (or its successor), a company organized under the laws of Bermuda (“Holdings”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H :
WHEREAS the Issuer, Holdings and the existing Guarantor(s), if any, have heretofore executed and delivered to the Trustee an Indenture (as amended, supplemented or otherwise modified, the “Indenture”) dated as of February 11, 2005, providing for the issuance of the Issuer’s and Holdings’ 9 1/4% Senior Discount Notes due 2015 (the “Notes”), initially in the aggregate principal amount at maturity of $478,700,000;
WHEREAS Section 4.11 of the Indenture provides that under certain circumstances the Issuer is required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all the Issuer’s obligations under the Notes pursuant to a Guarantee on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee and the Issuer are authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Issuer, and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term “Holders” in this Supplemental Indenture shall refer to the term “Holders” as defined in the Indenture and the Trustee acting on behalf of and for the benefit of such Holders. The words “herein,” “hereof” and hereby and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and severally with all existing Guarantors (if any), to unconditionally guarantee the Issuer’s and Holdings’ obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes applying to a Guarantor and to perform all of the obligations and agreements of a Guarantor under the Indenture.
D-1 3. Notices. All notices or other communications to the New Guarantor shall be given as provided in Section 11.02 of the Indenture, except as provided below:
[Address for notices or other communications with respect to New Guarantor if other than as set forth in Section 11.02 of the Indenture]
4. Jurisdiction. The New Guarantor agrees that any suit, action or proceeding against the New Guarantor arising out of or based upon this Supplemental Indenture, the Indenture or the transactions contemplated hereby may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The New Guarantor hereby appoints CT Corporation System as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Supplemental Indenture, the Indenture or the transactions contemplated herein that may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The New Guarantor hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the New Guarantor agrees to take any and all action, including the filing of any and all documents, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the New Guarantor.
5. Immunity. To the extent that the New Guarantor has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, the New Guarantor hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its obligations under the Indenture or this Supplemental Indenture.
6. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
7. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
D-2 9. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
10. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.
D-3 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR]
By:
Name: Title:
D-4 INTELSAT, LTD.
By:
Name: Title:
ZEUS SPECIAL SUBSIDIARY LIMITED
By:
Name: Title:
D-5 WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name: Title:
D-6 Exhibit 2.12
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”) dated as of March 3, 2005, among Intelsat, Ltd., a company organized under the laws of Bermuda (the “Co-obligor”), Intelsat (Bermuda), Ltd., a company organized under the laws of Bermuda and the company resulting from the Amalgamation (as defined below) (the “Successor”) and Wells Fargo Bank, National Association, a national banking association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H :
WHEREAS Zeus Special Subsidiary Limited, a company organized under the laws of Bermuda (the “Issuer”) and the Co-obligor, have heretofore executed and delivered to the Trustee an Indenture (as amended, supplemented or otherwise modified, the “Indenture”) dated as of February 11, 2005, providing for the issuance of the Issuer’s 9¼% Senior Discount Notes due 2015 (the “Notes”), in the aggregate principal amount at maturity of $478,700,000;
WHEREAS immediately prior to the Amalgamation Intelsat (Bermuda), Ltd. transferred its assets and liabilities to Intelsat Subsidiary Holding Company, Ltd. in connection with the Transfer Transactions;
WHEREAS, concurrently herewith, the Issuer has amalgamated with Intelsat (Bermuda), Ltd., with the resulting entity being the Successor (the “Amalgamation”);
WHEREAS Section 5.01 of the Indenture expressly permits the Amalgamation in connection with the Transfer Transactions;
WHEREAS, prior hereto or concurrently herewith, the Transfer Transactions have been consummated;
WHEREAS the Successor desires to execute and deliver to the Trustee a supplemental indenture pursuant to which the Successor evidences that it expressly assumes all of the obligations of the Issuer under the Indenture and the Notes on the terms and conditions set forth herein;
WHEREAS the Successor is organized under the laws of Bermuda and the Issuer is organized under the laws of Bermuda;
WHEREAS the Indenture provides that in connection with the Amalgamation and this Supplemental Indenture, the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, and such Officers’ Certificate and Opinion of Counsel have been delivered to the Trustee on the date hereof;
WHEREAS pursuant to Section 5.02 of the Indenture, concurrently with the Amalgamation in accordance with or permitted by Section 5.01 of the Indenture, the Successor shall succeed to and be substituted for, and may exercise every right and power of, the Issuer under the Indenture with the same effect as if such Successor has been named as the Issuer in the Indenture, and the Issuer shall thereby be released of its obligations under the Indenture and the Notes; and WHEREAS pursuant to Section 9.01 of the Indenture, the Issuer, the Co-obligor and the Trustee are authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the Successor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:
1. Defined Terms. As used in this Supplemental Indenture, capitalized terms defined in the Indenture and not otherwise defined herein have the meanings assigned such terms in the Indenture. The words “herein,” “hereof” and hereby and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.
2. Agreement to Assume Obligations. The Successor hereby agrees to assume the Issuer’s obligations under the Indenture and the Notes on the terms and subject to the conditions set forth in the Indenture and the Notes, and succeed to and be substituted for, and may exercise every right and power of, the Issuer under the Indenture and the Notes with the same effect as if such Successor has been named as the Issuer in the Indenture and the Notes, and the Issuer shall thereby be released of its obligations under the Indenture and the Notes.
3. Notices. All notices or other communications to the Successor shall be given and addressed as provided in Section 11.02 of the Indenture.
4. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
5. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
7. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
8. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.
2 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
INTELSAT (BERMUDA), LTD.
By:
Name: Title:
INTELSAT, LTD.
By: Name:
Title:
3 WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE
By: Name:
Title:
4 Exhibit 2.13
REGISTRATION RIGHTS AGREEMENT
Dated as of February 11, 2005
Among
ZEUS SPECIAL SUBSIDIARY LIMITED
and
INTELSAT, LTD.
and
DEUTSCHE BANK SECURITIES INC.
$478,700,000 Aggregate Principal Amount at Maturity 9 1/4% Senior Discount Notes due 2015
TABLE OF CONTENTS
Page
1. Definitions 1
2. Exchange Offer 5
3. Shelf Registration 9
4. Additional Interest 11
5. Registration Procedures 13
6. Registration Expenses 22
7. Indemnification and Contribution. 23
8. Rules 144 and 144A 27
9. Underwritten Registrations 27
10. Miscellaneous 28
i REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “Agreement”) is dated as of February 11, 2005, among ZEUS SPECIAL SUBSIDIARY LIMITED, a company organized under the laws of Bermuda (the “Company”), INTELSAT, LTD., a company organized under the laws of Bermuda (“Holdings”), and DEUTSCHE BANK SECURITIES INC. (the “Initial Purchaser”).
This Agreement is entered into in connection with the Purchase Agreement among the Company and Holdings and the Initial Purchaser, dated as of February 3, 2005 (the “Purchase Agreement”), which provides for, among other things, the sale by the Company and Holdings to the Initial Purchaser of $478,700,000 aggregate principal amount at maturity of their Senior Discount Notes due 2015 (the “Notes”). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company and Holdings have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and any subsequent holder or holders of the Notes. The execution and delivery of this Agreement is a condition to the Initial Purchaser’s obligation to purchase the Notes under the Purchase Agreement. The Notes are being offered and sold by the Company and Holdings in connection with the Company and Holdings’ plan for, subject to the receipt of approval thereof (“FCC Approval”) from the U.S. Federal Communications Commission (the “FCC”), the transfer of all of the assets, and assumption of all liabilities, of Intelsat (Bermuda), Ltd. (“Intelsat Bermuda”) to, and by, Intelsat Subsidiary Holding Company Ltd. (“Intelsat Sub Holdco”), a new wholly owned subsidiary of Intelsat Bermuda organized under the laws of Bermuda and (i) the subsequent amalgamation of the Company into Intelsat Bermuda or (ii) the subsequent transfer of all of the Company’s assets to, and the assumption of all of the Company’s obligations by, Intelsat Bermuda, in each case, as described in the Final Memorandum (collectively, the “Contribution”).
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following meanings:
Accreted Value: Has the meaning assigned thereto in the Indenture.
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereof. Applicable Period: See Section 2(b) hereof.
Authorized Agent: See Section 10(m) hereof.
Business Day: Any day that is not a Saturday, Sunday or a legal holiday or day on which banking institutions or trust companies in New York City are authorized or required by law to be closed.
Company: See the introductory paragraphs hereof.
Contribution: See the introductory paragraphs hereof.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Registration Statement: See Section 2(a) hereof.
Final Memorandum: Has the meaning assigned thereto in the Purchase Agreement.
Full Accretion Date: Has the meaning assigned thereto in the Indenture.
Holder: Any holder of a Registrable Note or Registrable Notes.
Holdings: See the introductory paragraphs hereof.
Indenture: The Indenture, dated as of the date hereof, among the Company, Holdings and Wells Fargo Bank, National Association, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof.
Information: See Section 5(o) hereof.
Initial Purchaser: See the introductory paragraphs hereof.
Initial Shelf Registration: See Section 3(a) hereof.
2 Inspectors: See Section 5(o) hereof.
Intelsat Bermuda: See the introductory paragraphs hereof.
Issue Date: February 11, 2005, the date of original issuance of the Notes.
Issuers: Has the meaning set forth in the Purchase Agreement.
NASD: See Section 5(s) hereof.
Notes: See the introductory paragraphs hereof.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until, in each case, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared
3 effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without restriction under U.S. state and federal securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture, (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, may be resold without restriction pursuant to Rule 144(k) (as amended or replaced) under the Securities Act and (v) such Note, Exchange Note or Private Exchange Note, as the case may be, is sold pursuant to Rule 144 (as amended or replaced) under the Securities Act.
Registration Statement: Any registration statement of the Issuers that covers any of the Notes, the Exchange Notes or the Private Exchange Notes filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Regulatory Requirements: See the last paragraph of Section 1 hereof.
Rule 144: Rule 144 under the Securities Act.
Rule 144A: Rule 144A under the Securities Act.
Rule 405: Rule 405 under the Securities Act.
Rule 415: Rule 415 under the Securities Act.
Rule 424: Rule 424 under the Securities Act.
SEC: The U.S. Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(b) hereof.
Shelf Registration Statement: Any Registration Statement relating to a Shelf Registration.
Shelf Suspension Period: See Section 3(a) hereof.
4 Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated thereunder.
Trustee: The trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes and Private Exchange Notes.
Underwritten registration or underwritten offering: A registration in which securities of an Issuer are sold to an underwriter for reoffering to the public.
Except as otherwise specifically provided, all references in this Agreement to acts, laws, statutes, rules, regulations, releases, forms, no-action letters and other regulatory requirements (collectively, “Regulatory Requirements”) shall be deemed to refer also to any amendments thereto and all subsequent Regulatory Requirements adopted as a replacement thereto having substantially the same effect therewith; provided that Rule 144 shall not be deemed to amend or replace Rule 144A.
2. Exchange Offer
(a) Unless the Exchange Offer would violate applicable law or any applicable interpretation of the staff of the SEC, the Issuers shall use their commercially reasonable efforts to file with the SEC (within such time as to comply with the requirements of the last sentence of this paragraph) a Registration Statement (the “Exchange Offer Registration Statement”) on an appropriate registration form with respect to a registered offer (the “Exchange Offer”) to exchange any and all of the Registrable Notes for a like Accreted Value and aggregate principal amount at maturity of debt securities of the Issuers (the “Exchange Notes”), that are identical in all material respects to the Notes, except that (i) the Exchange Notes shall contain no restrictive legend thereon, (ii) subject to compliance herewith, the Exchange Notes shall not be subject to any increase in annual interest rate as set forth in Section 4(a) hereof and (iii) interest thereon shall accrue from the last date on which interest was paid on the Notes or, if no such interest has been paid, from the Issue Date, and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable laws. Each Issuer shall (x) use its commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act; (y) keep the Exchange Offer open for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) use its commercially reasonable efforts to consummate the Exchange Offer on or prior to the 360th day following the consummation of the Contribution (or if such 360th day is not a Business Day, the next succeeding Business Day).
5 Each Holder (including, without limitation, each Participating Broker-Dealer) who participates in the Exchange Offer will be required to represent to the Issuers in writing (which may be contained in the applicable letter of transmittal) that: (i) any Exchange Notes acquired in exchange for Registrable Notes tendered are being acquired in the ordinary course of business of the Person receiving such Exchange Notes, whether or not such recipient is such Holder itself; (ii) at the time of the commencement or consummation of the Exchange Offer neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder has an arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act; (iii) neither the Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder is an “affiliate” (as defined in Rule 405) of any Issuer or, if it is an affiliate of any Issuer, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable and will provide information to be included in the Shelf Registration Statement in accordance with Section 5 hereof in order to have its Notes included in the Shelf Registration Statement and benefit from the provisions regarding Additional Interest in Section 4 hereof; (iv) neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder is engaging in or intends to engage in a distribution of the Exchange Notes; (v) neither the Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder is prohibited by any law or policy of the SEC from participating in the Exchange Offer; and (vi) if such Holder is a Participating Broker-Dealer, such Holder has acquired the Registrable Notes as a result of market-making activities or other trading activities and that it will comply with the applicable provisions of the Securities Act (including, but not limited to, the prospectus delivery requirements thereunder).
Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker- Dealers; provided, however, that the Issuers shall have no further obligation to register Registrable Notes, or file any Registration Statement in respect thereof, (other than Private Exchange Notes and Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to this Agreement.
No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled “Plan of Distribution,” reasonably
6 acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential “underwriter” status of any broker-dealer that is the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a “Participating Broker-Dealer”), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such “Plan of Distribution” section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act.
Each of the Issuers shall use its commercially reasonable efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes; provided, however, that such period shall not be required to exceed 90 days or such longer period if extended pursuant to the last paragraph of Section 5 hereof (the “Applicable Period”).
If, prior to consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it that have the status of an unsold allotment in the initial distribution, the Company, upon the request of the Initial Purchaser, shall simultaneously with the delivery of the Exchange Notes issue and deliver to the Initial Purchaser, in exchange (the “Private Exchange”) for such Notes held by any such Holder, a like Accreted Value and principal amount at maturity of notes (the “Private Exchange Notes”) of the Issuers, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes if permitted by the CUSIP Service Bureau.
In connection with the Exchange Offer, the Issuers shall:
(1) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;
7 (2) use their commercially reasonable efforts to keep the Exchange Offer open for not less than 20 Business Days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law);
(3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer remains open; and
(5) otherwise comply in all material respects with all applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, an Accreted Value and principal amount at maturity of Exchange Notes or Private Exchange Notes, as the case may be, equal in Accreted Value and principal amount at maturity to the Notes of such Holder so accepted for exchange; provided that, in the case of any Notes held in global form by a depositary, authentication and delivery to such depositary of one or more replacement Notes in global form in an equivalent Accreted Value and principal amount at maturity thereto for the account of such Holders in accordance with the Indenture shall satisfy such authentication and delivery requirement.
The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC; (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Company; and (iii) all governmental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or Private Exchange.
8 The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers determine upon advice of their outside counsel that they are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 360 days of the consummation of the Contribution, (iii) the Initial Purchaser or any other holder of Private Exchange Notes so requests in writing to the Issuers at any time after the consummation of the Exchange Offer or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under U.S. state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Issuers within the meaning of the Securities Act and other than any Participating Broker-Dealer by virtue of any prospectus delivery requirement) and so notifies the Company prior to the 20th Business Day following consummation of the Exchange Offer of such restrictions, in the case of each of clauses (i) to and including (iv) of this sentence, then the Company shall promptly deliver to the Holders and the Trustee written notice thereof (the “Shelf Notice”) and the Issuers shall file a Shelf Registration pursuant to Section 3 hereof; provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Notes held by it covered by such Shelf Registration unless such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then:
(a) Shelf Registration. The Issuers shall as promptly as practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the “Initial Shelf Registration”). The Issuers shall use their commercially reasonable efforts to file with the SEC the Initial Shelf Registration. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below).
9 The Issuers shall use their commercially reasonable efforts to cause the Shelf Registration to be declared effective under the Securities Act within 360 days of the closing date of the Contribution and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date that is two years from the closing date of the Contribution or such shorter period ending when all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or, if applicable, a Subsequent Shelf Registration (the “Effectiveness Period”); provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein and shall be subject to reduction to the extent that the Notes, Exchange Notes or Private Exchange Notes, as applicable, covered by the Shelf Registration Statement become eligible for resale, without regard to volume, manner of sale or other restrictions contained in Rule 144(k). Notwithstanding anything to the contrary in this Agreement, at any time, the Issuers may delay the filing of any Initial Shelf Registration Statement or delay or suspend the effectiveness thereof, for a reasonable period of time, but not in excess of an aggregate of 90 days in any calendar year (a “Shelf Suspension Period”), if the Board of Directors of either of the Issuers determines reasonably and in good faith that the filing of any such Initial Shelf Registration Statement or the continuing effectiveness thereof would require the disclosure of non-public material information that, in the reasonable judgment of the Board of Directors of either of the Issuers, would be detrimental to either of the Issuers if so disclosed or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other material transaction.
(b) Withdrawal of Stop Orders; Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than during a Shelf Suspension Period or because of the sale of all of the Notes registered thereunder), each Issuer shall use its commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend such Shelf Registration Statement in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a “Subsequent Shelf Registration”). If a Subsequent Shelf Registration is filed, each Issuer, other than during a Shelf Suspension Period, shall use its commercially
10 reasonable efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration and any Subsequent Shelf Registration was previously continuously effective. As used herein the term “Shelf Registration” means the Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes (or their counsel) covered by such Registration Statement with respect to the information included therein with respect to one or more of such Holders, or by any underwriter of such Registrable Notes with respect to the information included therein with respect to such underwriter.
4. Additional Interest
(a) The Issuers and the Initial Purchaser agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, as liquidated damages, additional interest on the Registrable Notes (“Additional Interest”) under the circumstances and to the extent set forth below (each of which shall be given independent effect):
(i) if neither (x) the Exchange Offer is completed, nor (y) if required, the Shelf Registration Statement is declared effective, within, in each case, 360 days of the consummation of the Contribution, then Additional Interest shall accrue on the Registrable Notes at a rate of 0.25% per annum of the average Accreted Value (during such 90 day period) of such Registrable Notes for the first 90 days from and including such specified date and increasing by an additional 0.25% per annum of the average Accreted Value (for each such subsequent period) at the beginning of each subsequent 90-day period thereafter; provided that Additional Interest in the aggregate under this Section 4 may not exceed 1.00% per annum of the average Accreted Value of such Registrable Notes; or
(ii) notwithstanding that the Issuers have consummated or will consummate an Exchange Offer, if the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective on or prior to the 360th day following the date the filing of such Shelf Registration Statement is required or requested pursuant to Section 3(a) hereof, then Additional Interest shall
11 accrue on the Registrable Notes at a rate of 0.25% per annum of the average Accreted Value (during such 90 day period) of such Registrable Notes for the first 90 days from and including such specified date and increasing by an additional 0.25% per annum of the average Accreted Value (for each such subsequent period) of such Registrable Notes at the beginning of each subsequent 90-day period thereafter; provided that Additional Interest in the aggregate under this Section 4 may not exceed 1.00% per annum of the average Accreted Value of such Registrable Notes; or
(iii) if the Shelf Registration Statement required by Section 3(a) of this Agreement has been declared effective but thereafter ceases to be effective at any time at which it is required to be effective under this Agreement and such failure to remain effective exists for more than the number of days permitted by the second paragraph of Section 3(a) hereof, then commencing on the first day following the date on which such Shelf Registration Statement ceases to be effective that exceeds the number of days permitted by the second paragraph of Section 3(a) hereof, Additional Interest shall accrue on the Registrable Notes at a rate of 0.25% per annum of the average Accreted Value (during such 90 day period) of such Notes for the first 90 days from and including such day, as applicable, following the date on which such Shelf Registration Statement ceases to be effective and increasing by an additional 0.25% per annum of the average Accreted Value (for each such subsequent period) of such Registrable Notes at the beginning of each subsequent 90-day period thereafter; provided that Additional Interest in the aggregate under this Section 4 may not exceed 1.00% per annum of the of the average Accreted Value (for such period) of such Registrable Notes; provided, however, that upon (1) the completion of the Exchange Offer (in the case of paragraph (i) above), (2) the effectiveness of the Shelf Registration Statement (in the case of paragraph (ii) above) and (3) the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of paragraph (iii) above), Additional Interest shall cease to accrue.
(b) The Company shall notify the Trustee within one Business Day after each and every date on which an event occurs in respect of which Additional Interest is required to be paid or added to Accreted Value (an “Event Date”) and within one Business Day after such Additional Interest ceases to accrue. Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be (i) if such Additional Interest accrued on or prior to the Full Accretion Date, at the option of the Issuers, either (x) added to the Accreted Value of each applicable Note or (y) paid in cash and (ii) if after the Full Accretion Date, paid in cash, in either case semiannually on each February 1 and August 1 (to the holders of record on the January 15 and July 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable
12 Additional Interest rate by the average Accreted Value of the Registrable Notes during such period, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360 day year comprised of twelve 30 day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. Prior to the interest payment date on which the Additional Interest is required to be paid, the Issuers shall determine the amount of Additional Interest and, at that time, notify the Trustee of such amount and whether the Additional Interest shall be paid in cash.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant to Section 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder the Issuers shall (other than during any Shelf Suspension Period):
(a) Prepare and file with the SEC a Registration Statement or Registration Statements as prescribed by Section 2 or 3 hereof, and use their commercially reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that if (1) such filing is pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Issuers have received prior written notice that it will be a Participating Broker-Dealer in the Exchange Offer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement (with respect to a Registration Statement filed pursuant to Section 3 hereof) or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least two Business Days prior to such filing).
(b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period, the Applicable Period or until consummation of the Exchange Offer, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable
13 law, and as so supplemented to be filed pursuant to Rule 424; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by an Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their commercially reasonable efforts to keep a Registration Statement effective if any Issuer voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Company has received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one Business Day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference, if any, and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(n) hereof cease to be true and correct in all material respects, (iv) of the receipt by any of the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any
14 condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of an Issuer’s determination that a post-effective amendment to a Registration Statement would be appropriate.
(d) Use its commercially reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its commercially reasonable efforts to obtain the withdrawal of any such order at the earliest practicable moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if requested during the Effectiveness Period by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, give due and prompt consideration to (i) incorporating in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) making all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplementing or making amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof) and to each such Participating Broker- Dealer who so requests in writing (with respect to any such Registration Statement) and to their respective counsel and each managing
15 underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference, if any, and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker- Dealer (with respect to any such Registration Statement), as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein, if any, as such Persons may reasonably request in writing; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker- Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its commercially reasonable efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or
16 advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, further, that none of the Issuers shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations (subject to applicable requirements contained in the Indenture) and registered in such names as the managing underwriter or underwriters, if any, or Holders may request.
(j) Use their commercially reasonable efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling Holder’s business, in which case the Issuers will cooperate in all respects with the filing of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder (with respect to a Registration Statement filed pursuant to Section 3 hereof) or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer (with respect to any such Registration Statement), any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
17 (l) Use their commercially reasonable efforts to cause the Registrable Notes covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes.
(n) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, if requested by the managing underwriter or underwriters, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes, and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers (including any acquired business, properties or entity, if applicable), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the written opinions of counsel to the Issuers, and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings; (iii) obtain “cold comfort” letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of the Issuers, or of any business acquired by the Issuers, for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings of debt securities similar to the Notes; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and
18 underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures reasonably acceptable to Holders of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by the Initial Purchaser, any selling Holder of such Registrable Notes being sold (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, or underwriter (any such Initial Purchaser, Holders, Participating Broker-Dealers, underwriters, attorneys, accountants or agents, collectively, the “Inspectors”), upon written request, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, pertinent corporate documents and instruments of the Issuers and subsidiaries of the Issuers (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of their subsidiaries to supply all information (“Information”) reasonably requested by any such Inspector in connection with such due diligence responsibilities. Each Inspector shall agree in writing that it will keep the Records and Information confidential and that it will not disclose any of the Records or Information that any of the Issuers determines, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records or Information is necessary to avoid or correct a misstatement or omission in such Registration Statement or Prospectus, (ii) the release of such Records or Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such Records or Information is necessary or advisable, in the opinion of counsel for any Inspector, in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or the Purchase Agreement, or any transactions contemplated hereby or thereby or arising hereunder or thereunder, or (iv) the information in such Records or Information has been made generally available to the public other than by an Inspector or an “affiliate” (as defined in Rule 405) thereof; provided, however, that prior notice shall be provided as soon as practicable to the Issuers of the potential disclosure of any
19 information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Issuers to obtain a protective order (or waive the provisions of this paragraph (o)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector.
(p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes (if any) to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its commercially reasonable efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earning statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any fiscal quarter (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company, after the effective date of a Registration Statement, which statements shall cover said 12-month periods.
(r) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be, and the related indenture constitute legal, valid and binding obligations of the Issuers, enforceable against each Issuer in accordance with their respective terms, subject to customary exceptions and qualifications. If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers), in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall
20 mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the “NASD”).
(t) Use their commercially reasonable efforts to take all other steps necessary to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading.
If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Issuers, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.
Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of (a) the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof or (b) a Shelf Suspension Period, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration
21 Statement or Prospectus or (only in the case of clause (a) of this paragraph) Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder’s or Participating Broker-Dealer’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof (in the case of clause (a) of this paragraph), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Company shall give any such notice, each of the Applicable Period and the Effectiveness Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers, whether or not the Exchange Offer Registration Statement or any Shelf Registration Statement is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount at maturity of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and, in the case of a Shelf Registration, reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes selected by the Holder of a majority in aggregate principal amount at maturity of Registrable Notes covered by such Shelf Registration (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) hereof (including, without limitation, the expenses of any “cold comfort” letters required by
22 or incident to such performance), (vi) Securities Act liability insurance, if any of the Issuers desires such insurance, (vii) fees and expenses of all other Persons retained by the Issuers, (viii) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. Except as set forth in the preceding sentence, each Holder shall pay all other expenses relating to the sale or disposition of such Holder’s Notes, Exchange Notes or Private Exchange Notes, including without limitation, all underwriting discounts and commissions of any underwriters with respect to any Notes, Exchange Notes, or Private Exchange Notes sold by or on behalf of such Holder, if any.
7. Indemnification and Contribution.
(a) Each of the Issuers jointly and severally agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, and each Person, if any, who controls such Person or its affiliates within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “Participant”) against any losses, claims, damages or liabilities to which any Participant may become subject under the Securities Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus; or
(ii) the omission or alleged omission to state, in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or any other document or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and will reimburse, as incurred, the Participant for any legal or other expenses reasonably incurred by the Participant in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, the Issuers will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged
23 untrue statement or omission or alleged omission made in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information relating to any Participant furnished to any of the Issuers by such Participant specifically for use therein; provided, further, that with respect to any such untrue statement or alleged untrue statement or omission or alleged omission from any preliminary Prospectus, the indemnity agreement contained in this paragraph (a) shall not inure to the benefit of any Participant from whom such Person asserting such loss, claim, damage or liability purchased the Exchange Notes concerned, to the extent that both (i) a copy of the final Prospectus was not sent or given to such Person at or prior to the written confirmation of the sale of the Notes or Exchange Notes to such Person and (ii) the untrue statement in or omission from such preliminary Prospectus was corrected in the final Prospectus unless, in either case, such failure to deliver the final Prospectus was a result of non-compliance by the Issuers with the provisions of Section 5 hereof. The indemnity provided for in this Section 7 will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers shall not be liable under this Section 7 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by the Company, which consent shall not be unreasonably withheld.
(b) Each Participant, severally and not jointly, agrees to indemnify and hold harmless each Issuer, its respective directors, officers and each person, if any, who controls such Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which such Issuer or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus, or (ii) the omission or the alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Participant, furnished to any of the Issuers by the Participant, specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any reasonable legal or other expenses incurred by the Issuers or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this
24 Section 7 will be in addition to any liability that the Participants may otherwise have to the indemnified parties. The Participants shall not be liable under this Section 7 for any settlement of any claim or action effected without their consent, which shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 7, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select one separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by Participants who sold a majority in interest of the Registrable Notes and Exchange Notes sold by all such Participants in the case of paragraph
25 (a) of this Section 7 or the Issuers in the case of paragraph (b) of this Section 7, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 7, in which case the indemnified party may effect such a settlement without such consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party, or indemnity could have been sought hereunder by any indemnified party, unless such settlement (A) includes an unconditional written release of the indemnified party, in form and substance reasonably satisfactory to the indemnified party, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any indemnified party.
(d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and such Participant on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) of the Notes received by the Issuers bear to the total net profit received by such Participant in connection with the sale of the Notes. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand, or the Participants on the other, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other
26 equitable considerations appropriate in the circumstances. The parties agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Participant shall be obligated to make contributions hereunder that in the aggregate exceed the total net profit received by such Participant in connection with the sale of the Notes, less the aggregate amount of any damages that such Participant has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls a Participant within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Participants, and each director of any Issuer, each officer of any Issuer and each person, if any, who controls any Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Issuers.
8. Rules 144 and 144A
Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time it is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A. Each of the Issuers further covenants and agrees, for so long as any Registrable Notes remain outstanding that it will take such further action as any Holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by Rule 144(k) under the Securities Act and Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount at maturity of such Registrable Notes included in such offering and shall be consented to by the Issuers (such consent not to be unreasonably withheld).
No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder’s Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled
27 hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. No Issuer has, as of the date hereof, and no Issuer shall, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the other issued and outstanding securities of any of the Issuers under any such agreements.
(b) Adjustments Affecting Registrable Notes. No Issuer shall, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Issuers, and (II) (A) the Holders of not less than a majority in aggregate principal amount at maturity of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker- Dealers holding not less than a majority in aggregate principal amount at maturity of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount at maturity of the Registrable Notes being sold pursuant to such Registration Statement.
(d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile:
28 (i) if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchaser as follows:
Deutsche Bank Securities Inc. 60 Wall Street New York, New York 10005 Facsimile No.: (646) 324-7554 Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel llp 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: John A. Tripodoro, Esq.
(ii) if to the Initial Purchaser, at the address specified in Section 10(d)(i);
(iii) if to any of the Issuers, at the address as follows:
Intelsat, Ltd. Canon’s Court 22 Victoria Street Hamilton Bermuda HM EX
with a copy to:
Intelsat (Bermuda), Ltd. Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke, HM 08 Bermuda
and
29 Intelsat Global Service Corporation 3400 International Drive, N.W. Washington, D.C. 20008-3098 Attention: General Counsel
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, New York 10005 Attention: Arnold B. Peinado, III.
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and upon written confirmation, if sent by facsimile.
Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Notes in violation of the terms of the Purchase Agreement or the Indenture.
(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or
30 invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Notes Held by the Issuers or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(k) Third-Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby.
(m) Jurisdiction. Each Issuer agrees that any suit, action or proceeding against any Issuer brought by the Initial Purchaser, the directors, officers, employees and agents of the Initial Purchaser, or by any person who controls the Initial Purchaser, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. Each Issuer hereby appoints CT Corporation System as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated herein that may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, by the Initial Purchaser, the directors, officers, employees, affiliates and agents of the Initial Purchaser, or by any person who
31 controls the Initial Purchaser, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. Each Issuer hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and each Issuer agrees to take any and all action, including the filing of any and all documents, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon each Issuer. The parties hereto each hereby waive any right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement.
(n) Immunity. To the extent that any Issuer has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, such Issuer hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its obligations under this Agreement.
(o) Contribution; Termination. The Issuers shall have no obligations under this Agreement unless and until the Contribution is consummated; and the Issuers’ obligations under this Agreement shall terminate if the Contribution is not consummated on or before a Special Mandatory Redemption (as defined in the Indenture) is consummated; provided, however, that neither of the Issuers shall be relieved of their obligations under this Agreement, including without limitation under Sections 6 and 7 hereof, for any of their actions taken under this Agreement, whether before or after the Contribution; provided, further, that Sections 6, 7, 10(d), 10(e), 10(h), 10(m) and 10(n) shall survive any termination.
32 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ZEUS SPECIAL SUBSIDIARY LIMITED
By: Name: Title:
INTELSAT, LTD.
By: Name: Title:
S-1 The foregoing Agreement is hereby confirmed and accepted as of the date first written above.
DEUTSCHE BANK SECURITIES INC.
By: Name: Title:
By: Name: Title:
S-2 Exhibit 3.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the “Agreement”), dated as of January 28, 2005, by and among Zeus Holdings Limited (the “Parent”), a Bermuda corporation, Intelsat, Ltd. (the “Company”), and David McGlade (the “Executive”).
WHEREAS, pursuant to the transactions contemplated by the Transaction Agreement and Plan of Amalgamation among the Company, Intelsat (Bermuda), Ltd., the Parent, Zeus Merger One Limited and Zeus Merger Two Limited dated as of August 16, 2004 (the “Transaction Agreement”), the Company will become a wholly owned subsidiary of the Parent; and
WHEREAS, subject to the consummation of the transactions contemplated by the Transaction Agreement, the Company desires to employ the Executive on a full-time basis and the Executive desires to be so employed by the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein (including, without limitation, the Company’s employment of the Executive and the advantages and benefits thereby inuring to the Executive) and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged by each party hereto, the parties hereby agree as follows:
1. Effectiveness of Agreement and Employment of the Executive.
1.1 Effectiveness of Agreement. This Agreement shall become effective upon execution by the parties upon the Closing (as defined in the Transaction Agreement).
1.2 Employment by the Company. The Company hereby employs the Executive as Chief Executive Officer and the Executive hereby accepts such employment with the Company as of the first day following the Closing that the Executive is no longer employed by mm02, but in no event later than April 1, 2005; provided that the Closing has occurred by such date (such first day of employment, the “Effective Date”). During the Employment Period (as defined in Section 3), the Executive shall directly and exclusively report to, and perform such duties and services for the Company (including supervising the Company’s investment in its subsidiaries and affiliates (such subsidiaries and affiliates, collectively, “Affiliates”)) as may be designated from time to time by, the Company’s Board of Directors. During the Employment Period, the Executive shall devote all of his business time and attention to his employment under this Agreement; provided, however, that, subject to the provisions of Sections 5.1 and 5.3, the Executive may continue to serve as a non-executive director on the board of directors of only one company (other than the Company and its Affiliates) during the Employment Period, unless the Executive obtains the prior written consent of the Company to serve as a non-executive director on any other board of directors. The Executive acknowledges that he shall be required to travel on business in connection with the performance of his duties hereunder. In the event that the Executive does not commence employment under this Agreement as of the date upon which the Effective Date is scheduled to occur, any Purchased Parent Shares (as defined in Section 2.1(c)(ii)) shall be returned to the Company in exchange for a refund of the full purchase price within 30 days following such return and the Executive will be paid a lump sum cash amount within 30 days following the date of termination of employment equal to any amount withheld by the Company in connection with any Section 83(b) election made by the Executive with respect to the New Parent Restricted Shares.
1.3 Location. During the Employment Period, the Executive’s principal place of employment shall be Washington, D.C.; provided, however, that it is the parties’ current intention that the Executive will spend an appropriate amount of time working at the Company’s headquarters, currently located in Bermuda, in order to fulfill his duties.
1.4 Appointment of Chairman. If at any time during the Employment Period the chairman of the Board of Directors of the Company (the “Chairman”) resigns, is terminated or otherwise leaves his position as Chairman, the Executive shall be reviewed for appointment of the position of Chairman and shall be consulted as to the appointment of a Chairman, a reasonable time prior to the appointment of any other person to the position of Chairman.
2. Compensation and Benefits.
2.1 (a) Salary. During the Employment Period, the Company shall pay the Executive for services during his employment under this Agreement a base salary of no less than the annual rate of $750,000 (“Base Salary”). The Base Salary received by the Executive shall be reviewed by the Compensation Committee of the Board of the Company and, following an initial public offering of the Company or a direct or indirect subsidiary or parent of the Company, the Compensation Committee of the Board of the Company or such parent or subsidiary to be publicly-traded pursuant to such initial public offering (such applicable committee, the “Compensation Committee”) no less frequently than annually. Any and all increases to the Executive’s Base Salary shall be determined by the Compensation Committee, in its sole discretion. During the Employment Period, such Base Salary shall be payable in equal biweekly installments pursuant to the Company’s customary payroll policies in force at the time of payment, less any required or authorized payroll deductions. The Base Salary may be increased, but not decreased, during the Employment Period.
(b) Annual Bonus. For each fiscal year during the Employment Period, the Executive shall be eligible to receive an annual discretionary bonus with a maximum amount up to 100% of his Base Salary, subject to his satisfaction of objective performance criteria that have been pre-established by the Compensation Committee in a consistent manner with those of other senior executives of the Company and following consultation with the Executive. For each fiscal year during the Employment Period, the Compensation Committee may award an additional bonus, in its sole discretion, to the Executive of up to 50% of the Executive’s Base Salary, in the event of the Executive’s significant out-performance of objective performance criteria that have been pre-established by the Compensation Committee following consultation with the Executive. During the Employment Period, the Executive also will be eligible to participate in any deferred compensation plan that is sponsored by the Company in accordance with its terms.
(c) Initial Bonuses. (i) As soon as practicable following the Effective Date, the Company shall pay the Executive a lump sum payment of $1,500,000 in order to provide the Executive with liquidity in light of the Company’s emphasis on compensating its employees with non-cash long-term incentives. The Executive shall immediately repay such amount to the
2 Company in the event that prior to the first anniversary of the Effective Date the Executive voluntarily terminates employment without Good Reason or is terminated by the Company for Cause.
(ii) Immediately following the Closing, the Company shall pay the Executive a lump sum payment of $520,000 for the sole purpose of purchasing shares of stock of the Parent as described in the immediately following sentence. The Executive shall upon payment of such amount apply the after-tax proceeds of such payment, as well as additional $300,000 of the Executive’s funds, to purchase shares of common stock of the Parent (“Common Parent Shares”) and Series A 9.75 percent preferred stock of the Parent (“Preferred Parent Shares”) at the same price per share and in the same proportion that the Investors (as defined in Section 2.1(d)(C)) purchase such shares (such purchased Common Parent Shares and Preferred Parent Shares, “Purchased Parent Shares”).
(iii) In the event the Executive does not collect all or a portion of his 2004 annual bonus in a pre-tax amount of $900,000 from mm02, the Company shall pay the Executive a lump sum pre-tax amount of the $900,000 (reduced by any pre-tax bonus amounts actually received), as soon as practicable following the Executive giving the Company written notice that (i) all or a portion of such bonus has not been paid (and the amount paid, if any) and (ii) the bonus would have been earned had Executive continued employment with mm02. The Company and the Executive shall review this provision in good faith to determine whether the Executive shall be entitled to the amounts under this paragraph based on the exit arrangements received by the Executive from mm02.
(d) Equity Compensation. The Executive shall receive a grant equal to 1.8333333334% of the Common Parent Shares outstanding as of Closing (“New Parent Restricted Shares”) at or as soon as practicable following the Closing, having the terms and conditions provided below and such other terms and conditions not inconsistent therewith as may be provided for in the plan under which they are granted. The New Parent Restricted Shares shall provide that upon payment of any cash distribution or dividend on the Common Parent Shares to Parent shareholders generally, the holder of such New Parent Restricted Shares shall have credited to an escrow account an amount equal to the amount of cash (which cash amount shall be credited with interest at the lesser of the interest rate applicable to the Parent’s revolving credit agreement, as in effect from time to time, or 5% compound interest per annum), or other property that would have been distributed to the Executive had the New Parent Restricted Shares not been subject to restriction, which escrow account shall be distributable as of, and will be distributed to the Executive as soon as practicable following (subject to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), the date upon which such New Parent Restricted Shares vest. It shall be a condition to the Executive’s receipt of New Parent Restricted Shares that he become a party to the Shareholders Agreement by and among the Parent and the Shareholders named therein as in effect as of the Closing (the “Shareholders Agreement”). The Executive acknowledges that the New Parent Restricted Shares will be subject to the terms and conditions set forth in this Agreement and shall be subject to a substantial risk of forfeiture and restrictions on transferability, and shall be forfeited upon an Executive Nonperformance (as defined in the letter between Parent and the Executive, dated as of December 22, 2004). For all purposes of this Agreement, an Executive Nonperformance shall be treated as a resignation by the Executive without Good Reason (as defined below) except that Purchased Parent Shares shall be returned to the Company in exchange for a refund of the full purchase price within 30 days following such return.
3 (A) Time-Vesting Shares. 40.9 percent of the New Parent Restricted Shares granted to the Executive hereunder (the “Time-Vesting Shares”) shall vest over sixty months in equal monthly installments commencing on the last day of the first month following the Closing, subject to the Executive’s continued employment on the date of vesting and to Section 4 below. Subject to the Executive’s continued employment, notwithstanding the foregoing, if “private equity investors” own less than 40% of the aggregate equity interests, measured by vote and value, of the Parent (“Private Equity Dilution”), then the Time-Vesting Shares will become fully vested on the later to occur of (x) the third anniversary of the Closing or (y) twelve months following the transaction which causes the Private Equity Dilution. For purposes of this Section 2.1(d)(A), “private equity investors” shall mean the Investors (as defined below) and any other similar entities or divisions of entities which are similar type private equity investors including, without limitation, entities which provide venture capital or long-term share capital in exchange for an ownership interest in another entity.
(B) Performance Shares. An additional 40.9 percent of the New Parent Restricted Shares granted to the Executive hereunder shall vest (less any such percent of shares that have already vested) if and when the Investors have received a Cumulative Total Return as set forth below (the “Cumulative Total Return Goal”) between 2.5 to 3 times the amount invested by the Investors collectively during the applicable period over which Cumulative Total Return Goal is measured (the “Performance Period”), subject to the Executive’s continued employment as of the date, if any, that such Cumulative Total Return is reached and to Section 4 below. The remainder of the New Parent Restricted Shares granted to the Executive hereunder shall vest (less any such percent of shares that have already vested) if and when the Investors have received a Cumulative Total Return between 4 to 4.5 times the amount invested by the Investors collectively during the Performance Period, subject to the Executive’s continued employment as of the date, if any, that such Cumulative Total Return is reached and to Section 4 below (together with the New Parent Restricted Shares described in the immediately preceding sentence, the “Performance Shares”). If the Performance Shares remain outstanding but not yet vested as of the eighth anniversary of the Closing, they shall be forfeited upon such anniversary. If the Cumulative Total Return is between 2.5 to 3 times or 4 to 4.5 times the amount invested by the Investors, respectively, the number of Performance Shares which shall vest shall be interpolated and rounded to the nearest whole share.
(C) Cumulative Total Return. The “Cumulative Total Return” means the sum (net of all transaction and valuation costs) of (i) all dividends and other distributions (including management fees) paid to the Investors with respect to Common Parent Shares and Preferred Parent Shares, (ii) the gross proceeds of any sale of Common Parent Shares and Preferred Parent Shares by any of the Investors, and (iii) solely for purposes of determining Cumulative Total Return as of the eighth anniversary of the Closing, the fair market value of the Common Parent Shares and Preferred Parent Shares held by the Investors on the eighth anniversary of the Closing (the “Fair Market Value”), which will be determined by the Compensation Committee in its sole reasonable discretion. Notwithstanding anything in this Agreement to the contrary, upon a corporate transaction in which all of the Common Parent Shares and Preferred Parent Shares are converted into the right to receive cash, Cumulative Total Return shall be finally determined and there shall be no further opportunity to vest in any Performance Shares. The “Investors” means each of the members of the Investor Group as defined in the Shareholders Agreement.
4 (D) Adjustment. In the event of any stock split, reverse stock split, dividend, merger, consolidation, recapitalization or similar event affecting the capital structure of the Parent, the number and kind of shares (or other property, including without limitation cash) subject to the New Parent Restricted Shares shall be equitably adjusted to prevent the dilution or enlargement of the value of the Executive’s New Parent Restricted Shares (taking into account the amounts set aside in the escrow account as a result of such event).
(e) Perquisites. During the Employment Period, the Executive shall be entitled to the perquisites set forth on Annex A.
(f) Relocation. The Company shall reimburse the Executive for the reasonable relocation costs (including legal fees and transaction costs on the sale of his current home and purchase of a new home, but excluding financing costs on any mortgage or interest-free loan arrangements) resulting from his relocation to Washington, D.C. as set forth on Exhibit D.
2.2 Benefits. During the Employment Period (and in accordance with Annex A), the Executive shall be eligible to participate, in any group insurance, hospitalization, medical, vision, health and accident, disability, life insurance and enhanced executive life insurance, fringe benefit and retirement plans or programs of the Company now existing or hereafter established to the extent that he is eligible under the general provisions thereof (including eligibility provisions relating to pre-privatization and post- privatization employment status), to the extent that all other executive committee members participate in such plans or programs and on the same basis and at the same levels as other similarly situated executives of the Company generally. During the Employment Period, the Executive shall be entitled to 25 days vacation time annually, and with vacation accruals consistent with the Company’s policies at such time as applied to the Company’s executive committee generally.
2.3 Expenses. During the Employment Period, pursuant to the Company’s customary reimbursement policies in force at the time of payment, the Executive shall be promptly reimbursed, subject to the Executive’s presentation of vouchers or receipts therefor, for all expenses incurred by the Executive on behalf of the Company or any of its Affiliates in the performance of the Executive’s duties hereunder.
2.4 Executive Automobile Benefits. During the Employment Period, the Company shall provide the Executive with automobile benefits as set forth on Annex A.
2.5 Other Benefits. In the event additional benefits are granted to all other members of the Company’s executive committee (excluding provisions relating to increased severance within 12 months following the Closing, Closing bonuses and to excise tax gross-ups relating to the transactions covered by the Transaction Agreement) that are materially different than the benefits granted to the Executive hereunder or pursuant to any other benefit plans, policies or programs of the Company, the Executive shall be entitled to the receipt of such other benefits and the parties hereto will amend this Agreement to reflect such additional benefits.
5 3. Employment Period. The Executive’s employment under this Agreement shall commence as of the Effective Date, and shall terminate on the first anniversary thereof, unless terminated earlier pursuant to Section 4 (the “Initial Employment Period”). Unless written notice of either party’s desire to terminate this Agreement has been given to the other party at least ninety days but no more than one hundred and twenty days prior to the expiration of the Initial Employment Period (or any renewal thereof contemplated by this sentence), the term of the Executive’s employment hereunder shall be automatically renewed for successive one-year periods (such term, including the Initial Employment Period, as it may be extended, the “Employment Period”). A notice of non-renewal provided by the Company shall be treated as a termination by the Company without Cause for purposes of Sections 4.4(a), (b), (c) and (d) (and the Company shall have no additional obligation other than the payment of the Executive’s earned but unpaid compensation through the effective date of such termination, except as otherwise required by law or the terms of the Company’s benefit plans), and a notice of non- renewal provided by the Executive shall be treated as a termination by the Executive without Good Reason for purposes of Section 4.6.
4. Termination and Forfeiture of Payments and Benefits.
4.1 Termination by the Company for Cause. The Executive’s employment with the Company may be terminated at any time by the Company for Cause. Upon such a termination, the Company shall have no obligation to the Executive pursuant to this Agreement other than the payment of the Executive’s earned and unpaid compensation through the effective date of such termination, except as otherwise required by law or by the terms of the Company’s benefit plans. All New Parent Restricted Shares (and the related escrow account) that have not yet been vested (or paid, as applicable) as of the date of termination, shall be forfeited as of the date of termination. Any Purchased Parent Shares may be repurchased by the Company at any time following such termination of employment at a price per Purchased Parent Share equal to the lesser of (i) the greater of (x) the Fair Market Value of such Purchased Parent Share on the date of the most recent valuation prior to such termination minus (y) the value of any dividends, distributions, or dividend equivalents previously paid to the Executive in respect of such Purchased Parent Share (subject to equitable adjustment in Parent’s discretion to reflect dividends, distributions, corporate transactions, or similar events, to the extent not reflected in (y)) or $0, or (ii) (x) the amount paid by the Executive to purchase such Purchased Parent Share minus (y) the value of any dividends, distributions, or dividend equivalents previously paid to the Executive in respect of such Purchased Parent Share (subject to equitable adjustment in Parent’s discretion to reflect dividends, distributions, corporate transactions, or similar events, to the extent not reflected in (y)) but in no event less than $0, and any Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares shall be cancelled and no payment shall be made to the Executive for such Common Parent Shares.
For purposes of this Agreement, the term “Cause” shall mean any of the following: (i) the Executive’s failure to perform materially his duties under the Agreement (other than by reason of illness or disability), (ii) the Executive’s commission of, or plea of no contest to, a felony or his commission of, or plea of no contest to, any other crime involving moral turpitude or his commission of a material dishonest act or fraud against the Company or any of its Affiliates, (iii) any act or omission by the Executive that is the result of his misconduct or gross negligence and that is, or may reasonably be expected to be, materially injurious to the
6 financial condition, business or reputation of the Company or any of its Affiliates, or (iv) the Executive’s breach of any material provision of this Agreement. Any such occurrence described in clause (i) or (iv) of the preceding sentence that is curable shall constitute “Cause” only after the Company has given the Executive written notice of, and twenty (20) business days’ opportunity to cure, such violation, and then only if such occurrence is not cured.
4.2 Permanent Disability. If, during the Employment Period, the Executive becomes disabled within the meaning of the Company’s applicable long-term disability plan, the Company shall have the right to terminate the Executive’s employment with the Company upon written notice to the Executive. Upon such a termination, the Company shall have no obligation to the Executive other than to pay the Executive’s earned and unpaid compensation through the effective date of such termination and to treat the New Parent Restricted Shares as described below in this Section 4.2, except as otherwise required by law or by the terms of the Company’s benefit plans. Any Time-Vesting Shares (and the related escrow account) that are not vested as of the date of termination shall vest as of the date of termination. If the Performance Shares (and the related escrow account) are not vested as of the date of termination, the Performance Shares (and the related escrow account) will remain outstanding and if the Investors meet the Cumulative Total Return Goal prior to the eighth anniversary of the Closing, the Executive will vest in a number of Performance Shares (and the related escrow account), at such time as each applicable Cumulative Total Return Goal is met, equal to the difference between (1) the product of (x) the total number of Performance Shares which would have been vested as of the date of the determination had the Executive remained employed through such date and (y) a fraction, the numerator of which is the period of time that the Executive was employed by the Company from the Closing and the denominator of which is the period of time from the Closing until the applicable Cumulative Total Return Goal is met, and (2) any Performance Shares that already vested. All other Performance Shares (and the related escrow account) will be forfeited. If the Performance Shares (and the related escrow account) remain outstanding but not yet vested as of the eighth anniversary of the Closing, they shall be forfeited. Section 4.4(d) shall apply to Company repurchases of Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares and to Company repurchases of Purchased Parent Shares. Notwithstanding the foregoing, the Compensation Committee, in its sole discretion, may permit the vesting of any Performance Shares (and the related escrow account) that are not vested as of the date of termination.
4.3 Death. The Executive’s employment with the Company shall terminate automatically upon the death of the Executive and the Company shall have no obligation to the Executive or the Executive’s estate other than to pay the Executive’s earned and unpaid compensation through the date of the Executive’s death, and to treat the New Parent Restricted Shares as described below in this Section 4.3, except as otherwise required by law or by the terms of the Company’s benefit plans. Any Time-Vesting Shares (and the related escrow account) that are not vested as of the date of death shall vest as of the date of death. If the Performance Shares (and the related escrow account) are not vested as of the date of death, the Performance Shares (and the related escrow account) will remain outstanding and if the Investors meet the Cumulative Total Return Goal prior to the eighth anniversary of the Closing, the Executive will vest in a number of Performance Shares (and the related escrow account), at such time as each applicable Cumulative Total Return Goal is met, equal to the difference between (1) the product of (x) the total number of Performance Shares which would have been vested as of
7 the date of the determination had the Executive remained employed through such date and (y) a fraction, the numerator of which is the period of time that the Executive was employed by the Company from the Closing and the denominator of which is the period of time from the Closing until the applicable Cumulative Total Return Goal is met, and (2) any Performance Shares that already vested. All other Performance Shares (and the related escrow account) will be forfeited. If the Performance Shares (and the related escrow account) remain outstanding but not yet vested as of the eighth anniversary of the Closing, they shall be forfeited. Section 4.4(d) shall apply to the Company repurchases of Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares and to Company repurchases of Purchased Parent Shares. Notwithstanding the foregoing, the Compensation Committee, in its sole discretion, may permit the vesting of any Performance Shares (and the related escrow account) that are not vested as of the date of termination.
4.4 Termination by the Company Without Cause. The Executive’s employment with the Company may be terminated at any time by the Company without Cause. In such event, the Executive shall have the rights set forth in the subparagraphs below.
(a) Severance. Subject to the Executive’s continued compliance with his obligations under this Agreement, the Company shall have no obligation to the Executive other than: (i) the payment of the Executive’s earned and unpaid compensation through the effective date of such termination; (ii) the payment of any deferred bonus, subject to the provisions of Section 409A of the Code; (iii) the payment of an amount equal to the sum of the Executive’s annual Base Salary plus the Executive’s maximum bonus amount of 100% of Base Salary (as in effect as of the date of termination), 50% of which shall be paid to the Executive upon the first business day following the six month anniversary of the date of termination of employment and the remainder of which shall be paid to the Executive in equal installments each month thereafter for six months; and (iv) treatment of the New Parent Restricted Shares (and, if applicable Purchased Parent Shares) as described below in Sections 4.4(b), (c) and (d), except as otherwise required by law or by the terms of the Company’s benefit plans (excluding severance plans); provided, that if the termination without Cause occurs within the six-month period after a Change of Control (as defined in Section 4.8 below), in lieu of the cash severance benefits set forth in clause (iii) above, the Executive shall receive the payment over a 12-month period in equal monthly installments of the sum of the Executive’s annual Base Salary plus the greater of (x) the Executive’s maximum bonus amount of 100% of Base Salary (as in effect as of the date of termination) and (y) the annual bonus paid to the Executive for the year immediately preceding the year in which the date of termination occurs . In the event that the Executive is eligible to receive the severance benefits provided for by this Section 4.4(a), the Executive shall not be eligible to receive severance benefits under any other Company plan, policy, or agreement.
(b) Time-Vesting Shares. Any unvested Time-Vesting Shares (and the related escrow account) shall be forfeited as of the date of termination; provided, that if the termination without Cause occurs within the six-month period after a Change of Control (as defined in Section 4.8 below), all unvested Time-Vesting Shares (and the related escrow account) shall vest as of the date of termination.
8 (c) Performance Shares. If the Performance Shares (and the related escrow account) are not vested as of the date of termination, they shall remain outstanding until the 180th day following the date of termination, and if still unvested as of such day, shall be forfeited; provided, that in the event that such termination is within six months following a merger of the Company with or into, an acquisition by the Company of, or an acquisition of the Company by, any of the entities set forth on Exhibit 3 or any transaction involving the Company’s subsidiaries to effectuate the foregoing, the Performance Shares (and the related escrow account) will remain outstanding and if the Investors meet the Cumulative Total Return Goal prior to the eighth anniversary of the Closing, the Executive will vest in a number of Performance Shares (and the related escrow account), at such time as each applicable Cumulative Total Return Goal is met, equal to the difference between (1) the product of (x) the total number of Performance Shares which would have been vested as of the date of the determination had the Executive remained employed through such date and (y) a fraction, the numerator of which is the period of time that the Executive was employed by the Company from the Closing and the denominator of which is the period of time from the Closing until the applicable Cumulative Total Return Goal is met, and (2) any Performance Shares that have already vested. All other Performance Shares (and the related escrow account) will be forfeited. If the Performance Shares (and the related escrow account) remain outstanding but not yet vested as of the eighth anniversary of the Closing, they shall be forfeited.
(d) Repurchase Right. Any (i) Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares may be repurchased by the Company at any time during the two-year period following (x) the date of termination of employment in the event such Common Parent Shares were vested as of such termination and (y) the vesting of Common Parent Shares in the event such vesting occurred after the date of termination of employment, and (ii) Purchased Parent Shares may be repurchased by the Company at any time following the second anniversary of the date of termination of employment, each at a price per share equal to the Fair Market Value of such share as determined on the date of the most recent valuation prior to such termination, provided, that Common Parent Shares vesting after termination of employment shall be purchased at a price per share equal to the Fair Market Value of such share as determined on the date of the most recent valuation prior to the applicable vesting event.
4.5 Termination by the Executive for Good Reason. (a) During the Employment Period, the Executive’s employment with the Company may be terminated by the Executive for Good Reason, if the Executive provides the Company with notice within 90 days following the Executive’s knowledge of the event constituting Good Reason. In the event that the Executive terminates his employment with the Company for Good Reason, the Executive shall be entitled to the same payments and benefits that he would have been entitled to receive under Section 4.4 if his employment had been terminated by the Company without Cause and the Company shall be entitled to the repurchase rights thereunder.
(b) For purposes of this Agreement, the term “Good Reason” shall mean any of the following conditions or events without the Executive’s prior consent: (i) a material diminution of the Executive’s title or a material diminution of the Executive’s position or responsibilities that is inconsistent with the Executive’s title (provided that any change in the Executive’s title, position or responsibilities that occurs as a result of a corporate transaction
9 pursuant to which the Executive’s level of position at the Company is not materially diminished shall not give rise to Good Reason under clause (i) or (ii) of this definition), (ii) a material breach by the Company of any terms of the Agreement, (iii) a reduction in the Executive’s base salary or bonus potential, or the failure to pay the Executive any material amount of compensation when due, or, (iv) a relocation of the Executive’s principal place of business more than fifty (50) miles away from Washington, D.C. Any such occurrence shall constitute “Good Reason” only after the Executive has given the Company written notice of, and twenty (20) business days’ opportunity to cure, such violation, and then only if such occurrence is not cured.
4.6 Termination by the Executive Without Good Reason. The Executive may voluntarily resign from his employment with the Company without Good Reason, provided that the Executive shall provide the Company with ninety (90) days’ advance written notice (which notice requirement may be waived, in whole or in part, by the Company in its sole discretion) of his intent to terminate. Upon such a termination, the Company shall have no obligation other than the payment of the Executive’s earned but unpaid compensation through the effective date of such termination, except as otherwise required by law or by the terms of the Company’s benefit plans. All unvested New Parent Restricted Shares shall be immediately forfeited. Any Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares and any Purchased Parent Shares may be repurchased by the Company at any time following such termination of employment at a purchase price per share equal to the lesser of (i) the greater of (x) the Fair Market Value of such share on the date of the most recent valuation prior to such termination minus (y) the value of any dividends, distributions, or dividend equivalents previously paid to the Executive in respect of such share (subject to equitable adjustment in Parent’s discretion to reflect dividends, distributions, corporate transactions, or similar events, to the extent not reflected in (y)) or $0, or (ii) (x) Fair Market Value at Closing based on the Valuation Research valuation as of Closing (for Common Parent Shares held by the Executive as a result of the vesting of New Parent Restricted Shares) or the amount paid by the Executive to purchase such Purchased Parent Shares (for Purchased Parent Shares) minus (y) the value of any dividends, distributions, or dividend equivalents previously paid to the Executive in respect of such share (subject to equitable adjustment in Parent’s discretion to reflect dividends, distributions, corporate transactions, or similar events, to the extent not reflected in (y)) but in no event less than $0.
4.7 Release of Claims and Cooperation. As a condition to receiving the payments set forth in Section 4.4 or Section 4.5 upon a termination by the Company without Cause (or upon a notice of non-renewal by the Company) or by the Executive for Good Reason, the Executive shall be required to execute and not revoke a waiver and release of claims in favor of the Company and its Affiliates, in the form attached hereto as Exhibit A and, for a 180-day period following such employment termination, shall make himself reasonably available to provide transition services and consultation to the Company, subject to his other business and personal commitments.
4.8 Definition of Change of Control. A “Change of Control” shall mean (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time) not affiliated with the Parent or its owners immediately prior to such acquisition of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50%,
10 indirectly or directly, of the equity vote of the Parent (other than any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate) or (ii) consummation of an amalgamation, a merger or consolidation of the Parent or any direct or indirect subsidiary thereof with any other entity or a sale or other disposition of all or substantially all of the assets of the Parent following which the voting securities of the Parent that are outstanding immediately prior to such transaction cease to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity (or the entity that owns substantially all of the Parent’s assets either directly or through one or more subsidiaries) or any parent or other Affiliate thereof) at least 50% of the combined voting power of the securities of the Parent or, if the Parent is not the surviving entity, such surviving entity (or the entity that owns substantially all of the Parent’s assets either directly or through one or more subsidiaries) or any parent or other Affiliate thereof, outstanding immediately after such transaction.
4.9 Resignation. Upon a termination of employment, the Executive will upon the Company’s request resign from all boards of directors and officer positions of the Company and any of its Affiliates.
5. Covenants.
5.1 The Executive understands that, in the course of his or her employment with the Company, he or she will be given access to confidential information and trade secrets including, but not limit to, discoveries, ideas, concepts, software in various stages of development, designs, drawings, specifications, techniques, models, data, source code, object code, documentation, diagrams, flowcharts, research, development, processes, procedures, “know-how,” marketing techniques and materials, marketing and development plans, business plans, merger or acquisition investigations, customer names and other information relating to customers, price lists, pricing policies, and financial information (“Confidential Information”). Confidential Information also includes any information described above which the Company obtains from another party and which the Company treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company. The Executive agrees that during his employment by the Company and thereafter to hold in confidence and not to directly or indirectly reveal, report, publish, disclose, or transfer any Confidential Information to any person or entity, or utilize any Confidential Information for any purpose, except in the course of the Executive’s work for the Company. The Executive agrees to turn over all copies of Confidential Information in his control to the Company upon request or upon termination of his employment with the Company. For purposes of this Section 5.1, the “Company” shall include Affiliates of the Company. The Executive agrees to enter into as of the Effective Date the Company’s general Conflict of Interest and Confidentiality Agreement set forth on Exhibit B.
5.2 The Executive agrees that, during his employment with the Company and for one (1) year thereafter (the “Restricted Period”), he will not, either directly or indirectly, hire Company employees or former employees (which shall for this purpose include any individual employed by the Company at any point during the year preceding such hiring), induce, persuade, solicit or attempt to induce, persuade, or solicit any of the Company’s employees to leave the Company’s employ, nor will he help others to do so. This means, among other things, that if the Executive’s employment with the Company terminates (whether voluntarily or involuntarily), he
11 shall refrain for one (1) year from giving any person or entity the names of his former, fellow employees or any information about them, as well as refrain from in any way helping any person or entity hire any of his former, fellow employees away from the Company. This shall not be construed to prohibit general solicitations of employment through the placing of advertisements. For purposes of this Section 5.2, Company shall include Affiliates of the Company.
5.3 The Executive agrees that, during the Restricted Period, he shall not, without the prior written consent of the Board, engage in or become associated with any business or other endeavor engaged in or competitive with the businesses (the “Protected Businesses”) conducted by the Company or its Affiliates (which Protected Businesses include, without limitation, the provision of FSS services on a retail basis, a wholesale basis and on a distributor basis); provided, that, the Protected Businesses shall not include any other businesses of an entity (i) directly or indirectly owned or controlled by any Investor (unless those businesses are businesses of the Company or any of its Subsidiaries or businesses of other entities in which the Company, directly or indirectly, owns 20% or more of the equity interests) or (ii) in which the Company, directly or indirectly, owns less than 20% of the equity interests. For these purposes, the Executive shall be considered to have become “associated with” a business or other endeavor if the Executive becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in that business. The foregoing shall not be construed to forbid the Executive from making or retaining investments in less than one percent of the equity of any entity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market.
5.4 The Executive agrees that during and after his employment by the Company, the Executive will assist the Company and its Affiliates in the defense of any claims, or potential claims that may be made or threatened to be made against the Company or any of its Affiliates in any action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (a “Proceeding”), and will assist the Company and its Affiliates in the prosecution of any claims that may be made by the Company or any of its Affiliates in any Proceeding, to the extent that such claims may relate to the Executive’s employment or the period of the Executive’s employment by the Company. The Executive agrees, unless precluded by law, to promptly inform the Company if the Executive is asked to participate (or otherwise become involved) in any Proceeding involving such claims or potential claims. The Executive also agrees, unless precluded by law, to promptly inform the Company if the Executive is asked to assist in any investigation (whether governmental or otherwise) of the Company or any of its Affiliates (or their actions), regardless of whether a lawsuit has then been filed against the Company or any of its Affiliates with respect to such investigation. The Company agrees to reimburse the Executive for all of the Executive’s reasonable out-of-pocket expenses associated with such assistance, including lost wages or other benefits, travel expenses and any attorneys’ fees.
5.5 The Company and the Executive acknowledge that the time, scope, geographic area and other provisions of this Section 5 have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the activities contemplated by this Agreement. The Executive acknowledges
12 and agrees that the terms of this Section 5: (i) are reasonable in light of all of the circumstances, (ii) are sufficiently limited to protect the legitimate interests of the Company and its Affiliates, (iii) impose no undue hardship on the Executive and (iv) are not injurious to the public. The Executive further acknowledges and agrees that (x) the Executive’s breach of the provisions of this Section 5 will cause the Company irreparable harm, which cannot be adequately compensated by money damages, and (y) if the Company elects to prevent the Executive from breaching such provisions by obtaining an injunction against the Executive, there is a reasonable probability of the Company’s eventual success on the merits. The Executive consents and agrees that if the Executive commits any such breach or threatens to commit any breach, the Company shall be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages. The parties hereto acknowledge and agree that the provisions of Section 7.9 below are accurate and necessary because (A) this Agreement is entered into in the District of Columbia, (B) as of the Closing, the District of Columbia will have a substantial relationship to the parties hereto and to the transactions contemplated by the Transaction Agreement, (C) the use of District of Columbia law provides certainty to the parties hereto in any covenant litigation in the United States, and (D) enforcement of the provisions of this Section 5 would not violate any fundamental public policy of the District of Columbia or any other jurisdiction. In the event that the agreements in this Section 5 shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action.
6. Notices. Any notice or communication given by either party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, or by facsimile, to the following addresses:
if to the Company:
Intelsat, Ltd. North Tower, 2nd Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda Telecopy: +441-292-8300 Attention: Chief Executive Officer
13 and:
Intelsat Global Service Corporation 3400 International Drive, NW Washington, DC 20008-3006 Telephone: (202) 944-6873 Telecopy: (202) 944-7661 Attention: General Counsel and Executive Vice President for Regulatory Affairs
If to the Parent:
Zeus Holdings Limited Canon’s Court, 22 Victoria Street Hamilton, HM EX Bermuda Telephone: (441) 295-2244 Telecopy: (441) 292-8666 Attention: President c/o Peter Bubenzer Judith Collins
With a copy to:
Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Telephone: (212) 403-1000 Telecopy: (212) 403-2000 Attention: David M. Silk, Esq. Mark Gordon, Esq.
if to the Executive:
The most recent address on file for the Executive at the Company.
Any notice shall be deemed given when actually delivered to such party at the designated address, or five days after such notice has been mailed or sent by overnight courier or when sent by facsimile with printed confirmation, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.
7. Miscellaneous.
7.1 Representation. No agreements or obligations exist to which the Executive is a party or otherwise bound, in writing or otherwise, that in any way interfere with, impede or preclude him from fulfilling all of the terms and conditions of this Agreement and there are no material (i) threatened claims that (x) are unresolved and still outstanding as of the date hereof and (y) have been received by the Executive in writing during the 24 months prior to
14 the date hereof, (ii) existing claims, and (iii) pending claims, in each case, against him of which he is aware, if any, as a result of his employment with mm02 (or any previous employer) or his membership on any boards of directors which could be reasonably expected to be materially damaging to the Executive monetarily, reputationally or otherwise.
7.2 Entire Agreement. This Agreement and the documents incorporated by reference herein contain the entire understanding of the parties in respect of their subject matter and supersede upon their effectiveness all other prior plans, arrangements, agreements and understandings.
7.3 Amendment; Waiver. This Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.
7.4 Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s business and properties. The Company may assign its rights and obligations under this Agreement to any of its Affiliates without the consent of the Executive. The Executive’s rights or obligations under this Agreement may not be assigned by the Executive.
7.5 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
7.6 Governing Law; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes by the laws and public policy (other than conflict of laws principles) of the District of Columbia applicable to contracts executed and to be wholly performed therein.
7.7 Further Assurances. Each of the parties agrees to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.
7.8 Severability. The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the parties agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement are determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law.
15 7.9 Dispute Resolution. Arbitration will be the method of resolving disputes under the Agreement, other than disputes arising under Section 5. All arbitrations arising out of this Agreement shall be conducted in Washington, D.C. Subject to the following provisions, the arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the “Association”) then in effect. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. Each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys’ fees and expenses) and shall share the fees of the Association equally.
7.10 Legal Fees. The Company will promptly reimburse the Executive for all reasonable and documented legal fees and related expenses incurred in connection with (i) the Executive’s termination arrangements with mmO2, (ii) the drafting, negotiation and execution of this Agreement and (iii) the other documents relating to the equity arrangements contemplated hereunder.
7.11 Indemnification. The Company will, to a degree no less favorable than would be applicable under its policies and contractual obligations to similarly situated senior executives as of immediately prior to the Closing, indemnify and hold the Executive harmless from any and all liability arising from his good faith performance of services pursuant to this Agreement as an employee, officer, or director of the Company, its subsidiaries and any of its Affiliates. In addition, the Executive will have the benefit of coverage under any D&O insurance policy that the Company may have in place to the same extent as similarly situated senior executives of the Company.
7.12 Withholding Taxes. All payments hereunder shall be subject to any and all applicable federal, state, local and foreign withholding taxes and all other applicable withholding amounts. Without limiting the generality of the foregoing the delivery of Common Parent Shares upon vesting of New Parent Restricted Shares shall be conditioned upon the Executive’s satisfaction of all applicable withholding requirements by direct payment to the Parent, withholding from cash payments otherwise due to the Executive, or a combination thereof.
7.13 Counterparts. This Agreement may be executed in or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument.
16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INTELSAT, LTD.
By:
THE PARENT
By:
THE EXECUTIVE
By: David McGlade
17 EXHIBIT A
FORM OF SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release of Claims (“Agreement”) is made by and among NAME (“Employee”), an individual, Zeus Holdings Limited (the “Parent”) and Intelsat, Ltd., a Delaware corporation (“Intelsat” or the “Company”).
WHEREAS, the Employee is a party to an Employment Agreement with the Parent and the Company, dated as of , 2005 (the “Employment Agreement”); and
WHEREAS, the Employee’s employment with Intelsat will terminate as of and Intelsat desires to provide Employee with separation benefits as set forth in his Employment Agreement to assist Employee in the period of transition following Employee’s termination;
NOW THEREFORE, in consideration of the mutual promises and releases contained herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:
1) Separation Benefits.
a) Separation Date and Final Paycheck. Employee’s employment with Intelsat will terminate effective (the “Separation Date”). The Employee received normal compensation up to and including that date, including a lump sum payment for all earned but unused vacation less all required tax withholdings and other authorized deductions.
b) Severance Pay. Following Employee’s execution and non-revocation of this Agreement, and provided all Company property has been returned, Intelsat will pay
to Employee severance pay in accordance with the terms of the Employment Agreement, less all required tax withholdings and other authorized deductions.
c) Continued Coverage Under Group Health Plans. Employee shall be entitled to elect to continue coverage under each of the Company’s group health plans in which he was enrolled as of the date his coverage ceases in accordance with the terms of the Employment Agreement, consistent with the status and level of coverage that was in place as of such date, in accordance with the requirements of the Consolidate Omnibus Budget Reconciliation Act of 1985 and its relevant regulations (“COBRA”). Employee shall be solely responsible for paying the full amount of all premiums that are chargeable in connection with such coverage, subject to all requirements of COBRA.
FOR THOSE ELIGIBLE ONLY:
d) Retiree Medical Benefits. Intelsat will apply the length of the Employee’s severance period to determine eligibility to receive retiree medical benefits.
A-1 e) Except as set forth in this Agreement or as required by federal, state or local law, Employee shall not be entitled to any additional benefits relating to Employee’s separation of employment; provided, however, that this Agreement does not affect or impair Employee’s rights to the benefits identified on Schedule 1 to this Agreement [list specific entitlements].
2) Release. Employee, on Employee’s own part and on behalf of Employee’s dependents, heirs, executors, administrators, assigns, and successors, and each of them, hereby covenants not to sue and fully releases, acquits, and discharges the Parent, Intelsat, and their respective parent, subsidiaries, affiliates, owners, trustees, directors, officers, agents, employees, stockholders, representatives, assigns, and successors (collectively referred to as “Intelsat Releasees”) with respect to and from any and all claims, wages, agreements, contracts, covenants, actions, suits, causes of action, expenses, attorneys’ fees, damages, and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which Employee has at any time heretofore owned or held against said Intelsat Releasees, including, without limitation, those arising out of or in any way connected with Employee’s employment relationship with Intelsat or Employee’s separation from employment with Intelsat, except with respect to those benefits set forth in Paragraph 1 of this Agreement.
3) Time to Consider Agreement. Employee may take twenty-one (21) days from the date this Release is presented to Employee to consider whether to execute this Release, and may wish to consult with an attorney prior to execution of this Release. Employee, by signing this Agreement, specially acknowledges that he/she is waiving his/her right to pursue any claims under federal, state or local discrimination laws, including the Age Discrimination in Employment Act, 29 U.S.C. Section 626 et seq., which have arisen prior to the execution of this Release. This release shall become final and irrevocable upon execution by the Employee, except that if Employee is age 40 or older, Employee may revoke the Release at any time during the seven (7) day period following Employee’s execution of the Release, after which time it shall be final and irrevocable.
4) Restrictive Covenants Intact. Employee hereby acknowledges the continuing validity and enforceability of the terms of the Employment Agreement (including without limitation the noncompetition covenant of Section 5.3 (the “Noncompete”)), the Conflict of Interest and Confidentiality Agreement, and/or any other confidentiality agreement or restrictive covenant that Employee signed during Employee’s employment with Intelsat. Employee hereby affirms his/her understanding that Employee must remain in compliance with those terms following the Separation Date. In the event that it should be proven in a court of competent jurisdiction that Employee has materially violated any of the terms of the Noncompete or the Confidentiality Agreement and has failed to cure such breach following receipt of written notice of same and a reasonable opportunity to cure, Employee shall repay Intelsat, in addition to any other relief or damages to which Intelsat might be entitled, the Separation Benefits described in subparagraph 1(b).
5) Confidentiality. Employee and Intelsat agree that the existence and terms of this Agreement are strictly confidential and that neither party shall disclose the existence or terms of this Agreement except as required by law or regulation. Employee further agrees that if Employee breaches this confidentiality provision, Employee shall repay Intelsat the Separation Benefits described in subparagraph 1(b).
A-2 6) Nondisparagement. Employee hereby covenants and agrees that Employee will not at any time, directly or indirectly, orally, in writing or through any medium (including, but not limited to, the press or other media, computer networks or bulletin boards, or any other form of communication) disparage, defame, or otherwise damage or assail the reputation, integrity or professionalism of Intelsat or any of the Intelsat Releasees. Employee further agrees that if Employee breaches this nondisparagement provision, Employee shall repay Intelsat the Separation Benefits described in subparagraph 1(b). 7) References. All inquiries to Intelsat concerning Employee’s employment shall be directed to the [Senior Vice President of Human Resources], who shall confirm dates of employment and level of compensation of the Employee during Employee’s employment with Intelsat.
8) Miscellaneous. This Agreement is governed by the laws of the District of Columbia. If any of the provisions of this Agreement are held to be illegal or unenforceable, the Agreement shall be revised only to the extent necessary to make such provision(s) legal and enforceable.
9) Return of Property. Employee hereby represents to the Company that all property belonging to Intelsat has been returned, including, without limitation, all keys, access cards, passwords, access codes, and other information necessary to access any computer or electronic database; all books, files, documents, and electronic media; and all Company property of any kind that Employee has in his/her possession or control, or that Employee obtained from the Company.
10) Entire Agreement. Employee agrees that this Agreement contains and comprises the entire agreement and understanding between Employee, the Parent and the Company regarding Employee’s termination of employment; that there are no additional promises between Employee and the Parent and/or the Company other than those contained in this Agreement or any continuing obligations as described in paragraphs 1(e) and 4; and that this Agreement shall not be changed or modified in any way except through a writing that is signed by both the Employee and the Company; provided, that the obligations of Employee under the Shareholders Agreement remain in effect without amendment by this Agreement.
A-3 The parties acknowledge that they have read the foregoing Agreement, understand its contents, and accept and agree to the provisions it contains voluntarily and knowingly, and with full understanding of its consequences.
INTELSAT GLOBAL SERVICE CORPORATION
By:
EMPLOYEE NAME: [NAME] [TITLE]
Date: Date:
A-4 EXHIBIT B
INTELSAT CONFLICT OF INTEREST AND CONFIDENTIALITY AGREEMENT
In consideration of my employment or continuing employment by Intelsat and the compensation received from Intelsat by me from time to time and other good and valuable consideration, the sufficiency of which I hereby acknowledge, I, (hereinafter referred to as “Employee”), agree as follows:
(A) PRIOR UNDERSTANDING
1. Employee warrants as follows:
Initial as appropriate:
a. That he or she is ( )* / is not ( ) restricted by any contract with a previous employer or any other person or business from accepting employment with Intelsat,
b. That he or she has ( )* / has not ( ) signed any confidentiality, non-disclosure, or non-competition agreement with a previous employer or any other person or
business that would affect Employee’s ability to perform his or her duties for Intelsat, and
c. That he or she is ( )* / is not ( ) under any other obligations to a previous employer or any other person or business except as may exist under federal or common
law.
* Please provide details and copies of such contracts or agreements to your Human Resources representative prior to employment.
2. Employee agrees that he or she will not disclose to Intelsat any trade secrets acquired during his or her employment or association with a previous employer or acquired during his or her employment or association with any other entity. Employee acknowledges that any disclosure to Intelsat in violation of this Paragraph may constitute cause for discharge from employment.
(B) FULL EFFORTS WHILE EMPLOYED
Intelsat is entitled to Employee’s full-time efforts during the course of employment. Employee may not use the facilities of, or identification with, Intelsat to carry on a private business or profession. Employee shall also not engage in a profit or non-profit activity outside employment with Intelsat if this activity:
B-1 a. Is in competition with Intelsat or provides goods, services, or assistance to a competitor;
b. Involves doing business with a supplier of goods or services to Intelsat or any Intelsat customer;
c. Interferes with the Employee’s assigned duties at Intelsat.
Notwithstanding the foregoing, nothing herein shall per se prevent the Employee from performing his duties in connection with service as a non-executive director on the board of directors of another company pursuant to Section 1.2 of the Employee’s Employment Agreement, dated as of , 2005, by and among Zeus Holdings Limited, Intelsat, Ltd., and the Employee, so long as such duties do not interfere with the Employee’s duties at Intelsat.
(C) INVENTIONS AND DISCOVERIES
Inventions and Discoveries
Except as may be provided otherwise in prior written agreements between the Employee and Intelsat, Employee will disclose and assign to Intelsat all designs, improvements, inventions, and discoveries relating to the business of Intelsat that have originated or will originate in connection with work done for Intelsat, that are made, first reduced to practice, discussed, or conceived by Employee or by Employee jointly with others during any previous or future period of employment with Intelsat. The foregoing obligation to disclose and assign to Intelsat the designs, improvements, inventions, and discoveries of Employee shall apply whether or not they are first reduced to practice, devised, or conceived during regular working hours, or on Intelsat’s premises, and/or at the expense of Intelsat. All such designs, improvements, inventions, and discoveries shall remain Intelsat’s property whether or not so disclosed or assigned and Employee will cooperate fully with Intelsat during and after Employee’s employment in accomplishing the intent of this provision. Per written agreement by and between Intelsat and Employee, Intelsat, at its option, may elect to share royalties accruing to Intelsat resulting from Employee’s efforts as described herein. As to all such designs, improvements, inventions, mask works, and discoveries, Employee will assist Intelsat in every proper way (but at Intelsat’s expense) to obtain and from time to time enforce patents, copyrights, trademarks, trade secrets, and other proprietary rights and protections related to said designs, improvements, inventions, mask works, and discoveries in all countries, and to that end will execute all documents for use in applying for and obtaining such patents, copyrights, trademarks, trade secrets, and other proprietary rights and protections on and enforcing such designs, improvements, inventions, and discoveries, as Intelsat may desire together with any assignments thereof to Intelsat by persons designated by it.
Agreements Presently in Effect
Exhibit 1 is a list and summary of all agreements presently in effect between Employee and others (excepting prior agreements between Employee and Intelsat) relating to any prior employment or right, title, or interest in or to his or her part of future inventions, improvements, discoveries, and new ideas, or to patent applications or patents relating thereto; and he or she warrants that Exhibit 1 is a complete list of such agreements. A copy of each agreement so listed is attached hereto; and if no such list or no such copies are attached, Employee warrants that no such agreements are now in effect.
B-2 Patents, Applications, Inventions
Exhibit 2 is a list and summary of all patents issued on inventions made by Employee before entering Intelsat’s employ, all pending applications filed on such inventions, and all such inventions for which no patents have been obtained or applications therefore filed, and he or she warrants that Exhibit 2 is a complete list of such patents, applications, and inventions. All such patents, applications, and inventions so listed are excluded from the operation of this Agreement; and if no such list is attached, Employee warrants that no such patents, applications, or inventions exist.
Non-Applicability
Paragraph C of this Agreement does not apply to an invention which:
1. Was developed entirely on the Employee’s own time without using Intelsat’s equipment, supplies, facilities, or trade secret information; and
2. Does not relate at the time of conception or reduction to practice of the invention to Intelsat’s business, or actual or demonstrably anticipated research or
development of Intelsat; and
3. Does not result from any work performed by the employee for Intelsat (California Labor Code, Art. 3.5, Paragraph 2870).
(D) CONFIDENTIAL INFORMATION
Employee understands that, in the course of his or her employment with Intelsat, he or she will be given access to Confidential Information and trade secrets including, but not limit to, discoveries, ideas, concepts, software in various stages of development, designs, drawings, specifications, techniques, models, data, source code, object code, documentation, diagrams, flowcharts, research, development, processes, procedures, “know-how,” marketing techniques and materials, marketing and development plans, business plans, merger or acquisition investigations, customer names and other information relating to customers, price lists, pricing policies, and financial information. Confidential Information also includes any information described above which Intelsat obtains from another party and which Intelsat treats as proprietary or designates as Confidential Information, whether or not owned or developed by Intelsat. Employee agrees that during his or her employment by Intelsat and thereafter to hold in confidence and not to directly or indirectly reveal, report, publish, disclose, or transfer any Confidential Information to any person or entity, or utilize any Confidential Information for any purpose, except in the course of Employee’s work for Intelsat. Employee agrees to turn over all copies of Confidential Information in his or her control to Intelsat upon request or upon termination of his or her employment with Intelsat.
B-3 (E) NON-SOLICITATION OF EMPLOYEES
Employee agrees that during his or her employment with Intelsat and for one (1) year thereafter, he or she will not, either directly or indirectly, hire Intelsat employees or former employees (which shall for this purpose include any individual employed by Intelstat at any point during the year preceding such hiring), induce, persuade, solicit or attempt to induce, persuade, or solicit any of Intelsat’s employees to leave Intelsat’s employ, nor will he or she help others to do so. This means, among other things, that if Employee’s employment with Intelsat terminates (whether voluntarily or involuntarily), he or she shall refrain for one (1) year from giving any person or entity the names of his or her former, fellow employees or any information about them, as well as refrain from in any way helping any person or entity hire any of his or her former, fellow employees away from Intelsat. This shall not be construed to prohibit general solicitations of employment through the placing of advertisements.
(F) REASONABLENESS OF RESTRICTIONS AND AT-WILL EMPLOYMENT
Employee acknowledges and agrees that the restrictive covenants contained in this Agreement (1) are necessary for the protection of the Company’s business; (2) will not unduly restrict Employee’s ability to earn a livelihood after termination of employment; (3) are reasonable in time, territory, and scope; and (4) do not provide for any guaranteed term of employment and that employment remains at-will, except as may otherwise be provided in the Employment Agreement between the Employee, Intelstat, and Zeus Holdings Limited, dated January 28, 2005.
(G) ASSIGNABILITY
This Agreement may be assigned by the Company in the event of a merger or consolidation of the Company or in connection with the sale of all or substantially all of the Company’s business.
(H) REFORMATION AND BLUE PENCILING
The covenants of this Agreement shall be severable, and if any of them is held invalid because of its duration, scope of area or activity, or any other reason, Employee agrees that such covenant shall be adjusted or modified by the court to the extent necessary to cure that invalidity, and the modified covenant shall thereafter be enforceable as if originally made in this Agreement.
(I) MODIFICATION
This Agreement may be modified only by a written document signed by the General Counsel of Intelsat.
(J) BREACH OF AGREEMENT
Employee agrees that, if he or she should ever breach any of the provisions of the Agreement, he or she shall be personally liable to Intelsat for any direct and indirect damages suffered by Intelsat, including, but not limited to, reasonable attorneys’ fees and expenses incurred in connection with actions undertaken by Intelsat to enforce this Agreement or to seek redress of
B-4 any breach of this Agreement. Employee further agrees that an impending or existing violation of any of the provisions of this Agreement would cause Intelsat irreparable injury for which it would have no adequate remedy at law, and agrees that Intelsat shall be entitled to obtain injunctive relief prohibiting such violation, in addition to any other rights and remedies available to it at law or in equity, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages.
(K) ENFORCEMENT OF PROVISIONS
This Agreement (1) constitutes my entire agreement with Intelsat with respect to the subject matter hereof, (2) shall be binding on my heirs, executors, administrators, and legal representatives, and (3) shall inure to the benefit of Intelsat’s successors and assignees.
(L) GOVERNING LAW
This Agreement shall be governed, construed, and enforced in accordance with the laws of the District of Columbia.
IN WITNESS HEREOF, Employee has caused this Agreement to be duly executed.
Date:
Signature:
Employee Name (Printed):
Social Security Number:
Mailing Address:
B-5 EXHIBIT 1 Agreements Presently in Effect
Attached hereto is a list and summary of all agreements presently in effect between the Employee and others relating to any prior employment or to any right, title, or interest in or to his or her part or future inventions, improvements, discoveries, and new ideas, or to patent applications or patents relating thereto; and he or she warrants that this is a complete list of such agreements. A copy of each agreement so listed is also attached hereto; and if no such list or no such copies are attached, the Employee warrants that no such agreements are in effect.
B-6 EXHIBIT 2 Patents, Applications, Inventions
Attached hereto is a list and summary of all patents issued or inventions made by the Employee before entering the Employee’s employ, all pending applications filed on such inventions, and all such inventions for which no patents have been obtained or applications therefore filed and he or she warrants that this is a complete list of such patents, applications, and inventions. All such patents, applications, and inventions so listed are excluded from the operations of this Agreement, and if no such list is attached, the Employee warrants that no such patents, applications, or inventions exist.
B-7 EXHIBIT 3
New Skies
PanAmSat
Eutelsat
SES Global EXHIBIT D
1. Reasonable costs directly relating to the Executive vacating his home in the UK
a) any payments due as a result of Executive’s termination of lease agreement regarding UK home
b) any moving, shipping and related costs incurred in connection with moving Executive’s furniture, household items and other personal property from the UK to the US
c) any renovation costs (up to a maximum of £10,000) due with respect to the Executive’s UK home, including costs associated with repairing ordinary wear and tear
d) flight and other transportation costs incurred by the Executive and his family in connection with moving from the UK to the US
2. Reasonable costs directly relating to the Executive’s sale of his home in Colorado
a) any moving, shipping and related costs incurred in connection with moving Executive’s furniture, household items and other personal property from the Colorado to Massachusetts and Washington, D.C.
3. Reasonable costs directly relating to purchase of home in Washington, D.C.
a) a reasonable number of round trip tickets from and to Washington, D.C. for the purpose of scouting travel, and expenses related to such travel, which the Executive will use reasonable efforts to combine with business trips
4. Reasonable costs directly relating to temporary accommodations during the intervening period (but through no later than July 31, 2005) while the Executive is working in the U.S. and waiting for the purchase of his home in Washington, D.C. to be completed
a) board and lodging
b) daily transportation
c) family visitation costs
5. Any gross-up payments necessary to neutralize the Executive’s tax liability in connection with the relocation costs set forth on this Exhibit D. Annex A
Overview of Benefits for Executive McGlade
The following terms are subject to the terms of the Company’s benefit plans and any modifications of such plans.
1. 401(k) – Profit sharing match up to 5% of total compensation plus an additional 4% contribution at the Company’s discretion.
2. Medical – Standard medical benefits for Executive and immediate family members with either a PPO or POS option. PPO covers 90% of in-network and 70% of out- of-network medical expenses and POS covers 100% of in-network and 70% of out-of-network medical expenses. Executive contributes a portion of his pre-tax compensation equivalent to approximately 15% of plan cost.
3. Dental – Annual maximum of $2,000 for basic and preventative care. Lifetime maximum of $1,000 for orthodontia care.
4. Basic Life Insurance – Standard life insurance benefits equal to $50K at no cost to Executive (additional insurance available to be purchased by Executive).
5. Executive Life Insurance – Additional 1.5x annual compensation pursuant to senior executives’ life insurance plan.
6. Accidental Death – Standard accidental death benefits equal to $50K at no cost to Executive (additional insurance available to be purchased by Executive).
7. Short-term Disability – 100% of base compensation for up to 6 months at no cost to Executive.
8. Long-term Disability – 60% of base compensation up to a maximum of $15,000/month at no cost to Executive.
9. Business Travel – All travel expenses fully reimbursed.
10. Company Car – Car allowance of $936/month as is currently provided for other senior executives.
11. Club Memberships – Company will reimburse Executive for reasonable expenses related to one club membership. Exhibit 3.14
December 22, 2004
David McGlade Penthouse Athena Court 2 Finchley Road London, NW8 6DP
Re: Intelsat Ltd. Employment Agreement
Dear Mr. McGlade:
You agree to enter into the Employment Agreement substantially in the form attached as Annex A hereto (the “Employment Agreement”), and Zeus Holdings Limited (“Zeus”) agrees to enter into, and to cause Intelsat Ltd. to enter into, the Employment Agreement substantially in the form attached as Annex A hereto, upon the Closing of the transactions contemplated by the Transaction Agreement (the “Intelsat Acquisition”).
Prior to January 7, 2005, you may advise Zeus in writing that you would like to purchase additional Common Parent Shares and Preferred Parent Shares at the Closing, at the same price, in the same relative proportion and pursuant to the same methodology as set forth in Section 2.1(c)(ii) of the Employment Agreement, and in an amount which, when added to the amounts set forth in Section 2.1(c)(ii), is not greater than $1,000,000.
If the Intelsat Acquisition is not completed by May 1, 2005, or is otherwise formally abandoned at anytime (pursuant to the terms of the Transaction Agreement), you may advise Zeus in writing that you will not enter into the Employment Agreement. If your obligation to enter into the Employment Agreement or your obligation to commence employment is terminated by you pursuant to the immediately preceding sentence or otherwise does not become effective (other than as a result of your actions either before Closing or on or after Closing and prior to your employment commencement (an “Executive Nonperformance”)), there will be no liability or obligation on the part of you, Intelsat Ltd. or Zeus, other than that Zeus shall (i) pay you your monthly mmO2 base salary (equivalent to approximately $1 million per year) for a period of up to 6 months from the time of your termination of employment from mmO2 to the time of you starting a new employment arrangement and (ii) reimburse you for any legal fees and expenses which would otherwise have been due under Section 7.10 of the Employment Agreement. In such circumstances, you agree in good faith to actively seek new employment commensurate with your title and position at mmO2 (or a similar executive position).
The governing law of this letter and dispute resolution shall be as set forth for the Employment Agreement under Section 7 of the Employment Agreement. David McGlade December 22, 2004 Page 2
Capitalized terms not defined herein shall have the meaning set forth in the Employment Agreement or the Transaction Agreement, as applicable.
Yours truly yours,
ZEUS HOLDINGS LIMITED
By:
Accepted and Acknowledged:
David McGlade
Exhibit 3.15
February 25, 2005
David McGlade Penthouse Athena Court 2 Finchley Road London, NW8 6DP
Re: Intelsat Ltd. Employment Agreement
Dear Mr. McGlade:
You and Zeus Holdings Limited (“Zeus”) and Intelsat Ltd. (“Intelsat”) have entered into an Employment Agreement, dated as of January 28, 2005.
Pursuant to Section 2.1(c)(i) of the Employment Agreement, Intelsat is required to pay you a lump sum payment of $1,500,000 as soon as practicable following your commencement of employment with the Company. In lieu of such obligations under Section 2.1(c)(i) of the Employment Agreement, the Company shall pay you an amount in cash equal to $300,000 on the date hereof, and an amount in cash equal to $1,200,000 on March 15, 2005 (each a “Payment Amount” and collectively, the “Payment Amounts”), and shall have no further obligation under Section 2.1(c)(i) of the Employment Agreement. In addition to such amounts, Intelsat will pay to you on the date hereof an amount in cash equal to $90,880, as a return of certain amounts overwithheld from you by Intelsat in connection with previous compensatory payments.
All shares of Parent purchased by you prior to the commencement of your employment shall be treated as Purchased Parent Shares under your Employment Agreement. If you do not commence employment with Intelsat by April 1, 2005, you shall repay immediately to Intelsat the Payment Amounts, and your repayment obligations under the second sentence of Section 2.1(c)(i) shall continue to remain in effect.
The governing law of this letter and dispute resolution shall be as set forth in Section 7 of the Employment Agreement, and the withholding provisions of Section 7.12 of the Employment Agreement shall apply to these payments.
Capitalized terms not defined herein shall have the meaning set forth in the Employment Agreement or the Transaction Agreement, as applicable.
Yours truly, ZEUS HOLDINGS LIMITED
By: David McGlade February 25, 2005 Page 2
INTELSAT LTD.
By:
Accepted and Acknowledged:
DAVID MCGLADE
David McGlade Exhibit 3.17
BUSINESS TRANSITION SERVICES AGREEMENT
BUSINESS TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of July 15, 2003, by and among Intelsat (Bermuda), Ltd., a Bermuda company (“Purchaser”), Loral Space & Communications Corporation, a Delaware corporation and as debtor and debtor-in-possession (“Loral Space”), and Loral SpaceCom Corporation, a Delaware corporation and as debtor and debtor-in-possession (“SpaceCom” and collectively with Loral Space, the “Sellers”). Each of Purchaser and each of the Sellers is referred to herein as a “Party.”
WHEREAS, the Sellers, Loral Satellite, Inc., a Delaware corporation and as debtor and debtor-in-possession (“Loral Satellite”), Intelsat, Ltd., a Bermuda company, and Purchaser have entered into an Asset Purchase Agreement of even date herewith (the “Asset Purchase Agreement”), providing, among other things, for the sale by the Sellers and Loral Satellite, and the purchase by Purchaser, of all of the right, title and interest of the Sellers and Loral Satellite in and to the Purchased Assets (as defined in the Asset Purchase Agreement), which include certain geostationary earth orbit satellites referred to as Telstar 4, Telstar 5, Telstar 6 and Telstar 7, as well as the satellites referred to as Telstar 8 and Telstar 13, which are currently under construction (collectively, the “Satellites”);
WHEREAS, in connection with the transactions contemplated under the Asset Purchase Agreement, Purchaser intends to operate the Transferred Business (as defined in the Asset Purchase Agreement) as an ongoing enterprise, and Purchaser has requested that SpaceCom provide certain services in support thereof prior to and following the closing of the transactions under the Asset Purchase Agreement (the “Closing”) as set forth in this Agreement;
WHEREAS, the Asset Purchase Agreement contemplates that the Parties hereto shall have entered into this Agreement as of the date of the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the Parties hereto agree as follows:
1. Definitions.
Except as otherwise defined in this Agreement, all capitalized terms used in this Agreement (including the Schedules hereto) shall have the meanings assigned to them in the Asset Purchase Agreement.
2. Provision of Services.
(a) Subject to and on the terms and conditions herein set forth, from and after the date contemplated by Section 2(b) and for the duration of the Transition Period (defined below), SpaceCom shall (i) provide to Purchaser the services described on Schedule A prior to the Closing and the services described on Schedule B following the Closing (each a “Service” and, collectively, the “Services”), and (ii) make reasonably available to Purchaser sufficient personnel who are employed or contracted by SpaceCom in order to provide such Services during the respective Service Periods (“Personnel”) subject to Section 3 and the parameters set forth in Schedules A and B. (b) SpaceCom shall commence providing the pre-Closing Services described on Schedule A following at least five Business Days’ prior written notice from Purchaser, which shall not be given until the later of (i) the expiration of any applicable waiting period under the HSR Act relating to the transactions contemplated by the Asset Purchase Agreement and (ii) the date that the Sale Order shall have been entered by the Bankruptcy Court. Such notice shall provide, without prejudice to any of Purchaser’s rights under the Asset Purchase Agreement, that it is not aware of any fact or circumstance that would prevent Closing from taking place; provided, however, that Purchaser shall not be estopped from asserting at any time in the future that a condition to Closing has not been satisfied based on facts or circumstances existing on the date of such certification. SpaceCom shall, to the extent required by this Agreement, continue to provide the pre-Closing Services until the date on which the Closing occurs. Nothing contained in this Agreement shall be construed to require any performance inconsistent with any requirements of law, including, without limitation, the FCC’s rules and the Communications Act and applicable export control laws.
(c) SpaceCom shall provide each of the post-Closing Services described on Schedule B during an initial 3-month term following the Closing, which Purchaser may extend for an additional 3-month term and thereafter for successive 1-month terms up to but not exceeding a total of 12 months for all such periods combined, by written notice given at least thirty (30) days in advance of the applicable renewal term (each, a “Service Period”). Notwithstanding anything in this Agreement to the contrary, Purchaser may terminate any Service sooner than the termination date of the relevant Service Period for that Service upon 30 days’ prior written notice to SpaceCom.
(d) The term during which any Service is required to be provided in accordance with the foregoing is hereafter referred to as the “Transition Period.” The Transition Period and this Agreement shall terminate when SpaceCom’s obligation to provide Services pursuant to the terms of this Agreement shall have terminated.
(e) SpaceCom shall perform the Services for Purchaser in a professional and workmanlike manner with the same degree of care, skill and prudence customarily exercised by it for its own operations and in its provision of similar services to itself and its subsidiaries, and in compliance with applicable law, provided, however, that in no event shall SpaceCom perform the Services for Purchaser with less than a reasonable degree of care, skill, and prudence or in a manner not consistent with good industry practice.
(f) Following the Closing, Purchaser will make available to SpaceCom such of the Purchased Assets as SpaceCom shall reasonably request and that are necessary for the performance of the Services.
3. Personnel.
(a) If the employment of any Personnel performing Services for Purchaser is terminated by SpaceCom for any reason other than their commencement of employment with Purchaser, then SpaceCom shall, at Purchaser’s request, use its Best Reasonable Efforts to hire or reassign such personnel as SpaceCom deems necessary to provide the Services in accordance with the terms hereof. SpaceCom reserves the right to withdraw any Personnel who are engaged
2 in providing Services to Purchaser provided it gives prior notification to Purchaser of such withdrawal and uses its Best Reasonable Efforts to hire or reassign such personnel as SpaceCom deems necessary to provide the Services in accordance with the terms hereof.
(b) As soon as reasonably practicable after (i) SpaceCom receives formal notice that any Personnel intends to terminate his/her employment with SpaceCom or (ii) any Personnel has received formal notice of termination of his/her employment from SpaceCom, SpaceCom will provide notice thereof to Purchaser.
4. Limitations on Scope of Services.
(a) In providing the Services, SpaceCom shall not be obligated to: (i) maintain the employment of any specific employee; (ii) purchase, lease or license any additional equipment or software; (iii) pay or incur any costs related to the transfer or conversion of data to Purchaser or the utilization or engagement of any third party vendor or supplier, except to the extent reimbursed by Purchaser; or (iv) incur any material unreimbursed out-of-pocket expense in connection with its performance of the Services. Services shall be provided solely during normal business hours, except as otherwise provided in or required by the Schedules.
(b) In assisting the Purchaser in the transfer of responsibility for the Services, SpaceCom shall not be responsible for the procurement of any and all hardware, software, computer systems, support, housing, data and other information technology systems necessary or desirable for Purchaser’s facilities to operate the Satellites, including but not limited to the procurement of all third party licenses (except those required to be obtained by SpaceCom pursuant to Section 9(a)) and vendor agreements.
(c) If SpaceCom is unable to provide any of the Services because of a failure by Purchaser to supply information or materials necessary for SpaceCom to provide the Services, then the performance of such Services shall be suspended until SpaceCom and Purchaser have mutually agreed on an alternative approach.
5. Access. Purchaser shall make available on a timely basis to SpaceCom all information and materials reasonably requested by SpaceCom to enable it to provide the Services. SpaceCom shall not be liable for any errors or omissions resulting from incorrect information provided by Purchaser.
6. Payment.
(a) It is understood and agreed that Purchaser has been granted a credit (the “Credit”) of $240,000 that shall be applied to offset the first $240,000 of SpaceCom charges for pre-Closing Services that would otherwise be payable under this Agreement and the TT&C Transition Services Agreement being entered into among the parties as of the date hereof (the “TT&C TSA”). SpaceCom shall invoice Purchaser for fees for the Services rendered hereunder on a monthly basis (i) in the case of pre-Closing Services, taking into account the Credit, and in accordance with Section 6(b), and (ii) in the case of Services provided following the Closing, in accordance with the fees specified on Schedule B, and in each case Purchaser shall pay the amount of such invoice, which invoice shall include reasonably detailed documentation of the Services invoiced, in immediately available funds within 30 days of Purchaser’s receipt thereof.
3 All payments pursuant to this Agreement shall be made in U.S. dollars without any deduction or withholding for or on account of any set-off or tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect.
(b) Fees for pre-Closing Services will be charged on an hourly basis, based on the actual hours of work performed by Personnel supplying such Services determined at a blended rate of $100 per hour for such Services. Promptly following the execution of this Agreement, SpaceCom and Purchaser will work together to develop a pre-Closing Services implementation plan (including pre-Closing Services set forth in the TT&C TSA), designed to meet the pre-Closing training needs of Purchaser in an effective, efficient and cost-effective manner, which plan shall include cost estimates for the Services identified to be performed by SpaceCom over the pre-Closing period.
(c) Promptly following the date hereof, SpaceCom and Purchaser will work together to prepare a breakdown of fees for Services set forth on Schedule B (“Breakdown”) to be mutually agreed between Purchaser and SpaceCom, consistent with the per month charges and sub-allocation set forth on Schedule B. In the event that Purchaser terminates any post-Closing Service, the fees payable to SpaceCom shall thereafter be reduced in accordance with the Breakdown and the scope of SpaceCom’s responsibilities will be correspondingly reduced.
7. Force Majeure. SpaceCom’s obligations to perform the Services shall be suspended during the period and to the extent that SpaceCom is prevented or hindered from complying therewith by any cause beyond the reasonable control of SpaceCom, including, without limitation, acts of God, strikes, acts of terrorism, fire, flood, power failures or surges, epidemics, riots, theft, lock outs and other labor disputes, civil disturbances, injunctions and other government orders or legal requirements (whether under the export control laws or otherwise), accidents, acts of war or conditions arising out of or attributable to war (whether declared or undeclared). In such event, SpaceCom shall as soon as reasonably practicable give Purchaser notice of suspension, stating the Services to be suspended and the cause thereof, and SpaceCom shall resume the performance of such Services as soon as reasonably practicable after the cause of the suspension and the effects thereof that prevented or hindered SpaceCom from performing the Services shall cease to exist and shall so notify Purchaser. Should a force majeure event occur, at Purchaser’s request and at Purchaser’s sole cost and expense, SpaceCom shall, as promptly as reasonably practicable, migrate the Services that have been suspended due to the force majeure event to alternative facilities or another service provider as directed by Purchaser. Upon cessation of the force majeure event and the effects thereof that prevented or hindered SpaceCom from performing the Services, all obligations under this Agreement shall resume. SpaceCom shall not be liable for any damages, liability, interruption of Service or delay or failure to perform under this Agreement to the extent that such damages, liability, interruption, delay or failure results from a force majeure event as described in this Section 7.
8. Access to Facilities; Rights in Data.
(a) Purchaser may co-locate up to fifteen (15) full-time equivalent employees (who shall be U.S. citizens or lawful permanent U.S. residents) at SpaceCom’s Hawley and/or Bedminster facilities with access to facilities and key staff. SpaceCom shall provide office
4 facilities for Purchaser’s employees, consisting of a reasonable amount of office space, office furniture, office supplies, desk-top computers (with e-mail and internet access capabilities) equipped with operating system software and necessary business software applications, regular parking facilities, local, long distance and international telephone service and access to copy and facsimile machines. Purchaser shall use its Best Reasonable Efforts to ensure that all of its personnel located at SpaceCom’s premises as contemplated by the Schedules hereto adhere to applicable security and corporate rules and regulations. It is understood and agreed that such personnel will be assigned to designated areas of SpaceCom’s premises, and may require SpaceCom escorts when the scope of their work requires them to enter other parts of the premises.
(b) Purchaser acknowledges that, other than as provided in the Asset Purchase Agreement or any of the Ancillary Agreements, it is not entitled to any intellectual property rights (including any and all patent, trademark, service mark, copyright, trade secrets, design rights, know-how, confidential information and all other intellectual or industrial property rights whether or not registered or capable of registration) which subsist in any and all data, text, drawings, know-how, graphics, code or other information in electronic or tangible form supplied to Purchaser by SpaceCom or accessed by Purchaser in the course of the provision of the Services, whether created in the course of performing its obligations to Purchaser or not, provided, however, SpaceCom hereby grants Purchaser a perpetual, non-exclusive, world-wide, royalty-free, irrevocable and assignable license to use such data or other information to the extent left in Purchaser’s possession. Purchaser agrees not to contest the validity, ownership or enforceability of SpaceCom’s rights in and to any such data or other information.
(c) On the date SpaceCom begins providing the pre-Closing Services, SpaceCom shall (i) be deemed to have granted a limited, terminable at Closing, non-exclusive, non-transferable development license to run one copy of the software application code for the TMS, VECS, Contracts Database, Billing System and LMS in a Purchaser- provided and Purchaser-managed test environment for Purchaser’s internal test purposes only (the “Development License”) and for the term of this Agreement (ii) promptly provide to Purchaser sample data (which, in SpaceCom’s discretion and subject to applicable law may include dummy data or actual data) that will be delivered by SpaceCom at Closing as reasonably requested by Purchaser. All software application code, material and data provided pursuant to this provision is proprietary and confidential to SpaceCom and shall be treated as Information pursuant to Section 13 of this Agreement. Purchaser shall not transfer, distribute, sublicense, create derivative works or provide third party access to any of the development copies of the software or test data. The Development License, application code software provided pursuant thereto, as well as all test data, will be provided on an “AS IS” basis and SpaceCom will not and does not make any representation or warranty whatsoever with respect to functionality, performance, suitability for particular purpose, non-infringement, or on any other basis, direct or implied. Purchaser assumes all liabilities and risks associated with its receipt and use of the development software and test data and SpaceCom is not liable for any loss, damage, expense or cost of that may arise from delivery or use including any fault or failure in the operation of such software and test data. Purchaser is responsible for providing the necessary resources for using the development copy of the TMS, VECS, Contracts Database, Billing System and LMS software and test data, including, computer hardware, computer systems (ie. UNIX, and commercially available databases such as C-ISAM and Oracle), test facilities, computer programmers and
5 operators to load, configure, operate and test the software. SpaceCom shall have no responsibilities or obligations to Purchaser with respect to the matters contemplated by this Section 8(c) other than to provide the development copies of the software and the test data. Acceptance by Purchaser of such Development License or test data shall not be deemed a waiver by Purchaser of any of Purchaser’s representations, warranties or rights under the Purchase Agreement or any Ancillary Agreement (other than this Agreement). Grant by SpaceCom of such Development License and delivery by SpaceCom of such test data shall not be deemed a waiver by SpaceCom of any of SpaceCom’s representations, warranties or rights under the Purchase Agreement or any Ancillary Agreement (other than this Agreement).
9. Warranties. Except as provided for herein, SpaceCom makes no warranties of any kind, whether express or implied, for the provision of Services. SpaceCom specifically disclaims any express, implied and statutory warranties, including, without limitation, warranties of merchantability or fitness for any particular purpose and non- infringement of proprietary rights, all of which are expressly disclaimed to the fullest extent permitted by law. SpaceCom hereby represents and warrants to, and covenants with, Purchaser that:
(a) SpaceCom will comply in all material respects with all laws and regulations applicable to SpaceCom in connection with its provision of the Services hereunder, and will maintain all permits, licenses, and other authorizations required to so comply with such laws and regulations.
(b) The Services shall be performed in accordance with Section 2(e) hereof.
(c) SpaceCom shall keep all its equipment, software, and facilities that are necessary to, or useful in, the performance of the Services for Purchaser in good working condition and repair, subject to Section 2(e) hereof.
(d) SpaceCom shall include in any proposed plan of reorganization the assumption, reinstatement and ongoing performance by SpaceCom of this Agreement.
Loral Space hereby represents and warrants to, and covenants with, Purchaser that Loral Space shall include in any proposed plan of reorganization the assumption, reinstatement and ongoing performance by Loral Space of this Agreement.
10. Limitation of Liability. In no event shall any Party be liable for any indirect, special, punitive, consequential, or incidental damages, including, but not limited to, lost profits, income, or revenue, arising out of the performance of this Agreement, even if such Party is advised of such damages. SpaceCom disclaims all liabilities associated with (i) the delivery or transmission of any virus, worm, Trojan horse, logic bomb or other disruptive device, provided that SpaceCom has utilized reasonable commercially available security measures in connection therewith, or (ii) any delays, non-deliveries, downtime, cessation or interruption of, or any defect in all or any component part of any of the equipment, electronics, programs, networks, data, applications, software or systems of Purchaser, including but not limited to those located at Purchaser’s facilities or any part or component thereof. In no event shall SpaceCom be liable for any failures by Purchaser or its agents (which does not include any Personnel or the Sellers or their respective agents or employees) in the testing and/or implementation of Purchaser’s systems to operate the Satellites, whether before, during or after the Transition Period.
6 11. Indemnification. Each party (the “Indemnifying Party”) hereby agrees to defend, indemnify, and hold harmless the other Parties and their agents, employees, officers, and directors from and against any damages, costs (including reasonable attorneys’ fees), losses, or other liabilities (hereinafter, collectively, a “Loss”), which any of the foregoing may incur with respect to any claim, demand, or action involving personal injury or loss of tangible personal property, to the extent that such Loss arises out of or relates to the Indemnifying Party’s breach of this Agreement. This Section 11 shall survive the termination of this Agreement.
12. Termination.
(a) Unless otherwise provided herein, this Agreement shall terminate as set forth in Section 2(c) hereof. If any Party (the “Defaulting Party”) shall fail to perform or default in the performance of any material obligation under this Agreement, the Party suffering such default (the “Non-Defaulting Party”) may give written notice to the Defaulting Party specifying the nature of such failure or default and stating that the Non-Defaulting Party intends to terminate this Agreement if such failure or default is not cured within thirty (30) days of such written notice (or within ten (10) days, in the event of a default in the payment of money). If any such failure or default is not cured within the applicable cure period, the Non-Defaulting Party may immediately elect to terminate this Agreement. In the event that Purchaser terminates this Agreement due to SpaceCom’s material breach, SpaceCom shall be liable to Purchaser for any and all direct, out-of-pocket additional costs and expenses incurred by Purchaser in using its Best Reasonable Efforts to perform the Services directly, or have such Services performed for Purchaser, for the duration of the Transition Period over and above the amounts that would have been payable to SpaceCom for such Services hereunder, and SpaceCom shall have no other liability with respect to such costs and expenses.
13. Confidentiality. Each of Purchaser and SpaceCom hereby acknowledges that certain confidential information (the “Information,” which term shall include all information in respect of the business of Purchaser or SpaceCom, including, without limitation, any ideas, business methods, finances, prices, business, financial, marketing, development or manpower plans, customer lists or details, computer systems and software, know-how or other matters connected with the products or services marketed, provided or obtained by Purchaser or SpaceCom and information concerning their respective relationships with actual or potential customers and the needs and requirements of such persons may be disclosed to the other Parties and the other Parties’ employees, agents and subcontractors as a result of the performance of the Services subject to the provisions of Section 13(a). Notwithstanding anything to the contrary herein, this Section 13 shall not restrict in any way Purchaser’s use following the Closing of any Information necessary or desirable in connection with the continuing operation of the Transferred Business.
(a) Each Party agrees with the other Parties in respect of all Information:
(i) to keep the Information in strict confidence and secrecy;
7 (ii) not to use the Information save for enjoying its rights and complying with its obligations under this Agreement;
(iii) not to disclose the Information to any third party;
(iv) to restrict the disclosure of any Information to (A) only such of its employees, agents, subcontractors and other persons who require such Information in the performance of their duties pursuant to this Agreement and (B) only such portions of the Information as the employees, agents, subcontractors and other persons referred to in this clause actually require for the performance of such duties and, in such circumstances, to ensure that such employees, agents, subcontractors and other persons are made aware of the confidential nature of the Information and that they are required not to disclose the Information except as permitted in this Section 13; and
(v) Each Party shall return to the relevant Party any portion of Information in whatever form it may be and all copies thereof at such time as such portion of Information is no longer required in connection with the provision of Services under this Agreement, and all Information in whatever form it may be and all copies thereof shall be returned to the relevant Party and each Party shall confirm that no Information has been retained in its possession or under its control on termination of this Agreement.
(b) Section 13(a) shall not prevent the disclosure of Information which:
(i) the disclosing Party (or one of its officers, directors, employees, agents or other representatives) is legally obligated to make;
(ii) is made for a proper purpose to (1) a public authority, (2) a court of law or otherwise in any legal proceeding or arbitration, or (3) the auditors of, or any lawyer or professional person acting for, a Party; or
(iii) is in the public domain other than by reason of a breach of any obligation owed pursuant to this Agreement, provided that a confidential filing with a Governmental Authority shall not be considered as being in the public domain.
(c) This obligation of confidentiality shall survive any termination of this Agreement.
14. Relationship of Parties. Each Party in performing its obligations and duties hereunder shall be conclusively deemed to be an independent contractor and not under the control or supervision of the other Parties hereto and nothing in this Agreement shall be read to create any agency, partnership or joint venture of Purchaser and Loral Space or SpaceCom or to create any trust or other fiduciary relationship between them.
15. Entire Agreement. This Agreement, together with the applicable provisions of the Asset Purchase Agreement, constitutes the entire agreement of the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof.
8 16. Assignment. Neither Loral Space nor SpaceCom may assign its rights or obligations under this Agreement without the prior written consent of Purchaser, and Purchaser may not assign its rights or obligations under this Agreement without the prior written consent of SpaceCom, in each case which consent shall not be unreasonably withheld; provided, however, that Purchaser may (i) assign its rights or obligations hereunder without such consent to an Affiliate and (ii) assign, pledge and grant a security interest in its right, title and interest, in, to and under this Agreement and its rights hereunder as collateral security for any present or future indebtedness of Purchaser, Parent or any of its Affiliates.
17. Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by each of the Parties hereto.
18. Waiver. Failure or delay by any Party to this Agreement in exercising any right or remedy of that Party under this Agreement shall not operate as a waiver of such right or remedy, nor shall any single or partial exercise of any right or remedy preclude any other or future exercise of such right or remedy or the exercise of any other right or remedy. Any waiver of a breach of, or a default under, any of the terms of this Agreement shall not be deemed a waiver of any subsequent breach or default, and shall in no way affect the other terms of this Agreement.
19. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY (A) IN THE BANKRUPTCY COURT TO THE EXTENT THAT THE BANKRUPTCY COURT HAS JURISDICTION OVER SUCH ACTION OR PROCEEDING, AND (B) IN ALL OTHER CASES IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK (THE “CHOSEN COURTS”) AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO, (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH SECTION 22 OF THIS AGREEMENT AND (V) ACKNOWLEDGES THAT THE OTHER PARTIES WOULD BE IRREPARABLY DAMAGED IF ANY OF THE PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS AND THAT ANY BREACH OF THIS AGREEMENT COULD NOT BE ADEQUATELY COMPENSATED IN ALL CASES BY MONETARY DAMAGES ALONE AND THAT, IN ADDITION TO ANY OTHER RIGHT OR REMEDY TO WHICH A PARTY MAY BE ENTITLED, AT LAW OR IN EQUITY, IT SHALL BE ENTITLED TO ENFORCE ANY PROVISION OF THIS AGREEMENT BY A DECREE OF SPECIFIC PERFORMANCE AND TO
9 TEMPORARY, PRELIMINARY AND PERMANENT INJUCTIVE RELIEF TO PREVENT BREACHES OR THREATENED BREACHES OF ANY OF THE PROVISIONS OF THIS AGREEMENT, WITHOUT POSTING ANY BOND OR OTHER UNDERTAKING.
20. Severability. If any term, provision, covenant or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the Parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the Parties to this Agreement.
21. No Third-Party Beneficiary. The provisions of this Agreement are for the benefit solely of the Parties hereto and their permitted assigns, and no third party may seek to enforce or benefit from these provisions.
22. Notices. All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the Party for whom it is intended, if delivered by registered or certified mail, return receipt requested, or by a national courier service, or if sent by telecopier, provided that the telecopy is promptly confirmed by telephone confirmation thereof, to the person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Party:
To Purchaser:
Intelsat (Bermuda), Ltd. Dundonald House 14 Dundonald Street West, Suite 201 Hamilton HM 09, Bermuda Telecopy: +441-292-8300 Attn: President/CEO
with a copy (which shall not constitute notice) to:
Intelsat Global Service Corporation 3400 International Drive, NW Washington, DC 20008-3006 Telecopy: (202) 944-7529 Attn: General Counsel and Senior Vice President for Regulatory Affairs
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell LLP 1701 Pennsylvania Avenue, NW Washington, D.C. 20006
10 Telephone: (202) 956-7500 Telecopy: (202) 293-6330 Attn: Janet T. Geldzahler, Esq.
To Sellers:
Loral Space & Communications Corporation 600 Third Avenue New York, NY 10019 Telephone: (212) 697-1105 Telecopy: (212) 338-5320 Attn: General Counsel
With a copy to:
Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Telephone: (212) 728-8000 Telecopy: (212) 728-8111 Attn: Bruce R. Kraus, Esq.
23. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument.
24. Guaranty. Loral Space hereby guarantees the prompt and complete performance when due of all of SpaceCom’s obligations hereunder. Loral Space agrees that Purchaser and SpaceCom may in their sole and absolute discretion, without notice to or further assent of Loral Space and without in any way releasing, affecting or impairing the obligations under the foregoing guaranty, (i) waive compliance with, or any default under, or grant any other indulgences with respect to this Agreement, and (ii) agree to modify, amend or change any provisions of this Agreement. The obligations of Loral Space under this guaranty are continuing, absolute and unconditional, and shall not be released, discharged or in any way affected by assignment or transfer of this Agreement by any Party hereto. Loral Space and SpaceCom each waive any requirement that Purchaser seek enforcement of its rights against SpaceCom prior to seeking enforcement of its rights against Loral Space under this guaranty.
11 IN WITNESS WHEREOF, SpaceCom, Purchaser and Loral Space have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
INTELSAT (BERMUDA), LTD.
By: /s/ RAMU POTARAZU Title: President
LORAL SPACECOM CORPORATION
By: /s/ ERIC J. ZAHLER Title: President and Chief Operating Officer
LORAL SPACE & COMMUNICATIONS CORPORATION
By: /s/ ERIC J. ZAHLER Title: President and Chief Operating Officer
B-1 Exhibit 3.18
TT&C TRANSITION SERVICES AGREEMENT
TT&C TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of July 15, 2003, by and among Intelsat (Bermuda), Ltd., a Bermuda company (“Purchaser”), Loral Space & Communications Corporation, a Delaware corporation and as debtor and debtor-in-possession (“Loral Space”), and Loral SpaceCom Corporation, a Delaware corporation and as debtor and debtor-in-possession (“SpaceCom” and collectively with Loral Space, the “Sellers”). Each of Purchaser and each of the Sellers is referred to herein as a “Party”.
WHEREAS, the Sellers, Loral Satellite, Inc., a Delaware corporation and as debtor and debtor-in-possession (“Loral Satellite”), Intelsat, Ltd., a Bermuda company, and Purchaser have entered into an Asset Purchase Agreement of even date herewith (the “Asset Purchase Agreement”), providing, among other things, for the sale by the Sellers and Loral Satellite, and the purchase by Purchaser, of all of the right, title and interest of the Sellers and Loral Satellite in and to the Purchased Assets (as defined in the Asset Purchase Agreement), which include certain geostationary earth orbit satellites referred to as Telstar 4, Telstar 5, Telstar 6 and Telstar 7, as well as the satellites known as Telstar 8 and Telstar 13, which are currently under construction (collectively, the “Satellites”);
WHEREAS, the Parties desire to provide for the orderly transition to Purchaser of the telemetry, tracking and control functions with respect to the Satellites, and Purchaser desires SpaceCom to provide certain satellite operation and other services as set forth in the Schedules attached hereto prior to and following the closing of the transactions under the Asset Purchase Agreement (the “Closing”) as set forth in this Agreement;
WHEREAS, the Asset Purchase Agreement contemplates that the Parties hereto shall have entered into this Agreement as of the date of the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the Parties hereto agree as follows:
1. Definitions.
Except as otherwise defined in this Agreement, all capitalized terms used in this Agreement (including the Schedules hereto) shall have the meanings assigned to them in the Asset Purchase Agreement.
2. Provision of Services.
(a) Subject to and on the terms and conditions herein set forth, from and after the date contemplated by Section 2(b) and for the duration of the Transition Period (defined below), SpaceCom shall (i) provide to Purchaser the services described on Schedule A prior to the Closing and the services described on Schedules B and C following the Closing (each a “Service” and, collectively, the “Services”), and (ii) make reasonably available to Purchaser sufficient personnel who are employed or contracted by SpaceCom in order to provide such Services during the respective Service Periods (“Personnel”) subject to Section 4 and the parameters set forth in Schedules A, B and C. (b) SpaceCom shall commence providing the pre-Closing Services described on Schedule A following at least five Business Days’ prior written notice from Purchaser, which shall not be given until the later of (i) the expiration of any applicable waiting period under the HSR Act relating to the transactions contemplated by the Asset Purchase Agreement and (ii) the date that the Sale Order shall have been entered by the Bankruptcy Court. Such notice shall provide, without prejudice to any of Purchaser’s rights under the Asset Purchase Agreement, that it is not aware of any fact or circumstance that would prevent Closing from taking place; provided, however, that Purchaser shall not be estopped from asserting at any time in the future that a condition to Closing has not been satisfied based on facts or circumstances existing on the date of such certification. SpaceCom shall, to the extent required by this Agreement, continue to provide the pre-Closing Services until the date on which the Closing occurs. Nothing contained in this Agreement shall be construed to require any performance inconsistent with any requirements of law, including, without limitation, the FCC’s rules and the Communications Act and applicable export control laws.
(c) SpaceCom shall provide each of the post-Closing Services described on Schedules B and C during an initial 12-month term following the Closing, which Purchaser may extend for two additional six-month terms by written notice given at least three months in advance of each such additional term (each, a “Service Period”).
(d) The term during which any Service is required to be provided in accordance with the foregoing is hereafter referred to as the “Transition Period.” The Transition Period and this Agreement shall terminate when SpaceCom’s obligation to provide Services pursuant to the terms of this Agreement shall have terminated.
(e) SpaceCom shall perform the Services for Purchaser in a professional and workmanlike manner with the same degree of care, skill and prudence customarily exercised by it for its own operations and in its provision of similar services to itself and its subsidiaries, and in compliance with applicable law, provided, however, that in no event shall SpaceCom perform the Services for Purchaser with less than a reasonable degree of care, skill, and prudence or in a manner not consistent with good industry practice.
(f) Following the Closing, Purchaser will make available to SpaceCom such of the Purchased Assets as SpaceCom shall reasonably request and that are necessary for the performance of the Services.
3. Service Fees.
(a) It is understood and agreed that Purchaser has been granted a credit (the “Credit”) of $240,000 that shall be applied to offset the first $240,000 of SpaceCom charges for pre-Closing Services that would otherwise be payable under this Agreement and the Business Transition Services Agreement being entered into among the parties as of the date hereof (the “Business TSA”). SpaceCom shall invoice Purchaser for fees for the Services rendered hereunder on a monthly basis (i) in the case of pre-Closing Services, taking into account the Credit, and in accordance with Section 3(b), and (ii) in the case of Services provided following the Closing, in accordance with the fees specified on Schedule B based on the number of satellites for which Services are being provided during the applicable month, and in each case
2 Purchaser shall pay the amount of such invoice, which invoice shall include reasonably detailed documentation of the Services invoiced, in immediately available funds within 30 days of Purchaser’s receipt thereof. All payments pursuant to this Agreement shall be made in U.S. dollars without any deduction or withholding for or on account of any set-off or tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect.
(b) Fees for pre-Closing Services will be charged on an hourly basis, based on the actual hours of work performed by Personnel supplying such Services determined at a blended rate of $100 per hour for such Services. Promptly following the execution of this Agreement, SpaceCom and Purchaser will work together to develop a pre-Closing Services implementation plan (including pre-Closing Services set forth in the Business TSA), designed to meet the pre-Closing training needs of Purchaser in an effective, efficient and cost-effective manner, which plan shall include cost estimates for the Services identified to be performed by SpaceCom over the pre-Closing period.
(c) Promptly following the date hereof, SpaceCom and Purchaser will work together to prepare a breakdown of fees for Services set forth on Schedule B (“Breakdown”) to be mutually agreed between Purchaser and SpaceCom, consistent with the per month charges and sub-allocation set forth on Schedule B. In the event that Purchaser terminates any post-Closing Service, the fees payable to SpaceCom shall thereafter be reduced in accordance with the Breakdown and the scope of SpaceCom’s responsibilities will be correspondingly reduced.
(d) No Party shall be liable for any indirect, special, punitive, incidental or consequential damages, losses or expenses arising out of or under this Agreement whether under contract, warranty or tort, including loss of revenue or lost profits, regardless of the foreseeability of such damages, losses or expenses. Sellers shall have no liability whatsoever for loss of or damage to, any of the Satellites, except to the extent caused by their willful misconduct. Sellers shall have no liability whatsoever in the event that any of their customers asserts against Purchaser a claim or right relating to or in any way arising out of the availability use or operation of the Services or the facilities used to provide the Services, or otherwise out of this Agreement. Notwithstanding the foregoing, in the event that any party other than a customer of Sellers asserts against Purchaser a claim or right relating to or in any way arising out of the availability, use or operation of the Services or the facilities used to provide the Services, or otherwise out of this Agreement, SpaceCom shall indemnify and hold Purchaser harmless against any and all claims, demands, liabilities, costs, and expenses of whatsoever nature, including attorneys fees, relating to or in any way arising out of the asserted claim or right, up to a maximum amount of $300,000. This Section 3(b) shall survive the termination of this Agreement.
4. Personnel.
(a) If the employment of any Personnel performing Services for Purchaser is terminated by SpaceCom for any reason other than their commencement of employment with Purchaser, then SpaceCom shall, at Purchaser’s request, use its Best Reasonable Efforts to hire or reassign such personnel as SpaceCom deems necessary to provide the Services in accordance with the terms hereof. SpaceCom reserves the right to withdraw any Personnel who are engaged
3 in providing Services to Purchaser provided it gives prior notification to Purchaser of any such withdrawal that is outside of its ordinary course rotation of Personnel among the satellites SpaceCom is operating at the time, in which case SpaceCom will use its Best Reasonable Efforts to hire or reassign such personnel as SpaceCom deems necessary to provide the Services in accordance with the terms hereof.
(b) Purchaser shall use its Best Reasonable Efforts to ensure that all of its personnel located at SpaceCom’s premises as contemplated by the Schedules hereto adhere to applicable security and corporate rules and regulations. It is understood and agreed that such personnel will be assigned to designated areas of SpaceCom’s premises, and may require SpaceCom escorts when the scope of their work requires them to enter other parts of the premises.
(c) As soon as reasonably practicable after (i) SpaceCom receives formal notice that any Personnel intends to terminate his/her employment with SpaceCom or (ii) any Personnel has received formal notice of termination of his/her employment from SpaceCom, SpaceCom will provide notice thereof to Purchaser.
5. Limitations on Scope of Services.
(a) In providing the Services, SpaceCom shall not be obligated to: (i) maintain the employment of any specific employee; (ii) purchase, lease or license any additional equipment or software; (iii) pay or incur any costs related to the transfer or conversion of data to Purchaser or the utilization or engagement of any third party vendor or supplier, except to the extent reimbursed by Purchaser; or (iv) incur any material unreimbursed out-of-pocket expense in connection with its performance of the Services.
(b) In assisting the Purchaser in the transfer of responsibility for the Services, SpaceCom shall not be responsible for the procurement of any and all hardware, software, computer systems, support, housing, data and other information technology systems necessary or desirable for Purchaser’s facilities to operate the Satellites, including but not limited to the procurement of all third party licenses (except those required to be obtained by SpaceCom pursuant to Section 8(a)) and vendor agreements.
6. Termination.
(a) Purchaser may terminate this Agreement for its convenience as to all or any portion of the Services provided by SpaceCom hereunder upon thirty (30) days’ prior written notice to SpaceCom; provided that if Purchaser is terminating all Services hereunder with respect to a particular satellite in connection with a transition of control of such satellite to Purchaser as contemplated by Section 4.4.1.1 of Schedule C, Purchaser shall give the notice set forth in that Section.
(b) Purchaser may terminate this Agreement if any other Party has materially breached any of its obligations under this Agreement, and SpaceCom may terminate this Agreement if Purchaser has materially breached any of its obligations under this Agreement, in each case if the breaching Party has failed to cure such breach within thirty (30) days after receipt of notice of such breach from the non-breaching party (or within ten (10) days, in the event of a default in the payment of money).
4 (c) Notwithstanding any other provisions of this Agreement, this Agreement shall terminate by its own terms twelve (12) months after the Closing, unless otherwise extended by Purchaser in accordance with Section 2(c) above.
7. Force Majeure. SpaceCom’s obligations to perform the Services shall be suspended during the period and to the extent that SpaceCom is prevented or hindered from complying therewith by any cause beyond the reasonable control of SpaceCom, including, without limitation, acts of God, strikes, acts of terrorism, fire, flood, power failures or surges, epidemics, riots, theft, lock outs and other labor disputes, civil disturbances, injunctions and other government orders or legal requirements (whether under the export control laws or otherwise), accidents, acts of war or conditions arising out of or attributable to war (whether declared or undeclared). In such event, SpaceCom shall as soon as reasonably practicable give Purchaser notice of suspension, stating the Services to be suspended and the cause thereof, and SpaceCom shall resume the performance of such Services as soon as reasonably practicable after the cause of the suspension and the effects thereof that prevented or hindered SpaceCom from performing the Services shall cease to exist and shall so notify Purchaser. Should a force majeure event occur, at Purchaser’s request and at Purchaser’s sole cost and expense, SpaceCom shall, as promptly as practicable, migrate the Services that have been suspended due to the force majeure event to alternative facilities or another service provider as directed by Purchaser. Upon cessation of the force majeure event and the effects thereof that prevented or hindered SpaceCom from performing the Services, all obligations under this Agreement shall resume. SpaceCom shall not be liable for any damages, liability, interruption of Service or delay or failure to perform under this Agreement to the extent that such damages, liability, interruption, delay or failure results from a force majeure event, as described in this Section 7.
8. Warranties. Except as provided for herein, SpaceCom makes no warranties of any kind, whether express or implied, for the provision of Services. SpaceCom specifically disclaims any express, implied and statutory warranties, including, without limitation, warranties of merchantability or fitness for any particular purpose and non- infringement of proprietary rights, all of which are expressly disclaimed to the fullest extent permitted by law. SpaceCom hereby represents and warrants to, and covenants with, Purchaser that:
(a) SpaceCom will comply in all material respects with all laws and regulations applicable to SpaceCom in connection with its provision of the Services hereunder, and will maintain all permits, licenses, and other authorizations required to so comply with such laws and regulations.
(b) The Services shall be performed in accordance with Section 2(e) hereof.
(c) SpaceCom shall keep all its equipment, software, and facilities that are necessary to, or useful in, the performance of the Services for Purchaser in good working condition and repair, subject to Section 2(e) hereof.
5 (d) SpaceCom shall include in any proposed plan of reorganization the assumption, reinstatement and ongoing performance by SpaceCom of this Agreement.
Loral Space hereby represents and warrants to, and covenants with, Purchaser that Loral Space shall include in any proposed plan of reorganization the assumption, reinstatement and ongoing performance by Loral Space of this Agreement.
9. Access to Facilities; Rights in Data.
(a) Purchaser may co-locate up to five (5) full-time equivalent employees (who shall be U.S. citizens or lawful permanent U.S. residents) at SpaceCom’s Hawley and/or Three Peaks facilities with access to facilities and key staff. SpaceCom shall provide office facilities for Purchaser’s employees, consisting of a reasonable amount of office space, office furniture, office supplies, desk-top computers (with e-mail and internet access capabilities), regular parking facilities, local, long distance and international telephone service and access to copy and facsimile machines. Purchaser shall use its Best Reasonable Efforts to ensure that all of its personnel located at SpaceCom’s premises as contemplated by the Schedules hereto adhere to applicable security and corporate rules and regulations. It is understood and agreed that such personnel will be assigned to designated areas, and may require SpaceCom escorts when the scope of their work requires them to enter other parts of the premises.
(b) Purchaser acknowledges that, other than as provided in the Asset Purchase Agreement or any of the Ancillary Agreements, it is not entitled to any intellectual property rights (including any and all patent, trademark, service mark, copyright, trade secrets, design rights, know-how, confidential information and all other intellectual or industrial property rights whether or not registered or capable of registration) which subsist in any and all data, text, drawings, know-how, graphics, code or other information in electronic or tangible form supplied to Purchaser by SpaceCom or accessed by Purchaser in the course of the provision of the Services, whether created in the course of performing its obligations to Purchaser or not, provided, however, SpaceCom hereby grants Purchaser a perpetual, non-exclusive, world-wide, royalty-free, irrevocable and assignable license to use such data or other information to the extent left in Purchaser’s possession. Purchaser agrees not to contest the validity, ownership or enforceability of SpaceCom’s rights in and to any such data or other information.
10. Confidentiality. Each of Purchaser and SpaceCom hereby acknowledges that certain confidential information (the “Information,” which term shall include all information in respect of the business of Purchaser or SpaceCom, including, without limitation, any ideas, business methods, finances, prices, business, financial, marketing, development or manpower plans, customer lists or details, computer systems and software, know-how or other matters connected with the products or services marketed, provided or obtained by Purchaser or SpaceCom and information concerning their respective relationships with actual or potential customers and the needs and requirements of such persons may be disclosed to the other Parties and the other Parties’ employees, agents and subcontractors as a result of the performance of the Services subject to the provisions of Section 10(a). Notwithstanding anything to the contrary contained herein, this Section 10 shall not restrict in any way Purchaser’s use following the Closing of any Information necessary or desirable in connection with the continuing operation of the Transferred Business.
6 (a) Each Party agrees with the other Parties in respect of all Information:
(i) to keep the Information in strict confidence and secrecy;
(ii) not to use the Information save for enjoying its rights and complying with its obligations under this Agreement;
(iii) not to disclose the Information to any third party;
(iv) to restrict the disclosure of any Information to (A) only such of its employees, agents, subcontractors and other persons who require such Information in the performance of their duties pursuant to this Agreement and (B) only such portions of the Information as the employees, agents, subcontractors and other persons referred to in this clause actually require for the performance of such duties and, in such circumstances, to ensure that such employees, agents, subcontractors and other persons are made aware of the confidential nature of the Information and that they are required not to disclose the Information except as permitted in this Section 10; and
(v) Each Party shall return to the relevant Party any portion of Information in whatever form it may be and all copies thereof at such time as such portion of Information is no longer required in connection with the provision of Services under this Agreement, and all Information in whatever form it may be and all copies thereof shall be returned to the relevant Party and each Party shall confirm that no Information has been retained in its possession or under its control on termination of this Agreement.
(b) Section 10(a) shall not prevent the disclosure of Information which:
(i) the disclosing Party (or one of its officers, directors, employees, agents or other representatives) is legally obligated to make;
(ii) is made for a proper purpose to (1) a public authority, (2) a court of law or otherwise in any legal proceeding or arbitration, or (3) the auditors of, or any lawyer or professional person acting for, a Party; or
(iii) is in the public domain other than by reason of a breach of any obligation owed pursuant to this Agreement, provided that a confidential filing with a Governmental Authority shall not be considered as being in the public domain.
(c) This obligation of confidentiality shall survive any termination of this Agreement.
11. Relationship of Parties. Each Party in performing its obligations and duties hereunder shall be conclusively deemed to be an independent contractor and not under the control or supervision of the other Parties hereto and nothing in this Agreement shall be read to create any agency, partnership or joint venture of Purchaser and Loral Space or SpaceCom or to create any trust or other fiduciary relationship between them.
7 12. Entire Agreement. This Agreement, together with the applicable provisions of the Asset Purchase Agreement, constitutes the entire agreement of the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof.
13. Assignment. Neither Loral Space nor SpaceCom may assign its rights or obligations under this Agreement without the prior written consent of Purchaser, and Purchaser may not assign its rights or obligations under this Agreement without the prior written consent of SpaceCom, in each case which consent shall not be unreasonably withheld; provided, however, that Purchaser may (i) assign its rights or obligations hereunder without such consent to an Affiliate and (ii) assign, pledge and grant a security interest in its right, title and interest, in, to and under this Agreement and its rights hereunder as collateral security for any present or future indebtedness of Purchaser, Parent or any of their Affiliates.
14. Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by each of the Parties hereto.
15. Waiver. Failure or delay by any Party to this Agreement in exercising any right or remedy of that Party under this Agreement shall not operate as a waiver of such right or remedy, nor shall any single or partial exercise of any right or remedy preclude any other or future exercise of such right or remedy or the exercise of any other right or remedy. Any waiver of a breach of, or a default under, any of the terms of this Agreement shall not be deemed a waiver of any subsequent breach or default, and shall in no way affect the other terms of this Agreement.
16. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY (A) IN THE BANKRUPTCY COURT TO THE EXTENT THAT THE BANKRUPTCY COURT HAS JURISDICTION OVER SUCH ACTION OR PROCEEDING, AND (B) IN ALL OTHER CASES IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK (THE “CHOSEN COURTS”) AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO, (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH SECTION 19 OF THIS AGREEMENT AND (V) ACKNOWLEDGES THAT THE OTHER PARTIES WOULD BE IRREPARABLY DAMAGED IF ANY OF THE PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS AND THAT ANY
8 BREACH OF THIS AGREEMENT COULD NOT BE ADEQUATELY COMPENSATED IN ALL CASES BY MONETARY DAMAGES ALONE AND THAT, IN ADDITION TO ANY OTHER RIGHT OR REMEDY TO WHICH A PARTY MAY BE ENTITLED, AT LAW OR IN EQUITY, IT SHALL BE ENTITLED TO ENFORCE ANY PROVISION OF THIS AGREEMENT BY A DECREE OF SPECIFIC PERFORMANCE AND TO TEMPORARY, PRELIMINARY AND PERMANENT INJUNCTIVE RELIEF TO PREVENT BREACHES OR THREATENED BREACHES OF ANY OF THE PROVISIONS OF THIS AGREEMENT, WITHOUT POSTING ANY BOND OR OTHER UNDERTAKING.
17. Severability. If any term, provision, covenant or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the Parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the Parties to this Agreement.
18. No Third-Party Beneficiary. The provisions of this Agreement are for the benefit solely of the Parties hereto and their permitted assigns, and no third party may seek to enforce or benefit from these provisions.
19. Notices. All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the Party for whom it is intended, if delivered by registered or certified mail, return receipt requested, or by a national courier service, or if sent by telecopier, provided that the telecopy is promptly confirmed by telephone confirmation thereof, to the person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Party:
9 To Purchaser:
Intelsat (Bermuda), Ltd. Dundonald House 14 Dundonald Street West, Suite 201 Hamilton HM 09, Bermuda Telecopy: +441-292-8300 Attn: President/CEO
with a copy (which shall not constitute notice) to:
Intelsat Global Service Corporation 3400 International Drive, NW Washington, DC 20008-3006 Telecopy: (202) 944-7529 Attn: General Counsel and Senior Vice President for Regulatory Affairs
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell LLP 1701 Pennsylvania Avenue, NW Washington, D.C. 20006 Telephone: (202) 956-7500 Telecopy: (202) 293-6330 Attn: Janet T. Geldzahler, Esq.
To Sellers:
Loral Space & Communications Corporation 600 Third Avenue New York, NY 10019 Telephone: (212) 697-1105 Telecopy: (212) 338-5320 Attn: General Counsel
With a copy to:
Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Telephone: (212) 728-8000 Telecopy: (212) 728-8111 Attn: Bruce R. Kraus, Esq.
20. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument.
10 21. Guaranty. Loral Space hereby guarantees the prompt and complete performance when due of all of SpaceCom’s obligations hereunder. Loral Space agrees that Purchaser and SpaceCom may in their sole and absolute discretion, without notice to or further assent of Loral Space and without in any way releasing, affecting or impairing the obligations under the foregoing guaranty, (i) waive compliance with, or any default under, or grant any other indulgences with respect to this Agreement, and (ii) agree to modify, amend or change any provisions of this Agreement. The obligations of Loral Space under this guaranty are continuing, absolute and unconditional, and shall not be released, discharged or in any way affected by assignment or transfer of this Agreement by any Party hereto. Loral Space and SpaceCom each waive any requirement that Purchaser seek enforcement of its rights against SpaceCom prior to seeking enforcement of its rights against Loral Space under this guaranty.
11 IN WITNESS WHEREOF, SpaceCom, Purchaser and Loral Space have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
INTELSAT (BERMUDA), LTD.
By: /s/ Ramu Potarazu Title: President
LORAL SPACECOM CORPORATION
By: /s/ Eric J. Zahler Title: President and Chief Operating Officer
LORAL SPACE & COMMUNICATIONS CORPORATION
By: /s/ Eric J. Zahler Title: President and Chief Operating Officer
C-1 Exhibit 3.19
ZEUS MERGER TWO LIMITED
$2,550,000,000
$1,000,000,000 Floating Rate Senior Notes due 2012 $875,000,000 8 1/4% Senior Notes due 2013 $675,000,000 8 5/8% Senior Notes due 2015
PURCHASE AGREEMENT
January 24, 2005
DEUTSCHE BANK SECURITIES INC. CREDIT SUISSE FIRST BOSTON LLC LEHMAN BROTHERS INC., as Representatives of the initial purchasers listed on Schedule 1 c/o Deutsche Bank Securities Inc. 60 Wall Street New York, New York 10005
Ladies and Gentlemen:
Zeus Merger Two Limited, a company organized under the laws of Bermuda (the “Company”), which as part of the Acquisition (as defined herein) will be amalgamated with Intelsat (Bermuda), Ltd. (“Intelsat Bermuda”), a company organized under the laws of Bermuda, and Zeus Merger One Limited (the “Parent Guarantor”), a company organized under the laws of Bermuda, which as part of the Acquisition (as defined herein) will be amalgamated with Intelsat, Ltd. (“Intelsat”), a company organized under the laws of Bermuda, each hereby confirms its agreement with you (the “Initial Purchasers”), as set forth below. Upon the consummation of the Acquisition, references to the “Company” shall be deemed to be references to Intelsat Bermuda as the company resulting from the amalgamation of Intelsat Bermuda and Zeus Merger Two Limited, and references to the “Parent Guarantor” shall be deemed to be references to Intelsat as the company resulting from the amalgamation of Intelsat and Zeus Merger One Limited.
Section 1. The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchasers $875,000,000 aggregate principal amount of its 8 1/4% Senior Notes due 2013 (the “2013 Notes”), $675,000,000 aggregate principal amount of its 8 5/8% Senior Notes due 2015 (the “2015 Notes” and, together with the 2013 Notes, the “Fixed Rate Notes”), and $1,000,000,000 aggregate principal amount of its Floating Rate Senior Notes due 2012 (the “Floating Rate Notes” and, together with the Fixed Rate Notes, the “Notes”). The Parent Guarantor will initially guarantee (the “Parent Guarantee”) the Company’s obligations under the Notes. Substantially concurrently with the consummation of the Acquisition, Intelsat Bermuda as the company resulting from the amalgamation of Intelsat Bermuda and Zeus Merger Two Limited will become the obligor of the Company’s obligations under the Notes, Intelsat as the company resulting from the amalgamation of Intelsat and Zeus Merger One Limited will become the obligor of the Parent Guarantor’s obligations under the Parent Guarantee and, upon execution of the Supplemental Indenture (as defined herein), the Notes will be jointly and severally guaranteed on a senior unsecured basis (the “Subsidiary Guarantees” and, together with the Parent Guarantee, the “Guarantees”) by Intelsat Bermuda’s subsidiaries set forth on Schedule 2 hereto (the “Subsidiary Guarantors”). We refer herein to the Parent Guarantor and the Subsidiary Guarantors as the “Guarantors”. The Notes and the Guarantees are hereinafter referred to collectively as the “Securities” and the Company and the Guarantors are hereinafter referred to collectively as the “Issuers.” The Securities are to be issued under an indenture (the “Indenture”) to be dated as of January 28, 2005 by and among the Company, the Parent Guarantor and Wells Fargo Bank, National Association, as Trustee (the “Trustee”). Substantially concurrently with the consummation of the Acquisition, the Subsidiary Guarantors are to become a party to the Indenture pursuant to a supplemental indenture (the “Supplemental Indenture”) by and among the Company, the Subsidiary Guarantors and the Trustee. Concurrently with such execution of the Supplemental Indenture, references herein to the Indenture include the Supplemental Indenture.
The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the “Act”), in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company and the Parent Guarantor have prepared a preliminary offering memorandum dated January 5, 2005, as supplemented by a supplement dated January 21, 2005 (the “Preliminary Memorandum”) and a final offering memorandum dated January 24, 2005 (the “Final Memorandum”; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a “Memorandum”) setting forth or including a description of the terms of the Securities, the terms of the offering of the Securities, a description of Intelsat Bermuda and any material developments relating to Intelsat Bermuda occurring after the date of the most recent historical financial statements included therein.
The Initial Purchasers and their direct and indirect transferees of the Notes will be entitled to the benefits of a Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”), pursuant to which the Company and the Parent Guarantor have agreed, among other things, to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) registering the Notes or the Exchange Notes (as defined in the Registration Rights Agreement)
2 under the Act. Substantially concurrently with the consummation of the Acquisition, the Subsidiary Guarantors shall become party to the Registration Rights Agreement pursuant to a joinder agreement (the “Registration Rights Joinder Agreement”), as provided in the Registration Rights Agreement. Concurrently with such execution of the Registration Rights Joinder Agreement, references herein to the Registration Rights Agreement include the Registration Rights Joinder Agreement.
The Securities are being offered and sold by the Company in connection with the acquisition (the “Acquisition”) pursuant to that certain Transaction Agreement and Plan of Amalgamation among Intelsat, Intelsat Bermuda, Zeus Holdings Limited, Zeus Merger One Limited and Zeus Merger Two Limited, as amended from time to time (the “Acquisition Agreement” and, together with all other agreements related to the Acquisition, the “Acquisition Documents”) of Intelsat by Zeus Holdings Limited (“Holdings”) (or a subsidiary thereof). In connection with the Acquisition, the Company will also enter into new senior secured credit facilities consisting of a $350,000,000 Term Loan B facility (of which $200 million will be a delayed draw facility, the proceeds of which are expected to be used to redeem Intelsat’s existing 8-1/8% Eurobond Notes due 2005 (“Eurobond Notes”)) and a $300,000,000 revolving credit facility (the “Credit Agreement” and together with all other agreements related to such facility, the “Credit Documents”) with Deutsche Bank Securities Inc. (“DBSI”), Credit Suisse First Boston LLC and Lehman Brothers Inc. as joint lead arrangers and joint book running managers and other agents and lenders party thereto. On the Closing Date (as defined herein), to the extent the Acquisition is not substantially concurrently consummated, there will be delivered to Wells Fargo Bank, National Association, as escrow agent (the “Escrow Agent”) the gross proceeds of the offering of the Notes. The Acquisition, the borrowings under the Credit Agreement as of the Acquisition Date (as defined below) and the transactions contemplated hereby are referred to as the “Transactions.” This Agreement, the Indenture (including the Guarantees), Registration Rights Agreement, Securities, Exchange Notes (as defined in the Registration Rights Agreement), Private Exchange Notes (as defined in the Registration Rights Agreement), Exchange Guarantees (as defined below), Escrow Agreement (as defined herein) (if the Acquisition is not substantially concurrently consummated on the Closing Date), Credit Documents and Acquisition Documents and any documents relating to the equity investment in Holdings by the sponsors contributing equity therefor, are collectively referred to as the “Transaction Documents.”
On the Closing Date, to the extent the Acquisition is not substantially concurrently consummated, the Company, the Trustee and the Escrow Agent will enter into an escrow and pledge agreement (the “Escrow Agreement”). On a Business Day (as defined below) (the “Release Date”) on or before the Deadline (as defined below) that shall be designated by the Company, the Escrow Funds will be released (the “Release”) to the Company, to fund, along with borrowings under the Credit Agreement (a) the Acquisition and (b) the payment of certain fees and expenses related to the foregoing transactions, all as described in the Final Memorandum.
3 If the conditions to Release are not satisfied on or before the earliest of (i) April 28, 2005, (ii) the date of termination of the Acquisition Agreement or (iii) such earlier date in the discretion of the Company (the earliest such date, the “Deadline”), then the Indenture will require that the Company redeem (the “Special Mandatory Redemption”) all of the Notes at 100% of their principal amount, plus accrued and unpaid interest thereon on a Business Day designated by the Company that is not more than 10 Business Days following the Deadline (the “Special Mandatory Redemption Date”) and the Release Date shall not occur. For purposes of this Agreement, a “Business Day” means a day other than a Saturday, Sunday or other day on which banking institutions are authorized or required by law to close in New York City.
Substantially concurrently with the consummation of the Acquisition, the Subsidiary Guarantors shall become party to this Agreement pursuant to a joinder agreement (the “Purchase Agreement Joinder Agreement” and, together with the Registration Rights Joinder Agreement, the “Joinder Agreements”) substantially in the form of the joinder agreement attached as Exhibit B hereto. The representations, warranties and agreements of the Subsidiary Guarantors herein shall become effective on the date of consummation of the Acquisition (the “Acquisition Date”) upon execution by such Subsidiary Guarantor of the Purchase Agreement Joinder Agreement (but if specified to be given as of a specified date, shall be given as of such date), at which time such representations, warranties and agreements shall become effective pursuant to the terms of the Purchase Agreement Joinder Agreement.
Section 2. Representations and Warranties. The Company and the Parent Guarantor jointly and severally represent and warrant to each of the Initial Purchasers (it being understood that prior to the date of consummation of the Acquisition, all representations and warranties of the Company and the Parent Guarantor with respect to Intelsat, Intelsat Bermuda and any of their subsidiaries (including, without limitation, any of the Subsidiary Guarantors) are made to the knowledge of the Company or the Parent Guarantor, as the case may be, after due inquiry) as follows:
(a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum as of the date thereof, nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to any of the Initial Purchasers furnished to the Company, the Parent Guarantor, Intelsat or Intelsat Bermuda in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto.
(b) As of the Closing Date, (i) after giving effect to the Acquisition, Intelsat will have the authorized, issued and outstanding capitalization set forth in the Final
4 Memorandum; (ii) all of the “significant subsidiaries” (as defined in and calculated in accordance with Rule 1-02 of Regulation S-X) of Intelsat Bermuda are listed in Schedule 3 attached hereto (each, a “Subsidiary” and collectively, the “Subsidiaries”); (iii) all of the outstanding ownership interests in or shares of capital stock of Intelsat Bermuda and the Subsidiaries have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; (iv) all of the outstanding shares of capital stock of Intelsat and of each of the Subsidiaries will be free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than any security interests required under the Credit Documents, pursuant to the Acquisition Documents or the Eurobound Notes, those securing capitalized lease obligations of Intelsat Bermuda and its subsidiaries, and those imposed by the Act and the securities or “Blue Sky” laws of certain jurisdictions) or voting; (v) except as set forth in the Final Memorandum or in connection with the Acquisition Documents, there are no (A) options, warrants or other rights to purchase, (B) agreements or other obligations to issue or (C) other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in Intelsat or any of its subsidiaries outstanding. Except for the Subsidiaries and Intelsat Bermuda’s other subsidiaries or as disclosed in the Final Memorandum, as of the Closing Date, Intelsat Bermuda does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity.
(c) On the date hereof, the Company and the Parent Guarantor, and at the Closing Date and after giving effect to the Acquisition, each of the Issuers (i) is and will be duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has and will have all requisite corporate or limited liability company power and authority, as the case may be, to own its properties and conduct its business as now conducted and as described in the Final Memorandum; and (ii) is and will be duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), business or results of operations of Intelsat, Intelsat Bermuda and the Subsidiaries, taken as a whole and after giving effect to the Transactions (any such event, a “Material Adverse Effect”).
(d) At the Closing Date, the Company will have all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Notes, the Exchange Notes and the Private Exchange Notes. The Notes, when issued, will be in the form contemplated by the Indenture. At the Closing Date, the Notes, the Exchange Notes and the Private Exchange Notes have each been duly and validly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, when
5 delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, liquidation, possessory liens, rights of set-off, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (collectively, the “Enforceability Exceptions”).
(e) The Parent Guarantor has, and at the Acquisition Date the Subsidiary Guarantors will have, all requisite corporate or limited liability company power and authority, as the case may be, to execute, deliver and perform each of their obligations under (i) the Guarantees and (ii) the guarantees of the Company’s obligations under the Exchange Notes and the Private Exchange Notes (the “Exchange Guarantees”). The Guarantees, when issued, will be in the form contemplated by the Indenture. The Parent Guarantee and the Exchange Guarantees from the Parent Guarantor have been duly and validly authorized by the Parent Guarantor, and at the Acquisition Date the Subsidiary Guarantees and the Exchange Guarantees from the Subsidiary Guarantors will have been duly and validly authorized by the Subsidiary Guarantors and, when the Guarantees are executed by the Guarantors and authenticated by the Trustee in accordance with the provisions of the Indenture, will constitute valid and legally binding obligations of the Guarantors, entitled to the benefits of the Indenture, and enforceable against the Guarantors in accordance with their terms, except that the enforcement thereof may be subject to the Enforceability Exceptions.
(f) The Company and the Parent Guarantor have, and at the Acquisition Date the Issuers will have, all requisite corporate or limited liability company power and authority, as the case may be, to execute, deliver and perform each of their obligations under the Indenture or the Supplemental Indenture, as the case may be. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the “TIA”). The Indenture has been duly and validly authorized by the Company and the Parent Guarantor, and at the Acquisition Date the Indenture or the Supplemental Indenture, as the case may be, will have been duly and validly authorized by the Issuers, and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Issuers, enforceable against the Issuers in accordance with its terms, except that the enforcement thereof may be subject to the Enforceability Exceptions.
(g) The Escrow Agreement has been duly authorized by the Company and, if and when executed and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with
6 its terms, except that the enforcement thereof may be subject to the Enforceability Exceptions. If and when executed and delivered by the Company, the Escrow Agreement will be effective on that date to create in favor of the Trustee, for its benefit and the benefit of the holders of the Notes, a valid security interest in all rights of the Company in (a) such Escrow Account (as defined in the Escrow Agreement), (b) all “security entitlements” (as such term is defined in Section 8-102(a) of the Uniform Commercial Code of New York (“UCC”)) with respect to all “financial assets” (as such term is defined in Section 8-102(a) of the UCC) held in the Escrow Account and (c) all “proceeds” (as such term is defined in Section 9-102(a) of the UCC) of such security entitlements, in each case, securing the Securities). Such security interests will constitute first priority perfected security interests in the Collateral (as defined in the Escrow Agreement) free and clear of all liens and security interests, other than the liens and security interests granted under the Escrow Agreement.
(h) The Company and the Parent Guarantor have, and at the Closing Date the Company and the Parent Guarantor will have, all requisite corporate power and authority to execute, deliver and perform their obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by the Company and the Parent Guarantor and, when executed and delivered by the Company and the Parent Guarantor (assuming the due authorization, execution and delivery by the Initial Purchasers), will constitute a valid and legally binding agreement of the Company and the Parent Guarantor enforceable against the Company and the Parent Guarantor in accordance with its terms, except that (A) the enforcement thereof may be subject to the Enforceability Exceptions and (B) any rights to indemnity or contribution thereunder may be limited by U.S. federal and state securities laws and public policy considerations.
(i) The Company and the Parent Guarantor have all requisite corporate power and authority to execute, deliver and perform their obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation by the Company and the Parent Guarantor of the transactions contemplated hereby have been duly and validly authorized by the Company and the Parent Guarantor. This Agreement has been duly executed and delivered by the Company and the Parent Guarantor.
(j) The Joinder Agreements, when duly executed and delivered in accordance with their terms by each of the parties thereto, will constitute valid and legally binding agreements of each of the Subsidiary Guarantors party thereto, enforceable against each of the Subsidiary Guarantors party thereto in accordance with their terms (subject to the Enforceability Exceptions and with respect to the Registration Rights Joinder Agreement, any rights to indemnity or contribution thereunder may be limited by U.S. federal and state securities laws and public policy considerations). At the Acquisition Date, the Joinder Agreements and the consummation by the Subsidiary Guarantors of the
7 transactions contemplated by the Joinder Agreements, Registration Rights Agreement and this Agreement will have been duly and validly authorized by the Subsidiary Guarantors. At the Acquisition Date, the Joinder Agreements will have been duly executed and delivered by the Subsidiary Guarantors.
(k) Except as disclosed in the Final Memorandum, at the Closing Date, no consent, approval, authorization or order of any court or governmental agency or body, or third party is required for the issuance and sale by the Company and the Parent Guarantor (and after consummation of the Acquisition, by the other Issuers) of the Securities to the Initial Purchasers or the consummation by the Company and the Parent Guarantor (and after consummation of the Acquisition, by the other Issuers) of the other transactions contemplated hereby, except (i) such as have been obtained, (ii) such as may be required under state securities or “Blue Sky” laws in connection with the purchase and resale of the Securities by the Initial Purchasers, (iii) such as may be required in connection with the transactions contemplated by the Registration Rights Agreement and (iv) such consents, approvals, authorizations or orders the failure of which to obtain, or the absence of which, would not result in a Material Adverse Effect. Neither Intelsat Bermuda nor any of the Subsidiaries (before and after giving effect to the Transactions) is (i) in violation of its certificate of incorporation, bylaws, memorandum of association or limited liability company agreement (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to any of them or any of their respective properties or assets, except for any such breach or violation that would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach of or default under (nor has any event occurred that, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which any of them is a party or to which any of them or their respective properties or assets is subject (collectively, “Contracts”), except for any such breach, default, violation or event that would not, individually or in the aggregate, have a Material Adverse Effect.
(l) The execution, delivery and performance by the Issuers (in each case to the extent a party thereto) of this Agreement, the Joinder Agreements, the Escrow Agreement, the Indenture, the Supplemental Indenture and the Registration Rights Agreement, and the consummation by the Issuers of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Securities to the Initial Purchasers) will not conflict with or constitute or result in a breach of or a default under (or an event that with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract, except for any such conflict, breach, violation, default or event that would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation, bylaws, memorandum of association or limited liability company agreement (or similar
8 organizational document) of any of the Issuers or (iii) (assuming compliance with all applicable state securities or “Blue Sky” laws and assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof) any statute, judgment, decree, order, rule or regulation applicable to the Issuers or any of their respective properties or assets, except for any such conflict, breach or violation that would not, individually or in the aggregate, have a Material Adverse Effect; provided, that it is understood for purposes of this clause (l) that the Issuers other than the Company and the Parent Guarantor will not execute, deliver or perform their obligations under any such agreements until the consummation of the Acquisition.
(m) The consolidated historical financial statements of Intelsat, Ltd. and its consolidated subsidiaries included in the Final Memorandum present fairly in all material respects the financial position, results of operations and cash flows of Intelsat, Ltd. and its consolidated subsidiaries at the dates and for the periods to which they relate and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) applied on a consistent basis, except as otherwise stated therein. The summary and selected financial data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. KPMG LLP is an independent public accounting firm within the meaning of the Act and the rules and regulations promulgated thereunder.
(n) To the Company’s knowledge, the combined historical statements of net assets sold and the related combined historical statements of revenues and direct expenses of the satellite services business operations relating to and conducted with the North American telecommunications satellites (collectively referred to as the “Loral Transferred Satellites”) of Loral Space & Communications Ltd. and its subsidiaries (collectively referred to as “Loral”) included in the Final Memorandum present fairly, in all material respects, the combined statements of net assets sold and the related combined statements of revenues and direct expenses of the Loral Transferred Satellites at the dates and for the periods indicated, and have been prepared in conformity with U.S. GAAP. To the Company’s knowledge, the condensed consolidated financial information of the Loral Transferred Satellites included in the Final Memorandum has been compiled on a basis substantially consistent with that of the audited combined statements of revenues and direct expenses of the Loral Transferred Satellites included in the Final Memorandum. Grant Thornton LLP (together with KPMG LLP, the “Independent Accountants”) is an independent public accounting firm within the meaning of the Act and the rules and regulations promulgated thereunder.
(o) To the Company’s knowledge, the condensed consolidated financial information of the business acquired from COMSAT General Corporation, Lockheed Martin Global Telecommunications, LLC and COMSAT New Services, Inc. (the “COMSAT Business”) included in the Final Memorandum presents fairly, in all material respects, the combined statements of net assets sold and the related combined statements of revenues, direct expenses and allocated expenses of the COMSAT Business at the dates and for the periods indicated, and has been prepared in conformity with U.S. GAAP.
9 (p) The pro forma financial statements (including the notes thereto) included in the Final Memorandum under the heading “Unaudited Pro Forma Condensed Consolidated Financial Information” have been properly computed on the bases described therein, and excluding adjustments relating to the Intelsat Americas Transaction, the COMSAT General Transaction, the discontinued operations of Galaxy Satellite TV Holdings Limited and the repayment of the Eurobond 8-3/8% Notes in October 2004 (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein.
(q) Except as expressly described under the heading “Business—Legal Proceedings” in the Final Memorandum, there is not pending or, to the knowledge of the Parent Guarantor or the Company, threatened (other than as expressly described in the third paragraph of the first Risk Factor in the Final Memorandum) any action, suit, proceeding, inquiry or investigation to which any of Intelsat, Intelsat Bermuda or the Issuers is a party, or to which the property or assets of any of Intelsat, Intelsat Bermuda or the Issuers are subject, before or brought by any court, arbitrator or governmental agency or body that, if determined adversely to any of Intelsat, Intelsat Bermuda or the Issuers, would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the consummation of the other transactions described in the Final Memorandum.
(r) Except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto), each of Intelsat, Intelsat Bermuda and the Subsidiary Guarantors possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum (“Permits”), except where the failure to obtain such Permits would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto) or as would not, individually or in the aggregate, have a Material Adverse Effect, each of
10 Intelsat, Intelsat Bermuda and the Subsidiary Guarantors has fulfilled and performed all of its obligations with respect to such Permits and except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto) or as would not, individually or in the aggregate, have a Material Adverse Effect, no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of Intelsat, Intelsat Bermuda or the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Final Memorandum and except where such revocation or modification would not, individually or in the aggregate, reasonably be expect to have a Material Adverse Effect.
(s) Since the date of the most recent financial statements appearing in the Final Memorandum, except as described in the Final Memorandum, (i) none of Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors has incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business, which liabilities, obligations, transactions or contracts would, individually or in the aggregate, have a Material Adverse Effect, (ii) except as would not have a Material Adverse Effect, none of Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock or ownership interests (other than with respect to any Subsidiary Guarantor, the purchase of, or dividend or distribution on, capital stock owned by Intelsat Bermuda or another Subsidiary Guarantor) and (iii) except as would not have a Material Adverse Effect or as a result of the Acquisition, there shall not have been any material change in the capital stock or long-term indebtedness of Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors.
(t) Except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto) each of Intelsat, Intelsat Bermuda and the Subsidiary Guarantors has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect and except as disclosed in the Final Memorandum (exclusive of any amendment or supplement thereto) other than tax deficiencies that Intelsat, Intelsat Bermuda or such Subsidiary Guarantor, as the case may be, is contesting in good faith and for which Intelsat, Intelsat Bermuda or such Subsidiary Guarantor, as the case may be, has provided adequate reserves, there is no tax deficiency that has been asserted against any of Intelsat, Intelsat Bermuda or such Subsidiary Guarantor, as the case may be, that would have, individually or in the aggregate, a Material Adverse Effect.
(u) The statistical and market-related data included in the Final Memorandum are based on or derived from sources that the Company or the Parent Guarantor believe to be reliable and accurate.
11 (v) None of the Issuers or any agent acting on their behalf has taken or will take any action that might cause this Agreement or the sale of the Securities to violate Regulation T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date.
(w) Each of Intelsat, Intelsat Bermuda and the Subsidiary Guarantors has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described in the Final Memorandum as being leased by it free and clear of all liens, charges, encumbrances or restrictions, except as described in the Final Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not, individually or in the aggregate, have a Material Adverse Effect. All leases, contracts and agreements to which any of Intelsat, Intelsat Bermuda and the Subsidiary Guarantors is a party or by which any of them is bound are valid and enforceable against such entity and are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. Except as disclosed in the Final Memorandum or as would not have a Material Adverse Effect, Intelsat, Intelsat Bermuda and the Subsidiary Guarantors own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum, and, except as disclosed in the Final Memorandum, none of Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect.
(x) Except as disclosed in the Final Memorandum or as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each of Intelsat, Intelsat Bermuda and the Subsidiaries has filed with the U.S. Federal Communications Commission (the “FCC”), the United Kingdom’s Office of Communications (the “OFCOM”) and, through these two agencies, to the International Telecommunication Union (the “ITU”), all reports, documents, instruments, information and applications required to be filed pursuant to the rules and regulations of the FCC, the OFCOM and the ITU, and has obtained all licenses, orders or other authorizations issued by the FCC, the OFCOM, the ITU and any equivalent authority of Bermuda and each other jurisdiction in which the Company operates (collectively, the “Communications Licenses”) required for the operation of the business of Intelsat, Intelsat Bermuda and the Subsidiaries as now or as proposed to be conducted as disclosed in the Final Memorandum (other than with respect to the IA-9 satellite, for which an application has been filed with the FCC and is currently pending), and, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, such Communications Licenses are in full force
12 and effect (other than with respect to the IA-9 satellite, for which an application has been filed with the FCC and is currently pending) and, to the Parent Guarantor’s and the Company’s knowledge, there are no pending revocation or other proceedings initiated by the FCC, the OFCOM, the ITU or any equivalent authority of Bermuda or other jurisdiction in which Intelsat or Intelsat Bermuda operates which, if determined against Intelsat or Intelsat Bermuda, would have a Material Adverse Effect. To the Parent Guarantor’s and the Company’s knowledge, fees due and payable to domestic and foreign governmental authorities pursuant to the rules governing Communications Licenses held by Intelsat, Intelsat Bermuda and the Subsidiaries, the nonpayment of which, with the giving of notice or the lapse of time or both would constitute grounds for revocation thereof, have been timely paid, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as disclosed in the Final Memorandum, each of Intelsat, Intelsat Bermuda and the Subsidiaries is in compliance with the terms of the Communications Licenses, as applicable, except where such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, and there is no condition of which Intelsat or Intelsat Bermuda has received notice, nor, to the Parent Guarantor’s or the Company’s knowledge, is there any proceeding threatened, by any domestic or foreign governmental authority, which would cause the termination, suspension, cancellation or nonrenewal of any of the Communications Licenses, or the imposition of a penalty or fine by any domestic or foreign regulatory authority, except for such condition or proceeding that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
(y) Except as disclosed in the Final Memorandum, there are no legal or governmental proceedings involving or affecting Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors or any of their respective properties or assets that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum except for such proceedings that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
(z) Except as disclosed in the Final Memorandum or as would not have a Material Adverse Effect, Intelsat Bermuda and the Guarantors (A) are not in violation of any applicable Bermuda, U.S. or other national, state, provincial or local laws or regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval.
(aa) Except as described in the Final Memorandum (exclusive of any amendment or supplement thereto), no labor disturbance by the employees of Intelsat Bermuda or any of the Subsidiary Guarantors exists or, to the knowledge of the Company, is imminent which might reasonably be expected to have a Material Adverse Effect.
13 (bb) Except as described in the Final Memorandum, Intelsat Bermuda and each of the Subsidiary Guarantors carry, or are covered by, insurance in such amounts and covering such risks as the Company believes is adequate for the conduct of their respective businesses and the value of their respective properties.
(cc) None of Intelsat, Intelsat Bermuda or any of the Subsidiaries has any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to which any of Intelsat, Intelsat Bermuda or any of the Subsidiaries makes or ever has made a contribution and in which any employee of any of Intelsat, Intelsat Bermuda or any of the Subsidiaries is or has ever been a participant. With respect to such plans, each of Intelsat, Intelsat Bermuda and each of the Subsidiaries is in compliance in all material respects with all applicable provisions of ERISA.
(dd) Intelsat maintains a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements and to maintain accountability for its assets, (C) access to assets is permitted only in accordance with management’s general or specific authorization and (D) the reported accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(ee) Upon the issuance and sale of the Notes as herein contemplated, the application of the net proceeds therefrom as described in the Final Memorandum, and the consummation of the Acquisition, none of Intelsat Bermuda or the Guarantors will be an “investment company”, as such term is defined in the United States Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.
(ff) The Transaction Documents described in the Final Memorandum conform in all material respects to the descriptions thereof in the Final Memorandum.
(gg) No holder of securities of any Issuer will be entitled to have such securities registered under the registration statements required to be filed by the Issuers pursuant to the Registration Rights Agreement other than as expressly permitted thereby.
(hh) Immediately after the consummation of the Transactions, (i) the fair value and present fair saleable value of the assets of each of the Company and the Parent Guarantor (each on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; (ii) neither the Company nor the Parent Guarantor (each on a consolidated basis) is, nor will the Company or the Parent Guarantor (each
14 on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement, and the consummation of the Transactions, (A) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (B) unable to pay its debts (contingent or otherwise) as they mature or (C) otherwise insolvent.
(ii) None of the Issuers, Intelsat Bermuda or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any “security” (as defined in the Act) that is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture under the TIA.
(jj) No securities of any of the Issuers, Intelsat Bermuda or its subsidiaries are of the same class (within the meaning of Rule 144A under the Act) as any of the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system.
(kk) None of the Issuers has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities.
(ll) Except as disclosed in the Final Memorandum, under current laws and regulations of Bermuda, all principal, premium (if any), interest and other payments due or made on the Securities may be paid by the Company to the holder thereof in United States dollars and all such payments made to holders thereof who are non- residents of Bermuda will not be subject to income, withholding or other taxes under laws and regulations of Bermuda or taxing authority thereof or therein and will otherwise be free and clear of any other tax, duty, withholding or deduction in Bermuda or taxing authority thereof or therein and without the necessity of obtaining any governmental authorization in Bermuda or taxing authority thereof.
(mm) None of the Issuers, any of their respective Affiliates or any person acting on their behalf (other than the Initial Purchasers) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act (“Regulation S”)) with respect to the Securities; the Issuers, their respective Affiliates and any person acting on their behalf (other than the Initial Purchasers) have complied with the offering restrictions requirement of Regulation S.
15 Any certificate signed by any officer of any Issuer and delivered to any Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a joint and several representation and warranty by each of the Issuers to each Initial Purchaser as to the matters covered thereby.
Section 3. Purchase, Sale and Delivery of the Securities. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Initial Purchasers, and the Initial Purchasers, acting severally and not jointly, agree to purchase (i) the 2013 Notes in the respective amounts set forth on Schedule 1 hereto from the Company at 97.5% of their principal amount, (ii) the 2015 Notes in the respective amounts set forth on Schedule 1 hereto from the Company at 97.5% of their principal amount and (iii) the Floating Rates Notes in the respective amounts set forth on Schedule 1 hereto from the Company at 97.5% of their principal amount and, if required by Section 5(o) hereof, the Company shall deposit in the Escrow Account an amount equal to the gross proceeds of the offering of the Notes (the “Escrow Funds”). One or more certificates in definitive form for the Securities that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 36 hours prior to the Closing Date, shall be delivered by or on behalf of the Company to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefore by wire transfer (same day funds), to such account or accounts as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Securities shall be made at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York at 10:00 A.M., New York time, on January 28, 2005, or at such other place, time or date as the Initial Purchasers, on the one hand, and the Company, on the other hand, may agree upon, such time and date of delivery against payment being herein referred to as the “Closing Date.” The Company will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchasers at the offices of DBSI in New York, New York, or at such other place as DBSI may designate, at least 24 hours prior to the Closing Date.
Section 4. Offering by the Initial Purchasers. The Initial Purchasers propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable.
16 Section 5. Covenants of the Company. Each of the Issuers covenants and agrees with each of the Initial Purchasers as follows (it being understood that covenants and agreements applicable to Issuers other than the Company and the Parent Guarantor shall only be effective upon execution of the Purchase Agreement Joinder Agreement):
(a) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall have reasonably and timely objected in writing. The Issuers will promptly, upon the reasonable request of the Initial Purchasers or counsel for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Securities by the Initial Purchasers.
(b) The Issuers will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or “Blue Sky” laws of which jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities; provided, however, that in connection therewith, the Issuers shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Notes or the Private Exchange Notes, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchasers thereof and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request.
(e) On the Closing Date, or upon the Release Date, as applicable, the Company will apply the proceeds from the sale of the Securities as set forth under “Use of Proceeds” in the Final Memorandum.
17 (f) For so long as any of the Securities remain outstanding, unless such information is available electronically via EDGAR, the Issuers will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Issuers to the Trustee or to the holders of the Securities and, unless such information is available electronically via EDGAR, as soon as available, copies of any reports or financial statements furnished or filed by the Issuers with the Commission or any national securities exchange on which any class of securities of the Issuers may be listed.
(g) Prior to the Closing Date, the Company will furnish to the Initial Purchasers, as soon as they have been prepared, a copy of any unaudited interim financial statements of Intelsat or Intelsat Bermuda, as the case may be, for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum.
(h) None of the Issuers will and the Issuers will use their reasonable best efforts to not permit any of their Affiliates to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any “security” (as defined in the Act) that could be integrated with the sale of any of the Securities in a manner which would require the registration under the Act of any of the Securities.
(i) The Company will not, and will not permit any of its direct or indirect subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act.
(j) For a period of two years from the Closing Date, the Issuers will make available at their expense, upon request, to any holder of such Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Issuers are then subject to Section 13 or 15(d) of the Exchange Act or are exempt from the reporting requirements pursuant to Rule 12g3-2(b) under the Exchange Act.
(k) The Company will use its best efforts to (i) permit the Securities to be designated as PORTAL-eligible securities in accordance with the rules and regulations adopted by the NASD relating to trading in the NASD’s Portal Market (the “Portal Market”) and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company.
(l) With respect to those Notes sold in reliance on Regulation S promulgated under the Act, (A) none of the Company, its affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) will engage in any “direct selling efforts” within the meaning of
18 Regulation S and (B) each of the Company, its affiliates and any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) will comply with the offering restrictions requirements of Regulation S.
(m) For a period of two years (calculated in accordance with paragraph (d) of Rule 144 under the Act) following the date any Securities are acquired from the Company or any of its Affiliates, none of the Issuers or any of their Affiliates will sell any such Securities.
(n) If the Escrow Agreement is executed and delivered by the Company, the Company shall not, and shall cause its respective affiliates (as defined in Rule 501(b) of Regulation D under the Act) not to, seek the release of Escrow Funds from the Escrow Account unless such release is in compliance with the terms of the Indenture and the Escrow Agreement.
(o) On the Closing Date, to the extent the Acquisition is not substantially concurrently consummated, the Company shall execute the Escrow Agreement and deposit with the Escrow Agent, the Escrow Funds solely in accordance with the Escrow Agreement.
(p) Upon the consummation of the Acquisition, the Company shall cause the Subsidiary Guarantors to execute and deliver the Joinder Agreements.
(q) Upon the consummation of the Acquisition, the Company shall execute and deliver, and shall cause the Subsidiary Guarantors to execute and deliver, the Supplemental Indenture to the Trustee.
Section 6. Expenses. Except as otherwise set forth herein, each of the Issuers jointly and severally agrees to pay all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any “Blue Sky” memoranda, (ii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Issuers, (iv) preparation (including printing), issuance and delivery to the Initial Purchasers of the Securities, (v) the qualification of the Securities under state securities and “Blue Sky” laws, including filing fees and reasonable fees and disbursements of counsel for the Initial Purchasers relating thereto, (vi) the “roadshow” and any other meetings with prospective investors in the Securities (it being understood that with respect to airfare, the Company shall only bear one-half of the incremental cost associated with an upgrade to a larger chartered aircraft), (vii) fees and expenses of the Trustee including fees and expenses of counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Securities. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers
19 set forth in Section 7 hereof is not satisfied, because this Agreement is terminated (other than pursuant to Section 12 hereof) or because of any failure, refusal or inability on the part of the Issuers to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder (other than solely by reason of a default by the Initial Purchasers of their obligations hereunder after all conditions hereunder have been satisfied in accordance herewith), the Issuers agree to promptly reimburse the Initial Purchasers upon demand for all out-of-pocket expenses (including reasonable fees, disbursements and charges of Cahill Gordon & Reindel LLP, counsel for the Initial Purchasers) that shall have been incurred by the Initial Purchasers in connection with the proposed purchase and sale of the Securities. Except as set forth in this Section 6, the Initial Purchasers shall pay their own costs and expenses.
Section 7. Conditions of the Initial Purchasers’ Obligations. The obligation of the Initial Purchasers to purchase and pay for the Securities shall, in their sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchasers, of (i) Milbank, Tweed, Hadley & McCloy LLP, special New York counsel for the Issuers, in substantially the form attached hereto as Annex A; (ii) Appleby Spurling Hunter, special Bermuda counsel for the Company, in substantially the form attached hereto as Annex B; (iii) Akin Gump Strauss Hauer & Feld LLP, special regulatory counsel for the Company, in substantially the form attached hereto as Annex C; (iv) White and Case LLP, special English counsel for the Company, in substantially the form attached hereto as Annex D; (v) Richards Layton & Finger, special Delaware counsel for the Company, in substantially the form attached hereto as Annex E; and (vi) David Meltzer, General Counsel for Intelsat Global Service Corporation, in substantially the form attached hereto as Annex F (except, if the Acquisition is not consummated on the Closing Date, the opinion expressed in paragraph (2) thereof may be delivered on the Acquisition Date), and, in each case, in form and substance reasonably satisfactory to counsel for the Initial Purchasers.
(b) On the Closing Date, the Initial Purchasers shall have received the opinion, in form and substance satisfactory to the Initial Purchasers, dated as of the Closing Date and addressed to the Initial Purchasers, of Cahill Gordon & Reindel LLP, counsel for the Initial Purchasers, with respect to certain legal matters relating to this Agreement and such other related matters as the Initial Purchasers may reasonably require. In rendering such opinion, Cahill Gordon & Reindel LLP shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass upon such matters.
(c) The Initial Purchasers shall have received from each of the Independent Accountants a comfort letter or letters dated the date hereof and the Closing Date, in form and substance satisfactory to counsel for the Initial Purchasers.
20 (d) The representations and warranties of the Company and the Parent Guarantor contained in this Agreement shall be true and correct on and as of the date hereof (but if specified to be given as of a specified date, shall be given as of such date) and on and as of the Closing Date as if made on and as of the Closing Date (but if specified to be given as of a specified date, shall be given as of such date); the statements of the Issuers’ officers made pursuant to any certificate delivered in accordance with the provisions hereof shall be true and correct on and as of the date made and on and as of the Closing Date; the Company shall have performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as described in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development, and no information shall have become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(e) The sale of the Securities hereunder shall not be enjoined (temporarily or permanently) on the Closing Date.
(f) Subsequent to the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), except as set forth in the Final Memorandum, none of Intelsat, Intelsat Bermuda or any of the Subsidiary Guarantors shall have sustained any loss or interference with respect to its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or from any legal or governmental proceeding, order or decree, which loss or interference, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(g) The Initial Purchasers shall have received a certificate of the Company and Parent Guarantor, dated the Closing Date, signed on behalf of each such entity by its Chairman of the Board, President or any Senior Vice President, to the effect that
(i) the representations and warranties of the Company and Parent Guarantor contained in this Agreement are true and correct on and as of the date hereof (but if specified to be given as of a specified date, shall be given as of such date) and on and as of the Closing Date (but if specified to be given as of a specified date, shall be given as of such date), and the Company and Parent Guarantor have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date;
(ii) at the Closing Date, since the date hereof or since the date of the most recent financial statements, except as described in the Final Memorandum, no event or development has occurred, and no information has become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect; and
21 (iii) the sale of the Securities hereunder has not been enjoined (temporarily or permanently).
(h) On the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement and Indenture executed by the Company and Parent Guarantor and, substantially concurrently or immediately following the consummation of the Acquisition, shall have received the Joinder Agreements and Supplemental Indenture executed by each Subsidiary Guarantor and such agreements shall be in full force and effect at all times from and after the Closing Date (except in the case of the Joinder Agreements and Supplemental Indenture, which shall be in full force and effect at all times from and after their execution).
(i) To the extent the Acquisition is substantially concurrently consummated on the Closing Date, the Issuers parties thereto shall have executed and delivered the Credit Documents and the Initial Purchasers shall have received copies thereof. To the extent the Acquisition is substantially concurrently consummated on the Closing Date, each condition to the closing contemplated by the Credit Documents (other than the issuance and sale of the Securities pursuant hereto) will, on or prior to the Closing Date, have been satisfied or waived. To the extent the Acquisition is substantially concurrently consummated on the Closing Date, there shall not exist at, and as of, the Closing Date (after giving effect to the transactions contemplated by this Agreement) any conditions that would constitute a default (or an event that with notice or the lapse of time, or both, would constitute a default) under the Credit Documents.
(j) To the extent the Acquisition is substantially concurrently consummated on the Closing Date, Holdings, the Parent Guarantor and the Company and the other parties thereto shall have executed and delivered the Acquisition Documents and the Initial Purchasers shall have received copies thereof. To the extent the Acquisition is substantially concurrently consummated on the Closing Date, each condition to the closing contemplated by the Acquisition Documents (other than the issuance and sale of the Securities pursuant hereto and the initial borrowings under the Credit Documents) will, on or prior to the Closing Date, have been satisfied or waived.
(k) The Transactions shall be consummated in a manner consistent in all material respects with the description thereof in the Final Memorandum and (unless the Company executes and delivers the Escrow Agreement on the Closing Date) substantially concurrent with the purchase of the Securities by the Initial Purchasers.
(l) At the Closing Date, to the extent the Acquisition is not substantially concurrently consummated, the Company, the Trustee and the Escrow Agent shall have entered into the Escrow Agreement.
22 On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such further documents, opinions, certificates, letters and schedules or instruments relating to the business, corporate, legal and financial affairs of the Issuers as they shall have heretofore reasonably requested from the Company.
All such documents, opinions, certificates, letters, schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to DBSI and counsel for the Initial Purchasers. The Company shall furnish to DBSI such conformed copies of such documents, opinions, certificates, letters, schedules and instruments in such quantities as DBSI shall reasonably request.
Section 8. Offering of Securities; Restrictions on Transfer. (a) Each of the Initial Purchasers agrees with the Issuers (as to itself only) that (i) it is either a QIB or an “accredited investor” within the meaning of Rule 501(a) under Regulation D under the Act, in either case with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the Securities; (ii) it is purchasing the Securities pursuant to a private sale exempt from registration under the Act; (iii) in connection with offers of the Securities purchased by such Initial Purchaser hereunder on the terms set forth in the Final Memorandum, as amended or supplemented, will solicit offers to buy the Securities only from, and will offer to sell and will sell the Securities only to, the Eligible Purchasers (as defined below) in accordance with this Agreement and on the terms contemplated by the Final Memorandum; (iv) it has not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (v) it has and will solicit offers for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States, persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons (“non-U.S. purchasers,” which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for non-U.S. beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption “Transfer Restrictions” contained in the Final Memorandum (or, if the Final Memorandum is not in existence, in the most recent Memorandum) (each person specified in clauses (A) and (B) being referred to herein as an “Eligible Purchaser”).
(b) Each of the Initial Purchasers represents and warrants (as to itself only) with respect to offers and sales outside the United States that (i) it has and will comply with all
23 applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes any Memorandum or any amendment or supplement thereto or any such other material, in all cases at its own expense; (ii) the Securities have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act; and (iii) it has offered the Securities and will offer and sell the Securities (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S.
(c) Each of the Initial Purchasers hereby represents, warrants and agrees (as to itself only) that:
(i) it has not offered or sold and, prior to the expiry of a period of six months from the issue date of the Securities, will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”) received by it in connection with the issue or sale of any Securities in circumstances in which section 21(1) of the FSMA does not apply to the Company; and
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom.
Each of the Initial Purchasers understands that the Company and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 7(a) and 7(b) hereof, counsel to the Company, counsel to Intelsat Global Service Corporation and counsel to the Initial Purchasers, will rely upon the accuracy and truth of the foregoing representations, warranties and agreements and each of the Initial Purchasers hereby consents to such reliance.
Terms used in this Section 8 and not defined in this Agreement have the meanings given to them in Regulation S.
24 Section 9. Indemnification and Contribution. (a) Each of the Issuers (it being understood that no Issuer other than the Company and the Parent Guarantor shall have any obligation under this Section 9 until its execution of the Purchase Agreement Joinder Agreement), jointly and severally, agrees to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which any Initial Purchaser or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the following:
(i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto; or
(ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto, a material fact necessary to make the statements therein not misleading; and, subject to the limitation set forth in the immediately succeeding proviso, will reimburse, as incurred, the Initial Purchasers and each such controlling person for any legal or other expenses incurred by the Initial Purchasers or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, the Issuers will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto in reliance upon and in conformity with written information concerning the Initial Purchasers furnished to the Company by the Initial Purchasers through DBSI specifically for use therein; provided, further, that with respect to any untrue statement or omission of material fact made in the Preliminary Memorandum, the indemnity agreement contained in this Section 9(a) shall not inure to the benefit of any Initial Purchaser or other Person from whom such person asserting such loss, claim, damage or liability purchased the Securities concerned, to the extent that any such loss, claim, damage, or liability of such Initial Purchaser or other Person occurs under the circumstance where (i) the Company had previously furnished copies of the Final Memorandum on a timely basis to the Initial Purchasers, (ii) the untrue statement or omissions of a material fact contained in the Preliminary Memorandum was corrected in the Final Memorandum and (iii) there was not sent or given to such person, at or prior to the written confirmation of the sale of such Notes to such person, a copy of the Final Memorandum. The indemnity provided for in this Section 9 will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers shall not be liable under this Section 9 for any settlement of any claim or action effected without their prior written consent, which shall not be unreasonably withheld.
25 (b) Each Initial Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Issuers, their respective directors and officers and each person, if any, who controls the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission contained in the Initial Purchasers’ Information (as defined below) was made in reliance upon and in conformity with such Initial Purchaser Information; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses incurred by the Issuers or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this Section 9 will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. The Initial Purchasers shall not be liable under this Section 9 for any settlement of any claim or action effected without their consent, which shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 9, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such
26 indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to appropriate local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchasers in the case of paragraph (a) of this Section 9 or the Issuers in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party, or indemnity could have been sought hereunder by any indemnified party, unless such settlement (A) includes an unconditional written release of the indemnified party, in form and substance reasonably satisfactory to the indemnified party, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any indemnified party.
(d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in
27 such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and any Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Issuers bear to the total discounts and commissions received by such Initial Purchaser. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand, or such Initial Purchaser on the other, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The Issuers and the Initial Purchasers agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay or become liable to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraphs (d), each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchasers, and each director of any Issuer, each officer of any Issuer and each person, if any, who controls the any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as such Issuer.
Section 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, the Guarantors, any of their respective officers or directors, the Initial Purchasers or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9, 10 and 15 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement.
Section 11. Termination. (a) This Agreement may be terminated in the sole discretion of DBSI by notice to the Company given prior to the Closing Date in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date,
28 (i) any of Intelsat or any of its subsidiaries shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Representatives, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Representatives, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a change in control (other than the Acquisition) of the Company or the Subsidiaries), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities of Intelsat or in securities generally on the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market shall have been suspended or materially limited or minimum or maximum prices shall have been established on any such exchange or market;
(iii) a banking moratorium shall have been declared by New York or United States authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; or
(iv) other than as in existence on the date of this Agreement, there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of DBSI, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof.
Section 12. Default by an Initial Purchaser. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Notes agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the principal amount of 2013 Notes, 2015 Notes or Floating Rate Notes, as the case may be, set forth opposite their names on Schedule 1 attached hereto bears to the aggregate principal amount of 2013 Notes, 2015 Notes or Floating Rate Notes, as the case may be, set forth opposite the names of all the remaining Initial Purchasers) the Notes which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of 2013 Notes, 2015 Notes or Floating Rate Notes, as the case may be, which
29 the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate principal amount of 2013 Notes, 2015 Notes or Floating Rate Notes, as the case may be, set forth on Schedule 1 attached hereto, the Company shall be entitled to a further period of 36 hours within which to procure another party or parties reasonably satisfactory to the nondefaulting Initial Purchaser or Initial Purchasers to purchase no less than the amount of such unpurchased Notes that exceeds 10% of the principal amount thereof upon such terms herein set forth. If, however, the Company shall not have completed such arrangements within 72 hours after such default and the principal amount of such unpurchased Notes exceeds 10% of the principal amount of such Notes to be purchased on such date, then this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 12, the Closing Date shall be postponed for such period, not exceeding five business days, as DBSI, the Company and their counsel shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to any Issuer or any nondefaulting Initial Purchaser for damages occasioned by its default hereunder
Section 13. Information Supplied by the Initial Purchasers. The statements set forth in the last paragraph on the front cover page and in the third and fourth sentences of the third paragraph and the first and fifth sentences of the sixth paragraph under the heading “Private Placement” in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information (the “Initial Purchasers’ Information”) furnished by the Initial Purchasers to the Company for the purposes of Sections 2(a) and 9 hereof.
Section 14. Notices. All communications hereunder shall be in writing and, if sent to the Initial Purchasers, shall be mailed or delivered to Deutsche Bank Securities 60 Wall Street, New York, New York 10005, Attention: Corporate Finance Department; if sent to any Issuer, shall be mailed or delivered to Zeus Merger Two Limited and Zeus Merger One Limited, at 9 West 57th Street, 43rd Floor, New York, NY 10019, with a copy to Intelsat Bermuda and Intelsat at Wellesley House North, 2nd Floor, 90 Pitts Bay Road, Pembroke, HM 08 Bermuda; with a copy to Intelsat Global Service Corporation, 3400 International Drive, N.W., Washington, D.C. 20008-3098, Attention: General Counsel; with a copy to Milbank, Tweed, Hadley & McCloy LLP at 1 Chase Manhattan Plaza, New York, New York 10005, Attention: Arnold B. Peinado, III.
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and one business day after being timely delivered to a next-day air courier.
Section 15. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and the Parent Guarantor, and after execution and delivery of the Purchase Agreement Joinder Agreement, the Subsidiary Guarantors and, in
30 each case, their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Company and the Parent Guarantor, and after execution and delivery of the Purchase Agreement Joinder Agreement, the Subsidiary Guarantors contained in Section 9 of this Agreement shall also be for the benefit of any person or persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 9 of this Agreement shall also be for the benefit of the directors of the Company and the Parent Guarantor, and after execution and delivery of the Purchase Agreement Joinder Agreement, the Subsidiary Guarantors, their officers and any person or persons who controls any of them within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchasers will be deemed a successor because of such purchase.
Section 16. Jurisdiction. The Issuers agree that any suit, action or proceeding against any Issuer brought by any Initial Purchaser, the directors, officers, employees and agents of any Initial Purchaser, or by any person who controls any Initial Purchaser, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. Beginning on the Closing Date (or, in the case of the Subsidiary Guarantors, upon their execution of the Purchase Agreement Joinder Agreement), the Issuers hereby appoint CT Corporation System as their authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated herein that may be instituted in the Supreme Court of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof, by any Initial Purchaser, the directors, officers, employees, affiliates and agents of any Initial Purchaser, or by any person who controls any Initial Purchaser, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Issuers hereby represent and warrant that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Issuers agree to take any and all action, including the filing of any and all documents, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Issuers. Notwithstanding the foregoing, any action arising out of or based upon this Agreement may be instituted by any Initial Purchaser, the directors, officers, employees, affiliates and agents of any Initial Purchaser, or by any person who controls any Initial Purchaser, in any court of competent jurisdiction in
31 Bermuda. The parties hereto each hereby waive any right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement. The provisions of this Section 16 shall be applicable to the Subsidiary Guarantors only upon their execution of the Purchase Agreement Joinder Agreement.
Section 17. Immunity. To the extent that any of the Issuers has acquired or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment in aid or otherwise) with respect to itself or any of its property, the Issuers hereby irrevocably waive and agree not to plead or claim such immunity in respect of their obligations under this Agreement; provided, however, that the provisions of this Section 17 shall be applicable to the Subsidiary Guarantors only upon their execution of the Purchase Agreement Joinder Agreement.
Section 18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 19. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
32 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among Zeus Merger Two Limited, Zeus Merger One Limited and the Initial Purchasers.
Very truly yours,
ZEUS MERGER TWO LIMITED
By: Name: Title:
ZEUS MERGER ONE LIMITED, as Parent Guarantor
By: Name: Title:
S-1 The foregoing Agreement is hereby confirmed and accepted as of the date first above written.
DEUTSCHE BANK SECURITIES INC.
By: Name: Title:
By: Name: Title:
CREDIT SUISSE FIRST BOSTON LLC
By: Name: Title:
By: Name: Title:
LEHMAN BROTHERS INC.
By: Name: Title:
S-2 SCHEDULE 1
Principal Amount Principal Amount Principal Amount of Floating Rate Initial Purchaser of 2013 Notes of 2015 Notes Notes
Deutsche Bank Securities Inc. $ 201,250,000 $ 155,250,000 $ 230,000,000 Credit Suisse First Boston LLC 201,250,000 155,250,000 230,000,000 Lehman Brothers Inc. 201,250,000 155,250,000 230,000,000 Banc of America Securities LLC 35,000,000 27,000,000 40,000,000 Bear, Stearns & Co. Inc. 74,375,000 57,375,000 85,000,000 BNP Paribas Securities Corp. 35,000,000 27,000,000 40,000,000 Merrill Lynch & Co. 15,312,500 11,812,500 17,500,000 CIBC World Markets Corp. 65,625,000 50,625,000 75,000,000 RBC Capital Markets Corporation 15,312,500 11,812,500 17,500,000 Greenwich Capital Markets, Inc. 15,312,500 11,812,500 17,500,000 SG Americas Securities, LLC. 15,312,500 11,812,500 17,500,000
Total $ 875,000,000 $ 675,000,000 $ 1,000,000,000
SCHEDULE 2
Subsidiary Guarantors
Name Jurisdiction of Incorporation
Intelsat Holdings LLC Delaware
Intelsat LLC Delaware
Intelsat Global Sales & Marketing Ltd. England and Wales
Intelsat USA Sales Corp. Delaware
Intelsat USA License Corp. Delaware
Intelsat Global Service Corporation Delaware SCHEDULE 3
Significant Subsidiaries of Intelsat Bermuda
Name Jurisdiction of Incorporation
Intelsat Holdings LLC Delaware Intelsat LLC Delaware Annex A
Form of Opinion of MTH&M Annex B
Form of Opinion of Bermuda Counsel Annex C
Form of Opinion of Regulatory Counsel Annex D
Form of Opinion of English Counsel Annex E
Form of Opinion of Delaware Counsel Annex F
Form of Opinion of General Counsel Exhibit B
January , 2005
Joinder Agreement
WHEREAS, Zeus Merger Two Limited, Zeus Merger One Limited and the Initial Purchasers named therein (the “Initial Purchasers”) heretofore executed and delivered a Purchase Agreement (“Purchase Agreement”), dated January 24, 2005, providing for the issuance and sale of the Securities (as defined therein); and
WHEREAS, each Subsidiary Guarantor (as defined in the Purchase Agreement), which was originally not a party thereto, has agreed to join in the Purchase Agreement on or immediately following consummation of the Acquisition.
Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.
NOW, THEREFORE, each Subsidiary Guarantor hereby agrees for the benefit of the Initial Purchasers, as follows:
1. Joinder. Each of the undersigned signatory parties hereby acknowledges that it has received and reviewed a copy of the Purchase Agreement and all other documents it deems fit to enter into this Joinder Agreement (the “Joinder Agreement”), and acknowledges and agrees to (i) join and become a party to the Purchase Agreement as indicated by its signature below; (ii) be bound by all covenants, agreements, representations, warranties, indemnities and acknowledgments attributable to such signatory party in the Purchase Agreement as if made by, and with respect to, such signatory party; and (iii) perform all obligations and duties required and be entitled to all the benefits of such signatory party pursuant to the Purchase Agreement.
2. Representations and Warranties and Agreements of the Subsidiary Guarantors. Each of the undersigned hereby represents and warrants to and agrees with the Initial Purchasers that it has all the requisite corporate or limited liability company power and authority, as the case may be, to execute, deliver and perform its obligations under this Joinder Agreement and to consummate the transaction contemplated hereby and that when this Joinder Agreement is executed and delivered, it will constitute a valid and legally binding agreement enforceable against each of the undersigned in accordance with its terms.
3. Counterparts. This Joinder Agreement may be signed in one or more counterparts (which may be delivered in original form or via facsimile), each of which shall constitute an original when so executed and all of which together shall constitute one and the same agreement. 4. Amendments. No amendment or waiver of any provision of this Joinder Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by all of the parties to the Purchase Agreement.
5. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
6. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS JOINDER AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
2 IN WITNESS WHEREOF, the undersigned has executed this agreement as of the date first written above.
INTELSAT HOLDINGS LLC
By: Name:
Title:
INTELSAT LLC
By: Name:
Title:
INTELSAT GLOBAL SALES & MARKETING LTD.
By: Name:
Title:
INTELSAT USA SALES CORP.
By:
Name: Title:
INTELSAT USA LICENSE CORP.
By:
Name: Title:
3 INTELSAT GLOBAL SERVICE CORPORATION
By: Name:
Title:
4 Exhibit 3.20
Execution Copy
THIS MONITORING FEE AGREEMENT is dated as of January 28, 2005 (this “Agreement”) and is among Zeus Merger Two Limited, a Bermuda company (the “Company”), Apax Europe V GP Co. Limited and Apax Partners, Inc. (collectively, “Apax”), Apollo Management V, L.P. (“Apollo”), MDP Global Investors Limited (“MDP”), and Permira Advisers, LLC (“Permira”) (each of Apax, Apollo, MDP and Permira, a “Sponsor”).
RECITALS
WHEREAS, the Company has entered into a Transaction Agreement and Plan of Amalgamation (as amended from time to time, the “Acquisition Agreement”) dated as of August 16, 2004 among Intelsat, Ltd., a Bermuda Company (“Intelsat”), Intelsat (Bermuda), Ltd., a Bermuda Company and a wholly owned subsidiary of Intelsat (“Intelsat Bermuda”), Zeus Holdings Limited (“Parent”), Zeus Merger One Limited, a Bermuda company and a wholly owned subsidiary of Parent (“Amalgamation Sub”), and the Company, a wholly owned subsidiary of Amalgamation Sub.
WHEREAS, on the terms and subject to the conditions of the Acquisition Agreement, the Company will amalgamate (the “Amalgamation”) under the Laws of Bermuda with Intelsat Bermuda and continue as a Bermuda exempted Company. All references to the Company from and after the Amalgamation are references to the company continuing as a result of the Amalgamation.
WHEREAS, funds advised or represented by the Sponsors (each such fund, an “Investor”) are making an investment in Parent and will enter into a Shareholders Agreement dated January 27, 2005 (the “Shareholders Agreement”);
WHEREAS, the Sponsors have expertise in the areas of finance, strategy, investment, acquisitions and other matters relating to the Company and its business.
WHEREAS, the Company desires to avail for itself and its subsidiaries, for the term of this Agreement, of the Sponsors’ expertise in providing financial and structural analysis, due diligence investigations, corporate strategy, other advice and negotiation assistance, which the Company believes will be beneficial to it and its subsidiaries, and the Sponsors wish to provide the services to the Company as set forth in this Agreement in consideration of the payment of the fees described below.
NOW, THEREFORE, in consideration of the premises and agreements contained herein and of other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
SECTION 1. Appointment. The Company hereby engages the Sponsors to provide the services described in Section 2 (the “Services”) for the term of this Agreement on the terms and subject to the conditions of this Agreement.
SECTION 2. Services. The Sponsors agree that during the term of this Agreement, they will provide to the Company, by and through themselves, their affiliates and such respective officers, employees, representatives and third parties (collectively hereinafter referred to as the “Sponsor Designees”) as the Sponsors in their sole discretion may designate from time to time, monitoring, advisory and consulting services in relation to the affairs of the Company and its subsidiaries, including, without limitation, (a) advice regarding the structure, terms, conditions and other provisions, distribution and timing of debt and equity offerings and advice regarding relationships with the Company’s and its subsidiaries’ lenders and bankers, (b) advice regarding the strategy of the Company, (c) advice regarding dispositions and/or acquisitions and (d) such other advice directly related or ancillary to the above financial advisory services as may be reasonably requested by the Company; provided that the responsibilities of any Sponsor shall not be substantially disproportionate to the responsibilities of the other Sponsors. It is expressly agreed that the services to be performed hereunder will not include investment banking or other financial advisory services which may be provided by the Sponsors or any of their affiliates or Sponsor Designees to the Company in connection with any specific acquisition, divestiture, refinancing or recapitalization by the Company or any of its subsidiaries. The Sponsors or their Sponsor Designees may be entitled to receive additional compensation for providing services of the type specified in the preceding sentence by mutual agreement of the Company or such subsidiary, on the one hand, and one or more of the Sponsors or their relevant affiliates or Sponsor Designees, on the other hand.
SECTION 3. Fees.
(a) Monitoring Fee. In consideration of the Services being provided by the Sponsors and their Sponsor Designees, the Company will pay to the Sponsors (other than a Sponsor affiliated with a Non-Eligible Investor Group) an annual monitoring fee in respect of each fiscal year from and including fiscal 2004 in an amount equal to the greater of $6.25 million or 1.25% of Adjusted EBITDA for such fiscal year (the “Monitoring Fee”). A payment of $6.25 million in respect of the Monitoring Fee for fiscal 2004 shall be paid on January 28, 2005 at or prior to the time of the Amalgamation, and the Company will pay the Sponsors (other than a Sponsor affiliated with a Non-Eligible Investor Group) an amount equal to the excess, if any, of 1.25% of Adjusted EBITDA for fiscal 2004 over $6.25 million, such amount to be paid promptly upon the determination of Adjusted EBITDA for fiscal 2004. On the first business day on or after January 1 of each fiscal year, commencing on January 2, 2006, the Company will make a payment of $6.25 million in respect of the Monitoring Fees in respect of such fiscal year, and will promptly upon the earlier of March 31 of such fiscal year or the determination of Adjusted EBITDA for the immediately preceding fiscal year pay the Sponsors (other than a Sponsor affiliated with a Non-Eligible Investor Group) the excess, if any, of 1.25% of Adjusted EBITDA for the immediately preceding fiscal year over $6.25 million. In the event the Termination Date occurs prior to the last day of any fiscal year, the Monitoring Fee with respect to such fiscal year shall be payable on the Termination Date, such Monitoring Fee shall be calculated for purposes of this sentence based upon the greater of (i) the highest Adjusted EBITDA attained in any of the three most recent fiscal years or (ii) if the Termination Date occurs subsequent to the 180th day of any fiscal year, the extrapolated Adjusted EBITDA based upon the completed portion of such fiscal year. Except as set forth in paragraph (c), any amounts payable by the Company to the Sponsors pursuant to this Section 3 shall be paid to each respective Sponsor, other than a Sponsor affiliated with an Investor Group (as defined in the Shareholders Agreement) which at such time is a Non-Eligible Investor Group (as defined in the Shareholders Agreement), a portion of the Monitoring Fee equal to the amount of the Monitoring Fee for the applicable year multiplied by a quotient where the numerator is the Value (as defined in the Shareholders Agreement) of shares held by the Investor Group affiliated with such Sponsor, and the denominator is the Value of all shares held by all Investor Groups that at such time are not Non-Eligible Investor Groups. All amounts paid by the Company to the Sponsors pursuant to this Section 3 shall be made by wire transfer in same-day funds to the respective bank accounts designated by the Sponsors. The Monitoring Fee shall be payable regardless of the level of Services provided during any fiscal year and shall not be refundable under any circumstances. For purposes of this Agreement, “Termination Date” means the earliest of (i) the twelfth anniversary of the date hereof, (ii) such time as the Sponsors and their affiliates then owning beneficial economic interests in the Parent own less in the aggregate than 5% of the beneficial economic interest of the Parent and (iii) such earlier date as the Company and the Sponsors may mutually agree upon. For purposes of this Section 3, “Adjusted EBITDA” shall have the meaning set forth in the Indenture (as amended or supplemented, the “Indenture”) dated as of January 28, 2005 among Amalgamation Sub, the Company and Wells Fargo Bank, National Association, as Trustee,.
(b) Transaction Fee. In consideration of the Services provided by the Sponsors or their Sponsor Designees in connection with the transactions contemplated by the Acquisition Agreement (the “Transactions”), on January 28, 2005 at or prior to the time of the Amalgamation, the Company will pay the Sponsors an aggregate transaction fee in the amount of $50,000,000 (the “Transaction Fee”), with each Sponsor or its designee, as the case may be, receiving the portion thereof of the Transaction Fee equal to the amount of the Transaction Fee multiplied by a quotient where the numerator is the Value of shares held by the Investor Group affiliated with such Sponsor, and the denominator is the Value of all shares held by all Investor Groups.
(c) Change of Control or Initial Public Offering. The parties acknowledge and agree that an objective of the Company is to maximize value for its shareholders which may include consummating (or participating in the consummation of) (i) a Change of Control (as defined below) or (ii) a Qualified IPO (as defined below). The Services provided to the Company by the Sponsors will help to facilitate the consummation of a Change of Control or Qualified IPO, should the Company decide to pursue such a transaction. In consideration of the agreements contained herein, following the provision of notice to the Sponsors by the Company of the Company’s intent to enter into a Change of Control or Qualified IPO, the Sponsors may elect at any time in connection with or in anticipation of such Change of Control or Qualified IPO (or at any time thereafter) (which election can be made by decision of any three of the Sponsors by the delivery of written notice to the Company (such notice, the “Notice” and the date on which such Notice is delivered to the Company, the “Notice Date”)) to receive the Lump Sum Payment (as defined below), in lieu of annual payments of the Monitoring Fee, such amount to be paid, unless prohibited by and subject to the terms of any agreement or indenture governing indebtedness of the Company or any of its subsidiaries, on the date on which the Change of Control or Qualified IPO is consummated, or, if the Notice occurs subsequent to such date, as soon as practicable, but in no event, unless prohibited by and subject to the terms of any agreement or indenture governing indebtedness of the Company or any of its subsidiaries, later than 30 days subsequent to the Notice Date. The “Lump Sum Payment” shall be a single lump sum cash payment equal to the then present value of all then current and future Monitoring Fees payable under this Monitoring Fee Agreement, assuming the Termination Date to be the twelfth anniversary hereof (using a discount rate equal to the yield to maturity on the Notice Date of the class of outstanding U.S. government bonds having a final maturity closest to the twelfth anniversary of the date hereof (the “Discount Rate”)), and assuming further that each future annual Monitoring Fee would equal the greater of the (i) highest annual Monitoring Fee earned over the three fiscal years immediately preceding the fiscal year in which Notice is delivered, provided if the Notice is delivered during the first fiscal year of this agreement this clause (i) shall refer to the annual Monitoring Fee earned for such fiscal year or (ii) if the Notice Date occurs subsequent to the 180th day of any fiscal year, the Monitoring Fee payable with respect to such fiscal year calculated with reference to the extrapolated Adjusted EBITDA based upon the completed portion of such fiscal year; provided, that no portion of the Lump Sum Payment shall be payable to any Sponsor if on the Notice Date the Investors affiliated with such Sponsor do not collectively own any beneficial economic interest in the Parent. Each Sponsor, other than a Sponsor affiliated with an Investor Group which at the time of payment of the Lump Sum Payment is a Non-Eligible Investor Group, will be paid a portion of the Lump Sum Payment equal to the amount of the Lump Sum Payment multiplied by a quotient where the numerator is the Value of shares held at the time of such payment by the Investor Group affiliated with such Sponsor, and the denominator is the Value of all shares held by all Investor Groups that at such time are not Non-Eligible Investor Groups. The Lump Sum Payment will be payable to the Sponsors by wire transfer in same-day funds to the respective bank account designated by the Sponsors. For purposes of this Agreement, a “Qualified IPO” means a public offering and sale of equity securities of the Company, Parent or Intelsat (or any other entity or entities created through any merger, consolidation, recapitalization, transfer or sale of shares or assets, or contribution of assets and/or liabilities, or any liquidation, exchange of securities, conversion of entity, migration of entity, formation of new entity, or any other transaction or group of related transactions (in each case other than to or with an unaffiliated third party) for purposes of conducting a public offering and sale of an interest in the business conducted by or assets of the Company, Parent or Intelsat (each an “IPO Reorganization”)), in any transaction or series of related transactions, pursuant to an effective registration statement (other than on Form S-4, S-8 or their equivalents) filed under the United States Securities Act of 1933, as amended which yield net proceeds to the Company (or any other entity or entities created through an IPO Reorganization) in excess of $150 million or which results in least 10% of the total outstanding shares of common stock (or other securities) being sold to the public in a primary offering. For purposes of this Agreement, a “Change of Control” means a transaction (including, without limitation, any merger, consolidation or sale of assets or equity interests) the result of which is that any person other than an Investor or a Permitted Transferee (as defined in the Shareholders Agreement) of an Investor becomes the beneficial owner, directly or indirectly, of more than 50% of the voting stock, or all or substantially all of the assets of the Company.
(d) Non-Payment. To the extent the Company does not pay any portion of the Lump Sum Payment by reason of any prohibition on such payment pursuant to the terms of any agreement or indenture governing indebtedness of the Company or its subsidiaries, any unpaid portion of the Lump Sum Payment shall be paid to the Sponsors on the first date on which the payment of such unpaid amount is permitted under such agreement or indenture, to the extent permitted by such agreement or indenture. Any portion of the Lump Sum Payment not paid on the scheduled due date shall bear interest at an annual rate equal to the Discount Rate, compounded quarterly, from the date due until paid. For these purposes, determination of which Sponsors are entitled to receive payment in accordance with paragraph (c ) above shall be made as of the scheduled due date, as opposed to the actual date of payment.
SECTION 4. Reimbursements. In addition to the fees payable pursuant to this Agreement, on the date this Agreement first takes effect or on the date on which the closing of the Amalgamation occurs, and thereafter as proper invoices are presented, the Company will pay directly or reimburse the Sponsors and each of their respective Sponsor Designees for their respective Out-of-Pocket Expenses (as defined below). For the purposes of this Agreement, the term “Out-of-Pocket Expenses” means the reasonable out-of-pocket costs and expenses incurred by a Sponsor and its respective Sponsor Designees in connection with the Services provided under this Agreement (including prior to the Effective Date), including, without limitation, (a) fees and disbursements of any independent professionals and organizations, including independent accountants, financial advisors, outside legal counsel, advisors or consultants, retained by such Sponsor or any of their Sponsor Designees, (b) costs of any outside services or independent contractors such as couriers, business publications, on-line financial services or similar services, retained or used by such Sponsor or any of their respective Sponsor Designees, (c) transportation, per diem costs, word processing expenses or any similar expense not associated with their or their Sponsor Designees’ ordinary operations, (d) all fees, costs and expenses incurred by the Sponsors or their Sponsor Designees (including those set forth in clauses (a) through (c) above) in connection with the investigation, consideration, entering into or consummation of the Acquisition Agreement and the transactions contemplated thereby or incurred by it or its Sponsor Designees for the benefit of the Investors collectively in connection with the Acquisition Agreement and the transactions contemplated thereby. All payments or reimbursements for Out-of-Pocket Expenses will be made by wire transfer in same-day funds to the bank account designated by such Sponsor or its relevant Sponsor Designee (if such Out-of-Pocket Expenses were incurred by such Sponsor or their or their Sponsor Designees) promptly upon or as soon as practicable following request for reimbursement in accordance with this Agreement, or at such Sponsor’s election to the account indicated to the Company by the relevant payee.
SECTION 5. Indemnification. The Company will indemnify and hold harmless the Sponsors, their Sponsor Designees and their respective partners (both general and limited), members (both managing and otherwise), officers, directors, employees, agents and representatives (each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, including in connection with seeking indemnification, whether joint or several (the “Liabilities”), related to, arising out of or in connection with the Services contemplated by this Agreement or the engagement of the Sponsors or their Sponsor Designees pursuant to, and the performance by the Sponsors and their Sponsor Designees of the Services contemplated by, this Agreement, whether or not pending or threatened, whether or not an Indemnified Party is a party, whether or not resulting in any liability and whether or not such action, claim, suit, investigation or proceeding is initiated or brought by the Company. The Company will reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any action, claim, suit, investigation or proceeding for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. The Company will not be liable under the foregoing indemnification provision with respect to any particular loss, claim, damage, liability, cost or expense of an Indemnified Party to the extent that such is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. The attorneys’ fees and other expenses of an Indemnified Party shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Party to repay such amounts if it is finally judicially determined that the Liabilities in question resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. SECTION 6. Accuracy of Information. The Company shall furnish or cause to be furnished to the Sponsors such information as the Sponsors or their Sponsor Designees believe reasonably appropriate to their monitoring, advisory and consulting services hereunder and to comply with Securities and Exchange Commission or other legal requirements relating to the beneficial ownership by the Investors of equity securities of Parent (all such information so furnished, the “Information”). The Company recognizes and confirms that the Sponsors (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the Services contemplated by this Agreement without having independently verified the same, (b) do not assume responsibility for the accuracy or completeness of the Information and such other information and (c) are entitled to rely upon the Information without independent verification.
SECTION 7. Effective Date. This Agreement will become effective as of the date hereof.
SECTION 8. Term. The obligation to provide Services shall continue through and until the earlier of (i) the Termination Date or (ii) a transaction (including, without limitation, any merger, consolidation or sale of assets or equity interests) the result of which is the termination of the Shareholders Agreement; provided, however that the Company’s obligations pursuant to Sections 3, 4, and 5 shall survive any such termination.
SECTION 9. Permissible Activities. Nothing herein will in any way preclude the Sponsors or their Sponsor Designees (other than the Company or its subsidiaries and their respective employees) or their respective partners (both general and limited), members (both managing and otherwise), officers, directors, employees, agents or representatives from engaging in any business activities or from performing services for its or their own account or for the account of others, including for companies that may be or are in competition with the (or any) business conducted by the Company.
SECTION 10. Miscellaneous.
(a) No amendment or waiver of any provision of this Agreement, or consent to any departure by any party hereto from any such provision, will be effective unless it is in writing and signed by the parties hereto. Any amendment, waiver or consent will be effective only in the specific instance and for the specific purpose for which given. The waiver by any party of any breach of this Agreement will not operate as or be construed to be a waiver by such party of any subsequent breach.
(b) Any notices or other communications required or permitted hereunder will be sufficiently given if delivered personally or by overnight courier, addressed as follows or to such other address of which the parties may have given written notice:
To the Company: Zeus Holdings Limited Canon’s Court 22 Victoria Street Hamilton, HM EX Bermuda With a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Attn: David M. Silk Mark Gordon To Apax: Apax Partners Worldwide, LLP 15 Portland Place London W1B 1PT United Kingdom
Attn: Andrew Sillitoe To Apollo: Apollo Management V, L.P. 9 West 57th Street 43rd Floor New York, NY 10019
Attn: Andrew D. Africk To MDP: MDP Global Investors Limited Three First National Plaza Suite 3800 Chicago, IL 60602
Attn: James Perry To Permira: Permira Advisers LLC 399 Park Avenue 36th Floor New York,NY 10022
Attention: Allen Haight With a copy to, in the case of Wachtell, Lipton, Rosen & Katz correspondence with any Sponsor: 51 West 52nd Street New York, NY 10019 Attn: David M. Silk Mark Gordon
Unless otherwise specified herein, such notices or other communications will be deemed received (i) on the date delivered, if delivered personally, and (ii) one business day after being sent by overnight courier.
(c) This Agreement and the Shareholders Agreement will constitute the entire agreement between the parties with respect to the subject matter hereof, and will supersede all previous oral and written (and all contemporaneous oral) negotiations, commitments, agreements and understandings relating hereto. (d) This Agreement will be governed by, and construed in accordance with, the laws of the State of New York.
(e) The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors. Subject to the next sentence, no Person other than the parties hereto and their respective successors is intended to be a beneficiary of this Agreement. The parties acknowledge and agree that the Sponsor Designees and the respective partners (both general and limited), members (both managing and otherwise), officers, directors, employees, agents and representatives of the Sponsors are third-party beneficiaries under Section 5 of this Agreement.
(f) This Agreement may be executed by one or more parties to this Agreement on any number of separate counterparts (including by facsimile), and all of said counterparts taken together will be deemed to constitute one and the same instrument.
(g) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Monitoring Fee Agreement on the date first written above.
ZEUS MERGER TWO LIMITED
By: Name: Title:
APAX EUROPE V GP CO. LIMITED
APAX EUROPE V GP CO. LIMITED in its capacity as General Partner of Apax Europe V GP, L.P., the General Partners of Apax Europe V
By: Name: Title:
APAX PARTNERS, INC.
By: Name: Title:
APOLLO MANAGEMENT V, L.P.
By: APOLLO CAPITAL MANAGEMENT V, INC. Its General Partner
By: Name: Title:
MDP GLOBAL INVESTORS LIMITED
By: Name: Title:
PERMIRA ADVISERS, LLC
By: Name: Title:
[Signature Page to Monitoring Fee Agreement] Exhibit 3.21
AGREEMENT
This Agreement (“Agreement”), dated as of January 28, 2005, by and between Zeus Holdings Limited, a Bermuda company (“Parent”), and Intelsat, Ltd., a Bermuda company and a wholly owned subsidiary of Parent (“Intelsat”);
WHEREAS, Parent and Intelsat wish to implement the letter and intent of Bye-law 83A of Parent and Bye-laws 14, 17 and 19 of Intelsat (collectively, the “Bye-laws”) by a contractual agreement between them; and
WHEREAS, Parent and Intelsat have determined for good and valuable consideration received to enter into this Agreement for their benefit and the benefit of the shareholders of Parent.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Parent and Intelsat agree that, in accordance with the Bye-laws, and for so long as Parent owns a majority of the outstanding voting stock of Intelsat, the Board of Directors of Intelsat shall consist exclusively of Designated Company Directors. A “Designated Company Director” is a person who has been selected by the shareholders of Parent as a Designated Company Director in accordance with the Bye-Laws of Parent.
2. The parties hereto shall take all steps as they may reasonably request to implement this Agreement from time to time.
3. This Agreement shall be governed by and construed in accordance with the laws of Bermuda.
[REMAINDER OF THIS PAGE INTENTIONALLY BLANK] IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above.
ZEUS HOLDINGS LIMITED
By: /s/ Name: Andrew D. Africk
Title: Vice President
INTELSAT, LTD.
By: /s/ Name: Title: Exhibit 7.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($ in thousands)
Years Ended December 31,
2002 2003 2004
Earnings: Income from continuing operations before income taxes 307,161 209,368 23,897 Fixed charges 108,876 118,133 166,483 Minority interest expense — — — Amortization of capitalized interest 24,401 28,614 29,201 Capitalized interest (52,406) (19,884) (21,452)
Total adjustments 80,871 126,863 174,232
Earnings adjusted for fixed charges 388,032 336,231 198,129
Fixed charges: Interest expensed and capitalized, including amortization of capitalized expenses (other than cap interest) related to indebtedness 107,458 116,914 164,851 Portion of rent expense representative of interest (1) 1,418 1,219 1,632
Total fixed charges 108,876 118,133 166,483
Ratio of earnings to fixed charges 3.6 2.8 1.2
ESTIMATE OF INTEREST WITHIN RENTAL EXPENSE Total Rent expense 4,296 3,694 4,945 Estimated percentage (based on SEC guidance) 33% 33% 33%
Estimated interest within rental expense 1,418 1,219 1,632
(1) One third of rent expense is deemed to be representative of interest.
1 Exhibit 8.1
LIST OF SUBSIDIARIES
1. Intelsat (Bermuda), Ltd., a company incorporated under the laws of Bermuda.
2. Intelsat Subsidiary Holding Company, Ltd., a company incorporated under the laws of Bermuda.
3. Intelsat Holdings LLC, a limited liability company organized under the laws of Delaware.
4. Intelsat LLC, a limited liability company organized under the laws of Delaware.
5. Intelsat Global Sales & Marketing Ltd., a company organized under the laws of England and Wales.
6. Intelsat Global Service Corporation, a corporation organized under the laws of Delaware. Exhibit 11.1
INTELSAT HOLDINGS, LTD.
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
The CEO and all senior financial officers (including the CFO, the principal accounting officer, controller, and any persons performing similar functions) of Intelsat Holdings, Ltd. or its subsidiaries (collectively, the “Company”) are bound by the provisions of the Company’s Code of Business Conduct and Ethics and are also subject to the following additional specific policies:
1. The CEO and all senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company with the United States Securities and Exchange Commission and in other public communications made by the Company. Accordingly, it is the responsibility of the CEO and each senior financial officer promptly to bring to the attention of the Board of Directors any material information of which he or she may become aware that could affect the disclosures made by the Company in its public filings or otherwise assist the Board of Directors in fulfilling its responsibilities.
2. The CEO and each senior financial officer shall promptly bring to the attention of the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and
report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
3. The CEO and each senior financial officer shall promptly bring to the attention of the General Counsel or the CEO and to the Audit Committee, the Board of Directors, or other appropriate person or persons identified in the Company’s Code of Business Conduct and Ethics, as applicable, any information he or she may
have concerning violations of the Company’s Code of Business Conduct and Ethics and of these additional procedures by any management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
4. The CEO and each senior financial officer shall promptly bring to the attention of the General Counsel or the CEO and to the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of the Code of Business Conduct and Ethics or of these additional procedures. 5. The CEO and each senior financial officer shall promptly bring to the attention of the General Counsel or the CEO and to the Audit Committee or the Board of Directors, as applicable, any material transaction or relationship that arises and of which he or she becomes aware that reasonably could be expected to give rise to an actual or apparent conflict of interest between personal and professional relationships.
6. The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Business Conduct and Ethics or of these additional procedures by the CEO and the Company’s senior financial officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Business Conduct and Ethics and to these additional procedures, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re- assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual’s employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether the individual in question had committed other violations in the past. Exhibit 12.1
CERTIFICATION
I, Conny Kullman, certify that:
1. I have reviewed this annual report on Form 20-F of Intelsat, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the company and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. [omitted in accordance with the guidance of SEC Release No. 33-8238]
c. evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date: March 15, 2005
INTELSAT, LTD.
By
/s/ CONNY KULLMAN Conny Kullman Chief Executive Officer
Exhibit 12.2
CERTIFICATION
I, William Atkins, certify that:
1. I have reviewed this annual report on Form 20-F of Intelsat, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the company and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. [omitted in accordance with the guidance of SEC Release No. 33-8238]
c. evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date: March 15, 2005
INTELSAT, LTD.
By
/s/ WILLIAM ATKINS William Atkins Chief Financial Officer
Exhibit 13.1
CERTIFICATION
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Intelsat, Ltd. (the “Company”) hereby certifies that to such officer’s knowledge the Company’s annual report on Form 20-F for the year ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 15, 2005 /s/ CONNY KULLMAN
Conny Kullman Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 13.2
CERTIFICATION
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Intelsat, Ltd. (the “Company”) hereby certifies that to such officer’s knowledge the Company’s annual report on Form 20-F for the year ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 15, 2005 /s/ WILLIAM ATKINS William Atkins
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.