NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

May 22, 2007

 

 

The Annual Meeting of Stockholders of Loral Space & Communications Inc. (“Loral” or the “Company”) will be held at the Park Central New York, 870 Seventh Avenue at 56th Street, New York, New York, at 10:30 A.M., on Tuesday, May 22, 2007, for the purpose of:

 

 

The Board of Directors has fixed the close of business on April 5, 2007 as the date for determining stockholders of record entitled to receive notice of, and to vote at, the Annual Meeting.

 

This Notice and accompanying Proxy Statement and proxy or voting instruction card will be first mailed to you and to other stockholders of record commencing on or about April 23, 2007.

 

All stockholders are cordially invited to attend the Annual Meeting. Whether or not you plan to attend, I hope that you will vote as soon as possible. Please review the instructions on the proxy or voting instruction card regarding your voting options.

 

By Order of the Board of Directors

 

 

Michael B. Targoff
Chief Executive Officer and Vice Chairman
of the Board

 

April 23, 2007

 

TABLE OF CONTENTS

 

Loral Space & Communications Inc.
600 Third Avenue
New York, New York 10016

 

PROXY STATEMENT

 

Questions and Answers About the Annual Meeting and Voting

 

 

 

The Company has three classes of directors serving staggered three-year terms, with each class consisting of three directors. The terms of the Class I, II and III directors expire on the date of the Annual Meeting in 2007, 2008 and 2009, respectively.

 

Stockholders will elect three Class I directors at the Annual Meeting. Of the directors named below, Messrs. John D. Harkey, Jr., Arthur L. Simon and John P. Stenbit are the nominees to serve as Class I directors. Each director will serve for a period of three years, until a qualified successor director has been elected, or until he resigns or is removed by the Board. Election of each of the Class I nominees will require the affirmative vote in person or by proxy of a plurality of the shares present at the Annual Meeting. The Board of Directors unanimously recommends a vote FOR each director nominee.

 

The following are brief biographical sketches of each of our directors and nominees:

 

 

During 2006, the Board of Directors held 13 meetings and acted by unanimous written consent three times. No director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and of committees of the Board of which he was a member. In addition to regularly scheduled meetings, a number of directors were involved in numerous informal meetings with management, offering valuable advice and suggestions on a broad range of corporate matters. We do not have a policy regarding directors’ attendance at annual meetings, and the Annual Meeting to be held on May 22, 2007 will be the Company’s first annual meeting since its emergence from Chapter 11 in November 2005. The Company held a Special Meeting of Stockholders on November 14, 2006 at which Messrs. Targoff and Olmstead were present.

 

The Company is listed on the Nasdaq Stock Market and complies with the Nasdaq listing requirements regarding independent directors. Under Nasdaq’s Marketplace Rules, the definition of an “independent director” is a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that all of our directors, except for Messrs. Targoff and Olmstead, are independent directors; independent directors, therefore, constitute a majority of our Board. Non-management directors meet in executive sessions without members of the Company’s management at the conclusion of regularly scheduled Board meetings.

 

Bernard L. Schwartz retired as Chairman of the Board and Chief Executive Officer of the Company effective March 1, 2006, and Robert B. Hodes retired as a director and member of the Compensation Committee effective February 28, 2006. Mr. Hodes was an “independent director” under the Nasdaq Marketplace Rules.

 

Indemnification Agreements

 

As of the effective date of our plan of reorganization (November 21, 2005), we entered into Officers’ and Directors’ Indemnification Agreements (each, an “Indemnification Agreement”) with our officers who entered into employment agreements with us. In addition, we entered into Indemnification Agreements with each of our directors as of the date such person became a director (each officer and director with an Indemnification Agreement, an “Indemnitee”). The Indemnification Agreement requires us to indemnify the Indemnitee if the

Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (as that term is used in the Indemnification Agreement), except with regard to any Proceeding by or in our right to procure a judgment in our favor, against all Expenses and Losses (as those terms are used in the Indemnification Agreement), including judgments, fines, penalties and amounts paid in settlement, subject to certain conditions, actually and reasonably incurred in connection with such Proceeding, if the Indemnitee acted in good faith for a purpose which he or she reasonably believed to be in or not opposed to our best interests. With regard to Proceedings by or in our right, the Indemnification Agreement provides similar terms of indemnification; no indemnification will be made, however, with respect to any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to us, unless a court determines that the Indemnitee is entitled to indemnification for such portion of the Expenses as the court deems proper, all as detailed further in the Indemnification Agreement. The Indemnification Agreement also requires us to indemnify an Indemnitee where the Indemnitee is successful, on the merits or otherwise, in the defense of any claim, issue or matter therein, as well as in other circumstances delineated in the Indemnification Agreement. The indemnification provided for by the Indemnification Agreement is subject to certain exclusions detailed therein. Our subsidiaries, Space Systems/Loral, Inc. (“SS/L”) and Loral Skynet Corporation (“Loral Skynet”) both guarantee the due and punctual payment of all of our obligations under the Indemnification Agreements.

 

We have received a request for indemnification by our directors for any losses or costs they may incur as a result of certain shareholder derivative lawsuits commenced against them relating to the preferred stock financing transaction with MHR Fund Management and certain of its affiliated funds described in “Certain Relationships and Related Transactions — MHR Fund Management LLC.” These lawsuits are more fully described in note 19 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 and in our Current Reports on Form 8-K filed with the SEC on March 21 and 23, 2007.

 

  Directors and Officers Liability Insurance

 

We have purchased insurance from various insurance companies against obligations we might incur as a result of our indemnification obligations of directors and officers for certain liabilities they might incur and insuring such directors and officers for additional liabilities against which they might not be indemnified by us. We have also procured coverage for our own liabilities in certain circumstances. Our cost for the annual insurance premium covering the period from November 21, 2006 to November 20, 2007 is $1,548,000.

 

  Board and Committee Compensation Structure

 

In 2006, the Board of Directors retained The Delves Group to study director compensation for companies in Loral’s peer group and to advise the Board with respect to establishing a compensation structure.

 

Based on the study and recommendations of The Delves Group, the Board of Directors adopted a compensation structure for non-management directors designed to achieve the following goals:

 

 

The compensation structure that was adopted is as follows:

 

Board and Committee Compensation Structure

 

 

 

  Non-management Directors Compensation for Fiscal 2006

 

For fiscal year 2006, Loral provided the compensation set forth in the table below to its directors.

 

Directors were not granted stock awards in 2006 because there were no shares available for grant under our 2005 Stock Incentive Plan. On March 20, 2007, the Board of Directors approved grants of 31,000 shares of restricted stock to our non-executive directors as a group. 16,000 shares were granted as compensation for services rendered during 2006, and 15,000 shares were granted as part of their compensation for 2007. These grants are subject to stockholder approval of the Company’s Amended and Restated 2005 Stock Incentive Plan (see Proposal 2).

 

During 2006, Messrs. Harkey and Simon served on a special committee of the Board that negotiated the Amended and Restated Securities Purchase Agreement dated October 17, 2006, as amended and restated on February 27, 2007, by and between the Company and MHR Fund Management LLC. See “Certain Relationships and Related Transactions — MHR Fund Management LLC.” In consideration for their services on the special committee, they each received $120,500 in additional fees.

 

On June 7, 2006, Loral entered into a consulting agreement with Dean A. Olmstead. Pursuant to this agreement, Mr. Olmstead provides consulting services to the Company relating generally to exploration of strategic and growth opportunities for Loral and achievement of efficiencies within the Company’s divisions. Pursuant to this consulting agreement, Mr. Olmstead earned a total of $337,500 in 2006. In connection with Mr. Olmstead’s consulting agreement, we also granted Mr. Olmstead options to purchase 120,000 shares of

our common stock which, like the other equity grants to directors discussed above, is also subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2). For a more detailed description of Mr. Olmstead’s consulting agreement and the option grant associated therewith, see “Certain Relationships and Related Transactions — Consulting Agreement with Dean A. Olmstead.”

 

2006 Director Compensation

 

 

 

The Company’s standing committees of the Board of Directors are the Audit Committee, the Compensation Committee, the Executive Committee and the Nominating Committee. The charters of these committees were filed with the Securities and Exchange Commission (the “SEC”) in a Current Report on Form 8-K filed by the Company on November 23, 2005, and they are available on the Corporate Governance section of our website at www.loral.com. These documents are also available upon written request to: Investor Relations, Loral Space & Communications Inc., 600 Third Avenue, New York, New York 10016. Information concerning these committees is set out below.

 

Audit Committee

 

 

The Board of Directors has determined that all of the members of the Audit Committee meet the independence and experience requirements of the SEC and the Nasdaq Stock Market. Moreover, the Board of Directors has determined that one of the Committee’s members, Mr. Simon, qualifies as an “audit committee financial expert” as defined by the SEC.

 

The Audit Committee is generally responsible for, among other things, (i) the appointment, termination, and compensation of the Company’s independent registered public accounting firm, and oversight of their

services; (ii) approval of audit and any non-audit services to be performed by the independent registered public accounting firm and related compensation; (iii) reviewing the scope of the audit proposed for the current year and its results; (iv) reviewing the adequacy of our disclosure and accounting and financial controls; (v) reviewing the annual and quarterly financial statements and related disclosures with management and the independent registered public accounting firm; (vi) monitoring the Company’s and the independent registered public accounting firm’s annual performance under the requirements of Sarbanes Oxley Act Section 404; and (vii) reviewing the internal audit function and findings from completed internal audits.

 

Compensation Committee

 

 

Our Compensation Committee has general authority and responsibility for establishing our compensation policies, fixing compensation levels for our officers and other senior executives and reviewing and providing recommendations to our Board of Directors regarding compensation of our senior executive officers. Our Compensation Committee is also responsible for recommending to our Board of Directors the adoption, amendment and termination of our compensation plans and programs and is responsible for the administration of our 2005 Stock Incentive Plan. For more information regarding our Compensation Committee, see “Compensation Discussion and Analysis.”

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee is a present or former officer of or employed by the Company or its subsidiaries. None of our executive officers serves as a member of the board of directors or compensation committee of any other entity the executive officers of which entity serve either on the Company’s Board of Directors or Compensation Committee. Dr. Rachesky is a co-founder and managing principal of MHR Fund Management, affiliated funds of which have engaged in transactions with the Company. See “Certain Relationships and Related Transactions — MHR Fund Management LLC.”

 

Executive Committee

 

 

The Executive Committee performs such duties as are from time to time determined and assigned to it by the Board of Directors.

 

Nominating Committee

 

 

The Nominating Committee assists the Board of Directors in (i) identifying individuals qualified to become members of the Board (consistent with criteria approved by the Board) and (ii) selecting, or recommending that the Board select, the director nominees for the next annual meeting of stockholders. The Nominating Committee will consider candidates for nomination as a director recommended by stockholders, directors, officers, third party search firms and other sources. Under its charter, the Nominating Committee seeks director nominees who have demonstrated exceptional ability and judgment. Nominees will be chosen with the primary goal of ensuring that the entire Board collectively serves the interests of the stockholders. Due consideration will be given to assessing the qualifications of potential nominees and any potential

conflicts with the Company’s interests. The Nominating Committee will also assess the contributions of the Company’s incumbent directors in connection with their potential re-nomination. In identifying and recommending director nominees, the Nominating Committee members may take into account such factors as they determine appropriate, including any recommendations made by the Chief Executive Officer and stockholders of the Company. The Nominating Committee will review all candidates in the same manner, regardless of the source of the recommendation. Individuals recommended by stockholders for nomination as a director will be considered in accordance with the procedures described under “Other Matters — Stockholder Proposals for 2008.”

 

The Loral Space & Communications Inc. 2005 Stock Incentive Plan (the “Plan”) became effective on November 21, 2005. Since the effective date, the Board has amended and restated the Plan, subject to stockholder approval, to (i) increase by 1,582,000 the number of shares of our common stock available for delivery in connection with awards granted or to be granted under the Plan, (ii) increase for purposes of Section 162(m) of the Internal Revenue Code the maximum number of shares of our common stock that may be granted pursuant to options or stock appreciation rights to any employee in any calendar year from 500,000 to 1,000,000 and (iii) make such other non-material changes as it deemed appropriate. These non-material amendments, for which stockholder approval is not required, relate, among other things, to the definition of “fair market value” of our common stock for purposes of the Plan and to the elimination of the discretionary authority of the Committee to make anti-dilution adjustments to awards granted under the Plan. We are seeking the approval of our stockholders for this amendment and restatement.

 

The principal reason for the increase in the number of shares to be made available under the Plan is to implement certain grants of 175,700 shares of restricted stock that were made to 129 non-executive employees of the Company, grants of options to acquire 965,000 shares of common stock that we are contractually obligated to make to Messrs. Targoff, Townsend and Olmstead and grants of 31,000 shares of restricted stock in the aggregate to our directors as part of their compensation. These grants were made in 2006 and 2007 subject to stockholder approval of the amendment and restatement of our Plan and are more fully described below under “New Plan Benefits.” In addition to the 1,171,700 shares underlying grants that have already been made as described above, we are seeking to increase by 410,300 the number of shares available for grant under the Plan in order to allow us to make additional grants in the future in order to continue to attract, retain, motivate and reward our executive and non-executive employees, to fulfill existing contractual obligations and to cover the equity component of our directors’ compensation.

 

The material terms of the Plan as amended and restated are summarized below. This summary is qualified in its entirety by the terms of the amended and restated Plan, a copy of which is attached hereto as Appendix A.

 

Summary of Material Terms

 

The purpose of the Plan is to assist us in attracting, retaining, motivating and rewarding individuals who provide services to the Company and to promote the creation of long-term value for stockholders by closely aligning the interests of these individuals with those of our stockholders. The Plan allows for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and other stock-based awards. Individuals eligible to participate in the Plan include employees, directors and individuals who provide substantial services to the Company or any affiliate of the Company. There are approximately 2,100 employees, eight directors and approximately 200 other service providers eligible to participate in the Plan. The Plan may be administered by the Board or, at the Board’s discretion, by a committee of the Board consisting of at least two persons. The Board has appointed our Compensation Committee to administer the Plan. The current members of the Compensation Committee are Dr. Mark H. Rachesky and John D. Harkey, Jr. The Plan (but not outstanding awards) will terminate on November 20, 2015, after which no further awards may be granted under the Plan.

 

We initially reserved 1,390,452 shares of our common stock for issuance of awards under the Plan. Since the adoption of the Plan, we have issued awards covering all 1,390,452 shares of common stock originally reserved. Since the issuance of these awards, a number of employees who were granted awards have terminated their employment with the Company thereby forfeiting their awards and the Company has also withheld shares in connection with the cashless exercise of options. As of April 5, 2007, 97,269 shares of common stock are available for issuance under the Plan. In order to continue to attract, retain motivate and reward our employees and directors our Board has authorized several increases in the number of shares of our common stock available for issuance under the Plan during 2006 and 2007. These increases, aggregating an additional 1,582,000 shares, were made subject to the approval of our stockholders. If approved by the stockholders, a total of 2,972,452 shares of our common stock will be available for issuance under the Plan. To the extent that awards expire or are cancelled, forfeited, settled in cash or otherwise terminated or

concluded without delivery of the full number of shares subject to the awards, the undelivered shares will again be available for issuance pursuant to other awards. Shares withheld in payment of exercise prices or for the payment of taxes for awards will also be available for issuance pursuant to other awards. Shares issued under the Plan may include previously issued shares reacquired by us as well as newly issued shares.

 

Recipients of awards under the Plan are selected by our Compensation Committee. Our Compensation Committee determines the terms of each award, including the exercise price for options and the dates on which awards will become vested and exercisable. The maximum number of shares for which options or stock appreciation rights may be granted under the Plan to any single individual in any one year is 1,000,000 (subject to adjustments for capital changes).

 

Options granted under the Plan will be non-qualified stock options, which are not qualified under section 422 of the Internal Revenue Code. While we generally grant options with exercise prices equal to the fair market value of our common stock on the date of grant, the exercise price for options may be less than fair market value but not less than our common stock’s par value on the date of grant. Our Compensation Committee sets the vesting schedule for each option on the date of grant. Except as provided in the option agreements covering the initial option grants made upon our emergence from Chapter 11 or as may otherwise be provided by the Compensation Committee in other option agreements, if an option holder who is employed by the Company is terminated, (i) all vesting of their options will cease and any unvested options will expire and (ii) vested options will remain exercisable for three months following termination of employment if such termination is for any reason other than cause, death, or disability, and for twelve months if such termination is by reason of the holder’s death or disability. If such termination is for cause, the holder’s vested options will expire as well, unless our Compensation Committee determines otherwise. In all cases, no options may be exercised after the expiration of ten years following the date of grant.

 

The purchase price upon the exercise of options may be paid in cash or by certified bank check or cashier’s check, or, at the discretion of the Compensation Committee, by tendering stock held by the optionee, by cashless exercise through a broker, by having the Company withhold that number of shares subject to exercise having a value equal to the exercise price of the shares subject to exercise or by any other means approved by the Compensation Committee. Options granted under the Plan are evidenced by a written option agreement between the optionee and the Company, the terms of which are determined by the Compensation Committee.

 

The material terms of stock appreciation rights are set by the Compensation Committee on the date of grant. As with options, all stock appreciation rights will expire no later than ten years following the date of grant. The provisions pertaining to the vesting and expiration of stock appreciation rights following termination of employment are similar to those for options.

 

The terms and conditions, including vesting conditions, of restricted stock are determined by the Compensation Committee and evidenced by a restricted stock agreement. Recipients of restricted stock will generally have the rights and privileges as other stockholders, including the right to vote such shares. Shares of restricted stock are generally non-transferable and subject to forfeiture upon termination of employment until they vest. The Compensation Committee will determine whether dividends will accrue or be currently paid on shares of restricted stock and whether any accrued dividends will be subject to forfeiture along with such shares. Unless otherwise determined by the Compensation Committee, in the event that a restricted stockholder’s employment with the Company is terminated for any reason, all vesting of restricted stock will cease and all unvested shares will expire.

 

The material terms of restricted stock units are set by the Compensation Committee on the date of grant. Each restricted stock unit represents the right to receive the value of one share of our common stock. No shares of common stock are issued on the date of grant of a restricted stock unit award and recipients do not acquire the rights or privileges of stockholders. Restricted stock units may be settled in cash or shares of common stock. The Compensation Committee may determine to grant certain dividend equivalent rights along with restricted stock units. The provisions pertaining to the vesting and expiration of restricted stock units are similar to those for restricted stock. With respect to grants of restricted stock units under the Plan, in the event that a unit holder’s employment with the Company is terminated for any reason, all unvested restricted stock

units will be forfeited, and vested units shall be settled as soon as practicable following the date of such termination; if such unit holder’s termination was for cause, all restricted stock units will be forfeited (whether or not then vested).

 

The Compensation Committee may grant other stock-based awards, including bonus stock without restrictions, as it may determine from time to time are consistent with the purposes of the Plan.

 

In the event of a Change in Control (as defined in the Plan) of the Company, all outstanding awards will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement. In the event of a Change in Control, the Compensation Committee may cancel any or all outstanding awards in exchange for a cash payment to each award holder having a value equal to the value of each such award at the time of such Change in Control (or without any payment in the event that an outstanding award has no value at the time of such Change in Control).

 

Following a sale of all or substantially all of the common stock or assets of Loral Skynet Corporation (a “Skynet Sale Event”) or Space Systems/Loral, Inc. (an “SS/L Sale Event”), all outstanding awards held by employees or service providers of Loral Skynet or SS/L, as applicable, will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement. In addition, options held by employees or service providers of Loral Skynet or SS/L, as applicable, will remain exercisable following the sale for the shorter of (i) one year following the sale or (ii) the remaining term of the stock option as set forth in the applicable award agreement. For employees of Loral assigned to Loral’s corporate headquarters, if the Skynet Sale Event or SS/L Sale Event occurs on or prior to November 21, 2007, one-third (1/3) of all outstanding unvested awards held by employees of Loral assigned to Loral’s corporate headquarters will become immediately vested and exercisable, any restrictions on such awards will lapse and all such awards will become immediately payable or subject to settlement.

 

The Board may amend the Plan at any time, provided that no amendment may increase the maximum number of shares that may be issued pursuant to awards under the Plan (except as contemplated by the antidilution adjustment provisions under the Plan) without further stockholder approval. The Board’s power to amend the Plan without stockholder approval is also limited to the extent that any such amendment would otherwise violate the stockholder approval requirements of the national securities exchange on which our common stock is listed. No such plan amendment may impair the rights under any award unless the award holder consents to such amendment in writing. The Committee may amend the terms of outstanding awards at any time, provided that no such amendment may impair the rights of award holders unless they consent in writing.

 

On April 16, 2007, the closing market value of a share of our common stock was $51.05.

 

Federal Income Tax Consequences

 

The following is a brief discussion of the federal income tax consequences for options under the Plan. The Plan is not qualified under Section 401(a) of the Internal Revenue Code. This discussion is not intended to be exhaustive and does not describe state or local taxes consequences.

 

Except as noted below for corporate “insiders,” with respect to non-qualified stock options, (1) no income is realized by the optionee at the time the option is granted; (2) generally, at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise, and the optionee’s employer is generally entitled to a tax deduction in the same amount subject to applicable tax withholding requirements; and (3) at sale, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

 

As a result of the rules under Section 16(b) of the Securities Exchange Act of 1934, “insiders” (as defined in Section 16(b)), depending upon the particular exemption from the provisions of Section 16(b) utilized, may not receive the same tax treatment as set forth above with respect to the grant and/or exercise of options. Generally, insiders will not be subject to taxation until the expiration of any period during which they are

subject to the liability provisions of Section 16(b) with respect to any particular option. Insiders should check with their own tax advisers to ascertain the appropriate tax treatment for any particular option.

 

New Plan Benefits

 

On March 28, 2006, in connection with his appointment as our Chief Executive Officer, the Compensation Committee granted to Mr. Targoff, under the terms of the Plan, an option to purchase 825,000 shares of our common stock. The exercise price for the options granted to Mr. Targoff is $26.915 per share, the fair market value of our common stock on the grant date, and the options expire on March 28, 2011. The material terms of Mr. Targoff’s options are set forth in the Compensation Discussion and Analysis below under “Employment Agreements — CEO — Michael B. Targoff.” On June 14, 2006, in connection with an amendment to his employment agreement, the Compensation Committee granted to our Chief Financial Officer, Mr. Townsend, an option to purchase 20,000 shares of our common stock. The exercise price for the options granted to Mr. Townsend is $27.135 per share, the fair market value of our common stock on the grant date, and the options expire on June 14, 2013. The other material terms of Mr. Townsend’s options are set forth in the Compensation Discussion and Analysis below under “Employment Agreements — Other Named Executive Officers.” On June 14, 2006, in connection with his entering into a consulting agreement, the Compensation Committee granted to our director, Mr. Olmstead, options to purchase 120,000 shares of our common stock. The exercise price for the options granted to Mr. Olmstead is $27.135 per share, the fair market value of our common stock on the grant date, and the options expire on June 14, 2013. The material terms of Mr. Olmstead’s options are set forth below under “Certain Relationships and Related Transactions — Consulting Agreement with Dean A. Olmstead.” On February 28, 2007, the Compensation Committee approved grants of 175,700 shares of restricted stock to non-executive employees of the Company. On March 20, 2007, the Board of Directors approved grants of 31,000 shares of restricted stock to our non-executive directors as a group. 16,000 shares were granted as compensation for services rendered during 2006, and 15,000 shares were granted as part of their compensation for 2007. All of these awards were and remain subject to the approval of the amendment and restatement of the Plan by our stockholders. As of the date of this Proxy Statement, other than the awards described above, no executive officer, employee or director of the Company has been granted any awards under the Plan. Inasmuch as awards under the Plan may be granted in the future at the sole discretion of the Compensation Committee, such benefits under the Plan are not presently determinable.

 

Under Mr. Targoff’s employment agreement with the Company, Mr. Targoff is entitled in 2008, provided he has earned his target bonus for 2006 and 2007, to an equity award with a value equal to $2,875,000 (one-half of the value of the grant awarded to him in March 2006). This award may be either an option to purchase common stock with terms similar to his March 2006 option or other equity award. We are required under his employment agreement to seek stockholder approval of an amendment to the Plan to provide for sufficient shares to cover this award based on our best estimate at the time of the amendment of the number of shares necessary to implement this award. We are currently planning to issue Mr. Targoff’s 2008 equity award, assuming it is earned, in the form of restricted stock and have estimated, assuming a market value of our common stock of $50 per share, that we will need 57,500 shares to cover this award.

 

Under Mr. Townsend’s employment agreement with the Company, we have agreed to grant to Mr. Townsend annually a target option grant or other equity award having a Black-Scholes value equal to his base salary then in effect multiplied by 1.4. We are currently planning to issue Mr. Townsend’s equity award for 2008 in the form of restricted stock and have estimated, assuming a market value of our common stock of $50 per share, that we will need 16,100 shares to cover this award. Also, our directors as a group will be entitled to an aggregate of 15,000 shares of restricted stock as part of their compensation for 2008.

 

If we are not able to attain stockholder approval on or before June 30, 2007 to increase the number of shares available for award under our 2005 Stock Incentive Plan in order to implement Mr. Targoff’s 2006 stock option grant and his 2008 equity award if earned, Mr. Targoff will be able to terminate his employment with us for “good reason” and will be entitled to the severance payments described below in “Executive Compensation — Compensation Tables — Potential Change in Control and other Post Employment Payments — CEO.” If we are not able to attain stockholder approval on or before June 30, 2007 to increase the

number of shares available for award under our 2005 Stock Incentive Plan in order to implement the 2006 stock option grant to Mr. Townsend, Mr. Townsend’s base salary and target bonus opportunity will be restored to the levels in effect prior to the amendment to his employment agreement and he will be entitled to receive a one-time cash payment equal to the difference in base salary and annual bonus he would have received had the changes never gone into effect and the base salary and annual bonus that he actually received after giving effect to the changes.

 

 

 

2005 Option Grants

 

On November 21, 2005, upon our emergence from Chapter 11, we granted stock options to our employees covering an aggregate of 1,390,452 shares of our common stock. All of these options were granted for no consideration from the grantees. These options vest over four years at the rate of 25% per year on each of the first four anniversaries of the effective date of our plan of reorganization (November 21, 2005), subject to earlier vesting upon a change in control or certain specified sale events as defined in the Plan. The per-share exercise price for all of these options is $28.441. The table below sets forth the number of shares underlying these options granted to the individuals and classes of individuals listed.

 

 

 

Equity Compensation Plan Information
(as of December 31, 2006)

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE THEIR SHARES FOR THE PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE 2005 STOCK INCENTIVE PLAN.

 

Stockholders will act upon a proposal to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of the Company. If the stockholders, by the affirmative vote of the holders of a majority of the shares represented in person or by proxy at the Annual Meeting, do not ratify the selection of Deloitte & Touche LLP, the selection of the independent registered public accounting firm will be reconsidered by the Audit Committee.

 

Background

 

The Audit Committee has selected Deloitte & Touche LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2007. Deloitte & Touche LLP has advised the Company that it has no direct or indirect financial interest in the Company or any of its subsidiaries and that it has had, during the last three years, no connection with the Company or any of its subsidiaries other than as our independent registered public accounting firm and certain other activities as described below.

 

Financial Statements and Reports

 

The financial statements of the Company for the year ended December 31, 2006 and report of the independent registered public accounting firm will be presented at the Annual Meeting. Deloitte & Touche LLP will have a representative present at the meeting who will have an opportunity to make a statement if he or she so desires and to respond to appropriate questions from stockholders.

 

Services

 

During 2005 and 2006, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) provided services consisting of the audit of the annual consolidated financial statements and internal controls over financial reporting of the Company, review of the quarterly financial statements of the Company, stand-alone audits of subsidiaries, foreign statutory reports, accounting consultations and consents and other services related to SEC filings and registration statements filed by the Company and its subsidiaries and other pertinent matters. Deloitte also provided other permitted services to the Company in 2005 and 2006 consisting primarily of tax consultation and related services.

 

Audit Fees

 

The aggregate fees billed or expected to be billed by Deloitte for professional services rendered for the audit of the Company’s annual consolidated financial statements and internal controls over financial reporting for the fiscal years ended 2005 and 2006, for the reviews of the condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2005 and 2006 fiscal years, for stand-alone and statutory audits of our subsidiaries and for accounting research and consultation related to the audits and reviews totaled approximately $6,258,000 and $3,614,000, respectively. These fees were approved by the Audit Committee.

 

Audit-Related Fees

 

The aggregate fees billed by Deloitte for audit-related services for the fiscal years ended 2005 and 2006 were $75,900 and $100,000, respectively. These fees related to research and consultation on various filings with the SEC and acquisition related due diligence reviews and were approved by the Audit Committee.

 

Tax Fees

 

The aggregate fees billed by Deloitte for tax-related services for the fiscal years ended 2005 and 2006 were $194,000 and $45,000, respectively. These fees related to tax consultation and related services and were approved by the Audit Committee.

 

All Other Fees

 

The aggregate fees billed or expected to be billed by Deloitte for services rendered to the Company, other than the services described above under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the fiscal years ended 2005 and 2006 totaled approximately $380,000 and $15,000, respectively. These fees for 2005 related to the Chapter 11 filing and related filings and activities and for 2006 related to consulting on internal control matters. These fees were approved by the Audit Committee.

 

The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining Deloitte’s independence.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE THEIR SHARES FOR THE PROPOSAL TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2007.

 

The Directors who serve on the Audit Committee are all “independent” for purposes of Nasdaq listing standards and applicable SEC rules and regulations. Among its functions, the Audit Committee reviews the financial reporting process of the Company on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the financial reporting process. The independent registered public accounting firm is responsible for expressing opinions on the conformity of our financial statements to accounting principles generally accepted in the United States of America, on management’s annual assessment of internal control over financial reporting, based on criteria established in “Internal Control — An Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (collectively, “COSO”), and on the effectiveness, in all material respects, of internal control over financial reporting, based on criteria established by COSO.

 

We have reviewed and discussed with management the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, which includes the Company’s audited consolidated financial statements for the year ended December 31, 2006, and management’s assessment of, and the independent audit of, the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006.

 

For 2006, the Audit Committee operated under a written charter adopted by the Board of Directors which was previously filed with the SEC in a Current Report on Form 8-K filed on November 23, 2005. All of the responsibilities enumerated in such charter were fulfilled for the year ended December 31, 2006.

 

We have reviewed and discussed with management and the independent registered public accounting firm, Deloitte & Touche LLP, the Company’s financial statements as of and for the year ended December 31, 2006.

 

We have discussed with the independent registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed by the Sarbanes-Oxley Act of 2002 and Statement on Auditing Standards (“SAS”) No. 61, Communication with Audit Committees, as amended by SAS 89 and SAS 90, of the Auditing Standards Board of the American Institute of Certified Public Accountants and Rule 2-07, Communication with the Audit Committee, of Regulation S-X of the SEC.

 

We have received and reviewed the written disclosures from Deloitte & Touche LLP, required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and have discussed with the independent registered public accounting firm the firm’s independence.

 

Based on the activities referred to above, we recommended to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

The Audit Committee

 

Arthur L. Simon, Chairman
John D. Harkey, Jr.
John P. Stenbit

 

The Compensation Committee

 

Our Compensation Committee has primary responsibility for overseeing our executive compensation program, including compensation of our named executive officers or NEOs listed in the compensation tables that follow. Our Compensation Committee is composed of independent directors, as determined by Nasdaq listing standards. The Committee’s responsibilities are set forth in the Committee charter, which is filed as Exhibit 99.3 to our Current Report on Form 8-K filed on November 23, 2005 and is available on our corporate website at www.loral.com. In order to fulfill its responsibilities pertaining to executive and director compensation, the Committee:

 

 

In 2006, the Compensation Committee met four times and acted by unanimous written consent twice.

 

Objectives and Philosophy

 

Our executive compensation program is designed to (i) attract and retain high quality executive officers who are critical to our long-term success and (ii) place an amount of each executive officer’s pay at risk so that he or she is rewarded for achieving our short-term business and long-term strategic goals. The Committee determines target total direct compensation levels for our named executive officers based on several factors, including:

 

 

“Total direct compensation” is comprised of base salary, annual bonus compensation (identified in the Summary Compensation Table below as Non-Equity Incentive Plan Compensation) and long-term incentive compensation in the form of equity awards. Each of these elements of total direct compensation is discussed in more detail below.

 

We compete for executive talent in a highly specialized industry and often against firms that are significantly larger in size and scope than us. The Committee’s goal is to design a compensation program that rewards our NEOs for performance in relationship to achievement of corporate and personal performance goals. Due to an extended period of time during which we were unable to provide meaningful long-term incentives to our NEOs resulting from our Chapter 11 reorganization, short-term compensation (base salary and annual bonus compensation) for our NEOs has historically fallen within or near the 75th percentile for comparable positions at our peers if target levels for the performance measures are achieved (see “Compensation Committee Practices” below for a description of our peer companies). In the future, with respect to newly hired executives, total direct compensation levels for our NEOs will be designed and is expected to fall

generally between the 50th and 75th percentile for comparable positions at our peer companies if target levels for the performance measures are achieved.

 

In evaluating compensation for our NEOs, the Committee also considers other benefits and potential compensation payable to executive officers in certain circumstances. These other benefits and compensation include retirement benefits and potential benefits which may be payable in a situation involving a change of control of the Company. The nature of this other compensation is different from total direct compensation because it involves, in the case of retirement benefits, compensation payable only in the future, and, in the case of change of control compensation, compensation which is contingent upon the possible occurrence of future events.

 

Retirement benefits are intended both to recognize long-term service and to keep our overall pay packages for our NEOs comparable to that of our peer companies so that we can attract and retain highly qualified executive officers. We maintain a defined benefit pension plan for our NEOs and we maintain a defined benefit supplemental executive retirement plan, pursuant to which we make contributions for the benefit of our NEOs. Our supplemental executive retirement plan is intended to make up for the limitations on covered compensation and potential benefits which apply under the Internal Revenue Code to our qualified retirement plans, so that the total actual retirement benefits that are earned and received by our NEOs are not artificially limited. We also maintain a 401(k) savings plan. The Committee believes that these retirement plans, in aggregate, are necessary to compete effectively with our peer companies.

 

As with other companies, we provide various other benefits to our NEOs. Many of these, such as health and life insurance, are provided to most of our U.S. salaried employees on substantially the same basis. We also provide excess life insurance and excess medical coverage to our NEOs. In many respects, these additional benefits have historically been driven by reference to the Company’s past practices as well as competitive market forces.

 

Upon our emergence from Chapter 11 in November 2005, we entered into two year employment agreements with each of our NEOs (other than Mr. Targoff who was not an officer at the time). On March 28, 2006, we entered into an employment agreement with Mr. Targoff for a term of approximately five years.

 

Compensation Committee Process and Practices

 

Our Compensation Committee has authority to retain a consulting firm to assist it in the evaluation of compensation for our NEOs and has the authority to approve the consultant’s fees and other retention terms. In 2006, the Committee retained as its executive compensation consultant, a member of The Delves Group, who, in 2007, joined James F. Reda & Associates and subsequently Hewitt Associates. In selecting this consultant, the Committee considered the reputation and experience of the consultant as well as his independence. In the past, we have retained, and continue to retain, The Segal Company for actuarial and related services in connection with our retirement plans.

 

In 2006, The Delves Group assisted the Committee in conducting an assessment of general market compensation practices and the compensation levels of our executive officers, including our NEOs. The results of this assessment are referred to as the “2006 Peer Group Market Data.” The 2006 Peer Group Market Data study was used to help establish the compensation for our CEO and, as discussed below, formed the basis for proposed changes to total direct compensation levels for certain of our NEOs. The review was limited to an assessment of current market conditions and did not represent a complete plan review or redesign. In particular, the review was focused on providing the Committee with competitive pay levels given our recent emergence from Chapter 11.

 

Specifically, the 2006 Peer Group Market Data consisted of data from a customized compensation peer group and market compensation surveys. The peer group, which is periodically reviewed and updated by the Committee, consists of companies against which the Committee believes we compete for executive talent. The companies comprising our peer group in 2006 were: The DIRECTV Group, EchoStar Communications, Orbital Sciences, New Skies Satellite Holdings (prior to its acquisition by SES Global), Scientific-Atlanta, Teledyne

Technologies, Eutelsat Communications, Sirius Satellite Radio, PanAmSat (prior to its acquisition by Intelsat), XM Satellite Radio Holdings and Viasat.

 

Additionally, the Committee observes compensation practices and relative pay levels at other significantly larger organizations competing for executive talent, such as Boeing, Northrop Grumman and Lockheed Martin.

 

As stated above, upon our emergence from Chapter 11 in November 2005, we entered into two year employment agreements with each of our NEOs (other than Mr. Targoff who was not an officer at the time), and, on March 28, 2006, we entered into an employment agreement with Mr. Targoff for a term of approximately five years. After expiration of these employment agreements if not renewed, the Committee intends to follow the following procedure with respect to the setting of compensation for our NEOs and other executive officers. Generally, the Committee intends to begin its evaluation of total direct compensation for each year in the late fall of the prior year, meeting to preliminarily discuss compensation and related matters. During these meetings, matters such as changes in peer group market data, plan philosophy and design, expected performance and historical performance will be discussed. Final determinations of salaries, annual bonus targets, long-term incentive compensation awards and plan designs will be targeted to be made at the Committee’s meeting in March, which is shortly after the public release of the prior year’s financial results. At that meeting, the Committee also will review prior year performance and the status of prior awards of long-term incentive compensation. The Committee believes that considering these matters at the March meeting will allow the Committee not only to factor in the prior year’s financial results and the current year’s operating plan but also will allow it to assess prior years’ compensation. Occasionally, grants of long-term incentive compensation or changes in compensation may be made at other meetings in cases such as promotions, new hiring or other special situations.

 

Generally, it is our intention that stock incentive awards will be granted effective as of the annual shareholder meeting date. In the ordinary course, it is also our intention to effect salary changes annually to reflect cost of living adjustments.

 

Upon the request of the Committee, certain of our employees will compile and organize information, arrange and attend meetings and provide support for the Committee’s work. We expect that Mr. Targoff, our Chief Executive Officer, will also make compensation recommendations for the other NEOs, which will be considered by the Committee.

 

Elements of Compensation

 

Total Direct Compensation — Cash and Stock Incentives

 

Our total direct compensation consists of three components:

 

 

For 2006, the base salary and target bonus percentages of the NEOs were governed by their employment agreements.

 

Base Salary

 

We provide an annual base level of compensation in the form of base salary for services rendered by our NEOs throughout the year to give them resources upon which to live and to provide a portion of compensation which is assured in order to help provide them with a certain level of financial security. When determining base salary, we consider a number of factors including market data, prior salary, job responsibilities and changes in job responsibilities, achievement of specified Company goals, individual experience, demonstrated leadership, performance potential, Company performance and retention considerations. These factors are not weighed or ranked in any particular way.

 

The result of the 2006 Executive Compensation Analysis by The Delves Group concluded that, in the case of the President/COO and CFO, salaries and bonus compensation were above the 75th percentile levels, both relative to our peer group and market compensation surveys. The Committee believes that the reasons for this finding were in part the historical pay levels set by our Compensation Committee prior to the Company’s Chapter 11 filing in 2003 and in part because executive talent in our specialized industry is scarce and difficult to attract and retain. In order to minimize our on-going cost structure and restore profitability, in June 2006, we sought to adjust the pay levels of our President/COO and Chief Financial Officer and provided them with an opportunity to substantially reduce their base salaries to the 75th percentile level in consideration of a higher target annual cash bonus opportunity and a one-time grant of stock options. Our CFO accepted the alternative compensation arrangement, and his base salary was adjusted effective on June 19, 2006. In addition, at the request of our CEO, our General Counsel, as well as certain other executive officers, agreed to shift a portion of their base salaries to annual bonus compensation for a period of six months ending December 31, 2006.

 

If we are not able to attain stockholder approval on or before June 2007 to increase the number of shares available for award under our 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement) in order to implement the one-time stock option grant to our CFO, his original base salary and target bonus opportunity will be restored and he will be entitled to receive a one-time cash payment equal to the difference in base salary and annual bonus he would have received had the changes never gone into effect and the base salary and annual bonus that he actually received after giving effect to the changes.

 

Annual Bonus Compensation

 

We provide annual cash bonus incentives for our NEOs under our Management Incentive Bonus or MIB program. Each NEO has a target bonus opportunity, which is payable upon the achievement of certain corporate performance goals at the target level. The 2006 target bonus opportunity ranged from 40% to 69.6% of base salary for our NEOs other than our CEO and was 125% of base salary for our CEO. Individual target opportunities are provided in “Employment Agreements — Other Named Executive Officers” below.

 

For 2006, the primary performance measure that was used to evaluate our corporate performance was earnings before interest, taxes, depreciation and amortization or EBITDA. The EBITDA value was then adjusted for non-operating charges such as fresh start accounting, pension plan changes, stock option expense and other changes due to the implementation of new accounting methods and standards. Early in 2006, management provided the Committee and the Board with a matrix of adjusted EBITDA values defining three different performance levels (in order of rank) — “threshold,” “target” and “outstanding” performance. After the end of the year, the Committee compared our actual performance against these performance levels in order to determine the amount to be paid to executive officers under the MIB program. For example, in 2006, our CEO was entitled to an annual incentive bonus payment equal to 125% of base salary under the MIB program if “target” adjusted EBITDA was achieved for 2006. The program also provided the Chief Executive Officer and the other executive officers with the opportunity to earn up to 130% (up to 120% in the case of Mr. DeWitt) of their target percentage for performance at the “outstanding” performance level (in the case of the CEO, this would mean he could earn up to 162.5% of his base salary as a bonus). The “threshold” level of performance was the minimum level of performance for which any percentage of target bonus could be earned. The target percentage payout for each executive officer is governed by his employment contract, but the amount paid may increase or decrease proportionately in accordance with performance against our performance measures.

 

The Committee intends that payments at the “target” level combined with base salaries would provide annual cash compensation at about the 75th percentile of the peer group market data for the combination of base salary and annual bonus incentives.

 

In setting adjusted EBITDA targets for the MIB program, the Committee reviewed the budgets developed by our management and approved by our Board. The Committee used the budgeted numbers as the “target” due to the rigor and tactical planning involved in their development, the importance of achieving these goals as part of our longer term strategic plan and the acceptance of management’s commitments by the Board. The

Committee and the Board believed that achieving this budget would represent a stretch for management when considering internal and external challenges expected to affect us in 2006. These challenges included the global economic environment as well as significant internal organizational and strategic business changes which were being implemented by us in 2006. The “threshold” adjusted EBITDA metric was set 30% (20% in the case of Mr. DeWitt) below the “target” amount. This amount was considered minimally acceptable, but likely achievable given the factors discussed above. The “outstanding” adjusted EBITDA metric was set 30% (20% in the case of Mr. DeWitt) higher than the “target” amount. This level was considered to be a significant stretch above budget, required improvement over 2005 and would be quite difficult to achieve given the challenges faced by management. For 2006, the “threshold,” “target,” and “outstanding” adjusted EBITDA performance levels for the NEOs other than Mr. DeWitt were set at $48.4 million, $69.1 million and $89.8 million, respectively. Mr. DeWitt’s targets were set with respect to performance of the Company’s SS/L subsidiary, with the “threshold,” “target,” and “outstanding” adjusted EBITDA performance levels for SS/L set at $32.3 million, $40.4 million and $48.5 million, respectively.

 

In 2006, the Company achieved performance at the outstanding level, and, therefore, bonuses were paid at 130% of “target” levels (120% in the case of Mr. DeWitt).

 

Long-term Incentive Compensation

 

We also provide long-term incentive compensation to our NEOs through our 2005 Stock Incentive Plan. We believe that equity-based awards help to align the financial interests of our NEOs with those of our stockholders by providing our NEOs with an additional equity stake in the Company. Equity-based awards also reward our NEOs for increasing stockholder value.

 

The Stock Incentive Plan allows us to grant a variety of stock-based awards, including stock options, restricted stock, performance shares and performance units. These types of awards measure financial performance over a longer period of time than the other methods of compensation.

 

In the past, we have primarily relied on stock options as the long-term incentive compensation vehicle for our NEOs. With respect to future equity awards, however, our current intention is to rely more heavily on awards in the form of shares of restricted stock. The options previously granted have typically vested and become exercisable and shares of restricted stock that will be granted in the future will generally vest and become exercisable over a period of years and are or will be subject to forfeiture upon termination of employment until vested. These long-term vesting schedules provide continued motivation and reward our NEOs in line with our stockholders over the vesting period. Moreover, we believe that making periodic equity-based awards with overlapping vesting periods will continue to provide incentive and motivation over the longer term. We also believe that equity-based awards continue to provide long-term shareholder value beyond the vesting dates because of the continued upside financial potential for executives. Because of the multiple-year vesting schedules, we also regard our equity-based award program as a significant factor in retaining our NEOs.

 

In general, when granting awards, we take into account the following subjective and objective factors:

 

 

Prior to making a grant, we also consider our stock price, the volatility of the stock price and potential dilution.

 

We do not have a specific policy regarding ownership of Company stock by our NEOs. Our policy on insider trading and confidentiality generally restricts executive officers from engaging in short-term or speculative transactions involving our stock, including short sales and publicly traded options.

 

In 2006, we did not have shares available for grant under our 2005 Stock Incentive Plan, and accordingly, did not grant any equity-based awards, with the exception of certain awards to our CEO and CFO, which are subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement).

 

In the future, assuming approval of Proposal 2, pursuant to which the number of shares available for grant under our Stock Incentive Plan would be increased, the Committee intends to grant equity-based awards to executive officers and employees. It is the Committee’s intention to determine the nature and value of these awards by first looking both at market conditions and at the estimated value of the proposed stock awards to develop ranges of awards for personnel at various levels (including both executive officers and other employees). After developing the potential range of awards, the Committee will seek recommendations from management as to the value of the awards to be granted to specific individuals. The Committee will review the recommendations, consider the total recommended grant size as compared to outstanding shares and expected dilution and make the final grant decision. Although we currently expect that future equity awards are more likely to be in the form of shares of restricted stock, if stock options are the selected form of award, the Committee will use the Black-Scholes pricing model (a formula widely used to value exchange-traded options and determine the present value of the executive option award) to determine the value of the awards and for comparison to executives in our peer group.

 

In connection with the changes to the compensation arrangements of our CFO, we agreed that, for so long as Mr. Townsend is employed by the Company, he will be a participant in a long term incentive plan to be established by the Company which will provide him with annual grants of equity-based awards under the 2005 Stock Incentive Plan in the form of stock options (such grants subject to obtaining stockholder approval of our Amended and Restated 2005 Stock Incentive Plan), and his target annual grant will have a value (calculated using the Black-Scholes method) at least equal to his effective base salary (at that time) multiplied by 1.4 (or, if the long-term incentive plan is for any reason not established, or, if established, not implemented or later discontinued, a cash bonus equal to that Black Scholes value will be provided), provided, however, that his actual annual grant may be increased above or decreased below the target level if and in the same proportion that actual annual grants to other similarly situated participants in the long-term incentive plan are increased above or decreased below their target annual grants.

 

To date, all option grants have had an exercise price equal to the fair market value of our common stock on the grant date. We do not grant equity awards in anticipation of the release of material nonpublic information, nor do we time the release of material nonpublic information to coincide with our equity grant dates. We have not yet adopted a fixed policy or practice with regard to the timing of equity grants but may consider doing so in the future.

 

Other Benefits and Perquisites

 

Our NEOs receive other benefits also available to other salaried employees. For example, we provide our NEOs and other U.S. salaried employees with health insurance, life insurance, vacation pay and sick pay. We also provide our NEOs and certain other officers with universal life insurance policies in various amounts beyond that provided for other employees. NEOs and certain other officers are also entitled to reimbursement of medical and dental expenses not otherwise covered by our insurance program up to a maximum of $4,000 per year. We do not provide our NEOs with automobiles, aircraft for personal use, personal living accommodations, club memberships or reimbursement of “social expenses” except to the extent that they are specifically, directly and exclusively used to conduct Company business. Other than the additional life insurance and executive medical reimbursement, the Committee has determined that there generally should be no perquisites or similar benefits for NEOs which are not consistent with those available to other salaried employees.

 

Nonqualified Deferred Compensation

 

In December 2005, pursuant to our plan of reorganization, we entered into deferred compensation arrangements for certain key employees, including our NEOs. The initial deferred compensation awards were

calculated by multiplying $9.441 by the number of shares of common stock underlying the stock options granted to these key employees. The value of the deferred compensation may decline depending on stock price performance within a defined range, until the occurrence of certain events, including the exercise of the related stock options. Subject to earlier vesting upon a change in control or certain specified sale events as defined in our 2005 Stock Incentive Plan, recipients of these deferred compensation arrangements vest in their accounts ratably over four years from the date of grant at the rate of 25% per year. These deferred amounts will become payable on the earlier of the recipient’s termination of employment, a change in control of the Company or seven years from the date of grant.

 

Retirement Benefits

 

Retirement benefits are intended both to recognize long-term service with us and to keep our overall pay packages for our NEOs comparable to that of our peer group so that we can attract and retain high quality executive officers. The Company maintains two types of retirement plans covering its executive officers, a defined benefit pension plan and a defined contribution program in which eligible employees and executives may receive matching contributions. Pension benefits are provided through both “qualified” and “non-qualified” plans (the non-qualified plans are designed to “restore” the benefit levels that may be limited by IRS regulations). Our defined contribution plan is a 401(k) plan which permits participants to defer a portion of their salary for retirement, and we match a portion of those contributions.

 

Our Retirement Plan (the “Pension Plan”) is a defined benefit retirement plan which covers substantially all U.S. salaried employees, with minimum service requirements (the Company maintains separate retirement arrangements for hourly employees). In 2006, the Company changed the Pension Plan which, for all NEOs other than Mr. DeWitt, previously had been administered on a non-contributory basis to require certain contributions by participants thereby having the effect of sharing the cost of providing pension benefits with the NEOs. The Pension Plan is a “qualified” retirement plan under the Internal Revenue Code and is therefore subject to the Code’s limits on covered compensation and benefits payable.

 

The NEOs, as well as all executives who earn in excess of applicable IRS limits, also participate in the Supplemental Executive Retirement Plan, known as the SERP. The SERP, a non-qualified excess benefit and supplemental retirement plan under ERISA, provides the benefits that would be payable to participants under the Pension Plan except for the limitations imposed on qualified plans under the Internal Revenue Code. The SERP was adopted on April 23, 1996. Under the SERP, each participant will receive the difference, if any, between the full amount of retirement income due under the Pension Plan formula without application of the IRS limitations and the amount of retirement income payable to the participant under the Pension Plan formula when applicable Internal Revenue Code limitations are applied.

 

Employment Agreements

 

CEO — Michael B. Targoff

 

On March 1, 2006, Michael Targoff became our Chief Executive Officer. On March 28, 2006, we entered into an employment agreement with Mr. Targoff, which will expire on December 31, 2010. Prior to becoming our Chief Executive Officer, Mr. Targoff was Vice Chairman of our Board. We believed it was important and desirable to enter into an employment agreement with Mr. Targoff, which includes severance arrangements, in order to induce him to assume the position of Chief Executive Officer and to assure him of a degree of certainty relating to his employment situation and thereby secure his dedication notwithstanding any concern he might have regarding his continued employment prior to or following termination or a change in control.

 

Under his employment agreement, Mr. Targoff is entitled to receive an annual base salary of $950,000, which is subject to annual review by our Board. The employment agreement also provides that Mr. Targoff will participate in our Management Incentive Bonus Program, with a target annual bonus of one hundred twenty-five percent (125%) of his base salary. Under this program, for 2006, Mr. Targoff earned 162% of his base salary earned during the 10 months in which he was our CEO in 2006, or $1,286,458.

 

Pursuant to his employment agreement, Mr. Targoff was granted in March 2006 five year options to purchase 825,000 shares of our common stock with a per-share exercise price equal to $26.915, the fair market

value of one share of our common stock on the date of grant. This stock option is subject to the approval by our stockholders of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2 of this Proxy Statement). This stock option will not be valid unless and until the plan amendment is approved by our stockholders. Subject to earlier vesting upon a change in control as defined in our 2005 Stock Incentive Plan, the stock option will vest over a four-year period with the first 121/2% vesting on the grant date, an additional 25% vesting on the next three anniversaries of the grant date and the remaining 121/2% vesting on the fourth anniversary of the grant date; provided, however, that no portion of this option (whether vested or not) will be exercisable prior to the date of stockholder approval of the Amended and Restated 2005 Stock Incentive Plan. We have agreed to indemnify Mr. Targoff, on an after tax basis, for any additional tax (including interest and penalties with respect thereto) that may be imposed on him by Section 409A of the Internal Revenue Code as a result of the options being granted subject to the approval by our stockholders of our Amended and Restated 2005 Stock Incentive Plan.

 

Mr. Targoff’s employment agreement also provides for an additional equity award to be granted to him in 2008 having a comparable Black-Scholes or present value or economic value of $2.875 million (which is 50% of the value of the stock option granted to him in 2006). This grant will be contingent upon Mr. Targoff performing at the “target level” of financial performance as annually approved by the Board in 2006 and 2007 and as a result Mr. Targoff earning his target bonus for the 2006 and 2007 fiscal years.

 

Mr. Targoff also participates in the Company benefit plans available to our other executive officers. Mr. Targoff’s participation is on the same basis as other executive officers of the Company.

 

Upon Mr. Targoff’s termination of employment on account of death or permanent disability during the contract term, or if his employment is terminated by Loral without “cause” or Mr. Targoff resigns for “good reason” (as such terms are defined in his employment agreement), Mr. Targoff will be entitled to a severance payment described below and to accelerated vesting of a portion (in the case of death or disability) or all (in the case of termination by Loral without “cause” or resignation for “good reason”) of his options. These arrangements are described more fully below under “Potential Change in Control and other Post Employment Payments.”

 

During the term of Mr. Targoff’s employment with Loral and for a twelve-month period (or twenty-four (24) months following a change in control of Loral) following a termination of employment, Mr. Targoff is restricted from (i) engaging in competitive activities, (ii) directly or indirectly soliciting current and certain former employees of Loral or any of its affiliates and (iii) knowingly soliciting, directly or indirectly, any customers or suppliers within the twelve-month period prior to such termination of employment to terminate or diminish their relationship with Loral or any of its affiliates. In addition, Mr. Targoff may not disclose confidential information of Loral.

 

Mr. Targoff’s employment agreement also provides for the reimbursement of his attorney’s fees in connection with the negotiation of the employment agreement and a tax gross-up payment to cover his taxes for any such reimbursement.

 

Loral Skynet Corporation and SS/L guarantee the payment and performance of Loral’s obligations under the employment contract with Mr. Targoff.

 

Other Named Executive Officers

 

Upon emergence from Chapter 11 in November 2005, the Company entered into employment agreements with each of the NEOs employed by Loral (other than Mr. Targoff who was not an officer at the time), and our SS/L subsidiary entered into an employment agreement with Mr. DeWitt. The Company believed it was important to enter into these agreements, which included severance arrangements, because they would provide the NEOs with a degree of certainty relating to their employment situation following our emergence from Chapter 11 and thereby help to secure their continued employment and dedication notwithstanding any concern they might have regarding their own continued employment prior to or following termination or a change in control. These arrangements were also important as a retention device, as most of the companies with which we compete for executive talent have similar agreements in place for their senior employees. The terms of the employment agreements with Messrs. Katz, Townsend and Zahler and the employment agreement with Mr. DeWitt (other than those relating to compensation levels) are substantially identical.

 

Each of the employment agreements with the NEOs is for an initial term of two years (expiring on November 21, 2007) and sets forth the executive’s position and duties, annual salary, target annual bonus opportunity and entitlement to an initial stock option grant. In addition, each executive is entitled to participate in employee benefits generally provided to similarly situated employees. The principal compensation terms under the employment agreements, as amended in the case of Mr. Townsend, are set forth in the table below.

 

 

Upon any executive’s termination of employment on account of death or permanent disability during the contract term, or if an executive’s employment is terminated by Loral without “cause” or the executive resigns for “good reason” (as such terms are defined in the employment agreement), the executive will be entitled to a severance payment and to accelerated vesting of a portion of his options. These arrangements are described more fully below under “Potential Change in Control and other Post Employment Payments.”

 

During the term of an executive’s employment agreement and for a twelve-month period following a termination of employment during the term of the agreement, each executive is restricted from (i) engaging in competitive activities, (ii) directly or indirectly soliciting current and certain former employees of Loral or any of its affiliates and (iii) knowingly soliciting, directly or indirectly, any customers or suppliers within the twelve-month period prior to such termination of employment to terminate or diminish their relationship with Loral or any of its affiliates. In addition, the executives may not disclose confidential information of Loral. We believe that these provisions help ensure our long-term success.

 

Loral Skynet Corporation and SS/L guarantee the payment and performance obligations of Loral under the employment agreements for the executives who employees of Loral.

 

Pursuant to an amendment to the employment agreement with Mr. Townsend entered into in connection with adjustment of his base salary and target bonus opportunity, if (x) on or after January 1, 2007 and prior to May 21, 2007, Mr. Townsend’s employment is terminated by us without cause or by Mr. Townsend for good reason, or (y) on or after May 21, 2007 and prior to expiration of the term of the agreement, Mr. Townsend’s employment agreement is not renewed or extended on terms substantially similar to those contained in his current employment agreement as amended and his employment is terminated prior to expiration of the term for any reason other than by the Company for cause (for the avoidance of doubt, “any reason” includes, without limitation, by the Company without cause, by Mr. Townsend voluntarily or by Mr. Townsend for good reason), then, in addition to any other payments or benefits to which Mr. Townsend may be entitled under his employment agreement, he is entitled to receive as soon as practicable on or after termination of his employment a lump sum payment representing the difference in base salary and annual bonus he would have received had the changes effected by the amendment never gone into effect and the base salary and annual bonus that he actually received after giving effect to the amendment minus the value of any vested portion of the options to acquire 20,000 shares of common stock granted to him in connection with his entry into the amendment to his employment agreement.

 

In connection with the amendment to Mr. Townsend’s employment agreement, on June 14, 2006, we granted to Mr. Townsend a seven-year option to purchase 20,000 shares of common stock of the Company, with a per-share exercise price equal to $27.135. This option vests over a four-year period, with 25% vesting on each of the first four anniversaries of the grant date, subject to earlier vesting upon a change in control as

defined in our 2005 Stock Incentive Plan. This grant is subject to stockholder approval of our Amended and Restated 2005 Stock Incentive Plan (see Proposal 2).

 

The amendment further provides that if Mr. Townsend’s employment with the Company is terminated upon the expiration of the term of his employment agreement or the term under his employment agreement is not renewed or extended and he continues to be employed by the Company after the term on an “at will” basis and his employment is thereafter terminated, Mr. Townsend, at his election, shall be covered by, and entitled to severance benefits under, either (A) the severance policy applicable to Company officers described below in “Executive Compensation — Compensation Tables — Potential Change in Control and other Post Employment Payments — Other Named Executive Officers” (without regard or giving effect to any changes, modifications or amendments thereto that may be later adopted by the Company) or (B) such other severance policy generally applicable to employees of the corporate office as may then have been adopted in good faith by the Company and then be in effect.

 

Tax Aspects of Executive Compensation

 

Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation paid to the NEOs that is not “performance based” to $1 million annually per executive officer. Option awards under our 2005 Stock Incentive Plan are designed so that awards granted to the covered individuals meet Section 162(m) requirements for performance-based compensation, and thus, these awards should not be counted toward the $1 million limitation on tax deductions for an NEO’s compensation in any fiscal year. Our MIB program, however, is not designed to meet the Section 162(m) requirements. Accordingly, for 2006, compensation in the amount of $1,151,103, $918,706 and $248,790 payable to Messrs. Targoff, Zahler and Townsend, respectively, will not be deductible. In addition to the MIB program, there may be other instances, in which the Committee determines that it cannot structure compensation to meet Section 162(m) requirements. In those instances, the Committee may elect to structure elements of compensation (such as certain qualitative factors in annual bonuses) to accomplish business objectives that it believes are in our best interests and those of our stockholders, even though doing so may reduce the amount of our tax deduction for such compensation.

 

Other provisions of the Internal Revenue Code also can affect the decisions which the Committee makes. Under Section 4999 of the Internal Revenue Code, a 20% excise tax is imposed upon executive officers who receive “excess” payments upon a change in control of a public corporation to the extent the payments received by them exceed an amount approximating three times their average annual compensation. The excise tax applies to all payments over one times annual compensation, determined by a five year average. Under Section 280G of the Internal Revenue Code, a company also loses its tax deduction for these “excess” payments. The employment agreement with our CEO provides that all severance benefits under that agreement that result from a change-in-control will be “grossed up,” if necessary, so that we reimburse him for these tax consequences. Although this gross-up provision and loss of deductibility increase the severance expense to us, the Committee believed it was important that the effects of this tax code provision not negate the protections which we intend to provide to our CEO in the event of a change in control. The Committee also believed it was necessary to provide this benefit to our CEO in order to encourage him to take the position of CEO in March of 2006 when we were negotiating the terms of his employment with us.

 

 

The Compensation Committee has reviewed and discussed the above “Compensation Discussion and Analysis” contained in this Proxy Statement with management. Based upon that review and those discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and included in this Proxy Statement.

 

The Compensation Committee

 

Mark H. Rachesky, M.D., Chairman
John D. Harkey, Jr.

 

Summary Compensation Table

 

 

 

All Other Compensation

 

 

In addition, for Mr. Targoff, the “All Other Compensation” column includes $30,500 for director fees received in 2006 for his service on the Board of Directors (see “Director Compensation Table” above) and $33,206 for reimbursement of legal fees in connection with the negotiation of his employment agreement. Mr. Targoff will be entitled to a tax gross-up in 2007 with respect to the inclusion in his income of the amount of his legal fee reimbursement.

 

Grants of Plan-Based Awards in 2006

 

The following table provides information about non-equity incentive plan awards granted to NEOs in 2006. The column titled “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” represents the annual incentive opportunity available to each NEO under various corporate performance conditions. The actual earned amount for 2006 is set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

2006 Grants of Plan Based Awards

 

 

Outstanding Equity Awards at 2006 Fiscal Year-End

 

The following table provides information on the current holdings of stock options by the NEOs. As we have not previously granted stock awards to the NEOs, the table below contains only unexercised option awards.

 

Outstanding Equity Awards at 2006 Fiscal Year End

 

 

 

Option Exercises and Stock Vested in Fiscal 2006

 

None of our NEOs exercised any options in 2006.

 

Pension Benefits in Fiscal Year 2006

 

The table below sets forth information on the pension benefits for the NEOs under each of the following pension plans:

 

 

For Mr. Dewitt, pursuant to the formula in effect prior to July 1, 2006, his 1% post-tax contribution into the plan enabled him to receive a benefit equal to 1.3% of the final five year average salary (no bonuses are included in eligible compensation for this formula) times years of contributory service plus 0.45% of final five year average salary over 150% of the Social Security Covered Compensation for each year up to 35 years.

 

The normal retirement age as defined in this plan is 65. Eligible employees who have achieved ten years of service by the time they reach age 55 are eligible for an early retirement benefit at 50% (age 55) of the benefit they would receive at age 65. Currently, Messrs. Targoff, Zahler and DeWitt are eligible for early retirement. In addition to a life annuity, the plan offers other forms of benefit, including spousal survivor annuity options and beneficiary period-certain options.

 

 

The table below indicates the NEOs’ years of credited service under our pension plans and the present value of their accumulated benefits, in each case as of December 31, 2006. In addition, the table identifies all payments made to the NEOs during 2006.

 

2006 Pension Benefits

 

 

 

Nonqualified Deferred Compensation Table in Fiscal 2006

 

On December 21, 2005, we established a deferred compensation bookkeeping account for certain employees, including the NEOs, and credited that account with a dollar amount equal to $9.441 for each deferred compensation unit. To the extent our stock price declines below $28.441, the corresponding portion of the deferred compensation accounts also declines accordingly.

 

The deferred compensation account becomes vested at the rate of 25% per year on the first, second, third and fourth anniversaries of the effective date of our plan of reorganization (November 21, 2005), subject to earlier vesting upon a change in control or certain specified sale events as defined in our 2005 Stock Incentive Plan. The vested portion, however, will be distributed to the account holder only upon the earlier of: (a) his termination of service; (b) a change of control; or (c) December 21, 2012.

 

The value of the deferred compensation account is not initially credited with interest or subject to any rate of return, other than the potential decrease in value upon a corresponding decrease in our stock price below $28.441 and any recovery in value to the extent that our stock price returns to $28.441. The deferred compensation accounts will be converted into interest-bearing accounts upon exercise of the related stock options.

 

The table below identifies the aggregate earnings during 2006 and the aggregate balance of the vested and unvested amount as of the end of 2006.

 

2006 Nonqualified Deferred Compensation

 

 

 

Potential Change in Control and other Post Employment Payments

 

As discussed above in the Compensation Discussion and Analysis, each NEO has an employment agreement with Loral that provides for potential post-termination payments. In this section, we provide details of these arrangements.

 

CEO

 

Upon Mr. Targoff’s death or disability during the term of his employment agreement, Mr. Targoff will be entitled to, among other payments, his accrued and unpaid bonus for the preceding year, a pro rated annual bonus for the year in which such death or permanent disability occurs, and, in the case of his death, salary through the end of the month in which he dies. In addition, any unvested options and deferred compensation that would have become vested on the next vesting date will become vested and, in the event of his death, his dependents will be entitled to continued medical, prescription drug and dental insurance coverage through the end of the current term of his employment agreement.

 

In the event that Mr. Targoff’s employment is terminated by us without “cause” or Mr. Targoff resigns for “good reason” (as such terms are defined in his employment agreement), Mr. Targoff will be entitled to a severance payment, in a lump sum, equal to two (2) times the sum of his base salary and annual bonus (for the preceding year); provided, however, that if the Amended and Restated 2005 Stock Incentive Plan has not been approved (see Proposal 2) and we undergo a change in control, as defined in his employment agreement, Mr. Targoff may terminate employment for good reason and receive a severance payment equal to the value of his base salary and annual bonus for the remainder of the term. In addition, Mr. Targoff will be entitled to any accrued and unpaid annual bonus for the preceding year and a prorated annual bonus for the year in which any such termination of employment occurs. Mr. Targoff and his dependents will also be entitled to coverage under Loral’s medical, dental and life insurance in effect immediately prior to such termination for eighteen (18) months following such termination, or until he commences new employment and becomes eligible for

comparable benefits. In addition, all of Mr. Targoff’s stock options, deferred compensation account and any other equity awards then held by Mr. Targoff will become fully vested. Mr. Targoff’s severance payments and benefits are contingent upon his execution of a release of claims in our favor. Mr. Targoff’s employment agreement also provides for a tax gross-up payment to Mr. Targoff in the event that he becomes subject to any parachute payment excise taxes under Section 4999 of the Internal Revenue Code. No other executive officer is entitled to such a gross up payment at Loral.

 

Other Named Executive Officers

 

Upon any NEO’s termination of employment on account of death or permanent disability during the contract term, such NEO is entitled to, among other payments, (i) such NEO’s accrued and unpaid bonus for the preceding year, (ii) a pro rated annual bonus for the year of termination, (iii) accelerated vesting of stock options that would have vested on the next vesting date, and (iv) in the case of such NEO’s death, salary through the end of the month of his death.

 

In the event that an NEO’s employment is terminated by us without “cause” or the NEO resigns for “good reason” (as such terms are defined in the employment contract), the NEO will be entitled to a severance payment, in a lump sum, as follows (as of December 31, 2006): Mr. Zahler ($2,158,000), Mr. Townsend ($1,589,040), Mr. DeWitt ($425,040) and Mr. Katz ($809,838). Each NEO will also be entitled to (i) any accrued and unpaid annual bonus for the preceding year, (ii) a prorated annual bonus for the year in which any such termination of employment occurs and (iii) the full vesting of all outstanding stock options and the deferred compensation relating thereto. In addition, the NEO will be entitled to coverage under Loral’s medical, dental and life insurance plans in effect immediately prior to such termination until the earlier of (i) the expiration of a period determined by dividing the NEO’s lump sum severance payment by the NEO’s monthly salary rate and (ii) the date the NEO commences new employment and is eligible for comparable benefits. Severance payments and benefits are contingent upon the execution by the NEOs of a release of claims in our favor.

 

In June 2006, the Company formally adopted severance policies for employees of the Company’s corporate office, including officers. The policy applicable to officers, which is subject to overriding terms in any employment agreement, applies to officers of the Company at the Vice President level and above who are designated by the plan administrator. The policy provides for severance benefits following the termination of an eligible officer’s employment by the Company without cause. Severance benefits will be provided at different levels, depending on the seniority and length of service of the employee when termination occurs. Mr. Targoff and the Company’s other named executive officers (Messrs. Zahler, Townsend, DeWitt and Katz) are not currently eligible for participation in the severance policy because they currently have employment agreements with the Company. If, however, their employment agreements expire without renewal and they are designated by the plan administrator as eligible, they would become eligible for severance benefits under the severance policy.

 

An eligible officer with the title of Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer or Executive Vice President will be entitled to a severance payment equal to (i) six months pay (defined as base salary plus average annual incentive bonus compensation paid over the last two years of employment), payable in a lump sum following termination, (ii) an additional six months pay, if unemployed after six months (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), payable over six months but subject to mitigation, and (iii) an additional 12 months base salary only, if unemployed after one year (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), payable over 12 months but subject to mitigation.

 

An eligible officer with the title of Vice President will be entitled to a severance payment equal to (i) three months pay, payable in a lump sum following termination, and (ii) an additional amount, if unemployed after three months (or if then employed at a rate of pay that is less than the participant’s rate of pay immediately prior to termination), equal to the sum of (A) three months pay plus (B) two weeks base salary for every year of service with the Company plus (C) one-twelfth of two weeks base salary for every month of service with the Company in excess of the participant’s full years of service with the Company, in

the case of (B) and (C) up to a maximum of twenty-six years, payable biweekly at the employee’s pre-termination base salary rate, following termination but subject to mitigation.

 

In addition, if a terminated participant has outstanding unvested stock options or other equity or incentive compensation awards, such participant will be entitled to accelerated vesting of the next full tranche of all of such participant’s unvested options and other equity and incentive compensation awards. However, if such termination occurs within six months following a major corporate transaction, acquisition or divestiture, the terminated participant will be entitled to full vesting of all outstanding unvested options and other equity and incentive compensation awards, unless the plan administrator determines that such termination is not the result of such corporate transaction, acquisition or divestiture.

 

Potential Severance Payments
(As of December 31, 2006)

 

 

 

 

Principal Holders of Stock

 

Common Stock

 

The following table shows, based upon filings made with the Company, certain information as of March 1, 2007 concerning persons who may be deemed beneficial owners of 5% or more of the outstanding shares of Loral common stock because they possessed or shared voting or investment power with respect to the shares of Loral common stock:

 

 

 

 

 

Preferred Stock

 

The following table shows certain information as of March 1, 2007 concerning persons who may be deemed beneficial owners of 5% or more of the outstanding shares of Loral preferred stock because they possessed or shared voting or investment power with respect to shares of Loral preferred stock:

 

 

 

 

 

Common Stock Ownership by Directors and Executive Officers

 

The following table presents the number of shares of Loral common stock beneficially owned by the directors, the NEOs and all directors, NEOs and all other executive officers as a group as of March 1, 2007. Individuals have sole voting and dispositive power over the stock unless otherwise indicated in the footnotes: