<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1997
REGISTRATION NO. 333-25461
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4812 13-3759824
DELAWARE 4812 13-3876323
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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3200 ZANKER ROAD, P.O. BOX 640670
SAN JOSE, CALIFORNIA 95164
(408) 473-5550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC J. ZAHLER, ESQ.
600 THIRD AVENUE
NEW YORK, NY 10016
(212) 697-1105
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) PRICE FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/4% Senior Notes due 2004.... $325,000,000 100% $325,000,000 $98,485(2)
=======================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) A registration fee in the amount of $151,516 for the registration of
$500,000,000 11 3/8% Senior Notes due 2004 was previously paid in connection
with the April 18, 1997 filing of the Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGULATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 24, 1997
PROSPECTUS
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
OFFER TO EXCHANGE (I) $1,000 IN PRINCIPAL AMOUNT OF 11 3/8% SENIOR NOTES DUE
2004
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 11 3/8% SENIOR NOTES DUE 2004
AND (II) $1,000 IN PRINCIPAL AMOUNT OF 11 1/4% SENIOR NOTES DUE 2004
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 11 1/4% SENIOR NOTES DUE 2004
------------------------
Globalstar, L.P., a Delaware limited partnership ("Globalstar"), and
Globalstar Capital Corporation, a Delaware corporation ("Globalstar Capital"
and, together with Globalstar, the "Issuers"), as joint and several obligors,
hereby offer, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer") to exchange (i) an aggregate principal amount of up to
$500,000,000 of 11 3/8% Senior Notes due 2004 (the "11 3/8% Exchange Notes") of
the Issuers, which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein) of which this Prospectus constitutes a part, for a like principal amount
of 11 3/8% Senior Notes due 2004 (the "11 3/8% Original Notes") of the Issuers
with the holders (the "11 3/8% Holders") thereof and (ii) an aggregate principal
amount of up to $325,000,000 of 11 1/4% Senior Notes due 2004 (the "11 1/4%
Exchange Notes" and, together with the 11 3/8% Exchange Notes, the "Exchange
Notes") of the Issuers, which have been registered under the Securities Act
pursuant to such Registration Statement, for a like principal amount of 11 1/4%
Senior Notes due 2004 (the "11 1/4% Original Notes" and, together with the
11 3/8% Original Notes, the "Original Notes") of the Issuers with the holders
(the "11 1/4% Holders" and, together with the 11 3/8% Holders, the "Holders")
thereof. The Original Notes and the Exchange Notes are referred to herein as the
Notes.
Upon consummation of the Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all respects (including principal amount,
interest rate, maturity and ranking) to the terms of the Original Notes for
which they may be exchanged pursuant to the Exchange Offer, except that (i) the
Exchange Notes will be freely transferable by holders thereof (except as
provided below) and (ii) the Exchange Notes will be issued without any covenant
of the Issuers regarding registration. The Exchange Notes will be issued under
the respective indenture governing the Original Notes for which they may be
exchanged. The Exchange Notes will be, and the Original Notes are, senior
obligations of the Issuers. The Exchange Notes will rank pari passu with all
other existing and future senior Debt (as defined) of the Issuers and senior to
all subordinated Debt of the Issuers. Upon a Change of Control (as defined),
each holder of the Notes will have the right to require the Issuers to
repurchase all or a portion of such holder's Notes then outstanding at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. The Issuers' ability to
repurchase the Notes may be limited by, among other things, the Issuers'
financial resources at the time of repurchase. For a complete description of the
terms of the Exchange Notes, including provisions relating to the ability of the
Issuers to create indebtedness that is pari passu to the Exchange Notes, see
"Description of the Notes." There will be no cash proceeds to the Issuers from
the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Original Notes accrued after the issuance of the Exchange Notes.
The 11 3/8% Original Notes were originally issued and sold on February 19,
1997, and the 11 1/4% Original Notes were originally issued and sold on June 13,
1997. Such sales were not registered under the Securities Act in reliance upon
the exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. Accordingly, the Original Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Based upon interpretations by the Staff of
the Securities and Exchange Commission (the "Commission") issued to third
parties, the Issuers believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Original Notes directly from
the Issuers or (iii) a broker-dealer who acquired Original Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Original Notes where such Original Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuers
have agreed that, for a period not to exceed 180 days after the Expiration Date
(as defined), they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." Any holder
that cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established trading market. Any Original Notes not tendered
and accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Original Notes will continue to be subject to the existing restrictions on
transfer thereof and the Issuers will have no further obligation to such holders
to provide for the registration under the Securities Act of the Original Notes
except under certain limited circumstances. (See "Description of
Notes -- Registration Rights.") No assurance can be given as to the liquidity of
the trading market for either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless extended
(the "Expiration Date"). The date of acceptance for exchange of the Original
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Original Notes. Original Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable.
SEE "RISK FACTORS" ON PAGE 11 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997
<PAGE> 3
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
GLOBALSTAR AT 3200 ZANKER ROAD, P.O. BOX 640670, SAN JOSE, CALIFORNIA
95164-0670, ATTENTION: STEPHEN C. WRIGHT, TELEPHONE: (408) 473-5550. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
, 1997.
Upon consummation of the Exchange Offer, the Issuers will become subject to
the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Issuers with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Commission maintains a Web site at http://www.sec.gov. that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Issuers are required by the terms of the Indentures, dated as of
February 15, 1997 and June 1, 1997, each among the Issuers and the trustee named
therein, under which the Notes are issued, to furnish holders of the Notes with
annual reports containing consolidated financial statements audited by its
independent certified public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements", which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. From time to time, GTL, Loral Space & Communications Ltd.
("Loral"), a subsidiary of which is the managing general partner of Globalstar,
and Globalstar or their representatives have made or may make forward-looking
statements, orally or in writing. Furthermore, such forward-looking statements
may be included in, but are not limited to, various filings made by GTL, Loral
or Globalstar with the Commission, or press releases or oral statements made by
or with the approval of an authorized executive officer of GTL, Loral or
Globalstar.
Management wishes to caution the reader that these forward-looking
statements, such as the statements regarding Globalstar's planned timetable for
launching and operating the Globalstar System, the extent of the market
opportunity for Globalstar's services and products presented by the growing
demand for telecommunications services worldwide, its anticipation of enabling
local service providers to extend low-cost, high-quality telecommunications
services to millions of people, its anticipated future revenues and capital
expenditures and other statements contained in this Prospectus regarding matters
that are not historical facts involve predictions. No assurance can be given
that the future results will be achieved; actual events or results may differ
materially as a result of risks facing Globalstar. Such risks include, but are
not limited to, problems
i
<PAGE> 4
related to technical development and launch of the Globalstar System, the
competitive environment in which the system will operate, doing business in
developing markets, obtaining the necessary financing while being substantially
leveraged, obtaining any required U.S. and foreign government authorizations,
licenses and permits, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions, as well as regulatory, legislative and
judicial developments that could cause actual results to vary materially from
the future results indicated, expressed or implied, in such forward-looking
statements. See "Risk Factors."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE ISSUERS SINCE THE DATE HEREOF.
ii
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. i
FORWARD-LOOKING STATEMENTS............................................................ i
PROSPECTUS SUMMARY.................................................................... 1
RISK FACTORS.......................................................................... 11
Development Stage Company........................................................... 11
Regulation.......................................................................... 12
Technological Risks................................................................. 13
Future Operating Risks.............................................................. 15
Structural and Market Risks......................................................... 19
USE OF PROCEEDS....................................................................... 22
THE EXCHANGE OFFER.................................................................... 22
Purpose of the Exchange Offer....................................................... 22
Terms of the Exchange............................................................... 22
Expiration Date; Extensions; Termination; Amendments................................ 23
How to Tender....................................................................... 24
Terms and Conditions of the Letter of Transmittal................................... 26
Withdrawal Rights................................................................... 26
Acceptance of Original Notes for Exchange; Delivery of Exchange Notes............... 27
Conditions to the Exchange Offer.................................................... 27
Exchange Agent...................................................................... 28
Solicitation of Tenders; Expenses................................................... 28
Appraisal Rights.................................................................... 28
Federal Income Tax Consequences..................................................... 28
Other............................................................................... 28
SELECTED FINANCIAL DATA............................................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 31
BUSINESS.............................................................................. 34
Business Overview................................................................... 34
Business Strategy................................................................... 36
The Globalstar System............................................................... 39
Satellite Constellation............................................................. 41
Globalstar System Capacity.......................................................... 43
Competition......................................................................... 43
Research and Development............................................................ 44
Patents and Proprietary Rights...................................................... 44
Employees........................................................................... 44
Properties.......................................................................... 45
Legal Proceedings................................................................... 45
REGULATION............................................................................ 46
MANAGEMENT............................................................................ 50
Directors and Executive Officers.................................................... 50
Governance.......................................................................... 52
Summary Compensation................................................................ 53
Option Grants in Last Fiscal Year................................................... 54
Aggregated Option Exercises in Last Fiscal Year..................................... 54
Employment Arrangements............................................................. 54
Compensation Committee Interlocks and Insider Participation......................... 55
Pension Plan........................................................................ 55
RELATED PARTY TRANSACTIONS............................................................ 56
GOVERNANCE OF GLOBALSTAR.............................................................. 60
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iii
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DESCRIPTION OF NOTES.................................................................. 65
General............................................................................. 65
Principal, Maturity and Interest.................................................... 66
Optional Redemption................................................................. 66
Change of Control................................................................... 67
Assets Dispositions................................................................. 68
Covenants........................................................................... 69
Events of Defaults and Remedies..................................................... 77
No Personal Liability of Directors, Officers, Employees, Incorporators and
Stockholders..................................................................... 78
Legal Defeasance and Covenant Defeasance............................................ 78
Transfer and Exchange............................................................... 79
Amendment, Supplement and Waiver.................................................... 79
Concerning the Trustee.............................................................. 80
Definitions......................................................................... 80
Registration Rights................................................................. 89
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 91
PLAN OF DISTRIBUTION.................................................................. 95
LEGAL OPINIONS........................................................................ 95
EXPERTS............................................................................... 95
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
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iv
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto included elsewhere in
this Prospectus. Unless otherwise indicated, the information contained herein
regarding the number of outstanding partnership interests of Globalstar or
shares of Common Stock of GTL and the beneficial ownership thereof does not give
effect to the issuance of Common Stock by GTL or the issuance of partnership
interests by Globalstar (i) upon the conversions of the CPEOs and the underlying
RPPIs and (ii) the exercise of the Warrants and the underlying Partnership
Warrants. Certain capitalized terms used herein are defined in the Glossary.
GLOBALSTAR
Globalstar is building and preparing to launch and operate a LEO
satellite-based digital telecommunications system designed to enable local
service providers to offer low-cost, high quality wireless voice telephony and
data services in virtually every populated area of the world. Globalstar's
designated service providers have agreed to offer service and seek to obtain all
necessary local regulatory approvals in more than 100 nations, accounting for
approximately 88% of the world's population.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services to millions of
people who currently lack basic telephone service and to enhance wireless
telecommunications in areas underserved or not served by existing or future
cellular systems, providing a telecommunications solution in parts of the world
where the build-out of terrestrial systems cannot be economically justified. The
Globalstar System has been designed to provide services at prices comparable to
today's cellular service and substantially lower than the prices announced by
Globalstar's anticipated principal competitors. Globalstar service providers
will set their own retail pricing in their assigned service territories and will
pay Globalstar approximately $0.35 to $0.55 per minute on a wholesale basis.
Globalstar users will make and receive calls through a variety of
Globalstar phones, including hand-held and vehicle-mounted units similar to
today's cellular telephones, fixed telephones similar either to phone booths or
ordinary wireline telephones, and data terminals and facsimile machines.
Dual-mode and tri-mode Globalstar Phones will provide access to both the
Globalstar System and the subscriber's land-based cellular service. Each
Globalstar Phone will communicate through one or more satellites to a local
Globalstar service provider's interconnection point (known as a gateway) which
will, in turn, connect into existing telecommunications networks.
As of June 15, 1997, each of the elements of the Globalstar System -- space
and ground segments, digital communications technology, user terminal supply,
service provider arrangements and licensing -- is on schedule to begin launching
satellites in the second half of 1997, to commence commercial operations in the
second half of 1998 and to have a full constellation of 48 satellites
operational in the first quarter of 1999.
Space Segment. The first Globalstar satellite has been
fully-assembled and is now in pre-flight testing, and another four
satellites are currently being assembled. Production is proceeding for the
remaining satellites to meet the scheduled operations date. Three different
launch providers have signed definitive agreements for the launch of the
Globalstar satellite constellation, providing a variety of launch options
and considerable launch flexibility. Mission operations preparations and
launch vehicle production and dispenser development are on schedule.
Ground Segment. The first four Globalstar gateways, which are
currently in advanced development and are to be located in Australia,
France, South Korea and the United States, are currently under
construction. These gateways will support Globalstar's data network,
monitor the initial launch and orbital placement of Globalstar's first
satellites, and serve as prototypes for production gateways that will
support Globalstar service. Globalstar's partners have placed purchase
orders for 35 gateways under contracts totaling approximately $275 million.
In addition, Globalstar's satellite operations control center facility has
been completed.
<PAGE> 8
Digital Communications Technology. Qualcomm's CDMA technology has now
been successfully deployed in South Korea, Hong Kong and cities in the
United States supporting terrestrial personal communications services and
digital cellular service, and its CDMA implementation for Globalstar has
been successfully demonstrated in a simulated satellite environment. This
demonstration validated Globalstar's encoding, modulation, control
software, time and frequency distribution and up/down links between
satellites and handsets.
User Terminal Supply. Qualcomm/Sony and two other manufacturers,
Ericsson and TELITAL, are developing Globalstar's user terminals and
production orders are expected to be issued in the second half of 1997.
Service Providers. Globalstar and its partners have been seeking
alliances with service providers throughout the world and have entered into
a number of agreements in specific territories. Globalstar believes that
these relationships with in-country service providers will facilitate the
granting of local regulatory approvals -- particularly where the service
provider and the licensing authority are one and the same -- as well as
provide local marketing and technical expertise.
Licensing. In January 1995, the FCC granted authority for the
construction, launch and operation of the Globalstar System and assigned
spectrum for its user links. Later that year, the WRC95 allocated feeder
link spectrum on an international basis for MSS systems such as Globalstar,
and in November 1996 the FCC authorized Globalstar's feeder links.
Globalstar's current budget for the cost for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses is approximately $2.5 billion.
Globalstar has recently added enhanced capabilities and additional test
requirements and has experienced cost growth in the development of the ground
system, the final cost impact of which is under assessment. Globalstar, however,
does not expect such cost growth to increase the budget for the project by more
than five percent. Globalstar has raised or received commitments for
approximately $2.3 billion in equity, debt and vendor financing, which
represents approximately 91% of its current budget for completion of the
Globalstar System and commencement of worldwide operations.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost of $175 million. Further, in order to accelerate the
deployment of gateways around the world, Globalstar has agreed to finance
approximately $80 million of the cost of up to 32 of the 35 gateways ordered by
Globalstar service providers. Globalstar expects to recover its investment in
this gateway financing program from resale of the gateways to service providers.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many of them in rural areas where the cost of
installing wireline service is prohibitively high. Moreover, even where
telephone infrastructure is available in developing countries, outdated
equipment often leads to unreliable local service and limited international
access. The number of worldwide fixed phone lines has increased from 469 million
in 1988 to 753 million in 1996 and is projected to increase to 1.2 billion by
2002. Nonetheless, during the same period, waiting lists for fixed service have
increased from 30 million to 45 million, resulting in an average waiting time
before installation of approximately one and a half years. Similarly, the
cellular market has grown from four million worldwide subscribers in 1988 to an
estimated 123 million in 1995 and is projected to increase to 334 million by
2001. At that time, it is projected that only 40% of the world's population will
live in areas with cellular coverage. The remaining 60% of the world's
population will have access to wireless telephone service principally through
satellite-based systems like the Globalstar System. Globalstar believes that its
addressable market exceeds 30 million people.
The Globalstar System has been designed with attributes which Globalstar
believes compare favorably to other proposed global MSS systems including: (i)
Globalstar's unique combination of CDMA technology and path diversity through
multiple satellite coverage, which will reduce call interruptions and signal
blockage from obstructions and will use satellite power more efficiently; (ii) a
proven space segment design without
2
<PAGE> 9
complex intersatellite links or on-board call processing and a ground segment
with flexible, low-cost gateways and competitively priced Globalstar Phones;
(iii) lower average wholesale prices than other proposed MSS systems and (iv)
gateways installed in most major countries, minimizing tail charges (i.e.
amounts charged by carriers other than the Globalstar service provider for
connecting a Globalstar call through its network), resulting in low costs for
domestic and regional calls, which will account for the vast majority of
Globalstar's anticipated usage.
Loral is a principal founder of Globalstar and, through a subsidiary, is
its managing general partner. Loral owns, directly or indirectly, approximately
38% of Globalstar, on a fully diluted basis.
Other Globalstar strategic partners include leading domestic and
international telecommunications service providers and space and
telecommunications equipment manufacturers. In addition, Loral, Lockheed Martin
and certain strategic partners have guaranteed Globalstar's obligations under
the Globalstar credit agreement.
GLOBALSTAR STRATEGIC PARTNERS
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
System. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of CDMA digital telecommunications technology. Globalstar's other
strategic partners are:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT
SERVICE PROVIDERS AND AEROSPACE SYSTEMS MANUFACTURERS
----------------------------------------------- ---------------------------------------
<S> <C>
- AirTouch - Alcatel
- Dacom - Alenia
- France Telecom - DASA
- Vodafone - Finmeccanica
- Hyundai
- SS/L
</TABLE>
SS/L is providing the system's satellites under a fixed-price contract that
also requires SS/L to obtain launch services and launch insurance. Qualcomm is
designing and will manufacture Globalstar Phones, gateways and certain ground
support equipment.
BUSINESS STRATEGY
Globalstar's strategy for successful operation is based upon: (i) providing
potential users worldwide with high quality telecommunications services; (ii)
employing a system architecture designed to minimize cost and technological
risks; and (iii) leveraging the marketing, operating and technical capabilities
of its strategic partners.
WORLDWIDE HIGH QUALITY SERVICE
To achieve rapid and sustained customer acceptance of the system, the
Globalstar System has been designed to provide a high quality, worldwide service
that combines the best of existing cellular service with the technological
advantages of the Globalstar System as described herein to meet the needs of
individual end users.
Worldwide Coverage and Access. The Globalstar System's worldwide coverage
has been designed to enable its service providers to extend modern
telecommunications services rapidly and economically to significant numbers of
people who currently lack basic telephone services and to enhance wireless
telecommunications in areas underserved or not served by existing or
contemplated cellular systems. Globalstar expects to provide a communications
solution in parts of the world where the build-out of terrestrial systems cannot
be economically justified. The Globalstar System has also been designed to
enable international travelers to make
3
<PAGE> 10
and receive calls at a unique telephone number through their mobile Globalstar
Phone anywhere in the world where Globalstar service is authorized by local
regulatory authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each mobile Globalstar Phone has been designed to communicate with as many as
three satellites simultaneously, combining the signals received to ensure
maximum service quality. As satellites are constantly moving in and out of view,
they will be seamlessly added to and removed from the calls in progress, thereby
reducing the risk of call interruption.
Superior Call Quality; Increased Privacy. Based on terrestrial simulations
of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital
technology will enable Globalstar to provide digital voice services which will
have clarity, quality and privacy similar to those of existing digital
land-based cellular systems. Qualcomm's CDMA technology, which is available to
Globalstar on an exclusive basis for commercial MSS applications, has also been
selected for digital cellular service by 12 of the 15 largest U.S. cellular
service providers and the two largest providers of PCS services in the U.S. (by
population served).
Efficient Use of Satellite Resources. The Globalstar System's use of
multiple satellites to communicate with each Globalstar Phone (a patented SS/L
method of signal reception not available to competing systems) has been designed
to allow its communications signals to bypass obstructions. Path diversity is
expected to permit Globalstar to maintain its desired level of service quality
while using less power and satellite resources than would be required in a
system using single path satellites, which attempt to penetrate obstructions by
using higher single satellite power and overall higher link margins.
No Voice Delay. Globalstar satellites' low-earth orbits of 750 nautical
miles are expected to result in no perceptible voice delay, as compared with the
noticeable time delay of calls utilizing geosynchronous satellites, which orbit
at an altitude of 22,500 nautical miles. Globalstar believes that its system
will also entail noticeably less voice delay than medium-earth orbit MSS systems
and, in many cases, than LEO systems requiring on-board satellite call
processing to support satellite-to-satellite switching systems.
EMPLOYING A SYSTEM ARCHITECTURE DESIGNED TO MINIMIZE COST AND RISK
Simple, Cost-Effective System Architecture. To achieve low cost, reduce
technological risk and accelerate its deployment, Globalstar has devised a
system architecture using small satellites incorporating well-established design
features, and located the system's call processing and switching operations on
the ground, where they are accessible for maintenance and can benefit from
continuing technological advances. Hand-held and vehicle-mounted Globalstar
Phones are anticipated to be priced comparably and will be similar in function
to current digital cellular telephones. Dual-mode and tri-mode Globalstar Phones
will be able to access both Globalstar and a variety of local land-based analog
and digital cellular services, where available. Multiple manufacturers will be
licensed to manufacture Globalstar Phones in order to promote competition and
reduce prices. Globalstar gateways have been competitively priced in order to
encourage the placement of one or more gateways in each country served, thus
reducing tail charges for the terrestrial portion of each call.
Low-Cost Service. Globalstar intends to offer its service providers
effective average prices substantially lower than those announced by its
anticipated principal competitors. Globalstar's service providers will set their
own retail pricing and will pay to Globalstar wholesale prices generally
expected to range between $0.35 and $0.55 per minute. As a result of its pricing
commitments to its service providers or as a result of competitive pressures,
Globalstar may not be in a position to pass on to its service providers
unexpected increases in the cost of constructing the Globalstar System. However,
Globalstar believes that its low system and operating costs and high gross
margins at target pricing and usage levels provide it with substantial
additional pricing flexibility if necessary to meet competition.
4
<PAGE> 11
Simple Space Segment of Proven Design. Globalstar believes its system will
cost less to design and construct and may be the first of the proposed worldwide
systems to provide commercial service. To achieve low cost, reduce technological
risk and accelerate deployment of the Globalstar System, Globalstar's system
architecture uses small satellites incorporating a well-established repeater
design that acts essentially as a simple "bent pipe," relaying signals received
directly to the ground. All of the system's call processing and switching
operations are on the ground, where they are accessible for maintenance and can
benefit from continuing technological advances. The Globalstar space segment is
being manufactured under a fixed-price contract with SS/L. The contract provides
for the construction of 56 satellites meeting designated performance
specifications and for SS/L to obtain launch services and launch insurance.
Flexible, Low-Cost Ground Segment. Globalstar has been designed to offer
local governments and service providers affordable telephone infrastructure
where the cost of build-out of land-based wireline or wireless telephone systems
is either too great or not economically justifiable. By purchasing a single
gateway for approximately $3 million to $8 million (depending on the capacity
desired), a service provider can extend basic telephone service to fixed
terminals on a national basis in countries as large as Saudi Arabia and mobile
service to cover an area almost as large as Western Europe. As a result of the
low cost of its gateways, Globalstar expects that its service providers will
install gateways in most of the major countries in which they offer service.
Each country with a Globalstar gateway will have access to domestic service
without the imposition of international tail charges on in-country calls,
thereby offering subscribers the lowest possible cost for domestic calls, which
account for the vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Hand-held and vehicle-mounted
Globalstar Phones are anticipated to be priced comparably and will be similar in
function to current digital cellular telephones. Moreover, mobile Globalstar
Phones will use less power on average than conventional analog cellular
telephones and are therefore expected to enjoy longer battery life. Dual-mode
and tri-mode Globalstar Phones will be able to access both Globalstar and a
variety of local land-based analog and digital cellular services, where
available. Mobile and fixed Globalstar Phones are expected to cost less than
$750 each, and Globalstar public telephone booths are expected to cost between
$1,000 and $2,500, depending upon desired capacity and the number of units
sharing a fixed antenna. Qualcomm is required to license three additional
manufacturers of Globalstar Phones and has recently granted a license to each of
Ericsson and TELITAL for such purpose; Globalstar believes that licensing
multiple manufacturers will spur competition, which will reduce prices. As is
the case with many cellular systems today, service providers may subsidize the
cost of Globalstar Phones to generate additional usage revenue. In addition,
national and local governments may subsidize some or all elements of system
cost, particularly in rural areas, thereby reducing the cost of access to
subscribers.
LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS
Loral has overall management responsibility for the design, construction,
deployment and operation of the Globalstar System. Globalstar's strategic
partners will play key roles in the design, construction, operation and
marketing of the Globalstar System.
Telecommunications service providers AirTouch, Dacom, France Telecom and
Vodafone are providing in-country marketing and telephony expertise to
Globalstar. Globalstar's strategic partner service providers have been granted
exclusive rights to provide Globalstar service in 71 countries around the world
in which they have particular marketing strength and experience and access to an
established customer base of 60 million subscribers. Six additional service
providers have agreed to offer Globalstar service in 32 additional countries. To
maintain their service provider rights on an exclusive basis, these service
providers and additional service providers are required to make minimum payments
to Globalstar equal to 50% of target revenues. Based upon current targets (which
are subject to adjustment in 1998 based upon an updated market analysis), such
minimum payments total approximately $5 billion through 2005. In order to
accelerate the deployment of gateways around the world, Globalstar has agreed to
finance approximately $80 million of the cost of up to 32 of the 35 gateways
ordered by Globalstar service providers. Globalstar expects to recover its
investment in this gateway financing program from resale of the gateways to
service providers. There can be no assurance that the service providers will
elect to retain their exclusivity and make such payments or place such orders
for Globalstar Phones and gateways.
5
<PAGE> 12
Globalstar expects to add additional service providers in order to provide
coverage throughout the world. Each service provider will, subject to obtaining
required local regulatory approvals, market and distribute Globalstar service in
its designated territories and own and operate the gateways necessary to serve
its markets.
Telecommunications equipment and aerospace systems manufacturers SS/L,
Alcatel, Alenia, DASA, Finmeccanica and Hyundai have contracted to design, build
and deploy the Globalstar System. Qualcomm, using its CDMA technology, is
designing and will manufacture Globalstar Phones and gateways and has primary
responsibility, along with Globalstar, for the design and implementation of the
ground operations control centers ("GOCCs"). Qualcomm's CDMA technology is
available to Globalstar on an exclusive basis for commercial MSS satellite
applications. SS/L is performing under a fixed-price contract for the
construction of Globalstar's satellites in conjunction with Aerospatiale,
Alcatel, DASA, Finmeccanica and Hyundai.
6
<PAGE> 13
THE EXCHANGE OFFER
The Exchange Offer......... The Issuers are offering (i) to exchange (the
"11 3/8% Exchange Offer") up to $500,000,000
aggregate principal amount of 11 3/8% Senior Notes
due 2004 (the "11 3/8% Exchange Notes"), which have
been registered under the Securities Act, for up to
$500,000,000 aggregate principal amount of
outstanding 11 3/8% Senior Notes due 2004 (the
"11 3/8% Original Notes") and (ii) to exchange (the
"11 1/4% Exchange Offer" and, together with the
11 3/8% Exchange Offer, the "Exchange Offer") up to
$325,000,000 aggregate principal amount of 11 1/4%
Senior Notes due 2004 (the "11 1/4% Exchange Notes"
and, together with the 11 3/8% Exchange Notes, the
"Exchange Notes"), which have been registered under
the Securities Act, for up to $325,000,000
aggregate principal amount of outstanding 11 1/4%
Senior Notes due 2004 (the "11 1/4% Original Notes"
and, together with the 11 3/8% Original Notes, the
"Original Notes"). Upon consummation of the
Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the Original
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that (i) the Exchange
Notes will be freely transferable by holders
thereof except as provided herein (see "The
Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal") and (ii) the Exchange Notes will be
issued without any covenant regarding registration
under the Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Issuers
within the meaning of Rule 405 under the Securities
Act, (ii) a broker-dealer who acquired Original
Notes directly from the Issuer or (iii)
broker-dealers who acquired Original Notes as a
result of market making or other trading
activities) without compliance with the
registration and prospectus delivery provisions of
the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged
in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997 unless
extended (the "Expiration Date").
Exchange Date.............. The first date of acceptance for exchange for the
Original Notes will be the first business day
following the Expiration Date.
Conditions to the Exchange
Offer.................... The obligation of the Issuers to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Issuers reserve the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
7
<PAGE> 14
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering
Original Notes........... See "The Exchange Offer -- How to Tender."
Federal Income Tax
Consequences............. The exchange of Original Notes for Exchange Notes
by holders will not be a taxable exchange for
federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest
income as a result of such exchange.
Effect on Holders of
Original Notes........... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, the Issuers will have
fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights
Agreements (the "Registration Rights Agreements"),
dated as of February 19, 1997 and June 13, 1997,
among the respective Issuers and the Initial
Purchasers and, accordingly, the holders of the
Original Notes will have no further registration or
other rights under the Registration Rights
Agreements, except under certain limited
circumstances. See "Description of
Notes -- Registration Rights." Holders of the
Original Notes who do not tender their Original
Notes in the Exchange Offer will continue to hold
such Original Notes and will be entitled to all the
rights and limitations applicable thereto under the
indenture, dated as of February 15, 1997, among the
Issuers and The Bank of New York, as Trustee (the
"Trustee"), relating to the 11 3/8% Original Notes
and the 11 3/8% Exchange Notes (the "11 3/8%
Indenture") or the indenture, dated as of June 1,
1997, among the Issuers and the Trustee relating to
the 11 1/4% Original Notes and the 11 1/4% Exchange
Notes (the "11 1/4% Indenture" and, together with
the 11 3/8% Indenture, the "Indentures"), as
applicable. All untendered, and tendered but
unaccepted, Original Notes will continue to be
subject to the restrictions on transfer provided
for in such Original Notes and their Indenture. To
the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market,
if any, for the Original Notes could be adversely
affected. See "Risk Factors -- Consequences of
Failure to Exchange."
TERMS OF THE NOTES
The 11 3/8% Exchange Offer applies to $500,000,000 aggregate principal
amount of the 11 3/8% Original Notes and the 11 1/4% Exchange Offer applies to
$325,000,000 aggregate principal amount of the 11 1/4% Original Notes. The form
and terms of the Exchange Notes are the same as the form and terms of the
Original Notes for which they may be exchanged except that the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof. The Exchange Notes will evidence the
same debt as the respective Original Notes and will be entitled to the benefits
of the respective Indenture. See "Description of the Notes."
Issuers.................... Globalstar, L.P. and Globalstar Capital
Corporation. The principal executive offices of the
Issuers are located at 3200 Zanker Road, P.O. Box
640670, San Jose, California 95164-0670, and their
telephone number at that address is (408) 473-5550.
8
<PAGE> 15
Maturity................... The 11 3/8% Senior Notes mature on February 15,
2004 and the 11 1/4% Senior Notes mature on June
15, 2004.
Interest Payment Dates..... For the 11 3/8% Senior Notes, February 15 and
August 15, commencing on August 15, 1997, and for
the 11 1/4% Senior Notes, June 15 and December 15,
commencing on December 15, 1997.
Ranking.................... The Notes will rank senior in right of payment to
any future subordinated indebtedness of the
Issuers, and pari passu in right of payment with
all senior indebtedness of the Issuers.
Security................... None.
Optional Redemption........ The 11 3/8% Senior Notes are not redeemable prior
to February 15, 2002 and the 11 1/4% Senior Notes
are not redeemable prior to June 15, 2002.
Thereafter, the Notes will be redeemable, in whole
or in part, at the option of the Issuers, at the
redemption prices set forth herein plus accrued and
unpaid interest and Liquidated Damages (if any)
thereon to the applicable redemption date.
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of Notes will have the right to require the
Issuers to repurchase all or any part of such
holder's Notes at an offer price in cash equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages (if any) thereon to the date of purchase.
See "Description of Notes -- Change of Control."
Covenants.................. The Indentures pursuant to which the Notes have
been issued contain certain covenants that, among
other things, limit the ability of the Issuers and
their Restricted Subsidiaries to incur additional
Debt and issue preferred stock, pay dividends or
make other distributions, repurchase Capital Stock
or subordinated Debt or make certain other
Restricted Payments, create certain liens, enter
into certain transactions with affiliates, sell
assets, issue or sell Capital Stock of the Issuers'
Restricted Subsidiaries or enter into certain
mergers and consolidations. See "Description of
Notes -- Covenants."
Amendment and Modification
of the Indenture........... Certain provisions of each Indenture, including
those related to a Change of Control, may be
amended with the consent of the holders of a
majority in principal amount of the
then-outstanding Notes issued under such Indenture.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THIS OFFERING, SEE "RISK FACTORS" BEGINNING ON PAGE 11.
9
<PAGE> 16
SUMMARY FINANCIAL INFORMATION
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 CUMULATIVE
---------------------------------
PRE-CAPITAL
SUBSCRIPTION PERIOD(1) MARCH 23 THREE MONTHS MARCH 23, 1994
--------------------------- (COMMENCEMENT YEARS ENDED DECEMBER ENDED MARCH 31, (COMMENCEMENT
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO 31, OF OPERATIONS) TO
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------- -------------------- MARCH 31,
1993 1994 1994 1995 1996 1996 1997 1997
------------ ------------ ----------------- --------- --------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues.... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating
expenses... 11,510 6,872 28,027 80,226 61,025 15,401 17,582 186,860
Interest
income.... -- -- 1,783 11,989 6,379 1,449 2,295 22,446
Net loss
applicable
to
ordinary
partnership
interests... 11,510 6,872 26,244 68,237 71,969 15,376 20,588 187,038
Net loss per
weighted
average
ordinary
partnership
interest
outstanding... 0.73 1.50 1.53 0.33 0.44
Cash
distributions
per
ordinary
partnership
interest... -- -- -- -- --
OTHER DATA:
Deficiency
of
earnings
to cover
fixed
charges(2)... N/A N/A 71,969 15,376 20,588
CASH FLOW
DATA:
Used in
operating
activities... -- -- (23,052) (38,368) (46,622) (15,785) (18,641) (126,683)
Used in
investing
activities... -- -- (50,549) (280,345) (384,264) (98,459) (138,000) (853,158)
Provided by
partners'
capital
transactions... -- -- 147,161 318,630 284,714 290,000 118,084 868,589
Provided by
(used in)
other
financing
activities... -- -- -- (1,875) 95,750 (250) 376,588 470,463
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------
1997 1996 1995 1994
----------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 359,211 $ 21,180 $ 71,602 $ 73,560
Working capital (deficiency).......................... 286,387 (53,481) 17,687 35,423
Globalstar System under construction.................. 1,028,669 891,033 400,257 71,996
Total assets.......................................... 1,446,748 942,913 505,391 151,271
Vendor financing liability............................ 156,048 130,694 42,219 --
Senior notes.......................................... 472,588 -- -- --
Borrowings under long-term revolving credit
facility............................................ 393 96,077 -- --
Redeemable preferred partnership interests............ 302,300 302,037 -- --
Ordinary partners' capital............................ 418,038 315,186 386,838 112,944
</TABLE>
- ---------------
(1) Reflects certain costs incurred by Loral and Qualcomm prior to March 23,
1994, which were reimbursed by Globalstar through a capital subscription
credit or agreement for repayment in connection with the $275.0 million
capital subscription and commencement of Globalstar's operations on March
23, 1994.
(2) The ratio of earnings to fixed charges is not meaningful as Globalstar is in
the development stage and, accordingly, has incurred operating losses.
10
<PAGE> 17
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained elsewhere in this Prospectus, in
evaluating whether to tender their Original Notes for the Exchange Notes offered
hereby.
DEVELOPMENT STAGE COMPANY
Development Stage Company; Expectation of Continued Losses; Negative Cash
Flow. Globalstar is a development stage company and has no operating history.
From its inception, Globalstar has incurred net losses and expects such losses
to continue. Globalstar will require expenditures of significant funds for
development, construction, testing and deployment before commercialization of
the Globalstar System. Globalstar does not expect to launch satellites until the
second half of 1997, to commence operations before the second half of 1998 or to
have positive cash flow before 1999. There can be no assurance that Globalstar
will achieve its objectives by the targeted dates.
Additional Financing Requirements. Globalstar's current budget for the
cost for the design, construction and deployment of the Globalstar System,
including working capital, cash interest on anticipated borrowings and operating
expenses is approximately $2.5 billion. Globalstar has recently added enhanced
capabilities and additional test requirements and has experienced cost growth in
the development of the ground system, the final cost impact of which is under
assessment. Actual amounts may vary from this estimate and additional funds
would be required in the event of unforeseen delays, cost overruns, launch
failures or other technological risks or adverse regulatory developments, or to
meet unanticipated expenses. Globalstar, however, does not expect such cost
growth to increase the funding requirement for the project by more than five
percent. Globalstar has raised or received commitments for approximately $2.3
billion in equity, debt and vendor financing. Globalstar believes that its
current capital, vendor financing commitments and the availability of the
Globalstar credit agreement are sufficient to fund its requirements into the
first quarter of 1998. Additional funds to complete the Globalstar System are
expected to be obtained through a combination of sources including debt issuance
(which may include an equity component), financial support from the Globalstar
partners, projected service provider payments, projected net service revenues
from initial operations, and anticipated payments received from the sale of
gateways and Globalstar subscriber terminals. Although Globalstar believes it
will be able to obtain these additional funds, there can be no assurance that
such funds will be available on favorable terms or on a timely basis, if at all.
If there are unforeseen delays, if technical or regulatory developments result
in a need to modify the design of all or a portion of the Globalstar System, if
service provider agreements for additional territories are not entered into at
the times or on the terms anticipated by Globalstar or if other additional costs
are incurred, the risk of which is substantial, additional capital will be
required. A substantial shortfall in meeting its capital needs would prevent
completion of the Globalstar System. The ability of Globalstar to achieve
positive cash flow will depend upon the successful and timely design,
construction and deployment of the Globalstar System, the successful marketing
of its services by service providers and the ability of the Globalstar System to
successfully compete against other satellite-based telecommunications systems,
as to which there can be no assurance. If Globalstar fails to commence
commercial operations in the second half of 1998 or achieve positive cash flow
in 1999, additional capital will be needed.
Sources of Possible Delay and Increased Cost. Many of the problems, delays
and expenses encountered by an enterprise in Globalstar's stage of development
may be beyond Globalstar's control. These may include, but are not limited to,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. Delay in the timely design,
construction, deployment, commercial operation and achievement of positive cash
flow of the Globalstar System could result from a variety of causes. These
include delays in the regulatory process in various jurisdictions, delay in the
integration of the Globalstar System into the land-based network, changes in the
technical specifications of the Globalstar System made to enhance its features,
performance or marketability or in response to regulatory developments or
otherwise, delays encountered in the construction, integration or testing of the
Globalstar System by Globalstar vendors, delayed or unsuccessful launches,
delays
11
<PAGE> 18
in financing, insufficient or ineffective service provider marketing efforts,
slower-than-anticipated consumer acceptance of Globalstar service and other
events beyond Globalstar's control. Substantial delays in any of the foregoing
matters would delay Globalstar's achievement of profitable operations.
REGULATION
Licensing Risks. The operations of the Globalstar System are and will
continue to be subject to United States and foreign regulation. In order to
operate in the United States and on an international basis, the Globalstar
System must be authorized to provide MSS in each of the markets in which its
service providers intend to operate. Even though a Globalstar affiliate has
received a FCC authorization, there can be no assurance that the further
regulatory approvals required for worldwide operations will be obtained, or that
they will be obtained in a timely manner or in the form necessary to implement
Globalstar's proposed operations. Globalstar's business may also be
significantly affected by regulatory changes resulting from judicial decisions
and/or adoption of treaties, legislation or regulation by the national
authorities where the Globalstar System plans to operate.
Globalstar's FCC license, as modified on November 19, 1996, authorizes the
construction, launch and operation of the satellite constellation and assigns
the system user links and feeder links in the United States. Globalstar's feeder
link frequencies were allocated internationally at WRC95, and have been assigned
by the FCC for use in the United States in accordance with the international
allocation. However, use of the feeder link frequencies remains subject to
restrictions that may be adopted in a potential FCC proceeding to adopt the
international allocations into the U.S. Table of Frequency Allocations. The FCC
recently adopted rules for the use of a portion of the frequencies allocated at
WRC95 for MSS feeder links (such as Globalstar's) to a proposed high-speed
wireless data service. Although these rules are intended to preclude harmful
interference with other uses of these bands, they may ultimately permit uses of
these frequencies that could diminish their usefulness for MSS feeder links.
Separate licenses must also be obtained from the FCC for operation of gateways
and Globalstar Phones in the United States.
To the extent that additional MSS systems are authorized by the FCC or
other national regulatory bodies to use the spectrum for which Globalstar has
been authorized, the Globalstar System's capacity would be reduced. In addition,
Globalstar's FCC license is subject to two pending judicial appeals. While
Globalstar believes that these appeals are without merit, there can be no
assurance that these appeals would not result in either reversal or stay of the
FCC's decision to grant Globalstar's FCC license to LQP or ultimately result in
the granting of additional licenses by the FCC or its adoption of an auction
procedure to award licenses, which might materially increase the cost of
obtaining such licenses.
Authorization will be required in each country in which Globalstar Phones
are used and in which Globalstar's gateways are located. Local regulatory
approval for operation of the Globalstar System is the responsibility of the
service providers in each territory. Although many countries have moved to
privatize the provision of telecommunications service and to permit competition
in the provision of such service, some countries continue to require that all
telecommunications service be provided by a government-owned entity. While
service providers have been selected, in part, based upon their perceived
qualifications to obtain the requisite local approvals, there can be no
assurance that they will be successful in doing so, and if they are not
successful, Globalstar service will not be available in such territories. In
that event, depending upon geographical and market considerations, Globalstar
may or may not have the ability to redirect the system capacity that such
territories would have otherwise used to serve markets in which service is
authorized.
Regulatory schemes in countries in which Globalstar or its service
providers seek to operate may impose impediments on Globalstar's operations.
There can be no assurance that such restrictions would not be unduly burdensome.
Glonass, the Russian Global Navigation Satellite System, operates worldwide
in a portion of the frequency band proposed to be used by Globalstar and other
MSS systems for user uplinks. Although Glonass has proposed to migrate to lower
frequencies, there can be no assurance that such migration will be implemented
in a manner fully acceptable to Globalstar. In addition, there are requirements
for interference protection between Globalstar and Glonass under consideration,
which, if adopted, may render a segment of
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the MSS spectrum unusable for MSS user uplinks. While any likely limitation is
not expected to have a material adverse effect upon Globalstar's capacity,
nevertheless, these actions may have the effect of reducing Globalstar capacity
in some markets.
European Union Regulatory Matters. European Union competition law
proscribes agreements that restrict or distort competition in the European
Union. Globalstar and others have responded to an inquiry from the Commission of
the European Union requesting information regarding their activities. A
violation of European Union competition law could subject Globalstar to fines or
enforcement actions that could delay service in western Europe, and/or depending
on the circumstances, adversely affect Globalstar's contractual rights vis-a-vis
its European strategic partners. In addition, the Commission has proposed
legislation which, if adopted, would give the Commission broad regulatory
authority over satellite telecommunications systems such as the Globalstar
System.
TECHNOLOGICAL RISKS
General. The Globalstar System is exposed to the risks inherent in a
large-scale complex telecommunications system employing advanced technologies
which must be adapted to the Globalstar application and which have never been
used as a commercial whole. Deployment of the Globalstar satellite constellation
will involve volume production and testing of satellites in quantities
significantly higher than those previously prevailing in the industry. The
integration of a worldwide LEO satellite-based system like Globalstar has never
occurred; there is no assurance that such integration will be successfully
implemented. The operation of the Globalstar System will require the detailed
design and integration of advanced digital communications technologies in
devices from personal handsets and public telephone networks to gateways in
remote regions of the globe and satellites operating in space. The failure to
develop, produce and implement the system, or any of its diverse and dispersed
elements, as required, could delay the In-Service or Full Constellation Date of
the Globalstar System or render it unable to perform at levels required for
commercial success.
Satellite Launch Risks. Satellite launches are subject to significant
risks, including disabling damage to or loss of the satellites. Satellite
launches of groups of more than eight commercial satellites have not been
attempted before. Historically, launch failure ("hot failure") rates on
low-earth orbit and geostationary satellite launches have been approximately
10%. However, launch failure rates vary depending on the particular launch
vehicle. There is no assurance that Globalstar satellite launches will be
successful or that its launch failure rate will not exceed the industry average.
The McDonnell-Douglas Delta launch vehicle, scheduled to launch the first eight
satellites (four per launch) of the Globalstar satellite constellation, suffered
a launch failure on January 17, 1997. The United States government is continuing
to investigate the cause of this launch failure, the second in this rocket's
last 64 launches. McDonnell-Douglas recently resumed Delta operations, with two
successful launches in May 1997. Globalstar's first launch is currently
scheduled for October 1997 aboard a Delta II rocket. The Ukrainian Zenit launch
vehicle, which is proposed to launch 36 Globalstar satellites (12 per launch),
has never been used in commercial applications. A Zenit launch vehicle carrying
a Russian military satellite suffered a launch failure on May 20, 1997.
Yuzhnoye, the Zenit manufacturer, in conjunction with Russian space agencies, is
investigating the cause of this failure, the fourth in this rocket's last 28
launches. Globalstar intends to launch the last 12 satellites of its
constellation in groups of four on three separate launches of the Russian
Starsem Soyuz rocket.
The Zenit launch contracts provide for relaunches at no additional charge
in the event of a hot failure. However, the launch provider may, because of
financial reasons or otherwise, be unable to provide such relaunches. A single
launch failure would result in a loss of either four or 12 Globalstar
satellites. Although the cost of replacing such satellites and launch vehicles
will in most cases be covered by insurance, a launch failure could result in
delays in the In-Service or the Full Constellation Date.
SS/L has agreed to obtain launch vehicles for Globalstar and arrange for
the launch of all 56 satellites, subject to pricing adjustments in light of
future market conditions, which may, in turn, be influenced by international
political developments. An adverse change in launch vehicle market conditions
which prohibits Globalstar from utilizing the launch vehicles for which it has
contracted could result in an increase in the
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launch cost payable by Globalstar, which may be substantial. In addition, there
can be no assurance that replacement launch vehicles will be available in the
future at a cost or on terms acceptable to Globalstar.
Two of the launch operators are subject to U.S. export control regulations.
Yuzhnoye, based in Ukraine, has certain ties with Russia and intends to launch
the Zenit rocket from the Baikonur launch site in Kazakhstan. Arianespace, which
will be providing the Soyuz rockets, also intends to launch from Baikonur.
Changes in governmental policies or political leadership in the United States,
Ukraine, Russia or Kazakhstan could affect the cost, availability, timing or
overall advisability of utilizing these launch providers. While there is no
assurance that the necessary export licenses will be obtained, Globalstar has
provided against the risk that such licenses will not be granted or that the
deterioration in the relationships between the United States and these countries
may make the use of such launch providers inadvisable by procuring options on
sufficient launches with a U.S.-based launch provider to launch all the
remaining satellites of the Globalstar constellation. If Globalstar were to
exercise these options for U.S. launches in the wake of the failure to obtain
any necessary export licenses or as a result of adverse developments in U.S.
relations with these countries, the cost of launching the Globalstar satellite
constellation would be significantly increased.
Limited Life of Satellites. A number of factors will affect the useful
lives of Globalstar's satellites, including the quality of construction,
expected gradual environmental degradation of solar panels and the durability of
component parts. Random failure of satellite components could result in damage
to or loss of a satellite ("cold failures"). In rare cases, satellites could
also be damaged or destroyed by electrostatic storms or collisions with other
objects. As a result of these factors, the first-generation satellite
constellation (including spares) is designed to operate at full performance for
a minimum of 7 1/2 years, after which performance is expected to gradually
decline. However, there can be no assurance of the constellation's specific
longevity. Globalstar's operating results would be adversely affected in the
event the useful life of the satellites were significantly shorter than 7 1/2
years. Globalstar anticipates using funds generated from operations to develop a
second generation of satellites. If sufficient funds from operations are not
available and Globalstar is unable to obtain external financing for the
second-generation constellation, Globalstar will not be able to deploy a
second-generation satellite constellation to replace first-generation satellites
at the end of their useful lives. In that event, the Globalstar System would
cease operations at that time.
Insurance Risks. Globalstar intends to obtain insurance against launch
failure which would cover the cost of relaunch and the replacement cost of lost
satellites in the event of hot failures for 56 satellites in its constellation.
SS/L has agreed to obtain on Globalstar's behalf insurance for the cost of
replacing satellites lost in hot failures, and for any relaunch costs not
covered by the applicable launch contract, in certain circumstances subject to
pricing adjustments in light of future market conditions. An adverse change in
insurance market conditions may result in an increase in the insurance premium
paid by Globalstar, which may be substantial. In addition, there is no assurance
that launch insurance will be available or that, if available, would be at a
cost or on terms acceptable to Globalstar.
Globalstar may self-insure for hot failures for up to 12 such satellites.
Globalstar's contract with SS/L provides for the construction and launch of
eight spare satellites and construction of eight ground spare satellites to
minimize the effect of any launch or orbital failures. However, there can be no
assurance that additional satellites and launches will not be required. In such
an event, in addition to the replacement costs incurred by Globalstar,
Globalstar's In-Service or Full Constellation Date may be delayed. In addition,
unless otherwise required, Globalstar does not currently intend to purchase
insurance to cover cold failures that may occur once the satellites have been
successfully deployed from the launch vehicle.
Risks Associated with Changing Technology. The space and communications
industries are characterized by rapid technological advances and innovations.
There is no assurance that one or more of the technologies utilized or under
development by Globalstar may not become obsolete, or that its services will be
in demand by the time they are offered. Globalstar will be dependent upon
technologies developed by third parties to implement key aspects of its strategy
to integrate its satellite systems with terrestrial networks, and there can be
no assurance that such technologies will be available to Globalstar on a timely
basis or on reasonable terms.
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FUTURE OPERATING RISKS
Dependence on Service Providers and Other Third Parties. The availability
of Globalstar service in each region or country will depend upon the
cooperation, operational and marketing efficiency, competitiveness, finances and
regulatory status of Globalstar's service provider in that region or country.
The willingness of companies to become service providers will depend upon a
variety of factors, including pricing, local regulations and Globalstar's
competitiveness with other satellite-based telecommunications systems.
Globalstar believes that enlisting the support of established telecommunications
service providers, some of which are the dominant carriers in their markets,
will be essential both to obtaining necessary local regulatory approvals and to
rapidly accessing a broad market of potential users. Globalstar's strategic
service providers have agreed to act as exclusive service providers in 71
countries although it is anticipated that in many cases these partners will
enter into strategic alliances with local service providers to provide
Globalstar service in these countries. As discussed under "Governance of
Globalstar", Globalstar's partnership agreement restricts its limited partners
from possessing certain interests in business activities operating mobile
satellite services similar to Globalstar for voice telephony ("Similar Satellite
Service"). In addition, the service provider agreements between Globalstar and
its current service providers preclude any service provider, its affiliates and
certain joint ventures in which such service provider owns an equity interest
from acting (i) as a service provider or a distributor for a Similar Satellite
Service in any territory in respect of which Globalstar has agreed to make
Globalstar service available to such service provider or (ii) as a distributor
for a Similar Satellite Service in any territory in which one or more service
providers are ready, willing and able to permit such service provider to act as
a distributor therefor on terms no less favorable than those offered to other
distributors, subject to certain exceptions. Except as provided above,
Globalstar's service providers may enter into certain agreements or
relationships with competitors of Globalstar. Globalstar currently has no
knowledge of any agreements between its service providers and Globalstar's
competitors in the satellite-based personal telecommunications business.
Globalstar expects to raise additional funds prior to the Full
Constellation Date in the form of service provider payments from prospective
service providers in other territories throughout the world. Globalstar's
business plan assumes that Globalstar will contract with service providers to
provide service in the remaining territories of the world, in certain cases, on
terms more favorable to Globalstar than those contained in its founding service
provider agreements. There can be no assurance that additional service provider
agreements will be entered into in the future or that this plan will be
achieved. If such service provider payments are not realized, Globalstar will be
required to obtain other sources of financing in order to complete the
Globalstar System.
If the service providers fail to obtain the necessary local regulatory
approval or to adequately market and distribute Globalstar's services,
Globalstar's business could be adversely affected. There can be no assurance
that enough service providers will contract for Globalstar service and procure
and install the gateways and obtain the regulatory licenses necessary for
complete global service. Failure to offer service in any particular region will
eliminate that area's market potential and reduce Globalstar's ability to
service its global roamer market.
Certain strategic partners and other third parties are designing and
constructing the component parts of the Globalstar System. In the event such
parties are unable to perform their obligations, Globalstar's In-Service and
Full Constellation Date may be delayed and its costs may be increased.
Risks Inherent in Foreign Operations. Globalstar expects that a
substantial portion of its business will be conducted outside of the United
States. Such operations are subject to certain risks such as changes in domestic
and foreign government regulations and telecommunications standards, tariffs or
taxes and other trade barriers. Accordingly, government actions in foreign
countries could have a significant effect on Globalstar's operations. Political,
economic or social instability or other developments in such countries,
including currency fluctuations, could also adversely affect Globalstar's
operations. In addition, Globalstar's agreements relating to local operations
may be governed by foreign law or enforceable only in foreign
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jurisdictions. As a result, in the event of a dispute, it may be difficult for
Globalstar to enforce its rights under such agreements.
Risks of Doing Business in Developing Markets; Currency
Risks. Globalstar's largest potential markets are in developing countries or
regions that are substantially underserved and not expected to be served by
existing telecommunications systems. In doing business in such markets,
Globalstar and its local service providers may face market, inflation, interest
rate and currency fluctuation, government policy, price and wage, exchange
control, taxation and social instability, expropriation and other economic,
political or diplomatic conditions that are significantly more volatile than
those commonly experienced in the United States and other industrialized
countries. Although Globalstar anticipates that it will receive payments from
its service providers in U.S. dollars, limited availability of U.S. currency in
these local markets may prevent a service provider from making payments in U.S.
dollars. Moreover, exchange rate fluctuations may affect the price Globalstar
will be entitled to receive for its services.
Pricing Risk. Globalstar's pricing to service providers will, under
certain circumstances, not be automatically adjusted for inflation; in such
cases, Globalstar will be able to increase its pricing to service providers only
if the service provider increases its prices to subscribers, and it may be
required to lower its pricing if the service provider lowers its prices to
subscribers. In recent years, pricing in the telecommunications industry has
trended downward, in some cases making it difficult for service providers to
raise their prices to compensate for cost inflation. Although Globalstar expects
future service provider agreements to contain pricing terms more favorable to
Globalstar than those contained in its agreements with founding service
providers, there can be no assurance that such terms will be achieved.
Substantial Leverage. Globalstar has entered into an agreement with a bank
syndicate for a $250 million credit facility expiring December 15, 2000, and
also expects to utilize $310 million of committed
vendor financing. The Globalstar credit agreement permits Globalstar to incur up
to $950 million of indebtedness on a senior basis to finance the build-out of
the Globalstar System, including the $500 million aggregate principal amount of
11 3/8% Senior Notes sold in February 1997 and the $325 million aggregate
principal amount of 11 1/4% Senior Notes sold on June 13, 1997; an unlimited
amount of indebtedness may be incurred by Globalstar on a subordinated basis.
Significant additional debt is expected to be incurred in the future. As a
result, Globalstar is expected to be highly leveraged. Globalstar will be
dependent on its cash flow from operations to service this debt. Any delay in
the commencement of Globalstar operations will adversely affect Globalstar's
ability to service its debt obligations. The discretion of Globalstar's
management with respect to certain business matters will be limited by covenants
contained in the Globalstar credit agreement, the Indentures and future debt
instruments. Among other things, the covenants contained in the Globalstar
credit agreement and the Indentures restrict, condition or prohibit Globalstar
from paying cash distributions on its ordinary partnership interests, creating
liens on its assets, making certain asset dispositions, conducting certain other
business and entering into transactions with affiliates and related persons. In
the event the Globalstar credit agreement ceases to be guaranteed, it will also
contain certain financial covenants limiting the ability of Globalstar to incur
additional indebtedness. There can be no assurance that Globalstar's leverage
and such restrictions will not materially and adversely affect Globalstar's
ability to finance its future operations or capital needs or to engage in other
business activities. Moreover, a failure to comply with the obligations
contained in the Globalstar credit agreement, the Indentures and or any
agreements with respect to additional financing could result in an event of
default under such agreements, which could permit acceleration of the related
debt and acceleration of debt under future debt agreements that may contain
cross-acceleration or cross-default provisions. See "-- Development Stage
Company -- Additional Financing Requirements" and "Original Notes -- Certain
Covenants."
Competition. Competition in the telecommunications industry is intense,
fueled by rapid and continuous technological advances and alliances between
industry participants on an international scale. Although no present participant
is currently providing the same global personal telecommunications service
proposed by Globalstar, it is anticipated that one or more additional competing
MSS systems will be launched and that the success, or anticipated success, of
Globalstar and its competitors could attract other entrants. If any of
Globalstar's competitors succeeds in marketing and deploying its system
substantially earlier than Globalstar, Globalstar's ability to compete in areas
served by such competitor may be adversely affected. A number of
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satellite-based telecommunications systems not involved in the MSS Proceeding
have also been proposed using geostationary satellites and, in one case, the 2
GHz band for a MEO system. See "Business -- Competition."
Globalstar's most direct competitors are the two other MSS applicants which
received FCC licenses, Iridium and Odyssey. ICO was not an applicant or a
licensee in the MSS Proceeding or any other proceedings before the FCC; it is
seeking to operate in a different frequency band not available for use by MSS
systems under current international guidelines in place until 2000. Comsat, the
U.S. signatory to Inmarsat, has applied to the FCC to participate in the
procurement of facilities of the system proposed by ICO. It has also sought FCC
approval of a proposal to extend the scope of services provided by Inmarsat,
currently limited to maritime services, to include telecommunications services
to land-based mobile units. These applications are currently pending before the
FCC. Comsat has been instructed in the past by the U.S. government to seek to
ensure that ICO does not receive preferred access to any market and that
non-discriminatory access to such areas for all mobile satellite communications
networks be established, subject to spectrum coordination and availability.
Nonetheless, because ICO is affiliated with Inmarsat and because its investors
include state-owned telecommunications monopolies in a number of countries,
there can be no assurance that ICO might not be given preferential treatment in
the local licensing process in those countries. It is also possible that one or
more of the two pending MSS applicants will demonstrate financial qualification
sufficient to obtain an FCC license and become a competitor of Globalstar.
In addition to competing for investment capital, subscribers and service
providers in markets all over the world, the MSS systems, including Globalstar,
also compete with each other for the limited spectrum available for MSS
operations. Unlike CDMA systems such as Globalstar and Odyssey, which permit
multiple systems to operate within the same band, the design of Iridium's TDMA
system requires a separate frequency segment dedicated specifically for its use.
If more than two CDMA systems become operational, CDMA systems like Globalstar
will effectively have a smaller spectrum segment within which to operate their
user uplinks in the U.S. While CDMA does permit spectrum sharing among competing
systems, the capacity of the systems operating within that spectrum will
decrease as the number of systems operating in the band increases. For example,
Globalstar's capacity over a given area would decrease by approximately 25% if
the total number of licensed MSS systems increased from three to four, assuming
that Iridium is one of the licensed systems and the two other CDMA systems
receiving licenses have technical characteristics similar to Globalstar's and
experience the same level of usage.
The FCC has no authorization to extend the U.S. band plan for CDMA and TDMA
Big LEO systems to other countries. However, it has stated that it plans to
express the view in discussions with other administrations that global satellite
systems are more likely to succeed if individual administrations adopt
complementary systems for licensing them.
Geostationary-based satellite systems, including AMSC, APMT, ASC, ACeS,
Lockheed Martin's Satphone and Comsat's Planet-1, plan to provide
satellite-based telecommunications services in areas proposed to be serviced by
Globalstar. Because some of these systems involve relatively simple ground
control requirements and are expected to deploy no more than two satellites,
they may succeed in deploying and marketing their systems before Globalstar. In
addition, coordination of standards among regional geostationary systems could
enable these systems to provide worldwide service to their subscriber bases,
thereby increasing the competition to Globalstar. For example, Comsat has
announced a global mobile satellite service (Planet-1) using existing Inmarsat
satellites, a six-pound, laptop-size phone, costing $3,000 with an expected
per-minute usage rate of $3.00.
Some of these potential competitors have financial, personnel and other
resources substantially greater than those of Globalstar. Many of these
competitors are raising capital and may compete with Globalstar for service
providers and financing. Technological advances and a continuing trend toward
strategic alliances in the telecommunications industry could give rise to
significant new competitors. There can be no assurance that some of these
competitors will not provide a more efficient or less expensive service.
However, Globalstar believes that based upon the public statements and other
publicly available information of the other MSS applicants, Globalstar will be a
low-cost provider. Depending on the competitive environment, however,
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pricing competition could require Globalstar to reduce its anticipated pricing
to service providers, thus adversely affecting its financial performance.
Satellite-based telecommunications systems are characterized by high
up-front costs and relatively low marginal costs of providing service. Several
systems are being proposed and, while the proponents of these systems foresee
substantial demand for the services they will provide, the actual level of
demand will not become known until such systems are constructed, launched and
operational. If the capacity of Globalstar and any competing systems exceeds
demand, price competition could be particularly intense.
Teledesic, Spaceway and CyberStar have each applied to the FCC for licenses
to operate satellite-based telecommunications and video transmission systems in
the 28 GHz Ka-band. Certain MSS applicants, not including Globalstar, have
applied to use this band for their feeder uplinks, as have proponents of
land-based local multipoint distribution system ("LMDS") for cellular television
services. The FCC is in the process of developing a band-width allocation plan
for use of the available Ka-band spectrum by these services. Globalstar's
primary business will be voice telephony, and its data transmission business
will be focused on small data packet services such as paging and messaging. It
therefore does not regard the television or broadband data services to fixed
terminals proposed by Teledesic, Spaceway and CyberStar or the wireless cable
and fixed telephony services proposed by the LMDS applicants as competing
services.
Risk of Accelerated Build-Out and Competing Technological Advances. It is
expected that as land-based telecommunications services expand to regions
currently underserved or not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems are
constructed at a more rapid rate than that anticipated by Globalstar, the demand
for Globalstar service may be reduced at rates higher than those assumed in
Globalstar's market analysis. Globalstar may also face competition in the future
from companies using new technologies and new satellite systems. New technology
could render Globalstar obsolete or less competitive by satisfying consumer
demand in alternative ways or through the introduction of incompatible
telecommunications standards. A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on Globalstar as a
result of their initial marketing efforts. Globalstar's business would be
adversely affected if competitors begin operations or existing or new
telecommunications service providers penetrate Globalstar's target markets
before completion of the Globalstar System.
Subscriber Acceptance. Subscriber acceptance of the Globalstar System
(both in terms of placement of Globalstar Phones and subscriber usage thereof)
will depend upon a number of factors, including price, demand for service and
the extent of availability of alternative telecommunications systems. If the
level of actual subscriber demand and usage for Globalstar service is below that
expected by Globalstar, Globalstar's cash flow will be adversely affected.
Globalstar's hand-held phone is expected to be larger and heavier for the same
talk time than today's smaller and lighter pocket-sized, hand-held cellular
telephones and is expected to have a significantly longer and thicker antenna
than hand-held cellular telephones. The Globalstar System will function best
when there is an unobstructed line-of-sight between the user and one or more of
the Globalstar satellites. Obstacles such as buildings, trees or mountainous
terrain may degrade service quality, more so than would be the case with
terrestrial cellular systems, and service may not be available in the core of
high-rise buildings. There is no assurance that these characteristics of the
hand-held Globalstar Phone will not adversely affect subscriber demand for
Globalstar service.
Product Liability; Alleged Health Risks. There has been adverse publicity
concerning alleged health risks associated with the use of portable hand-held
telephones with transmitting antennas integrated into handsets. On August 1,
1996, the FCC announced new guidelines for evaluating environmental radio
frequency radiation from FCC-regulated transmitters based primarily on the
exposure criteria recommended in 1986 by the National Council on Radiation
Protection Measurements ("NCRP"). Guidelines applicable to certain portable
transmitting devices are based on the NCRP criteria and the exposure criteria
developed by the Institute of Electrical and Electronic Engineers and
recommended in 1992 by the American National Standards Institute. These
guidelines were to become effective as to applications filed after January 1,
1997; the FCC, however, has deferred the effective date until September 1, 1997.
The handsets Globalstar has contracted with Qualcomm to develop for use by
mobile subscribers will have antennas for communication
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with the satellites and, in the case of the dual-mode and tri-mode hand-held
Globalstar Phones, with the land-based cellular system. Because hand-held
Globalstar Phones will use on average lower power to transmit signals than
traditional cellular units, Globalstar does not believe that the proposed new
guidelines will require any significant modifications of the Globalstar System
or of the mobile hand-held Globalstar Phones designed to be used with the
Globalstar System. There can, however, be no assurance that the guidelines, as
adopted, or any associated health concerns, would not have an adverse effect on
Globalstar's mobile handset business.
Reliance on Key Personnel. The success of Globalstar's business will be
partially dependent upon the ability of Globalstar to attract and retain highly
qualified technical and management personnel. None of the employees of
Globalstar has an employment contract with Globalstar nor does Globalstar expect
to maintain "key man" insurance with respect to any such individuals. The loss
of any of these individuals and the subsequent effect on business relationships
could have a material adverse effect on Globalstar's business.
STRUCTURAL AND MARKET RISKS
Potential Conflicts of Interest. Partners of LQSS, the managing general
partner of Globalstar, or their affiliates are principal suppliers to Globalstar
of the major components of the Globalstar System, and are also expected to
engage in the manufacture of system elements to be sold to service providers and
subscribers. During the design, development and deployment of the Globalstar
System, Globalstar will be substantially dependent upon the management skills of
Loral and certain technologies developed by Loral, Qualcomm and SS/L to design
and manufacture the Globalstar satellite constellation, SOCCs, GOCCs, gateways
and Globalstar Phones. Globalstar has entered into contracts for the design of
various segments of the Globalstar System with affiliates of LQSS, including a
fixed-price satellite production contract with SS/L and a cost-plus-fee contract
with Qualcomm to design the gateways, GOCCs and Globalstar Phones. To the extent
that such contracts have been or will be awarded to partners of Globalstar or
LQSS or their affiliates, such parties will have a conflict of interest with
respect to the terms thereof.
Partners and affiliates of Globalstar, including companies affiliated with
or controlled by Loral, will be among Globalstar's principal service provider
customers and may therefore have conflicts of interest with respect to the terms
of Globalstar's service provider agreements and any proposed amendments thereto.
In addition, if Globalstar is unable to offer Globalstar service to a service
provider on competitive terms in a particular country or region, such a service
provider, which may be a partner of Globalstar, can act as a service provider to
a competing MSS system in such region or country while at the same time serving
as a Globalstar service provider in other markets.
Controlling Person. Globalstar is currently managed by a General Partners'
Committee, a majority of the representatives on which are designated directly or
indirectly by Loral. The Independent Representatives on the General Partners'
Committee will, however, have the right to pass upon certain matters prior to
any decision to submit such matters to a vote of the partners and will have
certain authority over the hiring or dismissal of senior officers of Globalstar.
Change of Control of GTL and Reduction in Interest; Investment Company Act
Considerations. In the event of (i) a change of control of GTL at a time when
GTL owns less than 50% of the Globalstar partnership interests outstanding,
including certain changes in GTL's Board of Directors, or (ii) a sale or other
disposition of partnership interests following which the equity interest of GTL
in Globalstar has been reduced to an interest of less than 5% (a "Reduction in
Interest"), which, in the event of either clause (i) or (ii) above has not been
approved by LQSS or by the partners of Globalstar, GTL will become a limited
partner in Globalstar and will no longer appoint representatives to serve on
Globalstar's General Partners' Committee. Certain other governance rights
granted to GTL under Globalstar's partnership agreement will also be revoked,
and GTL will enjoy only the rights of a limited partner in Globalstar. If GTL
were to cease participation in the management of Globalstar, which would result
if GTL were to undergo a change of control or a Reduction in Interest shall have
occurred, its interest in Globalstar could be deemed an "investment security"
for purposes of the Investment Company Act. In general, a person is an
"investment company" if, subject to certain exceptions, it owns investment
securities having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities and cash items). GTL's sole asset is
its partnership interests in
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Globalstar. A determination that such investment was an investment security
could result in GTL's being deemed to be an investment company under the
Investment Company Act and its becoming subject to the registration and other
requirements of the Investment Company Act. In order to register, GTL might be
required to reincorporate as a domestic U.S. corporation and would thereafter be
subject to U.S. tax on its worldwide income, subject to any applicable foreign
tax credits. Absent a change of control or a Reduction in Interest, Globalstar
intends to conduct its operations so as to avoid being deemed an investment
company under the Investment Company Act.
Absence of a Public Market. There is no existing market for the Exchange
Notes and there can be no assurance as to the liquidity of any markets that may
develop for the Exchange Notes, the ability of holders of the Exchange Notes to
sell such securities or the price at which holders would be able to sell such
securities. If such a market were to exist, the Exchange Notes could trade at
prices that may be higher or lower than their principal amount or purchase
price, depending on many factors, including prevailing interest rates, the
market for similar notes, and the financial performance of Globalstar and its
subsidiaries. The Issuers have been advised by Lehman Brothers Inc. and Bear,
Stearns & Co. Inc. that they presently intend to make a market in the Exchange
Notes. However, they are not obligated to do so, and any market-making activity
with respect to the Exchange Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Exchange Act. The Issuers do not intend to apply for listing of
the Exchange Notes on any securities exchange.
Consequences of Failure to Exchange. Holders of Original Notes who do not
exchange their Original Notes for Exchange Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on transfer of such original
Notes as set forth in the legend thereon as a consequence of the issuance of the
Original Notes pursuant to exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the Original Notes may not be offered or sold,
unless registered under the Securities Act and applicable state securities laws,
or pursuant to an exemption therefrom. Except under certain limited
circumstances, the Issuers do not intend to register the Original Notes under
the Securities Act. In addition, any holder of Original Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent Original Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes not tendered could be adversely
affected. See "The Exchange Offer" and "Description of Notes -- Registration
Rights."
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THE GLOBALSTAR PARTIES
Globalstar is a Delaware limited partnership whose managing general partner
is LQSS; the general partner of LQSS is LQP, a Delaware limited partnership
comprised of subsidiaries of Loral and Qualcomm. The general partner of LQP is
LGP, a Loral subsidiary. Globalstar, LQSS and LQP are collectively referred to
as the Globalstar Partnerships. GTL serves as the other general partner of
Globalstar. Globalstar Capital was organized as a Delaware corporation on July
24, 1995, and other than serving as an issuer of the Notes, does not conduct any
business. The principal offices of Globalstar and Globalstar Capital are located
at 3200 Zanker Road, San Jose, California 95164 (408-473-5550).
Matters relating to the FCC License for the Globalstar System, including
compliance requirements and other regulatory matters related thereto, are under
the exclusive control of LQP. Such FCC License is held by L/Q Licensee, a
wholly-owned subsidiary of LQP.
The following is a chart of Globalstar's ownership structure as of June 23,
1997:
GLOBALSTAR STRUCTURE(1)
[GLOBALSTAR STRUCTURE CHART]
(1) The above percentages reflect the assumptions set forth in the first
paragraph of the Prospectus Summary.
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USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange pursuant to the
Exchange Offer. The net proceeds to the Issuers from the issuance of the 11 3/8%
Original Notes and the Warrants were approximately $485 million and the net
proceeds to the Issuers from the issuance of the 11 1/4% Original Notes were
approximately $302 million. Such net proceeds have been and will continue to be
used toward the construction and deployment of the Globalstar System.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The 11 3/8% Original Notes were originally issued and sold on February 19,
1997 and the 11 1/4% Original Notes were originally issued and sold on June 13,
1997. Such sales were not registered under the Securities Act in reliance upon
the exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. In connection with the sale of the Original Notes, the Issuers
agreed to use their reasonable efforts to file with the Commission a
registration statement relating to an exchange offer (the "Exchange Offer
Registration Statement") pursuant to which another series of Notes of the
Issuers, the Exchange Notes, covered by such registration statement and
containing substantially the same terms as the respective Original Notes, except
as set forth in this Prospectus, would be offered in exchange for Original Notes
tendered at the option of the holders thereof. If (i) the Issuers are not
permitted to effect the Exchange Offer because the Exchange Offer is not
permitted by applicable law or the Commission policy, (ii) the Exchange Offer is
not consummated within 180 days of the respective Issue Date, (iii) any Initial
Purchaser notifies the Issuers within 90 days after the consummation of the
Exchange Offer that its Transfer Restricted Securities were not eligible to be
exchanged for Exchange Notes in the Exchange Offer or (iv) any Holder of
Transfer Restricted Securities notifies the Issuers that it is not eligible to
participate in the Exchange Offer, or that it participated in the Exchange Offer
but did not receive freely tradeable Exchange Notes on the date of exchange, the
Issuers will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Original Notes by the holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Issuers will use
reasonable efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, Transfer Restricted Securities means each Original Note until (i) the
date on which such Original Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Original Note for a
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Original Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Original Note is distributed to the
public pursuant to Rule 144 under the Securities Act. In the event that (i) the
Issuers have failed to file the Exchange Offer Registration Statement or, if
applicable, the Shelf Registration Statement, (ii) the Exchange Offer
Registration Statement, or, if applicable, the Shelf Registration Statement,
have not been declared effective by the Commission, or (iii) the Exchange Offer
has not been consummated or the Exchange Offer Registration Statement or the
Shelf Registration Statement ceases to remain effective, in each case within
specified time periods, the interest rate borne by the Original Notes will be
increased. See "Description of Notes -- Registration Rights."
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Issuers with respect to the Registration Rights Agreements.
TERMS OF THE EXCHANGE
The Issuers hereby offer to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal"), (i) $1,000 in principal amount of
11 3/8% Exchange Notes for each $1,000 in principal amount of 11 3/8% Original
Notes and (ii)
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<PAGE> 29
$1,000 in principal amount of 11 1/4% Exchange Notes for each $1,000 in
principal amount of 11 1/4% Original Notes. The terms of the Exchange Notes are
identical in all respects to the terms of the Original Notes for which they may
be exchanged pursuant to this Exchange Offer, except that the Exchange Notes
will generally be freely transferable by holders thereof, and the holders of the
Exchange Notes (as well as remaining holders of any Original Notes) will not be
entitled to registration rights under their respective Registration Rights
Agreement. See "Description of Notes -- Registration Rights." The Exchange Notes
will evidence the same debt as the Original Notes and will be entitled to the
benefits of the respective Indenture pursuant to which such Notes were issued.
See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Original Notes directly from
the Issuer or (iii) broker-dealers who acquired Original Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Original Notes, where such Original
Notes were acquired by such broker-dealer as a result of market-making
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." The Letter
of Transmittal states that by so acknowledging, and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period not to exceed 180 days after the Exchange Date, they will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. Any holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Tendering holders of Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Original Notes accrued after the issuance of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997, unless the Issuers
in their sole discretion extend the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Issuers, expires. The Issuers
reserve the right to extend the Exchange Offer at any time and from time to time
prior to the Expiration Date by giving written notice to The Bank of New York
(the "Exchange Agent") and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Original
Notes previously tendered pursuant to the Exchange Offer will remain subject to
the Exchange Offer.
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<PAGE> 30
The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Issuers waive any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver or amendment is first published, sent or given to holders of
Original Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Original Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Issuers of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Original Note may tender the same by
(i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Original Notes being tendered
and any required signature guarantees (or a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") pursuant to the procedure described
below), to the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Expiration Date or (ii) complying with the
guaranteed delivery procedures described below.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuers and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Original Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
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<PAGE> 31
Book-Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Original Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Original Notes by causing the Book-Entry
Transfer Facility to transfer such Original Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Original Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address specified on the back cover
page of this Prospectus on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his taxpayer identification number (social security number or employer
identification number) and certify that such number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal, so as to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to the
Issuers and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Original Notes are registered and, if possible, the
certificate numbers of the Original Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange trading days after the date of execution of such letter or facsimile
transmission by the Eligible Institution, the Original Notes, in proper form for
transfer, will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Original Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Issuers may, at their option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are being delivered with this Prospectus and the
related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Original Notes (or a timely
Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuers, be unlawful. The Issuers also reserve the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
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<PAGE> 32
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of the Issuers, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Issuers' interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Issuers and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Issuers
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Issuers to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Issuers and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Issuers of its
obligations under the Registration Rights Agreement and that the Issuers shall
have no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the death
or incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Issuers or an affiliate of the Issuers, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
"affiliate" (as so defined) of the Issuers or of the initial purchasers in the
original offering of the Original Notes, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Original Notes to be withdrawn, the certificate numbers of Original
Notes to be withdrawn, the principal amount of Original Notes to be withdrawn
(which must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name of
the registered holder of such Original Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Issuers that the person withdrawing the tender has succeeded
to the beneficial ownership of the Original Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Original Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Issuers, and
such determination will be final and binding on all parties.
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ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for
exchange validly tendered Original Notes when, as and if the Issuers have given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving Exchange Notes from the Issuers and causing
the Original Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Original Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Original Notes. Original Notes
not accepted for exchange by the Issuers will be returned without expense to the
tendering holders (or in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedures described above, such non-exchanged Original Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) promptly following the Expiration Date or, if the Issuers terminate
the Exchange Offer prior to the Expiration Date, promptly after the Exchange
Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuers will not be required to issue Exchange Notes
in respect of any properly tendered Original Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service) or, at its option, modify or otherwise amend the Exchange Offer, if (a)
there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof, or (iii) resulting in
a material delay in the ability of the Issuers to accept for exchange or
exchange some or all of the Original Notes pursuant to the Exchange Offer; (b)
any statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the sole judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in clauses
(a)(i) or (ii) above or, in the sole judgment of the Issuers, might result in
the holders of Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes which are greater than those described in the
interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer; or (c) a material adverse change shall have occurred in the business,
condition (financial or otherwise), operations, or prospects of the Issuers.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by them with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Issuers) giving rise to such condition or may be waived by the Issuers in whole
or in part at any time or from time to time in their sole discretion. The
failure by the Issuers at any time to exercise any of the foregoing rights will
not be deemed a waiver of any such right, and each right will be deemed an
ongoing right which may be asserted at any time or from time to time. In
addition, the Issuers have reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Issuers concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
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<PAGE> 34
In addition, the Issuers will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to (i) the Registration Statement of which this Prospectus constitutes a
part or (ii) qualification under the Trust Indenture Act of 1939 (the "Trust
Indenture Act") of the Indenture pursuant to which such Original Notes were
issued.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at its address set forth on the back cover page of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Issuers have not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Issuers
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Issuers will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
Globalstar and are estimated at approximately $ .
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuers. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuers since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Original Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuers may, at
their discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of
Original Notes in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Issuers by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders will not be a
taxable exchange for Federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
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<PAGE> 35
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Issuers will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights Agreements. Holders of the Original
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture pursuant to which such
Original Notes were issued, except for any such rights under the respective
Registration Rights Agreement, which by their terms terminate or cease to have
further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Original Notes will continue to be
subject to the restriction on transfer set forth in the Indenture pursuant to
which such Original Notes were issued. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Original Notes could be adversely affected. See "Risk Factors -- Consequences of
Failure to Exchange."
The Issuers may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
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<PAGE> 36
SELECTED FINANCIAL DATA
The following selected financial data of Globalstar (including the
pre-capital subscription period from January 1, 1994 to March 22, 1994) has been
derived from the financial statements of Globalstar included herein. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of Globalstar and notes thereto
included elsewhere in this Prospectus. Globalstar Capital is a wholly owned
subsidiary of Globalstar, was formed for the primary purpose of serving as a
co-issuer and co-obligor with respect to certain debt obligations of Globalstar,
including the Notes, and has no operations. The Indentures prohibit Globalstar
Capital from conducting any trade or business. See "Description of
Notes -- Covenants -- Business Activities of Globalstar Capital." Selected
Financial Data of Globalstar Capital has not been presented below as Globalstar
Capital has no operations.
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------
PRE-CAPITAL
SUBSCRIPTION PERIOD(1) MARCH 23 THREE MONTHS
--------------------------- (COMMENCEMENT YEARS ENDED DECEMBER ENDED MARCH 31,
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO 31,
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------- --------------------
1993 1994 1994 1995 1996 1996 1997
------------ ------------ ----------------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses.............. 11,510 6,872 28,027 80,226 61,025 15,401 17,582
Interest income................. -- -- 1,783 11,989 6,379 1,449 2,295
Net loss applicable to ordinary
partnership interests......... 11,510 6,872 26,244 68,237 71,969 15,376 20,588
Net loss per weighted average
ordinary partnership
interest outstanding.......... 0.73 1.50 1.53 0.33 0.44
Cash distributions per ordinary
partnership interest.......... -- -- -- -- --
OTHER DATA:
Deficiency of earnings to cover
fixed charges(2).............. N/A N/A 71,969 15,376 20,588
CASH FLOW DATA:
Used in operating activities.... -- -- (23,052) (38,368) (46,622) (15,785) (18,641)
Used in investing activities.... -- -- (50,549) (280,345) (384,264) (98,459) (138,000)
Provided by partners' capital
transactions.................. -- -- 147,161 318,630 284,714 290,000 118,084
Provided by (used in) other
financing activities.......... -- -- -- (1,875) 95,750 (250) 376,588
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31,
1997
-----------------
<S> <<C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ --
Operating expenses.............. 186,860
Interest income................. 22,446
Net loss applicable to ordinary
partnership interests......... 187,038
Net loss per weighted average
ordinary partnership
interest outstanding..........
Cash distributions per ordinary
partnership interest..........
OTHER DATA:
Deficiency of earnings to cover
fixed charges(2)..............
CASH FLOW DATA:
Used in operating activities.... (126,683)
Used in investing activities.... (853,158)
Provided by partners' capital
transactions.................. 868,589
Provided by (used in) other
financing activities.......... 470,463
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------
1997 1996 1995 1994
----------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 359,211 $ 21,180 $ 71,602 $ 73,560
Working capital (deficiency)............................................ 286,387 (53,481) 17,687 35,423
Globalstar System under construction.................................... 1,028,669 891,033 400,257 71,996
Total assets............................................................ 1,446,748 942,913 505,391 151,271
Vendor financing liability.............................................. 156,048 130,694 42,219 --
Senior notes............................................................ 472,588 -- -- --
Borrowings under long-term revolving credit facility.................... 393 96,077 -- --
Redeemable preferred partnership interests.............................. 302,300 302,037 -- --
Ordinary partners' capital.............................................. 418,038 315,186 386,838 112,944
</TABLE>
- ---------------
(1) Reflects certain costs incurred by Loral and Qualcomm prior to March 23,
1994, which were reimbursed by Globalstar through a capital subscription
credit or agreement for repayment in connection with the $275.0 million
capital subscription and commencement of Globalstar's operations on March
23, 1994.
(2) The ratio of earnings to fixed charges is not meaningful as Globalstar is in
the development stage and, accordingly, has incurred operating losses.
30
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis addresses the financial condition and
results of operations of Globalstar. Globalstar Capital, a wholly owned
subsidiary of Globalstar, was formed solely for purposes of serving as a
co-issuer and co-obligor with respect to certain debt obligations of Globalstar.
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this Prospectus, are forward-looking
statements that involve risks and uncertainties, many of which may be beyond
Globalstar's control. These may include, but are not limited to, problems
relating to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. The actual results that Globalstar achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash and cash equivalents increased to $359.2 million
from $21.2 million at December 31, 1996. The net increase is a result of the net
proceeds of $472.6 million received from the issuance of Globalstar's 11 3/8%
Senior Notes, $12.2 million received from the sale of warrants to GTL and $110.9
million received from the exercise of the Guarantee Warrants and interest of
$2.3 million earned on outstanding cash balances during the period, offset by
expenditures for the Globalstar System of $108.7 million, expenditures for the
additional spare satellites of $28.3 million, net cash used by operations of
$18.6 million, preferred distributions on the Redeemable Preferred Partnership
Interests ("RPPIs") of $5.0 million and net repayments of debt of $96.0 million.
Accounts payable, payables to affiliates and accrued expenses and interest
have decreased by $1.5 million from $75.3 million at December 31, 1996 to $73.7
million at March 31, 1997, as a result of the timing of payments to Globalstar
contractors.
Through March 31, 1997, Globalstar incurred costs of approximately $1.2
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1997 were approximately $148.9 million.
Globalstar's budget for the cost for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses is approximately $2.5 billion.
Globalstar has recently added enhanced capabilities and additional test
requirements and has experienced cost growth in the development of the ground
system, the final cost impact of which is under assessment. Globalstar, however,
does not expect such cost growth to increase the funding requirements for the
project by more than five percent. Globalstar has raised or received commitments
for approximately $2.3 billion in equity, debt and vendor financing.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost of $175 million. Further, in order to accelerate the
deployment of gateways around the world, Globalstar has agreed to finance
approximately $80 million of the cost of up to 32 of the 35 gateways ordered by
Globalstar service providers. Globalstar expects to recover its investment in
this gateway financing program from resale of the gateways to service providers.
Globalstar believes that its current capital, vendor financing commitments,
the availability of the Globalstar Credit Agreement are sufficient to fund its
requirements into the first quarter 1998. Globalstar intends to raise the
remaining funds required from a combination of sources including, debt issuance
(which may include an equity component), financial support from the Globalstar
partners, projected service provider payments, projected net service revenues
from initial operations and anticipated payments from the sale of gateways and
Globalstar subscriber terminals. Although Globalstar believes it will be able to
obtain these
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<PAGE> 38
additional funds, there can be no assurance that such funds will be available on
favorable terms or on a timely basis, if at all.
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended March 31, 1997 and 1996
Globalstar is a development stage partnership and has not commenced
operations. For the period March 23, 1994 (commencement of operations) to March
31, 1997, Globalstar has recorded cumulative net losses of $187.0 million. The
net loss applicable to Ordinary Partnership Interests for the three months ended
March 31, 1997 increased to $20.6 million as compared to $15.4 million for the
three months ended March 31, 1996. The net loss increased primarily as a result
of a full quarter's distribution on the RPPI's during the first quarter of 1997,
versus a distribution for a one month period during the first quarter of 1996,
as the RPPI's were issued in March 1996. Globalstar is expending significant
funds for the design, construction, testing and deployment of the Globalstar
System and expects such losses to continue until commencement of commercial
operations.
Globalstar has earned interest income of $22.4 million on cash balances and
short term investments since commencement of operations. Interest income during
the three months ended March 31, 1997 was $2.3 million as compared to $1.4
million for the three months ended March 31, 1996. Interest income for the
current period increased as a result of higher average cash balances outstanding
during the first quarter of 1997.
Operating Expenses. Development costs remain stable at $11.2 million and
$11.4 million for the three months ended March 31, 1997 and 1996, respectively.
These costs represent the development of Globalstar Phones and Globalstar's
continuing in-house engineering.
Marketing, general and administrative expenses were $6.3 million and $4.0
million for the three months ended March 31, 1997 and 1996, respectively. The
increase in marketing, general and administrative expenses is primarily the
result of an increase in employees, as Globalstar gears up for operations and
increased advertising costs.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of the
Globalstar Phones and certain technologies under a cost sharing arrangement with
Qualcomm. Globalstar will not record depreciation expense on the Globalstar
System until the commencement of commercial operations, as assets are placed
into service.
Income Taxes. Globalstar was organized as a limited partnership. As such,
no income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed through to its partners.
Comparison of Results for the Years Ended December 31, 1996 and 1995
Globalstar is a development stage partnership and has not commenced
commercial operations. For the period March 23, 1994 (commencement of
operations) to December 31, 1996, Globalstar has recorded cumulative net losses
of $166.5 million. The net loss for the year ended December 31, 1996 decreased
to $54.6 million as compared to $68.2 million for the year ended December 31,
1995 due to a decrease in development costs partially offset by a decrease in
interest income. The net loss applicable to ordinary partnership interests was
$72.0 million during the current period reflecting $17.3 million of preferred
distributions on the redeemable preferred partnership interests. Globalstar is
expending significant funds for the design, construction, testing and deployment
of the Globalstar System and expects such losses to continue until commencement
of commercial operations.
Globalstar has earned interest income of $20.2 million on cash balances and
short term investments since commencement of operations. Interest income during
the year ended December 31, 1996 was $6.4 million as
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<PAGE> 39
compared to $12.0 million for the year ended December 31, 1995. Interest income
for the current period decreased as a result of lower average cash balances
outstanding during 1996.
Operating Expenses. Development costs of $42.2 million for the year ended
December 31, 1996, represent the development of certain technologies under a
cost sharing arrangement in Globalstar's contract with Qualcomm, the development
of Globalstar Phones and Globalstar's continuing in-house engineering. This
compares with $62.9 million of development costs incurred during 1995. The
decline during the current year is primarily the result of the cost sharing
arrangement in Globalstar's contract with Qualcomm reaching its funding limit in
April 1996.
Marketing, general and administrative expenses were $18.9 million for the
year ended December 31, 1996 as compared to $17.4 million incurred during the
year ended December 31, 1995.
Comparison of Results for the Year Ended December 31, 1995 to the Period March
23, 1994 (commencement of operations) to December 31, 1994
The net loss for the year ended December 31, 1995 increased to $68.2
million from $26.2 million in the period March 23, 1994 (commencement of
operations) to December 31, 1994 (the "Prior Period"), primarily due to
increased operating expenses partially offset by increased interest income.
Interest income for the year ended December 31, 1995 was $12.0 million as
compared to $1.8 million earned during the Prior Period. Interest income
increased significantly from the Prior Period as a result of higher cash
balances invested due to the sale of 10,000,000 partnership interests to GTL for
$185.8 million during the first quarter and the receipt of payments against
capital subscriptions of $133.8 million.
Operating Expenses. Development costs of $62.9 million for the year ended
December 31, 1995, represent the development of certain technologies under a
cost sharing arrangement in Globalstar's contract with Qualcomm, the development
of Globalstar Phones and Globalstar's continuing in-house engineering. This
compares with $21.3 million of development costs incurred during the Prior
Period. The increase as compared to the Prior Period is primarily related to the
technologies being developed under the cost sharing arrangement with Qualcomm.
Marketing, general and administrative expenses were $17.4 million for the
year ended December 31, 1995 as compared to $6.7 million incurred during the
Prior Period. The increase from the Prior Period is a result of both increased
marketing and personnel costs consistent with the higher level of activity at
Globalstar.
FINANCIAL ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
which is required to be adopted for fiscal periods ending after December 15,
1997. SFAS 128 establishes the accounting standards for computing and presenting
earnings per share. Globalstar believes that the adoption of SFAS 128 will not
have a material effect on the reported loss per ordinary partnership interest of
Globalstar.
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<PAGE> 40
BUSINESS
BUSINESS OVERVIEW
Globalstar is building and preparing to launch and operate a LEO
satellite-based digital telecommunications system designed to enable local
service providers to offer low-cost, high quality wireless voice telephony and
data services in virtually every populated area of the world. Globalstar's
designated service providers have agreed to offer Globalstar service and seek to
obtain all necessary local regulatory approvals in more than 100 nations,
accounting for approximately 88% of the world's population.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services to millions of
people who currently lack basic telephone service and to enhance wireless
telecommunications in areas underserved or not served by existing or future
cellular systems, providing a telecommunications solution in parts of the world
where the build-out of terrestrial systems cannot be economically justified. The
Globalstar System has been designed to provide services at prices comparable to
today's cellular service and substantially lower than the prices announced by
Globalstar's anticipated principal competitors. Globalstar service providers
will set their own retail pricing in their assigned service territories and will
pay Globalstar approximately $0.35 to $0.55 per minute on a wholesale basis.
Globalstar users will make and receive calls through a variety of
Globalstar phones, including hand-held and vehicle-mounted units similar to
today's cellular telephones, fixed telephones similar either to phone booths or
ordinary wireline telephones, and data terminals and facsimile machines.
Dual-mode and tri-mode Globalstar Phones will provide access to both the
Globalstar System and the subscriber's land-based cellular service. Each
Globalstar Phone will communicate through one or more satellites to a local
Globalstar service provider's interconnection point (known as a gateway) which
will, in turn, connect into existing telecommunications networks.
As of June 15, 1997, each of the elements of the Globalstar System -- space
and ground segments, digital communications technology, user terminal supply,
service provider arrangements and licensing -- is on schedule to begin launching
satellites in the second half of 1997, to commence commercial operations in the
second half of 1998 and to have a full constellation of 48 satellites
operational in the first quarter of 1999.
Space Segment. The first Globalstar satellite has been
fully-assembled and is now in pre-flight testing, and another four
satellites are currently being assembled. Production is proceeding for the
remaining satellites to meet the scheduled operations date. Three different
launch providers have signed definitive agreements for the launch of the
Globalstar satellite constellation, providing a variety of launch options
and considerable launch flexibility. Mission operations preparations and
launch vehicle production and dispenser development are on schedule.
Ground Segment. The first four Globalstar gateways, which are
currently in advanced development and are to be located in Australia,
France, South Korea and the United States, are currently under
construction. These gateways will support Globalstar's data network,
monitor the initial launch and orbital placement of Globalstar's first
satellites, and serve as prototypes for production gateways that will
support Globalstar service. Globalstar's partners have placed purchase
orders for 35 gateways under contracts totaling approximately $275 million.
In addition, Globalstar's satellite operations control center facility has
been completed.
Digital Communications Technology. Qualcomm's CDMA technology has now
been successfully deployed in South Korea, Hong Kong and cities in the
United States supporting terrestrial personal communications services and
digital cellular service, and its CDMA implementation for Globalstar has
been successfully demonstrated in a simulated satellite environment. This
demonstration validated Globalstar's encoding, modulation, control
software, time and frequency distribution and up/down links between
satellites and handsets.
User Terminal Supply. Qualcomm/Sony and two other manufacturers,
Ericsson and TELITAL, are developing Globalstar's user terminals and
production orders are expected to be issued in the second half of 1997.
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<PAGE> 41
Service Providers. Globalstar and its partners have been seeking
alliances with service providers throughout the world and have entered into
a number of agreements in specific territories. Globalstar believes that
these relationships with in-country service providers will facilitate the
granting of local regulatory approvals -- particularly where the service
provider and the licensing authority are one and the same -- as well as
provide local marketing and technical expertise.
Licensing. In January 1995, the FCC granted authority for the
construction, launch and operation of the Globalstar System and assigned
spectrum for its user links. Later that year, the WRC95 allocated feeder
link spectrum on an international basis for MSS systems such as Globalstar,
and in November 1996 the FCC authorized Globalstar's feeder links.
Globalstar's current budget for the cost for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses is approximately $2.5 billion.
Globalstar has recently added enhanced capabilities and additional test
requirements and has experienced cost growth in the development of the ground
system, the final cost impact of which is under assessment. Globalstar, however,
does not expect such cost growth to increase the budget for the project by more
than five percent. Globalstar has raised or received commitments for
approximately $2.3 billion in equity, debt and vendor financing, which
represents approximately 91% of its current budget for completion of the
Globalstar System and commencement of worldwide operations.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost of $175 million. Further, in order to accelerate the
deployment of gateways around the world, Globalstar has agreed to finance
approximately $80 million of the cost of up to 32 of the 35 gateways ordered by
Globalstar service providers. Globalstar expects to recover its investment in
this gateway financing program from resale of the gateways to service providers.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many of them in rural areas where the cost of
installing wireline service is prohibitively high. Moreover, even where
telephone infrastructure is available in developing countries, outdated
equipment often leads to unreliable local service and limited international
access. The number of worldwide fixed phone lines has increased from 469 million
in 1988 to 753 million in 1996 and is projected to increase to 1.2 billion by
2002. Nonetheless, during the same period, waiting lists for fixed service have
increased from 30 million to 45 million, resulting in an average waiting time
before installation of approximately one and a half years. Similarly, the
cellular market has grown from four million worldwide subscribers in 1988 to an
estimated 123 million in 1995 and is projected to increase to 334 million by
2001. At that time, it is projected that only 40% of the world's population will
live in areas with cellular coverage. The remaining 60% of the world's
population will have access to wireless telephone service principally through
satellite-based systems like the Globalstar System. Globalstar believes that its
addressable market exceeds 30 million people.
The Globalstar System has been designed with attributes which Globalstar
believes compare favorably to other proposed global MSS systems including: (i)
Globalstar's unique combination of CDMA technology and path diversity through
multiple satellite coverage, which will reduce call interruptions and signal
blockage from obstructions and will use satellite power more efficiently; (ii) a
proven space segment design without complex intersatellite links or on-board
call processing and a ground segment with flexible, low-cost gateways and
competitively priced Globalstar Phones; (iii) lower average wholesale prices
than other proposed MSS systems and (iv) gateways installed in most major
countries, minimizing tail charges (i.e. amounts charged by carriers other than
the Globalstar service provider for connecting a Globalstar call through its
network), resulting in low costs for domestic and regional calls, which will
account for the vast majority of Globalstar's anticipated usage.
Loral is a principal founder of Globalstar and, through a subsidiary, is
its managing general partner. Loral owns, directly or indirectly, approximately
38% of Globalstar, on a fully diluted basis.
Other Globalstar strategic partners include leading domestic and
international telecommunications service providers and space and
telecommunications equipment manufacturers. In addition, Loral, Lockheed
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<PAGE> 42
Martin and certain strategic partners have guaranteed Globalstar's obligations
under the Globalstar credit agreement.
GLOBALSTAR STRATEGIC PARTNERS
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
System. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of CDMA digital telecommunications technology. Globalstar's other
strategic partners are:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT
SERVICE PROVIDERS AND AEROSPACE SYSTEMS MANUFACTURERS
----------------------------------------------- ---------------------------------------
<S> <C>
- AirTouch - Alcatel
- Dacom - Alenia
- France Telecom - DASA
- Vodafone - Finmeccanica
- Hyundai
- SS/L
</TABLE>
SS/L is providing the system's satellites under a fixed-price contract that
also requires SS/L to obtain launch services and launch insurance. Qualcomm is
designing and will manufacture Globalstar Phones and gateways and certain ground
support equipment.
BUSINESS STRATEGY
Globalstar's strategy for successful operation is based upon: (i) providing
potential users worldwide with high quality telecommunications services, (ii)
employing a system architecture designed to minimize cost and technological
risks and (iii) leveraging the marketing, operating and technical capabilities
of its strategic partners.
WORLDWIDE HIGH QUALITY SERVICE
To achieve rapid and sustained customer acceptance of the system, the
Globalstar System has been designed to provide a high quality, worldwide service
that combines the best of existing cellular service with the technological
advantages of the Globalstar System as described herein to meet the needs of
individual end users.
Worldwide Coverage and Access. The Globalstar System's worldwide coverage
has been designed to enable its service providers to extend modern
telecommunications services rapidly and economically to significant numbers of
people who currently lack basic telephone services and to enhance wireless
telecommunications in areas underserved or not served by existing or
contemplated cellular systems. Globalstar expects to provide a communications
solution in parts of the world where the build-out of terrestrial systems cannot
be economically justified. The Globalstar System has also been designed to
enable international travelers to make and receive calls at a unique telephone
number through their mobile Globalstar Phone anywhere in the world where
Globalstar service is authorized by local regulatory authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each mobile Globalstar Phone has been designed to communicate with as many as
three satellites simultaneously, combining the signals received to ensure
maximum service quality. As satellites are constantly moving in and out of view,
they will be seamlessly added to and removed from the calls in progress, thereby
reducing the risk of call interruption.
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<PAGE> 43
Superior Call Quality; Increased Privacy. Based on terrestrial simulations
of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital
technology will enable Globalstar to provide digital voice services which will
have clarity, quality and privacy similar to those of existing digital
land-based cellular systems. Qualcomm's CDMA technology, which is available to
Globalstar on an exclusive basis for commercial MSS applications, has also been
selected for digital cellular service by 12 of the 15 largest U.S. cellular
service providers and the two largest providers of PCS services in the U.S. (by
population served).
Efficient Use of Satellite Resources. The Globalstar System's use of
multiple satellites to communicate with each Globalstar Phone (a patented SS/L
method of signal reception not available to competing systems) has been designed
to allow its communications signals to bypass obstructions. Path diversity is
expected to permit Globalstar to maintain its desired level of service quality
while using less power and satellite resources than would be required in a
system using single path satellites, which attempt to penetrate obstructions by
using higher single satellite power and overall higher link margins.
No Voice Delay. Globalstar satellites' low-earth orbits of 750 nautical
miles are expected to result in no perceptible voice delay, as compared with the
noticeable time delay of calls utilizing geosynchronous satellites, which orbit
at an altitude of 22,500 nautical miles. Globalstar believes that its system
will also entail noticeably less voice delay than medium-earth orbit MSS systems
and, in many cases, than LEO systems requiring on-board satellite call
processing to support satellite-to-satellite switching systems.
EMPLOYING A SYSTEM ARCHITECTURE DESIGNED TO MINIMIZE COST AND RISK
Simple, Cost-Effective System Architecture. To achieve low cost, reduce
technological risk and accelerate its deployment, Globalstar has devised a
system architecture using small satellites incorporating well-established design
features, and located the system's call processing and switching operations on
the ground, where they are accessible for maintenance and can benefit from
continuing technological advances. Hand-held and vehicle-mounted Globalstar
Phones are anticipated to be priced comparably and will be similar in function
to current digital cellular telephones. Dual-mode and tri-mode Globalstar Phones
will be able to access both Globalstar and a variety of local land-based analog
and digital cellular services, where available. Multiple manufacturers will be
licensed to manufacture Globalstar Phones in order to promote competition and
reduce prices. Globalstar gateways have been competitively priced in order to
encourage the placement of one or more gateways in each country served, thus
reducing tail charges for the terrestrial portion of each call.
Low-Cost Service. Globalstar intends to offer its service providers
effective average prices substantially lower than those announced by its
anticipated principal competitors. Globalstar's service providers will set their
own retail pricing and will pay to Globalstar wholesale prices generally
expected to range between $0.35 and $0.55 per minute. As a result of its pricing
commitments to its service providers or as a result of competitive pressures,
Globalstar may not be in a position to pass on to its service providers
unexpected increases in the cost of constructing the Globalstar System. However,
Globalstar believes that its low system and operating costs and high gross
margins at target pricing and usage levels provide it with substantial
additional pricing flexibility if necessary to meet competition.
Simple Space Segment of Proven Design. Globalstar believes its system will
cost less to design and construct and may be the first of the proposed worldwide
systems to provide commercial service. To achieve low cost, reduce technological
risk and accelerate deployment of the Globalstar System, Globalstar's system
architecture uses small satellites incorporating a well-established repeater
design that acts essentially as a simple "bent pipe," relaying signals received
directly to the ground. All of the system's call processing and switching
operations are on the ground, where they are accessible for maintenance and can
benefit from continuing technological advances. The Globalstar space segment is
being manufactured under a fixed-price contract with SS/L. The contract provides
for the construction of 56 satellites meeting designated performance
specifications and for SS/L to obtain launch services and launch insurance.
Flexible, Low-Cost Ground Segment. Globalstar has been designed to offer
local governments and service providers affordable telephone infrastructure
where the cost of build-out of land-based wireline or wireless telephone systems
is either too great or not economically justifiable. By purchasing a single
gateway for approximately $3 million to $8 million (depending on the capacity
desired), a service provider can extend
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basic telephone service to fixed terminals on a national basis in countries as
large as Saudi Arabia and mobile service to cover an area almost as large as
Western Europe. As a result of the low cost of its gateways, Globalstar expects
that its service providers will install gateways in most of the major countries
in which they offer service. Each country with a Globalstar gateway will have
access to domestic service without the imposition of international tail charges
on in-country calls, thereby offering subscribers the lowest possible cost for
domestic calls, which account for the vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Hand-held and vehicle-mounted
Globalstar Phones are anticipated to be priced comparably and will be similar in
function to current digital cellular telephones. Moreover, mobile Globalstar
Phones will use less power on average than conventional analog cellular
telephones and are therefore expected to enjoy longer battery life. Dual-mode
and tri-mode Globalstar Phones will be able to access both Globalstar and a
variety of local land-based analog and digital cellular services, where
available. Mobile and fixed Globalstar Phones are expected to cost less than
$750 each, and Globalstar public telephone booths are expected to cost between
$1,000 and $2,500, depending upon desired capacity and the number of units
sharing a fixed antenna. Qualcomm is required to license three additional
manufacturers of Globalstar Phones and has recently granted a license to each of
Ericsson and TELITAL for such purpose; Globalstar believes that licensing
multiple manufacturers will spur competition, which will reduce prices. As is
the case with many cellular systems today, service providers may subsidize the
cost of Globalstar Phones to generate additional usage revenue. In addition,
national and local governments may subsidize some or all elements of system
cost, particularly in rural areas, thereby reducing the cost of access to
subscribers.
LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS
Loral has overall management responsibility for the design, construction,
deployment and operation of the Globalstar System. Globalstar's strategic
partners will play key roles in the design, construction, operation and
marketing of the Globalstar System.
Telecommunications service providers AirTouch, Dacom, France Telecom and
Vodafone are providing in-country marketing and telephony expertise to
Globalstar. Globalstar's strategic partner service providers have been granted
exclusive rights to provide Globalstar service in 71 countries around the world
in which they have particular marketing strength and experience and access to an
established customer base of 60 million subscribers. Six additional service
providers have agreed to offer Globalstar service in 32 additional countries. To
maintain their service provider rights on an exclusive basis, these service
providers and additional service providers are required to make minimum payments
to Globalstar equal to 50% of target revenues. Based upon current targets (which
are subject to adjustment in 1998 based upon an updated market analysis), such
minimum payments total approximately $5 billion through 2005. In order to
accelerate the deployment of gateways around the world, Globalstar has agreed to
finance approximately $80 million of the cost of up to 32 of the 35 gateways
ordered by Globalstar service providers. Globalstar expects to recover its
investment in this gateway financing program from resale of the gateways to
service providers. There can be no assurance that the service providers will
elect to retain their exclusivity and make such payments or place such orders
for Globalstar Phones and gateways.
Globalstar expects to add additional service providers in order to provide
coverage throughout the world. Each service provider will, subject to obtaining
required local regulatory approvals, market and distribute Globalstar service in
its designated territories and own and operate the gateways necessary to serve
its markets.
Telecommunications equipment and aerospace systems manufacturers SS/L,
Alcatel, Alenia, DASA, Finmeccanica and Hyundai have contracted to design, build
and deploy the Globalstar System. Qualcomm, using its CDMA technology, is
designing and will manufacture Globalstar Phones and gateways and has primary
responsibility, along with Globalstar, for the design and implementation of the
ground operations control centers ("GOCCs"). Qualcomm's CDMA technology is
available to Globalstar on an exclusive basis for commercial MSS satellite
applications. SS/L is performing under a fixed-price contract for the
construction of Globalstar's satellites in conjunction with Aerospatiale,
Alcatel, DASA, Finmeccanica and Hyundai.
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THE GLOBALSTAR SYSTEM
Globalstar intends to offer low-cost, high quality telecommunications
services throughout the world. The Globalstar System will be comprised of its
48-satellite LEO constellation (together with eight on-orbit and eight
additional spare satellites) and a Ground Segment consisting of two SOCCs and
two GOCCs, Globalstar gateways in each region served, and mobile and fixed
Globalstar Phones. Globalstar will own and operate the satellite constellation,
the SOCCs and the GOCCs, as well as four gateways; the remaining elements of the
system will be owned by Globalstar's service providers and their subscribers.
The descriptions of the Globalstar System are based upon current design and are
subject to modification in light of future technical and regulatory
developments.
Globalstar Services and Globalstar Phones. Globalstar's most important
service will be voice telephony service, which Globalstar is expected to offer
through telephone booth-like installations and other fixed telephones located in
areas without any landline or cellular telephone coverage, and through hand-held
and vehicle-mounted Globalstar Phones, similar to existing cellular telephones.
Globalstar is also expected to offer paging, facsimile and messaging services
and position location capabilities, which may be integrated with its voice
services or marketed separately, as well as environmental and asset monitoring
from remote locations and other forms of data transmission.
Voice Services
Based on terrestrial simulations of the Globalstar System, Globalstar
expects that its digital voice services will have clarity, quality and privacy
similar to those of existing digital land-based cellular systems. Moreover, the
system has been designed to minimize call interruptions ("dropped calls")
resulting from movements on the part of the user or the satellites. Globalstar
is expected to offer the full range of voice services provided by modern
land-based telephone networks, including options such as call forwarding,
conferencing, call waiting, call transfer and reverse charging ("collect
calls"). Globalstar's voice services will be digital in nature and therefore
difficult for unauthorized listeners to intercept and decode and, as a result,
will be more secure than those offered by analog systems such as existing
cellular telephones. The Globalstar System will function best when there is an
unobstructed line-of-sight between the user and one or more of the Globalstar
satellites overhead. Competing systems without Globalstar's path diversity
depend on each user maintaining contact with a single satellite. Obstacles such
as buildings, trees or mountainous terrain may degrade service quality, more so
than would be the case with terrestrial cellular systems, and service may not be
available in the core of high-rise buildings.
By planning for volume production and utilizing commercially available
off-the-shelf components where possible, Globalstar expects that its Globalstar
Phones, unlike those of certain other proposed MSS systems, will be priced
comparably to current state-of-the-art digital cellular telephones. Qualcomm has
agreed to design and manufacture a number of versions of Globalstar Phones. It
has granted a license to manufacture Globalstar Phones to each of Ericsson and
TELITAL and has agreed to license at commercially reasonable royalty rates at
least one additional qualified Globalstar Phone manufacturer.
Fixed Globalstar Phones for No-Telephone Areas. The majority of the
world's population does not have access to any of the basic telephone services
that are available to most residents of developed nations. Public installations
of one or more Globalstar Phones, configured as telephone booths and powered by
local generators or solar panels connected to a directional antenna aimed at the
satellites overhead, would be important resources for remote villages currently
lacking basic telephone service. Government officials, among other individuals,
as well as commercial enterprises in remote areas such as mining and logging
operations, are expected to utilize fixed Globalstar Phones which will operate
like landline telephones, but will be connected to directional Globalstar
antennas. Directional antennae also provide for more efficient use of the
system's capacity.
Mobile Globalstar Phones for No-Cellular Areas. In certain regions,
land-based cellular systems cannot be economically justified because of their
population density or geographic characteristics. As a satellite-based system
with worldwide coverage, Globalstar can efficiently offer both hand-held and
vehicle-mounted mobile service in these areas through its single-mode mobile
Globalstar Phones. These units are expected to be
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similar in function and cost to today's full-featured cellular telephones.
Unlike any cellular telephone in existence today, however, these units will have
the ability to operate (both for making and receiving calls) in virtually every
inhabited area of the world where Globalstar service is authorized.
Globalstar mobile terminals will all be equipped with omnidirectional
antennas, similar to cellular telephone antennas, that connect equally well
regardless of the direction in which they are pointed. Each mobile terminal will
communicate with all satellites in view and will have the built-in signal
processing intelligence to constantly seek out and select the strongest signal
transmitted from overhead, combining the signals received to ensure maximum
service quality. Further, Globalstar Phones will automatically vary their power
output as necessary to maintain call quality and connectivity. As a result of
this efficiently-managed power system, mobile Globalstar Phones are expected to
draw less power, on average, than conventional cellular telephones and are
therefore expected to enjoy longer battery life.
Dual-Mode and Tri-Mode Globalstar Phones for Local and Global
Roaming. Current cellular system subscribers who need a mobile telephone that
also works when they travel to areas without compatible cellular coverage (or
that have no cellular coverage at all) will be offered Globalstar service
through dual-mode and tri-mode handsets and vehicle-mounted units. Dual-mode and
tri-mode telephones will also permit the user to access Globalstar service when
cellular access is temporarily blocked by interference, terrain or
over-capacity. Like Globalstar's single-mode mobile telephones, dual-mode and
tri-mode telephones will enable the user to make and receive calls through a
unique access number anywhere in the world where service is authorized.
Dual-mode and tri-mode Globalstar Phones can be programmed by the service
provider to automatically utilize the chosen land-based cellular service
whenever it is available and to otherwise process the call through Globalstar;
they can also be programmed for manual selection between Globalstar and the
land-based cellular system. Dual-mode and tri-mode Globalstar Phones are being
developed for the most widely-based conventional cellular modulation. The
dual-mode pairs are expected to include: Globalstar/CDMA, Globalstar/Advanced
Mobile Phone Systems (AMPS) and Globalstar/Global System for Mobile
Communications (GSM).
Other Services
Messaging and Paging Services. In addition to supporting voice services,
the Globalstar System is also expected to function as a worldwide paging and
alphanumeric messaging service. Hand-held or vehicle-mounted Globalstar Phones
are currently being designed with a built-in paging and messaging feature that
allows the user to receive a page or a short alphanumeric message while the unit
is in a very-low-power "quiet listening only" mode. Separate Globalstar
messaging and paging units may also be developed by Globalstar or by third party
vendors. The Globalstar System can readily support these functions without
taxing system resources since, as compared with voice services, messages and
pages have a relatively low data content and do not require instantaneous,
two-way transmission.
Remote Monitoring. Globalstar data terminals integrated with automatic
sensing equipment of various kinds can provide a continuous stream of valuable
information concerning natural events such as weather conditions, seismic shifts
and forest fires, as well as the condition of remote assets, such as oil and gas
pipelines and electric utility transmission lines.
Facsimile and Other Data Services. The Globalstar System is expected to
support fax traffic, as well as transmissions of digital computer data.
Position Location. Frequent, accurate readings of position location for
large numbers of vehicles is critical information for the efficient management
of fleets of trucks and railcars. Qualcomm's OmniTRACS system, which relays
position location information to a central location and offers messaging
capabilities, is expected to be deployed on the Globalstar System and offered to
Globalstar service providers to address this need.
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SATELLITE CONSTELLATION
Globalstar service will be delivered through a constellation of 48 small,
low-cost LEO satellites orbiting the earth in eight circular inclined planes
with six satellites per plane which will provide a clear communications link
with the Globalstar Phones and gateways below. Each satellite will transmit 16
spot beams, which will generate coverage cells on the surface of the Earth for
links between users and gateways via the satellites. Each satellite's coverage
area will have a typical diameter of 3,600 miles on the Earth's surface,
resulting in an average area covered per satellite of approximately ten million
square miles, an area larger than the area of China or the United States. Each
spot beam will cover an average area of approximately 600,000 square miles, an
area larger than that of any state in the United States or any country in
Western Europe.
Path Diversity from Multiple Satellites. The satellite constellation will
orbit the Earth in a coordinated pattern 750 nautical miles above the surface of
the Earth designed to provide users with continuous overlapping coverage from
multiple satellites with diverse angles of view or "path diversity." The
satellites will provide multiple-satellite global coverage in all areas of the
world except for a small portion of the polar regions. This constellation and
orbital plane design is expected to improve service quality significantly
relative to current analog systems.
LEO satellites are in constant motion overhead, relative to a user on the
Earth's surface, and, as a result, the beam from the satellite transmitting a
call could be blocked at any time by a building or natural obstruction, placing
the user in the beam's shadow and interfering with or interrupting the call.
Similar effects may occur when a mobile user changes position. Globalstar Phones
can operate with a single satellite in view, although typically two to four
satellites will be overhead. This supports the benefits of path diversity for
mobile terminals and also means that, in contrast to medium-earth orbit ("MEO")
systems with fewer satellites and competing LEO systems lacking this feature,
the loss of individual satellites will usually not result in gaps in global
coverage. Globalstar's mobile terminals are designed to communicate with as many
as three satellites simultaneously, combining the signals received to provide
improved call quality and, when another satellite moves into an optimal
position, reliably "handing off" the call to such satellite without
interruption. This combination of path diversity and CDMA is a patented SS/L
technology designed to minimize call fading, resulting in fewer dropped calls
and higher overall call quality.
Low-Cost Satellites. Globalstar has chosen a satellite architecture
designed to offer reliable, high quality service and minimize technological
risks. Globalstar's satellites will incorporate a repeater design which will act
essentially as a "bent pipe," relaying received signals directly to the ground.
This design follows the proven philosophy used in all commercial communications
satellites currently in operation. Globalstar's call processing and switching
operations are on the ground, where they are accessible for maintenance and can
benefit from continuing technological advances. By contrast, competing systems
whose satellites switch calls in space from satellite to satellite require
on-board digital signal processing. Globalstar believes that this design results
in higher system costs and precludes the accessible maintenance and easy upgrade
to reflect technological advances which Globalstar can accomplish on the ground
without a need to launch replacement satellites. Globalstar also believes that
such systems' inherent ability to switch international calls in space, bypassing
local service providers, many of which are state-owned, may limit their
desirability in the eyes of some local regulatory authorities.
In addition to improving Globalstar's service quality, CDMA technology has
enabled Globalstar to reduce satellite costs. Because Globalstar's spectrum
modulation technology uses code division, rather than time division, to identify
and process signals, its transmission timing and orbital pathways need not be so
precisely controlled. Globalstar believes that the novel satellite crosslink and
time division multiple access ("TDMA") duplexing technology proposed by a
competitor requires additional power, transmission, timing and station-keeping
capabilities which Globalstar believes have contributed to that competitor's
higher total system cost.
No Perceptible Voice Delay. Globalstar expects that its combination of a
low-earth orbit and simple repeaters will reduce voice delays over its system to
between 150 and 200 milliseconds, a delay which is not perceptible to the
subscriber in a normal phone conversation. Voice delays are comprised of a
propagation delay, as signals move from the Earth to the satellite and back, and
processing delays on-board the satellite. By
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contrast, geosynchronous satellite communications entail a noticeable voice
delay of approximately 600 milliseconds. Globalstar expects, based on its own
analysis, that MEO systems such as TRW, Inc.'s Odyssey system ("Odyssey") and
Global Communications' ICO system ("ICO") may entail voice delays of between 250
and 300 milliseconds. Although a proposed TDMA system will have an orbit lower
than Globalstar's, thus reducing propagation delay somewhat, Globalstar believes
that in most cases this advantage will be more than offset by the additional
processing delay entailed by the proposed TDMA system's need to decode, recode,
perform echo cancellation and otherwise process signals in space and the need,
in many cases, for satellite-to-satellite linkages, with additional on-board
processing at each step. However, quality differentials may not be of
significant competitive importance in communications markets in developing
countries that currently lack even basic telephone coverage.
Constellation Life. The satellites in the first-generation constellation
are designed to operate at full performance for a minimum of 7 1/2 years, after
which time the cumulative effects of the space environment are expected to
gradually reduce operating performance. The constellation has been designed so
that the loss of a few satellites will, in most cases, not result in gaps in
global coverage. In order to provide additional assurance of system integrity in
the event of premature satellite failure, however, Globalstar plans to launch
eight spare satellites to be relocated in space as required.
Depending on the level of demand for services and the remaining effective
capacity of the first-generation constellation, a second generation of
satellites will be designed, built and launched. Globalstar currently expects to
place a second-generation constellation in service in 2004 and 2005. While the
precise technical capabilities and costs of the second generation of Globalstar
satellites cannot be currently foreseen, the second-generation constellation may
be designed with significantly greater call capacity than the first. In
connection with such an increase in call capacity, Globalstar may be required to
seek additional spectrum allocations from the applicable regulatory authorities.
There is no assurance that such spectrum, if requested, would be obtained.
Implementation and operation of a second-generation system will also require
obtaining U.S. and other regulatory authorizations, and there is no assurance
that these authorizations, if requested, would be obtained.
The Ground Segment
Globalstar's SOCCs will track and control the satellite constellation using
telemetry and command units located in various gateways around the world and
telemetry stations in two locations, at least one of which will be in the United
States. The SOCCs will control satellite orbit positioning, maneuvers and
station keeping, and will monitor satellite health and status in all subsystems.
The SOCCs will also plan and implement satellite lifecycle maintenance
procedures, including orbit adjustment maneuvers.
The GOCCs, which will be in continuous operation 24 hours a day, will be
responsible for planning and controlling satellite utilization by gateway
terminals and coordinating information received from the SOCCs. In addition to
these planning functions, the GOCCs will be responsible for monitoring system
performance, collecting information for billings to service providers and
ensuring that the gateways do not exceed allocated system capacity. The GOCCs
will be responsible for dynamically allocating system capacity among nearby
regions to optimally service changing patterns of demand. The primary SOCC and
primary GOCC will be located at Globalstar's headquarters, with backup
facilities at another location.
The gateway stations are the interconnection points between the Globalstar
satellite constellation and existing land-based telecommunications networks.
Each gateway will contain up to four tracking antennas and radio frequency front
ends that track the satellites orbiting in their view. A typical gateway is
expected to cost between $3 million and $8 million, depending upon the number of
subscribers being serviced by the gateway and assuming that the gateway will be
located at the site of an existing cellular or other appropriate
telecommunications switch. Each nation with at least one gateway within its
borders will have complete control over system access by users within its
territory. A single gateway is expected to be able to provide fixed coverage
over an area larger than Saudi Arabia and mobile coverage over an area almost as
large as Western Europe. As a result of the low cost of its gateways, Globalstar
expects that its service providers will install gateways in most of the major
countries in which they offer service. Each country with a Globalstar gateway
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will have access to domestic service without the imposition of international
tail charges, thereby offering subscribers the lowest possible cost for domestic
calls, which account for the vast majority of all cellular calls today. Full
global land-based coverage of virtually all inhabited areas of the globe could
theoretically be achieved with as few as 80 gateways. Globalstar believes,
however, that as many as 100 gateways may be required to minimize land-based
long-distance charges and to respect national boundaries.
Although Globalstar has commissioned the design of the gateways to be used
with the Globalstar System, ownership and operation of the gateways will be the
responsibility of service providers in each country or region in which
Globalstar operations are authorized. The gateway stations will be designed for
Globalstar by Qualcomm and manufacturing rights will be licensed by Qualcomm to
at least one third-party telecommunications equipment manufacturer. Globalstar
will acquire 35 gateways from Qualcomm for resale to service providers under
contracts totaling approximately $275 million. In order to accelerate the
deployment of gateways around the world, Globalstar has agreed to finance
approximately $80 million of the cost of up to 32 of the 35 gateways. Globalstar
expects to recover its investment in this gateway financing program from resale
of the gateways to service providers. See "Related Party
Transactions -- Qualcomm Agreement" and "Related Party Transactions -- Gateway
Program."
GLOBALSTAR SYSTEM CAPACITY
The estimated capacity of the Globalstar System is anticipated to be in the
range of approximately 800 million to 1 billion call minutes per month assuming
equal fixed and mobile usage. However, Globalstar's total effective system
capacity will depend on a number of variables. The number of call minutes per
month the system can support will depend primarily on (i) the total bandwidth
available to CDMA MSS systems, (ii) the number of systems sharing that
bandwidth, (iii) the total number of subscribers, (iv) the type of Globalstar
Phones (fixed or mobile) used and (v) the level of average system availability
required. Capacity will also depend upon a number of other variables, including
(i) the peak hour system utilization pattern, (ii) average call length and (iii)
the distribution of Globalstar Phones in use over the surface of the Earth.
COMPETITION
Competition in the telecommunications industry is intense, fueled by rapid
and continuous technological advances and alliances between industry
participants on an international scale. Although no present participant is
currently providing the same global personal telecommunications service proposed
by Globalstar, it is anticipated that one or more additional competing MSS
systems will be launched and that the success, or anticipated success, of
Globalstar and its competitors could attract other entrants. If any of
Globalstar's competitors succeed in marketing and deploying its system
substantially earlier than Globalstar, Globalstar's ability to compete in areas
served by such competitor may be adversely affected. A number of satellite-based
telecommunications systems not involved in the MSS Proceeding have also been
proposed using geosynchronous satellites and, in one case, the 2 GHz band for a
MEO system.
Globalstar's most direct competitors are the two other MSS applicants which
received FCC licenses, Iridium and Odyssey. Although Iridium launched the first
five of its 66 satellites in May 1997 and seven additional satellites on June
18, 1997, Globalstar does not believe that Iridium will be in service
substantially earlier than Globalstar's In-Service Date. Odyssey's launch date
is unknown. ICO was not an applicant or a licensee in the MSS proceeding or any
other proceedings before the FCC; it is seeking to operate in a different
frequency band not available for use by MSS systems under current international
guidelines in place until 2000. Comsat, the U.S. signatory to Inmarsat, has
applied to the FCC to participate in the procurement of facilities of the system
proposed by ICO. It has also sought FCC approval of a proposal to extend the
scope of services provided by Inmarsat, currently limited to maritime services,
to include telecommunication services to land-based mobile units. These
applications are currently pending before the FCC. Comsat has been instructed in
the past by the U.S. government to seek to ensure that ICO does not receive
preferred access to any market and that nondiscriminatory access to such areas
for all mobile satellite communications networks be established, subject to
spectrum coordination and availability. Nonetheless, because ICO is affiliated
with Inmarsat and because its investors include the state-owned
telecommunications monopolies in a number of countries, there can be no
assurance that ICO might not be given preferential treatment in the local
licensing
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process in those countries. It is also possible that one or more of the two
pending MSS applicants will demonstrate financial qualifications sufficient to
obtain an FCC license and become a competitor of Globalstar.
Geostationary-based satellite systems, including American Mobile Satellite
Corporation ("AMSC"), Asia Pacific Mobile Telecom ("APMT"), Afro-Asia Satellite
("ASC"), PTAsia Cellular Satellite ("ACeS"), Lockheed Martin's Satphone and
Comsat's Planet-1, plan to provide satellite-based telecommunications services
in areas proposed to be serviced by Globalstar. Certain of these systems are
being proposed by governmental entities. Because some of these systems involve
relatively simple ground control requirements and are expected to deploy no more
than two satellites, they may succeed in deploying and marketing their systems
before Globalstar. In addition, coordination of standards among regional
geostationary systems could enable these systems to provide worldwide service to
their subscriber base, thereby increasing the competition to Globalstar.
It is expected that as land-based telecommunications service expands to
regions currently not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems are
constructed at a more rapid rate than that anticipated by Globalstar, the demand
for Globalstar service may be reduced at rates higher than those assumed by
Globalstar. Globalstar may also face competition in the future from companies
using new technologies and new satellite systems. New technology could render
Globalstar obsolete or less competitive by satisfying consumer demand in
alternative ways, or through the introduction of incompatible telecommunications
standards. A number of these new technologies, even if they are not ultimately
successful, could have an adverse effect on Globalstar as a result of their
initial marketing efforts. Globalstar's business would be adversely affected if
competitors began operations or expanded existing operations in Globalstar's
target markets before completion of its system.
RESEARCH AND DEVELOPMENT
Globalstar has entered into a contract with Qualcomm whereby Qualcomm is
performing certain development tasks related to the Globalstar System. In
addition, Globalstar is performing certain in-house engineering tasks that are
classified as development costs. Total development expenses incurred for the
years ended December 31, 1996 and 1995 and the period from March 23
(commencement of operations) to December 31, 1994 were $42 million, $63 million
and $21 million, respectively.
PATENTS AND PROPRIETARY RIGHTS
At December 31, 1996, in connection with the Globalstar System,
Globalstar's design and development efforts have yielded ten patents issued and
22 patents pending in the United States, as well as four patents issued and more
then 130 patents pending internationally for various aspects of communication
satellite system design and implementation of CDMA technology relating to the
Globalstar System. Qualcomm has obtained 87 issued patents and 251 patents
pending in the United States applicable to Qualcomm's implementation of CDMA.
The issued patents cover, among other things, Globalstar's process of combining
signals received from multiple satellites to improve the signal received and
minimize call fading.
There can be no assurance that any of the pending patent applications by
Globalstar will be issued. Moreover, because the U.S. patent application process
is confidential, there can be no assurance that third parties, including
competitors of Globalstar, do not have patents pending that could result in
issued patents which Globalstar would infringe. In such an event, Globalstar
could be required to redesign its system or satellite, as the case may be, or
pay royalties to obtain a license, which could increase cost or delay
implementation of the system or construction of the satellite, as the case may
be.
EMPLOYEES
As of March 31, 1997, Globalstar had approximately 160 full-time employees,
none of whom is subject to any collective bargaining agreement.
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PROPERTIES
Globalstar currently leases approximately 66,000 square feet of office
space in San Jose, California. The lease expires in August 2000 and has options
to renew for up to an additional ten years. In addition, Globalstar leases
12,000 square feet for its back-up GOCC in El Dorado Hills, California. The
lease expires in November 2006 and has options to renew for up to an additional
six years. Globalstar believes that its facilities are adequate for its current
level of business.
LEGAL PROCEEDINGS
Globalstar is not a party to any pending legal proceedings material to its
financial condition or results of operations.
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REGULATION
UNITED STATES FCC REGULATION
The FCC is the United States agency with jurisdiction over commercial uses
of the radio frequency spectrum. All commercial MSS systems such as Globalstar
must obtain an authorization from the FCC to provide MSS services in assigned
spectrum segments in the United States. The FCC may also adopt from time to time
rules applicable to MSS systems, which may impose constraints on the operation
of Globalstar satellites, subscriber terminals and/or gateway earth stations.
The Globalstar System requires regulatory authorization for two pairs of
frequencies: user links (from the user to the satellites, and vice versa) and
feeder links (from the gateways to the satellites, and vice versa). On January
31, 1995, the FCC authorized the construction, launch and operation of the
Globalstar System and assigned bands of the radio frequency spectrum for the
user links. A modification of this authorization on November 19, 1996 assigned
feeder link frequencies. This license is held by L/Q Licensee, a subsidiary of
LQP which has agreed to use the FCC license exclusively for the benefit of
Globalstar. The FCC license grants authority to construct, launch and operate
the Globalstar System with user links in the 1.6 and 2.4 GHz bands, consistent
with the United States band plan for MSS Above 1 GHz Systems, and feeder link
frequencies in the 5 and 7 GHz bands. These feeder link frequencies were
allocated internationally for non-geostationary MSS feeder links at WRC '95, and
the FCC assigned them for use by Globalstar in the United States in accordance
with this international allocation. However, use of the feeder link frequencies
remains subject to any applicable restrictions which may be promulgated in an
FCC proceeding to adopt the international allocations into the U.S. Table of
Frequency Allocations.
The authorization granted by the FCC to LQP for Globalstar requires that
construction, launch and operation of the system must be accomplished in
accordance with the technical specifications set forth in the Globalstar FCC
application, as amended, and consistent with the FCC's rules unless specifically
waived. During the process of constructing the Globalstar System, there may be
certain modifications to the design set forth in the application on file with
the FCC which may require filing an application to modify the authorization.
There can be no assurance that the FCC will grant these requests or do so in a
timely manner. Denial of such requests or delay in grant of such requests could
adversely affect the performance of the Globalstar System or result in schedule
delays or cost increases. In addition, use and operation of Globalstar's feeder
and user links are subject to FCC regulations regarding interference protection
and coordination with other systems which may have an adverse effect on the
usefulness of such frequencies.
LQP's MSS application was one of six considered concurrently by the FCC. On
January 31, 1995, Motorola Satellite Communications, Inc. and TRW Inc. also were
granted FCC licenses for systems providing MSS Above 1 GHz Service.
Consideration of three other applications was deferred for over a year in order
to give the applicants time to establish their financial qualification to
receive an MSS license. Subsequently, one applicant withdrew from consideration,
and the other two amended their applications to submit new financial
information. Action on the two remaining applications is pending at the FCC.
Recently, Motorola, TRW and L/Q Licensee requested that the FCC investigate the
propriety of certain presentations to FCC staff made in support of MCHI, one of
the two pending applicants. Thereafter, MCHI asked the FCC to initiate an
investigation into the qualifications of Motorola, TRW and L/Q Licensee to hold
FCC licenses based on alleged abuse of the agency's processes. The FCC has taken
no action on this matter.
The FCC license only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar Phones in the
United States. Globalstar's authorized service provider in the U.S., AirTouch,
will apply for the required regulatory authorizations for gateways and
Globalstar Phones, and the manufacturer will apply for equipment authorization
for Globalstar Phones. Failure to obtain, or delay in obtaining, such licenses
would adversely affect the implementation of the Globalstar System. Similar
procedures are expected to apply internationally.
Globalstar proposes to operate on an international basis, but the FCC
license only authorizes construction and launch of the system for operation in
the United States. Even though the Globalstar System is licensed to
46
<PAGE> 53
operate in the United States by the FCC, in order to provide MSS service in
other countries, Globalstar or its service providers must obtain the required
regulatory authorizations in those countries. There can be no assurance that the
required regulatory authorizations will be obtained in any other country in
which Globalstar proposes to operate, or that they will be obtained in a timely
manner, or that, if granted, they will authorize MSS service on the same terms
as the U.S. license. Failure or delay in obtaining licenses for the Globalstar
System in other countries or grant of licenses on substantially different terms
and conditions would have an adverse effect on the operation of Globalstar.
The operation of Globalstar in the assigned user links and feeder links
must be coordinated with licensees of other existing radio services operating in
these bands in accordance with FCC and international rules and policies. Such
coordination may adversely affect the usefulness of the frequencies for
Globalstar operations. On January 9, 1997, the FCC adopted rules which make
available 300 MHz of bandwidth in the 5 GHz band, including frequencies from
5150 to 5250 MHz, for use by unlicensed devices for wireless high speed data
services. The FCC adopted rules which are designed to ensure that these devices
do not cause harmful interference with licensed services using these bands, such
as MSS feeder links. In the November 1996 order modifying the Globalstar
license, the FCC stated that Globalstar gateway earth station licenses may be
subject to sharing with unlicensed transmitters in accordance with rules adopted
in this proceeding. This proceeding is not yet final. There can be no assurance
that adoption of these rules as initially promulgated or as they may be modified
during the rulemaking process, would not have an adverse effect on the timing or
the adoption in the United States of the WRC '95 allocation for MSS feeder links
at 5 GHz or on the usefulness of these bands for MSS feeder links.
As a CDMA system, Globalstar must coordinate its operations in the United
States with other licensed MSS CDMA systems and the TDMA system. The FCC's band
plan provides that up to four CDMA systems may be licensed to operate in the 1.6
GHz and 2.4 GHz user links, but the FCC did not adopt specific guidelines for
coordination among CDMA systems. There may be an adverse effect on the
implementation of Globalstar depending upon the number of CDMA systems with
which it must coordinate and their willingness to coordinate in good faith and
in a timely manner. The CDMA systems must also coordinate with the TDMA system,
and there can be no assurance that such intersystem coordination would not have
an adverse effect on Globalstar operations. In May 1996, the FCC initiated a
notice-and-comment rulemaking to adopt rules governing procedures to authorize
service in the United States by satellite systems licensed by foreign countries.
If a foreign satellite system were authorized to operate in the United States on
frequencies assigned to Globalstar, additional coordination obligations may be
required.
In its Order adopting rules and policies for MSS Above 1 GHz Service, the
FCC stated that a license for MSS Above 1 GHz Service would impose
implementation milestones on licensed systems. In the November 1996 order
modifying the Globalstar license to assign feeder links, the FCC also imposed
these implementation milestones on Globalstar. If these milestones are not met,
the FCC has stated that the license would be deemed null and void. Globalstar's
current estimated implementation schedule falls within the milestones adopted by
the FCC. Delays in construction, launch or commencing operations of the
Globalstar System could result in loss of the FCC license. The FCC license will
be effective for 10 years from the date on which the licensee certifies to the
FCC that its initial satellite has been successfully placed into orbit and that
the operations of that satellite conform to the terms and conditions of its MSS
license. While a licensee may apply to replace its MSS license to continue
operations beyond the initial 10-year license term, there can be no assurance
that, if applied for, such a replacement license would be granted.
The rules and policies adopted for MSS Above 1 GHz Service in the Order
have been challenged in a judicial appeal and were the subject of petitions for
reconsideration at the FCC. On February 15, 1996, the FCC released an order
resolving petitions for reconsideration of the Order. Three petitions seeking
further reconsideration or clarification of the Order on reconsideration have
been filed and remain pending. Judicial appeals regarding the FCC's decision on
the petitions for reconsideration may also be filed. In the event that the FCC
were to be judicially required to reconsider its licensing procedures as a
result of the pending judicial appeal, or an appeal of the orders on
reconsideration, there is a risk that the FCC would reprocess the MSS applicants
and adopt a different licensing procedure. Under these circumstances, there can
be no assurance that the FCC would not use an auction procedure to award
licenses. If the FCC were to use an auction
47
<PAGE> 54
procedure, there can be no assurance that Globalstar or its affiliates would be
willing or able to outbid other applicants to obtain a license for the spectrum
needed to operate the Globalstar System. In addition, even if Globalstar or its
affiliates were successful in obtaining an MSS license in the spectrum auction,
the increased cost and expenses incurred in bidding for the license would
adversely affect Globalstar.
Applicable statutes and regulations permit a judicial appeal of the grant
of the FCC license in order to seek reversal of the FCC's decision to grant the
license. Petitions for reconsideration and an application for review of the
order granting the FCC license were filed and have been denied. Two judicial
appeals of the order resolving these petitions have been filed and remain
pending. There can be no assurance that such appeals will not be granted, or
that the court will take timely action. If such an appeal were successful, there
can be no assurance that on remand the FCC would not decide to deny the
application for the Globalstar System, or that on remand the FCC would take
action on the application in a timely manner.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Globalstar's operations will fall within the scope of these
regulations. As a result, Globalstar may have to restrict access to that
information.
EXPORT REGULATION
From time to time, Globalstar requires import licenses and general
destination export licenses to receive and deliver components of the Globalstar
System.
The United States Department of Commerce has imposed restrictions on
certain transfers of technology, including rocket technology, to certain
republics of the former Soviet Union. Because Globalstar's launch strategy
contemplates using Russian and Ukrainian launch providers with launch sites
located in Kazakhstan, special export licenses are required to be obtained by
SS/L in connection with these launches.
While Globalstar and SS/L have received informal confirmations from various
governmental officials that all necessary permits should be forthcoming, and
Globalstar has no reason to believe such permits will not be obtained, there can
be no assurance that such export licenses will be granted, or, once granted,
that the United States will not impose additional restrictions or trade
sanctions against republics of the former Soviet Union in the future that would
adversely affect the planned launches of the Globalstar satellite constellation.
The Export Administration Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology that are not affected by the
International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Globalstar's
ability to deploy the satellite constellation, the export or re-export of
Globalstar Phones, as well as gateways and related equipment and technical data,
may be subject to these regulations, if such equipment is manufactured in the
United States and then exported or re-exported. These regulations may also
affect the export, from one country outside the United States to another, of
United States-origin technical data or the direct products of such technical
data. As a result, Globalstar may not be able to ensure the unrestricted
availability of such equipment or technical data to certain customers and
suppliers. Globalstar does not believe that these regulations will have a
material adverse effect on its operations.
INTERNATIONAL COORDINATION
The Globalstar System proposes to operate in frequencies which were
allocated on an international basis for MSS user links at WARC '92 and for MSS
feeder links at WRC '95. Globalstar is required to engage in international
coordination procedures with other proposed MSS systems under the aegis of the
ITU. Globalstar and the two other U.S. MSS licensees have entered into an
agreement pursuant to which they have
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<PAGE> 55
agreed to promote the FCC's spectrum allocation plan before other governmental
and international bodies and to seek authorization for "landing rights" based on
that plan.
Because Globalstar's proposed feeder link bands are allocated on an
international basis for LEO MSS feeder links, foreign LEO MSS systems may also
seek to use these bands for MSS feeder links. ICO has filed with the ITU its
plans to use the same feeder link spectrum as Globalstar. Globalstar will be
required to coordinate the use of its feeder links with ICO and any other
foreign system which has similar plans. Both a Russian and a Brazilian LEO MSS
system have filed with the ITU their intention to use the same feeder link
spectrum as Globalstar. There can be no assurance that such coordination will
not adversely affect the use of these bands by Globalstar.
Pursuant to the Intelsat and Inmarsat treaties, international satellite
operators are required to demonstrate that they will not cause economic or
technical harm to Inmarsat or Intelsat and to coordinate with Intelsat and
Inmarsat under obligations imposed on United States satellite systems by
international treaties. Globalstar will engage in technical coordination of its
feeder downlinks with Intelsat, which uses the same frequency band for an
uplink. Globalstar believes that the proposed provision of competitive MSS
service by ICO, in which Inmarsat is a significant investor, may effectively
eliminate the requirement to demonstrate lack of economic harm. Globalstar
expects such coordination to be successful.
EUROPEAN UNION
European Union competition law proscribes agreements that have the effect
of appreciably restricting or distorting competition in the European Union.
Globalstar and others have responded to an inquiry from the Commission of the
European Union requesting information regarding their activities. On December
18, 1996, the Commission issued a decision concluding that the Iridium System is
not inconsistent with European Union competition law and policy. A violation of
European Union competition law could subject Globalstar to fines or enforcement
actions that could result in expenses to Globalstar, delay the commencement of
Globalstar service in Western Europe, and/or depending on the circumstances,
adversely affect Globalstar's contractual rights vis-a-vis its European
strategic partners. In addition, the Commission has proposed legislation at the
European Union level which, if adopted, would give the Commission broad
regulatory authority over satellite telecommunications systems such as the
Globalstar System. The legislation proposed by the Commission of the European
Union is under reconsideration at the direction of the European Union ministers,
and Globalstar is unable to predict what effect, if any, the results of any
inquiry or proposed legislation may have on Globalstar's operations.
REGULATION OF SERVICE PROVIDERS
In order to operate gateway earth stations, including the user uplink
frequency, the Globalstar service provider in each country will be required to
obtain a license from that country's telecommunications authority. In addition,
the Globalstar service provider will need to enter into appropriate
interconnection and financial settlement agreements with local and interexchange
telecommunications providers. Globalstar intends to use in-country service
providers to facilitate the obtaining of such licenses and agreements. In
October 1996 the ITU's Policy Forum on Global Mobile Personal Communications by
Satellite adopted a set of voluntary principles which, if enacted or adopted by
individual countries, would help facilitate the licensing of in-country service
providers.
Although many countries have moved to privatize the provision of
telecommunications service and to permit competition in the provision of such
service, some countries continue to require that all telecommunications service
be provided by a government-owned entity. While service providers have been
selected, in part, based upon their perceived qualifications to obtain the
requisite local approvals, there can be no assurance that they will be
successful in doing so. If a service provider does not obtain a license,
Globalstar will have the right to substitute another service provider to attempt
to obtain such a license, but if no service provider in a territory is
successful in obtaining the requisite local authorization, Globalstar service
will not be available in such territory. In that event, depending upon
geographical and market considerations, Globalstar may or may not have the
ability to redirect the system capacity that such territories would have
otherwise used to serve territories in which service is authorized.
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<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of
Globalstar and Globalstar Capital as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Bernard L. Schwartz*........... 71 Chairman and Chief Executive Officer of Globalstar
Capital; Chief Executive Officer and Chairman of the
General Partners' Committee of Globalstar
Michael B. Targoff*............ 52 President, Chief Operating Officer and Director of
Globalstar Capital; Chief Operating Officer of
Globalstar and Member of the General Partners'
Committee of Globalstar
Michael P. DeBlasio............ 60 Senior Vice President, Chief Financial Officer and
Director of Globalstar Capital; Senior Vice President
of Globalstar
Nicholas C. Moren.............. 50 Vice President and Treasurer of Globalstar Capital;
Vice President and Treasurer of Globalstar
Harvey B. Rein................. 43 Vice President and Controller of Globalstar Capital;
Vice President of Globalstar
Thomas B. Ross................. 66 Vice President, Government Relations of Globalstar
Eric J. Zahler................. 46 Vice President and Secretary of Globalstar Capital;
Vice President and Secretary of Globalstar
Douglas G. Dwyre............... 64 President of Globalstar
Anthony J. Navarra............. 49 Executive Vice President, Business Development of
Globalstar
William Adler.................. 50 Vice President and General Counsel of Globalstar
Terry R. Evans................. 49 Vice President, Business Planning and Administration
of Globalstar
Robert Hicks................... 52 Vice President, Operations of Globalstar
Edward Hirshfield.............. 59 Vice President, Development and Production of
Globalstar
Joel Schindall................. 55 Vice President of Systems Applications for Globalstar
Robert A. Wiedeman............. 59 Vice President, Engineering of Globalstar
Stephen C. Wright.............. 40 Vice President and Chief Financial Officer of
Globalstar
Sir Ronald Grierson*........... 75 Member of the General Partners' Committee of
Globalstar
A. Robert Towbin*.............. 62 Member of the General Partners' Committee of
Globalstar
Malvin A. Ruderman............. 69 Member of Globalstar Audit Committee
E. Donald Shapiro.............. 64 Member of Globalstar Audit Committee
Thomas J. Stanton, Jr. ........ 68 Member of Globalstar Audit Committee
</TABLE>
- ---------------
* Member of the Globalstar General Partners' Committee. Messrs. Grierson and
Towbin are the Independent Representatives.
Mr. Schwartz has been the Chairman and Chief Executive Officer of GTL since
its initial public offering in 1995, Chairman and Chief Executive Officer of
Globalstar Capital since its formation in July 1995 and Chief Executive Officer
and Chairman of the General Partners' Committee of Globalstar since 1994. Mr.
Schwartz has been the Chairman and Chief Executive Officer of Loral since March
1996 and had been Chairman and Chief Executive of Old Loral since 1972. He has
been Chairman of the Board of Directors of SS/L since February 1991. He is also
Chairman and Chief Executive Officer of K&F Industries, Inc., as well as a
director of Reliance Group Holdings, Inc. and certain of its subsidiaries,
Sorema International Holding N.V. and First Data Corporation. Mr. Schwartz is
also a Trustee of New York University Medical Center.
Mr. Targoff has been President, Chief Operating Officer and a director of
GTL and Globalstar Capital and Chief Operating Officer of Globalstar since May
1996, and a member of the General Partners' Committee of Globalstar since 1994.
From GTL's initial public offering in 1995 and Globalstar Capital's formation in
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<PAGE> 57
July 1995 until May 1996, Mr. Targoff was Senior Vice President, Secretary and a
director of GTL and Globalstar Capital, respectively, and from 1994 until May
1996, Mr. Targoff was Senior Vice President and Secretary of Globalstar. Mr.
Targoff has been President and Chief Operating Officer of Loral since March 1996
and had been Senior Vice President and Secretary of Old Loral since 1992. Prior
thereto, he held other executive officer positions with Old Loral. Mr. Targoff
is also a director of SS/L.
Mr. DeBlasio has been Senior Vice President, Chief Financial Officer and
Director of GTL since May 1996, Senior Vice President, Chief Financial Officer
and Director of Globalstar Capital since its formation in July 1995 and Senior
Vice President of Globalstar since 1994. Mr. DeBlasio has been Senior Vice
President and Chief Financial Officer of Loral since March 1996 and had been
Senior Vice President, Finance and Chief Financial Officer of Old Loral since
1979. Mr. DeBlasio is also a director of SS/L.
Mr. Moren has been Vice President and Treasurer of GTL since its initial
public offering in 1995, Vice President and Treasurer of Globalstar Capital
since its formation in July 1995 and Vice President and Treasurer of Globalstar
since 1994. Mr. Moren has been Vice President and Treasurer of Loral since March
1996 and had been Vice President and Treasurer of Old Loral since April 1991.
Mr. Rein has been Vice President and Controller of GTL and Vice President
of Globalstar since May 1996. Mr. Rein has been Vice President and Controller of
Loral since June 1996 and of Globalstar Capital since its formation in July 1995
and had been Assistant Controller of Old Loral since 1985.
Mr. Ross has been Vice President, Government Relations of GTL and
Globalstar since November 1996. From June 1995 to November 1996, Mr. Ross was
Vice President, Communications of GTL and Globalstar. Mr. Ross has also been
Vice President, Government Relations of Loral since November 1996. From March
1996 to November 1996, Mr. Ross was Vice President, Communications of Loral.
From April 1994 to May 1995, he served at the White House as Special Assistant
to the President and Senior Director of Public Affairs for the National Security
Council. From January 1992 to April 1994, he was Senior Vice President and
Director of Media Relations for Hill & Knowlton.
Mr. Zahler has been Vice President and Secretary of GTL and Globalstar
since May 1996 and Vice President and Secretary of Globalstar Capital since its
formation in July 1995. From 1994 to May 1996, Mr. Zahler had been Vice
President and Assistant Secretary of Globalstar. Mr. Zahler has been Vice
President, Secretary and General Counsel of Loral since March 1996 and had been
Vice President and General Counsel of Old Loral since 1992. Prior to that time,
he was a partner in the law firm of Fried, Frank, Harris, Shriver & Jacobson.
Mr. Dwyre has been President of Globalstar since March 1994. Mr. Dwyre has
been Senior Vice President of GTL since May 1996 and, prior thereto, had been
Vice President of GTL since its initial public offering in 1995. Mr. Dwyre was
President of Northern Telecom's STC Submarine Systems from 1988 to 1992.
Mr. Navarra has been Executive Vice President, Business Development of
Globalstar since March 1994 and Vice President of GTL since its initial public
offering in 1995. He was Executive Vice President, Business Development at Loral
Aerospace Corp. from 1992 to 1994. He was Vice President of Marketing at
Loral/ROLM MilSpec Corp., a subsidiary of Old Loral, from 1987 to 1992.
Mr. Adler has been Vice President and General Counsel of Globalstar since
January 1996 and Assistant Secretary of GTL since May 1996. He was a partner
with Fleschman and Walsh, L.L.P. from May 1994 to November 1995, specializing in
domestic and international telecommunications law, regulation legislation and
policy. Prior to that time, he was the Executive Director of Federal Regulatory
Relations with Pacific Telesis Group.
Mr. Evans has been Vice President, Business Planning and Administration of
Globalstar since January 1996 and Vice President of GTL since May 1996. From
March 1994 to December 1995, Mr. Evans was Vice President, Finance and
Administration of Globalstar. Prior to that time, he was Manager of Business
Planning and Analysis for SS/L.
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<PAGE> 58
Mr. Hicks has been Vice President, Operations of Globalstar and Vice
President of GTL since June 1996. Prior to that time, he was Chief Technical
Officer at PacTel and AirTouch.
Mr. Hirshfield has been Vice President, Development and Production of
Globalstar since March 1994 and Vice President of GTL since May 1996. Prior to
that time, he was Manager of Communications Sciences at SS/L.
Mr. Schindall has been Vice President of Systems Applications for
Globalstar since May 1994 and Vice President of GTL since May 1996. Prior to
that time, he was President of Conic, a division of Old Loral.
Mr. Wiedeman has been Vice President, Engineering of Globalstar since March
1994 and Vice President of GTL since May 1996. Prior to that time, he was Vice
President of Loral Aerospace Corp.
Mr. Wright has been Vice President and Chief Financial Officer of
Globalstar since January 1996 and Vice President of GTL since May 1996. He was a
Production Director from April 1995 to December 1995 at SS/L. Prior to that
time, he was a Business Manager at SS/L.
Mr. Grierson has been director of GTL since May 1996 and a member of the
General Partners' Committee of Globalstar since may 1996. Mr. Grierson retired
as Vice Chairman of General Electric Company plc (U.K.) in 1991. He is also
director of Daily Mail and General Trust plc, Safic-Alcan S.A. (France) and
Chime Communications plc and Chairman of international advisory boards of Bain &
Co. and Blackstone Group.
Mr. Towbin has been director of GTL since its initial public offering in
1995 and a member of the General Partners' Committee of Globalstar since 1994.
Mr. Towbin has been Managing Director of Unterberg Harris since August 1995. He
was President and Chief Executive Officer of the Russian-American Enterprise
Fund from January 1994 to August 1995. From 1987 until 1993, he was a Managing
Director at Lehman Brothers Inc. He is a director of Bradley Real Estate Trust,
Columbus New Millennium Fund (London), Gerber Scientific, Inc. and K & F
Industries, Inc.
Mr. Ruderman has been a member of the Globalstar Audit Committee since
1994. Mr. Ruderman is Professor of Physics, Columbia University. He is a
director of Loral.
Mr. Shapiro has been a member of the Globalstar Audit Committee since 1994.
Mr. Shapiro is the Joseph Solomon Distinguished Professor of Law (since 1983)
and Dean/Professor of Law (1973-1983) of New York Law School. He is a director
of Loral and is also a director of Bank Leumi Trust Co., Eyecare Products PLC,
Vasomedical, Inc., Kranzco Realty Trust, MacroChem Corporation and Premier Laser
Systems.
Mr. Stanton has been a member of the Globalstar Audit Committee since 1994.
Mr. Stanton is Chairman Emeritus of National Westminster Bancorp NJ. He is a
director of Loral and is also a director of Reliance Group Holdings, Inc. and
Reliance Insurance Co.
GOVERNANCE
Globalstar is governed by the General Partners' Committee, consisting of
four members appointed by LQSS, the managing general partner of Globalstar, two
of whom are not affiliated with Globalstar. See "Governance of Globalstar." The
current members of the Committee are Mr. Schwartz, Mr. Targoff, Mr. Grierson and
Mr. Towbin. Members of the Committee and directors of Globalstar Capital are not
compensated for such services.
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<PAGE> 59
SUMMARY COMPENSATION
The salaries of the executive officers of Globalstar are paid by either
Globalstar or Loral. Loral is solely responsible for the compensation of Messrs.
Schwartz, Targoff and DeBlassio and the other officers of the Issuers who are
also officers of Loral. The following table sets forth, for the three fiscal
years ended December 31, 1996, individual compensation information for the Chief
Executive Officer of Globalstar and each of the four other most highly
compensated executive officers of Globalstar who were serving as executive
officers at December 31, 1996 and who receive compensation from Globalstar (the
"Named Executive Officers"). The officers of Globalstar Capital are not
compensated for such services.
SUMMARY COMPENSATION TABLE(a)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(b) BONUS(c) STOCK OPTIONS(d) COMPENSATION(e)
- --------------------------- ---- -------- -------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas G. Dwyre 1996 $195,932 -- -- $ 9,132
President 1995 $176,220 $125,000 15,000 $ 5,400
1994 $176,220 $100,000 -- $ 4,010
Anthony J. Navarra 1996 $179,229 -- -- $ 5,026
Executive Vice President - 1995 $168,334 $ 90,000 12,500 $ 5,151
Business Development 1994 $160,006 $ 70,000 -- $ 3,438
Joel Schindall 1996 $157,339 -- -- $ 500
Vice President - Systems 1995 $153,300 $ 15,000 1,200 $ 5,374
Applications 1994 $153,300 $ 10,000 -- $ 3,379
William F. Adler 1996 $135,692 -- 5,000 $77,630
Vice President and General
Counsel
Robert Hicks 1996 $ 83,654 $ 20,000 7,000 $ 1,972
Vice President -
Operations
</TABLE>
- ---------------
(a) The above table excludes Ellis H. Gallimore, who was Vice President and
General Counsel of Globalstar until his resignation in November 1995. For
1995 and the period March 23, 1994 to December 31, 1994, base annual
compensation for Mr. Gallimore was $115,464 and $99,399, respectively and
his bonus for 1994, which was paid in 1995, was $10,000. In addition, other
compensation for Mr. Gallimore was $20,080 for his vacation payout in 1995.
Mr. Gallimore did not receive any stock option grants nor participate in
the Savings Plan.
(b) 1994 amounts reflect the annual base salary for each individual, not the
actual amounts earned during the period March 23, 1994 (commencement of
operations) to December 31, 1994. Base compensation earned during the
period March 23, 1994 to December 31, 1994 was $129,307, $120,770 and
$83,037, for Messrs. Dwyre, Navarra and Schindall, respectively. 1996
amounts reflect salary actually paid to Messrs. Adler and Hicks, who
commenced employment with Globalstar on January 15, 1996 and June 1, 1996,
respectively. The annual salary for Messrs. Adler and Hicks, as of December
31, 1996, was $144,000 and $150,000, respectively.
(c) Reflects annual bonuses earned for the fiscal period ended December 31,
1995, paid in 1996, and for the fiscal period ended December 31, 1994, paid
in 1995, and a special bonus for Mr. Hicks. Annual bonuses have not yet
been determined for the period ending December 31, 1996.
(d) Does not reflect grants during 1996 of stock options to acquire 25,000,
20,000, 8,000, 5,000 and 5,000 shares of Loral common stock granted by
Loral to Messrs. Dwyre, Navarra, Schindall, Adler and Hicks, respectively.
These options are exercisable at $10.50 per share, vest in 20% increments
over five years and have a 10-year term.
(e) Reflects company matching contributions to the Savings Plan attributable to
1996, 1995 and the period March 23, 1994 to December 31, 1994 in the
amounts of $5,396, $5,400 and $4,010 for Mr. Dwyre, $5,026, $5,151 and
$3,438 for Mr. Navarra, $0, $5,374 and $3,379 for Mr. Schindall, $4,084, $0
and $0 for Mr. Adler and $1,972, $0 and $0 for Mr. Hicks, respectively.
Also reflects a payout in 1996 of
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<PAGE> 60
accrued vacation of $3,736 to Mr. Dwyre, invention compensation in 1996 of
$500 to Mr. Schindall and a one time relocation payment in 1996 of $73,546
to Mr. Adler.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on grants to the Named Executive
Officers during 1996 of options to purchase common stock of GTL.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL MARKET
SECURITIES OPTIONS EXERCISE PRICE ON GRANT
UNDERLYING GRANTED TO OR BASE DATE OF DATE
OPTIONS EMPLOYEES PRICE GRANT EXPIRATION PRESENT
NAME GRANTED(A) IN FISCAL YEAR (PER SHARE) (PER SHARE) DATE VALUE(B)
- ---------------------------- ---------- -------------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Dwyre............ -- -- n/a n/a n/a n/a
Anthony J. Navarra.......... -- -- n/a n/a n/a n/a
Joel Schindall.............. -- -- n/a n/a n/a n/a
William F. Adler............ 5,000 11.90% $ 63.5313 $ 63.5313 11/18/2006 $179,400
Robert Hicks................ 7,000 16.67% $ 63.5313 $ 63.5313 11/18/2006 $251,100
</TABLE>
- ---------------
(a) Exercisability vests ratably over a five-year period.
(b) The Black-Scholes model of option valuation was used to determine grant date
present value. Globalstar does not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option. The
present value calculation is based on a ten-year option term, a risk-free
interest rate assumption of 6.25%, stock price volatility of 30% over a
ten-year period and a dividend rate of $0 per share. However, there were no
adjustments made for non-transferability or risk of forfeiture. The actual
value realized, if any, will depend on the amount by which the stock price
at the time of exercise exceeds the exercise price. There is no assurance
that the amount estimated by the Black-Scholes model will be realized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information on exercises by the Named
Executive Officers during 1996 of options to purchase common stock of GTL and
year-end option values.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT YEAR-END AT YEAR-END(A)
ON REALIZED --------------------------------- ---------------------------------
NAME EXERCISE VALUE EXERCISEABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Dwyre........ -- -- -- 15,000 -- $695,625
Anthony J. Navarra...... -- -- -- 12,500 -- $579,688
Joel Schindall.......... -- -- -- 1,200 -- $ 55,650
William F. Adler........ -- -- -- 5,000 -- $ -0-
Robert Hicks............ -- -- -- 7,000 -- $ -0-
</TABLE>
- ---------------
(a) Market value of underlying securities at year-end, minus the exercise price.
EMPLOYMENT ARRANGEMENTS
Except for the Retirement Plan, including a Supplemental Executive
Retirement Plan, the 401(k) Savings Plan, and the 1994 Stock Option Plan, there
are no compensatory plans or arrangements with respect to any of the Named
Executive Officers under which payments or benefits are triggered by, or result
from, the resignation, retirement or any other termination of such Named
Executive Officer's employment, a change-in-control of Globalstar, or a change
in such Named Executive Officer's responsibilities following a change-in-
control.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The General Partners' Committee of Globalstar does not have a compensation
committee. Compensation of Globalstar's executive officers is determined by the
chief executive officer of Globalstar in consultation with the Compensation
Committee of the Board of Directors of GTL. The members of the Compensation
Committee of GTL are Sir Ronald Grierson and A. Robert Towbin. Neither Mr.
Grierson nor Mr. Towbin is a present or former officer or employee of Globalstar
or its subsidiaries. Mr. Towbin is a managing director of Unterberg Harris,
which firm provided services to Globalstar during 1996.
PENSION PLAN
The Retirement Plan (the "Plan") provides a non-contributory benefit for
each year of non-contributory participation, and additional benefits associated
with contributory participation. Globalstar also has a Supplemental Executive
Retirement Plan ("SERP") under which eligible employees receive benefits which
generally make up for certain required reductions in Plan benefits caused by the
Code limitations. For non-contributory participation, the annual retirement
benefit is $252 times credited years of service. For contributory participation,
the following table shows the amounts of annual retirement benefits that would
be payable at normal retirement (age 65 or later). Benefits are shown for
various rates of final average salary, assuming that employee contributions were
made for the periods indicated. Employees who have completed at least one year
of service and attained age 21 will receive the contributory benefit if they
contribute to the Plan at the rate of 1% of salary.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CONTRIBUTORY SERVICE
---------------------------------------------------------
FINAL AVERAGE SALARY 20 25 30 35 40
- --------------------------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000............................ $30,950 $38,690 $46,430 $ 54,160 $ 60,660
$125,000............................ $39,700 $49,630 $59,550 $ 69,480 $ 77,600
$150,000............................ $48,450 $60,560 $72,680 $ 84,790 $ 94,540
$175,000............................ $57,200 $71,500 $85,800 $100,100 $111,480
$200,000............................ $65,950 $82,440 $98,930 $115,410 $128,410
</TABLE>
The table above shows total estimated benefits payable under the Plan and
SERP including amounts attributable to employee contributions, determined on a
straight annuity basis. Such estimated benefits are not subject to any deduction
for Social Security or other offset amounts. The compensation covered by the
Plan and SERP is the employee's base salary, and is identical to the
compensation disclosed as "Annual Compensation Salary" in the Summary
Compensation Table. The Plan and SERP benefits are computed on the basis of the
average of an employee's highest five consecutive annual salaries out of the
last ten years contributions are made. As of December 31, 1996, the credited
years of service for each of the executives in the Summary Compensation Table
are as follows: Douglas G. Dwyre, 23 years; Anthony J. Navarra, 5 years; Joel
Schindall, 2 years; William F. Adler, less than one year; and Robert Hicks, less
than one year.
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<PAGE> 62
RELATED PARTY TRANSACTIONS
SS/L Agreement and Subcontracts. Messrs. Schwartz, Targoff and DeBlasio
are executive officers of SS/L, which is an affiliate of Globalstar. Globalstar
has entered into a contract with SS/L to design, manufacture, test and launch
its satellite constellation. The price of the contract consists of three parts,
the first for non-recurring work at a price not to exceed $117.1 million, the
second for recurring work at a fixed price of $15.6 million per satellite
(including certain performance incentives of up to approximately $1.9 million
per satellite) and the third for launch services and insurance. SS/L will
design, build and launch the 56 satellites in Globalstar's constellation, which
are designed to have a minimum life span of 7 1/2 years. SS/L has agreed to
obtain insurance on Globalstar's behalf for the cost of replacing satellites
lost in hot failures and any relaunch costs not covered by the applicable launch
contract. SS/L has also agreed pursuant to the agreement to obtain launch
vehicles and arrange for the launch of Globalstar's satellites on Globalstar's
behalf. The estimated total cost for launch services and launch insurance for
all 56 satellites is $455 million, subject to equitable adjustments in light of
future market conditions, which may, in turn, be influenced by international
political developments. Termination by Globalstar of this agreement will result
in termination fees, which may be substantial. Such termination fees are
generally limited to SS/L's cost incurred and uncancellable obligations under
subcontracts and outstanding orders for satellite materials at the time of
termination plus a reasonable fee.
The agreement provides for liquidated damages to Globalstar in the event
SS/L fails to supply the satellites at the times specified in the contract.
Liquidated damages of approximately $45,000 are payable by SS/L for each day of
delay, subject to an overall cap of approximately $33 million. Such liquidated
damages are Globalstar's exclusive remedies in the face of any delay by SS/L in
the delivery of the satellites or for any events of default specified in the
agreement.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost estimated at $175 million.
SS/L and its subcontractors have committed approximately $310 million of
vendor financing to Globalstar of which $220 million will be non-interest
bearing. Globalstar will repay the non-interest bearing portions as follows: $49
million following the launch and acceptance of 24 or more satellites, $61
million upon the launch and acceptance of 48 or more satellites, and the
remainder in equal installments over the five-year period following acceptance
of the preliminary and final Globalstar constellations. The remaining $90
million will bear interest, the payment of which will be deferred until December
31, 1998, or the full constellation date, whichever is earlier. Thereafter,
interest and principal will be repaid in twenty equal quarterly installments
during the next five years.
Qualcomm Agreement. Globalstar and Qualcomm have entered into an agreement
providing for the design, development, manufacture, installation, testing and
maintenance by Qualcomm of four gateways, two ground operations control centers
and 100 pre-production Globalstar Phones (the "Qualcomm Segment"). A portion of
the GOCC is being developed and manufactured by Globalstar. The contract is a
cost-plus-fee contract that provides for payment to Qualcomm of a 12% fee, along
with reimbursement for costs incurred in performing such contract, such as
labor, material, travel, license fees, royalties and general administrative
expenses. The contract also includes a cost sharing arrangement for certain
technologies being developed by Qualcomm.
Except for the intellectual property contained in certain software relating
to the public switched networks and the GOCCs (excluding any software or
technical data contained in Qualcomm's CDMA technology) which will be owned by
Globalstar, Qualcomm retains all intellectual property in the Qualcomm Segment.
However, Qualcomm has granted Globalstar an exclusive license to use its CDMA
technology for MSS commercial applications.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Qualcomm
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is
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earlier, engage in any business activity that would be in competition with the
Globalstar System. The grant of intellectual property to Qualcomm described
above is generally royalty free.
Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide
license to use Qualcomm's intellectual property to manufacture and sell gateways
to Globalstar's service providers. The foregoing licenses will be granted by
Qualcomm to one or more such vendors on reasonable terms and conditions, which
will in any event not provide for royalty fees in excess of 7% of a gateway's
sales price (not including the approximately $400,000 in recoupment expenses
payable to Globalstar). Qualcomm has granted a license to manufacture Globalstar
Phones to each of Ericsson and TELITAL and has also agreed to grant similar
licenses to at least one additional qualified manufacturer to enable it to
manufacture and sell the Globalstar Phones to service providers. On March 23,
1994, a letter agreement was entered into among Qualcomm, Globalstar and Hyundai
pursuant to which Hyundai may elect to become a licensee authorized to
manufacture and sell Globalstar Phones to service providers. Should Hyundai so
elect, it would, for a five-year period following Globalstar's In-Service Date,
be the exclusive licensee authorized to manufacture and sell such units in South
and North Korea.
Globalstar will receive a payment of approximately $400,000 on each
installed gateway sold to a Globalstar service provider. Globalstar will also
receive up to $10 on each Globalstar Phone, which will be payable until
Globalstar's funding of that design has been recovered.
The agreement provides for liquidated damages to Globalstar in the event
Qualcomm fails to supply the Qualcomm Segment at the times specified in the
contract. Liquidated damages of approximately $29,000 are payable by Qualcomm
for each day of delay, subject to an overall cap of approximately $11 million.
Such liquidated damages are Globalstar's exclusive remedies in the face of any
delay by Qualcomm in the delivery of the Qualcomm Segment or for any other
events of default specified in the agreement. Qualcomm's obligation to license
the intellectual property necessary to manufacture gateways and Globalstar
Phones to Globalstar or a third-party manufacturer will continue even upon a
default or breach by Qualcomm under the agreement. Termination by Globalstar of
this agreement will result in termination fees, which may be substantial.
Gateway Program. Globalstar will acquire 35 gateways from Qualcomm for
resale to service providers under contracts totaling approximately $275 million.
In order to accelerate the deployment of gateways around the world, Globalstar
has agreed to finance approximately $80 million of the cost of up to 32 of the
35 gateways. Globalstar expects to recover its investment in this gateway
financing program from resale of the gateways to service providers.
Qualcomm Support Agreement. A support agreement was entered into among
Qualcomm, Loral and Globalstar pursuant to which Qualcomm agreed to (i) assist
Globalstar and SS/L with Globalstar's system design, (ii) support Globalstar and
Loral with respect to various regulatory matters, including the FCC application
and (iii) assist Globalstar and Loral in their marketing efforts with respect to
Globalstar. As compensation for its efforts, Qualcomm would be paid an amount
equal to the costs incurred in rendering such support and assistance.
Old Loral Contracts. Globalstar has entered into agreements with
subsidiaries of Old Loral for (1) the development and delivery of two satellite
operations control centers and 33 telemetry control units on a cost-plus-fee
basis with a maximum price of $25.1 million, and (2) an S-Band beam forming
network engineering model on a firm fixed-price basis for approximately
$463,000.
Consulting Contracts. Mr. Peett is an executive officer of Vodafone, which
is a limited partner of Globalstar. Globalstar has entered into consulting
agreements with Vodafone for approximately $650,000 under which Vodafone will
develop Globalstar's security architecture design and billing system
requirements. A subsidiary of Vodafone has executed service provider agreements,
granting it the right to provide Globalstar system services to users in eight
countries, including Australia, Sweden, South Africa and the United Kingdom, on
an exclusive basis, as long as specified minimum levels of subscribers are met.
The Vodafone subsidiary will receive certain discounts from Globalstar's
expected pricing schedule generally over a five-year period.
OmniTRACS Services Agreement. Globalstar has granted Qualcomm the
worldwide exclusive right to utilize the Globalstar System to provide
OmniTRACS-like services, including certain data-messaging and
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position-determination services offered by Qualcomm, primarily to fleets of
motor vehicles and rail cars and/or vessels and supervisory control and data
acquisition services. Qualcomm will utilize the Globalstar System in particular
territories to provide its OmniTRACS-like services if the Globalstar service
provider in such region or country offers pricing that is the most favorable
rate charged by it for a comparable service and that is at least as favorable as
the pricing then charged to Qualcomm for geostationary satellite capacity in the
United States. In the event Qualcomm and the service provider fail to reach an
agreement with respect to such access, Globalstar has agreed to provide Qualcomm
with access to the Globalstar System at Globalstar's most favorable rates. To
the extent consistent with Qualcomm's prior commitments, Qualcomm has also
agreed to offer each Globalstar service provider certain rights of first refusal
to participate with Qualcomm in the provision of OmniTRACS-like services using
the Globalstar System in the service provider's territory.
Office Leases. Globalstar currently leases office space from Lockheed
Martin at a cost of approximately $72,000 per month. This space is leased
pursuant to an agreement that expires in August 2000 (with an option to extend
for two additional five year periods). Globalstar paid a total of $869,000,
$650,000 and $275,000, for the calendar years 1996, 1995 and 1994, respectively,
under such lease.
Conflicts of Interest. The Globalstar partnership agreement provides that
Globalstar cannot enter into any agreement involving amounts in excess of
$1,000,000 with any partner, any strategic partner (including any direct or
indirect corporate parent of such partner or strategic partner), any Alliance
Partner or any of their respective affiliates unless the terms and conditions of
such transaction have been first approved by a vote of the disinterested
partners.
Guarantee Fee and Warrants. On December 15, 1995, Globalstar entered into
the Globalstar Credit Agreement providing for a $250 million credit facility.
Following the consummation of the Merger, Lockheed Martin guaranteed $206.3
million of Globalstar's obligation under the Globalstar Credit Agreement, and
SS/L and certain other Globalstar strategic partners guaranteed $11.7 million
and $32 million, respectively, of Globalstar's obligation. In addition, Loral
has agreed to indemnify Lockheed Martin for liability in excess of $150 million
under Lockheed Martin's guarantee of the Globalstar Credit Agreement.
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, GTL issued to Loral, Lockheed Martin, SS/L and the other strategic
partners participating in such guarantee or indemnity, the GTL Guarantee
Warrants to purchase 4,185,318 shares of GTL common stock. In connection with
the issuance of GTL Guarantee Warrants, GTL received (i) warrants to acquire
4,185,318 ordinary partnership interests in Globalstar plus (ii) Additional
Warrants to purchase an additional 1,131,168 ordinary partnership interests, on
terms and conditions generally similar to those of the GTL Guarantee Warrants.
In addition, Globalstar has also agreed to pay to Loral and the other
guaranteeing partners a fee equal to 1.5% per annum of the average quarterly
amount outstanding under the Globalstar Credit Agreement (the "Guarantee Fee").
Payment of the Guarantee Fee will be deferred and subordinated, with interest at
LIBOR plus 3%, until after the termination date of the Globalstar Credit
Agreement. LQSS may also defer payment of such fee if it determines that such
deferral is necessary to comply with the terms of any applicable credit
agreement or indenture.
The holders of the warrants to purchase 4,185,318 shares of GTL common
stock issued in connection with the Globalstar Credit Agreement have exercised
such warrants at $26.50 per share, and GTL has registered for resale the GTL
common stock issued upon exercise of such warrants. In addition, GTL issued
1,131,168 GTL shares at a price of $26.50 per share in connection with the
exercise of subscription rights. As a result of these transactions, GTL received
proceeds of approximately $140.9 million, which it used to exercise rights to
purchase 5,316,486 Globalstar partnership interests at $26.50 per interest.
Globalstar will use such proceeds to continue the construction of the Globalstar
System.
Globalstar Managing Partner's Allocation and Distribution. Commencing on
the In-Service Date, Globalstar will make distributions to LQSS equal to 2.5% of
Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500
million. Loral and Qualcomm ultimately will receive 80% and 20% of such
distribution, respectively. Should Globalstar incur a net loss in any year
following commencement of operations, the distribution for that year will be
reduced by 50% and Globalstar will be reimbursed for Managing Partner's
Allocations, if any, made in any prior quarter of such year, sufficient to
reduce the
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<PAGE> 65
Managing Partner's Allocation for such year by 50%. Any Managing Partner's
Allocation may be deferred (with interest at 4% per annum) in any quarter in
which Globalstar would report negative cash flow from operations if the Managing
Partner's Allocation were made.
LQSS has a right to a preferred allocation of gross operating revenue until
such allocated revenue cumulatively equals LQSS's distributions payable (whether
or not deferred for a shortfall in cash flow from operations). To the extent
that distributions exceed such allocated profit, they will be charged against
LQSS's capital account and will not be allocated among the Globalstar partners
as a Globalstar expense.
Joint Ventures. Subsidiaries of Loral have formed joint ventures with
partners which have executed service provider agreements granting the joint
ventures the exclusive rights to provide Globalstar system services to users in
Canada, Mexico and Brazil, as long as specified minimum levels of subscribers
are met. Certain Globalstar service providers, including Loral, receive
specified discounts from Globalstar's expected pricing schedule generally over a
five-year period.
Services. Mr. Robert B. Hodes, a director of GTL, is counsel to the law
firm of Willkie Farr & Gallagher, which acts as outside counsel to Globalstar.
Mr. A. Robert Towbin is a managing director in the investment banking firm of
Unterberg Harris, which has rendered advisory and investment banking services to
Globalstar.
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GOVERNANCE OF GLOBALSTAR
The following discussion summarizes provisions of the Globalstar
partnership agreement.
GENERAL PARTNERS' COMMITTEE
Globalstar has two general partners, LQSS and GTL. LQSS is the managing
general partner of Globalstar. Globalstar is governed by the General Partners'
Committee, consisting of four members who are appointed by LQSS two of whom are
not affiliated with Globalstar. The day-to-day activities of Globalstar are
managed by its officers, subject to the supervision of the Committee. However,
LQSS has agreed that certain material partnership decisions will not be put to a
vote of the partners as described below without the consent of at least one of
the Independent Representatives on the Committee. See "-- Certain Actions." In
addition, personnel decisions involving Globalstar officers of the rank of
senior vice president or above cannot be made without the approval of at least
one of the Independent Representatives, provided that LQSS retains the right to
appoint provisional candidates and, under certain circumstances, may override
the veto of the Independent Representatives. GTL directors not affiliated with
Loral, including the Independent Representatives, will determine the vote of
Ordinary Partnership Interests held by GTL in votes submitted to the partners in
Globalstar as to the approval or disapproval of the financial terms and
conditions of material transactions between Globalstar and Loral or any of its
affiliates (or which are deemed to be transactions in which Loral is an
interested party pursuant to the Globalstar partnership agreement). In addition,
Globalstar has agreed with GTL that for so long as GTL remains a general partner
of Globalstar, Globalstar will not issue more than 5,000,000 additional
partnership interests without either the consent of at least one of GTL's
Independent Representatives or the vote of a majority in interest of the
Globalstar partners. The Independent Representatives will determine the vote of
Globalstar partnership interests held by GTL with respect to any such vote
submitted to the partners. Loral through its majority representation on the
Board of Directors of GTL controls GTL's votes in all other matters.
Matters relating to the FCC License for the Globalstar System, including
compliance and other regulatory matters related thereto, will be under the
exclusive control of L/Q Licensee. L/Q Licensee has agreed to use such license
exclusively for the benefit of Globalstar.
Actions by the Committee may be taken only with the concurrence of a
majority of the members whether present in person at a meeting or by written
consent. Written notice of all proposed Committee action will be given to all
members prior to the taking of any such action, unless notice has been waived by
any such member. The Committee may delegate any or all of its powers to officers
of Globalstar except for transactions involving amounts in excess of $100,000
other than transactions taken in the ordinary course of business or actions
taken to implement any business plan previously approved by the Committee.
CERTAIN ACTIONS
The Committee will not take any action that would result in Globalstar
being engaged in a business other than the development and operation of the
Globalstar System without the prior written consent of all the partners of
Globalstar. Certain decisions by the Committee not to construct and launch
satellites in addition to the satellites for the 48-satellite constellation and
the eight spare satellites will be subject to the approval by a majority in
interest of the partners if such construction and launch could be made without
additional contributions from the partners and satisfy certain thresholds
relating to rates of return on investment. In addition, Globalstar will not,
absent the consent of the affected partner, enter into any agreements with any
persons that would conflict with or prejudice in any material respects the
rights of such partner under either the Globalstar partnership agreement or any
agreement entered into between such partner or its affiliate and Globalstar. The
Committee may also not undertake the following actions unless it shall have
first received the consent of a majority of votes cast at a meeting at which
only those Globalstar partners without a financial interest, whether direct or
indirect, in such transaction would be qualified to vote, where each Ordinary
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Partnership Interest would equal one vote and a majority of the qualified
Ordinary Partnership Interests outstanding would constitute a quorum ("Consent
of the Disinterested Partners"):
(i) Enter into any agreements involving amounts in excess of
$1,000,000 with any partner, any strategic partner (including any direct or
indirect corporate parent of any such partner or strategic partner), any
Alliance Partner or any of their respective affiliates;
(ii) Enter into loans by a general partner or its affiliate to
Globalstar; and
(iii) Consent to a limited partner acquiring more than 20% of
Globalstar's outstanding partnership interests.
The following actions may not be undertaken by the Committee unless it
shall have first received the consent described below and, in the case of the
items described in clauses (i) through (iv), will not be put to a vote of the
partners without the consent of at least one of the Independent Representatives:
(i) Make any material amendments to the Globalstar partnership
agreement or adopt any business plan that would materially change
Globalstar's business purpose;
(ii) Acquire either a controlling interest in, or a majority of the
voting stock or equity of, any corporation or other entity, or assets not
in the ordinary course of business, in either case if the aggregate fair
market value is greater than $10 million;
(iii) Sell, lease, exchange or dispose of Globalstar's material assets
(other than to an entity controlled by Globalstar);
(iv) Cause or permit the dissolution and/or liquidation of Globalstar
or file bankruptcy proceedings or consent to such filing;
(v) Adopt any increase in capital expenditures or operating expenses
of more than 10% of the amount set forth in Globalstar's business plan
dated March 1994 (or any revised business plan as approved by a majority in
interest of the partners) and any subsequent increases in such expenditures
or expenses (except as required to account for increases in the Consumer
Price Index);
(vi) Commence any litigation or arbitration, or settle any pending or
threatened litigation, by or against Globalstar, if the damages sought are
in excess of $100,000 or if such litigation or arbitration is against, or
names as an adverse party, a partner;
(vii) Adopt any modification to the specification of the Globalstar
System that would change any major parameter by more than 10% or otherwise
result in a material adverse effect on any service provider;
(viii) Enter into any material business outside the scope of the
partnership agreement;
(ix) Undertake material commitments with respect to Globalstar's
launch strategy, provided that Globalstar may nevertheless undertake
material commitments with respect to its launch strategy absent such
consent if Globalstar undertakes a detailed review of such strategy and
submits a written report of its analysis to the partners;
(x) Appoint a successor to the office of President of Globalstar;
(xi) Issue any equity interests other than partnership interests or
issue or reserve for issuance after February 14, 1995 more than 8,198,837
additional partnership interests plus the partnership interests issuable in
connection with the conversion of the CPEOs and the exercise of the GTL
Guarantee Warrants and the Additional Warrants; and
(xii) Incur any indebtedness, including certain sale and leaseback
transactions, if immediately after the incurrence thereof Globalstar's
outstanding indebtedness would exceed 110% of the maximum amount of debt
obligations contemplated by the then-current Globalstar business plan.
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In order to take the actions described above, Globalstar must receive the
consent of a majority of votes cast at a meeting of Globalstar partners where
each Ordinary Partnership Interest would equal one vote and a majority of the
Ordinary Partnership Interests outstanding would constitute a quorum for the
meeting provided that there has been no veto by partners casting 9,000,000 or
more qualifying votes. All Ordinary Partnership Interests held on behalf of a
partner may cast one qualifying vote, provided that no more than 6,000,000
qualifying votes may be cast on behalf of any single partner regardless of the
total number of Ordinary Partnership Interests held, and, provided further, that
no more than 3,000,000 qualifying votes may be cast on behalf of GTL in respect
of Ordinary Partnership Interests acquired using the proceeds from GTL's initial
public offering or pursuant to the exercise of a partner's Exchange Right
("Consent of the Partners"). For purposes solely of determining the number of
qualifying votes LQSS or a limited partner may cast against an action as
described above, a partner will be deemed to continue to own the number of
Ordinary Partnership Interests equal to the shares of Common Stock acquired by
such Partner pursuant to the Exchange Rights and which have not been disposed
of.
Except as otherwise described above, each partner has the right to cast one
vote for each Ordinary Partnership Interest held by such partner with respect to
the matters set forth above and for which it is qualified to vote. GTL, together
with the limited partners not affiliated with Loral, hold more than 50% of
Globalstar's outstanding Ordinary Partnership Interests. LQSS will cast its vote
with respect to the above matters in accordance with the instructions of its
partners, weighted to reflect the amount of partnership interests held by such
partners in LQSS. LQSS will cast against any proposal the number of votes equal
to the amount of Ordinary Partnership Interests held by it in Globalstar
multiplied by the total percentage interests in LQSS held by all of its partners
who oppose the proposal. The number of votes equal in amount to the remainder of
LQSS's Ordinary Partnership Interests in Globalstar will be cast in favor of any
such proposal.
The Preferred Partnership Interests have no voting rights, other than as
may be required by law.
Each partner has agreed not to acquire any direct or indirect interest in
any MSS applicant other than Globalstar until after the third anniversary of the
In-Service Date, although each reserves the right, on behalf of itself and its
affiliates, to conduct other business activities. Under certain circumstances,
this restriction may not apply.
GTL CHANGE OF CONTROL AND REDUCTION IN INTEREST
A GTL Change of Control is defined in Globalstar's partnership agreement as
an event or series of events by which (i) any "person" or "group" (as such terms
are defined in Section 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act)
directly or indirectly, of more than 30% of the Common Stock of GTL then
outstanding, (ii) GTL consolidates with or merges into another corporation or
conveys, transfers or leases all or substantially all of its assets, including
all or substantially all of its partnership interests in Globalstar, to any
person, or any corporation consolidates with or merges into GTL, in either event
pursuant to a transaction in which GTL's outstanding Common Stock is changed
into or exchanged for cash, securities or other property, other than any
transaction (A) between GTL and either Loral, an affiliate of Loral or a
wholly-owned subsidiary of GTL or (B) after which the shareholders who
beneficially owned GTL Common Stock immediately before such transaction
beneficially own at least 50% of the outstanding voting stock of the surviving
entity and no other person beneficially owns more than 30% of the outstanding
voting stock of the surviving entity, (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted GTL's Board
of Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office, or (iv) GTL makes on any day any distribution or distributions of cash,
property or securities (other than regular dividends, Common Stock or rights to
acquire Common Stock) to its shareholders, or purchases or otherwise acquires
its Common Stock, and the sum of the fair market value of such distribution or
purchase, plus the fair market value of all other such distributions and
purchases which have occurred during the preceding twelve months, exceeds 30% of
the fair market value of GTL's outstanding Common Stock.
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GTL would lose its rights as a general partner of Globalstar and would
automatically revert to the status of a limited partner upon (i) a GTL Change of
Control at a time when GTL owns less than 50% of the Globalstar partnership
interests outstanding or (ii) a Reduction in Interest, which in the event of
either clause (i) or (ii) above, has not been approved either by LQSS or by
Consent of the Partners. In either event, the special governance rights
described above will terminate and GTL might be deemed to be an investment
company, subject to regulation under the Investment Company Act.
COUNCIL OF SERVICE OPERATORS
Globalstar has established a Council of Service Operators (the "Council of
Service Operators" or "CSO"), made up initially of the chief executive officer
of Globalstar, two representatives appointed by the Committee, two
representatives appointed by each of the limited partners (other than
Finmeccanica) who have committed to act, whether directly or indirectly, as
service providers of Globalstar service and one representative appointed by
Finmeccanica. Thereafter, the Committee may nominate three representatives of
service providers not otherwise represented on the CSO, subject to approval by a
majority of the members of the CSO. In addition, any new service provider who
has irrevocably committed to make a capital commitment of $37.5 million to
Globalstar will also be allowed to designate two representatives to the CSO. The
role of the CSO is to give advice to the Committee regarding the practical
implementation of the Globalstar System, thereby allowing the service providers
a voice in the design and operation of Globalstar. Globalstar believes that this
arrangement benefits both Globalstar and the service providers. Globalstar will
benefit from the service providers' expertise and practical on-the-ground
knowledge while at the same time giving the service providers an active role in
the design and coordination of the system that they will ultimately be using.
The CSO will make recommendations to the Committee on matters such as tariffs,
system architecture for the Globalstar System, capacity allocation among
Globalstar service providers and administration of the Qualcomm agreement and
the SS/L agreement. The Committee has agreed to consider in good faith any
recommendations made by the CSO. In certain cases where the interests of the
service providers and Globalstar are not adverse to each other, as determined by
the Committee, or when Loral or its affiliate is the service provider in
question, as determined by those members who are not affiliated with Loral, the
recommendations made by the CSO will be binding on Globalstar.
INDEMNIFICATION AND FIDUCIARY STANDARDS
Globalstar has agreed to indemnify its partners, the partners in LQSS and
LQP, their respective affiliates and all of their respective officers,
directors, partners, controlling shareholders, employees, and agents (each an
"Indemnitee") from and against any and all losses and liabilities arising out of
or incidental to the business of Globalstar so long as such Indemnitee's conduct
did not constitute actual fraud, gross negligence, knowing breach of specific
provisions of the Globalstar partnership agreement or willful or wanton
misconduct. The Globalstar partnership agreement further provides that LQSS,
GTL, the partners in LQSS and LQP, their respective affiliates and all of their
respective officers, directors, partners, controlling shareholders, employees
and agents (each a "General Partner Person") will not be liable to Globalstar or
the limited partners for any losses sustained or liabilities incurred as a
result of any act or omission of a General Partner Person, if such person or
entity acted in good faith and in a manner it or he reasonably believed to be
in, or not opposed to, the best interest of Globalstar and the conduct did not
constitute gross negligence or non-performance. LQSS and GTL, as applicable,
will indemnify the limited partners for losses and liabilities resulting from
conduct of their respective General Partner Person that is found to have
constituted bad faith, gross negligence or non-performance.
ALLOCATIONS AND DISTRIBUTIONS
Allocations. Adjusted income will be allocated first to the Preferred
Partnership Interests (after the Managing Partner's Allocation and any
allocation necessary to bring all partners' capital accounts up to zero) to
bring their capital account to an amount equal to the principal amount of the
CPEOs and unpaid distributions on the Preferred Partnership Interests. Adjusted
income for this purpose is computed by adding amortization and depreciation
expenses to profits and will include increases in the fair market value of
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Globalstar's assets that will be recognized as income when partnership interests
are issued or redeemed. The preferred allocation will be increased by the amount
of the U.S. regular and branch profits taxes that are imposed at a rate of
approximately 60% on GTL's U.S. source income. Losses will be allocated to the
Ordinary Partnership Interests until the capital accounts for such interests
have been reduced to zero. Thereafter losses will be allocated to the Preferred
Partnership Interests until their capital accounts have been reduced to zero and
then to the general partners. GTL expects that U.S. source income will be a
minor portion of its total profit allocation.
Distributions. Globalstar intends to distribute to its partners, including
GTL, its net cash received from operations, less amounts required to repay
outstanding indebtedness, satisfy other liabilities and fund capital
expenditures and contingencies. Distributions after the distribution of the
Managing Partner's Allocation and the Preferred Partnership Interests will
generally be made in accordance with the partners' percentage interests in
Globalstar. Distributions on liquidation will be made in accordance with capital
account balances.
Effect on Common Stock of Globalstar Liquidation. In the absence of
sufficient Globalstar adjusted income, under certain circumstances involving a
liquidation of Globalstar (including a disposition of all its assets), payments
with respect to the CPEOs could exceed Globalstar's liquidating distributions
with respect to the Preferred Partnership Interests and would then reduce the
payment that otherwise would be made with respect to the Common Stock. In such
event, the amount received by the holders of the Common Stock would be less than
the amount that they would have otherwise received and would be less than the
amount they would have received if they had owned Ordinary Partnership Interests
in Globalstar directly.
DISSOLUTION OF GLOBALSTAR
The Globalstar partnership will continue until December 31, 2044, unless
sooner dissolved upon the occurrence of any of the following: (i) the withdrawal
of a general partner, or any other event that results in its ceasing to be a
general partner (i.e., removal, bankruptcy or dissolution) unless at the time
LQSS or a successor to LQSS remains a general partner; (ii) a sale of all or
substantially all of the assets of Globalstar; (iii) the bankruptcy or the
dissolution of LQSS or any successor managing general partner; (iv) upon the
Consent of the Partners; or (v) any other event under Delaware law that would
cause its dissolution. The Globalstar partnership will be reconstituted if a
majority in interest of the partners (or remaining partners, in the event of a
dissolution resulting from the withdrawal, bankruptcy or dissolution of LQSS or
any successor managing general partner) vote to form a new partnership and, in
the case of a dissolution resulting from the withdrawal, bankruptcy or
dissolution of LQSS or any successor managing general partner, to appoint a
successor managing general partner.
NON-COMPETITION
Globalstar's limited partners and their respective subsidiaries and
affiliates are precluded from possessing an interest, directly or indirectly, in
any business activity operating a Similar Satellite Service until the earlier of
(i) the third anniversary of the date such partner (including its affiliates)
ceases to be a partner of Globalstar, (ii) the beginning of the third year after
the Full Constellation Date and (iii) the date that is 183 days following the
date that such partner (including its affiliates) ceases to be or have equity
interest in a service provider, subject to certain exceptions.
ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS
Additional Ordinary Partnership Interests may be offered by Globalstar from
time to time as determined by the Committee, but no additional partner will be
admitted without the Consent of the Partners. Such consent to the admittance of
an additional partner, however, will not be unreasonably withheld. Issuances of
partnership interests are, however, subject to preemptive rights by the partners
except for issuances of partnership interests in connection with the execution
of a service provider agreement or in connection with an underwritten public
offering. Any issuance of partnership interests at a price below the price per
partnership interest paid by Globalstar's strategic partners at the March 23,
1994 closing, or resulting in the issuance of more than 8,198,837 additional
partnership interests (other than the partnership interest issuable upon
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exercise of the GTL Guarantee Warrants and the Additional Warrants) will be
subject to the Consent of the Partners. In addition, Globalstar has agreed with
GTL that for so long as GTL remains a general partner of Globalstar, Globalstar
will not issue more than 5,000,000 additional partnership interests without
either the consent of at least one of GTL's Independent Representatives or the
vote of a majority in interest of the Globalstar partners. The Independent
Representatives will determine the vote of Ordinary Partnership Interests held
by GTL with respect to any such vote submitted to the partners.
LIMITATIONS OF TRANSFER OF PARTNERSHIP INTERESTS
Transfer by General Partners. Under the Globalstar partnership agreement,
any transfer of partnership interests by a general partner would be subject to
the Consent of the Disinterested Partners. A general partner may transfer any or
all of its partnership interests to an affiliate without requiring the Consent
of the Disinterested Partners. In the case of GTL, however, a transfer may be
made only to a 100%-owned affiliate and is subject to the consent of LQSS. In
addition, any transfer of partnership interests by GTL would be subject to a
right of first offer to the other partners of Globalstar and to Globalstar
itself. Any successor to a general partner must be found by a Consent of the
Disinterested Partners to have the financial, technical and managerial
capabilities to permit it to perform the duties under the Globalstar partnership
agreement. For the three-year period following the Full Constellation Date,
Loral will not withdraw as a general partner or otherwise permit Globalstar to
be managed by any entity other than Loral. Following such three-year period,
Loral will be required to hold, through a general partner, at least 15% of the
total number of Globalstar partnership interests outstanding, unless it shall
have received the Consent of the Disinterested Partners.
Transfer by the Limited Partners. Transfers of partnership interests by a
Globalstar limited partner made before March 24, 1997 are subject to the consent
of the Committee, which will not be unreasonably withheld or delayed. In
addition, any transfer of partnership interests by a limited partner will be
subject to a right of first offer to the other partners of Globalstar and to
Globalstar itself. The limited partners may, subject to the provision set forth
below, freely transfer their partnership interests under the following
circumstances: (i) the transfer is made to an affiliate; (ii) Globalstar is no
longer managed, directly or indirectly, by Loral; or (iii) Loral shall itself
have undergone a change of control.
The limitations on transfers described above (other than Loral's required
15% minimum ownership, described above) will not apply to an exchange of
Ordinary Partnership Interest by a partner electing to exercise its Exchange
Right.
Neither LQSS, GTL nor any limited partner of Globalstar will transfer any
or all of their respective partnership interests in Globalstar if such transfer
will adversely affect Globalstar's tax status.
DESCRIPTION OF NOTES
The following summary of certain provisions of the Indentures does not
purport to be complete and is qualified in its entirety by reference to the
11 3/8% Indenture and the 11 1/4% Indenture, including the definitions therein
of certain terms used below. A copy of the respective forms of Indenture and
Registration Rights Agreement may be obtained by contacting Globalstar at 3200
Zanker Road, P.O. Box 640670, San Jose, California 95164-0670, Attention:
Stephen C. Wright. The definitions of certain terms used in the following
summary are set forth below under "-- Definitions."
GENERAL
The Notes were issued pursuant to the 11 3/8% Indenture and the 11 1/4%
Indenture, each among Globalstar and Globalstar Capital, as joint and several
obligors, and The Bank of New York, as trustee (the "Trustee"), in private
transactions that were not subject to the registration requirements of the
Securities Act. The terms of the Notes include those stated in the respective
Indenture and those made part of the respective Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject
to all such terms, and Holders of Notes are referred to their respective
Indenture and the Trust Indenture Act for a statement thereof.
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The Notes are unsecured senior obligations of the Issuers and will rank
senior in right of payment to any existing and future subordinated Debt of the
Issuers, and pari passu in right of payment with all existing and future senior
Debt of the Issuers. As of March 31, 1997, the Notes ranked senior to no Debt
(excluding the RPPIs) and ranked pari passu with approximately $156.4 million of
Debt of the Issuers.
As of the date of this Prospectus, Globalstar has no Subsidiaries other
than Globalstar Capital, J.S.C. GlobalTel, a Russian company, and a Transitory
Equipment Subsidiary in Australia. If Globalstar creates or acquires any
Subsidiary in the future, such Subsidiary will be required to guarantee the
Notes unless such Subsidiary is a Transitory Equipment Subsidiary or is
designated by Globalstar as an Unrestricted Subsidiary. Any such Unrestricted
Subsidiaries will not be subject to the restrictive covenants contained in the
Indentures.
PRINCIPAL, MATURITY AND INTEREST
The 11 3/8% Senior Notes are unsecured senior obligations of the Issuers,
will be limited to $500 million aggregate principal amount and will mature on
February 15, 2004. The 11 1/4% Senior Notes are unsecured senior obligations of
the Issuers, will be limited to $350 million aggregate principal amount and will
mature on June 15, 2004. The 11 3/8% Senior Notes bear interest at the rate of
11 3/8% per annum, payable semi-annually on February 15 and August 15 of each
year, commencing August 15, 1997, to the Person in whose name the 11 3/8% Senior
Note (or any predecessor 11 3/8% Senior Note) is registered at the close of
business on the preceding February 1 or August 1, as the case may be. The
11 1/4% Senior Notes will bear interest at the rate of 11 1/4% per annum,
payable semi-annually on June 15 and December 15 of each year, commencing
December 15, 1997, to the Person in whose name the 11 1/4% Senior Note (or any
predecessor 11 1/4% Senior Note) is registered at the close of business on the
preceding June 1 or December 1, as the case may be. Interest on the 11 3/8%
Senior Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from February 19, 1997. Interest on the
11 1/4% Senior Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from June 13, 1997. Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
The Notes were issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The 11 3/8% Senior Notes and the 11 1/4% Senior Notes are not redeemable at
the Issuer's option prior to February 15, 2002 or June 15, 2002, respectively.
Thereafter, the Notes are subject to redemption at the option of the Issuers, in
whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages (if any) thereon to the applicable redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest and Liquidated Damages (if any) due on the relevant interest
payment date), if redeemed during the twelve-month period beginning on February
15 or June 15, respectively, of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE
-----------------------------------------
11 3/8% SENIOR 11 1/4% SENIOR
YEAR NOTES NOTES
------------------------------------------- ------------------ ------------------
<S> <C> <C>
2002....................................... 105.688% 105.625%
2003....................................... 102.844% 102.813%
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Note of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions of them called for redemption.
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CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require that the Issuers repurchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages (if any) to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest and Liquidated Damages (if any) due on the relevant interest
payment date).
"Change of Control" means:
(i) the sale, lease or transfer, in one transaction or a series of
related transactions, of all or substantially all the assets of Globalstar
and the Restricted Subsidiaries;
(ii) the adoption of a plan relating to the liquidation or dissolution
of Globalstar or Globalstar Capital;
(iii) one or more Dispositions which cause Loral's direct and indirect
equity interest in Globalstar to be reduced by more than 30% as compared to
its direct and indirect equity interest in Globalstar as of December 31,
1996; or
(iv) the first day on which:
(a) Globalstar fails to own, of record and beneficially, 100% of
the equity interests and voting stock of Globalstar Capital; or
(b) Loral fails to be, or, directly or indirectly, fails solely to
control, the sole managing general partner of Globalstar.
Notwithstanding clauses (i), (ii) and (iv)(b) above, neither the
acquisition by GTL, Loral or any wholly owned subsidiary of Loral of a majority
of the partnership interests in, or substantially all the assets of, Globalstar,
nor the merger of Globalstar with and into GTL, Loral or any wholly owned
subsidiary of Loral shall constitute a change in control; provided, however,
that with respect to clause (iv)(b), Loral continues to control, or is, the
corporate successor to Globalstar.
"Disposition" means (i) the sale, transfer or other conveyance by Loral or
any of its Subsidiaries (other than to a wholly owned subsidiary of Loral) of
(a) Globalstar partnership interests or (b) equity interests in any entity (an
"intermediate entity") which owns, directly or indirectly, Globalstar
partnership interests or (ii) the issue and sale by any such intermediate entity
of its equity securities to one or more third parties if and to the extent the
proceeds of such issue and sale are distributed by such intermediate entity to
Loral or any of its Subsidiaries.
Within 30 days following any Change of Control, the Issuers shall mail a
notice to each Holder with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Issuers
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
(if any) to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest and Liquidated Damages (if any) on
the relevant interest payment date); (ii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization, each after giving effect
to such Change of Control); (iii) the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions determined by the Issuers, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
The Issuers shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuers shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached their obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Initial Purchasers. Management has no present intention and
is not aware that Loral has any present intention to
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engage in a transaction involving a Change of Control. Subject to the
limitations discussed below, the Issuers or Loral could, in the future, enter
into certain transactions, including, dispositions, acquisitions, refinancings
or other recapitalizations, that would not constitute a Change of Control under
the Indentures, but that could change the ownership, increase the amount of
indebtedness outstanding or otherwise affect Globalstar's capital structure or
credit ratings. Restrictions on the ability of the Issuers to Incur additional
Debt are contained in the covenants described under "-- Covenants -- Limitation
on Consolidated Debt" and "-- Covenants -- Limitation on Liens". Such
restrictions can only be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. Except for the limitations
contained in such covenants, however, the Indentures will not contain any
covenants or provisions that may afford Holders of the Notes protection in the
event of a highly leveraged transaction.
Future indebtedness of the Issuers may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Issuers to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on
Globalstar. Finally, the Issuers' ability to pay cash to the Holders of Notes
following the occurrence of a Change of Control may be limited by the Issuers'
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under each Indenture relative to the Issuers' obligation to make an
offer to repurchase the Notes issued pursuant to such Indenture as a result of a
Change of Control may be waived or modified with the written consent of the
Holders of a majority in principal amount of the Notes issued pursuant to such
Indenture.
ASSET DISPOSITIONS
The Issuers may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Disposition unless: (i) Globalstar,
Globalstar Capital or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration) of the
shares and assets subject to such Asset Disposition, as determined by the
General Partners' Committee of Globalstar in good faith and evidenced by a
resolution filed with the Trustee; (ii) at least 80% of the consideration
thereof received by Globalstar, Globalstar Capital or such Restricted
Subsidiary, as the case may be, consists of (a) cash or Marketable Securities or
(b) the assumption of Debt (other than Subordinated Obligations) of Globalstar,
Globalstar Capital or such Restricted Subsidiary and the release of the Issuers
and the Restricted Subsidiaries, as applicable, from all liability on the Debt
assumed; and (iii) all Net Available Proceeds, less any amounts invested within
180 days of such disposition in assets that comply with the covenant described
under "-- Covenants -- Business Activities", are applied within 180 days of such
disposition (1) first, to the permanent repayment or reduction of Debt then
outstanding under any Bank Credit Agreement or Vendor Financing Facility, to the
extent such agreement or facility would require such application or prohibit
payments pursuant to the following clause (2), (2) second, to the extent of
remaining Net Available Proceeds, to make an Offer to Purchase outstanding Notes
at 100% of their principal amount plus accrued and unpaid interest and
Liquidated Damages (if any) to the date of purchase thereon and, to the extent
required by the terms thereof, any other Debt of Globalstar, Globalstar Capital
or a Restricted Subsidiary that ranks pari passu with the Notes at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase and (3) third, to the extent of any remaining
Net Available Proceeds following the completion of the Offer to Purchase, to the
repayment of other Debt of Globalstar or Debt of a Restricted Subsidiary, to the
extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, Globalstar and the Restricted Subsidiaries may
use such amounts for any purposes not prohibited by the Indentures.
Notwithstanding the foregoing, these provisions shall not apply to any Asset
Disposition which constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially all of Globalstar's properties or assets as
described under "-- Covenants -- Merger, Consolidation or Sale of Assets".
The Issuers shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with
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provisions of this covenant, the Issuers shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under this covenant by virtue thereof. The provisions under the
Indentures relative to the Issuers' obligation to make an Offer to Purchase the
Notes as described in this covenant may be waived or modified with the written
consent of the Holders of a majority in principal amount of the Notes.
COVENANTS
The Indentures contain, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Issuers may not, and may not permit any Restricted Subsidiary to, Incur
any Debt; provided, however, that the Issuers or any Restricted Subsidiary may
Incur Debt so long as the ratio of (i) the aggregate consolidated principal
amount of Debt of the Issuers and the Restricted Subsidiaries outstanding as of
the most recent available quarterly or annual balance sheet, after giving pro
forma effect to the Incurrence of such Debt and any other Debt Incurred since
such balance sheet date and the receipt and application of the proceeds thereof
to (ii) Consolidated Cash Flow Available for Fixed Charges for the four full
fiscal quarters ending on the date of such balance sheet determined on a pro
forma basis as if any such Debt had been Incurred and the proceeds thereof had
been applied at the beginning of such four fiscal quarters, would be less than
4.0 to 1.0 (the "Debt Coverage Ratio").
Notwithstanding the foregoing limitation, the Issuers and any Restricted
Subsidiary may Incur the following:
(i) Debt Incurred under any one or more Bank Credit Agreements, Vendor
Financing Facilities or other agreements or arrangements to finance the
Build-out; provided, however, that Debt Incurred pursuant to this clause
(i), other than Debt Incurred pursuant to a Bank Credit Agreement or a
Vendor Financing Facility, shall not have a Stated Maturity on or earlier
than the Stated Maturity of the Notes, and shall not be mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or be
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity of the Notes;
(ii) Debt under any one or more Bank Credit Agreements or other
agreements or arrangements to finance working capital requirements of
Globalstar and any Refinancing Debt in respect of such Debt; provided,
however, at the time of the Incurrence of such Debt and after giving effect
thereto, the aggregate principal amount of all Debt Incurred pursuant to
this clause (ii) and then outstanding shall not exceed $100 million;
(iii) Debt owed by the Issuers to any Wholly-Owned Restricted
Subsidiary or Debt owed by any Wholly-Owned Restricted Subsidiary to the
Issuers or to another Wholly-Owned Restricted Subsidiary; provided,
however, that upon either (x) the transfer or other disposition by such
Wholly-Owned Restricted Subsidiary or the Issuers of any Debt so permitted
to a Person other than the Issuers or another Wholly-Owned Restricted
Subsidiary or (y) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Wholly-Owned Restricted
Subsidiary to a Person other than the Issuers or another such Wholly-Owned
Restricted Subsidiary, the provisions of this clause (iii) shall no longer
be applicable to such Debt and such Debt shall be deemed to have been
Incurred by the issuer thereof at the time of such issuance, sale, lease,
transfer or other disposition;
(iv) Refinancing Debt Incurred to Refinance Debt Incurred pursuant to
the first paragraph of this covenant or pursuant to clause (i), (vi) or
(vii) or this clause (iv) of this paragraph;
(v) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements;
(vi) Debt represented by the Notes;
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(vii) Debt outstanding on the Issue Date (other than Debt described in
clause (i), (ii), (iii), (vi) or (viii) of this paragraph);
(viii) Debt (including Capital Lease Obligations) of Globalstar or any
Restricted Subsidiary financing the purchase, lease or improvement of
property (real or personal) or equipment (whether through the direct
purchase of assets or the Capital Stock of any Person owning such assets),
in each case Incurred no more than 180 days after such purchase, lease or
improvement of such property and any Refinancing Debt in respect of such
Debt, provided, however, that (x) the amount of such Debt (net of original
issue discount) does not exceed, at the time initially Incurred, 90% of the
fair market value of such acquired property or equipment and (y) at the
time of the Incurrence of such Debt and after giving effect thereto, the
aggregate amount of all Debt Incurred pursuant to this clause (viii) and
then outstanding shall not exceed $100 million;
(ix) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of the Issuers or a Restricted Subsidiary, or in respect of a letter of
credit obtained to secure such performance; and
(x) Debt in an aggregate principal amount which, together with all
other Debt of the Issuers and the Restricted Subsidiaries outstanding on
the date of such Incurrence (other than Debt permitted by clauses (i)
through (ix) above or the first paragraph of this covenant) does not exceed
$50 million.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the types of Debt
the Issuers and the Restricted Subsidiaries are permitted to Incur, the Issuers
or such Restricted Subsidiary, as the case may be, shall have the right, in
their sole discretion, to classify such item of Debt at the time of its
Incurrence and shall only be required to include the amount and type of such
Debt under the clause permitting the Debt as so classified.
LIMITATION ON LIENS
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to Incur or permit to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except for the following Liens (each, a
"Permitted Lien"):
(i) Liens to secure up to $500 million of Debt are permitted to be
incurred under the 11 3/8% Indenture so long as effective provision is made
to secure the 11 3/8% Senior Notes equally and ratably with (or prior to)
the obligation so secured; Liens to secure up to $675 million of Debt
(including the amount of Debt outstanding at the time under the 11 3/8%
Indenture) are permitted to be incurred under the 11 1/4% Indenture so long
as effective provision is made to secure the 11 1/4% Senior Notes equally
and ratably with (or prior to) the obligations so secured;
(ii) Liens in favor of Holders of the Notes;
(iii) Liens in favor of the Issuers;
(iv) Liens on property or shares of Capital Stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property owned by such Person or any of its Subsidiaries (other than
inventory and receivables generated in the ordinary course of business and
substitute property);
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by means of
a merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries;
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(vi) Liens securing Debt Incurred pursuant to clause (viii) of the
second paragraph of the covenant described under "-- Limitation on
Consolidated Debt"; provided, however, that the Lien may not extend to any
assets owned by an Issuer or any Restricted Subsidiary other than (a) the
assets being financed or refinanced and income and proceeds therefrom and
(b) any other assets of such obligor securing other Debt of such obligor to
the same secured party;
(vii) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(viii) Liens existing on the Issue Date;
(ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(x) Liens incurred in the ordinary course of business of the Issuers
and the Restricted Subsidiaries with respect to obligations that do not
exceed $10.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by the Issuers and the Restricted Subsidiaries.
LIMITATION ON RESTRICTED PAYMENTS
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to make a Restricted Payment if at the time such Issuer or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) the Issuers are not
able to Incur an additional $1.00 of Debt pursuant to the first paragraph of the
covenant described under "-- Limitation on Consolidated Debt"; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of:
(a) 50% of the Consolidated Net Income of Globalstar accrued during
the period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which the
Issue Date occurs to the end of the most recent fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(b) the aggregate Net Cash Proceeds received by Globalstar from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of Globalstar and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Globalstar or any of its
Subsidiaries for the benefit of their employees);
(c) the amount by which Debt of Globalstar is reduced on the balance
sheet of Globalstar upon the conversion or exchange (other than by a
Subsidiary of Globalstar) subsequent to the Issue Date of any Debt of
Globalstar convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of Globalstar (less the amount of any cash, or the fair
value of any other property, distributed by Globalstar upon such conversion
or exchange); and
(d) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to Globalstar or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to Globalstar's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of
any Unrestricted Subsidiary,
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the amount of Investments previously made (and treated as a Restricted
Payment) by Globalstar or any Restricted Subsidiary in such Unrestricted
Subsidiary.
Notwithstanding the foregoing, Globalstar may (i) subject to clause (vi)
below, pay any dividend on Capital Stock of any class within 60 days after the
declaration thereof if, on the date when the dividend was declared, Globalstar
could have paid such dividend in accordance with the foregoing provisions; (ii)
repurchase any shares of its Capital Stock or options to acquire its Capital
Stock from Persons who were formerly officers or employees of Globalstar;
provided however, that the aggregate amount of all such repurchases made
pursuant to this clause (ii) shall not exceed $2 million, plus the aggregate
cash proceeds received by Globalstar since the Issue Date of its Capital Stock
or options to acquire its Capital Stock to members, officers, managers and
employees of Globalstar or any of its Subsidiaries; (iii) Refinance, and permit
its Restricted Subsidiaries to Refinance, any Debt otherwise permitted to be
Refinanced by clause (iv) of the second paragraph under "-- Limitation on
Consolidated Debt" above; (iv) so long as Globalstar is treated as a partnership
for U.S. federal income tax purposes, make distributions in respect of members'
or partners' income tax liability with respect to Globalstar in an amount not to
exceed the Tax Amount; (v) make distributions to GTL to pay GTL's ordinary and
reasonable operating expenses related to Globalstar, as set forth in an
Officers' Certificate delivered to the Trustee; (vi) pay any scheduled dividend
on Special Preferred Obligations; provided, however, that at the time of payment
of any such dividend (other than a dividend paid only by distributions of
additional Special Preferred Obligations), no other Default shall have occurred
and be continuing (or result therefrom); (vii) make any Restricted Payment by
exchange for, or out of the proceeds of the substantially concurrent sale of, or
capital contribution in respect of, Capital Stock of Globalstar (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of Globalstar or an employee stock ownership plan or to a trust established by
Globalstar or any of its Subsidiaries for the benefit of their employees);
(viii) contribute its Investment in Globaltel Russia to an Unrestricted
Subsidiary; and (ix) make other Restricted Payments in an aggregate amount not
to exceed $10 million.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vi),
(vii), (viii) and (ix) of the immediately preceding paragraph shall be excluded
from the calculation of the aggregate amount of Restricted Payments made since
the Issue Date; provided, however, that the Net Cash Proceeds from the issuance
of Capital Stock pursuant to clauses (ii) and (vii) of the immediately preceding
paragraph shall be excluded from the calculation of amounts under clause (b) of
the second preceding paragraph.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(i) pay dividends or make any other distributions to the Issuers or
any of their Restricted Subsidiaries on its Capital Stock or with respect
to any other interest or participation in, or measured by, its profits;
(ii) pay any indebtedness owed to the Issuers or any Restricted
Subsidiary;
(iii) make loans or advances to the Issuers or any Restricted
Subsidiary; or
(iv) transfer any of its properties or assets to the Issuers or any
Restricted Subsidiary.
Notwithstanding the foregoing, the Issuers may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction
(a) pursuant to any agreement in effect on the Issue Date; (b) pursuant to an
agreement relating to any Acquired Debt, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person so acquired and its Subsidiaries; (c) pursuant to an agreement
effecting a Refinancing of Debt Incurred pursuant to an agreement referred to in
clause (a) or (b) above or clause (d) below, provided, however, that the
provisions contained in such Refinancing agreement relating to such encumbrance
or restriction are no more restrictive taken as a
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whole (as determined in good faith by the Chief Financial Officer of Globalstar)
than the provisions contained in the predecessor agreement the subject thereof;
(d) in the case of clause (iii) above, consisting of restrictions contained in
any security agreement (including a Capital Lease Obligation) securing Debt of
the Issuers or a Restricted Subsidiary otherwise permitted under the Indentures,
but only to the extent such encumbrances or restrictions restrict the transfer
of the property subject to such security agreement; (e) in the case of clause
(iv) above, consisting of customary nonassignment provisions entered into in the
ordinary course of business in leases governing leasehold interests, but only to
the extent such provisions restrict the transfer of the lease or the property
thereunder; (f) with respect to a Restricted Subsidiary, imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary;
provided however, that after giving effect to such transaction no Default shall
have occurred or be continuing, that such restriction terminates if such
transaction is not consummated and that such consummation or abandonment of such
transaction occurs within one year of the date such agreement was entered into;
(g) imposed pursuant to applicable law or regulations; (h) imposed pursuant to
the Indentures and the Notes; or (i) consisting of any restriction on the sale
or other disposition of assets or property securing Debt as a result of a
Permitted Lien on such assets or property.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Issuers may not, and may not permit any Restricted Subsidiary to,
issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted Subsidiary to any person other than Globalstar, Globalstar
Capital or a Wholly-Owned Restricted Subsidiary except (i) in a transaction
consisting of a sale of all the Capital Stock of such Restricted Subsidiary and
that complies with the provisions described under "-- Asset Dispositions" above
to the extent such provisions apply; (ii) if required, the issuance, transfer,
conveyance, sale or other disposition of directors' qualifying shares; (iii) in
a transaction in which, or in connection with which, an Issuer or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; and (iv) Disqualified Stock of a Restricted
Subsidiary Incurred to Refinance Disqualified Stock of such Restricted
Subsidiary; provided, however, that the amounts of the redemption obligations of
such Disqualified Stock shall not exceed the amounts of the redemption
obligations of, and such Disqualified Stock shall have redemption obligations no
earlier than those required by, the Disqualified Stock being Refinanced.
TRANSACTIONS WITH AFFILIATES
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to enter into any transactions (or series of related
transactions) with an Affiliate or Related Person of the Issuers (other than the
Issuers or a Wholly-Owned Restricted Subsidiary) (an "Affiliate Transaction")
unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to Globalstar, Globalstar Capital or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by
Globalstar, Globalstar Capital or such Restricted Subsidiary, as the case
may be, with an unrelated Person; and
(ii) Globalstar delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1 million (other than financing transactions
that are not vendor financing transactions pursuant to a Vendor
Financing Facility) and entered into in connection with the Build-out, a
certificate of the Chief Executive Officer of Globalstar to the effect
that a majority of the disinterested limited partners of Globalstar have
approved such Affiliate Transaction; provided, however, that there is at
least one disinterested limited partner at the time of such Affiliate
Transaction; provided further, however, that any limited partner
receiving any compensation in respect of its approval shall be deemed
not to be a disinterested limited partner; or
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(b)(1) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $1 million, a certificate of the
Chief Executive Officer of Globalstar to the effect that such Affiliate
Transaction complies with clause (i) above; and (2) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $10
million, an opinion as to the fairness to Globalstar, Globalstar Capital
or such Restricted Subsidiary, as the case may be, of such Affiliate
Transaction from a financial point of view issued by an Independent
Financial Advisor or, with respect to telecommunications-related
matters, a recognized expert in the satellite telecommunications
industry;
provided, however, that the following shall be deemed not to be Affiliate
Transactions:
(1) employee compensation arrangements entered into in the ordinary
course of business and approved by the General Partners' Committee of
Globalstar;
(2) transactions solely between or among the Issuers and the
Restricted Subsidiaries;
(3) Restricted Payments permitted by the covenant described under
"-- Limitation on Restricted Payments";
(4) Investments by an Affiliate or Related Person of Globalstar or
Globalstar Capital in the Capital Stock (other than Disqualified Stock) of
Globalstar or any Restricted Subsidiary; and
(5) an Affiliate or Related Person of the Issuers acting as agent for
the placement or acquisition of launch services or insurance on behalf of
the Issuers or any Restricted Subsidary.
BUSINESS ACTIVITIES
The Issuers may not, and may not permit any Restricted Subsidiary to,
engage in any business other than that which is related to the design,
development, procurement, installation, operation and ownership of
telecommunications systems and businesses.
MAINTENANCE OF INSURANCE
The Issuers shall:
(i) maintain, with respect to each satellite in the Globalstar System,
for the period beginning at least 45 days prior to, and at all times up to
and including, the launch of such satellite, launch insurance with respect
to such satellite in an amount sufficient to provide for the construction,
launch and insurance of a replacement satellite to be payable in the event
of a launch failure; and
(ii) in the event that more than 16 of Globalstar's satellites have
ceased Operating for 90 consecutive days and fewer than 44 satellites are
Operating as part of the Globalstar System (such an event, an "In-orbit
Insurance Event"), obtain (within 60 days of such In-orbit Insurance
Event), and thereafter maintain, in-orbit insurance in an amount sufficient
to provide for the construction, launch and insurance of replacement
satellites for at least 16 of Globalstar's satellites still operating or,
if such in-orbit insurance in such amount is not then commercially
available from traditional insurance providers, such lesser amount as is so
available.
The obligation of the Issuers to maintain insurance pursuant to this
covenant may be satisfied by any combination of:
(i) insurance commitments obtained from any recognized insurance
provider;
(ii) insurance commitments obtained from any other entity if the
General Partners' Committee of Globalstar determines in good faith that
such entity is creditworthy and otherwise capable of bearing the financial
risk of providing such insurance;
(iii) unrestricted cash segregated and maintained by Globalstar in a
segregated account (the "Insurance Account") solely for disbursement in
accordance with the last paragraph of this covenant ("Cash Insurance"); and
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(iv) in respect of the insurance described in clause (i) of the
preceding paragraph, self-insurance for the launch of up to 12 satellites;
provided, however, that no earlier than 60 days prior to the scheduled
launch of any such satellites:
(a) the Issuers deliver an Officers' Certificate to the Trustee
certifying that they have sufficient committed capital to construct,
launch and insure at least 44 satellites, in addition to the satellites
with respect to which the Issuers are self-insuring; and
(b) the Issuers obtain an opinion from an investment banking firm
that is an Independent Financial Advisor to the effect that the Issuers
would be able to raise sufficient capital in the capital markets to
replace, relaunch and insure such satellites in the event of a failure
to successfully launch such satellites.
Within 30 days following any date on which the Issuers are required to
obtain insurance pursuant to the Indentures, the Issuers will deliver to the
Trustee an insurance certificate certifying the amount of insurance then carried
and an Officers' Certificate stating that such insurance, together with any
other insurance or Cash Insurance maintained by the Issuers, complies with the
Indentures. In addition, the Issuers will cause to be delivered to the Trustee
no less than once each year an insurance certificate setting forth the amount of
insurance then carried, which insurance certificate shall entitle the Trustee
to:
(i) notice of any claim under any such insurance policy; and
(ii) at least 30 days notice from the provider of such insurance prior
to the cancellation of any such insurance.
In the event that the Issuers maintain any Cash Insurance in satisfaction of any
part of their obligation to maintain insurance pursuant to this covenant, the
Issuers shall deliver an Officers' Certificate to the Trustee in lieu of any
insurance certificate otherwise required by this covenant.
In the event that the Issuers receive any proceeds of any launch or
in-orbit insurance that they are required to maintain pursuant to this covenant,
such proceeds shall constitute "Insurance Proceeds." In addition, if the Issuers
maintain any Cash Insurance in satisfaction of any part of their obligations to
maintain in-orbit insurance pursuant to this covenant, then upon the occurrence
of the event (i.e., the in-orbit failure) that would have entitled the Issuers
to the payment of insurance had the Issuers purchased insurance from an
insurance provider, the cash maintained in the Insurance Account shall
constitute "Insurance Proceeds." Promptly following the receipt of any Insurance
Proceeds, the Issuers shall apply such Insurance Proceeds in accordance with the
covenant described under "-- Asset Dispositions"; provided, however, that
Insurance Proceeds shall only be required to be so applied to the extent that
the aggregate amount of all Insurance Proceeds received by the Issuers exceeds
$5 million in any 12-month period.
SEC REPORTS
Notwithstanding that the Issuers may not be, or may not be required to
remain, subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Issuers shall file with the Commission (unless the Commission
will not accept such filing) and provide the Trustee and Holders of the Notes
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
In addition, for so long as any Notes remain outstanding, the Issuers shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither Globalstar nor Globalstar Capital may consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person; provided,
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however, that Globalstar may consolidate with or merge with or into, or convey,
transfer or lease, all or substantially all its assets to, any Person, if (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
Globalstar) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of Globalstar under the Notes and the Indentures; (ii)
immediately after giving effect to such transaction (and treating any Debt which
becomes an obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred and
be continuing, (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Debt pursuant to
the terms of the first paragraph of the covenant described under "-- Limitation
on Consolidated Debt"; (iv) immediately after giving effect to such transaction,
the Successor Company shall have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of Globalstar immediately prior to such
transaction; and (v) Globalstar shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such transaction and
such supplemental indenture (if any) comply with the Indentures.
Globalstar may not permit any Subsidiary Guarantor (as defined below) to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, all or substantially all of its assets
to any Person unless: (i) the resulting, surviving or transferee Person (if not
such Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of the
United States of America, or any State thereof or the District of Columbia, and
such Person shall expressly assume, by a guaranty agreement, in a form
satisfactory to the Trustee, all the obligations of such Subsidiary, if any,
under its Subsidiary Guaranty; (ii) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Debt which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing; and (iii)
Globalstar delivers to the Trustee a certificate of an officer and an opinion of
counsel, each stating that such consolidation, merger or transfer and such
guaranty agreement, if any, complies with the Indentures.
The Successor Company shall be the successor to Globalstar and shall
succeed to, and be substituted for, and may exercise every right and power of,
Globalstar under the Indentures, and the predecessor Company (other than in the
case of a lease) shall be released from the obligation to pay the principal of
and interest and Liquidated Damages (if any) on the Notes.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has not
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of Globalstar or
Globalstar Capital, and therefore it may be unclear whether the foregoing
provisions are applicable.
FUTURE GUARANTORS
In the event that, after the Issue Date, Globalstar shall acquire or create
a Subsidiary, Globalstar shall cause such Subsidiary (unless such Subsidiary is
a Transitory Equipment Subsidiary or is an Unrestricted Subsidiary) to Guarantee
the Notes on terms and conditions set forth in the Indentures (such Guarantee, a
"Subsidiary Guaranty").
The form of the Subsidiary Guaranty provided by Restricted Subsidiaries
(each, a "Subsidiary Guarantor") is provided for in the Indentures. Each
Subsidiary Guaranty will be limited in amount to an amount not to exceed the
maximum amount that can be guaranteed by the applicable Subsidiary Guarantor
without rendering the Subsidiary Guaranty, as it relates to such Subsidiary
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Upon the sale or other disposition of a Subsidiary Guarantor or the sale or
disposition of all
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or substantially all the assets of a Subsidiary Guarantor (in each case other
than to Globalstar or an Affiliate of Globalstar) permitted by the Indentures,
such Subsidiary Guarantor will be released and relieved from all its obligations
under its Subsidiary Guaranty.
BUSINESS ACTIVITIES OF GLOBALSTAR CAPITAL
Globalstar Capital shall not engage in any trade or business, and shall
conduct no business activity, other than the Incurrence of Debt permitted by the
covenant described under "-- Limitation on Consolidated Debt" and the issuance
of Capital Stock to Globalstar or any Wholly Owned Restricted Subsidiary and
activities incidental thereto.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in each Indenture as (i) a default in the
payment of interest or Liquidated Damages (if any) on the Notes when due,
continued for 30 days, (ii) a default in the payment of principal of any Note
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise, (iii) the failure by the Issuers to
comply with their obligations under "--Covenants--Merger, Consolidation or Sale
of Assets" above, (iv) the failure by the Issuers to comply for 30 days after
notice with any of their obligations in the covenants described above under
"-- Change of Control" (other than a failure to purchase Notes) or "-- Asset
Dispositions" (other than a failure to purchase Notes) or under "--Covenants"
under "--Limitation on Consolidated Debt", "--Limitation on Liens", "--
Limitation on Restricted Payments", "--Dividend and Other Payment Restrictions
Affecting Subsidiaries", "--Limitation on Issuances and Sales of Capital Stock
of Restricted Subsidiaries", "--Transactions with Affiliates", "--Business
Activities", "--Maintenance of Insurance", "--SEC Reports", "--Future
Guarantors" and "--Business Activities of Globalstar Capital", (v) the failure
by the Issuers to comply for 60 days after notice with their other agreements
contained in such Indenture, (vi) Debt of the Issuers or any Significant
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $10 million (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of Globalstar, Globalstar Capital or a Significant Subsidiary
(the "bankruptcy provisions"), (viii) any judgment or decree for the payment of
money in excess of $10 million is entered against Globalstar, Globalstar Capital
or a Significant Subsidiary, remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within 10 days
after notice (the "judgment default provision") or (ix) a Subsidiary Guaranty
ceases to be in full force and effect (other than in accordance with the terms
of such Subsidiary Guaranty) or any Subsidiary Guarantor denies or disaffirms
its obligations under its Subsidiary Guaranty. However, a default under clauses
(iv), (v) and (viii) will not constitute an Event of Default under an Indenture
until the Trustee or the Holders of 25% in principal amount of the outstanding
Notes issued pursuant to such Indenture notify the Issuers of the default and
the Issuers do not cure such default within the time specified after receipt of
such notice.
If an Event of Default occurs under an Indenture and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Notes issued pursuant to such Indenture may declare the principal of and accrued
but unpaid interest and Liquidated Damages (if any) on all the Notes issued
pursuant to such Indenture to be due and payable. Upon such a declaration, such
principal, interest and Liquidated Damages shall be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of either Issuer occurs and is continuing, the principal of and
interest and Liquidated Damages (if any) on all such Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of such Notes. Under certain
circumstances, the Holders of a majority in principal amount of such outstanding
Notes may rescind any such acceleration with respect to such Notes and its
consequences. Subject to the provisions of such Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the Holders of the
Notes issued pursuant to such Indenture unless such Holders have offered to the
Trustee reasonable indemnity or security against any loss, liability or expense.
Except to enforce the right to
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receive payment of principal, premium (if any) or interest or Liquidated Damages
(if any) when due, no Holder of any such Note may pursue any remedy with respect
to such Indenture or such Notes unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of such outstanding Notes have requested the Trustee to
pursue the remedy, (iii) such Holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt thereof and
the offer of security or indemnity and (v) the Holders of a majority in
principal amount of such outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of such
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder of such a Note or that would involve the Trustee in personal liability.
Each Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder of the Notes issued
pursuant to such Indenture notice of the Default within 90 days after it occurs.
Except in the case of a Default in the payment of principal of or interest or
Liquidated Damages (if any) on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is in the interest of the Holders of such Notes. In addition, Globalstar is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. Globalstar also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
Globalstar is taking or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, partner (including general partners), employee,
incorporator or stockholder of the Issuers, as such, shall have any liability
for any obligations of the Issuers under the Notes or the Indentures or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes, by accepting a Note, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers at any time may terminate all their obligations under the
11 3/8% Senior Notes or the 11 1/4% Senior Notes and the Indenture applicable
thereto ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the 11 3/8% Senior Notes or 11 1/4% Senior Notes, as applicable, to
replace mutilated, destroyed, lost or stolen 11 3/8% Senior Notes or 11 1/4%
Senior Notes, as applicable, and to maintain a registrar and paying agent in
respect of the 11 3/8% Senior Notes or 11 1/4% Senior Notes, as applicable. With
respect to either Indenture, the Issuers at any time may terminate their
obligations under "--Change of Control" and "--Asset Dispositions" and under the
covenants described under "--Covenants" (other than the covenant described under
"--Covenants --Merger, Consolidation and Sale of Assets"), the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Events of Default and Remedies" above and the limitations contained in
clauses (iii) and (iv) under "--Covenants--Merger, Consolidation and Sale of
Assets" above ("covenant defeasance").
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the respective Notes may not
be accelerated because of an Event of Default with respect thereto. If the
Issuers exercise their covenant defeasance option, payment of the respective
Notes may not be accelerated because of an Event of Default specified in clause
(iv), (vi), (vii) (with respect only to Significant Subsidiaries) or (viii)
under
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"--Events of Default and Remedies" above or because of the failure of the
Issuers to comply with clause (iii) or (iv) under "--Covenants--Merger,
Consolidation and Sale of Assets" above. If the Issuers exercise their legal
defeasance option or their covenant defeasance option, each Subsidiary Guarantor
will be released from all its obligations with respect to such Subsidiary
Guaranty.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest and Liquidated
Damages (if any) on the respective Notes to redemption or maturity, as the case
may be, and must comply with certain other conditions, including delivery to the
Trustee of an Opinion of Counsel to the effect that holders of the respective
Notes will not recognize income, gain or loss for Federal income tax purposes as
a result of such deposit and defeasance and will be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change after the Issue Date in
applicable Federal income tax law).
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with their respective
Indenture. The Registrar and Trustee may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by their
respective Indenture. The Issuers are not required to transfer or exchange any
Notes selected for redemption. Also, the Issuers are not required to transfer or
exchange any Notes for a period of 15 days before a selection of such Notes to
be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the 11 3/8% Indenture or the 11 3/8% Senior
Notes and the 11 1/4% Indenture or the 11 1/4% Senior Notes may be amended with
the consent of the Holders of a majority in principal amount of the 11 3/8%
Senior Notes or the 11 1/4% Senior Notes, as applicable, then outstanding
(including consents obtained in connection with a tender offer or exchange for
such Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of such
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may, among other things, (i)
reduce the amount of such Notes whose Holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest or Liquidated
Damages (if any) on any such Note, (iii) reduce the principal of or extend the
Stated Maturity of any such Note, (iv) reduce the premium payable upon the
redemption of any such Note or change the time at which any such Note may be
redeemed as described under "--Optional Redemption", (v) make any such Note
payable in money other than that stated in such Note, (vi) impair the right of
any Holder of such Notes to receive payment of principal of and interest and
Liquidated Damages (if any) on such Notes of such Holder on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Notes of such Holder, (vii) make any change in the
amendment provisions which require each such Holder's consent or in the waiver
provisions or (viii) make any change in any Subsidiary Guaranty that would
adversely affect the the rights of such Noteholders.
Without the consent of any Holder of the 11 3/8% Senior Notes or the
11 1/4% Senior Notes, as applicable, the Issuers and Trustee may amend the
Indenture pursuant to which such Notes were issued or such Notes to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of Globalstar under such Indenture, to
provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
guarantees with respect to such Notes, to release such guarantees, to secure
such Notes, to add to the covenants of the Issuers for the benefit of the
Holders of such Notes or to
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surrender any right or power conferred upon the Issuers, to make any change that
does not adversely affect the rights of any Holder of such Notes or to comply
with any requirement of the SEC in connection with the qualification of such
Indenture under the Trust Indenture Act.
The consent of the Holders of the respective Notes is not necessary under
the Indentures to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under an Indenture becomes effective, the Issuers are
required to mail to Holders of the Notes issued pursuant to such Indenture a
notice briefly describing such amendment. However, the failure to give such
notice to all Holders of such Notes, or any defect therein, will not impair or
affect the validity of the amendment.
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the rights of the Trustee
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. Each Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the respective
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it, in its sole
discretion, against any loss, liability or expense.
DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the respective Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of
any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Restricted Subsidiary of such specified Person
and (ii) Debt secured by a Lien encumbering any asset acquired by such specified
Person, which Debt or Lien was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person, directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specific Person. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; provided, however, that beneficial
ownership of 10% or more of the voting securities of a Person shall be decreed
to be control. The terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition (collectively, any "disposition") by the Issuers or any Restricted
Subsidiary (including any disposition by means of a consolidation, merger or
similar transaction) but excluding a disposition by a Restricted Subsidiary to
the Issuers or a Wholly-Owned Restricted Subsidiary or by the Issuers to a
Wholly-Owned Restricted Subsidiary of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary, (ii) all or substantially all of
the assets of the Issuers or any Restricted Subsidiary representing a division
or line of business or (iii) other assets or rights of such Person or any of its
Restricted Subsidiaries other than a disposition (a) in
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the ordinary course of business, (b) that constitutes a Restricted Payment which
is permitted under "-- Covenants -- Limitation on Restricted Payments" above or
(c) that is subject to the provisions set forth in the first paragraph under
"-- Covenants -- Merger, Consolidation or Sale of Assets" above; provided,
however, that a transaction described in clauses (i), (ii) and (iii) shall
constitute an Asset Disposition only to the extent that the aggregate
consideration for all such transfers, conveyances, sales, leases or other
dispositions exceeds $5 million in any 12-month period.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credits) between Globalstar, Globalstar Capital
or any Restricted Subsidiary and one or more banks or other financial
institutions providing financing for the business of Globalstar and its
Restricted Subsidiaries.
"Build-out" means the construction, acquisition, improvement, operation and
development (including all costs related thereto) of the Globalstar System,
until such time as Globalstar shall have (i) constructed at least 64 satellites
for use in the Globalstar System; (ii) launched or attempted to launch (through
"intentional ignition") at least 56 satellites for use in the Globalstar System;
and (iii) commenced commercial service of the Globalstar System with at least 44
satellites in orbit and Operating.
"Capital Lease Obligation" of any Person means an obligation that is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP (a "Capital
Lease"). The Stated Maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The amount of such Debt represented by such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person and shall (i) include any Special Preferred Obligations
and other preferred equivalent obligations and (ii) exclude debt securities
convertible into Capital Stock.
"Commission" means the Securities and Exchange Commission and any successor
agency.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of Globalstar and its Restricted Subsidiaries for
such period plus Consolidated Interest Expense of Globalstar and its Restricted
Subsidiaries for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense of
Globalstar and its Restricted Subsidiaries for such period, (ii) the
consolidated depreciation and amortization expense included in the income
statement of Globalstar and its Restricted Subsidiaries for such period and
(iii) any non-cash expense related to the issuance to employees of Globalstar or
any Restricted Subsidiary of Globalstar of options to purchase Capital Stock of
Globalstar or such Restricted Subsidiary; provided, however, that there shall be
excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if
positive) of any Restricted Subsidiary (calculated separately for such
Restricted Subsidiary in the same manner as provided above for Globalstar) that
is subject to a restriction which prevents the payment of dividends or the
making of distributions to Globalstar or another Restricted Subsidiary to the
extent of such restriction; provided further, however, that if Consolidated Cash
Flow Available For Fixed Charges for any period shall be less than $1,
Consolidated Cash Flow For Fixed Charges for such period shall be deemed to be
$1.
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"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of Globalstar and the Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of Globalstar and the Restricted Subsidiaries for such period calculated
on a consolidated basis in accordance with GAAP, plus, to the extent not so
included, cash dividends paid during such period on Special Preferred
Obligations.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of Globalstar and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, less the amount of
any cash dividends paid during such period on Special Preferred Obligations;
provided, however, that there shall be excluded therefrom (i) the net income (or
loss) of any Person acquired by Globalstar or a Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (ii) the net income (and loss) of any Person that is not a
Restricted Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to Globalstar or a Restricted Subsidiary by such
Person during such period, (iii) gains (but not losses) on Asset Dispositions by
Globalstar or any Restricted Subsidiary, (iv) all extraordinary gains and
losses, (v) the cumulative effect of changes in accounting principles, (vi)
non-cash gains or losses resulting from fluctuations in currency exchange rates,
(vii) any noncash gain or loss realized on the termination of any employee
pension benefit plan and (viii) the tax effect of any of the items described in
clauses (i) through (vii) above; provided further, however, that for purposes of
any determination pursuant to the provisions described under
"-- Covenants -- Limitation on Restricted Payments," (a) there shall further be
excluded therefrom the net income (but not net loss) of any Restricted
Subsidiary that is subject to a restriction which prevents the payment of
dividends or the making of distributions to Globalstar or another Restricted
Subsidiary of Globalstar to the extent of such restriction and (b) there shall
further be deducted therefrom an amount equal to the Tax Amount paid by
Globalstar during such period.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less amounts attributable to Disqualified Stock of such Person; provided,
however, that, with respect to Globalstar, adjustments following the date of the
Indentures to the accounting books and records of Globalstar in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise resulting from the acquisition of control of Globalstar by
another Person shall not be given effect to.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including any such obligations Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith), (v) every Capital Lease Obligation of such Person, (vi) all Receivables
Sales of such Person, together with any obligation of such Person to pay any
discount, interest, fees, indemnities, penalties, recourse, expenses or other
amounts in connection therewith, (vii) all obligations to redeem Disqualified
Stock issued by such Person, (viii) all Attributable Debt, (ix) every obligation
under Interest Rate and Currency Protection Agreements of such Person, (x) every
obligation of the type referred to in clauses (i) through (ix) of another Person
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the fair market value of such property or assets and
the amount of the obligation so secured and (xi) every obligation of the type
referred to in clauses (i) through (x) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Debt at any time of determination as used
herein represented by (a) any Debt issued at a price that is less than the
principal amount at maturity thereof,
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shall be the amount of the liability in respect thereof determined in accordance
with GAAP (b) any Receivables Sale shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than Globalstar or a
Wholly-Owned Restricted Subsidiary) thereof, excluding amounts representative of
yield or interest earned on such investment, (c) any Disqualified Stock, shall
be the maximum fixed redemption or repurchase price in respect thereof, (d) any
Capital Lease Obligation, shall be determined in accordance with the definition
thereof and (e) any Permitted Interest Rate or Currency Protection Agreement
shall be zero. In no event shall Debt include any liability for taxes. For
purposes of determining any particular amount of Debt, Guarantees or Liens with
respect to letters of credit supporting Debt otherwise included in the
determination of a particular amount shall not be included.
"Default" means an event that is, or after the passing of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
first anniversary of the final Stated Maturity of the Notes; provided, however,
that any Preferred Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require Globalstar to
repurchase or redeem such Preferred Stock upon the occurrence of a change of
control occurring prior to the first anniversary of the final Stated Maturity of
the Notes shall not constitute Disqualified Stock if the change of control
provisions applicable to such Preferred Stock are no more favorable to the
holders of such Preferred Stock than the provisions applicable to the Notes
contained in the covenant described under "-- Change of Control" and such
Preferred Stock specifically provides that Globalstar will not repurchase or
redeem any such stock pursuant to such provisions prior to Globalstar's
repurchase of such Notes as are required to be repurchased pursuant to the
covenant described under "-- Change of Control"; provided further, however, that
all Special Preferred Obligations shall be deemed to be Disqualified Stock.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Event of Default" has the meaning set forth under "-- Events of Default
and Remedies" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"General Partners' Committee" means the committee consisting of
representatives of the general partners of Globalstar that governs the
activities of Globalstar.
"Globalstar System" means Globalstar's worldwide, low-earth orbit,
satellite-based digital telecommunications system as described in Globalstar's
Offering Memoranda, dated February 13, 1997 and June 10, 1997, with respect to
the Notes.
"Globaltel Russia" means Globalstar-Space Telecommunications, a Russian
closed joint stock company.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is
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pledged and which have a remaining weighted Average Life to maturity of not more
than one year from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person, (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any obligation of
such Person, (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Debt of the payment of such Debt, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Debt (and "Guaranteed",
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Holders" means the registered holders from time to time of the Notes.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to GAAP or otherwise, of any such Debt or other obligation on the balance sheet
of such Person (and "Incurrence", "Incurred" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time becoming Debt
shall not be deemed an Incurrence of such Debt and that neither the accrual of
interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt. Notwithstanding the foregoing, Globalstar may elect to treat
all or any portion of revolving credit debt of Globalstar or a Subsidiary as
being Incurred from and after any date beginning the date the revolving credit
commitment is extended to Globalstar or a Subsidiary, by furnishing notice
thereof to the Trustee, and any borrowings or reborrowings by Globalstar or a
Subsidiary under such commitment up to the amount of such commitment designated
by Globalstar as Incurred shall not be deemed to be new Incurrences of Debt by
Globalstar or such Subsidiary; provided, however, that the undrawn portion of
any such revolving credit debt shall be deemed to be outstanding Debt until such
time as the commitment thereunder is terminated. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Debt.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgement of the General Partners' Committee of Globalstar, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Issuers and their Subsidiaries and Affiliates.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but excluding any loan, advance or extension of credit to an
employee of Globalstar or any Restricted Subsidiary in the ordinary course of
business, accounts receivables and other commercially reasonable extensions of
trade credit.
"Issue Date" means February 19, 1997 with respect to the issuance of the
11 3/8% Senior Notes and June 13, 1997 with respect to the issuance of the
11 1/4% Senior Notes.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than
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any easement not materially impairing usefulness or marketability), encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the foregoing
or any Sale and Leaseback Transaction).
"Marketable Securities" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of Globalstar) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc. or "A-1"
or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than 7
days for Government Securities entered into with an Eligible Institution; and
(vi) any fund investing exclusively in investments of the types described in
clauses (i) through (v) above.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Marketable Securities received (including by way of sale or discounting
of a note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiror of Debt or
other obligations relating to such properties or assets) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of funds
from a foreign subsidiary to Globalstar or another Subsidiary of Globalstar)
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition, (iv) appropriate amounts to be provided by
such Person or any Restricted Subsidiary thereof, as the case may be, as a
reserve in accordance with GAAP against any liabilities associated with such
assets and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each case
as determined by the General Partners' Committee of Globalstar, in its
reasonable good faith judgment evidenced by a board resolution filed with the
Trustee; provided, however, that any reduction in such reserve within twelve
months following the consummation of such Asset Disposition will be treated for
all purposes of the Indentures and the Notes as a new Asset Disposition at the
time of such reduction with Net Available Proceeds equal to the amount of such
reduction, and (v) any consideration for an Asset Disposition (which would
otherwise constitute Net Available Proceeds) that is required to be held in
escrow pending determination of whether a purchase price adjustment will be
made, but amounts under this clause (v) shall become Net Available Proceeds at
such time and to the extent such amounts are released to such Person.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Debt" means Debt:
(i) as to which neither the Issuers nor any Restricted Subsidiary:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Debt);
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(b) is directly or indirectly liable (as a guarantor or otherwise);
or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Issuer or
any Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Debt of the Issuers or any Restricted
Subsidiary to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Issuers or any of
their Restricted Subsidiaries.
"Offer to Purchase" means a written offer (the "Offer") sent by Globalstar
by first class mail, postage prepaid, to each holder at his address appearing in
the Note Register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indentures). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. The
Issuers shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of
Globalstar's obligation to make an Offer to Purchase, and the Offer shall be
mailed by Globalstar or, at Globalstar's request, by the Trustee in the name and
at the expense of Globalstar. The Offer shall contain information concerning the
business of Globalstar and its Subsidiaries which Globalstar in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the Indentures
(which requirements may be satisfied by delivery of such documents together with
the Offer), (ii) a description of material developments in Globalstar's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring Globalstar to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring Globalstar
to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such holders to tender Notes pursuant to the
Offer to Purchase.
"Operating" means, with respect to any satellite, that at least 50% of the
call circuits of such satellite are operating at design performance
specifications.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means an Investment by an Issuer or any Restricted
Subsidiary (i) in any Person as a result of which such Person becomes a
Restricted Subsidiary, (ii) in Marketable Securities, (iii) in Permitted
Interest Rate or Currency Protection Agreements, (iv) made as a result of the
receipt of noncash consideration from an Asset Disposition that was made
pursuant to and in compliance with the covenant described under "-- Asset
Dispositions" and (v) consisting of loans or advances to employees made in the
ordinary course of business not to exceed $3 million in the aggregate
outstanding at any one time.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
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"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of the Issuers or
any Restricted Subsidiary existing on the Issue Date or Incurred in compliance
with the Indentures, including Debt that Refinances Refinancing Debt; provided,
however, that (i) such Refinancing Debt has a Stated Maturity no earlier than
the Stated Maturity of the Debt being Refinanced, (ii) such Refinancing Debt has
an Average Life at the time such Refinancing Debt is Incurred that is equal to
or greater than the Average Life of the Debt being Refinanced, (iii) such
Refinancing Debt has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and expenses,
including any premium and defeasance costs) under the Debt being Refinanced,
(iv) in the event the Debt being Refinanced constitutes a Subordinated
Obligation, the Refinancing Debt is subordinated to the Notes to at least the
same extent as the Debt being Refinanced and (v) Special Preferred Obligations
may only be Refinanced with Preferred Stock (other than Preferred Stock that is
Disqualified Stock), other Special Preferred Obligations or Subordinated
Obligations; provided further, however, that Refinancing Debt shall not include
(x) Debt of a Subsidiary that Refinances Debt of the Issuers or (y) Debt of the
Issuers or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 10% or more of the outstanding common equity of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person) or (b) 10% or more of the combined voting
power of the Voting Stock of such Person.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Issuers or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Restricted Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the an Issuer
held by any Person or of any Capital Stock of a Restricted Subsidiary held by
any Affiliate of the Issuers (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Issuers that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
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"Restricted Subsidiary" means any Subsidiary of Globalstar, whether
existing on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby an Issuer or a Restricted Subsidiary
transfers such property to a Person and an Issuer or a Restricted Subsidiary
leases it from such Person.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Special Preferred Obligations" means (i) preferred partnership interests
of Globalstar existing as of the Issue Date and (ii) any preferred partnership
interests, convertible preferred equivalent obligations or similar preferred
obligations of Globalstar issued after the Issue Date to finance the Build-out;
provided, however, that any such preferred partnership interests, convertible
preferred equivalent obligations or similar preferred obligations of Globalstar
issued after the Issue Date shall not constitute Special Preferred Obligations
if such interest or obligation, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable at the option of
the Holders), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the Notes; provided further, however, that any such
interest or obligation which would constitute Special Preferred Obligations but
for provisions thereof giving holders thereof the right to require Globalstar to
repurchase or redeem such interest or obligation upon the occurrence of a change
of control occurring prior to the final Stated Maturity of the Notes shall
constitute Special Preferred Obligations if the change of control provisions
applicable to such interest or obligation are no more favorable to the holders
of such interest or obligation than the provisions applicable to the Notes
contained in the covenant described under "-- Change of Control" and such
interest or obligation specifically provides that Globalstar will not repurchase
or redeem any such interest or obligation pursuant to such provisions prior to
Globalstar's repurchase of such Notes as are required to be repurchased pursuant
to the covenant described under "-- Change of Control". Notwithstanding the
foregoing, preferred partnership interests, convertible preferred equivalent
obligations or similar preferred obligations of Globalstar issued after the
Issue Date shall not be Special Preferred Obligations unless, at the time of
their issuance, Globalstar shall certify to the Trustee that such interests or
obligations shall be designated Special Preferred Obligations.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Debt of the Issuers (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person or
(ii) any other Person (other than a corporation) in which such Person, or one or
more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries of such Person, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Tax Amount" means, with respect to any year, an amount not to exceed the
sum of the ordinary income from trade or business activities and other items of
income, loss and deduction reported by Globalstar for that year for United
States federal income tax purposes multiplied by a percentage equal to the sum
of (a) the highest applicable federal corporation income tax rate for that year
(expressed as a percentage) plus (b) 8% multiplied by the excess of 100% over
the highest applicable federal corporate income tax for that year (expressed as
a percentage).
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"Transitory Equipment Subsidiary" means a Subsidiary of Globalstar whose
only business activity is acquiring equipment from Globalstar for the sole
purpose of selling such equipment to a service provider of Globalstar; provided,
however, that Globalstar retains a security interest in such equipment so long
as it is owned by such Subsidiary; provided further, however, that such
Subsidiary has no Debt outstanding at any time other than Debt represented by
such security interest.
"Unrestricted Subsidiary" means (i) any Subsidiary of Globalstar designated
as such by the General Partner's Committee as set forth below where (a) neither
Globalstar nor any of its other Subsidiaries (other than another Unrestricted
Subsidiary) (1) provides credit support for, or Guarantee of, any Debt of such
Subsidiary or any Subsidiary of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Debt), (2) is directly or indirectly
liable for any Debt of such Subsidiary or any Subsidiary of such Subsidiary, or
(3) has any obligation to make additional Investments in such Subsidiary or any
Subsidiary of such Subsidiary, (b) such Subsidiary has no Debt other than
Non-Recourse Debt; provided, however, that if any Unrestricted Subsidiary Incurs
any Debt other than Non-Recourse Debt or any Non-Recourse Debt Incurred by such
Unrestricted Subsidiary shall thereafter cease for any reason to be Non-Recourse
Debt, such event shall be deemed to constitute an Incurrence of such Debt by
Globalstar and such Unrestricted Subsidiary shall be deemed to be a Restricted
Subsidiary for purposes of the covenant described under "-- Covenants -- Future
Guarantors" and (c) such Subsidiary and each Subsidiary of such Subsidiary has
at least one director on its board of directors that is not a director or
executive officer of Globalstar or any Restricted Subsidiary and (ii) any
Subsidiary of an Unrestricted Subsidiary. The General Partner's Committee may
designate any Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary
or any Subsidiary of such Subsidiary owns any Capital Stock or Debt of, or owns
or holds any Lien on any property of, Globalstar or any other Subsidiary of
Globalstar which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B)
immediately after giving effect to such designation, Globalstar could incur an
additional $1.00 of Debt pursuant to the first paragraph under "Covenants --
Limitation on Consolidated Debt" above and provided further, however, that
Globalstar could make a Restricted Payment in an amount equal to the greater of
the fair market value and the book value of such Subsidiary pursuant to the
covenant described under "-- Covenants -- Limitation on Restricted Payments" and
such amount is thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments thereunder.
The General Partners' Committee may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary, provided that, immediately after giving effect to such
designation, Globalstar could incur an additional $1.00 of Debt pursuant to the
first paragraph under "-- Covenants -- Limitation on Consolidated Debt" above.
Notwithstanding the foregoing, neither Globalstar Capital nor any of its
Subsidiaries shall be Unrestricted Subsidiaries.
"Vendor Financing Facility" means any agreements between Globalstar,
Globalstar Capital and/or any Restricted Subsidiary and one or more vendors or
lessors of equipment to Globalstar, Globalstar Capital and/or any Restricted
Subsidiary (or any affiliate of any such vendor or lessor) providing financing
for the acquisition by Globalstar or any such Restricted Subsidiary of equipment
from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary 99% or
more of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by
Globalstar or by one or more Wholly-Owned Restricted Subsidiaries of Globalstar
or by Globalstar and one or more Wholly-Owned Restricted Subsidiaries of
Globalstar.
REGISTRATION RIGHTS
The Issuers and the respective Initial Purchasers have entered into
registration rights agreements, dated February 19, 1997 and June 13, 1997,
respectively (collectively, the "Registration Rights Agreements"), pursuant to
which the Issuers agreed to file with the Commission this Registration Statement
with respect to
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an offer to exchange the Original Notes for the Exchange Notes. If the Issuers
are not permitted to consummate the Exchange Offer because the Exchange Offer is
not permitted by applicable law or Commission policy or under certain other
circumstances, the Issuers will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of the Notes by
the holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Issuers
will use reasonable efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission.
The Registration Rights Agreements also provide that (i) the Issuers will
use their reasonable efforts to have this Registration Statement declared
effective by the Commission on or prior to 150 days after the respective Issue
Dates, (ii) unless the Exchange Offer would not be permitted by applicable law
or the Commission's policy, the Issuers will commence the Exchange Offer and use
their reasonable efforts to issue, on or prior to 30 business days after the
date on which this Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Notes tendered prior thereto in
the Exchange Offer and (iii) if obligated to file the Shelf Registration
Statement, the Issuers will use their reasonable efforts to file the Shelf
Registration Statement with the Commission on or prior to 60 days after such
filing obligation arises (and in any event within 150 days after the respective
Issue Dates) and to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 30 days after such obligation arises.
If (a) any of the registration statements required by a Registration Rights
Agreement is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (b) the
Issuers fail to consummate the Exchange Offer within 30 days of the
Effectiveness Target Date with respect to the Registration Statement, or (c) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreements (each such event referred to in clauses (a)
through (c) above a "Registration Default"), then the Issuers will pay
liquidated damages ("Liquidated Damages") to each holder of Notes, as
applicable, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week per
$1,000 principal amount of Notes held by such holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Notes. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain material U.S. Federal
income tax considerations relevant to the acquisition, ownership and disposition
of the Notes by initial holders who or which acquired the Notes at original
issue for cash. This does not purport to be a complete analysis or listing of
all potential tax considerations that may be relevant to initial holders, and
does not purport to discuss tax considerations that may be relevant to
subsequent holders (which considerations may differ from those described herein)
of the Notes. The discussion does not include the special rules that may apply
to certain holders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States), and does not address the
tax consequences of the laws of any state, locality or foreign jurisdiction. The
discussion is based upon currently existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder and current administrative rulings and court
decisions, all of which are subject to change and any such change could affect
the continuing validity of this discussion. The Issuers have not sought and will
not seek any rulings from the Internal Revenue Service (the "IRS") with respect
to the positions of Globalstar discussed below. There can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the acquisition, ownership or disposition of the Notes or that any such IRS
position would not be sustained. This discussion applies only to a holder that
will hold Notes as "capital assets" within the meaning of Section 1221 of the
Code. Globalstar will receive an opinion of Willkie Farr & Gallagher that it is
a partnership and not an association or publicly traded partnership taxable as a
corporation for United States federal income tax purposes.
EACH PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE UNITS, NOTES AND
WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE OR
FOREIGN INCOME AND OTHER TAX LAWS.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
This section discusses certain rules applicable to a holder of Notes that
is a United States Holder. For purposes of this discussion, a "United States
Holder" means a holder of Notes who or which is (i) an individual who is a
citizen or resident of the United States for U.S. Federal income tax purposes,
(ii) a corporation or other entity taxable as a corporation created or organized
in the United States or under the laws of the United States or any political
subdivision thereof (including the States and the District of Columbia), (iii)
an estate or trust described in Section 7701(a)(30) of the Code, or (iv) a
person whose worldwide income or gain is otherwise subject to U.S. Federal
income taxation on a net income basis.
TAX TREATMENT OF THE NOTES
Stated Interest. Stated interest on a Note will be taxable to a United
States Holder as ordinary interest income at the time it accrues or is received,
in accordance with such holder's regular method of tax accounting.
Original Issue Discount. The Notes were issued with original issue
discount for U.S. Federal income tax purposes. The amount of original issue
discount ("OID") on a Note is the excess of the stated redemption price at
maturity over such Note's issue price. The "stated redemption price at maturity"
of each Note is the sum of all payments (other than stated interest) with
respect to each such Note. The "issue price" of each 11 3/8% Senior Note is that
portion of the issue price allocated to the 11 3/8% Senior Note by the Issuers,
unless a United States Holder disclosed a different allocation on a statement
attached to such United States Holder's timely filed federal income tax return
for such United States Holder's taxable year that included the acquisition date
of the 11 3/8% Senior Note. Any such allocation is not binding on the IRS, which
may challenge any such allocation. The "issue price" of each 11 1/4% Senior Note
is the first price at which a substantial amount of the 11 1/4% Senior Notes was
sold to the public for cash (excluding sales to bond houses, brokers or similar
persons or organizations acting in the capacity as underwriters, placement
agents or wholesalers). Each United States Holder (whether a cash or accrual
method taxpayer) will be required to
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include in income such OID as it accrues, in advance of the receipt of some or
all of the related cash payments.
The amount of OID includable in income by the initial United States Holder
of a Note is the sum of the "daily portions"of OID with respect to the Note for
each day during the taxable year or portion of the taxable year on which such
United States Holder held such Note ("accrued OID"). The daily portion is
determined by allocating to each day in any accrual period a pro rata portion of
the OID allocable to that accrual period. An accrual period for a Note may be of
any length selected by a holder and may vary in length over the term of a Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the first or final day of an
accrual period. The amount of OID allocable to any accrual period other than an
initial short accrual period and the final accrual period is an amount equal to
the excess of (i) the product of a Note's adjusted issue price at the beginning
of such accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) over (ii) the amount of any stated interest
payments allocable to such accrual period. The "yield to maturity" is the
discount rate that, when applied to all payments under a Note, results in a
present value equal to the issue price. The amount of OID allocable to the final
accrual period is the difference between the amount payable at maturity (other
than a payment of stated interest) and the adjusted issue price of the Note at
the beginning of the final accrual period. The amount of OID allocable to the
initial short accrual period may be computed under any reasonable method. The
"adjusted" issue price of the Note at the start of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period
and decreased by any prior payments other than payments of stated interest. The
Issuers are required to report the amount of OID accrued on Notes held of record
by persons other than corporations and other exempt holders.
Stated interest and OID will be U.S. source income.
Sale, Retirement or Other Taxable Disposition. A United States Holder of a
Note will recognize gain or loss upon the sale, retirement or other taxable
disposition of such Note. Such gain or loss will generally be equal to the
difference between (i) the amount of cash and the fair market value of property
received for such Note (other than amounts representing accrued but unpaid
stated interest) and (ii) the United States Holder's adjusted tax basis in the
Note. The adjusted tax basis of a Note in the hands of an original United States
Holder generally will be equal to the Note's issue price, increased by the
amount of OID, if any, on the Note that is includable in the United States
Holder's income pursuant to these rules and decreased by any prior payments
other than payments of stated interest. Such gain or loss generally will be
capital gain or loss, and will be long-term capital gain or loss if the United
States Holder has held such Notes for more than one year.
Applicable High Yield Debt Obligations. The Notes are applicable high
yield debt obligations ("AHYDOs") for U.S. Federal income tax purposes. As a
result, partners of Globalstar may not claim any deduction with respect to their
respective allocable shares of original issue discount on the Notes until
payments in respect of such original issue discount are actually made, and in
that case, only to the extent that any such original issue discount is
attributable to each such partner's allocable share of Globalstar's U.S. Income.
Exchange Offer. The exchange of Original Notes for Exchange Notes pursuant
to the Registered Exchange Offer should not be a taxable exchange. As a result,
(i) a United States Holder should not recognize taxable income or loss as a
result of exchanging Original Notes for Exchange Notes pursuant to the
Registered Exchange Offer; (ii) the holding period of the Exchange Notes should
include the holding period of the Original Notes exchanged therefore; and (iii)
the adjusted tax basis of the Exchange Notes should be the same as the adjusted
tax basis of the original notes exchanged therefore immediately before such
exchange.
LIQUIDATED DAMAGES
Globalstar intends to take the position that the Liquidated Damages
described above under "Description of Notes -- Registration Rights; Liquidated
Damages" will be taxable to the United States Holders as ordinary income in
accordance with the United States Holder's method of accounting for federal
income tax purposes. It is possible, however, that the IRS may take a different
position, in which case United States
92
<PAGE> 99
Holders might be required to include such Liquidated Damages in income as it
accrues or becomes fixed (regardless of their usual method of tax accounting).
BACKUP WITHHOLDING
Under certain circumstances, the failure of a United States Holder of a
Note to provide sufficient information to establish that such United States
Holder is exempt from the backup withholding provisions of the Code will subject
such United States Holder to backup withholding at a rate of 31 percent. In
general, backup withholding applies if a United States Holder fails to furnish a
correct taxpayer identification number, fails to report dividend and interest
income in full, or fails to certify that such United States Holder has provided
a correct taxpayer identification number and that such United States Holder is
not subject to withholding. An individual's taxpayer identification number is
such person's Social Security number.
Any amount withheld from a payment to a United States Holder under the
backup withholding rules is allowable as a credit against such United States
Holder's U.S. Federal income tax liability, provided that the required
information is furnished to the IRS. Certain United States Holders (including,
among others, corporations) are not subject to backup withholding. United States
Holders should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
REPORTING REQUIREMENTS
Each Note will bear a legend setting forth the issue date, the issue price,
the total amount of original issue discount and the yield to maturity.
Globalstar will provide annual information statements to United States Holders
other than corporations and other exempt holders of the Notes and to the IRS,
setting forth the amount of original issue discount determined to be
attributable to the Notes for that year.
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
This section discusses certain rules applicable to a holder of Notes that
is not a U.S. Holder (a "Non-U.S. Holder").
Interest and Original Issue Discount. Although the matter is not free from
doubt, under present U.S. Federal income tax law and subject to the discussion
of backup withholding below, interest (including original issue discount) paid
by the Issuers to a Non-U.S. Holder generally should not be subject to
withholding of U.S. Federal income tax, provided that (a) such Non-U.S. Holder
does not own directly or indirectly a 10% or more capital or profits interest in
Globalstar, (b) such interest (including original issue discount) is not
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business within the United States and (c) the Issuers or their paying agent
receives (1) from such Non-U.S. Holder a properly completed Form W-8 (or
substitute Form W-8) under penalties of perjury which provides such Non-U.S.
Holder's name and address and certifies that such Non-U.S. Holder is a Non-U.S.
Holder or (2) from a security clearing organization, bank or other financial
institution that holds the Notes in the ordinary course of its trade or business
(a "financial institution") on behalf of such Non-U.S. Holder, certification
under penalties of perjury that such a Form W-8 (or substitute Form W-8) has
been received by it, or by another such financial institution, from the Non-U.S.
Holder, and a copy of the Form W-8 (or substitute Form W-8) is furnished to the
payor.
If interest (including original issue discount) paid by the Issuers to a
Non-U.S. Holder is effectively connected to the conduct by such Non-U.S. Holder
of a trade or business within the United States, such interest (including
original issue discount) will be subject to U.S. Federal income tax on a net
basis at the rates applicable to U.S. persons generally (and, with respect to
corporate Non-U.S. Holders under certain circumstances, may also be subject to a
30% branch profits tax). If payments are subject to U.S. Federal income tax on a
net basis in accordance with the rules described in the preceding sentence, such
payments will not be subject to U.S. withholding tax so long as the Non-U.S.
Holder provides the Issuers or their paying agent with a properly executed Form
4224.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, or different rules from those
described above.
93
<PAGE> 100
Sale, Exchange or Redemption of Notes. Subject to the discussion
concerning backup withholding, any gain realized by a Non-U.S. Holder of the
sale, exchange, retirement or other disposition of a Note generally will not be
subject to U.S. Federal income tax, unless (i) such gain is effectively
connected with the conduct by such Non-U.S. Holder of a trade or business within
the United States, (ii) the Non-U.S. Holder is an individual who holds the Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of disposition and certain other conditions are satisfied or
(iii) the Non-U.S. Holder is subject to tax law applicable to certain U.S.
expatriates. As discussed above, the exchange of Original Notes for Exchange
Notes pursuant to the Exchange Offer should not be a taxable exchange for U.S.
Federal income tax purposes.
Information Reporting and Backup Withholding
Temporary Treasury Regulations provide that 31% backup withholding and
other reporting will not apply to such payments of interest (including original
issue discount) with respect to which either the requisite certification, as
described above, has been received or an exemption has otherwise been
established (provided that neither the Issuers nor their paying agent has actual
knowledge that the holder is a U.S. person or the conditions of any other
exemption are not in fact satisfied). Under temporary Treasury Regulations,
those information reporting and backup withholding requirements will apply,
however, to the gross proceeds paid to a foreign person upon the disposition of
the Notes by or through a United States office of a United States or foreign
broker, unless the holder certifies to the broker under penalties of perjury as
to its name, address and status as a foreign person or the holder otherwise
establishes an exemption. Information reporting requirements (but not backup
withholding) will also apply to a payment of the proceeds of a disposition of
the Notes by or through a foreign office of (i) a United States broker, (ii) a
foreign broker 50% or more of whose gross income for certain periods is
effectively connected with the conduct of a trade or business within the United
States or (iii) a foreign broker that is a "controlled foreign corporation"
unless the broker has documentary evidence in its records that the holder is a
Non-U.S. Holder and certain other conditions are met, or the holder otherwise
establishes an exemption. Neither information reporting nor back withholding
will generally apply to a payment of the proceeds of a disposition of the Notes
by or through a foreign office of a foreign broker not subject to the preceding
sentence.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. Federal income tax liability, provided that the requisite
procedures are followed.
94
<PAGE> 101
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for existing Notes where such existing Notes were acquired as a result
of market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997 (90
days after the date of this Prospectus), all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer for the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL OPINIONS
The validity of the Notes and certain United States tax matters described
under "Certain Federal Income Tax Considerations" will be passed upon for
Globalstar by Willkie Farr & Gallagher, New York, New York, general counsel to
Globalstar. As of April 15, 1997, partners in Willkie Farr & Gallagher
beneficially own approximately 25,000 shares of the Common Stock. Mr. Robert B.
Hodes is of counsel to the law firm of Willkie Farr & Gallagher, and a Director
of Loral and GTL and a member of the Audit and Executive Committees of the
Boards of Directors of both Loral and GTL.
EXPERTS
The annual consolidated financial statements of Globalstar, GTL and LQSS,
and the balance sheets of Globalstar Capital Corporation as of December 31, 1996
and 1995 included in this Prospectus have been audited by Deloitte & Touche LLP
as stated in their reports appearing herein and have been so included in
reliance on the reports of said firm given upon their authority as experts in
auditing and accounting.
95
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GLOBALSTAR, L.P. (A development stage limited partnership)
Annual Financial Statements:
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Cash Flows...................................... F-5
Consolidated Statements of Ordinary Partners' Capital and Subscriptions
Receivable.............................................................. F-6
Notes to Consolidated Financial Statements................................. F-7
Interim Financial Statements:
Condensed Consolidated Balance Sheets...................................... F-20
Condensed Consolidated Statements of Operations............................ F-21
Condensed Consolidated Statements of Cash Flows............................ F-22
Notes to Condensed Consolidated Financial Statements....................... F-23
GLOBALSTAR CAPITAL CORPORATION (A Wholly-Owned Subsidiary of Globalstar,
L.P.)
Independent Auditors' Report............................................... F-26
Balance Sheets............................................................. F-27
Notes to Balance Sheets.................................................... F-28
GLOBALSTAR TELECOMMUNICATIONS LIMITED (A General Partner of Globalstar, L.P.)
Annual Financial Statements:
Independent Auditors' Report............................................... F-29
Balance Sheets............................................................. F-30
Statements of Operations................................................... F-31
Statements of Shareholders' Equity......................................... F-32
Statements of Cash Flows................................................... F-33
Notes to Financial Statements.............................................. F-34
Interim Financial Statements:
Condensed Balance Sheets................................................... F-39
Condensed Statements of Operations......................................... F-40
Condensed Statements of Cash Flows......................................... F-41
Notes to Condensed Financial Statements.................................... F-42
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A General Partner of Globalstar,
L.P.)
Annual Financial Statements:
Independent Auditors' Report............................................... F-44
Balance Sheets............................................................. F-45
Statements of Operations................................................... F-46
Statements of Partners' Capital and Subscriptions Receivable............... F-47
Statements of Cash Flows................................................... F-48
Notes to Financial Statements.............................................. F-49
Interim Financial Statements:
Condensed Balance Sheets................................................... F-52
Condensed Statements of Operations......................................... F-53
Notes to Condensed Financial Statements.................................... F-54
</TABLE>
F-1
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying consolidated balance sheets of Globalstar,
L.P. (a development stage limited partnership) and its subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of operations,
partners' capital and subscriptions receivable and cash flows for the period
from March 23, 1994 (commencement of operations) to December 31, 1994, the years
ended December 31, 1995 and 1996 and cumulative. We have also audited the
accompanying consolidated statement of operations for the period from January 1,
1994 to March 22, 1994 (the pre-capital subscription period). These consolidated
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Globalstar, L.P. and its
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for the periods stated above in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 24, 1997
F-2
<PAGE> 104
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interests)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 21,180 $ 71,602
Other current assets................................................. 606 506
------- --------
Total current assets............................................ 21,786 72,108
Property and equipment, net............................................ 1,720 1,509
Globalstar System Under Construction:
Space segment........................................................ 730,513 348,434
Ground segment....................................................... 160,520 51,823
------- --------
891,033 400,257
Deferred FCC license costs............................................. 8,690 7,056
Deferred financing costs............................................... 19,577 24,461
Other assets........................................................... 107 --
------- --------
Total assets.................................................... $942,913 $505,391
======= ========
LIABILITIES and PARTNERS' CAPITAL
Current liabilities:
Accounts payable..................................................... $ 4,401 $ 2,070
Payable to affiliates................................................ 63,937 47,569
Accrued expenses..................................................... 6,929 4,782
------- --------
Total current liabilities....................................... 75,267 54,421
Deferred revenues...................................................... 23,652 21,913
Vendor financing liability............................................. 130,694 42,219
Borrowings under long-term revolving credit facility................... 96,077 --
Commitments and contingencies (Notes 4,6,7,9,10,11 and 12)
Redeemable preferred partnership interests (4,769,230 outstanding at
December 31, 1996, $310,000 redemption value)........................ 302,037 --
Ordinary partners' capital:
Ordinary partnership interests (47,000,000 outstanding).............. 292,585 364,237
Warrants............................................................. 22,601 22,601
------- --------
Total ordinary partners' capital................................ 315,186 386,838
------- --------
Total liabilities and partners' capital......................... $942,913 $505,391
======= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 105
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------
PRE-CAPITAL CUMULATIVE
SUBSCRIPTION PERIOD MARCH 23 YEARS ENDED MARCH 23, 1994
-------------------- (COMMENCEMENT OF DECEMBER 31, (COMMENCEMENT OF
JANUARY 1 TO OPERATIONS) TO ---------------- OPERATIONS) TO
MARCH 22, 1994 DECEMBER 31, 1994 1995 1996 DECEMBER 31, 1996
-------------------- ----------------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs........................ $4,057 $21,279 $62,854 $42,152 $ 126,285
Marketing, general and administrative.... 2,815 6,748 17,372 18,873 42,993
------ ------- ------ ------ -------
Total operating expenses................... 6,872 28,027 80,226 61,025 169,278
Interest income............................ -- 1,783 11,989 6,379 20,151
------ ------- ------ ------ -------
Net loss................................... 6,872 26,244 68,237 54,646 149,127
Preferred distributions and related
increase in redeemable preferred
partnership interests.................... -- -- -- 17,323 17,323
------ ------- ------ ------ -------
Net loss applicable to ordinary partnership
interests................................ $6,872 $26,244 $68,237 $71,969 $ 166,450
====== ======= ====== ====== =======
Net loss per weighted average ordinary
partnership interest outstanding......... $ .73 $1.50 $1.53
========== ===== =====
Weighted average ordinary partnership
interests outstanding.................... 36,004 45,575 47,000
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 106
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
MARCH 23, 1994 CUMULATIVE
(COMMENCEMENT OF YEARS ENDED MARCH 23, 1994
OPERATIONS) TO DECEMBER 31, (COMMENCEMENT OF
DECEMBER 31, ---------------------- OPERATIONS) TO
1994 1995 1996 DECEMBER 31, 1996
---------------- --------- --------- -------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(26,244) $ (68,237) $ (54,646) $(149,127)
Deferred revenues......................................... -- 21,913 1,739 23,652
Stock compensation transactions........................... -- -- 317 317
Depreciation and amortization............................. 115 398 5,858 6,371
Changes in operating assets and liabilities:
Other current assets.................................... -- (506) (100) (606)
Other assets............................................ -- -- (107) (107)
Accounts payable........................................ 638 857 1,723 3,218
Payable to affiliates................................... (1) 4,865 (3,553) 1,311
Accrued expenses........................................ 2,440 2,342 2,147 6,929
-------- --------- --------- ---------
Net cash used in operating activities...................... (23,052) (38,368) (46,622) (108,042)
-------- --------- --------- ---------
Investing activities:
Globalstar System under construction...................... (71,996) (328,261) (490,776) (891,033)
Payable to affiliates for Globalstar System under
construction............................................ 25,042 8,863 19,921 53,826
Capitalized interest payable on long-term revolving credit
facility................................................ -- -- 77 77
Accounts payable.......................................... -- 67 608 675
Vendor financing liability................................ -- 42,219 88,475 130,694
-------- --------- --------- ---------
Cash used for Globalstar System....................... (46,954) (277,112) (381,695) (705,761)
Purchases of property and equipment....................... (1,119) (888) (935) (2,942)
Deferred FCC license costs................................ (2,286) (2,535) (1,634) (6,455)
Purchases of investments.................................. -- (126,923) -- (126,923)
Maturity of investments................................... -- 126,923 -- 126,923
Other current assets...................................... (190) 190 -- --
-------- --------- --------- ---------
Net cash used in investing activities...................... (50,549) (280,345) (384,264) (715,158)
-------- --------- --------- ---------
Financing activities:
Deferred line of credit fees.............................. -- (1,875) (250) (2,125)
Proceeds from capital subscriptions receivable............ 148,661 133,780 -- 282,441
Payment of accrued capital raising costs.................. (1,500) (900) -- (2,400)
Sale of partnership interests to GTL...................... -- 185,750 -- 185,750
Sale of redeemable preferred partnership interests to
GTL..................................................... -- -- 299,500 299,500
Distributions on redeemable preferred partnership
interests............................................... -- -- (14,833) (14,833)
Prepaid interest on redeemable preferred partnership
interests............................................... -- -- 47 47
Borrowings under long-term revolving credit facility...... -- -- 106,000 106,000
Repayment of borrowings under long-term revolving credit
facility................................................ -- -- (10,000) (10,000)
-------- --------- --------- ---------
Net cash provided by financing activities.................. 147,161 316,755 380,464 844,380
-------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 73,560 (1,958) (50,422) 21,180
Cash and cash equivalents, beginning of period............. -- 73,560 71,602 --
-------- --------- --------- ---------
Cash and cash equivalents, end of period................... $ 73,560 $ 71,602 $ 21,180 $ 21,180
======== ========= ========= =========
Noncash transactions:
Payable to affiliates..................................... $ 9,308 $ 9,308
======== =========
Accrual of capital raising costs.......................... $ 2,400 $ 2,400
======== =========
Deferred FCC license costs................................ $ 2,235 $ 2,235
======== =========
Warrants issued in exchange for debt guarantee............ $ 22,601 $ 22,601
========= =========
Increase in redemption value of preferred partnership
interests............................................... $ 2,537 $ 2,537
========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 107
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF ORDINARY PARTNERS' CAPITAL AND SUBSCRIPTIONS
RECEIVABLE
(In thousands)
ORDINARY PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ORDINARY
PARTNERSHIP
INTERESTS WARRANTS TOTAL
----------- -------- --------
<S> <C> <C> <C>
Capital subscription, March 23, 1994
General partner (18,000 interests)...................... $ 50,000 $ 50,000
Limited partners (18,000 interests)..................... 225,000 225,000
Cost of raising capital................................... (2,400) (2,400)
Net losses -- pre-capital subscription period:
Year ended December 31, 1993............................ (11,510) (11,510)
January 1, 1994 to March 22, 1994....................... (6,872) (6,872)
Net loss applicable to ordinary partnership
interests -- March 23, 1994 (commencement of operations)
to December 31, 1994.................................... (26,244) (26,244)
Capital subscription, December 31, 1994
(1,000 limited partnership interests)................... 18,750 18,750
----------- --------
Capital balances, December 31, 1994....................... 246,724 246,724
Sale of 10,000 general partnership interests to GTL,
February 22, 1995....................................... 185,750 185,750
Warrant agreement in connection with debt
guarantee............................................... -- $ 22,601 22,601
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1995............... (68,237) (68,237)
----------- -------- --------
Capital balances -- December 31, 1995..................... 364,237 22,601 386,838
Stock compensation transactions by managing general
partner for the benefit of Globalstar................... 317 317
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1996............... (71,969) (71,969)
----------- -------- --------
Capital balances -- December 31, 1996..................... $ 292,585 $ 22,601 $315,186
======== ======= ========
</TABLE>
SUBSCRIPTIONS RECEIVABLE
<TABLE>
<S> <C> <C> <C>
Capital subscriptions:
March 23, 1994.......................................... $ 275,000 $275,000
December 31, 1994....................................... 18,750 18,750
----------- --------
Total subscriptions..................................... 293,750 293,750
----------- --------
Cash received........................................... (148,661) (148,661)
Credit for pre-capital subscription costs............... (11,309) (11,309)
----------- --------
(159,970) (159,970)
----------- --------
Subscriptions receivable, December 31, 1994............... 133,780 133,780
Cash received........................................... (133,780) (133,780)
----------- --------
Subscriptions receivable, December 31, 1995 and 1996...... $ -- $ --
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 108
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), a Delaware limited partnership with a
December 31 fiscal year end, was formed in November 1993. It had no activities
until March 23, 1994, when it received capital subscriptions for $275 million
and commenced operations. The accompanying financial statements reflect the
operations of the Partnership from that date. In addition, the statements of
operations for the period January 1, 1994 to March 22, 1994 (the "Pre-Capital
Subscription Period") reflect certain costs incurred by Loral Corporation ("Old
Loral") and QUALCOMM Incorporated ("Qualcomm") and reimbursed by Globalstar
through a capital subscription credit or agreement for reimbursement, as
described in Note 9.
Effective April 23, 1996, a merger between Old Loral and Lockheed Martin
Corporation ("Lockheed Martin") was completed. In conjunction with the merger,
Old Loral's space and communications businesses, including its direct and
indirect interests in Globalstar, Globalstar Telecommunications Limited ("GTL"),
Space Systems/Loral, Inc. ("SS/L") and other affiliated businesses, as well as
certain other assets and liabilities, have been transferred to Loral Space &
Communications Ltd. ("Loral"), a Bermuda company.
The managing general partner of Globalstar is Loral/QUALCOMM Satellite
Services, L.P. ("LQSS"). The general partner of LQSS is Loral/QUALCOMM
Partnership, L.P. ("LQP"), a Delaware limited partnership comprised of
subsidiaries of Loral and Qualcomm. The managing general partner of LQP is Loral
General Partner, Inc. ("LGP"), a subsidiary of Loral.
Globalstar was founded to design, construct and operate a worldwide,
low-earth orbit ("LEO") satellite-based digital telecommunications system (the
"Globalstar System"). The Globalstar System's worldwide coverage is designed to
enable its service providers to extend modern telecommunications services to
millions of people who currently lack basic telephone service and to enhance
wireless communications in areas underserved or not served by existing or future
cellular systems, providing a telecommunications solution in parts of the world
where the build-out of terrestrial systems cannot be economically justified. On
January 31, 1995, the U.S. Federal Communications Commission ("FCC") granted the
necessary license to a wholly-owned subsidiary of LQP to construct, launch and
operate the Globalstar System. LQP has agreed to use such license for the
exclusive benefit of Globalstar.
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. GTL's sole business is acting as a general
partner of Globalstar. On February 14, 1995, GTL completed an initial public
offering of 10,000,000 shares of common stock resulting in net proceeds of
$185,750,000. Effective February 22, 1995, GTL purchased 10,000,000 partnership
interests from Globalstar with the net proceeds of the initial public offering.
The partners in Globalstar have the right to convert their partnership interests
into shares of GTL common stock on a one-for-one basis following the Full
Coverage Date, as defined, of the Globalstar System and after at least two
consecutive reported fiscal quarters of positive net income, subject to certain
annual limitations.
At December 31, 1996, Loral had an effective 33.8% interest in the ordinary
partnership interests of Globalstar, including 1,407,144 shares of GTL's common
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
design, licensing, construction, testing, and financing of the Globalstar
System, and establishing its business. Its planned principal operations have not
commenced. Accordingly, Globalstar is a development stage company as defined in
Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and
Reporting by Development Stage Enterprises."
F-7
<PAGE> 109
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Globalstar
and its wholly-owned subsidiary, Globalstar Capital Corporation. All
intercompany accounts and transactions are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three to eight years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the
improvements.
Globalstar System Under Construction
Globalstar System Under Construction expenditures include and will include
progress payments and costs for the design, manufacture, test, launch and launch
insurance for 48 low-earth orbit satellites, plus additional spare satellites
(the "Space Segment"), and ground and satellite operations control centers,
gateways and subscriber terminals (handsets) (the "Ground Segment").
Globalstar intends to depreciate the Space Segment over 7 1/2 years and to
depreciate the Ground Segment over eight years as assets are placed in service.
Service is currently anticipated to commence in 1998.
Costs incurred related to the development of certain technologies, pursuant
to a cost sharing arrangement included in Globalstar's contract with Qualcomm,
and for the engineering and development of subscriber terminals, are being
charged to operations as incurred.
Financing Costs and Interest
Deferred financing costs represent costs incurred in obtaining a long-term
credit facility and the estimated fair value of a warrant agreement in
connection with a guarantee of this facility (see Note 6-Credit Facility). Such
costs are being amortized over the term of the credit facility as interest.
Total amortization of deferred financing costs for the years ended December 31,
1996 and 1995 was approximately $5,134,000 and $15,000, respectively.
F-8
<PAGE> 110
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized for the years ended December
31, 1996 and 1995 was approximately $9,900,000 and $300,000, respectively. No
interest was capitalized for the period ending December 31, 1994.
FCC License Costs
Expenditures, including license fees, legal fees and direct engineering and
other technical support, for obtaining the required FCC licenses are capitalized
and will be amortized over 7 1/2 years, the expected life of the first
generation satellites.
Deferred Revenues
Advance payments from Globalstar strategic partners to secure exclusive
rights to Globalstar service territories are deferred. These advance payments
are recoverable by the service providers through credits against a portion of
the service fees payable to Globalstar after the commencement of services.
Vendor Financing
Globalstar's contract with SS/L calls for a portion of the contract price
to be deferred as vendor financing and to be repaid, over as long as a five-year
period, commencing upon the initial service and full coverage dates of the
Globalstar System. Amounts deferred as vendor financing are capitalized as costs
of the Globalstar System Under Construction as incurred.
Preferred Partnership Distributions
Distributions accrue on the redeemable preferred partnership interests at
6 1/2% per annum. Globalstar is increasing the carrying value of the redeemable
preferred partnership interests to their ultimate redemption value. The
distributions are recorded as reductions against the ordinary partnership
capital accounts.
Stock-Based Compensation
As permitted by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation," Globalstar accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Net (Loss) Income Allocation
Net losses are allocated among the partners in proportion to their
percentage interests until the adjusted capital account of a partner is reduced
to zero, then in proportion to, and to the extent of, positive adjusted capital
account balances and then to the general partners.
Net income is allocated among the partners in proportion to, and to the
extent of, the distributions made to the partners from distributable cash flow
for the period, as defined, then in proportion to and to the extent of negative
adjusted capital account balances and then in accordance with percentage
interests.
Under the terms of the Partnership Agreement, adjusted partners' capital
accounts are calculated in accordance with the principles of U.S. Treasury
Regulations governing the allocation of taxable income and loss including
adjustments to reflect the fair market value (including intangibles) of
partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying consolidated financial statements.
F-9
<PAGE> 111
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Globalstar was organized as a Delaware limited partnership. As such, no
income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed proportionately through to its partners.
Reclassifications
Certain reclassifications have been made to conform prior-year amounts to
the current-year presentation.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment consists of:
Leasehold improvements.......................................... $ 473 $ 401
Furniture and office equipment.................................. 2,469 1,606
------- ------
2,942 2,007
Accumulated depreciation and amortization....................... (1,222) (498)
------- ------
$ 1,720 $1,509
======= ======
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1996
and 1995, and for the period March 23 to December 31, 1994, was $724,000,
$383,000 and $115,000, respectively.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
As of February 1997, Globalstar estimates the cost for the design,
construction and deployment of the Globalstar System including working capital,
cash interest on anticipated borrowings and operating expenses to be
approximately $2.5 billion, as compared with approximately $2.2 billion
estimated at December 31, 1995. Actual amounts may vary from this estimate and
additional funds would be required in the event of unforeseen delays, cost
overruns, launch failures, technological risks, adverse regulatory developments,
or to meet unanticipated expenses and for system enhancements and measures to
assure system performance and readiness for the space and ground segments.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites that will increase Globalstar's ability to have at least 40
satellites in service during 1999, even in the event of launch failures. If the
launch program is successful, the additional satellites will serve as ground
spares, readily available for launch to replenish the constellation as needed to
respond to satellite attrition during the first generation, or to increase
system capacity as required. If Globalstar were to experience a launch failure,
the costs associated with the construction and launch of replacements would be
substantially covered by insurance, and in that event the cost of the additional
satellites used as replacements, currently estimated at $175 million, would be
reimbursed to Globalstar.
As of February 13, 1997, Globalstar had raised or received commitments for
approximately $2.0 billion, including the vendor financing arrangements.
Globalstar intends to raise the remaining funds required for the Globalstar
System from a combination of sources, including debt issuance (which may include
an equity
F-10
<PAGE> 112
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION (CONTINUED)
component), financial support from the Globalstar partners, projected service
provider payments, projected net service revenues from initial operations,
anticipated payments from the sale of gateways and Globalstar phones and
placement of partnership interests with new and existing strategic investors.
Although Globalstar believes it will be able to obtain these additional funds,
there can be no assurance that such funds will be available on favorable terms
or on a timely basis, if at all.
The Space Segment
Globalstar has entered into a contract with SS/L, an affiliate of Loral and
a limited partner of LQSS, to design, manufacture, test and launch its 56
satellite constellation. The price of the contract consists of three parts, the
first for non-recurring work at a price not to exceed $117.1 million, the second
for recurring work at a fixed price of $15.6 million per satellite (including
certain performance incentives of up to approximately $1.9 million per
satellite) and the third for launch services and insurance. SS/L has agreed to
obtain launch vehicles and arrange for the launch of Globalstar's satellites on
Globalstar's behalf for all 56 satellites, and obtain insurance to cover the
replacement cost of satellites or launch vehicles lost in the event of a launch
failure. In certain circumstances these amounts are subject to equitable
adjustment in light of future market conditions, which may, in turn, be
influenced by international political developments. Any change in such
assumptions may result in an increase in the costs paid by Globalstar, which may
be substantial. Termination by Globalstar of this contract would result in
termination fees, which may be substantial.
During 1996, Globalstar authorized SS/L to alter its original launch plans
and procure three launches of the Starsem Soyuz launch vehicle, which will
launch four Globalstar satellites each. The selection of these launch vehicles
is part of a strategy to place on-orbit a constellation of at least 40
satellites by the first quarter of 1999 even in the event of launch failures. As
a result of this decision, total costs for launch vehicles and insurance are
expected to be approximately $455 million.
SS/L has entered into fixed-price subcontracts aggregating approximately
$650 million, with certain of Globalstar's direct or indirect limited partners.
Some of these contracts are subject to adjustment.
Globalstar's space segment contract with SS/L calls for a portion of the
contract price to be deferred as vendor financing (see Note 5.).
The Ground Segment
Globalstar has entered into a contract with Qualcomm providing for the
design, development, manufacture, installation, testing and maintenance of four
gateways, two ground operations control centers and 100 pre-production
subscriber terminals. The contract provides for reimbursement to Qualcomm,
subject to a cap for certain joint development efforts, for contract costs
incurred, plus a 12% fee thereon. Termination by Globalstar of its contract with
Qualcomm would result in delays and termination fees, which may be substantial.
A portion of the ground operations control center software is being developed by
Globalstar.
Qualcomm is currently preparing a revised estimate of costs under its
contract with Globalstar and has given Globalstar indication that, due to
additional integration testing procedures to support system readiness on
schedule, scope changes to add features, capabilities and functions, cost growth
and other factors, the total cost may increase to $545 million. The Qualcomm
estimate is subject to further review by Globalstar. In addition, Globalstar has
authorized the expenditure of $25 million for the development of additional
service features and $30 million to fund development efforts of additional
handset suppliers.
Globalstar and its strategic service providers intend to jointly finance
the procurement of 33 gateways for resale to service providers, thereby
accelerating the deployment of gateways around the world prior to the
F-11
<PAGE> 113
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION (CONTINUED)
In-Service Date. Globalstar has agreed to finance approximately $80 million of
the cost of these gateways and expects to recover its cost from the resale of
these gateways to service providers.
Globalstar will receive from Qualcomm or its licensee(s) a payment of
approximately $400,000 for each installed gateway sold to a Globalstar service
provider. In addition, Globalstar will receive a payment of up to $10 on each
Globalstar subscriber terminal sold, until Globalstar funding of that design has
been recovered.
Globalstar has entered into an agreement with Lockheed Martin for the
development and delivery of two satellite operations control centers and 33
telemetry and command units for the Globalstar System. The maximum contract
price is $25.1 million and provides for reimbursement to Lockheed Martin for
contract costs incurred such as labor, materials, travel, license fees,
royalties and general and administrative expenses. Lockheed Martin will receive
a 12% fee under the contract, 6% of which is payable at the time the costs are
incurred, with the remainder payable upon achievement of certain milestones.
Globalstar will own any intellectual property produced under the contract.
5. VENDOR FINANCING LIABILITY
Globalstar's space segment contract with SS/L calls for approximately $310
million of the contract price to be deferred as vendor financing. Of the $310
million, $90 million is interest bearing at the 30-day LIBOR rate plus 3% per
annum. The remaining $220 million of vendor financing is non-interest bearing.
Globalstar will repay the non-interest bearing portions as follows: $49 million
following the launch and acceptance of 24 or more satellites (the "Preliminary
Constellation"), $61 million upon the launch and acceptance of 48 or more
satellites (the "Full Constellation"), and the remainder in equal installments
over the five-year period following acceptance of the Preliminary and Full
Constellations. Payment of the $90 million interest bearing vendor financing
will be deferred until December 31, 1998 or the Full Constellation Date,
whichever is earlier. Thereafter, interest and principal will be repaid in
twenty equal quarterly installments over the next five years. At December 31,
1996 and 1995, approximately $72.0 million and $21.5 million, respectively, of
the vendor financing liability was interest bearing.
6. CREDIT FACILITY
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Credit Agreement") with a group of banks. Lockheed Martin,
Qualcomm, SS/L and another Globalstar partner have guaranteed $206.3 million,
$21.9 million, $11.7 million and $10.1 million of the Credit Agreement,
respectively. In addition, Loral agreed to indemnify Lockheed Martin for any
liability in excess of $150 million. The Credit Agreement provides that
Globalstar may select loans at varying interest rates, including the Eurodollar
rate plus 5/8%. Globalstar pays a commitment fee on the unused portion. The
Credit Agreement contains covenants requiring Globalstar to meet certain
financial ratios including minimum net worth of $200 million and limits
additional indebtedness and the payment of cash distributions. The Credit
Agreement expires on December 15, 2000.
In exchange for the guarantee and indemnity, GTL issued warrants to
purchase 4,185,318 shares of GTL common stock at $26.50 as follows: Loral
942,428 warrants, Lockheed Martin 2,511,190 warrants, Qualcomm 367,131 warrants,
SS/L 195,094 warrants and another Globalstar partner 169,475 warrants. Proceeds
from the exercise of the warrants will be used to purchase Globalstar ordinary
partnership interests under a one-for-one exchange arrangement. As part of this
transaction, Globalstar issued GTL warrants to purchase an additional 1,131,168
ordinary partnership interests of Globalstar. The estimated fair value of the
warrant agreement has been recorded as a deferred financing cost in the
accompanying financial statements. Globalstar has also agreed to pay the
guarantors, other than Lockheed Martin, a fee equal to 1.5% per annum of the
average
F-12
<PAGE> 114
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITY (CONTINUED)
guaranteed amount outstanding under the Credit Agreement. Such fee will be
deferred and will be paid with interest commencing 90 days after the expiration
of the Credit Agreement.
On February 12, 1997, GTL and the holders of the warrants entered into an
arrangement under which GTL agreed to accelerate the vesting and exercisability
of the warrants to purchase 4,185,318 shares of GTL common stock at $26.50 per
share and the holders agreed to exercise such warrants. GTL also agreed to
register for resale the GTL shares issuable upon exercise of the warrants. In
addition, GTL announced its intention to distribute to the holders of its common
stock rights to subscribe for and purchase 1,131,168 GTL shares for a price of
$26.50 per share of which Loral will receive 159,172 rights. Loral agreed to
purchase all GTL shares not purchased upon exercise of the rights. Upon the
exercise of the warrants and the rights, GTL will receive proceeds of
approximately $140.9 million, which it will use to exercise warrants to purchase
5,316,486 Globalstar ordinary partnership interests at $26.50 per interest.
Globalstar will use such proceeds for the construction of the Globalstar System.
7. COMMITMENTS
The following table presents the future minimum lease payments required
under operating leases that have an initial lease term in excess of one year (in
thousands):
<TABLE>
<S> <C>
1997................................................ $1,045
1998................................................ 1,067
1999................................................ 1,090
2000................................................ 789
2001................................................ 156
Thereafter.......................................... 767
------
Total minimum payments required..................... $4,914
======
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995, and the period
March 23 to December 31, 1994, was approximately $1,067,000, $934,000, and
$373,000, respectively.
8. SALE OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
On March 6, 1996 and April 3, 1996, GTL purchased 4,615,385 and 153,845
redeemable preferred partnership interests ("RPPIs"), respectively, in
Globalstar using the net proceeds of $299,500,000 from GTL's sale of its
Convertible Preferred Equivalent Obligations (the "CPEOs"). The RPPIs will
convert to ordinary general partnership interests on a one-for-one basis upon
any conversion of the CPEOs, will pay a quarterly preferred distribution to GTL
of 6 1/2% per annum, will be allocated losses of the partnership only after all
adjusted capital accounts of the ordinary partnership interests have been
reduced to zero, and are redeemable on terms comparable to the CPEOs. If still
outstanding, the RPPIs must be redeemed by Globalstar on March 1, 2006 for the
aggregate amount of $310,000,000 plus all unpaid distributions. Globalstar may
elect to make the quarterly preferred distribution and redemption payments to
GTL in cash or general partnership interests. If such distribution is made in
cash, GTL must make its interest payment on the CPEOs in cash. Globalstar may
elect to defer payment of the preferred distribution; in such case, GTL may also
elect to defer interest payment on the CPEOs, however, holders of the CPEOs are
entitled to certain representation rights on the General Partners' Committee of
Globalstar in the event six consecutive interest payments are deferred. Through
December 31, 1996, all payments have been made in cash on a timely basis.
F-13
<PAGE> 115
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNERS' CAPITAL
Initial Capital Subscriptions
Prior to the commencement of Globalstar's operations on March 23, 1994,
Loral and Qualcomm undertook independent efforts at their own risk to explore
the feasibility of a Globalstar-type system. Efforts to develop the Globalstar
System were formalized with the initial funding of Globalstar on March 23, 1994
through capital subscriptions of $50,000,000 for 18,000,000 general partner
interests and $225,000,000 for an aggregate of 18,000,000 limited partner
interests. In connection with the initial capital subscriptions, the partners of
Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures
totaling $18,382,000, incurred related to such efforts from January 1, 1993
through March 22, 1994. These expenditures included development costs and
marketing, general and administrative expenses related to the Globalstar System.
The statements of operations include the costs for these periods under the
heading Pre-Capital Subscription Period.
In addition, costs of $2,235,000 were incurred in connection with the FCC
license application. The aggregate expenditures by Loral and Qualcomm of
$20,617,000 were reimbursed through a credit of $11,309,000 issued to the
general partner as a reduction of its required capital subscription payment and
a payment to Qualcomm of $9,308,000. The reimbursed expenses of $18,382,000 have
been charged to partners' capital as of the date of the capital subscription
agreement and allocated to the partners' capital accounts in accordance with the
partnership agreement. The $2,235,000 of costs relating to the FCC license
application are included in the balance sheet.
Other Arrangements
In connection with service provider arrangements in China, under which
China Telecommunications Broadcast Satellite Corporation ("China Sat") will act
as the sole distributor of Globalstar services in China, China Sat has the
right, under certain circumstances, to acquire up to 1,875,000 ordinary
partnership interests at $20 per partnership interest. China Sat may purchase
one-half of this amount currently and one-half upon reaching certain target
revenue levels.
Stock Option Arrangements
Officers and employees of Globalstar are eligible to participate in GTL's
1994 Stock Option Plan (the "Plan"), which provides for nonqualified and
incentive stock options. The plan is administered by a stock option committee
(the "Committee"), appointed by the GTL Board of Directors. The Committee
determines the option price, the option's exercise date and the expiration date
of each option (provided no option shall be exercisable after the expiration of
ten years from the date of grant). Proceeds received by GTL for options
exercised will in turn be used to purchase Globalstar ordinary partnership
interests under a one-for-one exchange arrangement.
In 1995, options to purchase 110,400 shares of GTL common stock and in
1996, options to purchase 122,000 shares of GTL common stock were granted under
the Plan. The options generally expire ten years from the date of grant and
become exercisable over the period stated in each option, generally ratably over
a five-year period. All options granted in 1995 and 1996 were non-qualified
stock options with a price equal to fair market value at the date of grant. As
of December 31, 1996, 18,800 shares of common stock were available for future
grant under the Plan, no options were exercised or are exercisable and 1,200
have been cancelled.
On September 14, 1995, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 140,000 shares of the GTL
common stock owned by Loral at an exercise price of $20.00 per share. On
December 12, 1995 Loral, in its capacity as managing general partner, granted
non-employee
F-14
<PAGE> 116
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNER'S CAPITAL (CONTINUED)
directors of Loral options to purchase 200,000 shares of the GTL common stock
owned by Loral at an exercise price of $33.375 per share. Such exercise prices
were greater than or equal to the market price at grant date. These options are
immediately exercisable, and expire 12 years from date of grant; no options were
exercised or cancelled during the year.
On October 9, 1996, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 152,000 shares of the GTL
common stock owned by Loral at a price $25.375 below market price on the grant
date. Such options vest over a three year period and expire 10 years from date
of grant; no options were exercised or cancelled during the year.
In April and December 1996, Loral granted certain officers and employees of
Globalstar options to purchase 99,000 shares of Loral common stock at $10.50 per
share and 5,000 shares of Loral common stock at $18.9375 per share,
respectively. Such exercise prices were equal to the market price at grant date.
These options expire ten years from the date of grant and become exercisable
ratably over a five year period.
As described in Note 2, Globalstar accounts for its stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
its related interpretations. Except for $317,000 of compensation expense in 1996
related to the below market option grant, no compensation expense has been
recognized in Globalstar's financial statements for stock-based compensation.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") requires the disclosure of pro forma net
income and earnings per share had Globalstar adopted the fair value method as of
the beginning of 1995. Under SFAS 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from Globalstar's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. Globalstar's calculations
were made using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, six months following vesting; stock
volatility, 30%; risk free interest rates, 6.25% in 1996 and 6% in 1995; and no
dividends during the expected term. Globalstar's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the 1996 and 1995 awards (including the
stock-based awards made by Loral to its officers and directors on Globalstar's
behalf) had been amortized to expense over the vesting period of the awards, the
pro forma net loss applicable to ordinary partnership interests would have
increased by $1,755,000 to $73,724,000 in 1996 and would have increased by
$156,000 to $68,393,000 in 1995.
A summary of the status of the GTL stock option plan at December 31, 1996
and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Granted in 1995 (weighted average fair value $5.33 per share).... 110,400 $ 16.625
Outstanding at December 31, 1995................................. 110,400 16.625
Granted (weighted average fair value $18.04 per share)........... 122,000 54.90
Forfeited........................................................ (1,200) 16.625
-------
Outstanding at December 31, 1996................................. 231,200 36.824
=======
</TABLE>
F-15
<PAGE> 117
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNER'S CAPITAL (CONTINUED)
The following table summarizes information about the stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE-YEARS
------------------------------------------------------- ----------- ----------------------
<S> <C> <C>
$16.625 ............................................... 109,200 8.7
50.375 ............................................... 80,000 9.4
63.5313............................................... 42,000 9.9
</TABLE>
10. PENSIONS AND OTHER EMPLOYEE BENEFITS
Prior to April 23, 1996, Globalstar employees were eligible to participate
in the employee benefit plans of Old Loral. Globalstar was charged for the
actual costs of these benefits which for the period March 23 through December
31, 1994, amounted to $321,000, including $55,000 relating to pensions and
retiree health care and life insurance benefits. The costs incurred for the year
ended December 31, 1995 amounted to $710,000, including $121,000 relating to
pensions and retiree health care and life insurance benefits. In April 1996,
separate pension, postretirement health care and life insurance and employee
savings plans were established by Globalstar.
Pensions: Globalstar maintains a noncontributory pension plan and a
supplemental pension plan covering certain employees. Eligibility for
participation in these plans vary and benefits are generally based on members'
compensation and years of service. Plan assets are generally invested in U.S.
government and agency obligations and listed stocks and bonds.
Pension cost for the year ended December 31, 1996 includes the following
components (in thousands):
<TABLE>
<S> <C>
Service cost-benefits earned during the period............................ $ 213
Interest cost on projected benefit obligation............................. 195
Actual return on plan assets.............................................. (134)
Net amortization and deferral............................................. (151)
--------
Total pension cost.............................................. $ 123
========
</TABLE>
The following presents the plan's funded status and amounts recognized in
the balance sheet at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................................... $ 2,944
========
Accumulated benefits.................................................... $ 3,129
Effect of projected future salary increases............................. 764
--------
Projected benefits...................................................... 3,893
Plan assets at fair value................................................. 4,156
--------
Plan assets in excess of projected benefit obligation..................... 263
Unrecognized net gain..................................................... 386
--------
Pension liability......................................................... $ 123
========
</TABLE>
F-16
<PAGE> 118
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PENSIONS AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The principal actuarial assumptions were:
<TABLE>
<S> <C>
Discount rate............................................................... 7.75%
Rate of increase in compensation levels..................................... 4.50%
Expected long-term rate of return on plan assets............................ 9.50%
</TABLE>
Postretirement Health Care and Life Insurance Benefits: In addition to
providing pension benefits, Globalstar provides certain health care and life
insurance benefits for retired employees and dependents. Participants are
eligible for these benefits when they retire from active service and meet the
eligibility requirements for Globalstar's pension plan. These benefits are
funded primarily on a pay-as-you-go basis with the retiree generally paying a
portion of the cost through contributions, deductibles and coinsurance
provisions.
Postretirement health care and life insurance costs for the year ended
December 31, 1996 include the following components (in thousands):
<TABLE>
<S> <C>
Service cost -- benefits earned during the period......................... $ 29
Interest cost on accumulated postretirement benefit obligation............ 32
Net amortization and deferral............................................. 26
Return on assets.......................................................... (2)
--------
Total postretirement health care and life insurance costs....... $ 85
========
</TABLE>
At December 31, 1996, the total accumulated postretirement benefit
obligation was $641,000. Actuarial assumptions used in determining the
accumulated postretirement benefit obligation include a discount rate of 7.75%
at December 31, 1996, and an assumed health care cost trend rate of 10.6%
decreasing gradually to an ultimate rate of 5.5% by the year 2004. Changing the
assumed health care cost trend by 1% in each year would change the accumulated
postretirement benefit obligation at December 31, 1996 by $110,000 and the
aggregate service and interest cost components by $12,000 for the year ended
December 31, 1996.
11. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 4, 5, 6, 8 and 9,
Globalstar has a number of other transactions with its affiliates. Globalstar
believes that the arrangements are as favorable to Globalstar as could be
obtained from unaffiliated parties. The following describes these related-party
transactions.
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Ground
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
F-17
<PAGE> 119
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
A support agreement was entered into among Qualcomm, Loral and Globalstar
pursuant to which Qualcomm agreed to (i) assist Globalstar and SS/L with
Globalstar's system design, (ii) support Globalstar and Loral with respect to
various regulatory matters, including the FCC application and (iii) assist
Globalstar and Loral in their marketing efforts with respect to Globalstar. For
the years ended December 31, 1996 and 1995, and for the period March 23 through
December 31, 1994, Qualcomm has received approximately $1,823,000, $2,712,000
and $2,431,000, respectively, for costs incurred in rendering such support and
assistance.
Certain of Globalstar's limited partners have signed agreements granting
them the right to provide Globalstar System services to users in specific
countries on an exclusive basis, as long as specified minimum levels of
subscribers are met. These service providers will receive certain discounts from
Globalstar's expected pricing schedule generally over a five-year period.
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the years ended December
31, 1996 and 1995, and for the period March 23 through December 31, 1994, were
$496,000, $1,411,000 and $471,000, respectively. Globalstar anticipates that
similar agreements may be entered into with other strategic partners in the
future.
Current payable to affiliates consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
SS/L................................................... $22,572 $26,126
Qualcomm............................................... 40,903 21,443
Loral.................................................. 462 --
------- -------
Total.................................................. $63,937 $47,569
======= =======
</TABLE>
Commencing after the initiation of Globalstar services, LQP, the general
partner of LQSS, will be paid an annual management fee equal to 2.5% of
Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500
million. Should Globalstar incur a net loss in any year following commencement
of services, the management fee for that year will be reduced by 50% and LQP
will reimburse Globalstar for management fee payments, if any, received in any
prior quarter of such year, sufficient to reduce its management fee for the year
to 50%. No management fees have been paid to date.
12. REGULATORY MATTERS
Globalstar and its operations are, and will be, subject to substantial U.S.
and international regulation, including required regulatory approvals in each
country in which Globalstar intends to provide service. Globalstar's business
may be significantly affected by regulatory activities.
13. SUBSEQUENT EVENT
On February 13, 1997, Globalstar and GTL sold units consisting of $500
million principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and
warrants to purchase 1,032,250 shares of GTL common stock in a private offering.
The notes are senior in right of payment to the redeemable preferred partnership
interests, may not be redeemed prior to February 2002 and are subject to a
prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain
F-18
<PAGE> 120
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENT (CONTINUED)
limited circumstances involving a change of control of Globalstar, as defined,
each note is redeemable at the option of the holder for 101% of the principal
amount plus accrued interest.
The warrants are exercisable on February 19, 1998 at a price of $69.575 per
share. The warrants represent approximately 1.7% of Globalstar's total
partnership interests on a fully diluted basis.
Globalstar will use the net proceeds of approximately $484 million from the
offering for the construction and deployment of the Globalstar System.
F-19
<PAGE> 121
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 359,211 $ 21,180
Other current assets............................................. 905 606
---------- --------
Total current assets.......................................... 360,116 21,786
Property and equipment, net........................................ 2,234 1,720
Globalstar System Under Construction:
Space segment.................................................... 829,161 730,513
Ground segment................................................... 199,508 160,520
---------- --------
1,028,669 891,033
Additional satellite spares........................................ 28,348 --
Deferred FCC license costs......................................... 8,907 8,690
Deferred financing costs........................................... 18,340 19,577
Other assets....................................................... 134 107
---------- --------
Total assets............................................. $1,446,748 $942,913
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................. $ 3,553 $ 4,401
Payable to affiliates............................................ 57,436 63,937
Accrued expenses................................................. 5,631 6,929
Accrued interest on notes payable................................ 7,109 --
---------- --------
Total current liabilities..................................... 73,729 75,267
Deferred revenues.................................................. 23,652 23,652
Vendor financing liability......................................... 156,048 130,694
Borrowings under long-term revolving credit facility............... -- 96,000
Interest payable on long-term revolving credit facility............ 393 77
Commitments and contingencies (Note 6)
Senior notes ($500,000 principal amount)........................... 472,588 --
Redeemable preferred partnership interests (4,769,230 outstanding
$310,000 redemption value)....................................... 302,300 302,037
Ordinary partners' capital:
Ordinary partnership interests (51,185,318 and 47,000,000
outstanding at March 31, 1997 and December 31, 1996,
respectively)................................................. 401,019 292,585
Warrants......................................................... 17,019 22,601
---------- --------
Total ordinary partners' capital.............................. 418,038 315,186
---------- --------
Total liabilities and partners' capital.................. $1,446,748 $942,913
========== ========
</TABLE>
Note: The December 31, 1996 balance sheet has been derived from
audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
F-20
<PAGE> 122
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER PARTNERSHIP INTEREST AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
MARCH 31,1997 MARCH 31,1996 MARCH 31, 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Operating expenses:
Development costs............................ $ 11,241 $ 11,377 $137,526
Marketing, general and administrative........ 6,341 4,024 49,334
------- ------- --------
Total operating expenses............. 17,582 15,401 186,860
Interest income................................ 2,295 1,449 22,446
------- ------- --------
Net loss....................................... 15,287 13,952 164,414
------- ------- --------
Preferred distribution and related increase in
redeemable preferred partnership interests... 5,301 1,424 22,624
------- ------- --------
Net loss applicable to ordinary partnership
interests.................................... $ 20,588 $ 15,376 $187,038
======= ======= ========
Net loss per weighted average ordinary
partnership interest outstanding............. $ .44 $ .33
======= =======
Weighted average ordinary partnership interests
outstanding.................................. 47,326 47,000
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 123
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
------------------------------- OPERATIONS) TO
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (15,287) $(13,952) $ (164,414)
Deferred revenues.............................................. -- 1,739 23,652
Stock compensation transactions................................ 318 -- 635
Depreciation and amortization.................................. 1,473 1,568 7,844
Changes in operating assets and liabilities:
Other current assets......................................... (299) (2,724) (905)
Other assets................................................. (27) -- (134)
Accounts payable............................................. (319) 262 2,899
Payable to affiliates........................................ (3,202) (4,487) (1,891)
Accrued expenses............................................. (1,298) 1,809 5,631
--------- --------- -----------
Net cash used in operating activities............................ (18,641) (15,785) (126,683)
--------- --------- -----------
Investing activities:
Globalstar System under construction........................... (137,636) (108,565) (1,028,669)
Payable to affiliates for Globalstar System under
construction................................................. (3,299) (8,290) 50,527
Capitalized interest payable................................... 7,425 -- 7,502
Accounts payable............................................... (529) (163) 146
Vendor financing liability..................................... 25,354 19,365 156,048
--------- --------- -----------
Cash used for Globalstar System................................ (108,685) (97,653) (814,446)
Additional satellite spares.................................... (28,348) (28,348)
Purchases of property and equipment............................ (750) (230) (3,692)
Deferred FCC license costs..................................... (217) (576) (6,672)
Purchases of investments....................................... -- -- (126,923)
Maturity of investments........................................ -- -- 126,923
--------- --------- -----------
Net cash used in investing activities............................ (138,000) (98,459) (853,158)
--------- --------- -----------
Financing activities:
Proceeds from the issuance of senior notes..................... 472,588 -- 472,588
Proceeds from issuance warrants in connection with sale of
senior notes................................................. 12,210 -- 12,210
Proceeds from exercise of guarantee warrants................... 110,911 -- 110,911
Deferred financing costs....................................... -- (250) (2,125)
Proceeds of capital subscriptions receivable................... -- -- 282,441
Payment of accrued capital raising costs....................... -- -- (2,400)
Sale of partnership interests to GTL........................... -- -- 185,750
Sale of redeemable preferred partnership interests to GTL...... -- 290,000 299,500
Distributions on redeemable preferred partnership interests.... (5,037) -- (19,870)
Prepaid interest on redeemable preferred partnership
interests.................................................... -- -- 47
Borrowings under long-term revolving credit facility........... 65,000 -- 171,000
Repayment of borrowings under long-term revolving credit
facility..................................................... (161,000) -- (171,000)
--------- --------- -----------
Net cash provided by financing activities........................ 494,672 289,750 1,339,052
--------- --------- -----------
Net increase in cash and cash equivalents........................ 338,031 175,506 359,211
Cash and cash equivalents, beginning of period................... 21,180 71,602 --
--------- --------- -----------
Cash and cash equivalents, end of period......................... $ 359,211 $247,108 $ 359,211
========= ========= ===========
Noncash transactions:
Payable to affiliates.......................................... $ 9,308
===========
Accrual of capital raising costs............................... $ 2,400
===========
Deferred FCC license costs..................................... $ 2,235
===========
Warrants issued in exchange for debt guarantee................. $ 22,601
===========
Increase in redemption value of preferred partnership
interests.................................................... $ 263 $ 2,800
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE> 124
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules. Globalstar believes
that the disclosures made are adequate to keep the information presented from
being misleading. The results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year. It is suggested that these financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Annual Report on Form 10-K for Globalstar Telecommunications Limited
("GTL").
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Space & Communications Ltd. ("Loral") and
QUALCOMM Incorporated ("Qualcomm"), is building, and is preparing to launch and
operate a worldwide, low-earth orbit satellite-based wireless digital
telecommunications system (the "Globalstar System"). Globalstar's first launch
is currently scheduled for October 1997.
Globalstar, a Delaware limited partnership with a December 31 fiscal year
end, was formed in November 1993. It had no activities until March 23, 1994,
when it received capital subscriptions for $275 million and commenced
operations. The accompanying consolidated financial statements reflect the
operations of Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
design, licensing, construction, testing and financing of the Globalstar System,
and establishing its business. Its planned principal operations have not
commenced. Accordingly, Globalstar is a development stage company as defined in
Statement of Financial Accounting Standards No. 7 "Accounting and Reporting by
Development Stage Enterprises".
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations.
Notes Payable
Interest accrues on the Senior Notes at 11 3/8% per annum. Globalstar is
increasing the carrying value of the notes payable to their ultimate redemption
value.
Reclassifications
Certain reclassifications have been made to conform prior-year amounts to
the current-year presentation.
F-23
<PAGE> 125
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
At March 31, 1997, Globalstar's budget for the cost for the design,
construction and deployment of the Globalstar System, including working capital,
cash interest on anticipated borrowings and operating expenses is approximately
$2.5 billion. Globalstar has recently added enhanced capabilities and additional
test requirements and has experienced cost growth in the development of the
ground system, the final cost impact of which is under assessment. Actual
amounts may vary from this estimate and additional funds would be required in
the event of unforeseen delays, cost overruns, launch failures or other
technological risks or adverse regulatory developments, or to meet unanticipated
expenses. Globalstar, however, does not expect such cost growth to increase the
funding requirement for the project by more than five percent. Globalstar has
raised or received commitments for approximately $2.0 billion in equity, debt
and vendor financing.
Globalstar has also agreed to purchase from SS/L eight additional spare
satellites at a cost estimated at $175 million. In addition, Globalstar,
together with its strategic partners, will jointly finance the procurement of up
to 32 gateways for resale to service providers, thereby accelerating the
deployment of gateways around the world prior to the date on which Globalstar
expects to commence initial operations via a 40-satellite constellation.
Globalstar has agreed to finance approximately $80 million of the cost of these
gateways and expects to recover its cost from the resale of these gateways to
service providers.
Additional funds to complete the Globalstar System are expected to be
obtained through a combination of sources including, debt issuance (which may
include an equity component), financial support from the Globalstar partners,
projected service provider payments, projected net service revenues from initial
operations, and anticipated payments received from the sale of gateways and
Globalstar subscriber terminals. Although Globalstar believes it will be able to
obtain this additional financing, there can be no assurance that the financing
will be available on favorable terms or on a timely basis, if at all.
5. EXERCISE OF GUARANTEE WARRANTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 4,185,318 shares of
GTL common stock. GTL received proceeds of approximately $110.9 million. GTL
used the proceeds from the warrants to purchase 4,185,318 Globalstar ordinary
partnership interests for $26.50 per interest, increasing GTL's holdings of
Globalstar's ordinary partnership interests from 21.3% to 27.7%.
6. SENIOR NOTES AND WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 1,032,250 shares of GTL common stock in a private
offering. The notes are senior in right of payment to the redeemable preferred
partnership interests, and may not be redeemed prior to February 2002 and are
subject to a prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
The warrants are exercisable on or after February 19, 1998 at a price of
$69.575 per share and expire on February 15, 2004. The warrants represent
approximately 1.7% of Globalstar's total partnership interests on a
F-24
<PAGE> 126
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fully diluted basis. Any proceeds from the exercise of the warrants will be used
to purchase Globalstar ordinary partnership interests.
Globalstar will use the net proceeds of approximately $485 million from the
offering for the construction and deployment of the Globalstar System.
7. SUBSEQUENT EVENTS
On May 5, 1997, Globalstar received $30 million as a result of the exercise
by GTL of warrants to purchase 1,131,168 Globalstar ordinary partnership
interests for $26.50 per interest. Globalstar will use the proceeds for the
construction and deployment of the Globalstar System.
On June 13, 1997, Globalstar received net proceeds of approximately $302
million from the offering of $325 million aggregate principal amount of 11 1/4%
Senior Notes due 2004. Globalstar will use the proceeds for the construction and
deployment of the Globalstar System.
F-25
<PAGE> 127
INDEPENDENT AUDITORS' REPORT
To the Stockholder of Globalstar Capital Corporation:
We have audited the accompanying balance sheets of Globalstar Capital
Corporation (a wholly-owned subsidiary of Globalstar L.P.) as of December 31,
1996 and 1995. These balance sheets are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such balance sheets present fairly, in all material
respects, the financial position of Globalstar Capital Corporation as of
December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 24, 1997
F-26
<PAGE> 128
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
MARCH 31, 1997 1996 1995
-------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Receivable from Parent..................................... $1,000 $1,000 $1,000
======= ========
LIABILITIES and STOCKHOLDER'S EQUITY
Commitments and Contingencies (Note 2)
Stockholder's equity
Common stock, par value $.10; 1,000 shares authorized,
100 shares issued and outstanding................... $ 10 $ 10 $ 10
Paid in capital....................................... 990 990 990
-------
-
-------
$1,000 $1,000 $1,000
======= ========
</TABLE>
See notes to balance sheets.
F-27
<PAGE> 129
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Globalstar Capital Corporation ("GCC"), a wholly-owned subsidiary of
Globalstar, L.P. ("Globalstar"), was formed on July 24, 1995 for the primary
purpose of serving as a co-issuer and co-obligor with respect to certain debt
obligations of Globalstar including the $500 million principal amount of 11 3/8%
Senior Notes due 2004.
2. COMMITMENTS AND CONTINGENCIES
On February 13, 1997, GCC and Globalstar co-issued $500 million principal
amount of Senior Notes (the "Notes"). The Notes bear interest at the rate of
11 3/8% payable semiannually on each February 15 and August 15 and mature on
February 15, 2004. The Notes may be redeemed at the option of GCC and
Globalstar, in whole or in part, at any time on or after February 15, 2002,
initially at 105.688% of their principal amount plus accrued interest declining
to 102.844% on or after February 15, 2003 and declining to 100% on February 15,
2004. The Notes are unsecured and rank senior in right of payment to any
existing and future subordinated debt of GCC and Globalstar and pari passu in
right of payment with all existing and future senior debt of GCC and Globalstar.
GCC is a guarantor of a $250 million credit agreement between Globalstar
and a group of banks. At March 31, 1997 and December 31, 1995, there were no
borrowings under this agreement. At December 31, 1996 approximately $96 million
was outstanding under this agreement.
F-28
<PAGE> 130
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Globalstar Telecommunications Limited:
We have audited the accompanying balance sheets of Globalstar
Telecommunications Limited (a Bermuda company and a General Partner of
Globalstar, L.P.) as of December 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1996 and 1995 and for the period November 23, 1994 (date of incorporation) to
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Globalstar Telecommunications Limited as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1995, and for the period November 23,
1994 to December 31, 1994 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
February 24, 1997
F-29
<PAGE> 131
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests........................... $302,037 $ --
Ordinary partnership interests....................................... 158,038 173,118
Ordinary partnership warrants........................................ 22,601 --
-------- --------
Total assets...................................................... $482,676 $173,118
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Interest payable..................................................... $ 1,679 $ --
Convertible preferred equivalent obligations ($310,000 principal
amount).............................................................. 300,358 --
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 60,000,000 shares authorized;
10,000,000 issued and outstanding................................. 10,000 10,000
Paid-in capital...................................................... 175,750 175,750
Warrants............................................................. 22,601 --
Accumulated deficit.................................................. (27,712) (12,632)
-------- --------
Total shareholders' equity............................................. 180,639 173,118
-------- --------
Total liabilities and shareholders' equity........................ $482,676 $173,118
======== ========
</TABLE>
See notes to financial statements.
F-30
<PAGE> 132
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
------- --------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership interests of
Globalstar, L.P. ....................................................... $15,080 $ 12,632
Dividend income on Globalstar, L.P. redeemable preferred partnership
interests............................................................... (17,370) --
Interest expense on convertible preferred equivalent obligations.......... 17,370 --
------- --------
Net loss.................................................................. $15,080 $ 12,632
======= ========
Net loss per share........................................................ $ 1.51 $ 1.26
======= ========
Shares used in computing net loss per share............................... 10,000 10,000
======= ========
</TABLE>
See notes to financial statements.
F-31
<PAGE> 133
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ ------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Incorporation by Globalstar,
L.P., November 23, 1994... 12 $ 12 $ 112 $ 124
------ ------- -------- --------
Balance, December 31,
1994...................... 12 12 112 124
Sale of common stock, net of
offering costs of
$14,250................ 10,000 10,000 175,750 185,750
Repurchase of common stock
from Globalstar, L.P. .... (12) (12) (112) (124)
Net loss.................... $ (12,632) (12,632)
------ ------- -------- -------- --------
Balance, December 31,
1995...................... 10,000 10,000 175,750 (12,632) 173,118
Warrants issued in
connection with the
Globalstar Credit
Agreement................. $ 22,601 22,601
Net loss.................... (15,080) (15,080)
------ ------- -------- ------- -------- --------
Balance, December 31,
1996...................... 10,000 $10,000 $175,750 $ 22,601 $ (27,712) $180,639
====== ======= ======== ======= ======== ========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 134
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, NOVEMBER 23, 1994
----------------------- (DATE OF INCORPORATION) TO
1996 1995 DECEMBER 31, 1994
--------- --------- --------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (15,080) $ (12,632) $ --
Equity in net loss of Globalstar, L.P........ 15,080 12,632 --
Increase in redemption value of redeemable
preferred partnership interests........... (858) -- --
Dividends accrued on redeemable preferred
interests in excess of cash received...... (1,679) -- --
Amortization of convertible preferred
equivalent obligations issue costs........ 858 -- --
Change in operating liability:
Interest payable.......................... 1,679 -- --
--------- --------- -------
Net cash provided by (used in) operating
activities................................... -- -- --
--------- --------- -------
Investing activities:
Purchase of general partnership interests in
Globalstar, L.P........................... -- (185,750) --
Purchase of redeemable preferred partnership
interests in Globalstar, L.P.............. (299,500) -- --
--------- --------- -------
Net cash used in investing activities.......... (299,500) (185,750) --
--------- --------- -------
Financing activities:
Net proceeds from sale of common stock....... -- 185,750 --
Payment of debt offering costs............... (10,500) -- --
Sale of convertible preferred equivalent
obligations............................... 310,000 -- --
Sale of common stock to Globalstar, L.P...... -- -- 124
Repurchase of common stock from
Globalstar, L.P........................... -- (124) --
Advances from (repayment to) Globalstar,
L.P....................................... -- (66) 66
Deferred costs of initial public offering.... -- -- (190)
Offering proceeds used to repay initial
public offering costs deferred in prior
period.................................... -- 190 --
--------- --------- -------
Net cash provided by financing activities...... 299,500 185,750 --
--------- --------- -------
Net increase (decrease) in cash and cash
equivalents.................................. -- -- --
Cash and cash equivalents, beginning of
period....................................... -- -- --
--------- --------- -------
Cash and cash equivalents, end of period....... $ -- $ -- $ --
========= ========= ==================
Noncash transaction:
Warrants issued in connection with the
Globalstar Credit Agreement............... $ 22,601
=========
Supplemental information:
Interest paid during the year................ $ 14,833
=========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 135
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
On November 23, 1994, Globalstar Telecommunications Limited ("GTL") was
incorporated as an exempted company under the Companies Act 1981 of Bermuda.
GTL's financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
GTL's sole business is acting as a general partner of Globalstar, L.P.
("Globalstar"), a development stage limited partnership, which is designing,
constructing and will operate a worldwide, low-earth orbit satellite-based
digital telecommunications system (the "Globalstar System"). The Globalstar
System's world-wide coverage is designed to enable its service providers to
extend modern telecommunications services to millions of people who currently
lack basic telephone service and to enhance wireless communications in areas
underserved or not served by existing or future cellular systems, providing a
telecommunications solution in parts of the world where the build-out of
terrestrial systems cannot be economically justified.
Loral Space & Communications Ltd. ("Loral"), through a subsidiary and
intermediate limited partnerships, is the managing general partner of
Globalstar. At December 31, 1996, Loral had an effective 33.8% interest in the
ordinary partnership interests of Globalstar, including 1,407,144 shares of
GTL's outstanding common stock.
On April 23, 1996, a merger between Loral Corporation ("Old Loral") and
Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction
with the merger, Old Loral's direct and indirect interests in GTL and Globalstar
were transferred to Loral.
At December 31, 1996, GTL owns 21.3% of Globalstar's ordinary partnership
interests and 100% of Globalstar's redeemable preferred partnership interests.
As GTL's investment in Globalstar is GTL's only asset, GTL is dependent upon
Globalstar's success and achievement of profitable operations for the recovery
of its investment. Globalstar is a development stage limited partnership which
may encounter problems, delays and expenses, many of which may be beyond
Globalstar's control. These may include, but are not limited to, problems
related to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. There can be no assurance that substantial delays in
any of the foregoing matters would not delay Globalstar's achievement of
profitable operations and effect the recoverability of GTL's investment. All
expenses necessary to maintain GTL's operations are borne by Globalstar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Globalstar, L.P.
GTL accounts for its investment in Globalstar's ordinary partnership
interests on the equity basis, recognizing its allocated share of net loss for
each period since its initial investment on February 22, 1995. This investment
includes the fair value of warrants received from Globalstar in 1996 (see Note
4). The excess carrying value of this investment over GTL's interest in
Globalstar's ordinary partners' capital is attributable to the Globalstar System
Under Construction. Amortization of this excess will begin upon Globalstar's
commencement of commercial service. Dividend income on GTL's investment in
Globalstar's redeemable preferred partnership interests includes accretion of
the carrying amount of the investment to redemption value.
Convertible Preferred Equivalent Obligations (CPEOs)
Costs incurred in connection with the issuance of the CPEOs have been
netted against the proceeds of the offering. Interest expense includes accretion
of the carrying value of the CPEOs to redemption value.
F-34
<PAGE> 136
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," GTL accounts for stock-based awards
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Income Taxes
GTL was incorporated in Bermuda. Bermuda does not have an income, profits
or capital gains tax. As a partner in Globalstar, however, GTL will be subject
to U.S. tax on its share of Globalstar's U.S. source income and may be subject
to tax in some foreign jurisdictions on portions of its share of the
partnership's foreign source income. Commencing with its investment in
Globalstar, GTL has been allocated its proportionate share of partnership tax
losses. The ultimate realizability of these tax loss carryforwards is dependent
upon the ability of Globalstar to generate U.S. source income, subject to
certain other restrictions imposed by the U.S. Internal Revenue Code.
Accordingly, no provision for Bermuda or U.S. income tax expense or benefit is
included in GTL's Statements of Operations.
3. SALE OF CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS AND PURCHASE OF
REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
On March 6, 1996 and April 3, 1996, GTL issued 6,000,000 shares and 200,000
shares, respectively, of its 6 1/2% Convertible Preferred Equivalent Obligations
due 2006, par value $50 per share (the "CPEOs"), for net proceeds of
$299,500,000. As of December 31, 1996, 6,200,000 shares of the CPEOs were
outstanding, of which Loral holds 2,050,000 shares. The fair value of the CPEOs,
based on quoted market prices, was approximately $329 million on December 31,
1996.
The CPEOs are subordinated to existing and future debt obligations of GTL,
are convertible into 4,769,230 shares of GTL Common Stock at a conversion price
of $65.00 per share, subject to adjustment for certain antidilution events, bear
interest at 6 1/2% per annum payable quarterly, are redeemable (at a premium
which declines over time) by GTL beginning in 2000 (or beginning in 1997 if
GTL's stock price exceeds certain defined price ranges), and, if still
outstanding, must be redeemed by GTL on March 1, 2006. Interest and redemption
payments may be made in cash or shares of common stock. In certain limited
circumstances involving a change of control of GTL, as defined, holders may
elect to convert their CPEOs into GTL common stock based on the then average
market price, subject to GTL's option to redeem the CPEOs. The CPEOs are shown
in the accompanying financial statements net of discounts and other offering
costs and are being increased to their redemption value over the term of the
CPEOs.
The net proceeds of $299,500,000 were used by GTL to purchase 4,769,230
redeemable preferred partnership interests in Globalstar. The redeemable
preferred partnership interests will convert to ordinary partnership interests
on a one-for-one basis upon any conversion of the CPEOs into GTL common stock,
will pay a quarterly preferred distribution to GTL of 6 1/2% per annum, will be
allocated losses of the partnership only after all adjusted capital accounts of
the ordinary partnership interests have been reduced to zero, and are redeemable
on terms comparable to the CPEOs. Globalstar may elect to make the quarterly
preferred distribution or redemption payments to GTL in cash or general
partnership interests. If such distribution is made in cash, GTL must make its
interest payment on the CPEOs in cash. Globalstar may elect to defer payment of
the preferred distribution; in such case, GTL may also elect to defer interest
payment on the CPEOs. However, holders of the CPEOs are entitled to certain
representation rights on the General Partners' Committee of Globalstar in the
event six consecutive interest payments are deferred.
F-35
<PAGE> 137
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY
On February 14, 1995, GTL completed an initial public offering of
10,000,000 shares of common stock resulting in net proceeds of $185,750,000.
Effective February 22, 1995, GTL purchased 10,000,000 partnership interests from
Globalstar with the net proceeds of the initial public offering. Also on
February 22, 1995, GTL repurchased at original cost, the 12,000 shares of common
stock representing the initial capitalization it had sold to Globalstar in 1994.
Partners in Globalstar have the right to convert their partnership
interests into shares of GTL on a one-for-one basis following the Full
Constellation Date, as defined, of the Globalstar System and after at least two
consecutive quarters of positive net income, subject to certain annual
limitations. GTL has reserved 37,000,000 shares for this purpose.
Stock Option Arrangements
Officers, directors and employees of Globalstar are eligible to participate
in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified
and incentive stock options. The plan is administered by a stock option
committee (the "Committee"), appointed by the GTL Board of Directors. The
Committee determines the option price, the option's exercise date and the
expiration date of each option (provided no option shall be exercisable after
the expiration of ten years from the date of grant). Proceeds received by GTL
for options exercised will in turn be used to purchase Globalstar ordinary
partnership interests under a one-for-one exchange arrangement.
As described in Note 2, GTL accounts for its stock-based compensation using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, no compensation expense has been recognized in
GTL's financial statements for stock-based compensation.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") requires the disclosure of pro forma net
income and earnings per share had GTL adopted the fair value method as of the
beginning of 1995. Under SFAS 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from GTL's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. GTL's calculations were
made using the Black-Scholes option pricing model with the following
assumptions: expected life, six months following vesting; stock volatility, 30%;
risk free interest rates, 6.25% in 1996 and 6% in 1995; and no dividends during
the expected term. GTL's calculations are based on a multiple option valuation
approach and forfeitures are recognized as they occur. If the computed fair
values of the 1996 and 1995 awards had been amortized to Globalstar's expense
over the vesting period of the awards, GTL's pro forma net loss would have
increased by $374,000 ($.04 per share) to $15,454,000 ($1.55 per share) in 1996
and would have increased by $33,000 ($.01 per share) to $12,665,000 ($1.27 per
share) in 1995.
F-36
<PAGE> 138
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the status of the GTL stock option plan at December 31, 1996
and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------- -------
<S> <C> <C>
Granted in 1995 (weighted average fair value of $5.33 per
share)......................................................... 110,400 $16.625
-------
Outstanding at December 31, 1995................................. 110,400 16.625
Granted (weighted average fair value of $18.04 per share)........ 122,000 54.90
Forfeited........................................................ (1,200) 16.625
-------
Outstanding at December 31, 1996................................. 231,200 36.824
=======
</TABLE>
The options generally expire ten years from the date of grant and become
exercisable over the period stated in each option, generally ratably over a
five-year period. All options granted during the year were non-qualified stock
options with an exercise price equal to fair market value at the date of grant.
As of December 31, 1996, 18,800 shares of common stock were available for future
grant under the Plan. The GTL Board of Directors has approved, subject to
shareholder approval, a 375,000 increase in the number of shares available for
grant under the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL
EXERCISE PRICE OUTSTANDING LIFE-YEARS
- ------------------------------------------------------------------ ----------- ----------------
<S> <C> <C>
$16.625........................................................... 109,200 8.7
50.375........................................................... 80,000 9.4
63.5313.......................................................... 42,000 9.9
</TABLE>
Guarantee Warrants
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Credit Agreement") with a group of banks. Lockheed Martin and
certain Globalstar partners guaranteed $206.3 million and $43.7 million of the
Credit Agreement, respectively. In addition, Loral agreed to indemnify Lockheed
Martin for any liability in excess of $150 million. In exchange for the
guarantee and indemnity, GTL, upon shareholder approval, issued warrants to
purchase 4,185,318 shares of GTL common stock at $26.50 per share as follows:
Loral 942,428 warrants, Lockheed Martin 2,511,190 warrants and certain
Globalstar partners 731,700 warrants. Proceeds received from the exercise of the
warrants will be used to purchase Globalstar ordinary partnership interests
under a one-for-one exchange arrangement. As part of this transaction,
Globalstar issued GTL warrants to purchase an additional 1,131,168 ordinary
partnership interests of Globalstar.
On February 12, 1997, GTL and the holders of the warrants entered into an
arrangement under which GTL agreed to accelerate the vesting and exercisability
of the warrants to purchase 4,185,318 shares of GTL common stock at $26.50 per
share and the holders agreed to exercise such warrants. GTL agreed to register
for resale the GTL common stock issuable upon exercise of the warrants. In
addition, GTL announced its intention to distribute to the holders of its common
stock rights to subscribe for and purchase 1,131,168 GTL shares for a price of
$26.50 per share of which Loral will receive rights to purchase 159,172 shares.
Loral agreed to purchase all shares not purchased upon exercise of the rights.
Upon the exercise of the warrants and
F-37
<PAGE> 139
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY (CONTINUED)
the rights, GTL will receive proceeds of approximately $140.9 million, which it
will use to exercise its warrants to purchase 5,316,486 Globalstar ordinary
partnership interests at $26.50 per interest.
5. SUBSEQUENT EVENT
On February 13, 1997, Globalstar and GTL sold units consisting of $500
million principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and
warrants to purchase 1,032,250 shares of GTL common stock in a private offering.
The notes are senior in right of payment to the redeemable preferred partnership
interests, and may not be redeemed prior to February 2002 and are subject to a
prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
The warrants are exercisable on February 19, 1998 at a price of $69.575 per
share. The warrants represent approximately 1.7% of Globalstar's total
partnership interests on a fully diluted basis. Any proceeds from the exercise
of the warrants will be used to purchase Globalstar ordinary partnership
interests.
Globalstar will use the net proceeds of approximately $484 million from the
offering for the construction and deployment of the Globalstar System.
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31,
--------- ------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996:
Equity in loss of Globalstar, L.P............ $(3,282) $(3,942) $(3,345) $ (4,511)
Net loss..................................... (3,282) (3,942) (3,345) (4,511)
Loss per share............................... (0.33) (0.39) (0.33) (0.45)
1995:
Equity in loss of Globalstar, L.P............ $(1,548) $(2,712) $(3,695) $ (4,677)
Net loss..................................... (1,548) (2,712) (3,695) (4,677)
Loss per share............................... (0.15) (0.27) (0.37) (0.47)
</TABLE>
F-38
<PAGE> 140
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests........................ $ 302,300 $302,037
Ordinary partnership interests.................................... 282,361 158,038
Ordinary partnership warrants..................................... 17,019 22,601
-------- --------
Total assets.............................................. $ 601,680 $482,676
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.................................................. $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000 principal
amount)........................................................... 300,621 300,358
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 60,000,000 shares authorized
(14,185,318 and 10,000,000 issued and outstanding at March 31,
1997 and December 31, 1996, respectively)...................... 14,185 10,000
Paid-in capital................................................... 300,268 175,750
Warrants.......................................................... 17,019 22,601
Accumulated deficit............................................... (32,092) (27,712)
-------- --------
Total shareholders' equity..................................... 299,380 180,639
-------- --------
Total liabilities and shareholders' equity................ $ 601,680 $482,676
======== ========
</TABLE>
- ---------------
Note: The December 31, 1996 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
F-39
<PAGE> 141
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1997 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership interests
of Globalstar, L.P........................................... $ 4,380 $ 3,282
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests........................................ (5,300) (1,424)
Interest expense on convertible preferred equivalent
obligations.................................................. 5,300 1,424
------- -------
Net loss....................................................... $ 4,380 $ 3,282
======= =======
Net loss per share............................................. $ 0.42 $ 0.33
======= =======
Weighted average shares used in computing net loss per share... 10,326 10,000
======= =======
</TABLE>
See notes to condensed financial statements.
F-40
<PAGE> 142
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1997 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (4,380) $ (3,282)
Equity in net loss of Globalstar, L.P........................ 4,380 3,282
Increase in redemption value of redeemable preferred
partnership interests..................................... (263) --
Dividends accrued on redeemable preferred partnership
interests in excess of cash received...................... -- (1,424)
Amortization of convertible preferred equivalent obligations
issue costs............................................... 263 70
Change in operating liability:
Interest payable.......................................... -- 1,354
--------- ---------
Net cash provided by (used in) operating activities............ -- --
--------- ---------
Investing activities:
Purchase of warrants in Globalstar, L.P...................... (12,210) --
Purchase of ordinary partnership interests in Globalstar,
L.P....................................................... (110,911) --
Purchase of redeemable preferred partnership interests in
Globalstar, L.P........................................... -- (290,000)
--------- ---------
Net cash used in investing activities.......................... (123,121) (290,000)
--------- ---------
Financing activities:
Proceeds from issuance of warrants in connection with sale of
Globalstar, L.P.'s senior notes........................... 12,210 --
Proceeds from exercise of guarantee warrants................. 110,911 --
Payment of debt offering costs............................... -- (10,000)
Sale of convertible preferred equivalent obligations......... -- 300,000
--------- ---------
Net cash provided by financing activities...................... 123,121 290,000
--------- ---------
Net increase in cash and cash equivalents...................... -- --
Cash and cash equivalents, beginning of period................. -- --
--------- ---------
Cash and cash equivalents, end of period....................... $ -- $ --
========= =========
</TABLE>
See notes to condensed financial statements.
F-41
<PAGE> 143
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Globalstar Telecommunications Limited (the "Company" or "GTL") pursuant to
the rules of the Securities and Exchange Commission ("SEC") and, in the opinion
of the Company, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position, results of
operations and cash flows. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules.
The Company believes that the disclosures made are adequate to keep the
information presented from being misleading. The results of operations for the
three months ended March 31, 1997 are not necessarily indicative of the results
to be expected for the full year. It is suggested that these financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K.
2. ORGANIZATION AND BUSINESS
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. On February 14, 1995, the Company completed an
initial public offering of 10,000,000 shares of common stock resulting in net
proceeds of $185,750,000. Effective February 22, 1995, the Company purchased
10,000,000 ordinary partnership interests from Globalstar, L.P. ("Globalstar"),
with the net proceeds of the initial public offering. GTL's financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America.
The Company's sole business is acting as a general partner of Globalstar, a
development stage limited partnership, which is building and is preparing to
launch and operate a worldwide, low-earth orbit satellite-based wireless digital
telecommunications system.
At March 31, 1997, GTL held 27.7% of the ordinary partnership interests and
100% of the Redeemable Preferred Partnership Interests in Globalstar, see Note
3 -- Exercise of the Guarantee Warrants. The Company accounts for its investment
in Globalstar on an equity accounting basis, recognizing its allocated share of
net loss in the period incurred. The Company's allocated share of Globalstar's
net loss applicable to ordinary partnership interests from the period February
22, 1995 through March 31, 1997 was $32,092,000.
3. EXERCISE OF GUARANTEE WARRANTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 4,185,318 shares of
GTL common stock for $26.50 per share. GTL received proceeds of approximately
$110.9 million. GTL used the proceeds from the warrants to purchase 4,185,318
Globalstar ordinary partnership interests for $26.50 per interest, increasing
GTL's holdings of Globalstar's ordinary partnership interests from 21.3% to
27.7%.
4. SENIOR NOTES AND WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 1,032,250 shares of GTL common stock in a private
offering. The notes are senior in right of payment to the redeemable preferred
partnership interests, and may not be redeemed prior to February 2002 and are
subject to a prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
F-42
<PAGE> 144
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The warrants are exercisable on or after February 19, 1998 at a price of
$69.575 per share and expire on February 15, 2004. The warrants represent
approximately 1.7% of Globalstar's total partnership interests on a fully
diluted basis. Any proceeds from the exercise of the warrants will be used to
purchase Globalstar ordinary partnership interests.
Globalstar will use the net proceeds of approximately $485 million from the
offering for the construction and deployment of the Globalstar System.
5. SUBSEQUENT EVENTS
On April 8, 1997, GTL's Board of Directors approved a two-for-one stock
split of the common stock in the form of a stock dividend. The stock dividend
will be paid on May 28, 1997, to shareholders of record as of May 12, 1997.
On May 5, 1997, GTL received $30 million as a result of the exercise of
rights to purchase 1,131,168 shares of GTL common stock for $26.50 per share.
GTL used the proceeds to purchase 1,131,168 Globalstar ordinary partnership
interests for $26.50 per interest increasing GTL's holdings of Globalstar's
ordinary partnership interests from 27.7% to 29.3%.
F-43
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
To the Partners of Loral/Qualcomm Satellite Services, L.P.
We have audited the accompanying balance sheets of Loral/Qualcomm Satellite
Services, L.P. (a General Partner of Globalstar, L.P.) as of December 31, 1995
and 1996, and the related statements of operations, partners' capital and
subscriptions receivable and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Loral/Qualcomm Satellite Services, L.P. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 24, 1997
F-44
<PAGE> 146
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P.............................. $ -- $ --
------- -------
Total assets............................................... $ -- $ --
======= =======
PARTNERS' CAPITAL:
Partnership interests (3,000 interests outstanding)........ $ -- $ --
------- -------
Total partners' capital.................................... $ -- $ --
======= =======
</TABLE>
See notes to financial statements.
F-45
<PAGE> 147
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Equity in net loss of Globalstar, L.P........................ $13,122 $26,487 $ --
------- ------- -------
Net loss..................................................... $13,122 $26,487 $ --
======= ======= =======
</TABLE>
See notes to financial statements.
F-46
<PAGE> 148
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF PARTNERS' CAPITAL AND SUBSCRIPTIONS RECEIVABLE
(IN THOUSANDS)
PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PARTNERSHIP
INTERESTS
--------
<S> <C>
Capital subscriptions, March 23, 1994:
1,267 General Partner interests............................................... $ 12,245
1,733 Limited Partner interests............................................... 37,755
Allocated Globalstar, L.P. capital charges:
Capital raising costs......................................................... (1,200)
Losses incurred in pre-capital subscription periods........................... (9,191)
Net loss March 23, 1994 (commencement of operations)
to December 31, 1994.......................................................... (13,122)
--------
Capital balances, December 31, 1994............................................. 26,487
Net loss........................................................................ (26,487)
--------
Capital balances, December 31, 1995............................................. --
Net loss........................................................................ --
--------
Capital balances, December 31, 1996............................................. $ --
========
SUBSCRIPTIONS RECEIVABLE
Capital subscriptions, March 23, 1994........................................... $ 50,000
Credit for pre-capital subscriptions costs...................................... (11,309)
Cash received................................................................... (23,691)
--------
Subscriptions receivable, December 31,1994...................................... 15,000
Cash received................................................................... (15,000)
--------
Subscriptions receivable, December 31, 1995 and 1996............................ $ --
========
</TABLE>
See notes to financial statements.
F-47
<PAGE> 149
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(13,222) $(26,487) $ --
Equity in net loss of Globalstar, L.P................ 13,222 26,487 --
-------- -------- --------
Net cash provided by (used in) operating activities....... -- -- --
-------- -------- --------
Investing activity:
Cash used for payment of subscription payable to
Globalstar, L.P.................................... (23,691) (15,000) --
-------- -------- --------
Financing activity:
Proceeds from capital subscriptions receivable....... 23,691 15,000 --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... -- -- --
Cash and cash equivalents, beginning of period............ -- -- --
-------- -------- --------
Cash and cash equivalents, end of period.................. $ -- $ -- $ --
======== ======== ========
Noncash transactions:
Subscription credit received from Globalstar, L.P.... $ 11,309
========
Allocated Globalstar, L.P. capital charges........... $ 10,391
========
Capital subscriptions from Loral/Qualcomm Satellite
Services, L.P. partners............................ $ 50,000
========
Subscription for Globalstar, L.P. partnership
interests.......................................... $ 50,000
========
</TABLE>
See notes to financial statements.
F-48
<PAGE> 150
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
Loral/Qualcomm Satellite Services, L.P. ("LQSS") was formed in November
1993 as a Delaware limited partnership with a December 31 fiscal year end. The
general partner of LQSS is Loral/Qualcomm Partnership, L.P. ("LQP"), a limited
partnership whose general partner is Loral General Partner, Inc. ("LGP"), a
subsidiary of Loral Corporation ("Old Loral") and whose limited partner is a
subsidiary of QUALCOMM Incorporated.
Effective April 23, 1996, a merger between Old Loral and Lockheed Martin
Corporation ("Lockheed Martin") was completed. In conjunction with the merger,
Old Loral's space and communications businesses, including its direct and
indirect interests in LGP, LQP, and LQSS, Globalstar, L.P. ("Globalstar"),
Globalstar Telecommunications Limited ("GTL"), Space Systems/Loral, Inc.
("SS/L"), and other affiliated businesses, as well as certain other assets, were
transferred to Loral Space & Communications Ltd. ("Loral"), a Bermuda company.
LQSS's only activity is acting as the managing general partner of
Globalstar, a development stage limited partnership, which is building and
preparing to launch and operate a worldwide, low-earth orbit satellite-based
wireless digital telecommunications system (the "Globalstar System"). The
Globalstar System's world-wide coverage is designed to enable its service
providers to extend modern telecommunications services to millions of people who
currently lack basic telephone service and to enhance wireless communications in
areas underserved or not served by existing or future cellular systems,
providing a telecommunications solution in parts of the world where the
build-out of terrestrial systems cannot be economically justified.
At December 31, 1996, LQSS held a 38.3% interest in Globalstar's ordinary
partnership interests. As LQSS's investment in Globalstar is LQSS's only asset,
LQSS is dependent upon Globalstar's success and achievement of profitable
operations for the recovery of its investment. Globalstar is a development stage
limited partnership which may encounter problems, delays and expenses, many of
which may be beyond Globalstar's control. These may include, but are not limited
to, problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations and affect the recoverability of LQSS's
investment. All expenses necessary to maintain LQSS's operations are borne by
Globalstar.
While it is not anticipated that LQSS will incur any direct obligations for
borrowed money or any other liabilities, it will, as a general partner of
Globalstar, be jointly and severally liable for all liabilities of Globalstar
other than those that are by contract made expressly non-recourse to
Globalstar's general partners or otherwise guaranteed. Limited partners in LQSS
do not, in general, have such joint and several liability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Globalstar, L.P.
LQSS accounts for its investment in Globalstar using the equity method of
accounting. Under this method, LQSS recognizes its share of Globalstar's net
income or loss. The difference between LQSS's initial investment in Globalstar
and its interest in Globalstar's ordinary partnership capital, at that time, is
attributable to certain intangible assets contributed to Globalstar for
development of the Globalstar system; this difference will be accreted by LQSS
on a ratable basis upon Globalstar's commencement of commercial services. During
1995, LQSS's investment in Globalstar was reduced to zero. Accordingly, LQSS has
discontinued providing for its share of Globalstar's losses, and will recognize
a liability as a result of its general partner status in Globalstar only in the
event that Globalstar's losses result in an aggregate ordinary partners'
F-49
<PAGE> 151
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
capital deficiency. At December 31, 1996, suspended losses representing LQSS's
unrecognized equity in Globalstar's net losses aggregated approximately
$28,240,000.
Net (Loss) Income Allocation
The partnership agreements of LQSS and Globalstar provide that net losses
of each partnership are allocated among the partners with positive adjusted
capital account balances in accordance with their relative percentage interests
until the adjusted capital account balances of all partners are zero. Any
further net loss is allocated to the general partner.
Net income of each partnership is allocated among the partners in
proportion to, and to the extent of, distributions made to the partners out of
receipts for the period, as defined, then in proportion to and to the extent of
negative adjusted capital account balances and then in accordance with
percentage interests.
Under the terms of the partnership agreements, adjusted partners' capital
accounts are calculated in accordance with the principles of U.S. Treasury
Regulations governing the allocation of taxable income and loss including
adjustments to reflect the fair market value (including intangibles) of
partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying financial statements.
Income Taxes
LQSS was organized as a Delaware limited partnership. As such, no income
tax provision (benefit) is included in the accompanying financial statements
since U.S. income taxes are the responsibility of its partners. Generally,
taxable income (loss), deductions and credits of LQSS will be passed
proportionately through to its partners.
3. INVESTMENT IN GLOBALSTAR
On March 23, 1994, LQSS entered into a subscription agreement to acquire
18,000,000 general ordinary partnership interests in Globalstar for $50,000,000.
LQSS paid $38,691,000 in cash during 1994 and 1995 and received a credit of
$11,309,000 against its capital subscription, as compensation for certain costs
incurred by the partners of its general partner, LQP. As of December 31, 1996,
Globalstar had 28,000,000 general and 19,000,000 limited ordinary partnership
interests outstanding.
On February 14, 1995, Globalstar Telecommunications Limited ("GTL")
completed an initial public offering of 10,000,000 shares of common stock,
resulting in net proceeds of $185,750,000, which were used to purchase
10,000,000 ordinary general partnership interests in Globalstar. LQSS and the
other partners of Globalstar have the right to convert their ordinary
partnership interests into shares of GTL common stock on a one-for-one basis
following the Full Coverage Date (as defined) of the Globalstar System and after
two consecutive quarters of profitability, this conversion right is subject to
annual limitations.
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Credit Agreement") with a group of banks. Lockheed Martin,
Qualcomm, and certain LQSS limited partners SS/L and DASA have individually
guaranteed $206.3 million, $21.9 million, $11.7 million, and $10.1 million of
the Credit Agreement. In addition, Loral agreed to indemnify Lockheed Martin for
any liability in excess of $150 million. In exchange for such guarantee and
indemnity, GTL issued warrants to purchase 4,185,318 shares of GTL common stock
at $26.50 per share as follows: Loral 942,428 warrants, Lockheed Martin
2,511,190 warrants, Qualcomm 367,131 warrants, SS/L 195,094 warrants and DASA
169,475 warrants. In connection
F-50
<PAGE> 152
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN GLOBALSTAR -- CONTINUED
therewith, Globalstar issued GTL warrants to purchase 5,316,486 ordinary
partnership interests (the "Guarantee Warrants").
Pursuant to this and other equity and debt arrangements entered into by
Globalstar, additional Globalstar ordinary partnership interests have been
reserved for issuance. As LQSS is not a participant in such arrangements, such
issuances would result in the dilution of LQSS's interest in Globalstar's
ordinary partnership interests. At December 31, 1996, LQSS held directly
18,000,000 ordinary general partnership interests, or 38.3%, of the outstanding
47,000,000 ordinary partnership interests of Globalstar.
Globalstar has reserved additional ordinary partnership interests for
issuance for: exercise of the Guarantee Warrants (5,316,486 interests),
conversion of redeemable preferred partnership interests ("RPPI's") (4,769,230
interests, subject to adjustment for certain antidilution events), warrants to
purchase GTL common stock issued in connection with Globalstar's 11 3/8% Senior
Notes due 2004 (1,032,250 interests), and interests reserved for issuance under
employee option plan and other contingent arrangements (2,500,000 interests).
Assuming all such reserved interests had been issued at December 31, 1996,
LQSS's interest in Globalstar's ordinary partnership interests would decrease to
29.7%.
In addition, Globalstar may elect to make the preferred distribution on the
RPPI's in ordinary partnership interests versus cash which would further dilute
LQSS's interest in Globalstar's ordinary partnership interests.
On February 12, 1997, the holders of the Guarantee Warrants entered into
arrangements which will result in the exercise of the Guarantee Warrants during
1997.
4. PARTNERS' CAPITAL
On March 23, 1994, LQSS received capital subscriptions of $50,000,000 for a
42.2% general partnership interest and 57.8% limited partnership interests
representing all issued and outstanding partnership interests. Of these capital
subscriptions, $38,691,000 was received in cash during 1994 and 1995 and a
capital subscription credit of $11,309,000 was issued to the general and limited
partners as compensation for expenditures incurred by Loral and Qualcomm from
January 1, 1993 through March 22, 1994, relating to the Globalstar System. LQSS
was in turn granted a credit against its capital subscription payable to
Globalstar for the same amount.
5. RELATED PARTY TRANSACTIONS
Globalstar Managing Partner's Management Fee
Commencing on Globalstar's In-Service Date, Globalstar will pay a
management fee to LQSS equal to 2.5% of Globalstar's revenues up to $500
million, plus 3.5% of revenues in excess of $500 million. This management fee
will be distributed to LQSS's general partner, LQP. Should Globalstar incur a
net loss in any year following commencement of operations, the management fee
for that year will be reduced by 50% and Globalstar will be reimbursed for
management fees, if any, made in any prior quarter of such year, sufficient to
reduce the management fee for such year to 50%.
F-51
<PAGE> 153
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P......................................... $ -- $ --
------- -------
Total assets.......................................................... $ -- $ --
======= =======
PARTNERS' CAPITAL:
Partnership interests (3,000 interests outstanding)................... $ -- $ --
------- -------
Total partners' capital............................................... $ -- $ --
======= =======
</TABLE>
- ---------------
Note: The December 31, 1996 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
F-52
<PAGE> 154
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1997
------------------ ------------------
<S> <C> <C>
Equity in net loss of Globalstar, L.P. ............... $ -- $ --
------- -------
Net loss.............................................. $ -- $ --
======= =======
</TABLE>
See notes to condensed financial statements.
F-53
<PAGE> 155
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Loral/Qualcomm Satellite Services, L.P. ("LQSS") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of LQSS, include
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules. LQSS had no cash
transactions during the three months ended March 31, 1996 and March 31, 1997.
Accordingly, Statements of Cash Flows have not been presented. LQSS believes
that the disclosures made are adequate to keep the information presented from
being misleading. The results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year. It is suggested that these financial statements be read in conjunction
with LQSS's audited financial statements and notes thereto.
2. ORGANIZATION AND BACKGROUND
LQSS, a Delaware limited partnership with a December 31 fiscal year end,
was formed in November 1993. On March 23, 1994, LQSS received capital
subscriptions of $50 million and concurrently entered into a subscription
agreement to acquire 18,000,000 general ordinary partnership interests in
Globalstar, L.P. ("Globalstar") for $50 million.
LQSS's only activity is acting as the managing general partner of
Globalstar, a development stage limited partnership, which is building and
preparing to launch and operate a worldwide, low-earth orbit satellite-based
wireless digital telecommunications system.
At March 31, 1997, LQSS held a 35.2% interest in Globalstar's ordinary
partnership interests. On April 30, 1997, as a result of the issuance of
additonal ordinary partnership interests by Globalstar upon the exercise of
warrants held by Globalstar Telecommunications Limited, LQSS's interest in
Globalstar's ordinary partnership interests decreased to 34.4%. LQSS accounts
for its investment in Globalstar using the equity method of accounting. Under
this method, LQSS recognizes its share of Globalstar's net income or loss.
During 1995, LQSS's investment in Globalstar was reduced to zero. Accordingly,
LQSS has discontinued providing for its share of Globalstar's losses, and will
recognize a liability as a result of its general partner status in Globalstar
only in the event that Globalstar's losses result in an aggregate ordinary
partners' capital deficiency. At March 31, 1997, suspended losses representing
LQSS's unrecognized equity in Globalstar's net losses aggregated approximately
$36.1 million.
F-54
<PAGE> 156
GLOSSARY OF TERMS
ACES -- PT Asia Cellular Satellite, a GEO satellite-based telephony system
proposed for Asia.
ACS -- Afro-Asian Satellite.
AMPS -- see Advanced Mobile Phone System.
AMSC -- American Mobile Satellite Corporation.
APMT -- Asia Pacific Mobile Telecom, a GEO satellite-based telephony system
proposed for Asia.
ADDITIONAL WARRANTS -- warrants to purchase 1,131,168 Ordinary Partnership
Interests of Globalstar, at a price of $26.50 per Ordinary Partnership Interest.
ADVANCED MOBILE PHONE SYSTEM (AMPS) -- the analog cellular modulation in general
use in the United States today.
AIRTOUCH -- AirTouch Communications, Inc., a Delaware corporation. AirTouch is a
leading wireless telecommunications company with 1.6 million cellular customers
worldwide.
ALCATEL -- Alcatel, N.V., a Netherlands company. Alcatel is the world's largest
manufacturer of telecommunications equipment, with operations in 32 countries.
ALENIA -- Alenia S.p.A., a subsidiary of Finmeccanica. Alenia is Italy's largest
aerospace company and has broad experience in complete space systems,
telecommunications, remote sensing, weather and scientific satellites, manned
space systems, launch and re-entry systems, and fixed and mobile ground systems
for spacecraft support.
ANALOG -- a method of storing, processing and transmitting information through
the use of a continuous (rather than pulsed or digital) electrical signal that
varies in amplitude or frequency.
BANDWIDTH -- the range of frequencies, expressed in hertz (Hz), that can pass
over a given transmission channel. The bandwidth determines the rate at which
information can be transmitted through the circuit. The greater the bandwidth,
the more information that can be sent through the circuit in a given amount of
time.
BANK GUARANTY -- the guaranty of Globalstar's obligations under the Globalstar
Credit Agreement.
CDMA -- see Code Division Multiple Access.
CPEOS -- GTL's outstanding 6 1/2% Convertible Preferred Equivalent Obligations
due 2006.
CELLULAR -- domestic public cellular radio telecommunications service authorized
by the FCC in the 824-893 MHz band, in which each of two licensees per market
employ 25 MHz of spectrum to provide service to the public.
CHINASAT -- Chinese Telecommunications Broadcast Satellite Corp., which is
operated by the Chinese Ministry of Posts and Telecommunications.
CODE -- the Internal Revenue Code of 1986, as amended.
CODE DIVISION MULTIPLE ACCESS (CDMA) -- a digital transmission system that
superimposes audio signals or data onto a specified coded address waveform. CDMA
allows a large number of wireless users simultaneously to access a single radio
frequency band without interference. As each wireless telephone gains access,
its gateway assigns it a unique sequence of frequency shifts that serve as a
code to distinguish that particular telephone call from others on the air.
COLD FAILURE -- failure of satellite components resulting in partial or total
failure of the satellite.
COMMUNICATIONS ACT -- Act of Congress passed in 1934, as amended, which
established the Federal Communications Commission and regulates the
communication industries, including radio, telephone and cable, in the United
States.
COMSAT -- Comsat Corporation, the U.S. signatory to Intelsat and Inmarsat.
CYBERSTAR -- CyberStar(TM), a proposed high-speed GEO satellite-based
communications system designed to provide full-motion desktop video
conferencing, high data computer networking and broadband data transmissions.
G-1
<PAGE> 157
DASA -- Daimler-Benz Aerospace A.G., and its subsidiaries and affiliates. DASA
is a leader in the development and production of aerospace, defense technology
and propulsion systems, and the manufacture of military and commercial aircraft,
satellites, space transportation and propulsion systems.
DACOM -- DACOM, or an affiliate thereof. Dacom is a leading South Korean
telecommunications company which provides a broad range of services, including
international telephone service connection to 169 countries with South Korea.
DIGITAL -- a method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission/switching technologies employ a sequence of
discrete, distinct pulses to represent information, as opposed to the
continuously variable analog signal. Digital cellular networks will utilize
digital transmission.
DOWNLINK -- the receiving portion of a satellite circuit extending from the
satellite to the Earth (compare to uplink).
DUAL-MODE -- handsets designed to operate on both a land-based cellular system
and the Globalstar System.
DUAL USE ITEMS -- technology and commodities designated under the Export
Administration Act as capable of both civilian and military applications.
EIRP -- effective isotropic radiated power, a measurement of satellite power.
EARTH STATION -- the antennas, receivers, transmitters and other equipment
needed on the ground to transmit and receive satellite communications signals.
ELECTROMAGNETIC SPECTRUM -- entire range of wavelengths or frequencies of
electromagnetic radiation extending from gamma rays to the longest radio wave,
and including visible light. See also radio frequency.
11 1/4% INDENTURE -- the indenture governing the 11 1/4% Senior Notes due 2004
of the Issuers that were issued on June 13, 1997.
11 1/4% SENIOR NOTES -- the $325,000,000 aggregate principal amount of 11 1/4%
Senior Notes due 2004 of the Issuers that were issued on June 13, 1997.
11 3/8% INDENTURE -- the indenture governing the 11 3/8% Senior Notes due 2004
of the Issuers that were issued, together with the Warrants, as Units in
February 1997.
11 3/8% SENIOR NOTES -- the $500,000,000 aggregate principal amount of 11 3/8%
Senior Notes due 2004 of the Issuers that were issued, together with the
Warrants, as Units in February 1997.
ERICSSON -- L.M. Ericsson, parent of Orbitel.
EXCHANGE ACT -- the Securities and Exchange Act of 1934, as amended.
FCC -- see Federal Communications Commission.
FEDERAL COMMUNICATIONS COMMISSION (FCC) -- regulatory agency established by the
Communications Act, charged with regulating all electrical and radio
communications within the United States.
FEEDER LINK -- the path by which information flows when traveling from a
satellite to a gateway and from a gateway to a satellite. Globalstar feeder
links are in the C-band region of the frequency spectrum.
FINMECCANICA -- Finmeccanica S.p.A., or an affiliate thereof. Finmeccanica owns
Alenia. See above.
FOOTPRINT -- the geographic areas served by a radio transmission device, such as
a communications satellite.
FRANCE TELECOM -- France Telecom, or an affiliate thereof. France Telecom is the
world's fourth largest telecommunications operator with 30 million subscribers
and operations in over 19 countries.
FREQUENCY -- an expression of how frequently a periodic (repetitious) wave form
or signal regenerates itself at a given amplitude.
FULL CONSTELLATION DATE -- the date on which Globalstar commences full
operations via a 48-satellite constellation, which is expected to occur by the
end of 1998.
GEO -- see geosynchronous orbit.
GHZ -- see gigahertz.
G-2
<PAGE> 158
GOCC -- see Ground Operations Control Center.
GTL -- Globalstar Telecommunications Limited, a Bermuda company quoted on the
Nasdaq National Market, which acts as one of two general partners of Globalstar.
GTL GUARANTEE WARRANTS -- Warrants to purchase 4,185,318 shares of Common Stock,
at a price of $26.50 per share, issued by GTL to DASA, Loral, Lockheed Martin,
Qualcomm and SS/L.
GATEWAY -- the earth terminal which connects the Globalstar satellite
constellation to PSTN through the land-based switching equipment of
telecommunications service providers.
GEOSYNCHRONOUS ORBIT (GEO) -- the orbit directly over the equator, about 22,300
nautical miles above the Earth, also known as synchronous, geostationary,
stationary and Clarke orbits. When positioned in this orbit, a satellite appears
to hover over the same spot on the Earth because it is moving at a rate that
matches the speed of the Earth's rotation on its axis.
GIGAHERTZ (GHZ) -- a measure of frequency equal to one billion cycles per
second.
GLOBAL ROAMING -- the ability of a Globalstar subscriber to travel worldwide and
make and receive Globalstar telephone calls outside the service area of the
subscriber's communications service wherever Globalstar service is authorized.
GLOBALSTAR(TM) -- Globalstar, L.P., a Delaware limited partnership that is
building and preparing to launch an MSS system comprised of 56 LEO satellites
designed to provide worldwide wireless telephony and other services.
"Globalstar" is a trademark of Globalstar, L.P.
GLOBALSTAR CREDIT AGREEMENT -- Agreement by and between Globalstar and a bank
syndicate for a $250 million credit facility expiring December 15, 2000.
GLOBALSTAR PHONES -- hand-held and vehicle-mounted units similar to today's
cellular telephones and fixed telephones similar to ordinary wireline telephones
through which Globalstar users will make and receive calls.
GLOBALSTAR SERVICE -- the transmission and/or reception of voice, data,
messaging, facsimile, paging, position, location or other information through
the Globalstar System using the service providers' gateways.
GLOBALSTAR SYSTEM(TM) -- a low-earth orbit satellite-based telecommunications
system proposed by Globalstar to operate in the MSS Above 1 GHz Service
frequencies. See MSS applicant. "Globalstar System" is a trademark of
Globalstar.
GLONASS -- a segment of the Russian Global Navigation Satellite System currently
operating worldwide in a portion of the frequency band proposed to be used by
Globalstar and other MSS systems for user uplinks.
GROUND OPERATIONS CONTROL CENTER (GOCC) -- regional Globalstar
telecommunications control centers designed to communicate and coordinate
information on resource availability, time of day, frequency assignments, and
connectivity and sequence schedules to the pathways and SOCCs which comprise the
Globalstar Ground Segment.
GROUND SEGMENT -- the ground-based portion of the Globalstar System. The Ground
Segment consists of the SOCCs, the GOCCs, the gateways, TCUs located at selected
gateways, and the Globalstar Data Network which interconnects all of the
ground-based elements.
HAND-HELD SERVICE -- Globalstar voice service to a hand-held, portable terminal.
HOT FAILURE -- launch failure resulting in damage to or loss of a satellite.
HUGHES -- Hughes Electronics Corporation, a subsidiary of General Motors
Corporation.
HYUNDAI -- Hyundai Electronics Industries Co. Ltd. Hyundai is a leading South
Korean manufacturer of telecommunications equipment, including the development
and production of portable and mobile cellular telephones, and multimedia
systems.
ICO(TM) -- Global Communications' MEO satellite telecommunications service that
would operate in the 2 GHz band.
ITU -- see International Telecommunication Union.
G-3
<PAGE> 159
IN-SERVICE DATE -- the date on which Globalstar expects to commence initial
commercial operations via a 32-satellite constellation.
INDENTURES -- collectively, the 11 3/8% Indenture and the 11 1/4% Indenture.
INDEPENDENT REPRESENTATIVES -- representatives on the General Partner's
Committee not affiliated with Loral.
INITIAL PURCHASERS -- With respect to the Units, Lehman Brothers, Bear Stearns &
Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Unterberg
Harris; and with respect to the 11 1/4% Senior Notes, Bear, Stearns & Co. Inc.,
Lehman Brothers Inc., and Donaldson, Lufkin & Jenrette Securities Corporation.
INMARSAT -- International Maritime Satellite Organization, which has formed an
affiliate, Global Communications, Inc., which is a proponent of ICO.
INTELSAT -- International Telecommunications Satellite Organization, a
consortium of 135 member nations and the world's largest operator of
communications satellites.
INTERNATIONAL TELECOMMUNICATION UNION (ITU) -- telecommunications agency of the
United Nations, established to provide standardized communication procedures and
practices, including frequency allocation and radio regulations on a worldwide
basis.
INVESTMENT COMPANY ACT -- the Investment Company Act of 1940, as amended.
IRIDIUM(TM) -- a low-earth orbit satellite-based telecommunications system
proposed by a consortium headed by Motorola to operate in the MSS Above 1 GHz
Service frequencies. See MSS applicant.
ISSUE DATE -- February 19, 1997 with respect to the issuance of the Units and
June 13, 1997 with respect to the issuance of the 11 1/4% Senior Notes .
KHZ -- see kilohertz.
KILOHERTZ (KHZ) -- a unit of frequency equal to one thousand cycles per second.
LEO -- low-earth orbit between 500 and 1,500 nautical miles in altitude.
LGP -- Loral General Partner, Inc., general partner of LQP.
LMDS -- Local Multipoint Distribution Services.
L/Q LICENSEE -- a wholly owned subsidiary of LQP to which LQP assigned its FCC
license granting authority to construct, launch and operate the Globalstar
System for the purposes of providing MSS in the United States.
LQP -- see Loral/Qualcomm Partnership, L.P.
LQSS -- see Loral/Qualcomm Satellite Services, L.P.
LOCKHEED MARTIN -- Lockheed Martin Corporation, a Maryland corporation, and its
subsidiaries and affiliates. Lockheed Martin acquired Old Loral Corporation
pursuant to an Agreement and Plan of Merger dated as of January 7, 1996,
immediately prior to the Distribution.
LORAL -- Loral Space & Communications Ltd., a Bermuda company. Loral is a
principal founder of Globalstar and, through a subsidiary, its managing partner.
LORAL/QUALCOMM PARTNERSHIP, L.P. (LQP) -- a Delaware limited partnership
comprised of subsidiaries of Loral and Qualcomm. LQP is the general partner of
LQSS, and were an MSS applicant for the FCC license to construct, launch and
operate the Globalstar System.
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (LQSS) -- a Delaware limited partnership
which is the managing general partner of Globalstar.
MCHI -- Mobile Communications Holdings, Inc.
MEO -- Medium-earth orbit, between 2,000 and 18,000 nautical miles in altitude.
MHZ -- see megahertz.
MSS -- see Mobile Satellite Services.
MSS ABOVE 1 GHZ SERVICE -- an MSS service regulated by the FCC in the United
States which has been allocated spectrum in 1610-1626.5 MHz for the user uplink
and in 2483.5-2500 MHz for the user downlink.
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<PAGE> 160
MSS APPLICANTS -- six companies that have applied to the FCC for licenses to
provide LEO satellite-based telecommunications services in the United States in
the 1610-1626.5/2483.5-2500 MHz portions of the radio frequency spectrum.
MSS PROCEEDING -- FCC proceeding for considering applications for authorization
to construct, launch and operate MSS systems in the United States.
MEGAHERTZ (MHZ) -- a unit of frequency equal to one million cycles per second.
MERGER -- the merger of Loral Corporation with and into a subsidiary of Lockheed
Martin.
MERGER AGREEMENT -- agreement entered into on January 7, 1996 pursuant to which
Lockheed Martin acquired Old Loral Corporation.
MOBILE SATELLITE SERVICES (MSS) -- services transmitted via satellites to
provide mobile telephone, fixed telephone, paging, messaging, facsimile, data
and position location services directly to users.
MOTOROLA -- Motorola, Inc.
NCRP -- National Council on Radiation Protection and Measurements.
ODYSSEY(TM) -- a medium-earth orbit satellite-based telecommunications system
proposed by TRW, Inc., to operate in the MSS Above 1 GHz Service frequencies.
See MSS applicant.
OFFERING -- the offering of Notes pursuant to the Prospectus.
PROSPECTUS -- this Prospectus.
OLD LORAL -- Loral Corporation, a New York corporation which merged into a
subsidiary of Lockheed Martin pursuant to an Agreement and Plan of Merger, dated
as of January 7, 1996.
OMNITRACS -- an international satellite-based truck fleet and position location
service, owned and operated by Qualcomm.
OPTION COMMITTEE -- GTL's Stock Option Committee administrating SOP.
ORBITAL PLANE -- the flight path of a satellite.
ORBITEL -- Orbitel Mobile Communications Ltd., a subsidiary of L.M. Ericsson.
ORDER -- FCC order adopting rules and policies for MSS Above 1 GHz Service.
ORDINARY PARTNERSHIP INTERESTS -- limited partnership interests in Globalstar.
PCS -- see personal communications service.
PFIC -- a passive foreign investment company within the meaning of the Code.
PSTN -- see Public Switched Telephone Network.
PAGING -- a service designed to deliver a message to a person whose location is
unknown; messages may be received via an alphanumeric display or small speaker.
PARTNERSHIP WARRANTS -- the rights to purchase Globalstar partnership interests
issued to GTL in connection with the issuance of the Warrants.
PATH DIVERSITY -- the character of the angles of view formed by the 48 LEO
satellites orbiting the Earth to facilitate continuous overlapping global
coverage.
PENETRATION RATE -- the percentage of total population in a national or regional
area subscribing to a given telecommunications service.
PERSONAL COMMUNICATIONS SERVICES (PCS) -- terrestrial wireless telecommunication
service similar to cellular telephone service but operating in a different set
of frequencies.
PREFERRED PARTNERSHIP INTERESTS -- Interests in Globalstar acquired by
Globalstar in connection with its issuance of CPEOs. The Preferred Partnership
Interests represent (on a fully diluted basis) an 8.4% equity interest in
Globalstar.
PUBLIC SWITCHED TELEPHONE NETWORK (PSTN) -- the complete public telephone system
including telephones, local and trunk lines and exchanges.
G-5
<PAGE> 161
QUALCOMM -- QUALCOMM Incorporated, a Delaware corporation, and its subsidiaries
and affiliates. Qualcomm, a leader in CDMA technology, has successfully
implemented CDMA in multi-user cellular communications applications and owns and
operates OmniTRACS, an international satellite-based truck fleet and position
location service.
RAS -- see Radio Astronomy Service.
RDSS -- see Radio Determination Satellite Service.
RADIO ASTRONOMY SERVICE (RAS) -- a service involving the reception of radio
waves of cosmic origin.
RADIO DETERMINATION SATELLITE SERVICE (RDSS) -- a service using one or more
satellites for radio determination; a function of a LEO system that allows users
to pinpoint the location of their handset or the handset of another user.
RADIO FREQUENCY SPECTRUM -- a portion of the electromagnetic spectrum that
includes electromagnetic waves at frequencies below the infrared frequencies and
usually above 20 KHz. See also electromagnetic spectrum.
RPPIS -- Redeemable Preferred Partnership Interests in Globalstar.
SOCCS -- see Satellite Operations Control Center.
SS/L -- Space Systems/Loral, Inc. is a Delaware corporation wholly owned by
Loral. SS/L is a leading manufacturer of commercial communications satellites.
SATELLITE OPERATIONS CONTROL CENTER (SOCC) -- monitors and controls the
satellite after it is launched. There are no antennas or radio frequency
equipment located at the SOCC. Radio frequency links to and from the satellite
are via telemetry and command units that are physically located at selected
gateways. The SOCC coordinates with other elements of the Globalstar Ground
Segments.
SECURITIES ACT -- the Securities Act of 1933, as amended.
SEPARATION DATE -- the earlier of the commencement of an exchange offer or the
effectiveness of a shelf registration statement for the Notes and such date
after August 15, 1997, as the Initial Purchasers shall determine.
SERVICE (OR GLOBALSTAR SERVICE) -- the transmission and reception of voice,
data, messaging, paging, position, location or other information through the
Globalstar System using a service provider's gateway(s).
SERVICE PROVIDER -- Globalstar's partners and other entities that will act as
local intermediaries between Globalstar and the subscribers. Service providers
will build and own the gateways, obtain the necessary regulatory approvals and
market and distribute Globalstar service in their respective markets.
SPACEWAY -- GEO satellite-based communications system which has applied to the
FCC for a license to operate satellite-based telecommunications and video
transmission systems in the 28GHz Ka-band.
SPECTRUM -- the radio frequency spectrum.
STRATEGIC PARTNER -- Globalstar's direct and indirect partners which will play
key roles in the design, construction, operation and marketing of the Globalstar
System.
SWITCH -- a device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information; switching is the process of
interconnecting circuits to form a transmission path between users.
TCUS -- telemetry and command units, self-contained units installed in selected
gateways which use the gateway antennas. They include the ground-based telemetry
receiver and the ground-based command transmitters. They interface with and are
directly controlled by SOCCs via the Globalstar data network.
TDMA -- see Time Division Multiple Access.
TELEDESIC -- TELEDESIC(TM), a satellite-based telecommunications system which
has applied to the FCC for a license to operate a broadband, interactive
multimedia LEO satellite-based system in the 18GHz Ka-band.
TELITAL -- TELITAL S.r.L., a private company organized under the laws of Italy,
which designs, develops and produces telephony products for European and
international markets.
G-6
<PAGE> 162
TIME DIVISION MULTIPLE ACCESS (TDMA) -- a digital method of multiplexing that
combines a number of signals through a common point by organizing them
sequentially and transmitting each in bursts at different instants of time.
Communicating devices at different geographical locations share a multipoint or
broadcast channel by means of a technique that allocates different time slots to
different users.
UPLINK -- the transmitting of a satellite circuit extending from the Earth to
the satellite. Compare to downlink.
USER LINK -- the path by which information flows when traveling from a
Subscriber Terminal to a satellite and from a satellite to a Subscriber
Terminal. LQP has applied for user uplinks in the L-band and user downlinks in
the S-bank regions of the frequency spectrum.
UNITS -- the 500,000 units issued by the Issuers and GTL in February 1997, each
unit consisting of $1,000 principal amount of 11 3/8% Senior Notes due 2004 of
the Issuers and a warrant to purchase shares of the Common Stock of GTL.
VODAFONE -- Vodafone Group Plc, a U.K. company. Vodafone is one of the largest
providers of mobile telecommunications services in the world, with 1.4 million
cellular subscribers worldwide.
WARC -- see World Administrative Radio Conference.
WARC '92 -- the 1992 WARC.
WRC -- see World Radiocommunication Conference.
WRC '95 -- the 1995 World Radiocommunication Conference.
WARRANTS -- 500,000 warrants which, when exercised at an exercise price of
$69.575 per share, would entitle the holders thereof to acquire an aggregate of
1,032,250 shares of Common Stock.
WORLD ADMINISTRATIVE RADIO CONFERENCE (WARC) -- an ITU conference for adopting
international allocations for radio frequencies and satellite orbit locations.
WORLD RADIOCOMMUNICATION CONFERENCE (WRC) -- since 1993, the successor to the
World Administrative Radio Conference.
YUZHNOYE -- Yuzhnoye NPO Yuzhnoye, a Ukraine launch vehicle manufacturer.
References to corporate entities include their subsidiaries unless
otherwise specified.
G-7
<PAGE> 163
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
The Exchange Agent for the Exchange Offer is
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
Facsimile Transmissions:
By Registered or Certified (Eligible Institutions Only) By Hand or Overnight Delivery
Mail
The Bank of New York The Bank of New York
101 Barclay Street, 7E (212) 571-3080 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Window
Attn: Reorganization Section Confirm by Telephone: Ground Level
(212) 815-6333 New York, New York 10286
For Information Call: Attn: Reorganization Section
(212) 815-6333
</TABLE>
Until 1997 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, maybe required to deliver a prospectus. This
is in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Globalstar Capital, which is a Delaware corporation, is empowered by the
Delaware General Corporation Law, subject to the procedures and limitations
stated therein, to indemnify any person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of his being
or having been a director, officer, employee or agent of Globalstar Capital. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Certificate of Incorporation and by-laws of Globalstar Capital
provide for indemnification of the directors and officers of such entities to
the full extent permitted by the Delaware General Corporation Law.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
empowers Globalstar to indemnify and hold harmless any partner or other person
from and against any and all claims and demands whatsoever.
Globalstar has agreed to indemnify its partners, the partners in LQSS and
LQP, their respective affiliates and all of their respective officers,
directors, partners, controlling shareholders, employees, and agents (each an
"Indemnitee") from and against any and all losses and liabilities arising out of
or incidental to the business of Globalstar so long as such Indemnitee's conduct
did not constitute actual fraud, gross negligence, knowing breach of specific
provisions of the Globalstar partnership agreement or willful or wanton
misconduct. The Globalstar partnership agreement further provides that LQSS,
GTL, the partners in LQSS and LQP, their respective affiliates and all of their
respective officers, directors, partners, controlling shareholders, employees
and agents (each a "General Partner Person") will not be liable to Globalstar or
the limited partners for any losses sustained or liabilities incurred as a
result of any act or omission of a General Partner Person, if such person or
entity acted in good faith and in a manner it or he reasonably believed to be
in, or not opposed to, the best interest of Globalstar and the conduct did not
constitute gross negligence or non-performance. LQSS and GTL, as applicable,
will indemnify the limited partners for losses and liabilities resulting from
conduct of their respective General Partner Person that is found to have
constituted bad faith, gross negligence or non-performance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Agreement of Limited Partnership of Globalstar, dated as of
March 6, 1996, among Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services, San Giorgio S.p.A.,
Hyundai/Dacom, Loral/DASA Globalstar, L.P., Loral Globalstar, L.P., TE.S.A.M. and
Vodastar Limited.***
3.2 Certificate of Incorporation of Globalstar Capital.****
3.3 By-laws of Globalstar Capital.****
4.1 Indenture dated as of February 15, 1997 relating to Globalstar's and Globalstar
Capital's 11 3/8% Senior Notes due 2004.***
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's and Globalstar Capital's
11 1/4% Senior Notes due 2004.+
5.1 Opinion of Willkie Farr & Gallagher.*****
8.1 Opinion of Willkie Farr & Gallagher (included with Exhibit 5.1).*****
10.1 Subscription Agreements by and between Globalstar, and each of AirTouch
Communications, Alcatel Spacecom, Loral General Partner, Inc., Hyundai/Dacom and
Vodastar Limited.*
</TABLE>
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<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<S> <C>
10.2 Subscription Agreement by and between Globalstar and Loral/Qualcomm Satellite
Services, L.P.*
10.3 Satellite Procurement Letter Agreement by and among Globalstar, Hyundai Electronics
Industries Co., Ltd. and Space Systems/Loral, Inc.*
10.4 Contract for OmniTRACS Like Services Agreement between Globalstar and Qualcomm
Incorporated.*
10.5 Support Agreement by and among Qualcomm Incorporated, Globalstar and Loral/Qualcomm
Satellite Services, Inc.*
10.6 Qualcomm Licensee Letter Agreement by and among Globalstar, Hyundai Electronics
Industries Co., Ltd. and Qualcomm Incorporated.*
10.7 Contract between Globalstar and Space Systems/Loral, Inc.*
10.8 Contract for the Development of Certain Portions of the Ground Operations Control
Center between Globalstar and Loral Western Development Laboratories.*
10.9 Contract for the Development of Satellite Orbital Operations Centers between
Globalstar and Loral Aerosys, a division of Loral Aerospace Corporation.*
10.10 Revolving Credit Agreement dated as of December 15, 1995, as amended on March 25,
1996, among Globalstar, certain banks parties thereto and Chemical Bank, as
Administrative Agent.***
10.11 Warrant Agreement dated as of February 19, 1997 relating to Warrants to purchase
1,032,250 shares of Common Stock.***
10.12 Registration Rights Agreement dated February 19, 1997 relating to Globalstar's and
Globalstar Capital's 11 3/8% Senior Notes due 2004.***
10.13 Registration Rights Agreement dated June 13, 1997 relating to Globalstar's and
Globalstar Capital's 11 1/4% Senior Notes due 2004.+
12 Statement Regarding Computation of Ratios.****
21 Subsidiaries of the Registrants.****
23.1 Consent of Deloitte & Touche LLP.+
23.2 Consents of Willkie Farr & Gallagher (included in their opinion filed as Exhibit
5.1).*****
24 Powers of Attorney (included in the Signature Pages).****
25 Statement on Form T-1 of Eligibility of Trustee.****
99.1 Form of Letter of Transmittal.****
99.2 Form of Notice of Guaranteed Delivery.****
99.3 Form of Letter to Clients.****
99.4 Form of Letter to Nominees.****
</TABLE>
- ---------------
* Incorporated by reference to GTL's Registration Statement on Form S-1
(No. 33-86808).
** Incorporated by reference to GTL's Registration Statement on Form S-3 (No.
333-6477).
*** Incorporated by reference to the Form 10-K of GTL for fiscal 1996.
**** Previously filed.
***** To be filed by amendment.
+ Filed herewith.
++ Management compensation plan.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
II-2
<PAGE> 166
ITEM 22. UNDERTAKINGS.
The Registrants will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrants
pursuant to the provisions, described under Item 20 above, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 167
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON JUNE 24, 1997.
GLOBALSTAR, L.P.
By: Loral/QUALCOMM Satellite Services,
L.P., its General Partner
By: Loral/QUALCOMM Partnership, L.P.,
its General Partner
By: Loral General Partner, Inc., its
General Partner
By: *
------------------------------------
Michael B. Targoff
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ---------------------------------------------------
<C> <S> <C>
* Chairman of the Board June 24, 1997
- ------------------------------------------ (Principal Executive Officer)
BERNARD L. SCHWARTZ
* President and Director June 24, 1997
- ------------------------------------------
MICHAEL B. TARGOFF
* Vice President and Director June 24, 1997
- ------------------------------------------
ERIC J. ZAHLER
* Vice President and Chief June 24, 1997
- ------------------------------------------ Financial Officer
MICHAEL P. DEBLASIO (Principal Financial Officer)
* Vice President and Controller June 24, 1997
- ------------------------------------------ (Principal Accounting Officer)
HARVEY B. REIN
*By: /s/ ERIC J. ZAHLER
- ------------------------------------------
ERIC J. ZAHLER
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE> 168
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON JUNE 24, 1997.
GLOBALSTAR CAPITAL CORPORATION
By: *
------------------------------------
Michael B. Targoff
President and Chief Operating
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ---------------------------------------------------
<C> <S> <C>
* Chairman of the Board and Chief June 24, 1997
- ------------------------------------------ Executive Officer (Principal
BERNARD L. SCHWARTZ Executive Officer)
* President, Chief Operating Officer June 24, 1997
- ------------------------------------------ and Director
MICHAEL B. TARGOFF
* Senior Vice President, Chief June 24, 1997
- ------------------------------------------ Financial Officer and Director
MICHAEL P. DEBLASIO (Principal Financial Officer)
* Vice President and Controller June 24, 1997
- ------------------------------------------ (Principal Accounting Officer)
HARVEY B. REIN
*By: /s/ ERIC J. ZAHLER
- ------------------------------------------
ERIC J. ZAHLER
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 169
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------
<S> <C> <C>
3.1 Amended and Restated Agreement of Limited Partnership of Globalstar,
dated as of March 6, 1996, among Loral/Qualcomm Satellite Services,
L.P., Globalstar Telecommunications Limited, AirTouch Satellite
Services, San Giorgio S.p.A., Hyundai/Dacom, Loral/DASA Globalstar,
L.P., Loral Globalstar, L.P., TE.S.A.M. and Vodastar Limited.***........
3.2 Certificate of Incorporation of Globalstar Capital.****.................
3.3 By-laws of Globalstar Capital.****......................................
4.1 Indenture dated as of February 15, 1997 relating to Globalstar's and
Globalstar Capital's 11 3/8% Senior Notes due 2004.***..................
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's and
Globalstar Capital's 11 1/4% Senior Notes due 2004.+....................
5.1 Opinion of Willkie Farr & Gallagher.*****...............................
8.1 Opinion of Willkie Farr & Gallagher (included with Exhibit 5.1).*****...
10.1 Subscription Agreements by and between Globalstar, and each of AirTouch
Communications, Alcatel Spacecom, Loral General Partner, Inc.,
Hyundai/Dacom and Vodastar Limited.*....................................
10.2 Subscription Agreement by and between Globalstar and Loral/Qualcomm
Satellite Services, L.P.*...............................................
10.3 Satellite Procurement Letter Agreement by and among Globalstar, Hyundai
Electronics Industries Co., Ltd. and Space Systems/Loral, Inc.*.........
10.4 Contract for OmniTRACS Like Services Agreement between Globalstar and
Qualcomm Incorporated.*.................................................
10.5 Support Agreement by and among Qualcomm Incorporated, Globalstar and
Loral/Qualcomm Satellite Services, Inc.*................................
10.6 Qualcomm Licensee Letter Agreement by and among Globalstar, Hyundai
Electronics Industries Co., Ltd. and Qualcomm Incorporated.*............
10.7 Contract between Globalstar and Space Systems/Loral, Inc.*..............
10.8 Contract for the Development of Certain Portions of the Ground
Operations Control Center between Globalstar and Loral Western
Development Laboratories.*..............................................
10.9 Contract for the Development of Satellite Orbital Operations Centers
between Globalstar and Loral Aerosys, a division of Loral Aerospace
Corporation.*...........................................................
10.10 Revolving Credit Agreement dated as of December 15, 1995, as amended on
March 25, 1996, among Globalstar, certain banks parties thereto and
Chemical Bank, as Administrative Agent.***..............................
10.11 Warrant Agreement dated as of February 19, 1997 relating to Warrants to
purchase 1,032,250 shares of Common Stock.***...........................
10.12 Registration Rights Agreement dated February 19, 1997 relating to
Globalstar's and Globalstar Capital's 11 3/8% Senior Notes due
2004.***................................................................
10.13 Registration Rights Agreement dated June 13, 1997 relating to
Globalstar's and Globalstar Capital's 11 1/4% Senior Notes due 2004.+...
12 Statement Regarding Computation of Ratios.****..........................
21 Subsidiaries of the Registrants.****....................................
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------
<S> <C> <C>
23.1 Consent of Deloitte & Touche LLP.+......................................
23.2 Consents of Willkie Farr & Gallagher (included in their opinion filed as
Exhibit 5.1).*****......................................................
24 Powers of Attorney (included in the Signature Pages).****...............
25 Statement on Form T-1 of Eligibility of Trustee.****....................
99.1 Form of Letter of Transmittal.****......................................
99.2 Form of Notice of Guaranteed Delivery.****..............................
99.3 Form of Letter to Clients.****..........................................
99.4 Form of Letter to Nominees.****.........................................
</TABLE>
- ---------------
* Incorporated by reference to GTL's Registration Statement on Form S-1
(No. 33-86808).
** Incorporated by reference to GTL's Registration Statement on Form S-3 (No.
333-6477).
*** Incorporated by reference to the Form 10-K of GTL for fiscal 1996.
**** Previously filed.
***** To be filed by amendment.
+ Filed herewith.
++ Management compensation plan.
<PAGE> 1
EXECUTION COPY
===========================================================
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION,
Issuers
11 1/4% Senior Notes due 2004
INDENTURE
Dated as of June 1, 1997
THE BANK OF NEW YORK,
Trustee
===========================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- -------
<S> <C> <C>
310 (a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311 (a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312 (a) .............................. 2.05
(b) .............................. 11.03
(c) .............................. 11.03
313 (a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 11.02
(d) .............................. 7.06
314 (a) .............................. 4.02;
4.15; 11.02
(b) .............................. N.A.
(c)(1) .............................. 11.04
(c)(2) .............................. 11.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 11.05
(f) .............................. 4.15
315 (a) .............................. 7.01
(b) .............................. 7.05; 11.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316 (a)(last sentence) .............................. 11.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317 (a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318 (a) .............................. 11.01
</TABLE>
N.A. means Not Applicable.
<PAGE> 3
2
Note: This Cross-Reference Table shall not, for any
purpose, be deemed to be part of this Indenture.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 Page
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.01. Definitions ............................ 1
SECTION 1.02. Other Definitions ...................... 22
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ........................ 22
SECTION 1.04. Rules of Construction .................. 23
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating ........................ 24
SECTION 2.02. Execution and Authentication ........... 24
SECTION 2.03. Registrar and Paying Agent ............. 25
SECTION 2.04. Paying Agent To Hold Money in Trust..... 25
SECTION 2.05. Securityholder Lists ................... 26
SECTION 2.06. Transfer and Exchange .................. 26
SECTION 2.07. Replacement Securities ................. 27
SECTION 2.08. Outstanding Securities ................. 27
SECTION 2.09. Temporary Securities ................... 28
SECTION 2.10. Cancelation ............................ 28
SECTION 2.11. Defaulted Interest ..................... 28
SECTION 2.12. CUSIP Number ........................... 28
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee ..................... 29
SECTION 3.02. Selection of Securities To Be
Redeemed ............................. 29
SECTION 3.03. Notice of Redemption ................... 30
SECTION 3.04. Effect of Notice of Redemption ......... 30
SECTION 3.05. Deposit of Redemption Price ............ 31
SECTION 3.06. Securities Redeemed in Part ............ 31
</TABLE>
<PAGE> 5
2
ARTICLE 4
Covenants
<TABLE>
<S> <C> <C>
SECTION 4.01. Payment of Securities .................. 31
SECTION 4.02. SEC Reports ............................ 31
SECTION 4.03. Limitation on Consolidated Debt ........ 32
SECTION 4.04. Future Guarantors ...................... 34
SECTION 4.05. Limitation on Restricted Payments....... 35
SECTION 4.06. Dividend and Other Payment Restrictions
Affecting Subsidiaries ................ 37
SECTION 4.07. Asset Dispositions ..................... 38
SECTION 4.08. Transactions with Affiliates ........... 39
SECTION 4.09. Limitation on the Issuance and Sales
of Capital Stock of Restricted
Subsidiaries ......................... 41
SECTION 4.10. Change of Control ...................... 41
SECTION 4.11. Limitation on Liens .................... 43
SECTION 4.12. Business Activities .................... 44
SECTION 4.13. Maintenance of Insurance ............... 45
SECTION 4.14. Compliance Certificates; Statement by
Officers as to Default ................ 47
SECTION 4.15. Further Acts and Instruments ........... 47
SECTION 4.16. Business Activities of GlobalStar....... 47
SECTION 4.17. Calculation of Original Issue Discount.. 47
ARTICLE 5
Successor Company
SECTION 5.01. When Issuers May Merge or Transfer
Assets ............................... 48
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default ...................... 49
SECTION 6.02. Acceleration ........................... 52
SECTION 6.03. Other Remedies ......................... 52
SECTION 6.04. Waiver of Past Defaults ................ 53
SECTION 6.05. Control by Majority .................... 53
SECTION 6.06. Limitation on Suits .................... 53
SECTION 6.07. Rights of Holders to Receive Payment ... 54
</TABLE>
<PAGE> 6
3
<TABLE>
<S> <C> <C>
SECTION 6.08. Collection Suit by Trustee ............. 54
SECTION 6.09. Trustee May File Proofs of Claim ....... 54
SECTION 6.10. Priorities ............................. 55
SECTION 6.11. Undertaking for Costs .................. 55
SECTION 6.12. Waiver of Stay or Extension Laws ....... 55
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee ...................... 56
SECTION 7.02. Rights of Trustee ...................... 57
SECTION 7.03. Individual Rights of Trustee ........... 58
SECTION 7.04. Trustee's Disclaimer ................... 58
SECTION 7.05. Notice of Defaults ..................... 58
SECTION 7.06. Reports by Trustee to Holders .......... 58
SECTION 7.07. Compensation and Indemnity ............. 59
SECTION 7.08. Replacement of Trustee ................. 60
SECTION 7.09. Successor Trustee by Merger ............ 61
SECTION 7.10. Eligibility; Disqualification .......... 61
SECTION 7.11. Preferential Collection of Claims
Against Issuers ...................... 61
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ........................... 62
SECTION 8.02. Conditions to Defeasance ............... 63
SECTION 8.03. Application of Trust Money ............. 64
SECTION 8.04. Repayment to Issuers ................... 64
SECTION 8.05. Indemnity for Government Obligations ... 65
SECTION 8.06. Reinstatement .......................... 65
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ............. 65
SECTION 9.02. With Consent of Holders ................ 66
SECTION 9.03. Compliance with Trust Indenture ........ 67
SECTION 9.04. Revocation and Effect of Consents
</TABLE>
<PAGE> 7
4
<TABLE>
<S> <C> <C>
and Waivers ........................ 67
SECTION 9.05. Notation on or Exchange of Securities .. 68
SECTION 9.06. Trustee To Sign Amendments ............. 68
SECTION 9.07. Payment for Consent .................... 68
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties ............................. 68
SECTION 10.02. Limitation on Liability ................ 71
SECTION 10.03. Successors and Assigns ................. 71
SECTION 10.04. No Waiver .............................. 71
SECTION 10.05. Modification ........................... 71
SECTION 10.06. Release of Subsidiary Guarantor ........ 72
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls ........... 72
SECTION 11.02. Notices ................................ 72
SECTION 11.03. Communication by Holders with Other
Holders .............................. 73
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent ................. 73
SECTION 11.05. Statements Required in Certificate
or Opinion ........................... 73
SECTION 11.06. When Securities Disregarded ............ 74
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar ............................ 74
SECTION 11.08. Legal Holidays ......................... 74
SECTION 11.09. Governing Law .......................... 74
SECTION 11.10. No Recourse Against Others ............. 74
SECTION 11.11. Successors ............................. 75
SECTION 11.12. Multiple Originals ..................... 75
SECTION 11.13. Table of Contents; Headings ............ 76
</TABLE>
Exhibit A - Form of Security
Rule 144A/Regulation S Appendix
<PAGE> 8
INDENTURE dated as of June 1, 1997, among
Globalstar, L.P., a Delaware limited partnership
("Globalstar"), Globalstar Capital Corporation, a
Delaware corporation ("Globalstar Capital" and,
together with Globalstar, the "Issuers") and The Bank
of New York, a New York banking corporation (the
"Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuers'
11 1/4% Senior Notes due 2004 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Issuers' 11 1/4%
Senior Notes due 2004 (the "Exchange Securities") and if and when issued
pursuant to a private exchange for Initial Securities, the Issuers' 11 1/4%
Senior Notes due 2004 (the "Private Exchange Securities", together with the
Exchange Securities and the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person,
(i) Debt of any other Person existing at the time such Person merges with or
into or consolidates with or becomes a Restricted Subsidiary of such specified
Person and (ii) Debt secured by a Lien encumbering any asset acquired by such
specified Person, which Debt or Lien was not Incurred in anticipation of, and
was outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control. The
<PAGE> 9
2
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any transfer, conveyance, sale,
lease or other disposition (collectively, any "disposition") by the Issuers or
any Restricted Subsidiary (including any disposition by means of a
consolidation, merger or similar transaction) but excluding a disposition by a
Restricted Subsidiary to the Issuers or a Wholly owned Restricted Subsidiary or
by the Issuers to a Wholly owned Restricted Subsidiary of (i) shares of Capital
Stock or other ownership interests of a Restricted Subsidiary, (ii) all or
substantially all of the assets of the Issuers or any Restricted Subsidiary
representing a division or line of business or (iii) other assets or rights of
such Person or any of its Restricted Subsidiaries other than a disposition (a)
in the ordinary course of business, (b) that constitutes a Restricted Payment
which is permitted pursuant to Section 4.05 or (c) that is subject to the
provisions set forth in Section 5.01(a); provided, however, that a transaction
described in clauses (i), (ii) and (iii) shall constitute an Asset Disposition
only to the extent that the aggregate consideration for all such transfers,
conveyances, sales, leases or other disposition exceeds $5 million in any
12-month period.
"Attributable Debt" in respect of a Sale and Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Debt or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Debt or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit
agreements (which may include or consist of revolving credits) between
Globalstar, Globalstar Capital or any Restricted Subsidiary and one or more
banks or other
<PAGE> 10
3
financial institutions providing financing for the business of Globalstar and
its Restricted Subsidiaries.
"Build-out" means the construction, acquisition, improvement,
operation and development (including all costs related thereto) of the
Globalstar System, until such time as Globalstar shall have (i) constructed at
least 64 satellites for use in the Globalstar System; (ii) launched or attempted
to launch (through "intentional ignition") at least 56 satellites for use in the
Globalstar System; and (iii) commenced commercial service of the Globalstar
System with at least 44 satellites in orbit and Operating.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" of any Person means an obligation
that is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of such Person in accordance with GAAP
(a "Capital Lease"). The Stated Maturity of such obligation shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty. The amount of such Debt represented by such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or other equity participations, including partnership interests, whether
general or limited, of such Person and shall (i) include any Special Preferred
Obligations and other preferred equivalent obligations and (ii) exclude debt
securities convertible into Capital Stock.
"Change of Control" means:
(i) the sale, lease or transfer, in one
transaction or a series of related transactions, of all
or substantially all the assets of Globalstar and the
Restricted Subsidiaries;
(ii) the adoption of a plan relating to the
liquidation or dissolution of Globalstar or Globalstar
Capital;
<PAGE> 11
4
(iii) one or more Dispositions which cause Loral's direct and
indirect equity interest in Globalstar to be reduced by more than 30%
as compared to its direct and indirect equity interest in Globalstar as
of December 31, 1996; or
(iv) the first day on which:
(a) Globalstar fails to own, of record and
beneficially, 100% of the equity interests and
voting stock of Globalstar Capital; or
(b) Loral fails to be, or, directly or indirectly,
fails solely to control, the sole managing general partner of
Globalstar.
Notwithstanding clauses (i), (ii) and (iv)(b) above, neither
the acquisition by GTL, Loral or any Wholly owned subsidiary of Loral of a
majority of the partnership interests in, or substantially all the assets of,
Globalstar, nor the merger of Globalstar with and into GTL, Loral or any Wholly
owned subsidiary of Loral shall constitute a Change of Control; provided,
however, that with respect to clause (iv)(b), Loral continues to control, or is
the corporate successor to, Globalstar.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission and
any survivor agency.
"Consolidated Cash Flow Available for Fixed Charges" for any
period means the Consolidated Net Income of Globalstar and its Restricted
Subsidiaries for such period plus Consolidated Interest Expense of Globalstar
and its Restricted Subsidiaries for such period, plus the following to the
extent deducted in calculating such Consolidated Net Income: (i) Consolidated
Income Tax Expense of Globalstar and its Restricted Subsidiaries for such
period, (ii) the consolidated depreciation and amortization expense included in
the income statement of Globalstar and its Restricted Subsidiaries for such
period and (iii) any non-cash expense related to the issuance to employees of
Globalstar or any Restricted Subsidiary of Globalstar of options to purchase
Capital Stock of Globalstar or such Restricted Subsidiary; provided, however,
that there shall be excluded therefrom the Consolidated Cash Flow Available for
Fixed Charges (if positive) of any Restricted Subsidiary (calculated
<PAGE> 12
5
separately, for such Restricted Subsidiary in the same manner as provided above
for Globalstar) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to Globalstar or another Restricted
Subsidiary to the extent of such restriction; provided further, however, that if
Consolidated Cash Flow Available For Fixed Charges for any period shall be less
than $1, Consolidated Cash Flow For Fixed Charges for such period shall be
deemed to be $1.
"Consolidated Income Tax Expense" for any period means the
consolidated provision for income taxes of Globalstar and the Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, the
consolidated interest expense included in a consolidated income statement
(excluding interest income) of Globalstar and the Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with GAAP, plus, to
the extent not so included, cash dividends paid during such period on Special
Preferred Obligations.
"Consolidated Net Income" means, for any period, the
consolidated net income (or loss) of Globalstar and the Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP, less
the amount of any cash dividends paid during such period on Special Preferred
Obligations; provided, however, that there shall be excluded therefrom (i) the
net income (or loss) of any Person acquired by Globalstar or a Restricted
Subsidiary in a pooling-of-interests transaction for any period prior to the
date of such transaction, (ii) the net income (and loss) of any Person that is
not a Restricted Subsidiary except to the extent of the amount of dividends or
other distributions actually paid to Globalstar or a Restricted Subsidiary by
such Person during such period, (iii) gains (but not losses) on Asset
Dispositions by Globalstar or any Restricted Subsidiary, (iv) all extraordinary
gains and losses, (v) the cumulative effect of changes in accounting principles,
(vi) non-cash gains or losses resulting from fluctuations in currency exchange
rates, (vii) any noncash gain or loss realized on the termination of any
employee pension benefit plan and (viii) the tax effect of any of the items
described in clauses (i) through (vii) above; provided further, however, that
for purposes of any determination pursuant to the provisions of Section 4.05,
(a) there shall further be excluded therefrom the net income (but not net loss)
of any Restricted Subsidiary that is subject to a restriction which
<PAGE> 13
6
prevents the payment of dividends or the making of distributions to Globalstar
or another Restricted Subsidiary of Globalstar to the extent of such restriction
and (b) there shall further be deducted therefrom an amount equal to the Tax
Amount paid by Globalstar during such period.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less amounts attributable to Disqualified Stock of such
Person; provided, however, that, with respect to Globalstar, adjustments
following the date of this Indenture to the accounting books and records of
Globalstar in accordance with Accounting Principles Board Opinions Nos. 16 and
17 (or successor opinions thereto) or otherwise resulting from the acquisition
of control of Globalstar by another Person shall not be given effect to.
"Debt" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including any such obligations Incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business which are not overdue or which are being
contested in good faith), (v) every Capital Lease Obligation of such Person,
(vi) all Receivables Sales of such Person, together with any obligation of such
Person to pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith, (vii) all obligations to
redeem Disqualified Stock issued by such Person, (viii) all Attributable Debt,
(ix) every obligation under Interest Rate and Currency Protection Agreements of
such Person, (x) every obligation of the type referred to in clauses (i) through
(ix) of another Person secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the fair market value of such
property or assets and the amount of
<PAGE> 14
7
the obligation so secured and (xi) every obligation of the type referred to in
clauses (i) through (x) of another Person and all dividends of another Person
the payment of which, in either case, such Person has Guaranteed. The "amount"
or "principal amount" of Debt at any time of determination as used herein
represented by (a) any Debt issued at a price that is less than the principal
amount at maturity thereof, shall be the amount of the liability in respect
thereof determined in accordance with GAAP, (b) any Receivables Sales shall be
the amount of the unrecovered capital or principal investment of the purchaser
(other than Globalstar or a Wholly owned Restricted Subsidiary) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, shall be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, shall be determined
in accordance with the definition thereof and (e) any Permitted Interest Rate or
Currency Protection Agreement shall be zero. In no event shall Debt include any
liability for taxes. For purposes of determining any particular amount of Debt,
Guarantees or Liens with respect to letters of credit supporting Debt otherwise
included in the determination of a particular amount shall not be included.
"Default" means an event that is, or after the passing of time
or the giving of notice both would be, an Event of Default.
"Disposition" means (i) the sale, transfer or other conveyance
by Loral or any of its Subsidiaries (other than to a Wholly owned subsidiary, of
Loral) of (a) Globalstar partnership interests or (b) equity interests in any
entity (an "intermediate entity") which owns, directly or indirectly, Globalstar
partnership interests or (ii) the issue and sale by any such intermediate entity
of its equity securities to one or more third parties if and to the extent the
proceeds of such issue and sale are distributed by such intermediate entity to
Loral or any of its Subsidiaries.
"Disqualified Stock" of any Person means any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
<PAGE> 15
8
first anniversary of the final Stated Maturity of the Securities; provided,
however, that any Preferred Stock which would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require
Globalstar to repurchase or redeem such Preferred Stock upon the occurrence of a
change of control occurring prior to the first anniversary of the final Stated
Maturity of the Securities shall not constitute Disqualified Stock if the change
of control provisions applicable to such Preferred Stock are no more favorable
to the holders of such Preferred Stock than the provisions applicable to the
Securities contained in Section 4.10 and such Preferred Stock specifically
provides that Globalstar will not repurchase or redeem any such stock pursuant
to such provisions prior to Globalstar's repurchase of such Securities as are
required to be repurchased pursuant to Section 4.10; provided further, however,
that all Special Preferred Obligations shall be deemed to be Disqualified Stock.
"11 3/8 Indenture" means the indenture dated as of February
15, 1997, among Globalstar, Globalstar Capital and The Bank of New York, as
Trustee, pursuant to which the
11 3/8 Notes were issued.
"11 3/8 Notes" means the $500,000,000 aggregate principal
amount of 11 3/8% Senior Notes due 2004 of the Issuers, together with any
Exchange Securities or Private Exchange Securities (as such terms are defined in
the 11 3/8 Indenture) issued pursuant to the 11 3/8 Indenture.
"Eligible Institution" means a commercial banking institution
that has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A-3" or higher or "A-" or
higher according to Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group (or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended (or any successor act) and the rules and regulations thereunder.
<PAGE> 16
9
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"General Partners' Committee" means the committee consisting
of representatives of the general partners of Globalstar that governs the
activities of Globalstar.
"Globalstar System" means Globalstar's worldwide, low-earth
orbit, satellite-based digital telecommunications system as described in
Globalstar's Offering Memorandum dated June 10, 1997 with respect to the
Securities.
"Globaltel Russia" means Globalstar-Space Telecommunications,
a Russian closed joint stock company.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States is
pledged and which have a remaining weighted Average Life to maturity of not more
than one year from the date of Investment therein.
"GTL" means Globalstar Telecommunications Limited,
a Bermuda company.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person, (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
<PAGE> 17
10
(ii) to purchase property, securities or services for the purposes of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Holders" means the registered holders from time to time of
the Securities.
"Incur" means, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Debt or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Debt or other obligation on
the balance sheet of such Person (and "Incurrence", "Incurred" and "Incurring"
shall have the meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time becoming Debt shall not be deemed an Incurrence of such Debt and that
neither the accrual of interest nor the accretion of original issue discount
shall be deemed an Incurrence of Debt. Notwithstanding the foregoing, Globalstar
may elect to treat all or any portion of revolving credit debt of Globalstar or
a Subsidiary as being Incurred from and after any date beginning the date the
revolving credit commitment is extended to Globalstar or a Subsidiary, by
furnishing notice thereof to the Trustee, and any borrowings or reborrowings by
Globalstar or a Subsidiary under such commitment up to the amount of such
commitment designated by Globalstar as Incurred shall not be deemed to be new
Incurrence of Debt by Globalstar or such Subsidiary; provided, however, that the
undrawn portion of any such revolving credit debt shall be deemed to be
outstanding Debt until such time as the commitment thereunder is terminated. The
accretion of principal of a non-interest bearing or other discount security
shall not be deemed the Incurrence of Debt.
"Indenture" means this Indenture as amended or supplemented
from time to time.
<PAGE> 18
11
"Independent Financial Advisor" means an accounting, appraisal
or investment banking firm of nationally recognized standing that is, in the
judgment of the General Partners' Committee of Globalstar, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Issuers and their Subsidiaries and Affiliates.
"Interest Rate or Currency Protection Agreement" of any Person
means any forward contract, futures contract, swap, option or other financial,
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan,
advance or other extension of credit or capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person, but excluding any loan,
advance or extension of credit to an employee of Globalstar or any Restricted
Subsidiary in the ordinary course of business, accounts receivables and other
commercially reasonable extensions of trade credit.
"Issue Date" means the date on which the Securities are first
issued and delivered.
"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, Receivables Sale,
deposit arrangement, security interest, lien, charge, easement (other than any
easement not materially impairing usefulness or marketability), encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the foregoing
or any Sale and Leaseback Transaction).
"Liquidated Damages" means additional cash interest with
respect to the Securities payable upon the occurrence of certain events as
specified in the
<PAGE> 19
12
Registration Rights Agreement dated as of June 13, 1997, among Globalstar,
Globalstar Capital and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc., as initial purchasers.
"Loral" means Loral Space & Communications Ltd., a Bermuda
company.
"Marketable Securities" means: (i) Government Securities; (ii)
any time deposit account, money market deposit and certificate of deposit
maturing not more than 270 days after the date of acquisition issued by, or time
deposit of, an Eligible Institution; (iii) commercial paper maturing not more
than 270 days after the date of acquisition issued by a corporation (other than
an Affiliate of Globalstar) with a rating, at the time as of which any
investment therein is made, of "P-1" or higher according to Moody's Investors
Service, Inc. or "A-1" or higher according to Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); (iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; (v) repurchase obligations with a term of
not more than 7 days for Government Securities entered into with an Eligible
Institution; and (vi) any fund investing exclusively in investments of the types
described in clauses (i) through (v) above.
"Net Available Proceeds" from any Asset Disposition by any
Person means cash or Marketable Securities received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to such properties or assets) therefrom by
such Person, net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses Incurred and all federal, state, provincial, foreign
and local taxes (including taxes payable upon payment or other distribution of
funds from a foreign subsidiary to Globalstar or another Subsidiary of
Globalstar) required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the
<PAGE> 20
13
proceeds from such Asset Disposition, (iii) all distributions and other payments
made to minority interest holders in Restricted Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition, (iv) appropriate amounts
to be provided by such Person or any Restricted Subsidiary thereof, as the case
may be, as a reserve in accordance with GAAP against any liabilities associated
with such assets and retained by such Person or any Restricted Subsidiary
thereof, as the case may be, after such Asset Disposition, including, without
limitation, liabilities under any indemnification obligations and severance and
other employee termination costs associated with such Asset Disposition, in each
case as determined by the General Partners' Committee of Globalstar, in its
reasonable good faith judgment evidenced by a board resolution filed with the
Trustee; provided, however, that any reduction in such reserve within twelve
months following the consummation of such Asset Disposition will be treated for
all purposes of this Indenture and the Securities as a new Asset Disposition at
the time of such reduction with Net Available Proceeds equal to the amount of
such reduction, and (v) any consideration for an Asset Disposition (which would
otherwise constitute Net Available Proceeds) that is required to be held in
escrow pending determination of whether a purchase price adjustment will be
made, but amounts under this clause (v) shall become Net Available Proceeds at
such time and to the extent such amounts are released to such Person.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Non-Recourse Debt" means Debt:
(i) as to which neither the Issuers nor any
Restricted Subsidiary:
(a) provides credit support of any kind
(including any undertaking, agreement or
instrument that would constitute Debt);
(b) is directly or indirectly liable (as a
guarantor or otherwise); or
<PAGE> 21
14
(c) constitutes the lender;
(ii) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action against an
Issuer or any Unrestricted Subsidiary) would permit (upon notice, lapse
of time or both) any holder of any other Debt of the Issuers or any
Restricted Subsidiary to declare a default on such other Debt or cause
the payment thereof to be accelerated or payable prior to its stated
maturity; and
(iii) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of the
Issuers or any of their Restricted Subsidiaries.
"Offer to Purchase" means a written offer (the "Offer") sent
by Globalstar by first class mail, postage prepaid, to each holder at his
address appearing in the Securities register on the date of the Offer offering
to purchase up to the principal amount of Securities specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to this
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer and a settlement date for
purchase of Securities within five Business Days after the Expiration Date. The
Issuers shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of
Globalstar's obligation to make an Offer to Purchase, and the Offer shall be
mailed by Globalstar or, at Globalstar's request, by the Trustee in the name and
at the expense of Globalstar. The Offer shall contain information concerning the
business of Globalstar and its Subsidiaries which Globalstar in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to this Indenture
(which requirements may be satisfied by delivery of such documents together with
the Offer), (ii) a description of material developments in Globalstar's business
subsequent to the date of the latest of such
<PAGE> 22
15
financial statements referred to in clause (i) (including a description of the
events requiring Globalstar to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring Globalstar to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer shall
contain all instructions and materials necessary to enable such holders to
tender Securities pursuant to the Offer to Purchase.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Issuers.
"Officers' Certificate" means a certificate signed by two
Officers.
"Operating" means, with respect to any satellite, that at
least 50% of the call circuits of such satellite are operating at design
performance specifications.
"Opinion of Counsel" means an opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of, or counsel to,
the Issuers or the Trustee.
"Permitted Interest Rate or Currency Protection Agreement" of
any Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means an Investment by an Issuer or any
Restricted Subsidiary (i) in any Person as a result of which such Person becomes
a Restricted Subsidiary, (ii) in Marketable Securities, (iii) in Permitted
Interest Rate or Currency Protection Agreements, (iv) made as a result of the
receipt of noncash consideration from an Asset Disposition that was made
pursuant to and in compliance with Section 4.07 and (v) consisting of loans or
advances to employees made in the ordinary course of business not to exceed $3
million in the aggregate outstanding at any one time.
<PAGE> 23
16
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization, government or agency or political
subdivision thereof or any other entity.
"Preferred Stock" of any Person means Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Receivables" means receivables, chattel paper, instruments,
documents or intangibles evidencing or relating to the right to payment of money
in respect of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables
of such Person (pursuant to a purchase facility or otherwise), other than in
connection with a disposition of the business operations of such Person relating
thereto or a disposition of defaulted Receivables for purpose of collection and
not as a financing arrangement.
"Refinance" means in respect of any Debt, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Debt in exchange or replacement for, such Debt. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of the
Issuers or any Restricted Subsidiary existing on the Issue Date or Incurred in
compliance with this Indenture, including Debt that Refinances Refinancing Debt;
provided, however, that (i) such Refinancing Debt has a Stated Maturity no
earlier than the Stated Maturity of the Debt being Refinanced, (ii) such
Refinancing Debt has an Average Life at the time such Refinancing Debt is
Incurred that is equal to or greater than the Average Life of the Debt being
Refinanced, (iii) such Refinancing Debt has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is equal
to
<PAGE> 24
17
or less than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Debt being
Refinanced, (iv) in the event the Debt being Refinanced constitutes a
Subordinated Obligation, the Refinancing Debt is subordinated to the Securities
to at least the same extent as the Debt being Refinanced and (v) Special
Preferred Obligations may only be Refinanced with Preferred Stock (other than
Preferred Stock that is Disqualified Stock), other Special Preferred Obligations
or Subordinated Obligations; provided, further, however, that Refinancing Debt
shall not include (x) Debt of a Subsidiary that Refinances Debt of the Issuers
or (y) Debt of the Issuers or a Restricted Subsidiary that Refinances Debt of an
Unrestricted Subsidiary.
"Related Person" of any Person means any other Person directly
or indirectly owning (a) 10% or more of the outstanding common equity of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person) or (b) 10% or more of the combined voting
power of the Voting Stock of such Person.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Issuers or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly-Owned Restricted Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of an Issuer held
by any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Issuers (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Issuers that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated
<PAGE> 25
18
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of Globalstar,
whether existing on or after the Issue Date, unless such Subsidiary is an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating
to property now owned or hereafter acquired whereby an Issuer or a Restricted
Subsidiary transfers such property to a Person and an Issuer or a Restricted
Subsidiary leases it from such Person.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended
(or any successor act) and the rules and regulations thereunder.
"Significant Subsidiary" means a Restricted Subsidiary that is
a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
"Special Preferred Obligations" means (i) preferred
partnership interests of Globalstar existing as of the Issue Date and (ii) any
preferred partnership interests, convertible preferred equivalent obligations or
similar preferred obligations of Globalstar issued after the Issue Date to
finance the Build-out; provided, however, that any such preferred partnership
interests, convertible preferred equivalent obligations or similar preferred
obligations of Globalstar issued after the Issue Date shall not constitute
Special Preferred Obligations if such interest or obligation, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the Holders), or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the final Stated Maturity of the Securities; provided
further, however, that any such interest or obligation which would
<PAGE> 26
19
constitute Special Preferred Obligations but for provisions thereof giving
holders thereof the right to require Globalstar to repurchase or redeem such
interest or obligation upon the occurrence of a change of control occurring
prior to the final Stated Maturity of the Securities shall constitute Special
Preferred Obligations if the change of control provisions applicable to such
interest or obligation are no more favorable to the holders of such interest or
obligation than the provisions applicable to the Securities contained in Section
4.10 and such interest or obligation specifically provides that Globalstar will
not repurchase or redeem any such interest or obligation pursuant to such
provisions prior to Globalstar's repurchase of such Securities as are required
to be repurchased pursuant to Section 4.10. Notwithstanding the foregoing,
preferred partnership interests, convertible preferred equivalent obligations or
similar preferred obligations of Globalstar issued after the Issue Date shall
not be Special Preferred Obligations unless, at the time of their issuance,
Globalstar shall certify to the Trustee that such interests or obligations shall
be designated Special Preferred Obligations.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Debt of the Issuers
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" of any Person means (i) a corporation more than
50% of the combined voting power of the outstanding Voting Stock of which is
owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries of such Person, directly or indirectly, has at least
a majority ownership and power to direct the policies, management and affairs
thereof.
<PAGE> 27
20
"Subsidiary Guaranty" means the Guarantee by a Subsidiary
Guarantor of the Issuers' obligations with respect to the Securities contained
in Article 10 hereof.
"Subsidiary Guarantor" means any Subsidiary which, pursuant to
the terms hereof, has executed a supplemental indenture in a form reasonably
satisfactory to the Trustee and become bound by the terms hereof, including
Article 10 hereof.
"Tax Amount" means, with respect to any year, an amount not to
exceed the sum of the ordinary income from trade or business activities and
other items of income, loss and deduction reported by Globalstar for that year
for United States federal income tax purposes multiplied by a percentage equal
to the sum of (a) the highest applicable federal corporation income tax rate for
that year (expressed as a percentage) plus (b) 8% multiplied by the excess of
100% over the highest applicable federal corporate income tax for that year
(expressed as a percentage).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture, except
as provided by Section 9.03.
"Transitory Equipment Subsidiary" means a Subsidiary of
Globalstar whose only business activity is acquiring equipment from Globalstar
for the sole purpose of selling such equipment to a service provider to
Globalstar; provided, however, that Globalstar retains a security interest in
such equipment so long as it is owned by such Subsidiary; provided further,
however, that such Subsidiary has no Debt outstanding at any time other than
Debt represented by such security interest.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of
Globalstar designated as such by the General Partner's Committee as set forth
below where (a) neither Globalstar
<PAGE> 28
21
nor any of its other Subsidiaries (other than another Unrestricted Subsidiary)
(1) provides credit support for, or Guarantee of, any Debt of such Subsidiary or
any Subsidiary of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Debt), (2) is directly or indirectly liable for any
Debt of such Subsidiary or any Subsidiary of such Subsidiary, or (3) has any
obligation to make additional Investments in such Subsidiary or any Subsidiary
of such Subsidiary, (b) such Subsidiary has no Debt other than Non-Recourse
Debt; provided, however, that if any Unrestricted Subsidiary Incurs any Debt
other than Non-Recourse Debt or any Non-Recourse Debt Incurred by such
Unrestricted Subsidiary shall thereafter cease for any reason to be Non-Recourse
Debt, such event shall be deemed to constitute an Incurrence of such Debt by
Globalstar and such Unrestricted Subsidiary shall be deemed to be a Restricted
Subsidiary for purposes of Section 4.04 and (c) such Subsidiary and each
Subsidiary of such Subsidiary has at least one director on its board of
directors that is not a director or executive officer of Globalstar or any
Restricted Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary. The
General Partner's Committee may designate any Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary or any Subsidiary of such Subsidiary owns any
Capital Stock or Debt of, or owns or holds any Lien on any property of,
Globalstar or any other Subsidiary of Globalstar which is not a Subsidiary of
the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;
provided, however, that either (A) the Subsidiary to be so designated has total
assets of $1,000 or less or (B) immediately after giving effect to such
designation, Globalstar could incur an additional $1.00 of Debt pursuant to
Section 4.03(a) and provided further, however, that Globalstar could make a
Restricted Payment in an amount equal to the greater of the fair market value
and the book value of such Subsidiary pursuant to Section 4.05 and such amount
is thereafter treated as a Restricted Payment for the purpose of calculating the
aggregate amount available for Restricted Payments thereunder. The General
Partners' Committee may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that, immediately after giving effect to such designation,
Globalstar could incur an additional $1.00 of Debt pursuant to Section 4.03(a).
Notwithstanding the foregoing, neither Globalstar Capital nor any of its
Subsidiaries shall be Unrestricted Subsidiaries.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership
<PAGE> 29
22
interest in such obligations of the United States of America (including any
agency or instrumentality thereof) for the payment of which the full faith and
credit of the United States of America is Pledged and which are not callable or
redeemable at the issuer's option.
"Vendor Financing Facility" means any agreements between
Globalstar, Globalstar Capital and/or any Restricted Subsidiary and one or more
vendors or lessors of equipment to Globalstar, Globalstar Capital and/or any
Restricted Subsidiary (or any affiliate of any such vendor or lessor) providing
financing for the acquisition by Globalstar or any such Restricted Subsidiary of
equipment from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Wholly owned Restricted Subsidiary" means a Restricted
Subsidiary 99% or more of the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by Globalstar or by one or more Wholly owned Restricted Subsidiaries of
Globalstar or by Globalstar and one or more Wholly owned Restricted Subsidiaries
of Globalstar.
<PAGE> 30
23
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction" ................ 4.08
"Appendix" ............................. 2.01
"Bankruptcy Law" ....................... 6.01
"Cash Insurance" ....................... 4.13
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Debt Coverage Ratio" .................. 4.03
"Event of Default" ..................... 6.01
"Exchange Securities" .................. Recital
"Globalstar" ........................... Preamble
"Globalstar Capital" ................... Preamble
"Initial Securities" ................... Recital
"In-orbit Insurance Event" ............. 4.13
"Insurance Account" .................... 4.13
"Insurance Proceeds" ................... 4.13
"Issuers" .............................. Preamble
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 11.08
"Notice of Default" .................... 6.01
"Obligations" .......................... 10.01
"Paying Agent" ......................... 2.03
"Permitted Lien" ....................... 4.11
"Private Exchange Securities" .......... Recital
"Registrar"............................. 2.03
"Securities" ........................... Recital
"Successor Issuers" .................... 5.01
"Trustee" .............................. Preamble
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the Commission;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
<PAGE> 31
24
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Issuers and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule have the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Debt shall not be deemed to be subordinate or
junior to secured Debt merely by virtue of its nature as unsecured
Debt;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP but accretion of principal on such
security shall not be deemed to be the Incurrence of Indebtedness;
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater;
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Securities were originally
issued; and
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25
(10) the terms "redemption" and "redeemable" shall not be
deemed to refer to Offers to Purchase or to repurchases pursuant to
Section 4.10 or similar offers or repurchases.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Securities, the Private Exchange Securities and the Exchange Securities
are set forth in the Rule 144A/Regulation S Appendix attached hereto (the
"Appendix") which is hereby incorporated in and expressly made part of this
Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to the Appendix
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities, the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Issuers are subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Issuers). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in the Appendix and Exhibit A are part of
the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall
sign the Securities for the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
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26
The Trustee shall authenticate and deliver Securities for
original issue upon a written order of the Issuers signed by two Officers or by
an Officer and either an Assistant Treasurer or an Assistant Secretary of the
Issuers. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed that amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Issuers to authenticate the Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Issuers shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Issuers may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Issuers shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Issuers shall
notify the Trustee of the name and address of any such agent. If the Issuers
fail to maintain a Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Issuers or any of their domestically incorporated Wholly owned Subsidiaries
may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Issuers initially appoint the Trustee as Registrar and
Paying Agent in connection with the Securities.
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SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to
each due date of the principal and interest and Liquidated Damages (if any) on
any Security, the Issuers shall deposit with the Paying Agent a sum sufficient
to pay such principal and interest and Liquidated Damages (if any) when so
becoming due. The Issuers shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest and Liquidated Damages (if any) on the
Securities and shall notify the Trustee of any default by the Issuers in making
any such payment. If either Issuer or a Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate
trust fund. The Issuers at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by the Paying
Agent. Upon complying with this Section, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee is
not the Registrar, the Issuers shall furnish to the Trustee, in writing at least
five Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
(or any successor provision thereto) of the Uniform Commercial Code are met.
When Securities are presented to the Registrar or a co-registrar with a request
to exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested if the same
requirements are met. To permit registration of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate Securities at the
Registrar's or co- registrar's request. The Issuers may require payment of a sum
sufficient to pay all taxes, assessments or other
<PAGE> 35
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governmental charges in connection with any transfer or exchange pursuant to
this Section. The Issuers shall not be required to make and the Registrar need
not register transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 days before a selection
of Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of
any Security, the Issuers, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest and Liquidated Damages (if any) on such
Security and for all other purposes whatsoever, whether or not such Security is
overdue, and none of the Issuers, the Trustee, the Paying Agent, the Registrar
or any co-registrar shall be affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant
to the terms of this Indenture will evidence the same debt and will be entitled
to the same benefits under this Indenture as the Securities surrendered upon
such transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security
is surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Issuers shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 (or any successor provision thereto) of the Uniform Commercial
Code are met and the Holder satisfies any other reasonable requirements of the
Trustee. Such Holder shall furnish an indemnity bond sufficient in the judgment
of the Issuers and the Trustee to protect the Issuers, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss which any of them may
suffer if a Security is replaced. The Issuers and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Issuers.
SECTION 2.08. Outstanding Securities. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered
<PAGE> 36
29
to it for cancelation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Issuers or an Affiliate
of the Issuers holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee and the Issuers receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest and Liquidated Damages (if any)
payable on that date with respect to the Securities (or portions thereof) to be
redeemed or maturing, as the case may be, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest and
Liquidated Damages (if any) on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive
Securities are ready for delivery, the Issuers may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Issuers
consider appropriate for temporary Securities. Without unreasonable delay, the
Issuers shall prepare and the Trustee shall authenticate definitive Securities
and deliver them in exchange for temporary Securities.
SECTION 2.10 Cancelation. The Issuers at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
may, but shall not be required to, destroy (subject to the record retention
requirements of the Exchange Act) all Securities surrendered for registration of
transfer, exchange, payment or cancelation unless the Issuers direct the Trustee
to deliver canceled Securities to the Issuers. The Issuers may not issue new
Securities to replace Securities they have redeemed, paid or delivered to the
Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Issuers default in a
payment of interest and Liquidated Damages (if any) on the Securities, the
Issuers shall pay defaulted interest and Liquidated Damages (if any) (plus
interest on
<PAGE> 37
30
such defaulted interest and Liquidated Damages (if any) to the extent lawful) in
any lawful manner. The Issuers may pay the defaulted interest and Liquidated
Damages (if any) to the persons who are Securityholders on a subsequent special
record date. The Issuers shall fix or cause to be fixed any such special record
date and payment date to the reasonable satisfaction of the Trustee and shall
promptly mail to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest and Liquidated
Damages (if any) to be paid.
SECTION 2.12. CUSIP Numbers. The Issuers in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Issuers shall promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Issuers elect to
redeem Securities pursuant to paragraph 5 of the Securities, they shall notify
the Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Issuers shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Issuers to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If less
than all the Securities are to be redeemed at any time, the Trustee shall select
the
<PAGE> 38
31
Securities to be redeemed by a method that complies with the requirements of the
principal national securities exchange, if any, on which the Securities are
listed, or if the Securities are not listed, on a pro rata basis, by lot or by
such method as the Trustee in its sole discretion shall deem to be fair and
appropriate and in accordance with methods generally used at the time of
selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Issuers promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Issuers shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed at such Holder's registered address.
The notice shall identify the Securities (including CUSIP
number(s), if any)to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(6) that, unless the Issuers default in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest and Liquidated
Damages (if any) on Securities (or portion thereof) called for
<PAGE> 39
32
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' name and at the Issuers' expense. In such event, the
Issuers shall provide the Trustee with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest and Liquidated Damages (if
any) to the redemption date. Failure to give notice or any defect in the notice
to any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. On or prior to the
redemption date, the Issuers shall deposit with the Paying Agent (or, if an
Issuer or a Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest and
Liquidated Damages (if any) on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Issuers to the Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Issuers shall execute and the Trustee
shall authenticate for the Holder (at the Issuers' expense) a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
<PAGE> 40
33
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Issuers shall
promptly pay the principal of and interest and Liquidated Damages (if any) on
the Securities on the dates and in the manner provided in the Securities and in
this Indenture. Principal, interest and Liquidated Damages (if any) shall be
considered paid on the date due if on such date the Trustee or the Paying Agent
holds in accordance with this Indenture money sufficient to pay all principal,
interest and Liquidated Damages (if any) then due.
The Issuers shall pay interest on overdue principal at the
rate specified therefor in the Securities, and shall pay interest on overdue
installments of interest and Liquidated Damages (if any) at the same rate to the
extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Issuers
may not be, or may not be required to remain, subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuers shall file
with the Commission (unless the Commission will not accept such filing) and
provide the Trustee and Holders of the Securities with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.
In addition, for so long as any Securities remain outstanding,
the Issuers shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuers'
compliance with any of their covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
<PAGE> 41
34
SECTION 4.03. Limitation on Consolidated Debt. (a) The Issuers
may not, and may not permit any Restricted Subsidiary to, Incur any Debt;
provided, however, that the Issuers or any Restricted Subsidiary may Incur Debt
so long as the ratio of (i) the aggregate consolidated principal amount of Debt
of the Issuers and the Restricted Subsidiaries outstanding as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect to
the Incurrence of such Debt and any other Debt Incurred since such balance sheet
date and the receipt and application of the proceeds thereof to (ii)
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters ending on the date of such balance sheet determined on a pro forma
basis as if any such Debt had been Incurred and the proceeds thereof had been
applied at the beginning of such four fiscal quarters, would be less than 4.0 to
1.0 (the "Debt Coverage Ratio").
(b) Notwithstanding the foregoing limitation, the Issuers and
any Restricted Subsidiary may Incur the following:
(i) Debt Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements to finance the Build-out; provided, however, that Debt
Incurred pursuant to this clause (i), other than Debt Incurred pursuant
to a Bank Credit Agreement or a Vendor Financing Facility, shall not
have a Stated Maturity on or earlier than the Stated Maturity of the
Securities, and shall not be mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or be redeemable at the option of
the holder thereof, in whole or in part, on or prior to the Stated
Maturity of the Securities;
(ii) Debt under any one or more Bank Credit Agreements or
other agreements or arrangements to finance working capital
requirements of Globalstar and any Refinancing Debt in respect of such
Debt; provided, however, at the time of the Incurrence of such Debt and
after giving effect thereto, the aggregate principal amount of all Debt
Incurred pursuant to this clause (ii) and then outstanding shall not
exceed $100 million;
(iii) Debt owed by the Issuers to any Wholly-Owned Restricted
Subsidiary or Debt owed by any Wholly-Owned Restricted Subsidiary to
the Issuers or to another Wholly-Owned Restricted Subsidiary; provided,
<PAGE> 42
35
however, that upon either (x) the transfer or other disposition by such
Wholly-Owned Restricted Subsidiary or the Issuers of any Debt so
permitted to a Person other than the Issuers or another Wholly-Owned
Restricted Subsidiary or (y) the issuance (other than directors'
qualifying shares), sale, lease, transfer or other disposition of
shares of Capital Stock (including by consolidation or merger) of such
Wholly-Owned Restricted Subsidiary to a Person other than the Issuers
or another such Wholly-Owned Restricted Subsidiary, the provisions of
this clause (iii) shall no longer be applicable to such Debt and such
Debt shall be deemed to have been Incurred by the Issuers thereof at
the time of such issuance, sale, lease, transfer or other disposition;
(iv) Refinancing Debt Incurred to Refinance Debt Incurred
pursuant to the first paragraph of this covenant or pursuant to clause
(i), (vi) or (vii) or this clause (iv) of this paragraph;
(v) Debt consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vi) Debt represented by the Securities;
(vii) Debt outstanding on the Issue Date (other than Debt
described in clause (i), (ii), (iii), (vi) or (viii) of this
paragraph);
(viii) Debt (including Capital Lease Obligations) of
Globalstar or any Restricted Subsidiary financing the purchase, lease
or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any
Person owning such assets), in each case Incurred no more than 180 days
after such purchase, lease or improvement of such property and any
Refinancing Debt in respect of such Debt, provided, however, that (x)
the amount of such Debt (net of original issue discount) does not
exceed, at the time initially Incurred, 90% of the fair market value of
such acquired property or equipment and (y) at the time of the
Incurrence of such Debt and after giving effect thereto, the aggregate
amount of all Debt Incurred pursuant to this clause (viii) and then
outstanding shall not exceed $100 million;
(ix) Debt consisting of performance and other similar bonds
and reimbursement obligations Incurred
<PAGE> 43
36
in the ordinary course of business securing the performance of
contractual, franchise or license obligations of the Issuers or a
Restricted Subsidiary, or in respect of a letter of credit obtained to
secure such performance; and
(x) Debt in an aggregate principal amount which, together with
all other Debt of the Issuers and the Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Debt permitted
by clauses (i) through (ix) above or Section 4.03(a)) does not exceed
$50 million.
(c) For purposes of determining compliance with this Section
4.03, in the event that an item of Debt meets the criteria of more than one of
the types of Debt the Issuers and the Restricted Subsidiaries are permitted to
Incur, the Issuers or such Restricted Subsidiary, as the case may be, shall have
the right, in their sole discretion, to classify such item of Debt at the time
of its Incurrence and shall only be required to include the amount and type of
such Debt under the clause permitting the Debt as so classified.
SECTION 4.04. Future Guarantors. In the event that, after the
Issue Date, Globalstar shall acquire or create a Subsidiary, Globalstar shall
cause such Subsidiary (unless such Subsidiary is a Transitory Equipment
Subsidiary or is an Unrestricted Subsidiary) to become a Subsidiary Guarantor
and to Guarantee the Securities pursuant to a Subsidiary Guaranty.
SECTION 4.05. Limitation on Restricted Payments. (a) The
Issuers may not, and may not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time such Issuers or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) Globalstar is not able to Incur an additional $1.00 of
Debt pursuant to Section 4.03(a); or
<PAGE> 44
37
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income of Globalstar
accrued during the period (treated as one accounting period)
from the beginning of the fiscal quarter immediately following
the fiscal quarter during which the Issue Date occurs to the
end of the most recent fiscal quarter for which internal
financial statements are available at the time of such
Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by
Globalstar from the issuance or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of Globalstar
and other than an issuance or sale to an employee stock
ownership plan or to a trust established by Globalstar or any
of its Subsidiaries for the benefit of their employees);
(C) the amount by which Debt of Globalstar is reduced on
the balance sheet of Globalstar upon the conversion or
exchange (other than by a Subsidiary of Globalstar) subsequent
to the Issue Date of any Debt of Globalstar convertible or
exchangeable for Capital Stock (other than Disqualified Stock)
of Globalstar (less the amount of any cash, or the fair value
of any other property, distributed by Globalstar upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction
in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers
of assets, in each case to Globalstar or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to Globalstar's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case
of any Unrestricted
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38
Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by Globalstar or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Globalstar may (i) subject
to clause (vi) below, pay any dividend on Capital Stock of any class within 60
days after the declaration thereof if, on the date when the dividend was
declared, Globalstar could have paid such dividend in accordance with the
foregoing provisions; (ii) repurchase any shares of its Capital Stock or options
to acquire its Capital Stock from Persons who were formerly officers or
employees of Globalstar; provided, however, that the aggregate amount of all
such repurchases made pursuant to this clause (ii) shall not exceed $2 million,
plus the aggregate cash proceeds received by Globalstar since the Issue Date on
sale of its Capital Stock or options to acquire its Capital Stock to members,
officers, managers and employees of Globalstar or any of its Subsidiaries; (iii)
Refinance, and permit its Restricted Subsidiaries to Refinance, any Debt
otherwise permitted to be Refinanced by clause (iv) of Section 4.03(b); (iv) so
long as Globalstar is treated as a partnership for U.S. federal income tax
purposes, make distributions in respect of members' or partners' income tax
liability with respect to Globalstar in an amount not to exceed the Tax Amount;
(v) make distributions to GTL to pay GTL's ordinary and reasonable operating
expenses related to Globalstar, as set forth in an Officers' Certificate
delivered to the Trustee; (vi) pay any scheduled dividend on Special Preferred
Obligations; provided, however, that at the time of payment of any such dividend
(other than a dividend paid only by distributions of additional Special
Preferred Obligations), no Default shall have occurred and be continuing (or
result therefrom); (vii) make any Restricted Payment by exchange for, or out of
the proceeds of the substantially concurrent sale of, or capital contribution in
respect of, Capital Stock of Globalstar (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of Globalstar or an employee
stock ownership plan or to a trust established by Globalstar or any of its
Subsidiaries for the benefit of their employees); (viii) contribute its
Investment in Globaltel Russia to an Unrestricted Subsidiary; and (ix) make
other Restricted Payments in an aggregate amount not to exceed $10 million.
(c) Any Restricted Payment made pursuant to clauses (ii),
(iii), (iv), (vi), (vii), (viii) and (ix) of
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Section 4.05(b) shall be excluded from the calculation of the aggregate amount
of Restricted Payments made since the Issue Date; provided, however, that the
Net Cash Proceeds from the issuance of Capital Stock pursuant to clauses (ii)
and (vii) of Section 4.05(b) shall be excluded from the calculation of amounts
under clause (B) of Section 4.05(a)(3).
SECTION 4.06. Dividend and Other Payment Restrictions
Affecting Subsidiaries. (a) The Issuers may not, and may not permit any
Restricted Subsidiary, directly or indirectly, to create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the
Issuers or any of their Restricted Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by,
its profits;
(ii) pay any indebtedness owed to the Issuers or any
Restricted Subsidiary;
(iii) make loans or advances to the Issuers or any Restricted
Subsidiary; or
(iv) transfer any of its properties or assets to the Issuers
or any Restricted Subsidiary.
(b) Notwithstanding the foregoing, the Issuers may, and may
permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction (i) pursuant to any agreement in effect on the Issue Date; (ii)
pursuant to an agreement relating to any Acquired Debt, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person so acquired and its Subsidiaries; (iii) pursuant
to an agreement effecting a Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (i) or (ii) above or clause (iv) below,
provided, however, that the provisions contained in such Refinancing agreement
relating to such encumbrance or restriction are no more restrictive taken as a
whole (as determined in good faith by the Chief Financial Officer of Globalstar)
than the provisions contained in the predecessor agreement the subject thereof;
(iv) in the case of clause (iii) of Section 4.06(a), consisting of restrictions
contained in any security agreement (including a Capital Lease Obligation)
securing Debt of the Issuers or a Restricted Subsidiary otherwise
<PAGE> 47
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permitted under this Indenture, but only to the extent such encumbrances or
restrictions restrict the transfer of the property subject to such security
agreement; (v) in the case of clause (iv) of Section 4.06(a), consisting of
customary nonassignment provisions entered into in the ordinary course of
business in leases governing leasehold interests, but only to the extent such
provisions restrict the transfer of the lease or the property thereunder; (vi)
with respect to a Restricted Subsidiary, imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary; provided, however,
that after giving effect to such transaction no Default shall have occurred or
be continuing, that such restriction terminates if such transaction is not
consummated and that such consummation or abandonment of such transaction occurs
within one year of the date such agreement was entered into; (vii) imposed
pursuant to applicable law or regulations; (viii) imposed pursuant to this
Indenture and the Securities; or (ix) consisting of any restriction on the sale
or other disposition of assets or property securing Debt as a result of a
Permitted Lien on such assets or property.
SECTION 4.07. Asset Dispositions. (a) The Issuers may not, and
may not permit any Restricted Subsidiary to, directly or indirectly, make any
Asset Disposition unless: (i) Globalstar, Globalstar Capital or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration) of the shares and assets subject to such Asset
Disposition, as determined by the General Partners' Committee of Globalstar in
good faith and evidenced by a resolution filed with the Trustee; (ii) at least
80% of the consideration thereof received by Globalstar, Globalstar Capital or
such Restricted Subsidiary, as the case may be, consists of (a) cash or
Marketable Securities or (b) the assumption of Debt (other than Subordinated
Obligations) of Globalstar, Globalstar Capital or such Restricted Subsidiary and
the release of the Issuers and the Restricted Subsidiaries, as applicable, from
all liability on the Debt assumed; and (iii) all Net Available Proceeds, less
any amounts invested within 180 days of such disposition in assets that comply
with Section 4.12, are applied within 180 days of such disposition (A) first, to
the permanent repayment or reduction of Debt then outstanding under any Bank
Credit Agreement or Vendor Financing Facility, to the extent such
<PAGE> 48
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agreement or facility would require such application or prohibit payments
pursuant to the following clause (B), (B) second, to the extent of remaining Net
Available Proceeds, to make an Offer to Purchase outstanding Securities at 100%
of their principal amount plus accrued and unpaid interest and Liquidated
Damages (if any) to the date of purchase thereon and, to the extent required by
the terms thereof, any other Debt of Globalstar, Globalstar Capital or a
Restricted Subsidiary that ranks pari passu with the Securities at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase and (C) third, to the extent of any remaining
Net Available Proceeds following the completion of the Offer to Purchase, to the
repayment of other Debt of Globalstar or Debt of a Restricted Subsidiary, to the
extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, Globalstar and the Restricted Subsidiaries may
use such amounts for any purposes not prohibited by this Indenture.
Notwithstanding the foregoing, these provisions shall not apply to any Asset
Disposition which constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially all of Globalstar's properties or assets
pursuant to Section 5.01(a).
(b) The Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.07. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.07, the Issuers shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations under this Section 4.07 by virtue
thereof.
SECTION 4.08. Transactions with Affiliates. (a) The Issuers
may not, and may not permit any Restricted Subsidiary, directly or indirectly,
to enter into any transactions (or series of related transactions) with an
Affiliate or Related Person of the Issuers (other than the Issuers or a Wholly
owned Restricted Subsidiary) (an "Affiliate Transaction") unless:
(i) such Affiliate Transaction is on terms that are no less
favorable to Globalstar, Globalstar Capital or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by
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Globalstar, Globalstar Capital or such Restricted Subsidiary, as the
case may be, with an unrelated Person; and
(ii) Globalstar delivers to the Trustee:
(A) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $1 million
(other than financing transactions that are not vendor
financing transactions pursuant to a Vendor Financing
Facility) and entered into in connection with the Build-out, a
certificate of the Chief Executive Officer of Globalstar to
the effect that a majority of the disinterested limited
partners of Globalstar have approved such Affiliate
Transaction; provided, however, that there is at least one
disinterested limited partner at the time of such Affiliate
Transaction; provided further, however, that any limited
partner receiving any compensation in respect of its approval
shall be deemed not to be a disinterested limited partner; or
(B) (1) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $1 million, a
certificate of the Chief Executive Officer of Globalstar to
the effect that such Affiliate Transaction complies with
clause (i) above; and (2) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $10
million, an opinion as to the fairness to Globalstar,
Globalstar Capital or such Restricted Subsidiary, as the case
may be, of such Affiliate Transaction from a financial point
of view issued by an Independent Financial Advisor or, with
respect to telecommunications-related matters, a recognized
expert in the satellite telecommunications industry.
(b) Notwithstanding the foregoing Section 4.08(a), the
following shall be deemed not to be Affiliate Transactions:
(i) employee compensation arrangements entered into in the
ordinary course of business and approved by the General Partners'
Committee of Globalstar;
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(ii) transactions solely between or among the Issuers and the
Restricted Subsidiaries;
(iii) Restricted Payments permitted by Section 4.05;
(iv) Investments by an Affiliate or Related person of
Globalstar or Globalstar Capital in the Capital Stock (other than
Disqualified Stock) of Globalstar or any Restricted Subsidiary; and
(v) an Affiliate or Related Person of the Issuers acting as
agent for the placement or acquisition of launch services or insurance
on behalf of the Issuers or any Restricted Subsidiary.
SECTION 4.09. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries. The Issuers may not, and may not permit any
Restricted Subsidiary to, issue, transfer, convey, sell or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary or securities convertible
or exchangeable into, or options, warrants, rights or any other interest with
respect to, Capital Stock of a Restricted Subsidiary to any person other than
Globalstar, Globalstar Capital or a Wholly owned Restricted Subsidiary except
(i) in a transaction consisting of a sale of all the Capital Stock of such
Restricted Subsidiary and that complies with the provisions of Section 4.07 to
the extent such provisions apply; (ii) if required, the issuance, transfer,
conveyance, sale or other disposition of directors' qualifying shares; (iii) in
a transaction in which, or in connection with which, an Issuer or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; and (iv) Disqualified Stock of a Restricted
Subsidiary Incurred to Refinance Disqualified Stock of such Restricted
Subsidiary; provided, however, that the amounts of the redemption obligations of
such Disqualified Stock shall not exceed the amounts of the redemption
obligations of, and such Disqualified Stock shall have redemption obligations no
earlier than those required by, the Disqualified Stock being Refinanced.
SECTION 4.10. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder of Securities shall have the right to require
that the Issuers repurchase such Holder's Securities at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and
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unpaid interest and Liquidated Damages (if any) to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest and Liquidated Damages (if any) due on the relevant interest payment
date).
(b) Within 30 days following any Change of Control, the
Issuers shall mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Issuers to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages
(if any) to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest and Liquidated
Damages (if any) on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such
Change of Control);
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuers, consistent
with this Section 4.10, that a Holder must follow in order to have its
Securities purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Issuers at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Trustee or the Issuers receive not later than one Business Day prior to
the purchase date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the
Issuers under this Section shall be delivered by the Trustee for cancelation,
and the Issuers shall pay
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the purchase price plus accrued and unpaid interest and Liquidated Damages (if
any), if any, to the Holders entitled thereto.
(e) The Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached their obligations under this Section by virtue thereof.
SECTION 4.11. Limitation on Liens. The Issuers may not, and
may not permit any Restricted Subsidiary, directly or indirectly, to Incur or
permit to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except for the following Liens (each, a "Permitted Lien"):
(i) Liens to secure up to $675 million of Debt permitted to be
Incurred under this Indenture (including the Debt outstanding at any
time under the 11 3/8 Indenture) so long as effective provision is made
to secure the Securities equally and ratably with (or prior to) the
obligations so secured;
(ii) Liens in favor of Holders of the Securities;
(iii) Liens in favor of the Issuers;
(iv) Liens on property or shares of Capital Stock of another
Person at the time such other Person becomes a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such other Person
becoming such a Subsidiary; provided further, however, that such Lien
may not extend to any other property owned by such Person or any of its
Subsidiaries (other than inventory and receivables generated in the
ordinary course of business and substitute property);
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by means
of a merger or
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consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed
in connection with, or in contemplation of, such acquisition; provided
further, however, that the Liens may not extend to any other property
owned by such Person or any of its Subsidiaries;
(vi) Liens securing Debt Incurred pursuant to clause (viii) of
Section 4.03(b); provided, however, that the Lien may not extend to any
assets owned by an Issuer or any Restricted Subsidiary other than (a)
the assets being financed or refinanced and income and proceeds
therefrom and (b) any other assets of such obligor securing other Debt
of such obligor to the same secured party;
(vii) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business;
(viii) Liens existing on the Issue Date;
(ix) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded; provided, however, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been
made therefor;
(x) Liens incurred in the ordinary course of business of the
Issuers and the Restricted Subsidiaries with respect to obligations
that do not exceed $10.0 million at any one time outstanding and that:
(A) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business); and
(B) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof
in the operation of business by the Issuers and the Restricted
Subsidiaries.
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SECTION 4.12. Business Activities. The Issuers may not, and
may not permit any Restricted Subsidiary to, engage in any business other than
that which is related to the design, development, procurement, installation,
operation and ownership of telecommunications systems and businesses.
SECTION 4.13. Maintenance of Insurance.
(a) The Issuers shall:
(i) maintain, with respect to each satellite in the Globalstar
System, for the period beginning at least 45 days prior to, and at all
times up to and including, the launch of such satellite, launch
insurance with respect to such satellite in an amount sufficient to
provide for the construction, launch and insurance of a replacement
satellite to be payable in the event of a launch failure; and
(ii) in the event that more than 16 of Globalstar's satellites
have ceased Operating for 90 consecutive days and fewer than 44
satellites are Operating as part of the Globalstar System (such an
event, an "In-orbit Insurance Event"), obtain (within 60 days of such
In-orbit Insurance Event), and thereafter maintain, in-orbit insurance
in an amount sufficient to provide for the construction, launch and
insurance of replacement satellites for at least 16 of Globalstar's
satellites still operating or, if such in-orbit insurance in such
amount is not then commercially available from traditional insurance
providers, such lesser amount as is so available.
(b) The obligation of the Issuers to maintain insurance
pursuant to this covenant may be satisfied by any combination of:
(i) insurance commitments obtained from any
recognized insurance provider;
(ii) insurance commitments obtained from any other entity if
the General Partners' Committee of Globalstar determines in good faith
that such entity is creditworthy and otherwise capable of bearing the
financial risk of providing such insurance;
(iii) unrestricted cash segregated and maintained by
Globalstar in a segregated account (the "Insurance
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Account") solely for disbursement in accordance with Section 4.13(d)
("Cash Insurance"); and
(iv) in respect of the insurance described in clause (i) of
Section 4.13(a), self-insurance for the launch of up to 12 satellites;
provided, however, that no earlier than 60 days prior to the scheduled
launch of any such satellites:
(a) the Issuers deliver an Officers' Certificate to
the Trustee certifying that they have sufficient committed
capital to construct, launch and insure at least 44
satellites, in addition to the satellites with respect to
which the Issuers are self-insuring; and
(b) the Issuers obtain an opinion from an investment
banking firm that is an Independent Financial Advisor to the
effect that the Issuers would be able to raise sufficient
capital in the capital markets to replace, relaunch and insure
such satellites in the event of a failure to successfully
launch such satellites.
(c) Within 30 days following any date on which the Issuers are
required to obtain insurance pursuant to this Indenture, the Issuers will
deliver to the Trustee an insurance certificate certifying the amount of
insurance then carried and an Officers' Certificate stating that such insurance,
together with any other insurance or Cash Insurance maintained by the Issuers,
complies with this Indenture. In addition, the Issuers will cause to be
delivered to the Trustee no less than once each year an insurance certificate
setting forth the amount of insurance then carried, which insurance certificate
shall entitle the Trustee to:
(i) notice of any claim under any such insurance
policy; and
(ii) at least 30 days' notice from the provider of such
insurance prior to the cancelation of any such insurance.
In the event that the Issuers maintain any Cash Insurance in satisfaction of any
part of their obligation to maintain insurance pursuant to this Section 4.13,
the Issuers shall deliver an Officers' Certificate to the Trustee in lieu of
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any insurance certificate otherwise required by this Section 4.13.
(d) In the event that the Issuers receive any proceeds of any
launch or in-orbit insurance that they are required to maintain pursuant to this
Section 4.13, such proceeds shall constitute "Insurance Proceeds". In addition,
if the Issuers maintain any Cash Insurance in satisfaction of any part of their
obligations to maintain in-orbit insurance pursuant to this Section 4.13, then
upon the occurrence of the event (i.e., the in-orbit failure) that would have
entitled the Issuers to the payment of insurance had the Issuers purchased
insurance from an insurance provider, the cash maintained in the Insurance
Account shall constitute "Insurance Proceeds". Promptly following the receipt of
any Insurance Proceeds, the Issuers shall apply such Insurance Proceeds in
accordance with the provisions of Section 4.07; provided, however, that
Insurance Proceeds shall only be required to be so applied to the extent that
the aggregate amount of all Insurance Proceeds received by the Issuers exceeds
$5 million in any 12-month period.
SECTION 4.14. Compliance Certificate; Statement by Officers as
to Default. The Issuers shall deliver to the Trustee within 120 days after the
end of each fiscal year of the Issuers an Officers' Certificate stating that in
the course of the performance by the signers of their duties as Officers of the
Issuers they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Issuers
are taking or propose to take with respect thereto. The Issuers also shall
comply with TIA Section 314(a)(4).
SECTION 4.15. Further Instruments and Acts. Upon request of
the Trustee, the Issuers will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.16. Business Activities of Globalstar Capital.
Globalstar Capital shall not engage in any trade or business, and shall conduct
no business activity, other than the Incurrence of Debt permitted by Section
4.03 and the issuance of Capital Stock to Globalstar or any Wholly owned
Restricted Subsidiary and activities incidental thereto.
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SECTION 4.17. Calculation of Original Issue Discount. The
Issuers shall file with the Trustee promptly at the end of each calendar year
(i) a written notice specifying the amount of original issue discount (including
daily rates and accrual periods) accrued on outstanding Securities as of the end
of such year and (ii) such other specific information relating to such original
issue discount as may then be relevant under the Code, as amended from time to
time.
ARTICLE 5
Successor Issuers
SECTION 5.01. When Issuers May Merge or Transfer Assets. (a)
Neither Globalstar nor Globalstar Capital may consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to any Person; provided,
however, that Globalstar may consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to any Person, if:
(i) the resulting, surviving or transferee Person (the
"Successor Issuer") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and the Successor Issuer (if not Globalstar) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of Globalstar under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Debt which becomes an obligation of the Successor Issuer
or any Subsidiary as a result of such transaction as having been
Incurred by the Successor Issuer or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Issuer would be able to Incur an additional $1.00 of Debt
pursuant to Section 4.03(a);
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(iv) immediately after giving effect to such transaction, the
Successor Issuer shall have Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of Globalstar immediately
prior to such transaction; and
(v) Globalstar shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and such supplemental indenture (if any) comply with this
Indenture.
The Successor Issuer shall be the successor to Globalstar and
shall succeed to, and be substituted for, and may exercise every right and power
of, Globalstar under this Indenture, and Globalstar (other than in the case of a
lease) shall be released from the obligation to pay the principal of and
interest and Liquidated Damages (if any) on the Securities.
(b) Globalstar shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, all or substantially all of its assets
to any Person unless: (i) the resulting, surviving or transferee Person (if not
such Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of the
United States of America, or any State thereof or the District of Columbia, and
such Person shall expressly assume, by a guaranty agreement in a form acceptable
to the Trustee, all the obligations of such Subsidiary, if any, under its
Subsidiary Guaranty; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Debt which becomes an
obligation of the resulting, surviving or transferee Person as a result of such
transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii)
Globalstar delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
guaranty agreement, if any, complies with this Indenture.
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ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of
Default" occurs if:
(1) the Issuers default in any payment of interest or
Liquidated Damages (if any) on any Security when the same becomes due
and payable, and such default continues for a period of 30 days;
(2) the Issuers (i) default in the payment of the principal of
any Security when the same becomes due and payable at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, or (ii) fail to redeem or purchase Securities
when required pursuant to this Indenture or the Securities;
(3) the Issuers fail to comply with Section 5.01;
(4) the Issuers fail to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 or 4.16 (other
than a failure to purchase Securities when required under Section 4.07
or 4.10) and such failure continues for 30 days after the notice
specified below;
(5) the Issuers fail to comply with any of their agreements in
the Securities or this Indenture (other than those referred to in
clause (1), (2), (3) or (4) above) and such failure continues for 60
days after the notice specified below;
(6) Debt of the Issuers or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $10.0 million, or its
foreign currency equivalent at the time and such failure continues for
10 days after the notice specified below;
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(7) any Issuer or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws
relating to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Issuers or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Issuers or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Issuers or any Significant Subsidiary;
or any similar relief is granted under any foreign laws
and the order or decree remains unstayed and in effect
for 60 days;
(9) any judgment or decree for the payment of money in excess
of $10.0 million or its foreign currency equivalent at the time is
entered against the Issuers or any Significant Subsidiary, remains
outstanding for a period of 60 days following the entry of such
judgment or decree and is not discharged, waived or the execution
thereof stayed within 10 days after the notice specified below; or
(10) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary
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Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clauses (4), (5), or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the outstanding Securities notify the Issuers of the Default and the Issuers do
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Issuers shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Issuers are taking or
propose to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or (8) with respect to the
Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Issuers and the Trustee, may declare the principal of and accrued but unpaid
interest and Liquidated Damages (if any) on all the Securities to be due and
payable. Upon such a declaration, such principal, interest and Liquidated
Damages (if any) shall be due and payable immediately. If an Event of Default
specified in Section 6.01(7) or (8) with respect to the Issuers occurs, the
principal of and interest and Liquidated Damages (if any) on all the Securities
shall ipso facto become and be immediately due and payable without any
declaration or other
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act on the part of the Trustee or any Securityholders. The Holders of a majority
in principal amount of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest and Liquidated Damages (if
any) that has become due solely because of acceleration. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest and Liquidated Damages (if any) on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest and Liquidated Damages (if any) on a
Security or (ii) a Default in respect of a provision that under Section 9.02
cannot be amended without the consent of each Securityholder affected. When a
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is
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56
not inconsistent with such direction. Prior to taking any action hereunder, the
Trustee shall be entitled to reasonable indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right
to receive payment of principal, premium (if any) or interest and Liquidated
Damages (if any) when due, no Securityholder may pursue any remedy with respect
to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest and Liquidated Damages (if any)
on the Securities held by such Holder, on or after the respective due dates
expressed in the Securities, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its
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57
own name and as trustee of an express trust against the Issuers for the whole
amount then due and owing (together with interest on any unpaid interest and
Liquidated Damages (if any) to the extent lawful) and the amounts provided for
in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Issuers, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. Priorities. If the Trustee collects any money
or property pursuant to this Article 6, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal, interest and Liquidated Damages (if any),
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, interest and
Liquidated Damages (if any), respectively; and
THIRD: to the Issuers.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Issuers shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
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SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07
or a suit by Holders of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Issuers
(to the extent they may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Issuers (to the extent that they may lawfully do so) hereby expressly waive
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been
enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
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60
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and
the advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be deemed to have notice of any
Default or Event of Default unless a Trust Officer has actual knowledge thereof
or unless written notice of any event which is in fact such a default is
received by the Trustee at the principal corporate trust office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal
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with the Issuers or its Affiliates with the same rights it would have if it were
not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do
the same with like rights. However, the Trustee must comply with Sections 7.10
and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Issuers'
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Issuers in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest and Liquidated
Damages (if any) on any Security (including payments pursuant to the mandatory
redemption provisions of such Security, if any), the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. If required by
TIA Section 313(a), as promptly as practicable after each May 15 beginning with
the May 15, 1998, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with such TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the Commission and each stock exchange (if
any) on which the Securities are listed. The Issuers agree to notify promptly
the Trustee whenever the Securities become listed on any stock exchange and of
any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuers shall
pay to the Trustee from time to time such compensation as shall be agreed in
writing between the Issuers and the Trustee for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuers shall reim-
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62
burse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Issuers shall indemnify the Trustee
against any and all loss, liability or reasonable expense (including reasonable
attorneys' fees) incurred by it in connection with the acceptance or
administration of this trust and the performance of its duties hereunder. The
Trustee shall notify the Issuers promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the
Issuers of their obligations hereunder. The Issuers shall defend the claim and
the Trustee may have separate counsel and the Issuers shall pay the reasonable
fees and expenses of such counsel. The Issuers need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Issuers' payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest and Liquidated Damages (if any) on particular
Securities.
The Issuers' payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(7) or (8) with
respect to the Issuers, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Issuers. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Issuers shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
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(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Issuers or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Issuers shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition, at the
expense of the Issuers, any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Issuers' obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the
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Securities shall have been authenticated but not delivered, any such successor
to the Trustee may adopt the certificate of authentication of any predecessor
trustee, and deliver such Securities so authenticated; and in case at that time
any of the Securities shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the
Securities or in this Indenture provided that the certificate of the Trustee
shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Issuers are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Issuers. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Issuers deliver to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07) for
cancellation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof and the Issuers irrevocably deposit with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Securities, including interest and Liquidated Damages (if any) thereon to
maturity or such redemption date (other than Securities replaced pursuant to
Section 2.07), and if in either case the Issuers pay all other sums payable
hereunder
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by the Issuers, then this Indenture shall, subject to Sections 8.01(c), cease to
be of further effect. The Trustee shall acknowledge satisfaction and discharge
of this Indenture on demand of the Issuers accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Issuers.
(b) Subject to Sections 8.01(c) and 8.02, the Issuers at any
time may terminate (i) all their obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) their obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 4.16
and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and
6.01(10) (but, in the case of Sections 6.01(7) and (8), with respect only to
Significant Subsidiaries) and the limitations contained in Sections 5.01(a)(iii)
and (iv) ("covenant defeasance option"). The Issuers may exercise their legal
defeasance option notwithstanding their prior exercise of their covenant
defeasance option.
If the Issuers exercise their legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default with
respect thereto. If the Issuers exercise their covenant defeasance option,
payment of the Securities may not be accelerated because of an Event of Default
specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10)
(but, in the case of Sections 6.01(7) and (8), with respect only to Significant
Subsidiaries) or because of the failure of the Issuers to comply with Section
5.01(a)(iii) or (iv). If the Issuers exercise their legal defeasance option or
their covenant defeasance option, each Subsidiary Guarantor, if any, shall be
released from all its obligations with respect to its Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon
request of the Issuers, the Trustee shall acknowledge in writing the discharge
of those obligations that the Issuers terminate.
(c) Notwithstanding clauses (a) and (b) above, the Issuers'
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Issuers' obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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SECTION 8.02. Conditions to Defeasance. The Issuers may
exercise their legal defeasance option or their covenant defeasance option only
if:
(1) the Issuers irrevocably deposit in trust with the Trustee
money or U.S. Government Obligations for the payment of principal of
and interest and Liquidated Damages (if any) on the Securities to
maturity or redemption, as the case may be;
(2) the Issuers deliver to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest and Liquidated
Damages (if any) when due and without reinvestment on the deposited
U.S. Government Obligations plus any deposited money without investment
will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest and Liquidated Damages (if
any) when due on all the Securities to maturity or redemption, as the
case may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Sections 6.01(7) or (8) with
respect to the Issuers occurs which is continuing at the end of the
period;
(4) the deposit does not constitute a default under any other
agreement binding on the Issuers;
(5) the Issuers deliver to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Issuers Act of 1940;
(6) in the case of the legal defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the Issue Date there
has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Securityholders will not recognize income, gain
or loss for Federal income tax purposes as a result of such defeasance
and will be subject to Federal income tax on the same amounts, in the
same
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manner and at the same times as would have been the case if such
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance
and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(8) the Issuers deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article 8 have been complied with.
Before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest and Liquidated Damages (if
any) on the Securities.
SECTION 8.04. Repayment to Issuers. The Trustee and the Paying
Agent shall promptly turn over to the Issuers upon written request any excess
money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Issuers upon request any money held by
them for the payment of principal or interest and Liquidated Damages (if any)
that remains unclaimed for two years, and, thereafter, Securityholders entitled
to the money must look to the Issuers for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The
Issuers shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
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the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Issuers' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Issuers have made any payment of interest and Liquidated Damages (if any) on or
principal of any Securities because of the reinstatement of their obligations,
the Issuers shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Issuers and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities,
including any Subsidiary Guaranties, or to secure the Securities or to
release such guaranties in accordance with the terms of Section 4.04;
<PAGE> 76
69
(5) to add to the covenants of the Issuers for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Issuers;
(6) to comply with any requirements of the Commission in
connection with qualifying, or maintaining the qualification of, this
Indenture under the TIA; or
(7) to make any change that does not adversely affect the
rights of any Securityholder.
After an amendment under this Section becomes effective, the
Issuers shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.02. With Consent of Holders. The Issuers and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange for the
Securities). However, without the consent of each Securityholder affected
thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or extend the time for payment of
interest and Liquidated Damages (if any) on any Security;
(3) reduce the principal of or extend the Stated Maturity of
any Security;
(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in
accordance with Article 3;
(5) make any Security payable in money other than that stated
in the Security;
(6) make any change in Section 6.04 or 6.07 or the second
sentence of this Section; or
<PAGE> 77
70
(7) make any change in any Subsidiary Guaranty that would
adversely affect the Securityholders.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the
Issuers shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Issuers may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
<PAGE> 78
71
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Issuers or the Trustee so determines, the Issuers
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Issuers nor any
Affiliate of the Issuers shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend (and,
if appropriate, tender their Securities) in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest and Liquidated Damages (if any) on
the Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other
<PAGE> 79
72
monetary obligations of the Issuers under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Issuers under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under
this Article 10 notwithstanding any extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of,
payment from and protest to the Issuers of any of the Obligations and also
waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice
of any default under the Securities or the Obligations. The Obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Issuers or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
Except as expressly set forth in Sections 8.01(b), 10.02 and
10.06, the obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the Obligations of
<PAGE> 80
73
each Subsidiary Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Guarantee
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of principal of or interest and
Liquidated Damages (if any) on any Obligation is rescinded or must otherwise be
restored by any Holder or the Trustee upon the bankruptcy or reorganization of
the Issuers or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Issuers to pay
the principal of or interest and Liquidated Damages (if any) on any Obligation
when and as the same shall become due, whether at maturity, by acceleration, by
redemption or otherwise, or to perform or comply with any other Obligation, each
Subsidiary Guarantor hereby promises to and will, upon receipt of written demand
by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or
the Trustee an amount equal to the sum of (i) the unpaid amount of such
Obligations, (ii) accrued and unpaid interest and Liquidated Damages (if any) on
such Obligations (but only to the extent not prohibited by law) and (iii) all
other monetary Obligations of the Issuers to the Holders and the Trustee.
Each Subsidiary Guarantor agrees that, as between it, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the Obligations Guaranteed hereby may be accelerated as provided in Article 6
for the purposes of such Subsidiary Guarantor's Subsidiary Guaranty herein,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article 6, such Obligations (whether or not due and
<PAGE> 81
74
payable) shall forthwith become due and payable by such Subsidiary Guarantor for
the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees and expenses) incurred by the
Trustee or any Holder in enforcing any rights under this Section.
SECTION 10.02. Limitation on Liability. Any term or provision
of this Indenture to the contrary notwithstanding, the maximum, aggregate amount
of the Obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 10.03. Successors and Assigns. This Article 10 shall
be binding upon each Subsidiary Guarantor and its successors and assigns and
shall enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 10.04. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article 10 shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article 10
at law, in equity, by statute or otherwise.
SECTION 10.05. Modification. No modification, amendment or
waiver of any provision of this Article 10, nor the consent to any departure by
any Subsidiary Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Subsidiary Guarantor in any case
shall
<PAGE> 82
75
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 10.06. Release of Subsidiary Guarantor. Upon the sale
or other disposition (including by way of consolidation or merger) of a
Subsidiary Guarantor or the sale or disposition of all or substantially all the
assets of such Subsidiary Guarantor (in each case other than to the Issuers or
an Affiliate of the Issuers), such Subsidiary Guarantor shall be deemed released
from all Obligations under this Article 10 without any further action required
on the part of the Trustee or any Holder. At the request of the Issuers, the
Trustee shall execute and deliver an appropriate instrument evidencing such
release.
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which
is required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Issuers:
Globalstar, L.P.
Globalstar Capital Corporation
3200 Zanker Road
San Jose, California 95164-0670
Attention: Secretary
Facsimile: (408) 473-5040
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
<PAGE> 83
76
The Issuers or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears
on the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Issuers, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Issuers to the Trustee to take
or refrain from taking any action under this Indenture, the Issuers shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
<PAGE> 84
77
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Issuers
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuers shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which a Trust Officer of the Trustee actually knows
are so owned shall be so disregarded. Also, subject to the foregoing, only
Securities outstanding at the time shall be considered in any such
determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to
be open in the State of New York. If a payment date is a Legal Holiday, payment
shall be made on the next succeeding day that is not a Legal Holiday, and no
interest and Liquidated Damages (if any) shall accrue for the intervening
period. If a regular record date is a Legal Holiday, the record date shall not
be affected.
SECTION 11.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
<PAGE> 85
78
SECTION 11.10. No Recourse Against Others. Any past, present
or future director, officer, partner (including any general partner) employee,
incorporator or stockholder, as such, of the Issuers shall not have any
liability for any obligations of the Issuers under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Issuers in
this Indenture and the Securities shall bind their successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
<PAGE> 86
79
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
GLOBALSTAR, L.P.,
by ________________________________
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its managing
general partner,
by ________________________________
LORAL/QUALCOMM PARTNERSHIP,
L.P. its general partner,
by ________________________________
LORAL GENERAL PARTNER, INC.,
its general partner,
/s/ Eric J. Zahler
by ________________________________
Name:
Title:
GLOBALSTAR CAPITAL CORPORATION,
/s/ Eric J. Zahler
by ________________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
/s/ Walter N. Gitlin
by ________________________________
Name:
Title:
<PAGE> 87
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE
SECURITY]
*/
**/
No. $
11 1/4% Senior Notes due 2004 CUSIP:
Globalstar, L.P., a Delaware limited partnership, and Globalstar Capital
Corporation, a Delaware corporation, each promise to pay to ,
or registered assigns, the principal sum of Dollars on June 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on the other side of this
Security.
GLOBALSTAR, L.P., by
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its managing
general partner, by
LORAL/QUALCOMM PARTNERSHIP, L.P.
its general partner, by LORAL
GENERAL PARTNER, INC. its
general partner,
by ______________________________
Vice President
______________________________
Secretary
GLOBALSTAR CAPITAL CORPORATION,
by ______________________________
Vice President
______________________________
Secretary
<PAGE> 88
2
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Securities
referred to in the Indenture.
by
-----------------------------
Authorized Signatory
*/ If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix and the attachment
from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".
**/ If the Security is a Private Exchange Security issued in a Private Exchange
to an 200,00,000 holding an unsold portion of its initial allotment, add the
Restricted Securities Legend from Exhibit 1 to the Rule 144A/Regulation S
Appendix and replace the Assignment Form included in this Exhibit A with the
Assignment Form included in such Exhibit 1.
<PAGE> 89
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE
EXCHANGE SECURITY]
11 1/4% Senior Note due 2004
1. Interest and Liquidated Damages
Globalstar, L.P., a Delaware limited partnership and
Globalstar Capital Corporation, a Delaware corporation (such limited partnership
and such corporation, and their successors and assigns under the Indenture
hereinafter referred to, being herein called the "Issuers"), promise to pay
interest on the principal amount of this Security at the rate per annum shown
above; provided, however, that if a Registration Default (as defined in the
Registration Rights Agreement) occurs, Liquidated Damages (as defined in the
Registration Rights Agreement) shall accrue on this Security in an amount equal
to $.05 per week per $1,000 principal amount of Securities held by each Holder
(over and above the interest set forth in the title of this Security) from and
including the date on which any such Registration Default shall occur until the
earlier of (i) the date on which all such Registration Defaults have been cured
or (ii) the date which is 90 days after the date such Registration Default
occurred. The Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of the Securities held by each Holder during each
subsequent 90-day period until the date on which all such Registration Defaults
have been cured; provided, however, that the aggregate amount of Liquidated
Damages shall not exceed a maximum of $.50 per week per $1,000 principal amount
of the Securities held by each Holder. The Issuers will pay interest hereon and
Liquidated Damages (if any) semiannually on June 15 and December 15 of each year
commencing December 15, 1997. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid or provided for, from June 13, 1997. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. The Issuers shall pay interest on
overdue principal at the rate borne by the Securities plus 1% per annum, and it
shall pay interest on overdue installments of cash interest at such higher rate
to the extent lawful.
2. Method of Payment
The Issuers will pay interest and Liquidated Damages (if any)
on the Securities (except defaulted interest) to the Persons who are registered
holders of
<PAGE> 90
4
Securities at the close of business on the June 1 or December 1 next preceding
the interest payment date even if Securities are canceled after the record date
and on or before the interest payment date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Issuers will pay principal and
interest and Liquidated Damages (if any) in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
Payments in respect of Securities (including principal, premium, interest and
Liquidated Damages (if any) will be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no U.S.
dollar account maintained by the payee with a bank in the United States is
designated by any holder to the Trustee or the Paying Agent at least 30 days
prior to the relevant due date for payment (or such other date as the Trustee
may accept in its discretion), by mailing a check to the registered address of
such holder.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Issuers may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Issuers or any of their domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Issuers issued the Securities under an Indenture dated as
of June 1, 1997 ("Indenture"), between the Issuers and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are unsecured senior obligations of the Issuers
limited to $350,000,000 aggregate principal amount (subject to Section 2.07 of
the Indenture). The Indenture contains certain covenants which, among other
things, limit (a) the incurrence of additional debt by the Issuers and certain
of its subsidiaries and the issuance of capital stock by such subsidiaries, (b)
the payment of dividends on capital stock of certain subsidiaries and the
<PAGE> 91
5
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (c) certain investments, (d) certain transactions with affiliates,
(e) the incurrence of liens, (f) sales of assets, including capital stock of
subsidiaries, (g) certain consolidations and mergers, (h) the Issuers' and
certain of their subsidiaries' lines of business and (i) the Issuers' ability to
operate without certain insurance coverage. The Indenture also will prohibit
certain restrictions on distributions from subsidiaries. In addition, the
Issuers may be obligated, under certain circumstances, to offer to repurchase
Securities at a purchase price equal to 101% of the principal amount of the
Securities plus accrued and unpaid interest and Liquidated Damages (if any) to
the date of repurchase.
5. Optional Redemption
The Securities may not be redeemed prior to June 15, 2002. On
and after that date, the Issuers may redeem the Securities in whole or in part,
at any time or from time to time at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest and
Liquidated Damages (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest and Liquidated
Damages (if any) due on the related interest payment date):
If redeemed during the 12-month period commencing June 15 of
the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2002................................................................ 105.625%
2003................................................................ 102.813%
</TABLE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest and Liquidated Damages (if any) on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date
<PAGE> 92
6
interest ceases to accrue on such Securities (or such portions thereof) called
for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Issuers to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount of
the Securities plus accrued and unpaid interest and Liquidated Damages (if any)
to be repurchased (subject to the right of holders of record on the relevant
record date to receive interest and Liquidated Damages (if any) due on the
relevant interest payment date) as provided in, and subject to the terms of, the
Indenture.
8. Guarantees
This Security may be jointly and severally guaranteed by
certain Subsidiaries of the Issuers to the extent provided in the Indenture. The
Issuers have covenanted pursuant to the Indenture to cause any Subsidiary
created or acquired after the date of the Indenture (unless such Subsidiary is a
Transitory Equipment Subsidiary or is an Unrestricted Subsidiary), to execute
and deliver to the Trustee a Subsidiary Guaranty pursuant to which such
Subsidiary will guaranty this Security on the same terms and conditions as those
set forth in the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
<PAGE> 93
7
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Issuers and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Issuers at any time may
terminate some or all of their obligations under the Securities and the
Indenture if the Issuers deposit with the Trustee money or U.S. Government
Obligations for the payment of principal and interest and Liquidated Damages (if
any) on the Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Issuers and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of Globalstar under the Indenture, to provide for uncertificated
Securities in addition to or in place of certificated Securities, to add
guarantees with respect to the Securities, to release such guarantees, to secure
the Securities, to add to the covenants of the Issuers for the benefit of the
Holders of the Securities or to surrender any right or power conferred upon the
Issuers, to make any change that does not adversely affect the rights of any
Holder of the Securities or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the Trust Indenture
Act.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest or Liquidated Damages (if any) on the Securities;
(ii) default in payment
<PAGE> 94
8
of principal on the Securities, upon redemption pursuant to paragraph 5 of the
Securities, upon required repurchase upon declaration or otherwise, or failure
by the Issuers to redeem or purchase Securities when required; (iii) failure by
the Issuers to comply with other agreements in the Indenture or the Securities,
in certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Debt of the Issuers if the amount accelerated (or so unpaid) exceeds $10
million; (v) certain events of bankruptcy or insolvency with respect to the
Issuers and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $10 million, subject to lapse of time and
notice; and (vii) certain events with respect to the guarantees of the Issuers'
obligations under the Securities by certain of their subsidiaries. However, a
default under clauses (iii) and (vi) will not constitute an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities outstanding notify the Issuers of the default and the Issuers do not
cure such default within the time specified after receipt of such notice. If an
Event of Default occurs and is continuing, the Trustees or the Holders of at
least 25% in principal amount of the Securities outstanding may declare the
principal of and all accrued but unpaid interest and Liquidated Damages (if any)
on all the Securities to be due and payable immediately. Certain events of
bankruptcy, insolvency or reorganization are Events of Default which will result
in the Securities being due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may with hold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest or Liquidated
Damages (if any)) if it determines that withholding notice is in the interest of
the Holders.
15. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the Issuers or their
<PAGE> 95
9
Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
Any past, present or future director, officer, partner
(including general partners), employee, incorporator or stockholder, as such, of
the Issuers or the Trustee shall not have any liability for any obligations of
the Issuers under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
<PAGE> 96
10
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Issuers have caused CUSIP
numbers to be printed on the Securities and have directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Issuers to the extent provided
therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE ISSUERS WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE.
REQUESTS MAY BE MADE TO:
GLOBALSTAR, L.P.
3200 ZANKER ROAD
BOX 640670
SAN JOSE, CA 95164-0670
ATTENTION OF STEPHEN C. WRIGHT
- --------------------------------------------------------------------------------
<PAGE> 97
11
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of Globalstar. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: ________________ Your Signature: _____________________
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 98
12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Issuers pursuant to Section 4.07 or 4.10 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this
Security purchased by the Issuers pursuant to Section 4.07 or 4.10 of the
Indenture, state the amount:
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
[Signature must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved guarantee
medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15]
<PAGE> 99
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED
IN RULE 501(A)(1), (2), (3) OR (7)) AND TO CERTAIN
PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions. For the purposes of this Appendix the following terms
shall have the meanings indicated below:
"Definitive Security" means a certificated Initial Security
bearing the restricted securities legend set forth in Section 2.3(d) and which
is held by an IAI in accordance with Section 2.1(c).
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Securities" means the 11 1/4% Senior Notes due 2004
to be issued pursuant to this Indenture in connection with a Registered Exchange
Offer pursuant to the Registration Rights Agreement.
"IAI" means an institutional "accredited investor" as
described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc.
"Initial Securities" means the 11 1/4% Senior Notes due 2004,
issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Issuers, pursuant to
the Registration Rights Agreement, to the Initial Purchasers to issue and
deliver to the Initial Purchasers in exchange for the Initial Securities held by
the Initial Purchasers as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Private Exchange Securities" means the 11 1/4% Senior Notes
due 2004 to be issued pursuant to this Indenture to the Initial Purchasers in a
Private Exchange.
<PAGE> 100
2
"Purchase Agreement" means the Purchase Agreement dated June
10, 1997, among the Issuers and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Issuers,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Securities, to issue and deliver to such Holders, in exchange for the Initial
Securities, a like aggregate principal amount of Exchange Securities registered
under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated June 13, 1997, among the Issuers and the Initial Purchasers.
"Securities" means the Initial Securities, the Exchange
Securities and the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depositary), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration
statement issued by the Issuers, in connection with the offer and sale of
Initial Securities or Private Exchange Securities, pursuant to the Registration
Rights Agreement.
"Transfer Restricted Securities" means Definitive Securities
and Securities that bear or are required to bear the legend set forth in Section
2.3(d) hereto.
1.2 Other Definitions
Defined in
Term Section:
---- --------
"Agent Members"...........................................................2.1(b)
"Global Security".........................................................2.1(a)
"Regulation S"............................................................2.1(a)
"Rule 144A"...............................................................2.1(a)
<PAGE> 101
3
2. The Securities
2.1 Form and Dating. The Initial Securities are being offered and sold
by the Issuers pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to
a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in
reliance on Regulation S under the Securities Act ("Regulation S"), in each case
as provided in the Purchase Agreement, shall be issued initially in the form of
one or more permanent global Securities in definitive, fully registered form
without interest coupons with the global securities legend and restricted
securities legend set forth in Exhibit 1 hereto (each, a "Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary (or with such other custodian as the Depositary may direct), and
registered in the name of the Depositary or a nominee of the Depositary, duly
executed by the Issuers and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depositary.
The Issuers shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Issuers, the Trustee and any agent of the Issuers or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Issuers, the Trustee or any agent of the Issuers or the Trustee from giving
effect to any written certification, proxy or other
<PAGE> 102
4
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices of such Depositary
governing the exercise of the rights of a holder of a beneficial interest in any
Global Security.
(c) Certificated Securities. Except as provided in this
Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global
Securities will not be entitled to receive physical delivery of certificated
Securities. Purchasers of Initial Securities who are IAIs and are not QIBs and
did not purchase Initial Securities sold in reliance on Regulation S will
receive Definitive Securities; provided, however, that upon transfer of such
Definitive Securities to a QIB, such Definitive Securities will, unless the
Global Security has previously been exchanged, be exchanged for an interest in a
Global Security pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount of
$350,000,000 and (2) Exchange Securities or Private Exchange Securities for
issue only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount of
Initial Securities, in each case upon a written order of the Company signed by
two Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of each of the Issuers. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Securities, Exchange Securities or Private Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$350,000,000 except as provided in Section 2.07 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Securities. When Definitive Securities are presented to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive Securities;
or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
<PAGE> 103
5
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Issuers
and the Registrar or co-registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing; and
(ii) are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act, pursuant to
Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are
accompanied by the following additional information and documents, as
applicable:
(A) if such Definitive Securities are being delivered
to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (in the form set forth on the reverse of
the Security); or
(B) if such Definitive Securities are being
transferred to either of the Issuers, a certification to that
effect (in the form set forth on the reverse of the Security);
or
(C) if such Definitive Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144; or (x) in reliance on another
exemption from the registration requirements of the Securities
Act: (i) a certification to that effect (in the form set forth
on the reverse of the Security) and (ii) if the Issuers or
Registrar so requests, an opinion of counsel or other evidence
reasonably satisfactory to them as to the compliance with the
restrictions set forth in the legend set forth in Section
2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred (A) to a
QIB in accordance with Rule 144A, or (B) outside the United States in
an offshore transaction within the meaning of Regulation S
<PAGE> 104
6
and in compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books and
records with respect to such Global Security to reflect an increase in
the aggregate principal amount of the Securities represented by the
Global Security, such instructions to contain information regarding the
Depositary account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so cancelled. If no
Global Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate aggregate
principal amount.
(c) Transfer and Exchange of Global Securities. (i) The
transfer and exchange of Global Securities or beneficial interests therein shall
be effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depositary therefor. A transferor of a beneficial interest in a Global
Security shall deliver to the Registrar a written order given in accordance with
the Depositary's procedures containing information regarding the participant
account of the Depositary to be credited with a beneficial interest in the
Global Security. The Registrar shall, in accordance with such instructions,
instruct the Depositary to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Security and to debit the
account of the Person making the transfer of the beneficial interest in the
Global Security being transferred.
(ii) Notwithstanding any other provisions of this Rule
144A/Regulation S Appendix (other than the provisions set forth in
Section 2.4), a Global Security may not be transferred as a whole
except by the Depositary to a nominee of the Depositary or by a nominee
<PAGE> 105
7
of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 or
Section 2.09 of the Indenture prior to the consummation of a Registered
Exchange Offer or the effectiveness of a Shelf Registration Statement
with respect to such Securities, such Securities may be exchanged only
in accordance with such procedures as are substantially consistent with
the provisions of this Section 2.3 (including the certification
requirements set forth on the reverse of the Initial Securities
intended to ensure that such transfers comply with Rule 144A or
Regulation S, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(d) Legends.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Global
Securities and the Definitive Securities (and all Securities issued in
exchange therefor or in substitution thereof) shall bear a legend in
substantially the following form:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED WITHIN THE "UNITED STATES" OR TO
"U.S. PERSONS" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS,
ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE ISSUERS THAT:
(I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE
WHEN THIS SECURITY NO LONGER CONSTITUTES A "RESTRICTED"
SECURITY UNDER RULE 144(K) OF THE SECURITIES ACT EXCEPT (A) TO
<PAGE> 106
8
EITHER OF THE ISSUERS, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) OUTSIDE
THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT
OF THIS SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II)
ABOVE. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE
FOREGOING CLAUSES (II)(D) AND (E) IS SUBJECT TO THE RIGHT OF
THE ISSUERS OF THIS SECURITY AND THE TRUSTEE OR TRANSFER AGENT
FOR SUCH SECURITIES TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO
THEM IN FORM AND SUBSTANCE. [THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.]
BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED
IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a certificated Security that does not bear the legend set
forth above and rescind any restriction on the transfer of
such Transfer Restricted Security; and
<PAGE> 107
9
(B) in the case of any Transfer Restricted Security
that is represented by a Global Security, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder
certifies in writing to the Registrar that its request for
such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of
the Security).
(iii) After a transfer of any Initial Securities or Private
Exchange Securities during the period of the effectiveness of a Shelf
Registration Statement with respect to such Initial Securities or
Private Exchange Securities, as the case may be, all requirements
pertaining to legends on such Initial Security or such Private Exchange
Security will cease to apply, the requirements requiring any such
Initial Security or such Private Exchange Security issued to certain
Holders to be issued in global form will cease to apply, and a
certificated Initial Security or Private Exchange Security without
legends will be available to the transferee of the Holder of such
Initial Securities or Private Exchange Securities upon exchange of such
transferring Holder's certificated Initial Security or Private Exchange
Security or directions to transfer such Holder's interest in the Global
Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such
Initial Securities are offered Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will cease to apply and certificated Initial Securities
with the Restricted Securities Legend set forth in Exhibit 1 hereto
will be available to Holders of such Initial Securities that do not
exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders that exchange
such Initial Securities in such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Private Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain
<PAGE> 108
10
Holders be issued in global form will still apply, and Private Exchange
Securities in global form with the Restricted Securities Legend set
forth in Exhibit 1 hereto will be available to Holders that exchange
such Initial Securities in such Private Exchange.
(e) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated or Definitive Securities, redeemed, repurchased or canceled,
such Global Security shall be returned to the Depositary for cancellation or
retained and canceled by the Trustee. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate certificated
Securities, Definitive Securities and Global Securities at the
Registrar's or
co-registrar's request.
(ii)No service charge shall be made for any registration of
transfer or exchange, but the Issuers may require payment of a sum
sufficient to cover any transfer tax, assessments or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge payable
upon exchange or transfer pursuant to Sections 3.06, 4.10 and 9.05 of
the Indenture).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated or
Definitive Security selected for redemption in whole or in part
pursuant to Article 3 of this Indenture, except the unredeemed portion
of any certificated or Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Securities or
15 Business Days before an interest payment date.
<PAGE> 109
11
(iv) Prior to the due presentation for registration of
transfer of any Security, the Issuers, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Issuers, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of or a participant
in the Depositary or other Person with respect to the accuracy of the
records of the Depositary or its nominee or of any participant or
member thereof with respect to any ownership interest in the Securities
or with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount under
or with respect to such Securities. All notices and communications to
be given to the Holders and all payments to be made to Holders under
the Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any
Global Security shall be exercised only through the Depositary subject
to the applicable rules and procedures of the Depositary. The Trustee
may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers
between or among Depositary participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or
<PAGE> 110
12
evidence as are expressly required by, and to do so if and when
expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Issuers
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Issuers within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Issuers, in their sole discretion,
notify the Trustee in writing that they elect to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee located in the Borough of Manhattan, The City of New York, to be
so transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 principal amount and any integral
multiple thereof and registered in such names as the Depositary shall direct.
Any certificated Initial Security delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.3(d), bear the
Restricted Securities Legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
<PAGE> 111
13
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Issuers will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE> 112
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE ISSUERS OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS"
(AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS,
ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE ISSUERS THAT: (I) IT HAS ACQUIRED
A "RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT;
(II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE
DATE WHEN THIS SECURITY NO LONGER CONSTITUTES A "RESTRICTED" SECURITY UNDER RULE
144(K) OF THE SECURITIES ACT EXCEPT (A) TO EITHER OF THE ISSUERS, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
<PAGE> 113
2
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) OUTSIDE THE UNITED STATES
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE
JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE RESTRICTIONS SET
FORTH IN (II) ABOVE. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE
FOREGOING CLAUSES (II)(D) AND (E) IS SUBJECT TO THE RIGHT OF THE ISSUERS OF THIS
SECURITY AND THE TRUSTEE OR TRANSFER AGENT FOR SUCH SECURITIES TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION
ACCEPTABLE TO THEM IN FORM AND SUBSTANCE. [THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.]
BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION
S.
<PAGE> 114
3
No. $
CUSIP:
11 1/4% Senior Notes due 2004
Globalstar, L.P., a Delaware limited partnership and Globalstar Capital
Corporation, a Delaware corporation, promise to pay to , or registered assigns,
the principal sum of Dollars on June 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on the
other side of this Security.
GLOBALSTAR, L.P., by
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its managing
general partner, by
LORAL/QUALCOMM PARTNERSHIP, L.P.
its general partner, by LORAL
GENERAL PARTNER, INC. its
general partner,
by _______________________________
Vice President
_______________________________
Secretary
GLOBALSTAR CAPITAL CORPORATION
by _______________________________
Vice President
_______________________________
Secretary
<PAGE> 115
4
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Securities
referred to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE> 116
5
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11 1/4% Senior Note due 2004
1. Interest and Liquidated Damages
Globalstar, L.P., a Delaware limited partnership and
Globalstar Capital Corporation, a Delaware corporation (such limited partnership
and such corporation, and their successors and assigns under the Indenture
hereinafter referred to, being herein called the "Issuers"), promise to pay
interest on the principal amount of this Security at the rate per annum shown
above; provided, however, that if a Registration Default (as defined in the
Registration Rights Agreement) occurs, Liquidated Damages (as defined in the
Registration Rights Agreement) shall accrue on this Security in an amount equal
to $.05 per week per $1,000 principal amount of Securities held by each Holder
(over and above the interest set forth in the title of this Security) from and
including the date on which any such Registration Default shall occur until the
earlier of (i) the date on which all such Registration Defaults have been cured
or (ii) the date which is 90 days after the date such Registration Default
occurred. The Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of the Securities held by each Holder during each
subsequent 90-day period until the date on which all such Registration Defaults
have been cured; provided, however, that the aggregate amount of Liquidated
Damages shall not exceed a maximum of $.50 per week per $1,000 principal amount
of the Securities held by each Holder. The Issuers will pay interest hereon and
Liquidated Damages (if any) semiannually on June 15 and December 15 of each year
commencing December 15, 1997. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid or provided for, from June 13, 1997. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. The Issuers shall pay interest on
overdue principal at the rate borne by the Securities plus 1% per annum, and it
shall pay interest on overdue installments of cash interest at such higher rate
to the extent lawful.
2. Method of Payment
The Issuers will pay interest and Liquidated Damages (if any)
on the Securities (except defaulted interest) to the Persons who are registered
holders of
<PAGE> 117
6
Securities at the close of business on the February 1 or August 1 next preceding
the interest payment date even if Securities are canceled after the record date
and on or before the interest payment date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Issuers will pay principal and
interest and Liquidated Damages (if any) in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
Payments in respect of Securities (including principal, premium, interest and
Liquidated Damages (if any)) will be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no U.S.
dollar account maintained by the payee with a bank in the United States is
designated by any holder to the Trustee or the Paying Agent at least 30 days
prior to the relevant due date for payment (or such other date as the Trustee
may accept in its discretion), by mailing a check to the registered address of
such holder.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Issuers may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Issuers or any of their domestically incorporated Wholly-Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Issuers issued the Securities under an Indenture dated as
of February 15, 1997 ("Indenture"), between the Issuers and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are unsecured senior obligations of the Issuers
limited to $350,000,000 aggregate principal amount (subject to Section 2.07 of
the Indenture). The Indenture contains certain covenants which, among other
things, limit (a) the incurrence of additional debt by the Issuers and certain
of its subsidiaries and the issuance of capital stock by such subsidiaries, (b)
the payment of dividends on capital stock of certain subsidiaries and the
<PAGE> 118
7
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (c) certain investments, (d) certain transactions with affiliates,
(e) the incurrence of liens, (f) sales of assets, including capital stock of
subsidiaries, (g) certain consolidations and mergers, (h) the Issuers' and
certain of their subsidiaries' lines of business and (i) the Issuers' ability to
operate without certain insurance coverage. The Indenture also will prohibit
certain restrictions on distributions from subsidiaries. In addition, the
Issuers may be obligated, under certain circumstances, to offer to repurchase
Securities at a purchase price equal to 101% of the principal amount of the
Securities plus accrued and unpaid interest and Liquidated Damages (if any) to
the date of repurchase.
5. Optional Redemption
The Securities may not be redeemed prior to June 15, 2002. On
and after that date, the Issuers may redeem the Securities in whole or in part,
at any time or from time to time at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest and
Liquidated Damages (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest and Liquidated
Damages (if any) due on the related interest payment date):
if redeemed during the 12-month period commencing
June 15 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2002............................................................... 105.625%
2003............................................................... 102.813%
</TABLE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest and Liquidated Damages (if any) on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date
<PAGE> 119
8
interest ceases to accrue on such Securities (or such portions thereof) called
for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Issuers to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount of
the Securities plus accrued and unpaid interest and Liquidated Damages (if any)
to be repurchased (subject to the right of holders of record on the relevant
record date to receive interest and Liquidated Damages (if any) due on the
relevant interest payment date) as provided in, and subject to the terms of, the
Indenture.
8. Guarantees
This Security may be jointly and severally guaranteed by
certain Subsidiaries of the Issuers to the extent provided in the Indenture. The
Issuers have covenanted pursuant to the Indenture to cause any Subsidiary
created or acquired after the date of the Indenture (unless such Subsidiary is a
Transitory Equipment Subsidiary or is an Unrestricted Subsidiary), to execute
and deliver to the Trustee a Subsidiary Guaranty pursuant to which such
Subsidiary will guaranty this Security on the same terms and conditions as those
set forth in the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
<PAGE> 120
9
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Issuers and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Issuers at any time may
terminate some or all of their obligations under the Securities and the
Indenture if the Issuers deposit with the Trustee money or U.S. Government
Obligations for the payment of principal and interest and Liquidated Damages (if
any) on the Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Issuers and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of Globalstar under the Indenture, to provide for uncertificated
Securities in addition to or in place of certificated Securities, to add
guarantees with respect to the Securities, to release such guarantees, to secure
the Securities, to add to the covenants of the Issuers for the benefit of the
Holders of the Securities or to surrender any right or power conferred upon the
Issuers, to make any change that does not adversely affect the rights of any
Holder of the Securities or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the Trust Indenture
Act.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest or Liquidated Damages (if any) on the Securities;
(ii) default in payment
<PAGE> 121
10
of principal on the Securities, upon redemption pursuant to paragraph 5 of the
Securities, upon required repurchase upon declaration or otherwise, or failure
by the Issuers to redeem or purchase Securities when required; (iii) failure by
the Issuers to comply with other agreements in the Indenture or the Securities,
in certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Debt of the Issuers if the amount accelerated (or so unpaid) exceeds $10
million; (v) certain events of bankruptcy or insolvency with respect to the
Issuers and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $10 million, subject to lapse of time and
notice; and (vii) certain events with respect to the guarantees of the Issuers'
obligations under the Securities by certain of their subsidiaries. However, a
default under clauses (iii) and (vi) will not constitute an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities outstanding notify the Issuers of the default and the Issuers do not
cure such default within the time specified after receipt of such notice. If an
Event of Default occurs and is continuing, the Trustees or the Holders of at
least 25% in principal amount of the Securities outstanding may declare the
principal of and all accrued but unpaid interest and Liquidated Damages (if any)
on all the Securities to be due and payable immediately. Certain events of
bankruptcy, insolvency or reorganization are Events of Default which will result
in the Securities being due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may with hold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest or Liquidated
Damages (if any)) if it determines that withholding notice is in the interest of
the Holders.
15. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the Issuers or their
<PAGE> 122
11
Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
Any past, present or future director, officer, partner
(including general partners), employee, incorporator or stockholder, as such, of
the Issuers or the Trustee shall not have any liability for any obligations of
the Issuers under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TENENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
<PAGE> 123
12
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Issuers have caused CUSIP
numbers to be printed on the Securities and have directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Issuers to the extent provided
therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
THE ISSUERS WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITY HOLDER A COPY OF THE INDENTURE.
REQUESTS MAY BE MADE TO:
GLOBALSTAR, L.P.
3200 ZANKER ROAD
BOX 640670
SAN JOSE, CA 95164-0670
ATTENTION OF: STEPHEN C. WRIGHT
- --------------------------------------------------------------------------------
<PAGE> 124
13
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of Globalstar. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: ________________ Your Signature: _________________________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE> 125
14
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by either of the Issuers or any Affiliate of either of the Issuers, the
undersigned confirms that such Securities are being transferred in accordance
with its terms:
CHECK ONE BOX BELOW
(1) [] to either of the Issuers; or
(2) [] pursuant to an effective registration
statement under the Securities Act of 1933;
or
(3) [] inside the United States to a "qualified
institutional buyer" (as defined in Rule 144A
under the Securities Act of 1933) that
purchases for its own account or for the
account of a qualified institutional buyer to
whom notice is given that such transfer is
being made in reliance on Rule 144A, in each
case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933;
or
(4) [] outside the United States in an offshore
transaction within the meaning of Regulation S under
the Securities Act in compliance with Rule 904 under
the Securities Act of 1933; or
(5) [] pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however,
that if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Issuers have reasonably
requested to confirm that such transfer is being made
<PAGE> 126
15
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act.
_____________________________
Signature
Signature Guarantee:
_____________________ _____________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Issuers as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE> 127
16
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized
Amount of this Amount of this Security following signatory of
Global Security Global Security such decrease or Trustee or
increase Securities
Custodian
</TABLE>
<PAGE> 128
17
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased
by any of the Issuers pursuant to Section 4.07 or 4.10 of the
Indenture, check the box:
[ ]
If you want to elect to have only part of this Security
purchased by any of the pursuant to Section 4.07 or 4.10 of the Indenture, state
the amount in principal amount: $
Date: _______________ Your Signature: ____________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee: _______________________________________
[Signature must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved guarantee
medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15]
<PAGE> 1
EXECUTION COPY
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
Up to $350,000,000
11 1/4% Senior Notes due 2004
REGISTRATION RIGHTS AGREEMENT
June 13, 1997
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Lehman Brothers Inc.
In care of Bear, Stearns & Co. Inc.
As Representative of the
Several Initial Purchasers
245 Park Avenue
New York, New York 10l67
Ladies and Gentlemen:
Globalstar, L.P., a Delaware limited partnership
("Globalstar"), and Globalstar Capital Corporation, a Delaware corporation
("Globalstar Capital" and, together with Globalstar, the "Issuers"), propose,
subject to the terms and conditions stated in a purchase agreement dated June
10, 1997 (the "Purchase Agreement"), to jointly and severally issue and sell to
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Lehman Brothers Inc. (collectively, the "Initial Purchasers") $325,000,000
aggregate principal amount of 11 1/4% Senior Notes due 2004 (together with up to
$25,000,000 aggregate principal amount of such Senior Notes issued to the
Initial Purchasers pursuant to the Option (as defined in the Purchase
Agreement), collectively, the "Notes"). The Notes will be issued pursuant to an
indenture dated as of June 1, 1997 (the "Indenture"), among the Issuers and The
Bank of New York, as trustee (the "Trustee"). This Agreement will have no force
and effect
<PAGE> 2
2
until the Notes are issued. As an inducement to the Initial Purchasers, the
Issuers hereby agree with the several Initial Purchasers, for the benefit of the
holders of the Notes (including, without limitation, the Initial Purchasers),
the Exchange Notes (as defined below) and the Private Exchange Notes (as defined
below) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Issuers shall, at their cost
and expense, prepare and, not later than 60 days after (or if the 60th day is
not a business day, the first business day thereafter) the Issue Date (as
defined in the Indenture) of the Notes, file with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Exchange Offer
Registration Statement") on an appropriate form under the Securities Act of
1933, as amended (the "Securities Act"), with respect to a proposed offer (the
"Registered Exchange Offer") to the Holders of Transfer Restricted Notes (as
defined in Section 6(e)), who are not prohibited by any law or policy of the
Commission from participating in the Registered Exchange Offer, to issue and
deliver to such Holders, in exchange for the Notes, a like aggregate principal
amount of debt securities (the "Exchange Notes") of the Issuers issued under the
Indenture and identical in all material respects to the Notes (except for the
transfer restrictions relating to the Notes) that would be registered under the
Securities Act. The Issuers shall use reasonable efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act within
150 days (or if the 150th day is not a business day, the first business day
thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer if
required by applicable law or the policy of the Commission) after the date on
which notice of the Registered Exchange Offer is mailed to the Holders (such
period being called the "Exchange Offer Registration Period").
If the Issuers effect the Registered Exchange Offer, the
Issuers will be entitled to close the Registered
<PAGE> 3
3
Exchange Offer 30 days after the commencement thereof; provided, however, that
the Issuers have accepted all the Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange
Offer Registration Statement, unless the Registered Exchange Offer would not be
permitted by applicable law or the Commission's policy, the Issuers shall
promptly commence the Registered Exchange Offer, it being the objective of such
Registered Exchange Offer to enable each Holder of Transfer Restricted Notes
electing to exchange the Notes for Exchange Notes (assuming that such Holder is
not an affiliate of either of the Issuers within the meaning of the Securities
Act, acquires the Exchange Notes in the ordinary course of such Holder's
business, has no arrangements with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes and is not
prohibited by any law or policy of the Commission from participating in the
Registered Exchange Offer) to trade such Exchange Notes from and after their
receipt without any limitations or restrictions under the Securities Act and
without material restrictions under the securities laws of the several states of
the United States. In connection with such Registered Exchange Offer, the
Issuers shall take all such reasonable further action, including, without
limitation, appropriate filings under state securities laws, as may be necessary
to realize the foregoing objective subject to the proviso of Section 3(h).
The Issuers and the Initial Purchasers acknowledge that the
foregoing statement of the objective of the Registered Exchange Offer is based
upon current interpretations by the staff of the Commission's Division of
Corporation Finance, which interpretations are subject to change without notice,
and further acknowledge that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder that is a broker-dealer electing
to exchange Notes, acquired for its own account as a result of market making
activities or other
<PAGE> 4
4
trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to
deliver a prospectus containing the information set forth in Annex A hereto on
the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section, and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Notes received by such Exchanging Dealer pursuant to the Registered
Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Notes
acquired in exchange for Notes constituting any portion of an unsold allotment
is required to deliver a prospectus containing the information required by Items
507 or 508 of Regulation S-K under the Securities Act, as applicable, in
connection with such sale.
The Issuers shall use their reasonable efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Notes; provided, however, that (i)
in the case where such prospectus and any amendment or supplement thereto must
be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall
be the lesser of 180 days after the expiration date of the Registered Exchange
Offer and the date on which all Exchanging Dealers and the Initial Purchasers
have sold all Exchange Notes held by them (unless such period is extended
pursuant to Section 3(j) below), and (ii) the Issuers shall make such prospectus
and any amendment or supplement thereto available to any broker-dealer for use
in connection with any resale of any Exchange Notes for a period not less than
90 days after the consummation of the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any
Initial Purchaser holds Transfer Restricted Notes acquired by it as part of its
initial distribution, the Issuers, simultaneously with the delivery of the
Exchange Notes pursuant to the Registered Exchange Offer, shall issue and
deliver to such Initial Purchaser upon the written
<PAGE> 5
5
request of such Initial Purchaser, in exchange (the "Private Exchange") for the
Transfer Restricted Notes held by such Initial Purchaser, a like principal
amount of debt securities of the Issuers issued under the Indenture and
identical in all material respects (including the existence of restrictions on
transfer under the Securities Act and the securities laws of the several states
of the United States) to the Transfer Restricted Notes (the "Private Exchange
Notes"); provided, however, that the Issuers shall not be required to effect
such exchange if, in the opinion of counsel to the Issuers, such exchange cannot
be effected without registration under the Securities Act. The Private Exchange
Notes shall bear the same CUSIP number as the Exchange Notes. The Transfer
Restricted Notes, the Exchange Notes and the Private Exchange Notes are herein
collectively called the "Securities".
In connection with the Registered Exchange Offer, the Issuers
shall:
(a) mail, or cause to be mailed, to each Holder a copy of the
prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related
documents;
(b) keep the Registered Exchange Offer open for not less than
30 calendar days (or longer, if required by applicable law or policy of
the Commission) after the date notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Transfer Restricted
Notes at any time prior to the close of business, New York time, on the
last Business Day (as defined in the Indenture) on which the Registered
Exchange Offer shall remain open; and
<PAGE> 6
6
(e) otherwise comply in all material respects with
all applicable law.
As soon as practicable after the close of the Registered
Exchange Offer or the Private Exchange, as the case may be, the Issuers shall:
(i) accept for exchange all the Transfer Restricted Notes
validly tendered and not validly withdrawn pursuant to the Registered
Exchange Offer or the Private Exchange, as the case may be;
(ii) deliver, or cause to be delivered to, the
Trustee for cancellation all the Transfer Restricted
Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and promptly deliver
to each Holder of the Transfer Restricted Notes, Exchange Notes or
Private Exchange Notes, as the case may be, equal in principal amount
to the Transfer Restricted Notes of each Holder so accepted for
exchange.
The Exchange Notes and the Private Exchange Notes may be
issued under the Indenture, which will provide that the Exchange Notes will not
be subject to the transfer restrictions set forth in the Indenture and that all
the Securities will vote and consent together on all matters as one class and
that none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on the Exchange Notes and the Private Exchange Notes
will accrue from (A) the later of (i) the last interest payment date on which
interest was paid on the Securities surrendered in the exchange therefor or (ii)
if the Securities are surrendered for exchange on a date in a period which
includes the record date for an interest payment date to occur on or after the
date of such exchange and as to which interest will be paid, the date of such
interest payment date or (B) if no interest has been paid on
<PAGE> 7
7
such Securities, from the date of original issue of the Securities.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Notes received by
such Holder will be acquired in the ordinary course of business, (ii) such
Holder will have no arrangements or understanding with any person to participate
in the distribution of the Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such Holder is not an "affiliate", as defined in Rule 405
of the Securities Act, of either of the Issuers or, if it is an affiliate, such
Holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Notes
that were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Notwithstanding any other provisions hereof, the Issuers will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto will
comply in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
<PAGE> 8
8
provided, however, that in no such case shall the Issuers be responsible for
information concerning any Initial Purchaser of the Securities included in the
Exchange Offer Registration Statement, the prospectus contained therein, or any
amendment or supplement thereto, as the case may be.
2. Shelf Registration. If (i) because of any change in law or
Commission policy or in applicable interpretations thereof by the staff of the
Commission, the Issuers are not permitted to effect a Registered Exchange Offer,
as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not
consummated within 180 days of the Issue Date, (iii) the Initial Purchaser so
requests within 90 days after the consummation of the Registered Exchange Offer
with respect to the Transfer Restricted Notes (or the Private Exchange Notes)
not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer
and held by it following consummation of the Registered Exchange Offer or (iv)
any Holder (other than an Exchanging Dealer) is not eligible to participate in
the Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) that participates in the Registered Exchange Offer, such
Holder does not receive freely tradeable Exchange Notes on the date of the
exchange, the Issuers shall take the following actions:
(a) The Issuers shall, at their cost, use reasonable efforts
to file, as promptly as practicable (but in no event later than the
earlier of (i) 150 days after the Issue Date and (ii) 60 days after so
required or requested pursuant to this Section 2 with the Commission
and shall thereafter use their reasonable efforts to cause to be
declared effective a registration statement (the "Shelf Registration
Statement" and, together with the Exchange Offer Registration
Statement, a "Registration Statement") on an appropriate form under the
Securities Act relating to the offer and sale of the Transfer
Restricted Notes by the Holders thereof from time to time in accordance
with the methods of distribution set forth in the Shelf Registration
Statement and Rule 415 under the Securities Act (hereinafter, the
"Shelf Registration");
<PAGE> 9
9
provided, however, that no Holder (other than an Initial Purchaser)
shall be entitled to have the Securities held by it covered by such
Shelf Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such Holder
(including certain indemnification obligations).
(b) The Issuers shall use their reasonable efforts to keep the
Shelf Registration Statement continuously effective in order to permit
the prospectus included therein to be lawfully delivered by the Holders
of the relevant Securities, until the principal of, and interest and
Liquidated Damages (if any) on, the Securities have been paid in full
or such shorter period that will terminate when all the Securities
covered by the Shelf Registration Statement (i) have been sold pursuant
thereto or (ii) are distributed to the public pursuant to Rule 144
under the Securities Act or are saleable pursuant to Rule 144(k) under
the Securities Act (in any such case, such period being called the
"Shelf Registration Period"). Subject to Section 6(b), the Issuers
shall be deemed not to have used their reasonable efforts to keep the
Shelf Registration Statement effective during the requisite period if
either of the Issuers voluntarily takes any action that would result in
Holders of Securities covered thereby not being able to offer and sell
such Securities during that period, unless such action is required by
applicable law; provided, however, that the Issuers shall not be deemed
to have voluntarily taken any such action if either of the Issuers
enters, in good faith, into negotiations concerning, or executes and
delivers any agreement or other document relating to, any business
combination, acquisition or disposition.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Issuers shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement,
<PAGE> 10
10
(i) to comply in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the Commission and (ii) not to
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, any
Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of each
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and, in the event that an
Initial Purchaser (with respect to any portion of an unsold allotment
from the original offering) is participating in the Registered Exchange
Offer or the Shelf Registration Statement, shall use its reasonable
efforts to reflect in each such document, when so filed with the
Commission, such comments as such Initial Purchaser reasonably may
propose; (ii) include the information set forth in Annex A hereto on
the cover, in Annex B hereto in the "Exchange Offer Procedures" section
and the "Purpose of the Exchange Offer" section and in Annex C hereto
in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; (iii) if requested
by an Initial Purchaser, include the information required by Items 507
or 508 of Regulation S-K under the Securities Act, as applicable, in
the prospectus forming a part of the Exchange Offer Registration
Statement; (iv) include within the prospectus contained in the Exchange
Offer Registration Statement a section entitled "Plan of Distribution",
reasonably acceptable to the Initial
<PAGE> 11
11
Purchasers, which shall contain a summary statement of the positions
taken or policies made by the staff of the Commission with respect to
the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange
Notes received by such broker-dealer in the Registered Exchange Offer
(a "Exchanging Dealer"), whether such positions or policies have been
publicly disseminated by the staff of the Commission or such positions
or policies, in the reasonable judgment of the Initial Purchasers based
upon advice of counsel (which may be in-house counsel), represent the
prevailing views of the staff of the Commission; and (v) in the case of
a Shelf Registration Statement, include the names of the Holders who
propose to sell Securities pursuant to the Shelf Registration Statement
as selling securityholders.
(b) The Issuers shall give written notice to the Initial
Purchasers and the Holders of the Securities from whom the Issuers have
received prior written notice that it will be a Exchanging Dealer in
the Registered Exchange Offer (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the
use of the prospectus until the requisite changes have been made):
(i) when the Registration Statement or any
amendment thereto has been filed with the Commission and when
the Registration Statement or any post-effective amendment
thereto has become effective;
(ii) of any request by the Commission for
amendments or supplements to the Registration Statement or the
prospectus included therein or for additional information
(provided, however, that with respect to any requests prior to
the effectiveness of the Registration Statement, the Issuers
shall be required to give written notice
<PAGE> 12
12
only to the Initial Purchasers and their counsel, Cravath,
Swaine & Moore);
(iii) of the issuance by the Commission of
any stop order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by either of the Issuers of
any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such
purpose; and
(v) of the happening of any event that requires
the Issuers to make changes in the Registration Statement or
the prospectus in order that the Registration Statement or the
prospectus does not contain an untrue statement of a material
fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(c) The Issuers shall make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of the Registration Statement.
(d) The Issuers shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge,
at least one copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(e) The Issuers shall deliver to each Exchanging Dealer and
each Initial Purchaser, and to any other Holder who so requests,
without charge, at least one copy of the Exchange Offer Registration
Statement and
<PAGE> 13
13
any post-effective amendment thereto, including financial statements
and schedules, and, if any Initial Purchaser or any such Holder
requests, all exhibits thereto (including those incorporated by
reference).
(f) The Issuers shall deliver to each Holder of Securities
included within the coverage of the Shelf Registration, without charge,
as many copies of the prospectus (including each preliminary
prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request.
The Issuers consent, subject to the provisions of this Agreement, to
the use of the prospectus or any amendment or supplement thereto
included in the Shelf Registration Statement by each of the selling
Holders of the Securities in connection with the offering and sale of
the Securities covered by such prospectus, or any such amendment or
supplement.
(g) The Issuers shall deliver to each Initial Purchaser, any
Exchanging Dealer and such other persons required to deliver a
prospectus during the Exchange Offer Registration Period and/or Shelf
Registration Period, as applicable, without charge, as many copies of
the final prospectus included in the Exchange Offer Registration
Statement and any amendment or supplement thereto as such persons may
reasonably request. The Issuers consent, subject to the provisions of
this Agreement, to the use of the prospectus or any amendment or
supplement thereto by any Initial Purchaser, if necessary, any
Exchanging Dealer and such other persons required to deliver a
prospectus following the Registered Exchange Offer in connection with
the offering and sale of the Exchange Notes covered by the prospectus,
or any amendment or supplement thereto, included in such Exchange Offer
Registration Statement, in each case in the form most recently provided
to each party by the Issuers.
(h) Prior to any public offering of the Securities, pursuant
to any Registration Statement, the Issuers shall use their reasonable
efforts to register
<PAGE> 14
14
or qualify or cooperate with the Holders of the Securities included
therein and their respective counsel in connection with the
registration or qualification of the Securities for offer and sale
under the securities or "blue sky" laws of such states of the United
States as any Holder of the Securities reasonably requests in writing
and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Securities
covered by such Registration Statement; provided, however, that none of
the Issuers shall be required to (i) qualify generally to do business
in any jurisdiction where it is not then so qualified, (ii) take any
action which would subject it to general service of process or to
taxation in any jurisdiction where it is not then so subject, (iii)
register or qualify Securities or take any other action under the
securities or "blue sky" laws of any jurisdiction if, in the judgment
of the Board of Directors or such other governing body of the Issuers,
the consequences of such registration, qualification or other action
would be unduly burdensome to the Issuers or (iv) make any changes to
their respective organizational documents or any agreement with their
respective equity holders.
(i) The Issuers shall cooperate with the Holders of the
Securities to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request a
reasonable period of time prior to sales of the Securities pursuant to
such Registration Statement.
(j) Upon the occurrence of any event contemplated by
paragraphs (ii) through (v) of Section 3(b) above during the period for
which the Issuers are required to maintain an effective Registration
Statement, the Issuers shall promptly prepare and file a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus and any other
<PAGE> 15
15
required document so that, as thereafter delivered to Holders of the
Notes or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If the Issuers notify the Initial Purchasers, the Holders
of the Securities and any known Exchanging Dealer in accordance with
paragraphs (ii) through (v) of Section 3(b) above to suspend the use of
the prospectus until the requisite changes to the prospectus have been
made, then the Initial Purchasers, the Holders of the Securities and
any such Exchanging Dealers shall suspend use of such prospectus, and
the period of effectiveness of the Shelf Registration Statement
provided for in Section 2(b) above and the Exchange Offer Registration
Statement provided for in Section 1 above shall each be extended (i) by
the number of days from and including the date of the giving of such
notice to and including the date when the Initial Purchasers, the
Holders of the Securities and any known Exchanging Dealer shall have
received such amended or supplemented prospectus pursuant to this
Section 3(j) or (ii) if earlier, until the date when none of the
Securities represent Transfer Restricted Notes (as defined in Section
6(d)).
(k) Not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for the
Transfer Restricted Notes, the Exchange Notes or the Private Exchange
Notes, as the case may be, and provide the applicable trustee with
printed certificates for the Notes, the Exchange Notes or the Private
Exchange Notes, as the case may be, in a form eligible for deposit with
The Depository Trust Company.
(l) The Issuers will comply with all rules and regulations of
the Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration, and Globalstar
will make
<PAGE> 16
16
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90
days, if such period is a fiscal year) beginning with the first month
of its first fiscal quarter commencing after the effective date of the
Registration Statement, which statement shall cover such 12-month
period.
(m) The Issuers shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner
and containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Issuers shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Issuers may require each Holder of Securities to be
sold pursuant to the Shelf Registration Statement to furnish to the
Issuers such information regarding the Holder and the distribution of
the Securities as the Issuers may from time to time reasonably require
for inclusion in the Shelf Registration Statement, and the Issuers may
exclude from such registration the Securities of any Holder that
unreasonably fails to furnish such information within a reasonable time
after receiving such request. Each such Holder agrees to notify the
Issuers as promptly as practicable of any inaccuracy or change in
information previously furnished by such Holder to the Issuers or of
the occurrence of any event, in either case, as a result of which any
prospectus relating to such registration contains or would contain an
untrue statement of a material fact regarding such Holder or such
Holder's intended method of distribution of such Securities, or omits
to state a material fact regarding such Holder or such Holder's
intended method of distribution of such Securities, required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly to
furnish to the Issuers any additional information required to correct
and update any previously furnished information or required so that
such prospectus shall not contain, with respect to such Holder or the
distribution of such Securities, an untrue statement of a material fact
or omit to state a material fact required to be stated
<PAGE> 17
17
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. Each such Holder shall comply
with the provisions of the Securities Act applicable to such Holder
with respect to the disposition by such Holder of Securities, covered
by such registration statement in accordance with the intended methods
of disposition by such Holder set forth in such registration statement.
(o) The Issuers shall enter into such customary agreements
(including if requested an underwriting agreement in customary form)
and take all such other action, if any, as Holders of a majority in
aggregate principal amount of Securities being sold or the managing
underwriters shall reasonably request in order to facilitate the
disposition of the Securities pursuant to any Shelf Registration;
provided, however, that in the case of actions that facilitate the
disposition of a particular Holder's Securities, only such Holders
request is required; provided further, that the Issuers shall not be
required to enter into any such agreement more than once with respect
to all of the Securities and may delay entering into such agreement
until the consummation of any underwritten public offering which such
Issuers shall have then undertaken.
(p) In the case of any Shelf Registration, each of the Issuers
shall (i) make reasonably available for inspection by the Holders of
the Securities, any underwriter participating in any disposition
pursuant to the Shelf Registration Statement and any attorney,
accountant or other agent retained by the Holders of
<PAGE> 18
18
the Securities or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of such Issuers
and (ii) cause such Issuers' officers, directors, employees,
accountants and auditors to supply all relevant information reasonably
requested by the Holders of the Securities or any such underwriter,
attorney, accountant or agent in connection with the Shelf Registration
Statement, in each case, as shall be reasonably necessary, in the
judgment of the Holder or any such underwriter, attorney, accountant or
agent referred to in this paragraph, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act;
provided, however, that the foregoing inspection and information
gathering shall be coordinated on behalf of the Initial Purchasers by
you and on behalf of the other parties by one counsel designated by and
on behalf of such other parties as described in Section 4 hereof and
shall be expressly subject to the confidential treatment by such
parties as to all proprietary information of the Issuers.
(q) In the case of any Shelf Registration, each of the
Issuers, if requested by (i) Holders of a majority in aggregate
principal amount of Securities, (ii) such Holder's counsel, or (iii)
the managing underwriter (if any), covered thereby, shall use
reasonable efforts to cause (x) its counsel to deliver an opinion and
updates thereof relating to the Registration Statement and the
Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated the effective date of such
Shelf Registration Statement covering the matters customarily covered
in opinions of counsel requested in underwritten offerings and such
other matters as may be reasonably requested by the managing
underwriter or underwriters; (y) its officers to execute and deliver
all customary documents and certificates and updates thereof reasonably
requested by any underwriters of the applicable Securities; and (z) its
independent public accountants to provide to the selling Holders of the
applicable Securities and
<PAGE> 19
19
any underwriter therefor a comfort letter in customary form and
covering matters of the type customarily covered in comfort letters in
connection with primary underwritten offerings, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested
by any Initial Purchaser or any known Exchanging Dealer, each of the
Issuers shall use reasonable efforts to cause (i) its counsel to
deliver to such Initial Purchaser or such Exchanging Dealer a signed
opinion in the form as is customary in connection with such a
Registration Statement and (ii) its independent public accountants to
deliver to such Initial Purchaser or such Exchanging Dealer a comfort
letter, in customary form.
(s) If a Registered Exchange Offer or a Private Exchange is to
be consummated, upon delivery of the Transfer Restricted Notes by
Holders to the Issuers (or to such other Person as directed by the
Issuers) in exchange for the Exchange Notes or the Private Exchange
Notes, as the case may be, the Issuers shall mark, or cause to be
marked, on the Transfer Restricted Notes so exchanged that such
Transfer Restricted Notes are being canceled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall the Transfer Restricted Notes be marked as paid or
otherwise satisfied.
(t) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules of the By-Laws
of the National Association of Securities Dealers, Inc. ("NASD"))
thereof, whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Issuers shall assist
<PAGE> 20
20
such broker-dealer in complying with the requirements of such Rules and
By-Laws.
(u) The Issuers will use their reasonable efforts to cause the
Securities or the Exchange Securities, as applicable, covered by a
Registration Statement to continue to be rated, during the period for
which such Registration Statement is required to be effective, by the
rating agencies that initially rated the Securities, if so requested by
Holders of a majority in aggregate principal amount of Securities
covered by such Registration Statement or the Exchange Securities, as
the case may be, or the managing underwriters, if any.
(v) The Issuers shall use their reasonable efforts to take all
other steps reasonably necessary to effect the registration of the
Securities covered by a Registration Statement contemplated hereby.
4. Registration Expenses. The Issuers shall bear all fees and
expenses incurred in connection with the performance of the Issuers' obligations
under Sections 1 through 3 hereof (including the reasonable fees and expenses of
one counsel to the Initial Purchasers, incurred in connection with the
Registered Exchange Offer), whether or not the Registered Exchange Offer or a
Shelf Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear, or reimburse the Holders of the Securities covered
thereby for, the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith, it being understood that the Issuers shall not be
responsible for the fees and expenses of more than one counsel employed at any
one time; provided, however, that in an underwritten offering, the Issuers shall
not be responsible for any fees or expenses of any underwriter, including any
underwriting discounts or commissions, or any legal fees or expenses of counsel
to any underwriter. Notwithstanding the foregoing, the Holders of Securities
being registered shall pay all agency or
<PAGE> 21
21
brokerage fees and commissions and underwriting discounts and commissions
attributable to the sale of such Securities and the fees and disbursements of
any counsel or other advisors or experts retained by such Holders (severally or
jointly), other than the one counsel specifically referred to above.
5. Indemnification. (a) The Issuers agree, jointly and
severally, to indemnify and hold harmless each Holder of the Securities and each
person, if any, who controls such Holder or such Exchanging Dealer within the
meaning of the Securities Act or the Exchange Act (each Holder, any Exchanging
Dealer and such controlling persons being referred to collectively as the
"Indemnified Parties") from and against any losses, claims, damages or
liabilities, joint or several, or any actions in respect thereof (including, but
not limited to, any losses, claims, damages, liabilities or actions relating to
purchases and sales of the Securities) to which each Indemnified Party may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment or
supplement thereto, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and shall reimburse, as incurred, the
Indemnified Parties for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Issuers
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Issuers by or on behalf of
<PAGE> 22
22
such Holder specifically for inclusion therein, (ii) with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
prospectus relating to the registration statement, the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of any person as
to which there is a prospectus delivery requirement (a "Delivering Seller") that
sold the Securities to the person asserting any such losses, claims, damages or
liabilities to the extent that any such loss, claim, damage or liability of such
Delivering Seller results from the fact that there was not sent or given to such
person, on or prior to the written confirmation of such sale, a copy of the
relevant prospectus, as amended and supplemented, provided that (A) the Issuers
shall have previously furnished copies thereof to such Delivering Seller in
accordance with this Agreement and (B) such furnished prospectus, as amended and
supplemented, would have corrected any such untrue statement or omission or
alleged untrue statement or omission, and (iii) this indemnity agreement will be
in addition to any liability which the Issuers may otherwise have to such
Indemnified Party. The Issuers shall also indemnify underwriters, their officers
and directors and each person who controls such persons within the meaning of
the Securities Act or the Exchange Act to the same extent as provided above with
respect to the indemnification of the Holders of the Securities if requested by
such Holders; provided, however, that the Issuers shall not indemnify any such
party to the extent its liability arises from its failure to comply with the
requirements described in Annexes A, B, C and D hereto, as updated.
(b) Each Holder of the Securities (and, if requested by the
Issuers, each placement agent or underwriter in connection with the
registration), severally and not jointly, will indemnify and hold harmless the
Issuers and each person, if any, who controls Globalstar within the meaning of
the Securities Act or the Exchange Act and the directors, officers, agents and
employees of such controlling persons from and against any losses, claims,
damages or liabilities or any actions in respect thereof to which the Issuers,
any such controlling person or director,
<PAGE> 23
23
officer, agent or employee of such controlling person may become subject under
the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information pertaining to such Holder or such underwriter, as the case may be,
and furnished to the Issuers by or on behalf of such Holder or such underwriter,
as the case may be, specifically for inclusion therein; and, subject to the
limitation set forth immediately preceding this clause, shall reimburse, as
incurred, the Issuers for any legal or other expenses reasonably incurred by the
Issuers or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder or
such underwriter, as the case may be, may otherwise have to the Issuers or any
such controlling persons.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above, except to the
extent that it is prejudiced or harmed in any material respect by failure to
give such prompt notice. In case any such action is brought
<PAGE> 24
24
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with one counsel (and
local counsel as necessary) reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, not to be unreasonably withheld, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action. No indemnifying party shall be
liable for any amounts paid in settlement of any action or claim without its
written consent, which consent shall not be unreasonably withheld, but if
settled in accordance with its written consent or if there be a final judgment
of the plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or liability
by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above for any reason other than as provided in subsection
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the
<PAGE> 25
25
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other from the exchange of the
Notes, pursuant to the Registered Exchange Offer, or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party or parties on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers on the one hand
or such Holder or such other indemnified person, as the case may be, on the
other, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders of the Securities shall not be required to contribute
any amount in excess of the amount by which the net proceeds received by such
Holders from the sale of the Securities pursuant to a Registration Statement
exceeds the amount of damages which such Holders have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each officer, director, employee, representative and
agent of an indemnified party and each
<PAGE> 26
26
person, if any, who controls such indemnified party within the meaning of the
Securities Act or the Exchange Act shall have the same rights to contribution as
such indemnified party, and each officer, director, employee, representative and
agent of the Issuers and each person, if any, who controls Globalstar within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as the Issuers.
(e) The agreements contained in this Section 5 shall survive
the sale of the Securities pursuant to a Registration Statement and shall remain
in full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Liquidated Damages Under Certain Circumstances. (a)
Additional cash interest (the "Liquidated Damages") with respect to the
Securities shall be assessed against the Issuers as follows if any of the
following events occurs (each such event in clauses (i) through (iv) below a
"Registration Default"):
(i) if the Issuers fail to file either the Exchange Offer
Registration Statement or Shelf Registration Statement on or before the
date specified for the filing thereof in Sections 1 and 2 hereof,
respectively;
(ii) if any such Registration Statement so required to be
filed is not declared effective by the Commission on or before, in the
case of the Exchange Offer Registration Statement, the date that is 150
days after the Issue Date, and in the case of the Shelf Registration
Statement, the date that is 180 days after the Issue Date (each such
date being hereinafter referred to as an "Effectiveness Target Date");
(iii) if the Issuers fail to consummate the Registered
Exchange Offer within 30 days after the Effectiveness Target Date with
respect to such Registered Exchange Offer; or
<PAGE> 27
27
(iv) if after either the Exchange Offer Registration Statement
or the Shelf Registration Statement is declared effective (A) such
Registration Statement thereafter ceases to be effective; or (B) such
Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of
Transfer Restricted Notes during the periods specified herein because
either (1) any event occurs as a result of which the related prospectus
forming part of such Registration Statement would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or (2) it
shall be necessary to amend such Registration Statement or supplement
the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
Liquidated Damages shall accrue on the Transfer Restricted Notes in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted Notes
held by each Holder (over and above the interest set forth in the title of the
Transfer Restricted Notes) from and including the date on which any such
Registration Default shall occur until the earlier of (i) the date on which all
such Registration Defaults have been cured or (ii) the date which is 90 days
after the date such Registration Default occurred. The Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of the Notes
held by each Holder during each subsequent 90-day period until the date on which
all such Registration Defaults have been cured; provided, however, that the
aggregate amount of Liquidated Damages shall not exceed a maximum of $.50 per
week per $1,000 principal amount of the Notes held by each Holder
(b) A Registration Default referred to in Section 6(a)(iii)(B)
shall be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of
<PAGE> 28
28
a post-effective amendment to such Shelf Registration Statement to incorporate
annual audited or, if required by the rules and regulations under the Securities
Act, quarterly unaudited financial information with respect to the Issuers where
such post-effective amendment is not yet effective and needs to be declared
effective to permit Holders to use the related prospectus or (y) other material
events or developments with respect to the Issuers that would need to be
described in such Shelf Registration Statement or the related prospectus and
(ii) in the case of clause (y), the Issuers are proceeding promptly and in good
faith to amend or supplement such Shelf Registration Statement and related
prospectus to describe such events; provided, however, that in no event shall
the Issuers be required to disclose the business purpose for such suspension if
the Issuers determine in good faith that such business purpose must remain
confidential. Notwithstanding the foregoing, the Issuers shall not be required
to pay Liquidated Damages with respect to the Securities of a Holder if the
failure arises from the Issuers' failure to file, or cause to become effective,
a Shelf Registration Statement within the time periods specified in this Section
6 by reason of the failure of such Holder to provide such information as (i) the
Issuers may reasonably request, with reasonable prior written notice, for use in
the Shelf Registration Statement or any prospectus included therein to the
extent the Issuers reasonably determine that such information is required to be
included therein by applicable law, (ii) the NASD or the Commission may request
in connection with such Shelf Registration Statement or (iii) is required to
comply with the agreements of such Holder as contained in Section 3(n) to the
extent compliance thereof is necessary for the Shelf Registration Statement to
be declared effective.
(c) The parties hereto agree that the Liquidated Damages
provided for in this Section constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Securities by reason of the failure of the applicable Registration Statement to
be filed, to be declared effective or to remain effective, or
<PAGE> 29
29
of the Exchange Offer to be consummated, as the case may be, to the extent
required by this Agreement.
(d) Any Liquidated Damages accruing on the Transfer Restricted
Notes prior to December 15, 1997, will be payable in cash on the next succeeding
June 15 or December 15 to holders of record on the immediately preceding
December 1 or June 1, respectively. Any such Liquidated Damages accruing on the
Transfer Restricted Notes thereafter will be payable in cash on the regular
interest payment dates with respect to the Transfer Restricted Notes to the
holders of record on the applicable record date.
(e) "Transfer Restricted Notes" means each Security until (i)
the date on which such Transfer Restricted Note has been exchanged by a person
other than a broker-dealer for a freely transferrable Exchange Note in the
Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the
Registered Exchange Offer of a Transfer Restricted Note for an Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Transfer Restricted Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Transfer Restricted Note is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Issuers shall use their reasonable
efforts to file the reports required to be filed by each of them, respectively,
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Issuers are not required to file such reports, each will, upon the
request of any Holder of Transfer Restricted Notes, make publicly available
other information so long as necessary to permit sales of their securities
pursuant to Rules 144 and 144A. The Issuers covenant that they will take such
further action as any Holder of Transfer Restricted Notes may reasonably
request, all to the extent
<PAGE> 30
30
required from time to time to enable such Holder to sell Transfer Restricted
Notes without registration under the Securities Act within the limitation of the
exemptions provided by Rules 144 and 144A (including the requirements of Rule
144A(d)(4)). The Issuers will provide a copy of this Agreement to prospective
purchasers of Notes identified to the Issuers by the Initial Purchasers upon
request. Upon the request of any Holder of Transfer Restricted Notes, each of
the Issuers shall deliver to such Holder a written statement as to whether it
has complied with such requirements. Notwithstanding the foregoing, nothing in
this Section 7 shall be deemed to require the Issuers to register any of its
securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer
Restricted Notes covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Notes to be included in such offering (subject to the
approval (which approval shall not be unreasonably withheld) of the Issuers,
provided, however, that the Issuers shall not be obligated to arrange for more
than one underwritten offering during the period that such Shelf Registration is
required to be effective pursuant to this Agreement).
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Notes on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, lock-up
agreements, powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
9. Miscellaneous. (a) Amendments and Waivers. The provisions
of this Agreement may not be amended, modified or supplemented, and waivers or
consents to
<PAGE> 31
31
departures from the provisions hereof may not be given, except by the Issuers
and the written consent of the Holders of a majority in principal amount of the
Securities affected by such amendment, modification, supplement, waiver or
consents.
(b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, first-class
mail, facsimile transmission, or air courier which guarantees overnight
delivery:
(1) if to a Holder of the Securities, at the most current
address given by such Holder to the Issuers in accordance with the
provisions of this Section 9(b), which address initially is, with
respect to each Holder, the address of such Holder to which
confirmation of the sale of the Notes to such Holder was first sent by
the Initial Purchasers, with a copy in like manner to you as follows:
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY l0l67
Fax No: (212) 372-3092
Attention: Philip Berney
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.: (212) 474-3700
Attention: Robert Rosenman
(2) if to the Initial Purchasers, at the addresses
specified in Section 9(b)(1);
<PAGE> 32
32
(3) if to the Issuers, at its address as follows:
Globalstar, L.P.
3200 Zanker Road
San Jose, CA 95164
Attention: Michael B. Targoff
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street 46th Floor
New York, NY 10022
Fax No: (212) 821-8111
Attention: Bruce R. Kraus
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged by recipient's facsimile machine operator, if sent
by facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Issuers have not, as of
the date hereof, entered into, nor shall they, on or after the date hereof,
enter into, any agreement with respect to their securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding
upon the Issuers and their successors and assigns.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 33
33
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(i) Securities Held by the Issuers. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Securities
is required hereunder, Securities held by the Issuers or their affiliates (other
than subsequent Holders of Securities if such subsequent Holders are deemed to
be affiliates solely by reason of their holdings of such Securities) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
<PAGE> 34
34
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to Bear Stearns & Co. Inc. a counterpart
hereof, whereupon this Agreement will become a binding agreement among
Globalstar, Globalstar Capital and the several Initial Purchasers in accordance
with its terms.
Very truly yours,
GLOBALSTAR, L.P. by
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its managing
general partner, by
LORAL/QUALCOMM PARTNERSHIP,
L.P. its general partner, by
LORAL GENERAL PARTNER, INC.
its general partner,
/s/ Eric J. Zahler
by ________________________________
Name:
Title:
GLOBALSTAR CAPITAL
CORPORATION,
/s/ Eric J. Zahler
by ________________________________
Name:
Title:
<PAGE> 35
35
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
BEAR, STEARNS & CO. INC.
/s/ Phil Berney
by _________________________
Name:
Title:
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Hoyt Davidson
by _________________________
Name:
Title:
LEHMAN BROTHERS INC.
/s/ David J. Brand
by _________________________
Name:
Title:
<PAGE> 36
ANNEX A
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuers have agreed that, for a period of 180 days
after the Expiration Date (as defined herein), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
<PAGE> 37
ANNEX B
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
<PAGE> 38
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for existing Notes where such existing Notes were acquired as a result
of market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus. */
The Issuers will not receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer for the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the
- ------------------
*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 39
2
Securities Act and any profit on any such resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Issuers
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 40
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________
Address: _________________________________________
_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
Globalstar, L.P. and Globalstar Capital Corporation
We consent to the use in Amendment No. 2 to Registration Statement No.
333-25461 of Globalstar, L.P. and Globalstar Capital Corporation of our reports
dated February 24, 1997 on the consolidated financial statements of Globalstar,
L.P., Globalstar Telecommunications Limited and Loral/Qualcomm Satellite
Services, L.P. and the balance sheets of Globalstar Capital Corporation as of
December 31, 1996 and 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Jose, California
June 23, 1997
