<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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)
<TABLE>
<S> <C> <C>
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>
------------------------
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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=====================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED REGISTERED SECURITY(1) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/4% Senior Notes due
2004....................... $325,000,000 100% $325,000,000 $98,485
=====================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
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
PROSPECTUS
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES DUE 2004
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 10 3/4% 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 an aggregate principal amount of up to
$325,000,000 of 10 3/4% Senior Notes due 2004 (the "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
10 3/4% Senior Notes due 2004 (the "Original Notes") of the Issuers with the
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 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 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 Original Notes were originally issued and sold on October 29, 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 December , 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 November , 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.
The Issuers are currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Issuers have agreed that, whether or not they are
required to do so by the rules and regulations of the Commission, for so long as
any of the Notes remain outstanding, they will furnish to the trustee and the
holders of the Notes and file with the Commission, or cause to be so filed as
part of the financial statements of Globalstar Telecommunications Limited
("GTL"), (i) all quarterly and annual financial information required to be
contained in a filing with the Commission on Forms 10-Q and 10-K including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Issuers' independent public accountants and (ii) all reports that are
required to be filed with the Commission on Form 8-K. Such reports and other
information filed by the Issuers can be inspected and copied at public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and
500 West Madison Street, Chicago, Illinois 60661. The Commission also maintains
a Web site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the Commission.
The site may be accessed at http://www.sec.gov.
i
<PAGE> 4
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), 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. In addition, from time to time, Loral Space & Communications Ltd.
("Loral"), GTL, Globalstar and Globalstar Capital Corporation 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 Loral, GTL or Globalstar with the
Commission, or press releases or oral statements made by or with the approval of
an authorized executive officer of any of such parties.
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 above and herein 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 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
<TABLE>
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PAGE
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AVAILABLE INFORMATION................................................................. i
FORWARD-LOOKING STATEMENTS............................................................ ii
PROSPECTUS SUMMARY.................................................................... 1
RISK FACTORS.......................................................................... 11
Development Stage Company........................................................... 11
Regulation.......................................................................... 12
Technological Risks................................................................. 13
Future Operating Risks.............................................................. 15
Structural and Market Risks......................................................... 19
THE ISSUERS........................................................................... 21
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............... 26
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
Liquidity and Capital Resources..................................................... 31
Results of Operations............................................................... 32
Financial Accounting Pronouncements................................................. 33
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
</TABLE>
iii
<PAGE> 6
<TABLE>
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Employees........................................................................... 45
Properties.......................................................................... 45
Legal Proceedings................................................................... 45
REGULATION............................................................................ 46
United States FCC Regulation........................................................ 46
United States International Traffic in Arms Regulations............................. 48
Expert Regulation................................................................... 48
International Coordination.......................................................... 49
European Union...................................................................... 49
Regulation of Service Providers..................................................... 50
MANAGEMENT............................................................................ 51
Directors and Executive Officers.................................................... 51
Governance.......................................................................... 53
Summary Compensation................................................................ 54
Option Grants in Last Fiscal Year................................................... 55
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values.......... 55
Employment Arrangements............................................................. 55
Compensation Committee Interlocks and Insider Participation......................... 56
Pension Plan........................................................................ 56
RELATED PARTY TRANSACTIONS............................................................ 57
GOVERNANCE OF GLOBALSTAR.............................................................. 61
General Partners' Committee......................................................... 61
Certain Actions..................................................................... 61
GTL Change of Control and Reduction in Interest..................................... 63
Council of Service Operators........................................................ 64
Indemnification and Fiduciary Standards............................................. 64
Allocations and Distributions....................................................... 64
Dissolution of Globalstar........................................................... 65
Non-Competition..................................................................... 65
Issuance of Additional Partnership Interests........................................ 65
Limitations of Transfer of Partnership Interests.................................... 66
DESCRIPTION OF NOTES.................................................................. 66
General............................................................................. 66
Principal, Maturity and Interest.................................................... 67
Optional Redemption................................................................. 67
Change of Control................................................................... 67
Asset Dispositions.................................................................. 69
Covenants........................................................................... 70
Events of Defaults and Remedies..................................................... 78
No Personal Liability of Directors, Officers, Employees, Incorporators and
Stockholders..................................................................... 79
Legal Defeasance and Covenant Defeasance............................................ 79
</TABLE>
iv
<PAGE> 7
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Transfer and Exchange............................................................... 80
Amendment, Supplement and Waiver.................................................... 80
Concerning the Trustee.............................................................. 80
Definitions......................................................................... 81
Registration Rights................................................................. 90
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 92
United States Federal Income Taxation of U.S. Holders............................... 92
Tax Treatment of the Notes.......................................................... 92
Liquidated Damages.................................................................. 93
Backup Withholding.................................................................. 93
Reporting Requirements.............................................................. 93
United States Federal Income Taxation of Non-U.S. Holders........................... 93
PLAN OF DISTRIBUTION.................................................................. 95
LEGAL OPINIONS........................................................................ 95
EXPERTS............................................................................... 95
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
GLOSSARY OF TERMS..................................................................... G-1
</TABLE>
v
<PAGE> 8
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 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 November 24, 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 February 1998 and to commence commercial
operations in the first quarter of 1999 following the launch of 44 satellites in
1998. The remaining 12 satellites will be launched in early 1999 as scheduled.
Space Segment. On November 11, 1997, Globalstar announced that it has
rescheduled the launch of its first four satellites to the first week of
February 1998. The eight-week postponement was adopted to allow for further
testing and rehearsals of the tracking, telemetry and control ("TT&C")
ground equipment that will monitor the launch and deployment of the
Globalstar satellites. The postponement was adopted in order to assure an
adequate period of time to complete testing of Globalstar's TT&C function
prior to the initial launch and was not related to any segment performance
issues. The first four Globalstar satellites, which will be launched on a
McDonnell-Douglas Delta launch vehicle, are at the Cape Canaveral launch
site, and four additional satellites for the second Delta launch have
successfully completed integration and testing. In addition, satellite and
major subsystem assembly, integration and testing necessary for the first
launch on an Ukranian Zenit launch vehicle are underway. 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.
1
<PAGE> 9
Ground Segment. Globalstar's partners have placed purchase orders for
38 gateways under contracts totaling approximately $300 million. The first
four Globalstar gateways, which are to be located in Australia, France,
South Korea and the United States, are completed. 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. Progress on the
construction of the remaining 34 gateways continues as originally
scheduled. 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, gateways 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 fourth quarter 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 WRC '95 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 budgeted expenditures for the cost for the design,
construction and deployment of the Globalstar System, including working capital,
cash interest on anticipated borrowings and operating expenses, after giving
effect to the rescheduled launch, are approximately $2.7 billion. Globalstar has
raised or received commitments for approximately $2.6 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 38 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 1996 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.
2
<PAGE> 10
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
39% 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
telecommu-
3
<PAGE> 11
nications 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.
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
4
<PAGE> 12
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 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. After initial production runs, 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. Eight additional service
providers have agreed to offer Globalstar service in 35 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
5
<PAGE> 13
32 of the 38 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.
6
<PAGE> 14
THE EXCHANGE OFFER
The Exchange Offer......... The Issuers are offering to exchange (the "Exchange
Offer") up to $325,000,000 aggregate principal
amount of 10 3/4% Senior Notes due 2004 (the
"Exchange Notes"), which have been registered under
the Securities Act, for up to $325,000,000
aggregate principal amount of outstanding 10 3/4%
Senior Notes due 2004 (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 December , 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.
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
7
<PAGE> 15
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
Agreement (the "Registration Rights Agreement"),
dated as of October 29, 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 Agreement, 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 October 29, 1997, among the
Issuers and The Bank of New York, as Trustee (the
"Trustee"), relating to the Original Notes and the
Exchange Notes (the "Indenture"). 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 Exchange Offer applies to $325,000,000 aggregate principal amount of
the 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.
Maturity................... November 1, 2004.
Interest Payment Dates..... May 1 and November 1, commencing on May 1, 1998.
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 Notes are not redeemable prior to November 1,
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
8
<PAGE> 16
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 Indenture pursuant to which the Notes were
issued contains 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 the 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.
See "Risk Factors" beginning on page 11 for a discussion of certain factors
that should be considered in connection with this offering.
9
<PAGE> 17
SUMMARY FINANCIAL INFORMATION
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
PRE-CAPITAL CUMULATIVE
SUBSCRIPTION PERIOD(1) MARCH 23 NINE MONTHS MARCH 23, 1994
--------------------------- (COMMENCEMENT YEARS ENDED DECEMBER ENDED SEPTEMBER 30, (COMMENCEMENT
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO 31, OF OPERATIONS) TO
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------- --------------------- SEPTEMBER 30,
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 44,797 65,613 234,891
Interest
income... -- -- 1,783 11,989 6,379 6,050 13,799 33,950
Net loss
applicable
to
ordinary
partnership
interests... 11,510 6,872 26,244 68,237 71,969 50,766 67,715 234,165
Net loss
per
weighted
average
ordinary
partnership
interest
outstanding... 0.73 1.50 1.53 1.08 1.34
Cash
distributions
per
ordinary
partnership
interest... -- -- -- -- --
OTHER DATA:
Deficiency
of
earnings
to cover
fixed
charges(2)... N/A N/A 82,126 57,501 128,462
CASH FLOW
DATA:
Used in
operating
activities... -- -- (23,052) (38,368) (46,622) (40,618) (73,641) (181,683)
Used in
investing
activities... -- -- (50,549) (280,345) (384,264) (255,829) (413,428) (1,128,586)
Provided
by
partners'
capital
transactions... -- -- 147,161 318,630 284,714 289,752 138,008 888,513
Provided
by (used
in)
other
financing
activities... -- -- -- (1,875) 95,750 (250) 677,940 771,815
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1997 1996 1995 1994
------------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 350,059 $ 21,180 $ 71,602 $ 73,560
Working capital (deficiency)......................... 238,912 (53,481) 17,687 35,423
Globalstar System under construction................. 1,344,586 891,033 400,257 71,996
Total assets......................................... 1,829,434 942,913 505,391 151,271
Vendor financing liability........................... 186,470 130,694 42,219 --
Senior notes......................................... 777,396 -- -- --
Borrowings under long-term revolving credit
facility........................................... -- 96,077 -- --
Redeemable preferred partnership interests........... 302,826 302,037 -- --
Ordinary partners' capital........................... 401,560 315,186 386,838 112,944
</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> 18
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
February 1998, to commence operations before the first quarter of 1999 or to
have positive cash flow before the second quarter of 1999. There can be no
assurance that Globalstar will achieve its objectives by the targeted dates.
Additional Financing Requirements. Globalstar's current budgeted
expenditures for the cost for the design, construction and deployment of the
Globalstar System, including working capital, cash interest on anticipated
borrowings and operating expenses are approximately $2.7 billion. 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.
Ground segment costs, most of which are incurred under a cost-plus contract with
Qualcomm, have increased as a result of added enhanced capabilities, additional
test requirements and cost growth in the development of the ground system.
Globalstar has raised or received commitments for approximately $2.6 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 fourth 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
first quarter of 1999 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 in financing, insufficient or ineffective service provider marketing
efforts, slower-than-anticipated consumer
11
<PAGE> 19
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 WRC '95, 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. In January 1997, the FCC adopted rules for the use of a portion of
the frequencies allocated at WRC '95 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 other recently licensed MSS systems that use the
spectrum for which Globalstar has been authorized acquire the financial
resources necessary to construct and launch their proposed systems and such
systems become operational, the Globalstar System's capacity would be reduced.
In addition, Globalstar's FCC license is subject to a pending judicial appeal.
While Globalstar believes that this appeal is without merit, there can be no
assurance that this appeal will 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
12
<PAGE> 20
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, its second failure in 64 launches to that
date. McDonnell-Douglas recently resumed Delta operations with seven successful
launches since May 1997. Globalstar's first launch aboard a McDonnell-Douglas
Delta II rocket is scheduled for the first week of February 1998. 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, has investigated, but not yet released its report regarding, the cause
of this failure, the fourth in this rocket's last 28 launches. Two launches are
planned on the Zenit prior to Globalstar's initial launch on this vehicle.
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 jurisdictions. As
a result, in the event of a dispute, it may be difficult for Globalstar to
enforce its rights under such agreements.
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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. Existing
indebtedness includes the $500 million aggregate principal amount of
Globalstar's 11 3/8% Senior Notes issued in February 1997 (the "11 3/8% Senior
Notes"), the $325 million aggregate principal amount of Globalstar's 11 1/4%
Senior Notes issued in June 1997 (the "11 1/4% Senior Notes") and the $325
million aggregate principal amount of Original Notes issued in October 1997. As
a result, Globalstar is 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 indenture (the "11 3/8% Indenture") governing
the 11 3/8% Senior Notes, the indenture (the "11 1/4% Indenture") governing the
11 1/4% Senior Notes, the Indenture governing the Notes and future debt
instruments. Among other things, the covenants contained in the Globalstar
credit agreement, the 11 3/8% Indenture, the 11 1/4% Indenture and the Indenture
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 11 3/8% Indenture, the 11 1/4% Indenture, the Indenture 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 "Description of 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 satellite-based
telecommunications systems not involved in the MSS Proceeding have also been
proposed
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using geostationary satellites and, in one case, the 2 GHz band for a MEO
system. See "Business -- Competition."
Globalstar's most direct competitors are two of the other MSS applicants
that have received FCC licenses, Iridium and Odyssey. ICO was not an applicant
or a licensee in the MSS Proceeding. ICO has, however, filed a request with the
FCC 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.
Two other MSS applicants, Constellation and MCHI, have recently been
granted FCC licenses after the FCC waived its financial qualification
requirements with respect to such applicants. In granting such licenses, the FCC
found that such applicants had failed to demonstrate that they are financially
qualified, and it is not certain that they will be able to raise sufficient
funds to construct, launch and operate their proposed systems. Even if
ultimately built, such systems are not planned to enter the market until
significantly after Globalstar's targeted In-Service Date.
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 permits spectrum sharing among competing
systems, the capacity available to each system sharing such spectrum decreases
as the number of systems operating in the band increases. The degree of decrease
depends on a number of complex technological factors associated with each
system's particular design including transmitter polarization and efficiency of
spectrum usage. If the total number of operating MSS systems in the CDMA portion
of the L-band (i.e., 1610-1626.5 MHz) and S-band (i.e., 2483.5-2500 MHz)
increases from two to three and the other two operating CDMA systems have
technical characteristics similar to Globalstar's and all such systems
experience full capacity usage, then Globalstar estimates that its capacity over
a given area would decrease by approximately 25%. If four CDMA systems were
operating, there would be a further incremental decrease in capacity for each
system, mainly during peak usage in areas of high demand.
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 and Comsat's
Planet-1, are providing, and other proposed geostationary-based satellite
systems, including APMT, ASC, ACeS, Thuraya and Satphone, 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.
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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, 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.
Projects such as Teledesic, Spaceway and CyberStar have applied for or
received licenses to operate satellite-based telecommunications and video
transmission systems in the 28 GHz Ka-band or higher frequencies. 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 has recently concluded
developing service rules and 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
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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 continued to defer the effective date. The handsets
Globalstar has contracted with Qualcomm to develop for use by mobile subscribers
will have antennas for communication 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
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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
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 ISSUERS
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 a co-issuer and co-obligor with respect to
certain debt obligations of Globalstar, 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. The 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 November
24, 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 from the issuance of the Original Notes were
approximately $320 million. Globalstar will use such net proceeds towards the
construction and deployment of the Globalstar System. Pending such use,
Globalstar intends to invest such proceeds in short-term investment grade debt
securities.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were originally issued and sold on October 29, 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"), $1,000 in principal amount of Exchange
Notes for each $1,000 in principal amount of 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
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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 Expiration 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 December , 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.
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
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<PAGE> 31
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.
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
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<PAGE> 32
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
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other
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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 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. 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 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.
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), that such holder is withdrawing his
election to have such Original Notes exchanged, and the name of the registered
holder of such Original Notes. Additionally, the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution (except in the case of
Original Notes tendered for the account of an Eligible Institution). 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.
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.
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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.
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.
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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 $150,000.
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.
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
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<PAGE> 36
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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SELECTED FINANCIAL DATA
The following selected financial data of Globalstar (including the
pre-capital subscription period from January 1, 1994 to March 22, 1994) have
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 Indenture prohibits Globalstar
Capital from conducting any trade or business. See "Description of
Notes -- Covenants -- Business Activities of Globalstar Capital."
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 NINE MONTHS MARCH 23, 1994
--------------------------- (COMMENCEMENT YEARS ENDED DECEMBER ENDED (COMMENCEMENT
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO 31, SEPTEMBER 30, OF OPERATIONS) TO
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------- --------------------- SEPTEMBER 30,
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 44,797 65,613 234,891
Interest
income... -- -- 1,783 11,989 6,379 6,050 13,799 33,950
Net loss
applicable
to
ordinary
partnership
interests... 11,510 6,872 26,244 68,237 71,969 50,766 67,715 234,165
Net loss
per
weighted
average
ordinary
partnership
interest
outstanding... 0.73 1.50 1.53 1.08 1.34
Cash
distributions
per
ordinary
partnership
interest... -- -- -- -- --
OTHER DATA:
Deficiency
of
earnings
to cover
fixed
charges(2)... N/A N/A 82,126 57,501 128,462
CASH FLOW
DATA:
Used in
operating
activities... -- -- (23,052) (38,368) (46,622) (40,618) (73,641) (181,683)
Used in
investing
activities... -- -- (50,549) (280,345) (384,264) (255,829) (413,428) (1,128,586)
Provided by
partners'
capital
transactions... -- -- 147,161 318,630 284,714 289,752 138,008 888,513
Provided by
(used in)
other
financing
activities... -- -- -- (1,875) 95,750 (250) 677,940 771,815
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------
1997 1996 1995 1994
------------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 350,059 $ 21,180 $ 71,602 $ 73,560
Working capital (deficiency).......................................... 238,912 (53,481) 17,687 35,423
Globalstar System under construction.................................. 1,344,586 891,033 400,257 71,996
Total assets.......................................................... 1,829,434 942,913 505,391 151,271
Vendor financing liability............................................ 186,470 130,694 42,219 --
Senior notes.......................................................... 777,396 -- -- --
Borrowings under long-term revolving credit facility.................. -- 96,077 -- --
Redeemable preferred partnership interests............................ 302,826 302,037 -- --
Ordinary partners' capital............................................ 401,560 315,186 386,838 112,944
</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> 38
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.
On November 11, 1997, Globalstar announced that it has rescheduled the
launch of its first four satellites to the first week of February 1998. The
eight-week postponement was adopted to allow for further testing and rehearsals
of the tracking, telemetry and control (TT&C) ground equipment that will monitor
the launch and deployment of the Globalstar satellites. The postponement was
adopted in order to assure an adequate period of time to complete testing of
Globalstar's TT&C function prior to the initial launch and was not related to
any segment performance issue. All other elements of the project including
system design, satellite and CDMA technology, gateway design and handset
production remain on schedule and meet or exceed critical performance criteria.
Globalstar now expects to begin commercial service no later than in the
first quarter of 1999 following the launch of 44 satellites during 1998. The
remaining 12 satellites will be launched in early 1999 as scheduled.
The first four Globalstar satellites are at the Cape Canaveral launch site
and four additional satellites for the second launch have successfully completed
integration and testing. In addition, satellite and major subsystem assembly,
integration and testing necessary for the first Zenit launch is underway.
The first four Globalstar gateways are completed and ready to support the
first launch. Progress on the construction of an additional 34 gateways
continues as originally scheduled.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents increased to $350.1
million from $21.2 million at December 31, 1996. The net increase is a result of
the net proceeds of $773.9 million received from issuance of Globalstar's
11 1/4% and 11 3/8% Senior Notes, $12.2 million received from the sale of
warrants to GTL and, $140.9 million received from the exercise of the Guarantee
Warrants and GTL Rights by GTL, offset by expenditures for the Globalstar System
of $331.0 million, expenditures for the additional spare satellites of $80.0
million, net cash used in operating activities of $73.6 million, preferred
distributions on the Redeemable Preferred Partnership Interests of $15.1 million
and net repayments of debt of $96.0 million.
Accounts payable, payables to affiliates and accrued expenses and interest
have increased by $61.8 million from $75.3 million at December 31, 1996 to
$137.1 million at September 30, 1997, as a result of the timing of payments to
Globalstar contractors and accrued interest on the senior notes.
Through September 30, 1997, Globalstar incurred costs of approximately $1.5
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1997 were approximately $504 million.
Globalstar's current budgeted expenditures for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses, after giving effect to the
rescheduled launch, are approximately $2.7 billion. Most of the ground segment
costs are incurred under a cost-plus contract with Qualcomm. As a result of
added enhanced capabilities, additional test requirements and cost growth in the
development of the ground system, ground segment costs have increased.
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<PAGE> 39
As a result of cost containment and arrangements with Qualcomm for $100 million
of contract payment deferrals, Globalstar expects the total ground segment
expenditure to be $710 million, net of such deferrals, through the In-Service
Date.
Globalstar has also agreed to purchase from SS/L eight additional spare
satellites at a cost estimated at $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 38 initial gateways
ordered by Globalstar service providers. Globalstar expects to recover its
investment in this gateway financing program from the resale of the gateways to
service providers.
As of October 31, 1997, Globalstar had raised or received financing
commitments for approximately $2.6 billion.
RESULTS OF OPERATIONS
Comparison of Results for the Nine Months Ended September 30, 1997 and 1996
Globalstar is a development stage partnership and has not commenced
commercial operations. For the period March 23, 1994 (commencement of
operations) to September 30, 1997, Globalstar has recorded cumulative net losses
applicable to ordinary partnership interests of $234.2 million. The net loss
applicable to ordinary partnership interests for the nine months ended September
30, 1997 increased to $67.7 million as compared to $50.8 million for the nine
months ended September 30, 1996. The net loss increased primarily as a result of
increased activity in the development of Globalstar user terminals, increased
in-house engineering and marketing efforts and a full nine months distribution
on the RPPI's in 1997, versus a distribution for seven months in 1996, as the
RPPI's were issued in March 1996, offset by increased interest income.
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 $34.0 million on cash balances and
short term investments since commencement of operations. Interest income during
the nine months ended September 30, 1997 was $13.8 million as compared to $6.1
million for the nine months ended September 30, 1996. Interest income for the
current period increased as a result of higher average cash balances outstanding
during 1997.
Operating Expenses. Globalstar's development costs since commencement of
operations were $174.1 million. Development costs during the nine months ended
September 30, 1997 were $47.8 million as compared to $32.4 million for the nine
months ended September 30, 1996. Development costs for the current period
increased as a result of increased activity in the development of Globalstar
user terminals.
Marketing, general and administrative expenses since commencement of
operations were $60.8 million and were $17.8 million and $12.4 million for the
nine months ended September 30, 1997 and 1996, respectively. The increase in
marketing, general and administrative expenses is primarily the result of an
increase in the number of 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 user terminals and certain technologies under a cost sharing
arrangement with Qualcomm. Globalstar will not record depreciation expense on
the Globalstar System Under Construction 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
32
<PAGE> 40
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 development 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 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 interest of Globalstar.
33
<PAGE> 41
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 November 24, 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 February 1998, to commence commercial
operations in the first quarter of 1999 following the launch of 44 satellites in
1998. The remaining 12 satellites will be launched in early 1999 as scheduled.
Space Segment. On November 11, 1997, Globalstar announced that it has
rescheduled the launch of its first four satellites to the first week of
February 1998. The eight-week postponement was adopted to allow for further
testing and rehearsals of the TT&C ground equipment that will monitor the
launch and deployment of the Globalstar satellites. The postponement was
adopted in order to assure an adequate period of time to complete testing
of Globalstar's TT&C function prior to the initial launch and was not
related to any segment performance issues. The first four Globalstar
satellites, which will be launched on a McDonnell-Douglas Delta launch
vehicle, are at the Cape Canaveral launch site, and four additional
satellites for the second Delta launch have successfully completed
integration and testing. In addition, satellite and major subsystem
assembly, integration and testing necessary for the first launch on an
Ukranian Zenit launch vehicle are underway. 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. Globalstar's partners have placed purchase orders for
38 gateways under contracts totaling approximately $300 million. The first
four Globalstar gateways, which are to be located in Australia, France,
South Korea and the United States, are completed. 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. Progress on the
construction of the remaining 34 gateways continues as originally
scheduled. In addition, Globalstar's satellite operations control center
facility has been completed.
34
<PAGE> 42
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 fourth quarter 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 budgeted expenditures for the cost for the design,
construction and deployment of the Globalstar System, including working capital,
cash interest on anticipated borrowings and operating expenses, after giving
effect to the rescheduled launch, are approximately $2.7 billion. Globalstar has
raised or received commitments for approximately $2.6 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 38 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 3 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 1996 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.
35
<PAGE> 43
Loral is a principal founder of Globalstar and, through a subsidiary, is
its managing general partner. Loral owns, directly or indirectly, approximately
39% 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 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
36
<PAGE> 44
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.
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.
37
<PAGE> 45
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. After initial production runs, 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. Eight additional service
providers have agreed to offer Globalstar service in 35 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 38 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
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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.
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 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. 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.
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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 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
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expected to be deployed on the Globalstar System and offered to Globalstar
service providers to address this need.
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
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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 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
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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, 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 have been designed
for Globalstar by Qualcomm. Globalstar will acquire 38 gateways from Qualcomm
for resale to service providers under contracts totaling approximately $300
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 38 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
(a) the peak hour system utilization pattern, (b) average call length and (c)
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 two of the other MSS applicants
that have received FCC licenses, Iridium and Odyssey. Although Iridium has
launched 34 of its 66 satellites, 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. ICO has, however, filed a request with the FCC 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 maintime
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
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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.
Two other MSS applicants, Constellation and MCHI, have recently been
granted FCC licenses after the FCC waived its financial qualification
requirements with respect to such applicants. In granting such licenses, the FCC
found that such applicants had failed to demonstrate that they are financially
qualified, and it is not certain that they will be able to raise sufficient
funds to construct, launch and operate their proposed systems. Even if
ultimately built, such systems are not planned to enter the market until
significantly after Globalstar's targeted In-Service Date.
Geostationary-based satellite systems, including American Mobile Satellite
Corporation ("AMSC") and Comsat's Planet-1 are providing, and other proposed
geostationary-based satellite systems, including Asia Pacific Mobile Telecom
("APMT"), Afro-Asia Satellite ("ASC"), PTAsia Cellular Satellite ("ACeS"),
Thuraya and Satphone, 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.
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EMPLOYEES
As of September 30, 1997, Globalstar had approximately 190 full-time
employees, none of whom is subject to any collective bargaining agreement.
PROPERTIES
Globalstar currently leases approximately 79,000 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 FCC license 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. One of the
three remaining applicants withdrew and, on June 30, 1997, the applications of
MCHI and Constellation were granted. The FCC Staff's decisions granting these
two licenses have been appealed to the full FCC, and these appeals remain
pending. Before grant of MCHI's application, Motorola, TRW and L/Q Licensee had
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. On June 27, 1997, the FCC issued an order stating that
the evidence was insufficient to support a finding against any of the parties
involved in these requests. This decision with respect to MCHI was appealed to
the full FCC by L/Q Licensee and TRW, and these appeals remain pending.
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
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<PAGE> 54
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.
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. L/Q Licensee, TRW, MCHI and Constellation are all authorized
to construct their systems using CDMA technology, and so, must coordinate use of
the spectrum assigned for CDMA systems. The CDMA systems must also coordinate
with the TDMA system. There can be no assurance that such intersystem
coordinations would not have an adverse effect on Globalstar operations.
In granting the applications of MCHI and Constellation, the FCC noted that
protection requirements imposed upon U.S.-licensed MSS above 1 GHz service
systems for the Russian GLONASS aeronautical radionavigation system operating
below 1610 MHz might call into question the premises for the FCC's determination
that five systems can be accommodated in the available spectrum for user uplinks
at 1.6 GHz. It stated that if regulatory measures taken for protection of
GLONASS diminish the amount of spectrum available to CDMA systems operating at
1.6 GHz, it would consider whether MCHI and Constellation should bear the
principal burden of any operating constraints. The National Telecommunications
and Information Administration has proposed to the FCC out-of-band emissions
limits for protection of GLONASS and Global Positioning System which would be
applicable to mobile earth stations operating in the 1.6 GHz band. The FCC has
requested comment on these proposals.
In the orders granting licenses to MCHI and Constellation, the FCC
authorized these two applicants to use the 7 GHz frequencies for feeder
downlinks also assigned to Globalstar. In so doing, the FCC noted that it may
not be feasible for Globalstar, MCHI and Constellation to share the 6875-7075
MHz band. The FCC made the feeder downlink assignments of both MCHI and
Constellation subject to the condition that before commencing operation, MCHI
and Constellation must demonstrate that they can feasibly share the spectrum
with all other persons or organizations with full or conditional authority to
use any part of this band for feeder downlinks in the United States.
Constellation was also authorized to use the same 5 GHz frequencies as
Globalstar for its feeder uplinks. Globalstar must coordinate use of these
feeder link frequencies with those MSS licensees which are authorized to use the
same frequencies.
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. 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
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<PAGE> 55
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
were challenged in a judicial appeal. The U.S. Court of Appeals for the D.C.
Circuit dismissed the appeal of the FCC's rules on September 3, 1997; the court,
however, left open the possibility of future review of certain aspects of those
rules. In the event that the FCC were to be judicially required to reconsider
its licensing procedures, 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 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. Three petitions for reconsideration and/or clarification of the
Order regarding issues related to protection requirements for GLONASS remain
pending at the FCC.
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 LQP's 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
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<PAGE> 56
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 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. On July 31,
1997, Globalstar requested that the Commission make a similar finding regarding
its system, but has not yet received a response. 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
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<PAGE> 57
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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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.............. 51 Vice President and Treasurer of Globalstar Capital;
Vice President and Treasurer of Globalstar
Harvey B. Rein................. 44 Vice President and Controller of Globalstar Capital;
Vice President of Globalstar
Thomas B. Ross................. 66 Vice President, Government Relations of Globalstar
Eric J. Zahler................. 47 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
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
July 1995 until May 1996, Mr. Targoff was Senior Vice President, Secretary and a
director of GTL and
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<PAGE> 59
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> 60
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> 61
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 $125,000 -- $ 9,132
President 1995 $176,220 $125,000 30,000 $ 5,400
1994 $176,220 $100,000 -- $ 4,010
Anthony J. Navarra 1996 $179,229 $ 90,000 -- $ 5,026
Executive Vice President - 1995 $168,334 $ 90,000 25,000 $ 5,151
Business Development 1994 $160,006 $ 70,000 -- $ 3,438
Joel Schindall 1996 $157,339 $ 45,000 -- $ 500
Vice President - Systems 1995 $153,300 $ 15,000 2,400 $ 5,374
Applications 1994 $153,300 $ 10,000 -- $ 3,379
William F. Adler 1996 $135,692 $ 45,000 10,000 $77,630
Vice President and General
Counsel
Robert Hicks 1996 $ 83,654 $ 65,000 14,000 $ 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,
1996, paid in 1997, 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.
(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> 62
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............ 10,000 11.90% $ 31.76565 $ 31.76565 11/18/2006 $179,400
Robert Hicks................ 14,000 16.67% $ 31.76565 $ 31.76565 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 EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Dwyre........ -- -- -- 30,000 -- $695,625
Anthony J. Navarra...... -- -- -- 25,000 -- $579,688
Joel Schindall.......... -- -- -- 2,500 -- $ 55,650
William F. Adler........ -- -- -- 10,000 -- $ -0-
Robert Hicks............ -- -- -- 14,000 -- $ -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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<PAGE> 63
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> 64
RELATED PARTY TRANSACTIONS
SS/L Agreement and Subcontracts. Messrs. Schwartz, Targoff and DeBlasio
are executive officers and directors 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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<PAGE> 65
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 38 gateways from Qualcomm for
resale to service providers under contracts totaling approximately $300 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
38 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. E. John Peett, a director of GTL, 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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<PAGE> 66
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 $155,000 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 8,370,636 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 8,370,636 shares of GTL common
stock issued in connection with the Globalstar Credit Agreement have exercised
such warrants at $13.25 per share, and GTL has registered for resale the GTL
common stock issued upon exercise of such warrants. In addition, GTL issued
2,262,336 GTL shares at a price of $13.25 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> 67
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 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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<PAGE> 68
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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<PAGE> 69
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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<PAGE> 70
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 interests issued 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 Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in the following summary are set forth below
under "-- Definitions."
GENERAL
The Notes were issued pursuant to the Indenture among Globalstar and
Globalstar Capital, as joint and several obligors, and The Bank of New York, as
trustee (the "Trustee"), in a private transaction that was not subject to the
registration requirements of the Securities Act. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the 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 September 30, 1997, the Notes ranked senior to no
Debt (excluding the RPPIs) and ranked pari passu with approximately $1,012
million of Debt of the Issuers.
As of the date of this Prospectus, Globalstar has no Subsidiaries other
than Globalstar Capital, Globalstar Corporation, Globalstar Services Company,
Inc., 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 Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are unsecured senior obligations of the Issuers, will be limited
to $325 million aggregate principal amount and will mature on November 1, 2004.
The Notes bear interest at the rate of 10 3/4% per annum, payable semi-annually
on May 1 and November 1, of each year, commencing May 1, 1998, to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the preceding April 15 or October 15, as the case may be. Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from October 29, 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 Notes are not redeemable at the Issuers' option prior to November 1,
2002. 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 November
1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2002.............................................................. 105.375%
2003.............................................................. 102.688
</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.
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).
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"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 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 Indenture, 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
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principal amount of the Notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture 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 the Indenture relative to the Issuers' obligation to make an
offer to repurchase the Notes 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.
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 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 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 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 Indenture 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.
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COVENANTS
The Indenture contains, 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;
(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
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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 $675 million of Debt (including the amount
of Debt outstanding at the time under the 11 3/8% Indenture and the 11 1/4%
Indenture) permitted to be incurred under the Indenture so long as
effective provision is made to secure the 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;
(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;
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(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, 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
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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 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 Indenture, 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
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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 Indenture
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
(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;
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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 Subsidiary.
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
(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
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(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 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 the
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 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,
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 Indenture; (ii)
immediately after giving effect to such transaction (and treating any Debt which
becomes an obligation of the Successor Company or
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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 Indenture.
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 Indenture.
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 Indenture, 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 Indenture (such Guarantee, a
"Subsidiary Guaranty").
The form of the Subsidiary Guaranty provided by Restricted Subsidiaries
(each, a "Subsidiary Guarantor") is provided for in the Indenture. 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 or substantially all the assets of a Subsidiary Guarantor (in
each case other than to Globalstar or an Affiliate of Globalstar) permitted by
the Indenture, 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
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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 the 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 the 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 until the Trustee
or the Holders of 25% in principal amount of the outstanding Notes 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 Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest and Liquidated Damages (if any) on
all the Notes 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 the 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 the Notes. Under certain circumstances,
the Holders of a majority in principal amount of the outstanding Notes may
rescind any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the 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 unless
such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest or Liquidated Damages (if
any) when due, no Holder of a Note may pursue any remedy with respect to the
Indenture or the Notes unless (i) such Holder has previously given the Trustee
notice that an Event of Default is continuing, (ii) Holders of at least 25% in
principal amount of the 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 the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power
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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 a Note or
that would involve the Trustee in personal liability.
The 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 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
the 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 Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes, by accepting a Note, waives and releases all
such liability. 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 Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. 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 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 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 "--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 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 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).
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the 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 the 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 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 Indenture or the Notes may be amended
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange for the 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 the 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 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 Note, (iii) reduce the principal of or extend
the Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "--Optional Redemption", (v) make any Note payable in money
other than that stated in the Note, (vi) impair the right of any Holder of the
Notes to receive payment of principal of and interest and Liquidated Damages (if
any) on such Holder's Notes on or after the due dates therefor or to institute
suit for the enforcement of any payment on or with respect to such Holder's
Notes, (vii) make any change in the amendment provisions which require each
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 Noteholders.
Without the consent of any Holder of the Notes, the Issuers and Trustee may
amend the Indenture or the Notes 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
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 the Notes, to release such guarantees, to secure the Notes, to add to the
covenants of the Issuers for the benefit of the Holders of the Notes 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 Notes or to comply
with any requirement of the SEC in connection with the qualification of the
Indenture under the Trust Indenture Act.
The consent of the Holders of the Notes is not necessary under the
Indenture 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 the Indenture becomes effective, the Issuers are
required to mail to Holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all Holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
CONCERNING THE TRUSTEE
The Indenture contains 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,
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subject to certain exceptions. The 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 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
Indenture. Reference is made to the 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 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.
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"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.
"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
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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
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 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 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
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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 Memorandum dated October 23, 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 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
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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 October 29, 1997.
"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).
"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
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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 Indenture 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);
(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 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 (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
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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
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 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.
"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 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 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
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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).
"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
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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).
"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 --
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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 Initial Purchasers have entered into a registration
rights agreement (the "Registration Rights Agreement") dated October 29, 1997,
pursuant to which the Issuers agreed to file with the Commission a registration
statement of which this Prospectus is a part (the "Exchange Offer Registration
Statement") on the appropriate form under the Securities Act with respect to 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 Agreement also provides that (i) the Issuers will
use their reasonable efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 180 days after the Issue
Date, (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 the Exchange Offer 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 180 days after the
Issue Date) 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 the 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 Exchange Offer 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 Agreement (each such
event referred to in clauses (a) through (c) above a "Registration Default"),
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then the Issuers will pay liquidated damages ("Liquidated Damages") to each
Holder of Notes, 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, dealers in securities or foreign
currency, persons that hold Notes as part of a straddle, a hedge against
currency risk or a constructive sale or conversion transaction, and persons that
have a functional currency other than the U.S. dollar), 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 matters 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 NOTES, 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
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. Certain U.S. Federal income tax consequences relevant to a holder
other than a United States Holder are discussed separately below.
TAX TREATMENT OF THE NOTES
Stated Interest. In general, 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.
Stated interest will be U.S. source.
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 holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note in the hands of an original holder generally will
be equal to the Note's purchase price. Such gain or loss generally will be
capital gain or loss, and will be long-term capital gain or loss if the holder
has held such Notes for more than one year. Any such long-term capital gain
generally will be taxed at one of two preferential rates depending upon whether
the holding period for the Note is greater than 18 months as of the date of such
sale, retirement or other taxable disposition. Any amounts paid with respect to
accrued but unpaid stated interest generally will be taxable as ordinary
interest income.
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Exchange Offer. The exchange of Original Notes for Exchange Notes pursuant
to the Exchange Offer should not be a taxable exchange. As a result, (i) a
United States Holder should not recognize taxable gain or loss as a result of
exchanging Original Notes for Exchange Notes pursuant to the Exchange Offer;
(ii) the holding period of the Exchange Notes should include the holding period
of the Notes exchanged therefor; and (iii) the adjusted tax basis of the
Exchange Notes should be the same as the adjusted tax basis of the Original
Notes exchanged therefor 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 a United States Holder as ordinary income in
accordance with the holder's method of accounting for U.S. Federal income tax
purposes. It is possible, however, that the IRS may take a different position,
in which case a United States Holder might be required to include such
Liquidated Damages in income as such Liquidated Damages accrue or become fixed
(regardless of such United States Holder's usual method of tax accounting).
BACKUP WITHHOLDING
Under certain circumstances, the failure of a holder of a Note to provide
sufficient information to establish that such holder is exempt from the backup
withholding provisions of the Code will subject such holder to backup
withholding at a rate of 31 percent. In general, backup withholding applies if a
holder fails to furnish a correct taxpayer identification number, fails to
report dividend and interest income in full, or fails to certify that such
holder has provided a correct taxpayer identification number and that such
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 holder under the backup withholding
rules is allowable as a credit against such holder's U.S. Federal income tax
liability, provided that the required information is furnished to the IRS.
Certain holders (including, among others, corporations and foreign individuals
who comply with certain certification requirements) are not subject to backup
withholding. 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 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 United States Holder (a "Non-U.S. Holder").
Interest. 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 paid by the Issuers to a Non-U.S. Holder generally should not be
subject to withholding of U.S. Federal income tax at the rate of 30%, 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 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
93
<PAGE> 101
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 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 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 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 other rules different from
those described above.
Sale, Exchange or Redemption of Notes. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on 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.
Information Reporting and Backup Withholding. On October 6, 1997, the
Treasury Department issued final regulations relating to information reporting
and backup withholding that unify current certification procedures and forms and
clarify reliance standards (the "Final Regulations"). The Final Regulations
generally will be effective with respect to payments made after December 31,
1998. Except as provided below, this section describes rules applicable to
payments made on or before December 31, 1998. 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> 102
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 , 1998 (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, counsel to
Globalstar. As of November 24, 1997, partners in Willkie Farr & Gallagher
beneficially own approximately 82,300 shares of the common stock of GTL. 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> 103
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-27
Balance Sheets............................................................. F-28
Notes to Balance Sheets.................................................... F-29
GLOBALSTAR TELECOMMUNICATIONS LIMITED (A General Partner of Globalstar, L.P.)
Annual Financial Statements:
Independent Auditors' Report............................................... F-30
Balance Sheets............................................................. F-31
Statements of Operations................................................... F-32
Statements of Shareholders' Equity......................................... F-33
Statements of Cash Flows................................................... F-34
Notes to Financial Statements.............................................. F-35
Interim Financial Statements:
Condensed Balance Sheets................................................... F-40
Condensed Statements of Operations......................................... F-41
Condensed Statements of Cash Flows......................................... F-42
Notes to Condensed Financial Statements.................................... F-43
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A General Partner of Globalstar,
L.P.)
Annual Financial Statements:
Independent Auditors' Report............................................... F-46
Balance Sheets............................................................. F-47
Statements of Operations................................................... F-48
Statements of Partners' Capital and Subscriptions Receivable............... F-49
Statements of Cash Flows................................................... F-50
Notes to Financial Statements.............................................. F-51
Interim Financial Statements:
Condensed Balance Sheets................................................... F-54
Condensed Statements of Operations......................................... F-55
Notes to Condensed Financial Statements.................................... F-56
</TABLE>
F-1
<PAGE> 104
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 (May 28, 1997 as to
the first paragraph of Note 9)
F-2
<PAGE> 105
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> 106
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> 107
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> 108
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> 109
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 20,000,000 shares of common stock (as adjusted for two-for-one stock
split, see Note 9) 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 two-for-one basis (as adjusted for two-for-one stock split, see Note 9)
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 2,814,288 shares of GTL's common
stock (as adjusted for two-for-one stock split, see Note 9).
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> 110
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> 111
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> 112
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> 113
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> 114
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 (as
adjusted for two-for-one stock split, see Note 9) to purchase 8,370,636 shares
of GTL common stock at $13.25 as follows: Loral 1,884,856 warrants, Lockheed
Martin 5,022,380 warrants, Qualcomm 734,262 warrants, SS/L 390,188 warrants and
another Globalstar partner 338,950 warrants. Proceeds from the exercise of the
warrants will be used to purchase Globalstar ordinary partnership interests
under a two-for-one exchange arrangement (as adjusted for two-for-one stock
split, see Note 9). 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
F-12
<PAGE> 115
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITY (CONTINUED)
of the average 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 8,370,636 shares of GTL common stock at $13.25 per
share (as adjusted for two-for-one stock split, see Note 9) 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 2,262,336 GTL shares for a price of $13.25 per share of which
Loral will receive 318,344 rights (as adjusted for two-for-one stock split, see
Note 9). 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> 116
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNERS' CAPITAL
On May 28, 1997, GTL issued a two-for-one stock split. Prior to the
two-for-one stock split, GTL's equity securities and convertible securities were
represented by equivalent Globalstar partnership interests on a one-for-one
basis. Globalstar's partnership interests were not affected by the GTL stock
split and, accordingly, GTL's equity securities and convertible securities are
now represented by equivalent Globalstar partnership interests on a two-for-one
basis.
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 220,800 shares of GTL common stock (as
adjusted for two-for-one stock split) and in 1996, options to purchase 244,000
shares of GTL common stock (as adjusted for two-for-one stock split) 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
F-14
<PAGE> 117
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNER'S CAPITAL (CONTINUED)
grant. As of December 31, 1996, 37,600 shares of common stock were available for
future grant under the Plan, no options were exercised or are exercisable and
2,400 have been cancelled (as adjusted for two-for-one stock split).
On September 14, 1995, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 280,000 shares of the GTL
common stock owned by Loral at an exercise price of $10.00 per share (as
adjusted for two-for-one stock split). On December 12, 1995 Loral, in its
capacity as managing general partner, granted non-employee directors of Loral
options to purchase 400,000 shares of the GTL common stock owned by Loral at an
exercise price of $16.6875 per share (as adjusted for two-for-one stock split).
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 304,000 shares of the GTL
common stock owned by Loral at a price $12.6875 below market price on the grant
date (as adjusted for two-for-one stock split). 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.
F-15
<PAGE> 118
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ORDINARY PARTNER'S CAPITAL (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 (as adjusted for
two-for-one stock split):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Granted in 1995 (weighted average fair value $2.665 per share)... 220,800 $ 8.3125
Outstanding at December 31, 1995................................. 220,800 8.3125
Granted (weighted average fair value $9.02 per share)............ 244,000 27.45
Forfeited........................................................ (2,400) 8.3125
-------
Outstanding at December 31, 1996................................. 462,400 18.412
=======
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1996 (as adjusted for two-for-one stock split):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE-YEARS
------------------------------------------------------- ----------- ----------------------
<S> <C> <C>
$ 8.3125 .............................................. 218,400 8.7
25.1875 .............................................. 160,000 9.4
31.76565.............................................. 84,000 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>
F-16
<PAGE> 119
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PENSIONS AND OTHER EMPLOYEE BENEFITS (CONTINUED)
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>
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.
F-17
<PAGE> 120
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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.
F-18
<PAGE> 121
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split, see Note 9) 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 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 $34.7875
per share (as adjusted for two-for-one stock split, see Note 9). 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> 122
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interest data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 350,059 $ 21,180
Other current assets.............................................. 25,972 606
---------- --------
Total current assets...................................... 376,031 21,786
Property and equipment, net......................................... 2,067 1,720
Globalstar System Under Construction:
Space segment..................................................... 1,039,209 730,513
Ground segment.................................................... 305,377 160,520
---------- --------
1,344,586 891,033
Additional satellite spares......................................... 80,011 --
Deferred FCC license costs.......................................... 10,066 8,690
Deferred financing costs............................................ 15,867 19,577
Other assets........................................................ 806 107
---------- --------
Total assets.............................................. $ 1,829,434 $942,913
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.................................................. $ 3,853 $ 4,401
Payable to affiliates............................................. 111,285 63,937
Accrued expenses.................................................. 4,208 6,929
Accrued interest on senior notes.................................. 17,773 --
---------- --------
Total current liabilities................................. 137,119 75,267
Deferred revenues................................................... 23,652 23,652
Vendor financing liability.......................................... 186,470 130,694
Borrowings under long-term revolving credit facility................ -- 96,000
Deferred interest payable........................................... 411 77
Senior notes payable ($500,000 principal amount).................... 474,582 --
Senior notes payable ($325,000 principal amount).................... 302,814 --
Commitments and contingencies (Note 7)
Redeemable preferred partnership interests (4,769,230 outstanding
$310,000 redemption value)........................................ 302,826 302,037
Ordinary partners' capital:
Ordinary partnership interests (52,317,876 and 47,000,000
outstanding at September 30, 1997 and December 31, 1996,
respectively).................................................. 389,350 292,585
Warrants.......................................................... 12,210 22,601
---------- --------
Total ordinary partners' capital............................... 401,560 315,186
---------- --------
Total liabilities and partners' capital................... $ 1,829,434 $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> 123
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per interest data)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, (COMMENCEMENT OF
------------------ OPERATIONS) TO
1997 1996 SEPTEMBER 30, 1997
------- ------- ------------------
<S> <C> <C> <C>
Operating expenses:
Development costs....................................... $47,823 $32,397 $174,108
Marketing, general and administrative................... 17,790 12,400 60,783
------- ------- --------
Total operating expenses........................ 65,613 44,797 234,891
Interest income........................................... 13,799 6,050 33,950
------- ------- --------
Net loss.................................................. 51,814 38,747 200,941
Preferred distribution and related increase in redeemable
preferred partnership interests......................... 15,901 12,019 33,224
------- ------- --------
Net loss applicable to ordinary partnership interests..... $67,715 $50,766 $234,165
======= ======= ========
Net loss per ordinary partnership interest................ $ 1.34 $ 1.08
======= =======
Weighted average interests used in computing net loss per
ordinary partnership interest........................... 50,520 47,000
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 124
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1997 1996 SEPTEMBER 30, 1997
--------- --------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (51,814) $ (38,747) $ (200,941)
Deferred revenues..................................................... -- 1,739 23,652
Stock compensation transactions....................................... 969 -- 1,286
Depreciation and amortization......................................... 4,412 4,412 10,783
Changes in operating assets and liabilities:
Other current assets................................................ (25,366) (140) (25,972)
Other assets........................................................ (699) -- (806)
Accounts payable.................................................... (1,708) 2,513 1,510
Payable to affiliates............................................... 3,286 (9,972) 4,597
Accrued expenses.................................................... (2,721) (423) 4,208
--------- --------- -----------
Net cash used in operating activities................................... (73,641) (40,618) (181,683)
--------- --------- -----------
Investing activities:
Globalstar System under construction.................................. (450,097) (354,900) (1,341,130)
Payable to affiliates for Globalstar System under construction........ 44,062 33,065 97,888
Capitalized interest payable.......................................... 18,107 -- 18,184
Accounts payable...................................................... 1,160 (521) 1,835
Vendor financing liability............................................ 55,776 68,317 186,470
--------- --------- -----------
Cash used for Globalstar System....................................... (330,992) (254,039) (1,036,753)
Additional satellite spares........................................... (80,011) -- (80,011)
Purchases of property and equipment................................... (1,049) (665) (3,991)
Deferred FCC license costs............................................ (1,376) (1,125) (7,831)
Purchases of investments.............................................. -- -- (126,923)
Maturity of investments............................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities................................... (413,428) (255,829) (1,128,586)
--------- --------- -----------
Financing activities:
Net proceeds from issuance of $500,000 11 3/8% Senior Notes........... 472,090 -- 472,090
Proceeds from warrants issued in connection with $500,000 11 3/8%
Senior Notes........................................................ 12,210 -- 12,210
Net proceeds from issuance of $325,000 11 1/4% Senior Notes........... 301,850 -- 301,850
Proceeds from exercise of warrants.................................... 140,887 -- 140,887
Proceeds from sale of partnership interests associated with exercise
of stock options.................................................... 23 -- 23
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............. -- 299,500 299,500
Distributions on redeemable preferred partnership interests........... (15,112) (9,795) (29,945)
Prepaid interest on redeemable preferred partnership interests........ -- 47 47
Borrowings under long-term revolving credit facility.................. 65,000 10,000 171,000
Repayment of borrowings under long-term revolving credit facility..... (161,000) (10,000) (171,000)
--------- --------- -----------
Net cash provided by financing activities............................... 815,948 289,502 1,660,328
--------- --------- -----------
Net increase in cash and cash equivalents............................... 328,879 (6,945) 350,059
Cash and cash equivalents, beginning of period.......................... 21,180 71,602 --
--------- --------- -----------
Cash and cash equivalents, end of period................................ $ 350,059 $ 64,657 $ 350,059
========= ========= ===========
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....... $ 789 $ 2,271 $ 3,326
========= ========= ===========
Increase in carrying value of senior notes............................ $ 3,456 $ 3,456
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE> 125
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 nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full year. It is suggested that these consolidated 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, 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 condensed 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 $500 million and $325 million principal amount
Senior Notes at 11 3/8% and 11 1/4% per annum, respectively. Globalstar is
increasing the carrying value of the senior notes payable to their ultimate
redemption value.
Reclassifications
Certain reclassifications have been made to conform prior amounts to the
current period presentation.
F-23
<PAGE> 126
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
On November 11, 1997, Globalstar announced that it has rescheduled the
launch of its first four satellites to the first week of February 1998. The
eight-week postponement was adopted to allow for further testing and rehearsals
of the tracking, telemetry and control (TT&C) ground equipment that will monitor
the launch and deployment of the Globalstar satellites. The postponement was
adopted in order to assure an adequate period of time to complete testing of
Globalstar's TT&C function prior to the initial launch and was not related to
any segment performance issue. All other elements of the project including
system design, satellite and CDMA technology, gateway design and handset
production remain on schedule and meet or exceed critical performance criteria.
Globalstar now expects to begin commercial service no later than in the
first quarter of 1999 following the launch of 44 satellites during 1998. The
remaining 12 satellites will be launched in early 1999 as scheduled.
The first four Globalstar satellites are at the Cape Canaveral launch site
and four additional satellites for the second launch have successfully completed
integration and testing. In addition, satellite and major subsystem assembly,
integration and testing necessary for the first Zenit launch is underway.
The first four Globalstar gateways are completed and ready to support the
first launch. Progress on the construction of an additional 34 gateways
continues as originally scheduled.
Globalstar's current budgeted expenditures for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses after giving effect to the
rescheduled launch is approximately $2.7 billion. Most of the ground segment
costs are incurred under a cost-plus contract with Qualcomm. As a result of
added enhanced capabilities, additional test requirements and cost growth in the
development of the ground system, ground segment costs have increased. As a
result of cost containment and arrangements with Qualcomm for $100 million of
contract payment deferrals, Globalstar expects the total ground segment
expenditure to be $710 million, net of such deferrals, through the In-Service
Date.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost estimated at $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 38 initial
gateways ordered by Globalstar service providers. Globalstar expects to recover
its investment in this gateway financing program from the resale of the gateways
to service providers.
Actual amounts may vary from these estimates 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.
As of October 31, 1997, Globalstar has raised or received financing
commitments for approximately $2.6 billion.
5. PARTNERSHIP INTERESTS
On May 28, 1997, GTL issued a two-for-one stock split. Prior to the
two-for-one stock split, GTL's equity securities and convertible securities were
represented by equivalent Globalstar partnership interests on a one-for-one
basis. Globalstar's partnership interests were not affected by the GTL stock
split and, accordingly, GTL's equity securities and convertible securities are
now represented by equivalent Globalstar partnership interests on a two-for-one
basis.
F-24
<PAGE> 127
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EXERCISE OF GUARANTEE WARRANTS AND GTL RIGHTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 8,370,636 shares of
GTL common stock for $13.25 per share (as adjusted for two-for-one stock split,
see Note 5). GTL received proceeds of approximately $110.9 million. On May 5,
1997, GTL received proceeds of approximately $30.0 million as a result of the
exercise of rights to purchase 2,262,336 shares of GTL common stock for $13.25
per share (as adjusted for two-for-one stock split, see Note 5). GTL used the
proceeds from the warrants and the rights to purchase 5,316,486 Globalstar
ordinary partnership interests for $26.50 per interest, increasing GTL's
holdings of Globalstar's ordinary partnership interests from 21.3% to 29.3%.
7. 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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split, see Note 5) 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 is paid semi-annually.
The warrants are exercisable on or after February 19, 1998 at a price of
$34.7875 per share (as adjusted for two-for-one stock split, see Note 5) 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.
On June 13, 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 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 June 2002 and are subject to a prepayment premium prior to
2004. Interest is paid semi-annually.
The indentures for the notes contain 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.
Globalstar will use the net proceeds of approximately $786 million from the
offerings for the construction and deployment of the Globalstar System.
8. STOCK OPTION TRANSACTIONS
The Company and Globalstar have agreed that upon the exercise of options
under the GTL 1994 Stock Option Plan by optionees who are employees of
Globalstar or any of its controlling entities, Globalstar will issue to the
Company one Globalstar ordinary partnership interest for every two shares of
common stock issued to the optionee (as adjusted for two-for-one stock split,
see Note 5). During the third quarter, the Company issued 2,780 shares of common
stock to optionees at a price of $8.3125 per share. The Company purchased 1,390
Globalstar ordinary partnership interests with the proceeds from the issuance of
the common stock.
9. SUBSEQUENT EVENTS
On October 29, 1997, Globalstar sold $325 million principal amount of
10 3/4% Senior Notes due 2004 in a private offering. The notes are senior in
right of payment to the redeemable preferred partnership interests and
F-25
<PAGE> 128
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may not be redeemed prior to November 2002 and are subject to a prepayment
premium prior to 2004. Interest 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 at 101% of the principal amount plus
accrued interest.
Globalstar will use the net proceeds of approximately $320 million for the
construction and deployment of the Globalstar System.
F-26
<PAGE> 129
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-27
<PAGE> 130
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
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-28
<PAGE> 131
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Globalstar Capital Corporation ("Globalstar Capital"), 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.
2. COMMITMENTS AND CONTINGENCIES
Globalstar Capital is a co-obligor on the following Globalstar borrowings:
11 3/8% $500 MILLION SENIOR NOTES DUE 2004
On February 13, 1997, Globalstar sold $500 million principal amount of its
11 3/8% Senior Notes due 2004 in a private offering. The notes are senior in
right of payment to Globalstar's Redeemable Preferred Partnership Interests, may
not be redeemed prior to February 2002 and are subject to a prepayment premium
prior to 2004. Interest is paid semi-annually.
11 1/4% $325 MILLION SENIOR NOTES DUE 2004
On June 13, 1997, Globalstar sold $325 million principal amount of its
11 1/4% Senior Notes due 2004 in a private offering. The notes are senior in
right of payment to Globalstar's Redeemable Preferred Partnership Interests, may
not be redeemed prior to June 2002 and are subject to a prepayment premium prior
to 2004. Interest is paid semi-annually.
The indentures for the 11 3/8% Senior Notes and the 11 1/4% Senior Notes
contain 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.
Globalstar Capital is a guarantor of a $250 million credit agreement
between Globalstar and a group of banks. At September 30, 1997 and December 31,
1995, there were no borrowings outstanding under this agreement. At December 31,
1996 approximately $96 million was outstanding under this agreement.
3. SUBSEQUENT EVENT
On October 29, 1997, Globalstar Capital and Globalstar co-issued $325
million principal amount of 10 3/4% Senior Notes due 2004 under terms generally
consistent with the 11 3/8% Senior Notes and 11 1/4% Senior Notes.
F-29
<PAGE> 132
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 (May 28, 1997 as to
the first paragraph of Note 4)
F-30
<PAGE> 133
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-31
<PAGE> 134
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......................................................... $ .75 $ .63
======= ========
Shares used in computing net loss per share................................ 20,000 20,000
======= ========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 135
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-33
<PAGE> 136
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-34
<PAGE> 137
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 2,814,288 shares of
GTL's outstanding common stock (as adjusted for two-for-one stock split, see
Note 4).
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-35
<PAGE> 138
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 9,538,460 shares of GTL Common Stock at a conversion price
of $32.50 per share (as adjusted for two-for-one stock split, see Note 4),
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-36
<PAGE> 139
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY
On May 28, 1997, GTL issued a two-for-one stock split to shareholders of
record on May 12, 1997 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts (excluding the balance sheets and statements of
shareholders' equity) have been restated to reflect the stock split. Prior to
the two-for-one stock split, GTL's equity securities and convertible securities
were represented by equivalent Globalstar partnership interests on a one-for-one
basis. Globalstar's partnership interests were not affected by the GTL stock
split and, accordingly, GTL's equity securities and convertible securities are
now represented by equivalent Globalstar partnership interest on a two-for-one
basis.
On February 14, 1995, GTL completed an initial public offering of
20,000,000 shares of common stock (as adjusted for two-for-one stock split)
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 24,000 shares of common stock (as adjusted for two-for-one
stock split) 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 two-for-one basis (as adjusted for two-for-one
stock split) 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 74,000,000
shares (as adjusted for two-for-one stock split) 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 two-for-one exchange arrangement (as adjusted for
two-for-one stock split).
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 $374,000 ($.02 per share) to $15,454,000 ($.78 per share) in 1996
and would have increased by $33,000 ($.01 per share) to $12,665,000 ($.64 per
share) in 1995 (as adjusted for two-for-one stock split).
F-37
<PAGE> 140
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 (as adjusted for
two-for-one stock split):
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Granted in 1995 (weighted average fair value of $2.665 per
share)........................................................ 220,800 $ 8.3125
-------
Outstanding at December 31, 1995................................ 220,800 8.3125
Granted (weighted average fair value of $9.02 per share)........ 244,000 27.45
Forfeited....................................................... (2,400) 8.3125
-------
Outstanding at December 31, 1996................................ 462,400 18.412
=======
</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, 37,600 shares of common stock (as adjusted for
two-for-one stock split) were available for future grant under the Plan. The GTL
Board of Directors has approved, subject to shareholder approval, a 750,000
increase in the number of shares (as adjusted for two-for-one stock split)
available for grant under the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1996 (as adjusted for two-for-one stock split):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL
EXERCISE PRICE OUTSTANDING LIFE-YEARS
---------------------------------------------------------- ----------- ----------------
<S> <C> <C>
$ 8.3125.................................................. 218,400 8.7
25.1875.................................................. 160,000 9.4
31.76565................................................. 84,000 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 (as
adjusted for two-for-one stock split) to purchase 8,370,636 shares of GTL common
stock at $13.25 per share as follows: Loral 1,884,856 warrants, Lockheed Martin
5,022,380 warrants and certain Globalstar partners 1,463,400 warrants. Proceeds
received from the exercise of the warrants will be used to purchase Globalstar
ordinary partnership interests under two-for-one exchange arrangement (as
adjusted for two-for-one stock split). 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 8,370,636 shares of GTL common stock at $13.25 per
share (as adjusted for two-for-one stock split) 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 2,262,336 GTL shares for a price of $13.25 per share (as adjusted for
two-for-one stock split) of which Loral will receive rights to purchase 318,344
shares (as adjusted for two-for-one stock
F-38
<PAGE> 141
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY (CONTINUED)
split). Loral agreed to purchase all 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 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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split) in a private offering. The notes are senior in right of
payment to Globalstar's 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 $34.7875
per share (as adjusted for two-for-one stock split). 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*.............................. (0.16) (0.20) (0.17) (0.23)
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*.............................. (0.08) (0.14) (0.18) (0.23)
</TABLE>
- ---------------
* As adjusted for two-for-one stock split.
F-39
<PAGE> 142
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997 (Note)
-------------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests........................ $ 302,826 $302,037
Ordinary partnership interests.................................... 303,568 158,038
Ordinary partnership warrants..................................... 12,210 22,601
-------- --------
Total assets.............................................. $ 618,604 $482,676
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.................................................. $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000 principal
amount)........................................................... 301,147 300,358
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock, $1.00 par value, 200,000,000 and 60,000,000 shares
authorized (30,635,752 and 10,000,000 issued and outstanding)
at September 30, 1997 and December 31, 1996, respectively...... 30,635 10,000
Paid-in capital................................................... 318,626 175,750
Warrants.......................................................... 12,210 22,601
Accumulated deficit............................................... (45,693) (27,712)
-------- --------
Total shareholders' equity..................................... 315,778 180,639
-------- --------
Total liabilities and shareholders' equity................ $ 618,604 $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-40
<PAGE> 143
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership interests of
Globalstar, L.P...................................................... $ 17,981 $ 10,569
Dividend income on Globalstar, L.P. redeemable preferred partnership
interests............................................................ (15,902) (12,019)
Interest expense on convertible preferred equivalent obligations....... 15,902 12,019
------- -------
Net loss............................................................... $ 17,981 $ 10,569
======= =======
Net loss per share..................................................... $ 0.66 $ 0.53
======= =======
Weighted average shares used in computing net loss per share........... 27,041 20,000
======= =======
</TABLE>
See notes to condensed financial statements.
F-41
<PAGE> 144
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (17,981) $ (10,569)
Equity in net loss of Globalstar, L.P..................... 17,981 10,569
Increase in redemption value of redeemable preferred
partnership interests.................................. (789) (595)
Dividends accrued on redeemable preferred partnership
interests in excess of cash received................... -- (1,676)
Amortization of convertible preferred equivalent
obligations issue costs................................ 789 595
Change in operating liability:
Interest payable....................................... -- 1,676
--------- ---------
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.................................................... (140,910) --
Purchase of redeemable preferred partnership interests in
Globalstar, L.P........................................ -- (299,500)
--------- ---------
Net cash used in investing activities....................... (153,120) (299,500)
--------- ---------
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 --
Proceeds from exercise of GTL rights...................... 29,976 --
Proceeds from exercise of GTL stock options............... 23 --
Payment of debt offering costs............................ -- (10,500)
Sale of convertible preferred equivalent obligations...... -- 310,000
--------- ---------
Net cash provided by financing activities................... 153,120 299,500
--------- ---------
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-42
<PAGE> 145
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
nine months ended September 30, 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 20,000,000 shares of common stock (as adjusted for
two-for-one stock split, see Note 3) resulting in net proceeds of $185,750,000.
Effective February 22, 1995, the Company purchased 21.3% of the ordinary
partnership interests of 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 September 30, 1997, GTL held 29.3% of the ordinary partnership interests
and 100% of the Redeemable Preferred Partnership Interests in Globalstar, see
Note 4. 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
September 30, 1997 was $45,693,000.
3. SHAREHOLDERS' EQUITY
On May 28, 1997, GTL issued a two-for-one stock split to shareholders of
record on May 12, 1997 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts (excluding the balance sheet at December 31,
1996) have been restated to reflect the stock split. Prior to the two-for-one
stock split, GTL's equity securities and convertible securities were represented
by equivalent Globalstar partnership interests on a one-for-one basis.
Globalstar's partnership interests were not affected by the GTL stock split and,
accordingly, GTL's equity securities and convertible securities are now
represented by equivalent Globalstar partnership interests on a two-for-one
basis.
4. EXERCISE OF THE GUARANTEE WARRANTS AND THE GTL RIGHTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 8,370,636 shares of
GTL common stock for $13.25 per share (as adjusted for two-for-one stock split,
see Note 3). GTL received proceeds of approximately $110.9 million. On May 5,
1997, GTL received approximately $30.0 million as a result of the exercise of
rights issued to shareholders to purchase 2,262,336 shares of GTL common stock
for $13.25 per share (as adjusted for two-for-one stock split, see Note 3). GTL
used the proceeds from the warrants and rights to purchase 5,316,486 Globalstar
ordinary
F-43
<PAGE> 146
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
partnership interests for $26.50 per interest, increasing GTL's holdings of
Globalstar's ordinary partnership interests from 10,000,000 (21.3%) to
15,316,486 (29.3%).
5. 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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split, see Note 3) in a private offering. The notes are senior
in right of payment to Globalstar's Redeemable Preferred Partnership Interests,
may not be redeemed prior to February 2002 and are subject to a prepayment
premium prior to 2004. Interest is paid semi-annually.
The warrants are exercisable on or after February 19, 1998 at a price of
$34.7875 per share (as adjusted for two-for-one stock split, see Note 3) 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.
On June 13, 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 in a private offering. The notes are senior in right of
payment to Globalstar's Redeemable Preferred Partnership Interests, may not be
redeemed prior to June 2002 and are subject to a prepayment premium prior to
2004. Interest is paid semi-annually.
The indentures for the notes contain 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.
Globalstar will use the net proceeds of approximately $786 million from the
offerings, for the construction and deployment of the Globalstar System.
6. STOCK OPTION TRANSACTIONS
The Company and Globalstar have agreed that upon the exercise of options
under the GTL 1994 Stock Option Plan by optionees who are employees of
Globalstar or any of its controlling entities, Globalstar will issue to the
Company one Globalstar ordinary partnership interest for every two shares of
common stock issued to the optionee (as adjusted for two-for-one stock split,
see Note 3). During the third quarter, the Company issued 2,780 shares of common
stock to optionees at a price of $8.3125 per share. The Company purchased 1,390
Globalstar ordinary partnership interests with the proceeds from the issuance of
the common stock.
7. SUBSEQUENT EVENTS
On October 29, 1997, Globalstar sold $325 million principal amount of
10 3/4% Senior Notes due 2004 in a private offering. The notes are senior in
right of payment to Globalstar's Redeemable Preferred Partnership Interests, may
not be redeemed prior to November 2002 and are subject to a prepayment premium
prior to 2004. Interest 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 at 101% of the principal amount plus
accrued interest.
Globalstar will use the net proceeds of approximately $320 million for the
construction and deployment of the Globalstar System.
F-44
<PAGE> 147
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
On November 11, 1997, Globalstar announced that it has rescheduled the
launch of its first four satellites to the first week of February 1998. The
eight-week postponement was adopted to allow for further testing and rehearsals
of the tracking, telemetry and control (TT&C) ground equipment that will monitor
the launch and deployment of the Globalstar satellites. The postponement was
adopted in order to assure an adequate period of time to complete testing of
Globalstar's TT&C function prior to the initial launch and was not related to
any segment performance issue. All other elements of the project including
system design, satellite and CDMA technology, gateway design and handset
production remain on schedule and meet or exceed critical performance criteria.
Globalstar now expects to begin commercial service no later than in the
first quarter of 1999 following the launch of 44 satellites during 1998. The
remaining 12 satellites will be launched in early 1999 as scheduled.
The first four Globalstar satellites are at the Cape Canaveral launch site
and four additional satellites for the second launch have successfully completed
integration and testing. In addition, satellite and major subsystem assembly,
integration and testing necessary for the first Zenit launch is underway.
The first four Globalstar gateways are completed and ready to support the
first launch. Progress on the construction of an additional 34 gateways
continues as originally scheduled.
F-45
<PAGE> 148
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 (May 28, 1997 as to Note 6)
F-46
<PAGE> 149
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-47
<PAGE> 150
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-48
<PAGE> 151
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-49
<PAGE> 152
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-50
<PAGE> 153
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-51
<PAGE> 154
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 20,000,000 shares of common stock (as
adjusted for two-for-one stock split, see Note 6), 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 two-for-one basis (as adjusted for two-for-one stock
split, see Note 6) 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 (as adjusted for two-for-one stock split, see
Note 6) to purchase 8,370,636 shares of GTL common stock at $13.25 per share as
follows: Loral 1,884,856 warrants, Lockheed Martin 5,022,380 warrants, Qualcomm
734,262 warrants, SS/L 390,188
F-52
<PAGE> 155
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN GLOBALSTAR -- CONTINUED
warrants and DASA 338,950 warrants. In connection 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%.
6. GTL STOCK SPLIT
On May 28, 1997, GTL issued a two-for-one stock split to shareholders of
record on May 12, 1997 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts have been restated to reflect the stock split.
Prior to the two-for-one stock split, GTL's equity securities and convertible
securities were represented by equivalent Globalstar partnership interests on a
one-for-one basis. Globalstar's partnership interests were not affected by the
GTL stock split and, accordingly, GTL's equity securities and convertible
securities are now represented by equivalent Globalstar partnership interests on
a two-for-one basis.
F-53
<PAGE> 156
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (NOTE)
<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-54
<PAGE> 157
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Equity in net loss of Globalstar, L.P. .................................. $ -- $ --
------- -------
Net loss................................................................. $ -- $ --
======= =======
</TABLE>
See notes to condensed financial statements.
F-55
<PAGE> 158
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 nine months ended September 30, 1996 and September 30,
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 nine months
ended September 30, 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 September 30, 1997, LQSS held a 34.4% interest in Globalstar's ordinary
partnership interests. 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 September 30,
1997, suspended losses representing LQSS's unrecognized equity in Globalstar's
net losses aggregated approximately $52.4 million.
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<PAGE> 159
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.
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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 in June 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 in June 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.
GEO -- see geosynchronous orbit.
GHZ -- see gigahertz.
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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 8,370,636 shares of Common Stock,
at a price of $13.25 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.
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IN-SERVICE DATE -- the date on which Globalstar expects to commence initial
commercial operations via a 32-satellite constellation.
INDENTURE -- the indenture pursuant to which the Notes were issued.
INDEPENDENT REPRESENTATIVES -- representatives on the General Partner's
Committee not affiliated with Loral.
INITIAL PURCHASERS -- 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 -- October 29, 1997.
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.
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.
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.
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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.
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.
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.
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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 and a wholly owned
subsidiary of 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.
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.
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.
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.
UPLINK -- the transmitting of a satellite circuit extending from the Earth to
the satellite. Compare to downlink.
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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.
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
$34.7875 per share, would entitle the holders thereof to acquire an aggregate of
2,064,500 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.
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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) 815-6338 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Window
Attn: Reorganization Section Confirm by Telephone: Ground Level
(212) 815-3687 New York, New York 10286
For Information Call: Attn: Reorganization Section
(212) 815-3687
</TABLE>
Until , 1998 (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> 167
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.****
4.3 Indenture dated as of October 15, 1997 relating to Globalstar's and Globalstar
Capital's 10 3/4% Senior Notes due 2004.+
5.1 Opinion of Willkie Farr & Gallagher.+
8.1 Opinion of Willkie Farr & Gallagher (included with Exhibit 5.1).+
</TABLE>
II-1
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<S> <C>
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 Contract between Globalstar and Space Systems/Loral, Inc.*
10.4 Contract for the Development of Certain Portions of the Ground Operations Control
Center between Globalstar and Loral Western Development Laboratories.*
10.5 Contract for the Development of Satellite Orbital Operations Centers between
Globalstar and Loral Aerosys, a division of Loral Aerospace Corporation.*
10.6 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.***
10.7 Second Amendment to Revolving Credit Agreement dated July 31, 1997 among Globalstar,
certain banks parties thereto and Chemical Bank, as Administrative Agent.+
10.8 Third Amendment to Revolving Credit Agreement dated as of October 15, 1997 among
Globalstar, certain banks parties thereto and Chemical Bank, as Administrative
Agent.+
10.9 Warrant Agreement dated as of February 19, 1997 relating to Warrants to purchase
1,032,250 shares of Common Stock.***
10.11 Registration Rights Agreement dated February 19, 1997 relating to Globalstar's and
Globalstar Capital's 11 3/8% Senior Notes due 2004.***
10.12 Registration Rights Agreement dated June 13, 1997 relating to Globalstar's and
Globalstar Capital's 11 1/4% Senior Notes due 2004.****
10.13 Registration Rights Agreement dated October 29, 1997 relating to Globalstar's and
Globalstar Capital's 10 3/4% 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.
**** Incorporated by reference to Globalstar's and Globalstar Capital's
Registration Statement on Form S-4 (No. 333-25461).
+ Filed herewith.
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(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.
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> 170
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS 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 NOVEMBER 26, 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: /s/ MICHAEL B. TARGOFF
------------------------------------
Michael B. Targoff
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer of Globalstar, L.P., a Delaware limited partnership, hereby constitutes
and appoints Eric J. Zahler, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite, necessary or advisable to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
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>
/s/ BERNARD L. SCHWARTZ Chairman of the Board November 26, 1997
- ------------------------------------------ (Principal Executive Officer)
BERNARD L. SCHWARTZ
/s/ MICHAEL B. TARGOFF President and Director November 26, 1997
- ------------------------------------------
MICHAEL B. TARGOFF
/s/ ERIC J. ZAHLER Vice President and Director November 26, 1997
- ------------------------------------------
ERIC J. ZAHLER
/s/ MICHAEL P. DEBLASIO Vice President and Chief November 26, 1997
- ------------------------------------------ Financial Officer
MICHAEL P. DEBLASIO (Principal Financial Officer)
/s/ HARVEY B. REIN Vice President and Controller November 26, 1997
- ------------------------------------------ (Principal Accounting Officer)
HARVEY B. REIN
</TABLE>
II-4
<PAGE> 171
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS 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 NOVEMBER 26, 1997.
GLOBALSTAR CAPITAL CORPORATION
By: /s/ MICHAEL B. TARGOFF
------------------------------------
Michael B. Targoff
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both of Globalstar Capital Corporation, a Delaware
corporation, hereby constitutes and appoints Eric J. Zahler, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite, necessary or
advisable to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
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>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and Chief November 26, 1997
- ------------------------------------------ Executive Officer (Principal
BERNARD L. SCHWARTZ Executive Officer)
/s/ MICHAEL B. TARGOFF President, Chief Operating November 26, 1997
- ------------------------------------------ Officer and Director
MICHAEL B. TARGOFF
/s/ MICHAEL P. DEBLASIO Senior Vice President, Chief November 26, 1997
- ------------------------------------------ Financial Officer and Director
MICHAEL P. DEBLASIO (Principal Financial Officer)
/s/ HARVEY B. REIN Vice President and Controller November 26, 1997
- ------------------------------------------ (Principal Accounting Officer)
HARVEY B. REIN
</TABLE>
II-5
<PAGE> 1
EXHIBIT 4.3
================================================================================
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION,
Issuers
10 3/4% Senior Notes due 2004
INDENTURE
Dated as of October 15, 1997
THE BANK OF NEW YORK,
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C>
310(a)(1) ........................................ 7.10
(a)(2) ........................................ 7.10
(a)(3) ........................................ N.A.
(a)(4) ........................................ N.A.
(b) ........................................ N.A.
(c) ........................................ N.A.
311(a) ........................................ 7.11
(b) ........................................ 7.11
(c) ........................................ N.A.
312(a) ........................................ N.A.
(b) ........................................ 11.03
(c) ........................................ 11.03
313(a) ........................................ 7.06
(b)(1) ........................................ N.A.
(b)(2) ........................................ 7.06
(c) ........................................ N.A.
(d) ........................................ N.A.
314(a) ........................................ N.A.
314(a)(4) ........................................ 4.14
(b) ........................................ N.A.
(c)(1) ........................................ N.A.
(c)(2) ........................................ N.A.
(c)(3) ........................................ N.A.
(d) ........................................ N.A.
(e) ........................................ N.A.
(f) ........................................ N.A.
315(a) ........................................ N.A.
(b) ........................................ N.A.
(c) ........................................ N.A.
(d) ........................................ N.A.
(e) ........................................ N.A.
316(a)(last sentence) .................................... N.A.
(a)(1)(A) ........................................ N.A.
(a)(1)(B) ........................................ N.A.
(a)(2) ........................................ N.A.
(b) ........................................ N.A.
317(a)(1) ........................................ N.A.
(a)(2) ........................................ N.A.
(b) ........................................ N.A.
318(a) ........................................ N.A.
</TABLE>
N.A. means Not Applicable.
- ------------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE> 3
1
TABLE OF CONTENTS
ARTICLE 1 Page
Definitions and Incorporation by Reference
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. Cancellation ..................................... 28
SECTION 2.11. Defaulted Interest ............................... 28
SECTION 2.12. CUSIP Numbers .................................... 29
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 ................... 31
SECTION 3.05. Deposit of Redemption Price ...................... 31
SECTION 3.06. Securities Redeemed in Part ...................... 31
<PAGE> 4
2
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities ............................ 31
SECTION 4.02. SEC Reports ...................................... 32
SECTION 4.03. Limitation on Consolidated Debt .................. 32
SECTION 4.04. Future Guarantors ................................ 35
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 ................................ 42
SECTION 4.11. Limitation on Liens .............................. 43
SECTION 4.12. Business Activities .............................. 45
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
SECTION 6.08. Collection Suit by Trustee ....................... 54
SECTION 6.09. Trustee May File Proofs of Claim ................. 54
<PAGE> 5
3
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
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
<PAGE> 6
4
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
Exhibit A - Form of Security
Rule 144A/Regulation S Appendix
<PAGE> 7
INDENTURE dated as of October 15, 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' 10 3/4% Senior
Notes due 2004 (the "Initial Securities") and, if and when issued pursuant to a
registered exchange for Initial Securities, the Issuers' 10 3/4% Senior Notes
due 2004 (the "Exchange Securities") and if and when issued pursuant to a
private exchange for Initial Securities, the Issuers' 10 3/4% 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 terms "controlling" and "controlled" have
meanings correlative to the foregoing.
<PAGE> 8
2
"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
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
<PAGE> 9
3
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;
(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
<PAGE> 10
4
(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 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,
<PAGE> 11
5
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 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
<PAGE> 12
6
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 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
<PAGE> 13
7
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
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
<PAGE> 14
8
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 1/4 Indenture" means the indenture dated as of June 1, 1997,
among Globalstar, Globalstar Capital and The Bank of New York, as Trustee,
pursuant to which the 11 1/4 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.
"11 1/4 Notes" means the $325,000 aggregate principal amount of the
11 1/4 Senior Notes due 2004 of the Issuers, together with any Exchange
Securities or Private Exchange Securities (as such terms are defined in the
11 1/4 Indenture) issued pursuant to the 11 1/4 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.
"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
<PAGE> 15
9
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 October 23, 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,
(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
<PAGE> 16
10
"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.
"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.
<PAGE> 17
11
"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
Registration Rights Agreement dated as of October 29, 1997, among Globalstar,
Globalstar Capital and the Initial Purchasers named therein.
"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
<PAGE> 18
12
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
<PAGE> 19
13
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
(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
<PAGE> 20
14
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 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.
<PAGE> 21
15
"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.
"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 Secu-
<PAGE> 22
16
rity 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 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.
<PAGE> 23
17
"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 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.
<PAGE> 24
19
"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 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
<PAGE> 25
19
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.
"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).
<PAGE> 26
20
"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 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
<PAGE> 27
21
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 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
<PAGE> 28
22
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.
SECTION 1.02. Other Definitions.
Defined in
Term Section
"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
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;
<PAGE> 29
23
"indenture to be qualified" means this Indenture;
"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
<PAGE> 30
24
(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.
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
<PAGE> 31
25
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.
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)
<PAGE> 32
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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 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
<PAGE> 33
27
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 to it for cancellation 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
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28
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. Cancellation. The Issuers at any time may deliver
Securities to the Trustee for cancellation. 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 cancellation 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 cancellation.
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 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
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29
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
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
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30
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 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
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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 cancellation.
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.
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.
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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).
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").
<PAGE> 39
33
(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,
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;
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34
(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 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.
<PAGE> 41
35
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
(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
<PAGE> 42
36
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, 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
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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 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,
<PAGE> 44
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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 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
<PAGE> 45
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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 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
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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
(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.
<PAGE> 47
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(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;
(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.
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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 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.
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(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 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 $675,000,000 of Debt permitted to be
Incurred under this Indenture (including the Debt outstanding at any time
under the 11 3/8 Indenture and under the 11 1/4 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);
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(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;
(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 Account") solely for disbursement in
accordance with Section 4.13(d) ("Cash Insurance"); and
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(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 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
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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, one of the signers
of which shall be the principal executive, principal financial or principal
accounting officer of the Issuers, 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.
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
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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);
(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,
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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.
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;
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(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;
(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;
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(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 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
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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 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 acquies-
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cence 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 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
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(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 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.
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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.
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 exe-
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cution 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
(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
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(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 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 per son. 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.
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(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 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
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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 reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Issuers shall indemnify
the Trustee against any and all loss, damage, claim, liability or reasonable
expense (including reasonable attorneys' fees and expenses) 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
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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
(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.
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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 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 out standing 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.
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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 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
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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.
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;
<PAGE> 70
64
(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 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
Security holders 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
<PAGE> 71
65
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 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 Security holder:
(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
Sec-
<PAGE> 72
66
tion 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;
(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;
<PAGE> 73
67
(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
(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
<PAGE> 74
68
after such record date. No such consent shall be valid or effective for more
than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of 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
<PAGE> 75
69
acceleration, by redemption or otherwise, and all other 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 each Subsidiary Guarantor herein shall not be discharged or
<PAGE> 76
70
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 payable) shall forthwith
become due and payable by such Subsidiary Guarantor for the purposes of this
Section.
<PAGE> 77
71
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
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
<PAGE> 78
72
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
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 Secu-
<PAGE> 79
73
rityholder'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;
(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
<PAGE> 80
74
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.
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
<PAGE> 81
75
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> 82
76
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,
by /s/ ERIC J. ZAHLER
-----------------------------
Name: Eric J. Zahler
Title: Vice President
GLOBALSTAR CAPITAL CORPORATION,
by /s/ ERIC J. ZAHLER
-----------------------------
Name: Eric J. Zahler
Title: Vice President
THE BANK OF NEW YORK, as Trustee
by /s/ WALTER N. GITLIN
-----------------------------
Name: Walter N. Gitlin
Title: Vice President
<PAGE> 83
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE
SECURITY]
*/
**/
No. $
10 3/4% 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 November 1, 2004.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
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> 84
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 Initial Purchaser 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> 85
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE
EXCHANGE SECURITY]
10 3/4% 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 May 1, and November 1, of each year
commencing May 1, 1998. 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 October 29, 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 Securities at the close of business on the May 1 or November
<PAGE> 86
4
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
October 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 $325,000,000 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
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (c) certain investments, (d)
<PAGE> 87
5
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 November 1, 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 November 1, of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
------ ----------
<S> <C>
2002...................................................... 105.375%
2003...................................................... 102.688%
</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 interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
<PAGE> 88
6
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.
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
<PAGE> 89
7
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 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
<PAGE> 90
8
(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
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
<PAGE> 91
9
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> 92
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 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> 93
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> 94
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> 95
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 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 10 3/4% Senior Notes due 2004 to be
issued pursuant to this Indenture in connection with a Registered Exchange Offer
pursuant to the Registration Rights Agreement.
"Initial Purchasers" means Bear, Stearns & Co. Inc., Lehman Brothers
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
"Initial Securities" means the 10 3/4% 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.
"Purchase Agreement" means the Purchase Agreement dated October 21,
1997, among the Issuers and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
<PAGE> 96
2
"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 October 29, 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)
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
<PAGE> 97
3
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 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
<PAGE> 98
4
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
$325,000,000 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
$325,000,000 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:
(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
<PAGE> 99
5
(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 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
<PAGE> 100
6
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 canceled. 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 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
<PAGE> 101
7
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 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
<PAGE> 102
8
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 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
(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
<PAGE> 103
9
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 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) Cancelation 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 cancelation or retained
and canceled by the Trustee. At any time prior to such cancelation, 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
<PAGE> 104
10
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.
(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.
<PAGE> 105
11
(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 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
<PAGE> 106
12
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.
(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> 107
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
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) OUTSIDE
<PAGE> 108
2
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 NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S.
<PAGE> 109
3
No. $
CUSIP:
10 3/4% 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
November 1, 2004.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
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> 110
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> 111
5
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10 3/4% 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 May 1, and November 1, of each year
commencing May 1, 1998. 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 October 29, 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 Securities at the close of business on the February 1 or
<PAGE> 112
6
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 $325,000,000 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
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (c) certain investments, (d)
<PAGE> 113
7
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 November 1, 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 November 1 of the
years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2002...................................................... 105.375%
2003...................................................... 102.688%
</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 interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
<PAGE> 114
8
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.
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
<PAGE> 115
9
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 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
<PAGE> 116
10
(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
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
<PAGE> 117
11
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> 118
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 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> 119
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> 120
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> 121
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> 122
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>
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
---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 123
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
EXHIBIT 5.1
Willkie Farr & Gallagher
One Citicorp Center
153 E. 53rd Street
New York, New York 10022
November 26, 1997
Globalstar, L.P.
Globalstar Capital Corporation
3200 Zanker Road, P.O. Box 640670
San Jose, California 95164
Ladies and Gentlemen:
We have acted as counsel to Globalstar, L.P., a Delaware limited partnership
("Globalstar"), and Globalstar Capital Corporation, a Delaware corporation
("Globalstar Capital" and together with Globalstar, the "Issuers"), in
connection with the preparation of a Registration Statement on Form S-4 (the
"Registration Statement") relating to the offer to exchange an aggregate
principal amount of up to $325,000,000 of Senior Notes due 2004 (the "Exchange
Notes") of the Issuers for a like principal amount of Senior Notes due 2004
(the "Original Notes") of the Issuers that were issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"). The Original Notes were issued under, and the
Exchange Notes are to be issued under, an Indenture, dated as of October 15,
1997 (the "Indenture"), among the Issuers and The Bank of New York, as trustee
(the "Trustee"). The exchange will be made pursuant to an exchange offer (the
"Exchange Offer") contemplated by the Registration Statement.
In so acting, we have examined original or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the offering
memorandum of the Original Notes dated October 23, 1997 and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Issuers, and have made such inquiries of such officers and representatives,
as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth.
<PAGE> 2
Globalstar, L.P.
Globalstar Capital Corporation
November 26, 1997
Page 2
In our examinations hereunder, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to authentic originals of all documents submitted to us as
certified or reproduced copies. As to various questions of fact material to
such opinions, we have relied without independent check or verification upon
representations contained in certificates of, or communications with, the
Issuers.
A. Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Exchange Notes have been duly authorized and, when duly executed by
the proper officers of the Issuers, duly authenticated by the Trustee
and issued by the Issuers in accordance with the terms of the
Indenture, will constitute legal, valid and binding obligations of the
Issuers, will be entitled to the benefits of the Indenture and will be
enforceable against the Issuers in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance and other similar laws affecting
the enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
2. The material federal income tax consequence of participating in the
Exchange Offer is that the exchange of the Original Notes for Exchange
Notes by holders will not be a taxable exchange for federal income tax
purposes and such holders will not recognize any taxable income,
gain or loss as a result of such exchange.
B. The opinions expressed herein are subject to the following assumptions,
qualifications and exceptions:
1. We are members of the bar of the State of New York, and the opinions
expressed herein are limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware, and the federal laws
of the United States as in effect on the date of this opinion and to
the specific legal matters expressly addressed herein, and no opinion
is expressed or implied with respect to the laws of any other
jurisdiction or any legal matter not expressly addressed herein.
<PAGE> 3
Globalstar, L.P.
Globalstar Capital Corporation
November 26, 1997
Page 3
2. Our opinion numbered 2 above is based on statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which
are subject to change either prospectively or retroactively. Also, any
variation or difference in the relevant facts from those set forth in the
Registration Statement may affect the conclusions stated herein.
These opinions are limited to matters expressly set forth herein and no opinion
is to be implied or may be inferred beyond the matters expressly stated
herein. This letter speaks only as of the date hereof and is limited to
present statutes, regulations and administrative and judicial interpretations.
We undertake no responsibility to update or supplement this letter after the
date hereof.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included as
part of the Registration Statement. In giving such consents, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
- ----------------------------
WILLKIE FARR & GALLAGHER
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO THE GLOBALSTAR, L.P.
REVOLVING CREDIT AGREEMENT
SECOND AMENDMENT, dated July 31, 1997 to the Revolving Credit
Agreement, dated as of December 15, 1995, as amended on March 25, 1996 (as such
agreement may be further amended, supplemented or otherwise modified from time
to time, the "Credit Agreement") among GLOBALSTAR, L.P., a Delaware limited
partnership (the "Borrower"), the several financial institutions parties from
time to time thereto (the "Banks") and THE CHASE MANHATTAN BANK, a New York
banking corporation, as administrative agent (the "Administrative Agent").
WHEREAS, the Borrower, the Banks and the Administrative Agent hereby
agree to amend the Credit Agreement as set forth below, such changes to be
effective as of the date hereof:
l. Amendment to Section 1.1. (a) The definition of "Additional Buildout
Indebtedness" set forth in Section 1.1 of the Credit Agreement is hereby amended
in its entirety as follows:
"Additional Buildout Indebtedness": Indebtedness (including senior and
subordinated debt securities and bank financing) of the Borrower or any of its
Wholly-Owned Subsidiaries that is a Guarantor incurred or issued to finance the
buildout of the Satellite Project and related costs which either (a) constitutes
Gateway/Handset Vendor Financing or (b) satisfies the following criteria:
(i) none of such Indebtedness will mature (by scheduled payment or
mandatory payment or prepayment) prior to the Termination Date; and
(ii) such Indebtedness bears interest at a market rate of interest.
Additional Buildout Indebtedness shall not include the vendor financing
permitted under Sections 6.2(f) and (g). The Borrower shall designate
Indebtedness as Additional Buildout Indebtedness at the time it is created or
incurred.
(b) A new definition of "Gateway/Handset Vendor Financing" shall be
added to Section 1.1:
"Gateway/Handset Vendor Financing": Indebtedness of the Borrower or any
of its Wholly-Owned Subsidiaries that is a Guarantor not to exceed $100,000,000
in principal amount at any
<PAGE> 2
time outstanding incurred for the purpose of financing the purchase of
Globalstar gateways and user terminals, including gateways and user terminals
purchased for resale to service providers, provided that such Indebtedness shall
not be secured by any assets of the Borrower or any of its Subsidiaries other
than the gateways and user terminals so financed, the proceeds of such resales
and the account (as long as such account shall not constitute or include a
Partner Collateral Account) in which such proceeds are deposited.
(c) Clause (ii) of the definition of "Release Date Conditions
Precedent" set forth in Section 1.1 of the Credit Agreement is hereby amended in
its entirety as follows:
(ii)(A) the Obligations (and, if applicable, the obligations of a
Subsidiary under any guarantee referred to in clause (B) below) are secured on
at least a pari passu and equal and ratable basis by the collateral securing all
outstanding Additional Buildout Indebtedness (other than Additional Buildout
Indebtedness which constitutes Gateway/Handset Vendor Financing) and (B) insofar
as any of such outstanding Additional Buildout Indebtedness is owed by or
guaranteed by a Subsidiary of the Borrower, such Subsidiary has guaranteed
payment of the Obligations, in all cases under the preceding clauses (A) and (B)
on terms and conditions relating to such collateral and guarantees (including
intercreditor arrangements) satisfactory to the Required Banks,
2. Amendment to Section 3.19. The first sentence of Section 3.19 is
hereby amended in its entirety as follows:
"All Obligations (and, if applicable, the obligations of a Subsidiary
under any guarantee referred to in the last sentence of this Section) are
secured on at least a pari passu and equal and ratable basis by all collateral
securing all outstanding Additional Buildout Indebtedness (other than Additional
Buildout Indebtedness which constitutes Gateway/Handset Vendor Financing).
3. Effectiveness. This Amendment shall become effective as of the date
hereof when it is executed by each Bank and the Borrower and acknowledged by
Lockheed Martin, the Subsidiary Guarantor and each other Partner Guarantor who
has delivered a Partner Guarantee.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
GLOBALSTAR, L.P.
By: /s/ Joseph L. Veno
----------------------
Name: Joseph L. Veno
Title: Assistant Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By: /s/ Richard C. Smith
------------------------
Name: Richard C. Smith
Title: Vice President
Bank of America National Trust and
Savings Association (successor by
merger to
BANK OF AMERICAN NATIONAL TRUST
AND SAVINGS ASSOCIATION
(AS SUCCESSOR BY MERGER TO
BANK OF AMERICA ILLINOIS)
By: /s/ Steve Aronowitz
-----------------------
Name: Steve Aronowitz
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Robert L. Barrett, Jr.
------------------------------
Name: Robert L. Barrett, Jr.
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Kenneth P. Sneider, Jr.
-------------------------------
Name: Kenneth P. Sneider, Jr.
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ J. Alan Edwards
-----------------------
Name: J. Alan Edwards
Title: Authorized Signatory
-3-
<PAGE> 4
BARCLAYS BANK PLC
By: /s/ R. P. Smithies
----------------------
Name: R. P. Smithies
Title: Director
BAYERISCHE LANDESBANK GIROZENTRALE
By: /s/ Alexander Kohnert
-------------------------
Name: Alexander Kohnert
Title: Vice President
By: /s/ Peter Obermann
----------------------
Name: Peter Obermann
Title: Senior Vice Prsident,
Manager Lending
Division
BANQUE NATIONALE DE PARIS
By: /s/ Richard L. Sted
-----------------------
Name: Richard L. Sted
Title: Senior Vice President
By: /s/ Richard Pace
--------------------
Name: Richard Pace
Title: Vice President
Corporate Banking Division
CIBC INC.
By: /s/ Leon C. Gradberg
------------------------
Name: Leon C. Gradberg
Title: Director, CIBC Wood
Gundy Securities Corp.,
as Agent
CITICORP USA, INC.
By: /s/ Walter L. Larsen
------------------------
Name: Walter L. Larsen
Title: Attorney-in-Fact
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Vladimir Labun
----------------------
Name: Vladimir Labun
Title: Authorized Signature
CREDIT LYONNAIS NEW YORK BRANCH
-4-
<PAGE> 5
By: /s/ Vladimir Labun
----------------------
Name: Vladimir Labun
Title: First Vice President-
Manager
CREDIT SUISSE
By: /s/ J. Howe
---------------
Name: J. Howe
Title: Director
THE DAI-ICHI KANGYO BANK, LIMITED,
NEW YORK BRANCH
By: /s/ Andreas Panteli
-----------------------
Name: Andreas Panteli
Title: Vice President
THE FUJI BANK, LIMITED
New York Branch
By: /s/ Toshiaki Yakura
-----------------------
Name: Toshiaki Yakura
Title: Senior Vice President
HYPOBANK, NEW YORK BRANCH
By: /s/ Steve Atwell
--------------------
Name: Steve Atwell
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED - NEW YORK BRANCH
By: /s/ John V. Veltri
----------------------
Name: John V. Veltri
Title: Deputy General Manager
LTCB TRUST COMPANY
By: /s/ Shuichi Tajima
----------------------
Name: Shuichi Tajima
Title: Vice President
MELLON BANK, N.A.
By: /s/ David N. Smith
----------------------
Name: David N. Smith
Title: Vice President
-5-
<PAGE> 6
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By: /s/ Toshihiro Hayashi
-------------------------
Name: Toshihiro Hayashi
Title: Senior Vice President
NATIONAL CITY BANK
By: /s/ Joseph D. Robison
-------------------------
Name: Joseph D. Robison
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Pamela S. Kurtzman
--------------------------
Name: Pamela S. Kurtzman
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Steven J. McGherin
--------------------------
Name: Steven J. McGherin
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Andrew Cozewith
-----------------------
Name: Andrew Cozewith
Title: Manager
ISTITUTO BANCARIO SAN PAOLO
DI TORINO S.P.A.
By: /s/ W. Jones/Alessandro Guzzo
---------------------------------
Name: W. Jones/Alessandro Guzzo
Title: V.P./V.P.
THE SANWA BANK, LIMITED
By: /s/ Dominic J. Sorresso
---------------------------
Name: Dominic J. Sorresso
Title: Vice President
SOCIETE GENERALE
By: /s/ Alan E. J. Zinser
-------------------------
Name: Alan E. J. Zinser
Title: Vice President
-6-
<PAGE> 7
THE SUMITOMO BANK, LIMITED
By: /s/ Kozo Masaki
-------------------
Name: Kozo Masaki
Title: General Manager
TORONTO DOMINION (TEXAS), INC.
By: /s/ M. Bandzierz
--------------------
Name: M. Bandzierz
Title: Managing Director
THE YASUDA TRUST & BANKING
COMPANY, LIMITED
By: /s/ Norio Niyashita
-----------------------
Name: Norio Niyashita
Title: Deputy General Manager
-7-
<PAGE> 1
EXHIBIT 10.8
THIRD AMENDMENT TO THE GLOBALSTAR, L.P.
REVOLVING CREDIT AGREEMENT
THIRD AMENDMENT (the "Amendment"), dated as of October 15, 1997 to the
Revolving Credit Agreement, dated as of December 15, 1995, as amended by the
First Amendment dated March 25, 1996 and the Second Amendment dated July 31,
1997 (as such agreement may be further amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among GLOBALSTAR, L.P., a
Delaware limited partnership (the "Borrower"), the several financial
institutions parties from time to time thereto (the "Banks") and THE CHASE
MANHATTAN BANK, a New York banking corporation, as administrative agent (the
"Administrative Agent"). All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings provided such terms in the
Credit Agreement.
WHEREAS, the Borrower, the Banks and the Administrative Agent hereby
agree to amend the Credit Agreement as set forth below, such changes to be
effective as of the date hereof:
1. Amendment to Section 2.6(b). Section 2.6(b) is hereby amended by
deleting such section in its entirety and inserting the following in lieu
thereof:
(b) The Commitments shall be automatically reduced by an
amount equal to 100% of the Net Cash Proceeds of any sale or
disposition by the Borrower or any of its Subsidiaries of any assets
except for sales and dispositions permitted by Section 6.5(b).
2. Amendment to Section 6.1(c). Section 6.1(c) shall be amended by
deleting such section in its entirety and inserting the following in lieu
thereof:
Permit for any period of four consecutive fiscal quarters
ending prior to the Release Date (and commencing March 31, 1999) the
ratio of (i) the sum of Consolidated Net Income for such period plus
income taxes deducted in determining such Consolidated Net Income plus
Consolidated Fixed Charges for such period to (ii) Consolidated Fixed
Charges for such period to be less than 2.0 to 1.0, provided that for
the Borrower's fiscal quarter ending on (A) March 31, 1999, such ratio
shall be calculated for the fiscal quarter then ended, (B) June 30,
1999, such ratio shall be calculated for the two consecutive fiscal
quarters then ended and (iii) September 30, 1999, such ratio shall be
<PAGE> 2
calculated for the three consecutive fiscal quarters then ended and
provided further that for the fiscal quarter ending on March 31, 1999,
such ratio shall not be less than 1.5 to 1.0.
3. Amendment to Section 6.1(d). Section 6.1(d) shall be deleted in its
entirety.
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which together shall constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
5. Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.
6. Construction. From and after the date hereof, references in the
Credit Agreement and the other Loan Documents to the Credit Agreement shall be
deemed to reference the Credit Agreement as modified hereby.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
GLOBALSTAR, L.P.
By: /s/ Joseph L. Veno
----------------------
Name: Joseph L. Veno
Title: Assistant Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By: /s/ Richard C. Smith
------------------------
Name: Richard C. Smith
Title: Vice President
BANK OF AMERICAN NATIONAL TRUST
AND SAVINGS ASSOCIATION
(AS SUCCESSOR BY MERGER TO
BANK OF AMERICA ILLINOIS)
By: /s/ Steve Aronowitz
-----------------------
Name: Steve Aronowitz
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Robert L. Barrett, Jr.
------------------------------
Name: Robert L. Barrett, Jr.
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Kenneth P. Sneider, Jr.
-------------------------------
Name: Kenneth P. Sneider, Jr.
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ J. Alan Edwards
-----------------------
Name: J. Alan Edwards
Title: Authorized Signatory
3
<PAGE> 4
BARCLAYS BANK PLC
By: /s/ John Giannone
---------------------
Name: John Giannone
Title: Director
BAYERISCHE LANDESBANK GIROZENTRALE
By: /s/ Alexander Kohnert
-------------------------
Name: Alexander Kohnert
Title: Vice President
By: /s/ Peter Obermann
----------------------
Name: Peter Obermann
Title: Senior Vice Prsident,
Manager Lending
Division
BANQUE NATIONALE DE PARIS
By: /s/ Richard L. Sted
-----------------------
Name: Richard L. Sted
Title: Senior Vice President
By: /s/ Richard Pace
--------------------
Name: Richard Pace
Title: Vice President
Corporate Banking Division
CIBC INC.
By: /s/ Leon C. Gradberg
------------------------
Name: Leon C. Gradberg
Title: Director, CIBC Wood
Gundy Securities Corp.,
as Agent
CITICORP USA, INC.
By: /s/ Walter L. Larsen
------------------------
Name: Walter L. Larsen
Title: Attorney-in-Fact
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Vladimir Labun
----------------------
Name: Vladimir Labun
Title: Authorized Signature
CREDIT LYONNAIS NEW YORK BRANCH
4
<PAGE> 5
By: /s/ Vladimir Labun
----------------------
Name: Vladimir Labun
Title: First Vice President-
Manager
CREDIT SUISSE
By: /s/ J. Howe
---------------
Name: J. Howe
Title: Director
THE DAI-ICHI KANGYO BANK,
LIMITED, NEW YORK BRANCH
By: /s/ Andreas Panteli
-----------------------
Name: Andreas Panteli
Title: Vice President
THE FUJI BANK, LIMITED
New York Branch
By: /s/ Toshiaki Yakura
-----------------------
Name: Toshiaki Yakura
Title: Senior Vice President
HYPOBANK, NEW YORK BRANCH
By: /s/ Steve Atwell
--------------------
Name: Steve Atwell
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED - NEW YORK BRANCH
By: /s/ John V. Veltri
----------------------
Name: John V. Veltri
Title: Joint General Manager
LTCB TRUST COMPANY
By: /s/ Shuichi Tajima
----------------------
Name: Shuichi Tajima
Title: Vice President
MELLON BANK, N.A.
By: /s/ David N. Smith
----------------------
Name: David N. Smith
Title: Vice President
5
<PAGE> 6
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By: /s/ Toshihiro Hayashi
-------------------------
Name: Toshihiro Hayashi
Title: Senior Vice President
NATIONAL CITY BANK
By: /s/ Joseph D. Robison
-------------------------
Name: Joseph D. Robison
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Pamela S. Kurtzman
--------------------------
Name: Pamela S. Kurtzman
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Steven J. McGherin
--------------------------
Name: Steven J. McGherin
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ John Page
-----------------
Name: John Page
Title: Sr. Manager
ISTITUTO BANCARIO SAN PAOLO
DI TORINO S.P.A.
By: /s/ W. Jones/E. Viccozo
---------------------------
Name: W. Jones/E. Viccozo
Title: V.P./V.P.
THE SANWA BANK, LIMITED
By: /s/ Dominic J. Sorresso
---------------------------
Name: Dominic J. Sorresso
Title: Vice President
SOCIETE GENERALE
By: /s/ Alan E. J. Zinser
-------------------------
Name: Alan E. J. Zinser
Title: Vice President
6
<PAGE> 7
THE SUMITOMO BANK, LIMITED
By: /s/Motosoke Yagaki
----------------------
Name: Motosoke Yagaki
Title: Joint General Manager
By: /s/Gavin Holles
-------------------
Name: Gavin Holles
Title: Assistant Vice President
TORONTO DOMINION (TEXAS), INC.
By: /s/ M. Bandzierz
--------------------
Name: M. Bandzierz
Title: Managing Director
THE YASUDA TRUST & BANKING
COMPANY, LIMITED
By: /s/ Rohn Laudenschlager
---------------------------
Name: Rohn Laudenschleger
Title: Senior Vice President
7
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EXHIBIT 10.13
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
Up to $325,000,000
10 3/4% Senior Notes due 2004
REGISTRATION RIGHTS AGREEMENT
October 29, 1997
Bear, Stearns & Co. 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 October 21, 1997 (the "Purchase
Agreement"), to jointly and severally issue and sell to Bear, Stearns & Co.
Inc., Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchasers") $325,000,000 aggregate principal amount
of 10 3/4% Senior Notes due 2004. The Notes will be issued pursuant to an
indenture dated as of October 15, 1997 (the "Indenture"), among the Issuers and
The Bank of New York, as trustee (the "Trustee"). This Agreement will have no
force and effect 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
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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
180 days (or if the 180th 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 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
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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 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.
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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 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
(e) otherwise comply in all material respects with all applicable
law.
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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
cancelation 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 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
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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; 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 210 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
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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) 180 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"); 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
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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, (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
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Registration Statement a section entitled "Plan of Distribution",
reasonably acceptable to the Initial 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 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;
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(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
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
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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 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.
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(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 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
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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 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
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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 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 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
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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 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.
<PAGE> 16
16
(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 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
<PAGE> 17
17
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 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
<PAGE> 18
18
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 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, 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
<PAGE> 19
19
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 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
<PAGE> 20
20
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 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
<PAGE> 21
21
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 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 cancelation 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
<PAGE> 22
22
on or before, in the case of the Exchange Offer Registration Statement,
the date that is 180 days after the Issue Date, and in the case of the
Shelf Registration Statement, the date that is 210 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
(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
<PAGE> 23
23
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 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 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 May 1, 1998, will be payable in cash on the next succeeding November 1
or May 1 to holders of record on the immediately preceding April 15
<PAGE> 24
24
or October 15, 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 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
<PAGE> 25
25
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 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
<PAGE> 26
26
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);
(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
<PAGE> 27
27
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.
(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.
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
<PAGE> 28
28
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,
by /s/ Eric Zahler
__________________________
Name:
Title:
GLOBALSTAR CAPITAL
CORPORATION,
by /s/ Eric Zahler
__________________________
Name:
Title:
<PAGE> 29
29
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
BEAR, STEARNS & CO. INC.
by /s/ John Andrew Bugas
__________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
by /s/ Hoyt Davidson
__________________________
Name:
Title:
LEHMAN BROTHERS INC.
by /s/ Stephen Mehos
__________________________
Name:
Title:
<PAGE> 30
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> 31
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> 32
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 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.
- ------------
*/ 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> 33
2
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> 34
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 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS)
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Net loss.................................... $ (51,814) $(38,747) $ (54,646)
Capitalized................................. (60,747) (6,735) (10,157)
Dividends on Redeemable Preferred
Partnership Interests..................... (15,901) (12,019) (17,323)
-------- ---------
Deficiency of earnings to cover fixed
charges................................... $ (128,462) $(57,501) $ (82,126)
======== =========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of Globalstar, L.P.:
Globalstar Corporation
Globalstar Capital Corporation
Globalstar Services Company, Inc.
GlobalTrak Pry. Ltd.
J.S.C. GlobalTel
Subsidiaries of Globalstar Capital Corporation:
None
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
Globalstar, L.P. and Globalstar Capital Corporation
We consent to the use in this Registration Statement of Globalstar, L.P.
and Globalstar Capital Corporation on Form S-4 of our reports 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
November 25, 1997
<PAGE> 1
EXHIBIT 25
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-------------
GLOBALSTAR, L.P.
(Exact name of obligor as specified in its charter)
Delaware 13-3759824
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
GLOBALSTAR CAPITAL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 13-3876323
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3200 Zanker Road, P.O. Box 640670
San Jose, California 95164
(Address of principal executive offices) (Zip code)
-------------
10 3/4% Senior Notes due 2004
(Title of the indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 30th day of October, 1997.
THE BANK OF NEW YORK
By: /s/VIVIAN GEORGES
-----------------
Name: VIVIAN GEORGES
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business June 30, 1997, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing
balances and currency and coin ........ $ 7,769,502
Interest-bearing balances ............. 1,472,524
Securities:
Held-to-maturity securities ............ 1,080,234
Available-for-sale securities .......... 3,046,199
Federal funds sold and Securities
purchased under agreements to resell ... 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned
income ...................... 35,352,045
LESS: Allowance for loan and
lease losses ................. 625,042-
LESS: Allocated transfer risk
reserve .......................... 429
Loans and leases, net of unearned
income, allowance, and reserve ....... 34,726,574
Assets held in trading accounts .......... 1,611,096
Premises and fixed assets (including
capitalized leases) .................... 676,729
Other real estate owned .................. 22,460
Investments in unconsolidated subsidiaries
and associated companies ............... 209,959
Customers' liability to this bank on
acceptances outstanding ................ 1,357,731
Intangible assets ........................ 720,883
Other assets ............................. 1,627,267
------------
Total assets ............................. $ 57,514,958
============
LIABILITIES
Deposits:
In domestic offices .................... $ 26,875,596
Noninterest-bearing ......... 11,213,657
Interest-bearing ............ 15,661,939
In foreign offices, Edge and Agreement
subsidiaries, and IBFs ................. 16,334,270
Noninterest-bearing .......... 596,369
Interest-bearing ............ 15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase .... 1,583,157
Demand notes issued to the U.S.
Treasury ............................... 303,000
Trading liabilities ...................... 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .............................. 2,383,570
With remaining maturity of more than
one year through three years.......... 0
With remaining maturity of more than
three years .......................... 20,679
Bank's liability on acceptances executed
and outstanding ........................ 1,377,244
Subordinated notes and debentures ........ 1,018,940
Other liabilities ........................ 1,732,792
------------
Total liabilities ........................ 52,937,421
============
EQUITY CAPITAL
Common stock ............................. 1,135,284
Surplus .................................. 731,319
Undivided profits and capital reserves ... 2,721,258
Net unrealized holding gains (losses)
on available-for-sale securities ....... 1,948
Cumulative foreign currency translation
adjustments ............................ (12,272)
------------
Total equity capital ..................... 4,577,537
------------
Total liabilities and equity capital ..... $ 57,514,958
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and
Comptroller of the above-named bank do hereby declare
that this Report of Condition has been prepared in
conformance with the instructions issued by the Board
of Governors of the Federal Reserve System and is true
to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the
correctness of this Report of Condition and declare
that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance
with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
Thomas A. Renyl )
J. Carter Bacot ) Directors
Alan R. Griffith )
---------------------------------
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
(PRINCIPAL AMOUNT $1,000 PER SENIOR NOTE)
IN EXCHANGE FOR
10 3/4% SENIOR NOTES DUE 2004
(PRINCIPAL AMOUNT $1,000 PER SENIOR NOTE)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
By Hand Or Overnight Delivery: By Registered Or Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Reorganization Section,
Attention: Reorganization Section, Arwen Gibbons
Arwen Gibbons
</TABLE>
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 571-3080
To Confirm by Telephone or for
Information Call:
(212) 815-6333
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1997 (the "Prospectus"), of Globalstar, L.P., a Delaware
limited partnership, and Globalstar Capital Corporation, a Delaware corporation
(together, the "Issuers"), and this Letter of Transmittal, which together
constitute the Issuers' offer (the "Exchange Offer") to exchange an aggregate
principal amount of up to $325,000,000 10 3/4% Senior Notes due 2004, which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") (the "Original Notes") of the Issuers for a like principal amount of the
issued and outstanding 10 3/4% Senior Notes due 2004 (the "Exchange Notes") of
the Issuers from the holders thereof.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Original Notes
either if Original Notes are to be forwarded herewith or if tenders of Original
Notes are to be made by book-entry transfer to an account maintained by The Bank
of New York (the "Exchange Agent") at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in
"The Exchange Offer -- How to Tender" in the Prospectus.
Holders of Original Notes whose certificates (the "Certificates") for such
Original Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Original
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- How to Tender" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
- --------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S):
(PLEASE FILL IN, IF BLANK) 1 2 3
------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF
CERTIFICATE AMOUNT OF ORIGINAL
NUMBER(S) ORIGINAL NOTES NOTES TENDERED
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Original Notes are being tendered by book-entry
holders.
** Unless otherwise indicated in the column, a holder will be deemed to have
tendered all Original Notes represented by the Original Notes indicated in
Column 2. See Instruction 4.
================================================================================
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------------------------------------------
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
<PAGE> 3
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------------------------------------
Window Ticket Number (if any)
--------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------------------------------
Name of Institution which Guaranteed Delivery
-----------------------------------------------------------
IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:
Name of Tendering Institution
-----------------------------------------------------------------------------
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<PAGE> 4
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers the above described aggregate
principal amount of the Issuers' 10 3/4% Senior Notes due 2004 (the "Original
Notes") in exchange for a like aggregate principal amount of the Issuers'
10 3/4% Senior Notes due 2004 (the "Exchange Notes") which have been registered
under the Securities Act upon the terms and subject to the conditions set forth
in the Prospectus dated , 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Issuers all right, title and interest in and to such Original Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Issuers in connection with the
Exchange Offer) with respect to the tendered Original Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Original Notes to the Issuers
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Issuers, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to be issued in exchange for such
Original Notes, (ii) present Certificates for such Original Notes for transfer,
and to transfer the Original Notes on the books of the Issuers, and (iii)
receive for the account of the Issuers all benefits and otherwise exercise all
rights of beneficial ownership of such Original Notes, all in accordance with
the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR THE EXCHANGE AGENT TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL
NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS
UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO
ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Original
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Original Notes. The
Certificate number(s) and the Original Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
If any tendered Original Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Original Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Original Notes will be returned (or, in the case of Original
Notes tendered by book-entry transfer, such Original Notes will be credited to
an account maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
<PAGE> 5
The undersigned understands that tenders of Original Notes pursuant to any
one of the procedures described in "The Exchange Offer -- How to Tender" in the
Prospectus and in the instruction, attached hereto will, upon the Issuers'
acceptance for exchange of such tendered Original Notes, constitute a binding
agreement between the undersigned and the Issuers upon the terms and subject to
the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Issuers may not be
required to accept for exchange any of the Original Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Original Notes, that such Exchange l Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Original Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Original Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver Exchange Notes to the undersigned at the address
shown below the undersigned's signature.
BY TENDERING ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE ISSUERS, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE
NOTES. BY TENDERING ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING
THIS LETTER OF TRANSMITTAL, A HOLDER OF ORIGINAL NOTES WHICH IS A BROKER-DEALER
REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION TO THIRD PARTIES, THAT (A) SUCH ORIGINAL NOTES HELD BY THE
BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH ORIGINAL NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED
THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT).
<PAGE> 6
THE ISSUERS HAVE AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL
NOTES, WHERE SUCH ORIGINAL NOTES WERE ACQUIRED BY SUCH PARTICIPATING
BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR
OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE
(SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE
PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF
BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO
ACQUIRED ORIGINAL NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR
OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH
ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON
RECEIPT OF NOTICE FROM THE ISSUERS OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO
THE PROSPECTUS UNTIL THE ISSUERS HAVE AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAVE FURNISHED COPIES OF THE AMENDED
OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE ISSUERS
HAVE GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE
CASE MAY BE. IF THE ISSUERS GIVE SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE
NOTES, THEY SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM
AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE
WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED
OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE NOTES OR TO
AND INCLUDING THE DATE ON WHICH THE ISSUERS HAVE GIVEN NOTICE THAT THE SALE OF
EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive accrued interest on such Original Notes for any period from and
after the last Interest Payment Date to which interest has been paid or duty
provided for on such Original Notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for, will
not receive any accrued interest on such Original Notes, and the undersigned
waives the right to receive any interest on such Original Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after , 1997.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuers to be necessary or desirable to complete the
sale, assignment and transfer of the Original Notes tendered hereby. All
authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
ORIGINAL NOTES AS SET FORTH IN SUCH BOX.
<PAGE> 7
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE )
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Notes hereby tendered or on the register
of holders maintained by the Issuers, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Issuers or the Trustee for the
Original Notes to comply with the restrictions on transfer applicable to
the Original Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary capacity or representative capacity, please set
forth the signer's full title. See Instruction 5.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date: ____________________, 199__
Name(s)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
---------------------------------------------------------------------------
(Tax Identification or Social Security Number(s))
-----------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
(Authorized Signature)
--------------------------------------------------------------------------
Date: ____________________, 199__
Name of Firm
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Capacity (full title)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
---------------------------------------------------------------------------
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes or Original Notes not tendered
are to be issued in the name of someone other than the registered holder
of the Original Notes whose name(s) appear(s) above.
ISSUE
[ ] Original Notes not tendered to:
[ ] Exchange Notes, to:
Name(s)
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
---------------------------------------------------------------------------
--------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE> 9
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or Original Notes not tendered are
to be sent to someone other than the registered holder of the Original
Notes whose name(s) appear(s) above, or such registered holder(s) at an
address other than that shown above.
MAIL
[ ] Original Notes not tendered to:
[ ] Exchange Notes, to:
Name(s)
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- How to Tender" in the Prospectus. Certificates, or timely confirmation
of a book-entry transfer of such Original Notes into the Exchange Agent's
account at DTC, as well as this Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Exchange Agent at its address set forth herein on or prior to the
Expiration Date.
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, may tender
their Original Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer -- How to Tender" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Original Notes may be tendered in whole
or in part, in proper form for transfer, together with a Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent within five New York Stock
Exchange, Inc. trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer -- How to Tender" in
the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Notes to
be properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Issuers will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
<PAGE> 11
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on the register of holders maintained by the
Issuers as the owner of the Original Notes) of Original Notes tendered
herewith, unless such holder(s) has completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Original Notes are tendered for the account of a firm that
is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Original Notes" is inadequate, the Certificate number(s) and/or
the principal amount of Original Notes and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Original Notes will
be accepted only in the principal amount of $1,000 (1 Original Note) and
integral multiples of $1,000 in excess thereof. If less than all the Original
Notes evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Original Notes which are to be tendered in the box entitled
"Principal Amount of Original Notes Tendered (if less than all)." In such case,
new Certificate(s) for the remainder of the Original Notes that were evidenced
by your old Certificate(s) will only be sent to the holder of the Original Note,
promptly after the Expiration Date. All Original Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Notes to be withdrawn, the
aggregate principal amount of Original Notes to be withdrawn, and (if
Certificates for Original Notes have been tendered) the name of the registered
holder of the Original Notes as set forth on the Certificate for the Original
Notes, if different from that of the person who tendered such Original Notes. If
Certificates for the Original Notes have been delivered or otherwise identified
to the Exchange Agent, then prior to the physical release of such Certificates
for the Original Notes, the tendering holder must submit the serial numbers
shown on the particular Certificates for the Original Notes to be withdrawn and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Original Notes tendered for the account of an
Eligible Institution. If Original Notes have been tendered pursuant to the
procedures for book entry transfer set forth in the Prospectus under "The
Exchange Offer -- How to Tender," the notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawal of Original
Notes, in which case a notice of withdrawal will be effective if delivered to
the Exchange Agent by written or facsimile transmission. Withdrawals of tenders
of Original Notes may not be rescinded. Original Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer -- How to Tender."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Issuers, in their
sole discretion, whose determination shall be final and binding on all parties.
None of the Issuers, any affiliates or assigns of the Issuers, the Exchange
Agent or any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Original Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder promptly after withdrawal.
<PAGE> 12
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Original
Notes tendered hereby, the signatures) must correspond exactly with the
name(s)(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Issuers, in their sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Notes listed and transmitted hereby, no endorsements of Certificate(s)
or separate bond power(s) are required unless Exchange Notes are to be issued in
the name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Original Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Issuers or the Trustee for the Original Notes may require in accordance
with the restrictions on transfer applicable to the Original Notes. Signatures
on such Certificates or bond powers must be guaranteed by an Eligible
Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Original Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Issuers will determine, in their sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Original Notes, which
determination shall be final and binding on all parties. The Issuers reserve the
absolute right to reject any and all tenders determined by either of them not to
be in proper form or the acceptance of which, or exchange for which, may, in the
view of counsel to the Issuers, be unlawful. The Issuers also reserve the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange
Offer -- Conditions to the Exchange Offer" or any conditions or irregularity in
any tender of Original Notes of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders. The
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be final
and binding. No tender of Original Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. The Issuers, any affiliates or assigns of the Issuers, the Exchange
Agent, or any other person shall not be under any duty to give notification of
any irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
<PAGE> 13
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Original Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Original Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Original Notes. If the Original Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Original Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Original Notes for exchanges.
Neither the Issuers, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Original Notes nor shall any of them incur any liability for failure to give any
such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Original Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed as
to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
<PAGE> 14
13. SECURITY TRANSFER TAXES. Holders who tender their Original Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Original Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Original Notes in connection with the Exchange Offer, then
the amount of any such transfer tax (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
<PAGE> 15
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
PAYER'S NAME: THE BANK OF NEW YORK
========================================================================================================
SUBSTITUTE PART 1 -- Please provide your TIN TIN:
FORM W-9 on the line at right and certify by --------------------------------
signing and dating below. Social Security Number or
Employer Identification Number
-------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- TIN Applied For [ ]
INTERNAL REVENUE SERVICE
-------------------------------------------------------------------------
Certification -- Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because (i) I am
exempt from backup withholding, (ii) I have not been notified by the
Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (iii) the IRS has not notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature Date ________________, 1997
PAYOR'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER ("TIN")
AND CERTIFICATION
- --------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return and
you have not been notified by the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
2 OF SUBSTITUTE FORM W-9.
<PAGE> 16
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments made to
me on account of the Exchange Notes shall be retained until I provide a
taxpayer identification number to the Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
----------------------------------------------------------
----------------------------------------------------, 1997
Signature Date
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
(PRINCIPAL AMOUNT $1,000 PER SENIOR NOTE)
OF GLOBALSTAR, L.P. AND
GLOBALSTAR CAPITAL CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Issuers' (as defined below) 10 3/4% Senior Notes due 2004
(the "Original Notes") are not immediately available, (ii) Original Notes, the
Letter of Transmittal and all other required documents cannot be delivered to
The Bank of New York (the "Exchange Agent") on or prior to 5:00 P.M. New York
City time, on the Expiration Date (as defined in the Prospectus referred to
below) or (iii) the procedures for delivery by book-entry transfer cannot be
completed on a timely basis. This Notice of Guaranteed Delivery may be delivered
by hand, overnight courier or mail, or transmitted by facsimile transmission, to
the Exchange Agent. See "The Exchange Offer--How to Tender" in the Prospectus.
In addition, in order to utilize the guaranteed delivery procedure to tender
Original Notes pursuant to the Exchange Offer, a completed, signed and dated
Letter of Transmittal relating to Original Notes (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M. New York City time, on
the Expiration Date. Capitalized terms not defined herein have the meanings
assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmissions: By Hand or Overnight Delivery:
Mail:
(Eligible Institutions Only)
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Confirm by Telephone: Corporate Trust
Attn: Reorganization Section (212) 815-3687 Services Window
George Johnson Ground Level
For Information Call: New York, New York 10286
(212) 815-3687 Attn: Reorganization Section,
George Johnson
</TABLE>
Delivery of this Notice Of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Globalstar, L.P., a Delaware limited
partnership, and Globalstar Capital Corporation, a Delaware corporation
(together, the "Issuers") , upon the terms and subject to the conditions set
forth in the Prospectus dated , 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Original Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--How to Tender."
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Aggregate Principal Amount
- --------------------------------------------------------------------------------
Amount Tendered: $
- ------------*
Certificate No(s) if available):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Total Principal Amount Represented by Original Notes Certificate(s))
$
- ------------------------------------------------------
If Original Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
- ---------------
* Must be in denominations of a Principal Amount of $1,000 and any integral
multiple thereof.
<PAGE> 3
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X ------------------------------
- -----------------------------------------------
X ------------------------------
- -----------------------------------------------
Signature(s) of Owner(s) or Authorized Date
Signatory
</TABLE>
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Must be signed by the holder(s) of the Original Notes as their name(s)
appear(s) on certificates for Original Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Original
Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Original Notes to the Exchange Agent's account at
The Depository Trust Company, pursuant to the procedures for book-entry transfer
set forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Original Notes tendered hereby to the Exchange Agent within
the time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
NAME OF FIRM AUTHORIZED SIGNATURE
- --------------------------------------------- ---------------------------------------------
ADDRESS TITLE
- --------------------------------------------- ---------------------------------------------
ZIP CODE (PLEASE TYPE OR PRINT)
Area Code and Telephone No.
--------------------- Dated:
---------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS FORM.
CERTIFICATES FOR ORIGINAL NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
<PAGE> 1
Exhibit 99.3
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
ISSUED IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR 10 3/4% SENIOR NOTES DUE 2004
To Our Clients:
Enclosed for your consideration is a Prospectus dated , 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus") and a
form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Globalstar, L.P. and Globalstar Capital
Corporation to exchange each outstanding 10 3/4% Senior Notes due 2004 issued
and sold in reliance upon an exemption from registration under the Securities
Act of 1933, as amended (collectively, the "Original Notes"), for one 10 3/4%
Senior Notes due 2004.
The material is being forwarded to you as the beneficial owner of Original
Notes carried by us for your account or benefit but not registered in your name.
A tender of any Original Notes may be made only by us as the registered holder
and pursuant to your instructions. Therefore, the Issuers urge beneficial owners
of Original Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee to contact such registered holder promptly if
they wish to tender Original Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender
any or all Original Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your
Original Notes.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH
THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00
p.m., New York City Time, on , 1997, unless extended (the "Expiration
Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
If you wish to have us tender any or all of your Original Notes held by us
for your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying Letter
of Transmittal is furnished to you for informational purposes only and may not
be used by you to tender Original Notes held by us and registered in our name
for your account or benefit.
<PAGE> 2
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Globalstar, L.P.
and Globalstar Capital Corporation.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
Box 1 [ ] Please tender my Original Notes held by you for my account or
benefit. I have identified on a signed schedule attached hereto
the number of Original Notes to be tendered if I wish to tender
less than all of my Original Notes.
Box 2 [ ] Please do not tender any Original Notes held by you for my
account or benefit.
Date: , 1997
--------------------------------------
--------------------------------------
Signature(s)
--------------------------------------
--------------------------------------
Please print name(s) here
- ---------------
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to tender
all your Original Notes.
<PAGE> 1
Exhibit 99.4
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
ISSUED IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR 10 3/4% SENIOR NOTES DUE 2004
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated , 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus") and a
form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Globalstar, L.P. and Globalstar Capital
Corporation (together, the "Issuers") to exchange each outstanding 10 3/4%
Senior Notes due 2004 issued and sold in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (collectively, the
"Original Notes"), for one 10 3/4% Senior Notes due 2004.
We are asking you to contact your clients for whom you hold Original Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Original Notes registered
in their own name. The Company will not pay any fees or commissions to any
broker, dealer or other person in connection with the solicitation of tenders
pursuant to the Exchange Offer. You will, however, be reimbursed by the Company
for customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients. The Company will pay all transfer taxes,
if any, applicable to the tender of Original Notes to it or its order, except as
otherwise provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the tender
of Original Notes and for the information of your clients;
3. A form of letter that may be sent to your clients for whose
accounts you hold Original Notes registered in your name or the name of
your nominee, with space provided for obtaining the clients' instructions
with regard to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City Time, on , 1997, unless extended (the "Expiration
Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
To tender Original Notes, certificates for Original Notes or a Book-Entry
Confirmation, a duly executed and properly completed Letter of Transmittal or a
facsimile thereof, and any other required documents, must be received by the
Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
Exchange Agent, The Bank of New York, by calling George Johnson at (212)
815-4997.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUERS OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE
EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
