<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1998
REGISTRATION NO. 333-57749
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
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<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>
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3200 ZANKER ROAD, P.O. BOX 640670
SAN JOSE, CALIFORNIA 95164
(408) 933-4000
(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
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
------------------------
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. [ ]
------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 11 1/2% SENIOR NOTES DUE 2005
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 11 1/2% SENIOR NOTES DUE 2005
------------------------
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
$300,000,000 of 11 1/2% Senior Notes due 2005 (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
11 1/2% Senior Notes due 2005 (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 Issuers issued and sold $275 million aggregate principal amount of
Original Notes on May 20, 1998. An additional $25 million aggregate principal
amount of Original Notes were issued and sold on May 27, 1998 pursuant to an
over-allotment option exercised by the Initial Purchasers. Such sales were not
registered under the Securities Act in reliance upon the exemptions provided by
Section 4(2) and Rule 144A 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 August 14, 1998, 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 12 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 , 1998
<PAGE> 3
AVAILABLE INFORMATION
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
Citicorp Center, 500 West Madison Street, Suite 1400, 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.
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. For further information with
respect to the Issuers and the Exchange Notes, reference is made to the
Registration Statement, including the exhibits and schedules. The Registration
Statement may be inspected without charge, at the Commission's principal office
at 450 Fifth Street, NW, Washington, D.C. 20549, and also at the regional
offices of the Commission listed above. Copies of such material may also be
obtained from the Commission upon the payment of prescribed rates.
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) 933-4000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST 7,
1998.
i
<PAGE> 4
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, 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. Globalstar's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Potential risks and uncertainties that
could affect Globalstar's future operating results include, without limitation;
uncertainties regarding implementation of business strategies; technology risks;
changes in the regulatory environment affecting Globalstar; and actions of
Globalstar's competitors and other factors set forth under "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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<S> <C>
AVAILABLE INFORMATION....................................... i
FORWARD-LOOKING STATEMENTS.................................. ii
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 12
Development Stage Company................................. 12
Operating Risks........................................... 13
Technological Risks....................................... 17
Regulation................................................ 19
Structural and Market Risks............................... 20
THE ISSUERS................................................. 22
USE OF PROCEEDS............................................. 23
THE EXCHANGE OFFER.......................................... 23
Purpose of the Exchange Offer............................. 23
Terms of the Exchange..................................... 23
Expiration Date; Extensions; Termination; Amendments...... 24
How to Tender............................................. 25
Terms and Conditions of the Letter of Transmittal......... 27
Withdrawal Rights......................................... 27
Acceptance of Original Notes for Exchange; Delivery of
Exchange Notes......................................... 27
Conditions to the Exchange Offer.......................... 28
Exchange Agent............................................ 29
Solicitation of Tenders; Expenses......................... 29
Appraisal Rights.......................................... 29
Federal Income Tax Consequences........................... 29
Other..................................................... 29
SELECTED FINANCIAL DATA..................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 32
Liquidity and Capital Resources........................... 32
Results of Operations..................................... 33
Financial Accounting Pronouncements....................... 35
Year 2000 Issue........................................... 35
BUSINESS.................................................... 36
Business Overview......................................... 36
Business Strategy......................................... 39
The Globalstar System..................................... 41
Satellite Constellation................................... 43
Globalstar System Capacity................................ 45
Competition............................................... 45
Research and Development.................................. 47
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iii
<PAGE> 6
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Patents and Proprietary Rights............................ 47
Employees................................................. 47
Properties................................................ 47
Legal Proceedings......................................... 47
REGULATION.................................................. 48
United States FCC Regulation.............................. 48
United States International Traffic in Arms Regulations... 50
Export Regulation......................................... 50
International Coordination................................ 51
European Union............................................ 51
Regulation of Service Providers........................... 52
MANAGEMENT.................................................. 53
Directors and Executive Officers.......................... 53
Governance................................................ 55
Summary Compensation...................................... 56
Option Grants in Last Fiscal Year......................... 57
Aggregated Option Exercises in Last Fiscal Year and
Year-End Option Values................................. 57
Employment Arrangements................................... 57
Compensation Committee Interlocks and Insider
Participation.......................................... 58
Pension Plan.............................................. 58
RELATED PARTY TRANSACTIONS.................................. 59
GOVERNANCE OF GLOBALSTAR.................................... 63
General Partners' Committee............................... 63
Certain Actions........................................... 63
GTL Change of Control and Reduction in Interest........... 65
Council of Service Operators.............................. 66
Indemnification and Fiduciary Standards................... 66
Allocations and Distributions............................. 66
Dissolution of Globalstar................................. 67
Issuance of Additional Partnership Interests.............. 67
Limitations of Transfer of Partnership Interests.......... 68
DESCRIPTION OF NOTES........................................ 68
General................................................... 68
Principal, Maturity and Interest.......................... 69
Optional Redemption....................................... 69
Change of Control......................................... 70
Asset Dispositions........................................ 71
Covenants................................................. 72
Events of Defaults and Remedies........................... 80
No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders......................... 81
Legal Defeasance and Covenant Defeasance.................. 81
</TABLE>
iv
<PAGE> 7
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Transfer and Exchange..................................... 82
Amendment, Supplement and Waiver.......................... 82
Concerning the Trustee.................................... 83
Definitions............................................... 83
Registration Rights....................................... 92
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
OFFER..................................................... 94
Exchange Offer............................................ 94
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. On April 27, 1998, GTL's Board of Directors voted to effect a
2-for-1 stock split of the Common Stock in the form of a stock dividend (the
"Stock Split"), which dividend was paid on June 8, 1998 to stockholders of
record as of May 29, 1998. 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 gives effect to (i) the
conversion of $310 million aggregate principal amount of GTL's CPEOs into
20,662,552 shares of Common Stock of GTL and the corresponding conversion of
Globalstar's RPPIs into ordinary partners' capital, (ii) the exercise by China
Telecom of an option to acquire 937,500 Globalstar partnership interests and
(iii) the issuance of Common Stock by GTL as a result of the Stock Split, but
does not give effect to the issuance of Common Stock by GTL or the issuance of
partnership interests by Globalstar upon the exercise of the Warrants and the
underlying Partnership Warrants. Certain capitalized terms used herein are
defined in the Glossary.
GLOBALSTAR
Globalstar is nearing the completion of 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 has launched eight of the 56
satellites, including eight in-orbit spares, that will complete its full
constellation, and is scheduled to commence service in early 1999.
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.
Globalstar achieved a significant milestone on April 30, 1998 when Qualcomm
chairman Irwin Jacobs successfully placed a call from San Diego through the
Globalstar System to Globalstar chairman Bernard Schwartz in New York City. In
the call, an on-orbit Globalstar satellite received and relayed Mr. Jacobs's
signal to the system's test-bed gateway in San Diego, which switched the call
into the PSTN. The call was carried for the entire duration of the satellite
pass, through multiple satellite beam switching, validating the adaptation of
CDMA technology to Globalstar service, including variable rate vocoders, gateway
software and switching, and the PSTN interconnect. Voice quality was consistent
with the standards set by terrestrial CDMA implementations and no voice delay or
interruption occurred as the call passed through multiple satellite beams during
the call.
As of July 10, 1998, each of the elements of the Globalstar System -- space
and ground segments, user terminal supply, service provider arrangements and
licensing -- is on schedule to permit Globalstar to commence commercial
operations in the second quarter of 1999 with at least 44 satellites on orbit.
<PAGE> 9
Space Segment. Globalstar launched its first four satellites on
February 14, 1998 and its second group of four satellites on April 24,
1998. The eight Globalstar satellites have reached their final orbital
positions and are currently being used to test basic system functionality
including, among other things, the system's inter-satellite hand-off
capabilities. Globalstar has an additional 16 completed satellites on hand,
and production is proceeding for the remaining satellites to meet scheduled
launch dates. Mission operations preparations, launch vehicle production
and dispenser development are on schedule, and all U.S. export licenses
necessary for foreign launches have been obtained. Globalstar plans to
launch the next 36 of its satellites in three groups of 12 aboard the
Ukrainian Zenit rocket. After the failure of a Zenit launch (which did not
involve any Globalstar satellites) in May 1997, a Zenit rocket carrying six
satellites was successfully launched on July 10, 1998. The next scheduled
Zenit launch (of a Russian military spacecraft), originally scheduled for
May 1998, has also been rescheduled for July 1998. Globalstar's initial
launch on this vehicle has consequently been rescheduled for August 1998,
following the next scheduled Russian launch, but Globalstar does not
believe that this rescheduling will delay the Globalstar in-service date. A
Zenit launch failure could substantially delay Globalstar's launch program.
A launch incident that destroys or substantially damages the Zenit launch
pad (which is the only pad from which this rocket can be launched) would
result in further delays in Zenit availability. In the event of any Zenit
failure, Globalstar would be entitled to a free launch on Zenit, but if it
elected to forgo this right and launch on another rocket, it would incur
substantial additional expense. Globalstar intends to launch the last 12
satellites of its constellation, including eight on-orbit spares, in groups
of four on three separate launches of the Russian Starsem Soyuz rocket. See
"Risk Factors -- Development Stage Company -- Sources of Possible Delay and
Increased Cost," and "Risk Factors -- Technological Risks -- Satellite
Launch Risks."
Ground Segment. In preparation for its first launch, Globalstar
completed both its primary SOCC and a functionally-identical back-up
facility, which performed well in support of the first two Globalstar
launches. The SOCCs are fully-operational and have demonstrated their
command and control capabilities with respect to the on-orbit Globalstar
satellites, which they are currently monitoring and controlling. Qualcomm
has completed its design of the Globalstar gateway hardware, has
established the system's test-bed gateway in San Diego, and has shipped
four additional gateways to Texas, France, Australia and South Korea which
helped monitor the launch and orbital placement of Globalstar's satellites.
Thirty-four additional gateways were initially ordered by Globalstar and
are currently in production. Globalstar has resold substantially all of
these gateways under contracts with strategic partners and other service
providers. See "Risk Factors -- Operating Risks -- Dependence on Service
Providers and Other Third Parties." Globalstar anticipates that these
production gateways will be shipped and installed on schedule to commence
commercial operations in the second quarter of 1999 with a test version of
their operating software that will be upgraded prior to the commencement of
commercial operations to a more advanced version currently under
development by Qualcomm.
User Terminal Supply. Ericsson, Qualcomm, and Telital are in the
process of manufacturing approximately 300,000 handheld and fixed user
terminals under contracts totalling $353 million from Globalstar and its
service providers. The first generation of Globalstar Phones will weigh
about 0.8 pounds and will be available in attractive designs with
dimensions (excluding antenna) of approximately 7.2" x 2.5" x 1.8".
Globalstar users will be able to access terrestrial wireless systems where
available through dual and tri-mode portable and mobile user terminals.
Qualcomm will offer a tri-mode handset that can access Globalstar, AMPS
(the U.S. analog cellular standard) and digital cellular phones using CDMA
technology. Ericsson's and Telital's Globalstar/GSM dual mode phones will
feature the GSM interface familiar to wireless customers in Europe and many
other areas of the world.
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. Hyundai has recently
informed Globalstar of its intention to withdraw as a service provider in
light of the financial crisis in Asia. Globalstar is currently working with
Hyundai, other strategic partners and prospective in-country service
2
<PAGE> 10
providers to transition the Hyundai territories which include India,
Finland and New Zealand. Globalstar's local service providers have already
obtained some or all of the national regulatory approvals they will need to
obtain in 28 nations, including China, the United States, Canada, Russia,
Brazil, Indonesia, Saudi Arabia and Ukraine.
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. In
September 1997, Globalstar applied to the FCC for authorization to launch
and operate satellite systems at 2 GHz and 40 GHz. If these applications
are granted (as to which there can be no assurance), Globalstar would be in
a position to expand its capacity.
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses, increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service. As of July 10, 1998,
Globalstar has raised or received commitments for approximately $2.9 billion in
equity, debt and vendor financing.
In addition, Globalstar has agreed to purchase from SS/L, its satellite
contractor, eight additional ground spares at a cost of approximately $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 initial 38 gateways. In December 1997, Globalstar ordered 40,000
fixed access terminals from Ericsson for $84 million. Globalstar has also agreed
to finance approximately $67 million of the cost of handsets. Globalstar expects
to recoup the amounts so financed following the acceptance by the service
providers of the gateways, fixed access terminals and handsets, respectively.
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 733 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 44 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 207 million in 1997 and is projected to increase to 457 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.
3
<PAGE> 11
Loral is a principal founder of Globalstar and, through a subsidiary, is
its managing general partner. After giving effect to the Globalstar Purchase
(described below), Loral owns, directly or indirectly, approximately 42% (on a
fully diluted basis) of Globalstar. On July 6, 1998, Loral purchased 30% of the
Globalstar limited partnership interests (i.e., 4.2 million partnership
interests in the aggregate, corresponding to 16.8 million shares of GTL Common
Stock) held by the founding strategic partners of Globalstar for $420 million in
cash (the "Globalstar Purchase"). Strategic partners participating in this
transaction have reinvested one half of their proceeds ($210 million in the
aggregate) in the Globalstar System for the purchase of Globalstar gateways and
user terminals. Concurrently, entities advised by or associated with Soros Fund
Management L.L.C. ("Soros") purchased from Loral 8.4 million shares of GTL
Common Stock that Loral owned (the "Soros Investment"). After giving effect to
the Globalstar Purchase and the Soros Investment, Loral's fully diluted
ownership in Globalstar increased from approximately 38% to approximately 42%,
and Soros owns GTL shares equating to approximately 4% of Globalstar.
4
<PAGE> 12
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
- China Telecom - Alenia
- Dacom - DASA
- France Telecom - Finmeccanica
- Vodafone - Hyundai
- SS/L
</TABLE>
On April 21, 1998, Globalstar announced that China Telecom had exercised an
option to acquire 937,500 Globalstar partnership interests for an aggregate
purchase price of $18.75 million. In addition, China Telecom has the option to
acquire an additional 937,500 Globalstar partnership interests for an aggregate
purchase price of $18.75 million. Globalstar had previously granted these
options to China Telecom in connection with service provider arrangements in
China under which an affiliate of China Telecom will act as the sole distributor
of Globalstar service in China.
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 Phones 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.
5
<PAGE> 13
Superior Call Quality; Increased Privacy. Based on terrestrial simulations
and initial space-based tests 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.
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 have been
licensed to manufacture Globalstar Phones in order to promote competition and
reduce prices.
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. To achieve lower 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. The Globalstar space segment
is being manufactured under a fixed-price contract with SS/L. The contract
provides for the construction of 56 satellites, including eight in-orbit spares,
meeting designated performance specifications and for SS/L to obtain launch
services and launch insurance. In addition, Globalstar has agreed to purchase
from SS/L eight additional ground spares that will increase Globalstar's ability
to have at least 40 satellites in service during 1999, even in the event of
launch failures.
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 $5 million to $10 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. Each country with a
Globalstar gateway will have access to domestic service without the imposition
of international tail charges on in-country calls, thereby
6
<PAGE> 14
offering subscribers the lowest possible cost for domestic calls, which account
for the vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Ericsson, Qualcomm, and Telital
are currently filling an initial order for approximately 300,000 handheld and
fixed user terminals under contracts totalling $353 million from Globalstar and
its service providers. After these initial production runs, Globalstar
anticipates that competitive pressures and manufacturing efficiencies will
reduce the cost of mobile and private fixed Globalstar Phones to less than $750
each. Private fixed Globalstar Phones will provide a wireless local loop to
government offices, businesses and homes beyond the current coverage area of the
PSTN. Fully-installed, turn-key public telephone booths equipped with security
features and credit, debit and phone-card reading capabilities are expected to
cost between $4,000 and $6,000, depending on the number of units sharing a fixed
antenna. In addition, dual mode and tri-mode Globalstar Phones will permit a
Globalstar handset to access GSM, AMPS and CDMA-based digital cellular systems,
and future phones are planned that will access additional modulations.
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, China Telecom, 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 66 countries around
the world in which they have particular marketing strength and experience and
access to an established customer base. 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 2006. There can be no assurance that the
service providers will elect to retain their exclusivity and make such payments.
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,
Aerospatiale, Alcatel, Alenia, DASA, Finmeccanica and Hyundai have designed
Globalstar's satellites, which are now being built and deployed under a
fixed-price contract with SS/L. Qualcomm, using its CDMA technology, is
designing and will manufacture Globalstar Phones and gateways and has licensed
its user terminal technology to Ericsson and Telital.
7
<PAGE> 15
THE EXCHANGE OFFER
The Exchange Offer......... The Issuers are offering to exchange (the "Exchange
Offer") up to $300,000,000 aggregate principal
amount of 11 1/2% Senior Notes due 2005 (the
"Exchange Notes"), which have been registered under
the Securities Act, for up to $300,000,000
aggregate principal amount of outstanding 11 1/2%
Senior Notes due 2005 (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 August 14, 1998 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."
8
<PAGE> 16
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 as a result
holders will 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 May 20, 1998, 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 May 20, 1998, 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 $300,000,000 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) 933-4000.
Maturity................... June 1, 2005.
Interest Payment Dates..... June 1 and December 1, commencing on December 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 June 1, 2003.
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. In the
event that, on or before June 1, 2001, Globalstar
receives net proceeds from any Equity Offering by
Globalstar or GTL, up to a maximum of 33 1/3% of
the aggregate principal amount of
9
<PAGE> 17
the Notes originally issued will, at the option of
Globalstar, be redeemable from the net cash
proceeds of such sale at a redemption price equal
to 111 1/2% of the stated principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of redemption, provided, however, that (i) at
least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding after such
redemption and (ii) such redemption shall occur
within 90 days of the date of such offering. See
"Description of Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of Notes will have the right to require the
Issuers to repurchase all or any part of such
holder's Notes at an offer price in cash equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages (if any) thereon to the date of purchase.
See "Description of Notes -- Change of Control."
Covenants.................. The 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 12 for a discussion of certain factors
that should be considered in connection with this offering.
10
<PAGE> 18
SUMMARY FINANCIAL INFORMATION
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------
PRE-CAPITAL
SUBSCRIPTION PERIOD(1)
--------------------------- MARCH 23
(COMMENCEMENT
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------------------
1993 1994 1994 1995 1996 1997
------------ ------------ ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses......... 11,510 6,872 28,027 80,226 61,025 88,071
Interest income............ -- -- 1,783 11,989 6,379 20,485
Net loss applicable to
ordinary partnership
interests................ 11,510 6,872 26,244 68,237 71,969 88,788
Net loss per weighted
average ordinary
partnership
interest outstanding --
basic and diluted........ 0.73 1.50 1.53 1.74
Cash distributions per
ordinary partnership
interest................. -- -- -- --
OTHER DATA:
Deficiency of earnings to
cover fixed charges(2)... N/A N/A 81,869 184,683
CASH FLOW DATA:
Used in operating
activities............... -- -- 23,052 38,368 51,756 97,128
Used in investing
activities............... -- -- 50,549 280,345 379,130 591,025
Provided by (used in)
partners' capital
transactions............. -- -- 147,161 318,630 284,714 132,990
Provided by (used in) other
financing activities..... -- -- -- (1,875) 95,750 998,137
<CAPTION>
CUMULATIVE
THREE MONTHS MARCH 23, 1994
ENDED (COMMENCEMENT
MARCH 31, OF OPERATIONS) TO
-------------------- MARCH 31,
1997 1998 1998
---- ---- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ -- $ -- $ --
Operating expenses......... 17,582 24,761 282,110
Interest income............ 2,295 5,165 45,801
Net loss applicable to
ordinary partnership
interests................ 20,588 24,896 280,134
Net loss per weighted
average ordinary
partnership
interest outstanding --
basic and diluted........ 0.44 0.48
Cash distributions per
ordinary partnership
interest................. -- --
OTHER DATA:
Deficiency of earnings to
cover fixed charges(2)... 32,848 64,379
CASH FLOW DATA:
Used in operating
activities............... 19,878 14,559 224,863
Used in investing
activities............... 136,265 152,974 1,454,023
Provided by (used in)
partners' capital
transactions............. 118,084 (4,690) 878,805
Provided by (used in) other
financing activities..... 376,090 -- 1,092,012
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996 1997 MARCH 31, 1998
---- ---- ---- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 71,602 $ 21,180 $464,154 $ 291,931
Working capital (deficiency)............................... 17,687 (53,481) 349,970 142,771
Globalstar System under construction....................... 400,257 891,033 1,527,688 1,718,120
Total assets............................................... 505,391 942,913 2,149,053 2,189,916
Vendor financing liability................................. 42,219 130,694 197,723 271,459
Senior notes............................................... -- -- 1,099,531 1,101,527
Borrowings under long-term revolving credit facility....... -- 96,000 -- --
Redeemable preferred partnership interests(3).............. -- 302,037 303,089 303,352
Ordinary partners' capital................................. 386,838 315,186 380,828 356,601
</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 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.
(3) GTL called for the redemption, on April 30, 1998, of all its outstanding
6 1/2% Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs").
All of the CPEOs were converted before the redemption date into 20,123,230
shares of GTL common stock. As a result of such conversion, Globalstar's
RPPIs were converted into ordinary partnership interests. In connection with
the redemption, GTL issued 539,322 additional shares of GTL common stock in
satisfaction of a required interest make-whole payment. A corresponding
dividend make-whole payment was also made by Globalstar for which ordinary
partnership interests were issued.
11
<PAGE> 19
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, which factors may be generally applicable to the Original Notes as well
as the Exchange Notes..
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. There can be no assurance that Globalstar will achieve
its objectives by the targeted dates.
Additional Financing Requirements. Globalstar currently estimates the cost
for the design, construction and deployment of the Globalstar System to commence
commercial service, including working capital, cash interest on borrowings and
operating expenses, to be approximately $2.8 billion. In addition to
expenditures for operating costs, working capital and debt service, Globalstar
anticipates additional expenditures on system software for the improvement of
system functionality and the addition of new features beyond those planned for
the commencement of commercial service. 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 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. As of July
10, 1998, Globalstar has raised or received commitments for approximately $2.9
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 for the
baseline system (which may include production of ground spare satellites and
support for service provider purchases of gateways and user terminals) into the
second quarter of 1999. If future capital expenditures are not covered by future
operating revenues, Globalster expects to obtain additional funds through a
combination of sources, including issuances of additional debt or equity
securities, projected service provider payments 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 delay Globalstar's Full Constellation Date. The
ability of Globalstar to achieve positive cash flow will depend upon the
successful and timely construction and deployment of the Globalstar System, the
successful marketing of its services by service providers and the ability of the
Globalstar System to successfully compete against other satellite-based
telecommunications systems, as to which there can be no assurance. If Globalstar
fails to commence commercial operations in the second quarter of 1999 or to
achieve positive cash flow in the fourth quarter of 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,
12
<PAGE> 20
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 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.
Globalstar plans to launch the next 36 of its satellites in three groups of
12 aboard the Ukrainian Zenit rocket. After the failure of a Zenit launch (which
did not involve any Globalstar satellites) in May 1997, a Zenit rocket carrying
six satellites was successfully launched on July 10, 1998. The next scheduled
Zenit launch (of a Russian military spacecraft), originally scheduled for May
1998, has also been rescheduled to July 1998. Globalstar's initial launch on
this vehicle has consequently been rescheduled for August 1998, following the
next scheduled Russian launch, but Globalstar does not believe that this
rescheduling will delay the Globalstar in-service date. A Zenit launch failure
could substantially delay Globalstar's launch program. A launch incident that
destroys or substantially damages the Zenit launch pad (which is the only pad
from which this rocket can be launched) would result in further delays in Zenit
availability. In the event of any Zenit failure, Globalstar would be entitled to
a free launch on Zenit, but if it elected to forego this right and launch on
another rocket, it would incur substantial additional expense.
Globalstar is building 16 spare satellites, of which eight will be
on-ground spares, in addition to the 48 satellites it requires for its full
constellation. In addition, SS/L holds options on 12 additional Delta launches
on Globalstar's behalf and has been informed that additional Soyuz launches are
likely to be available, which would be sufficient in the aggregate to launch 48
additional Globalstar satellites. The use of additional Delta or Soyuz launchers
could increase Globalstar's launch expense and, because firm launch dates have
not been assigned, would not eliminate entirely the anticipated delay associated
with a Zenit launch failure.
Any substantial delay in the Full Constellation Date, for this or any other
reason, would increase the proportion of Globalstar's debt service payments due
prior to the availability of operating cash flow, and would require Globalstar
to seek additional financing in order to avoid a payment default. There can be
no assurance that such financing would be available on economic terms, if at
all, in such an eventuality.
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 60
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.
Hyundai has recently informed Globalstar of its intention to withdraw as a
service provider in light of the financial crisis in Asia. Globalstar is
currently working with Hyundai, other strategic partners and prospective
in-country service providers to transition the Hyundai territories, which
include India, Finland and New Zealand. If adequate replacement service
providers for the territories cannot be timely engaged, Globalstar will not be
in a position to offer service in these countries, and its results of operations
would be correspondingly affected.
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.
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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 Full Constellation
Date may be delayed and its costs may be increased.
Risks Inherent in Foreign Operations. Globalstar expects that the vast
majority 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.
On May 13, 1998, President Clinton ordered economic sanctions against India
as a result of that country's recent nuclear tests. The sanctions include a ban
on military-related exports and limitations on U.S.-government supported
extensions of credit to India. Regulations implementing these sanctions have not
been issued, and so Globalstar is not in a position to determine what effect, if
any, such sanctions will have upon the export of Globalstar gateways and
handsets to India, upon Globalstar's ability to obtain a service provider for
India to replace Hyundai, or upon that prospective service provider's business,
including its ability to obtain financing, although such effects could be
material and adverse.
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 $453 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"), the $325 million
aggregate principal amount of Globalstar's 10 3/4% Senior Notes issued in
October 1997 (the "10 3/4% Senior Notes") and the $300 million aggregate
principal amount of Original Notes issued in May 1998. 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 (the "10 3/4% Indenture") governing the 10 3/4% Senior
Notes,
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the Indenture (the "11 1/2% Indenture") governing the Original Notes and any
future debt instruments. Among other things, the covenants contained in the
Globalstar Credit Agreement, the 11 3/8% Indenture, the 11 1/4% Indenture, the
10 3/4% Indenture and the 11 1/2% 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 10 3/4% Indenture, the 11 1/2%
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, Iridium is currently scheduled to commence its MSS
service prior to Globalstar's commencement of operations, and several other
competing systems are in various stages of development. 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 using both GEO and non-GEO satellites and, in one case, the 2 GHz band
for a MEO system. See "Business -- Competition."
Globalstar's most direct competitors are the three other MSS applicants
which currently hold FCC licenses, Iridium, MCHI/Ellipso and Constellation. On
December 17, 1997, TRW announced that it would not construct its previously
licensed Odyssey system but would instead invest in ICO. As of June 15, 1998,
Iridium has launched all of its 72 satellites. 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 will not be given preferential treatment in
the local licensing process in those countries.
Constellation and MCHI were granted FCC licenses in July 1997, 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 were 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, MCHI and Constellation,
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
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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
(e.g., 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%.
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. The Conference of European Regulators
(CEPT)has recommended a band plan virtually identical to the U.S. band plan.
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. Certain of these systems are being proposed by government 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 bases, thereby
increasing the competition to Globalstar. Planet-1 uses existing Inmarsat
satellites to provide service through a six-pound, laptop-size phone, costing
$3,000 with an expected per-minute usage rate of $3.00.
Some of these potential competitors have financial, personnel and other
resources substantially greater than those of Globalstar. Many of these
competitors are raising capital and may compete with Globalstar for service
providers and financing. Technological advances and a continuing trend toward
strategic alliances in the telecommunications industry could give rise to
significant new competitors. There can be no assurance that some of these
competitors will not provide a more efficient or less expensive service.
However, Globalstar believes that based upon the public statements and other
publicly available information of the other MSS applicants, Globalstar will be a
low-cost provider. Depending on the competitive environment, however, 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
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reduced at rates higher than those assumed in Globalstar's market analysis.
Globalstar may also face competition in the future from companies using new
technologies and new satellite systems. New technology could render Globalstar
obsolete or less competitive by satisfying consumer demand in alternative ways
or through the introduction of incompatible telecommunications standards. A
number of these new technologies, even if they are not ultimately successful,
could have an adverse effect on Globalstar as a result of their initial
marketing efforts. Globalstar's business would be adversely affected if
competitors begin operations or existing or new telecommunications service
providers penetrate Globalstar's target markets before completion of the
Globalstar System.
Subscriber Acceptance. Subscriber acceptance of the Globalstar System
(both in terms of placement of Globalstar Phones and subscriber usage thereof)
will depend upon a number of factors, including price, demand for service and
the extent of availability of alternative telecommunications systems. If the
level of actual subscriber demand and usage for Globalstar service is below that
expected by Globalstar, Globalstar's cash flow will be adversely affected.
Globalstar's hand-held phone is expected to be larger and heavier for the same
talk time than today's smaller and lighter pocket-sized, hand-held cellular
telephones and is expected to have a significantly longer and thicker antenna
than hand-held cellular telephones. The Globalstar System will function best
when there is an unobstructed line-of-sight between the user and one or more of
the Globalstar satellites. Obstacles such as buildings, trees or mountainous
terrain may degrade service quality, more so than would be the case with
terrestrial cellular systems, and service may not be available in the core of
high-rise buildings. There is no assurance that these characteristics of the
hand-held Globalstar Phone will not adversely affect subscriber demand for
Globalstar service.
Product Liability; Alleged Health Risks. There has been adverse publicity
concerning alleged health risks associated with the use of portable hand-held
telephones with transmitting antennas integrated into handsets. On August 1,
1996, the FCC announced new guidelines for evaluating environmental radio
frequency radiation from FCC-regulated transmitters based primarily on the
exposure criteria recommended in 1986 by the National Council on Radiation
Protection Measurements ("NCRP"). Guidelines applicable to certain portable
transmitting devices are based on the NCRP criteria and the exposure criteria
developed by the Institute of Electrical and Electronic Engineers and
recommended in 1992 by the American National Standards Institute. These
guidelines are in effect for all applications filed after October 15, 1997; all
FCC licensees are expected to come into compliance with the new guidelines by
September 1, 2000. Globalstar's handsets 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
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.
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
involves volume production and testing of satellites in quantities significantly
higher than those previously prevailing in the industry. The integration of
worldwide LEO satellite-based systems like Globalstar presents significant
technological challenges and there is no assurance that such integration will be
successfully implemented. The operation of the Globalstar System will require
the integration of advanced digital communications technologies in devices from
personal handsets and public telephone networks to gateways in
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remote regions of the globe and satellites operating in space. The failure to
produce and implement the system, or any of its diverse and dispersed elements,
as required, could delay the 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
15%. 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 Ukrainian Zenit launch vehicle, which is proposed to launch 36 Globalstar
satellites (12 per launch), has never been used in commercial applications.
After the failure of a Zenit launch (which did not involve any Globalstar
satellites) in May 1997, a Zenit rocket carrying six satellites was successfully
launched on July 10, 1998. The next scheduled Zenit launch (of a Russian
military spacecraft), originally scheduled for May 1998, has also been
rescheduled to July 1998. Globalstar's initial launch on this vehicle has
consequently been rescheduled for August 1998, following the next scheduled
Russian launch, but Globalstar does not believe that this rescheduling will
delay the Globalstar in-service date. A Zenit launch failure could substantially
delay Globalstar's launch program. A launch incident that destroys or
substantially damages the Zenit launch pad (which is the only pad from which
this rocket can be launched) would result in further delays in Zenit
availability. In the event of any Zenit failure, Globalstar would be entitled to
a free launch on Zenit, but if it elected to forego this right and launch on
another rocket, it would incur substantial additional expense. 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. For a discussion
of the adverse consequences of a Zenit failure, see "-- Development Stage
Company -- Sources of Possible Delay and Increased Cost."
SS/L has agreed to obtain launch vehicles for Globalstar and arrange for
the launch of all remaining 48 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 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.
Globalstar's remaining launches will be with launch operators which 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 Globalstar and SS/L have obtained all
necessary U.S. export licenses for Globalstar's remaining scheduled launches, a
deterioration in the relationships between the United States and these
countries, a change in government policy or legislation or other factors could
adversely affect the licenses already granted.
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
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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.
Limited Insurance. Unless otherwise required to do so, 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.
Globalstar's contract with SS/L provides for the construction and launch of
eight in-orbit spare satellites and construction of eight additional ground
spares 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 which event there can be no assurance that insurance for such
launches will be available or that, if available, would be at a cost or on terms
acceptable to Globalstar. In such an event, in addition to the replacement costs
incurred by Globalstar, Globalstar's Full Constellation Date may be delayed.
Year 2000 Issue. Globalstar is evaluating the potential effect on its
information processing systems to determine what actions will be necessary or
appropriate in connection with the "Year 2000 Issue." The Year 2000 Issue is the
result of computer programs which were written using two digits rather than four
to signify a year (i.e., the year 1997 is denoted "97" and not "1997"). Computer
programs written using only two digits may recognize the year 2000 as the year
1900. This could result in a system failure or miscalculations causing
disruption of operations. It is not known at this time what modifications, if
any, will be required. All costs associated with any modification will be
expensed as incurred. In addition, Globalstar has requested, and will continue
to seek, information from third-party entities on which it relies, certifying
that their computer systems will not negatively affect its operations. No
assurance can be given that there will not be some unforeseen issue, in
particular, in connection with third parties' systems, that may materially
affect Globalstar's operations.
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 is 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 continue to be available to Globalstar
on a timely basis or on reasonable terms.
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.
AirTouch, the exclusive Globalstar
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service provider in the United States, has received its license for the Texas
gateway, and its application for a license for Globalstar Phones is still
pending.
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, in 1995, at the time Globalstar, along with two other applicants,
was awarded an FCC license to construct a Big LEO system, two other applicants,
MCHI/Ellipso and Constellation, were not granted Big LEO licenses. These
decisions by the FCC's International Bureau were appealed to the full Commission
and affirmed in 1996. MCHI/Ellipso and Constellation then filed judicial appeals
of the entire Commission order, which had both affirmed the denial of their
applications and the grant of Globalstar's license. While those judicial appeals
were pending, the International Bureau in 1997 granted Big LEO licenses to
MCHI/Ellipso and Constellation. Globalstar and others appealed these new
decisions to the full Commission, which has not yet acted. Accordingly,
MCHI/Ellipso and Constellation have asked the court to hold their judicial
appeals in abeyance pending Commission action on the appeals of the 1997
licensing decisions. While Globalstar believes that the judicial appeals are
without merit, there can be no assurance that such appeals 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 frequency bands adjacent to and including spectrum authorized for use 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 which does not have an adverse effect on
Globalstar's use of its authorized frequencies. In addition, there are
requirements for interference protection between Globalstar and Glonass under
consideration, which, if adopted, may render a segment of 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. 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 European Commission
has proposed legislation which, if adopted, would give the Commission broad
regulatory authority over satellite telecommunications systems such as the
Globalstar System. 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 March 24, 1998, the Commission issued a letter stating that the
Globalstar System does not raise competitive concerns.
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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 manufacturing the
system elements to be sold to service providers and subscribers. During the
design, development and deployment of the Globalstar System, Globalstar is
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 and Globalstar Phones.
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 may be 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.
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 the Initial Purchasers 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 (408-993-4000).
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, on a fully
diluted basis, as of June 30, 1998 pro forma for the Globalstar Purchase and
Soros Investment which occurred on July 6, 1998:
GLOBALSTAR STRUCTURE(1)
[GLOBALSTAR STRUCTURE CHART]
(1) The above percentages give effect to the issuance of Common Stock by GTL and
the issuance of Ordinary Partnership Interests by Globalstar upon exercise
of the Warrants and the underlying Partnership Warrants.
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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 $288 million. Globalstar will use such net proceeds towards the
construction and deployment of the Globalstar System. Pending such use,
Globalstar has invested such proceeds in short-term investment grade debt
securities.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Issuers issued and sold $275 million aggregate principal amount of
Original Notes on May 20, 1998. An additional $25 million aggregate principal
amount of Original Notes were issued and sold on May 27, 1998 pursuant to an
over-allotment option exercised by the Initial Purchasers. Such sales were not
registered under the Securities Act in reliance upon the exemptions provided by
Section 4(2) and Rule 144A 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 Notes were not eligible to be
exchanged for Exchange Notes in the Exchange Offer or (iv) any Holder (other
than an Exchanging Dealer) of Transfer Restricted Notes 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
Notes 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 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 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 or is saleable pursuant to Rule 144(k) 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, has 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
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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 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 August 14, 1998, unless the
Issuers in their sole discretion extend the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Issuers, expires.
The Issuers reserve the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to The Bank
of New York (the "Exchange Agent") and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Original Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
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The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Issuers waive any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver or amendment is first published, sent or given to holders of
Original Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Original Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Issuers of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Original Note may tender the same by
(i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Original Notes being tendered
and any required signature guarantees (or a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") pursuant to the procedure described
below), to the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Expiration Date or (ii) complying with the
guaranteed delivery procedures described below.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuers and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Original Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
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Book-Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Original Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Original Notes by causing the Book-Entry
Transfer Facility to transfer such Original Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Original Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address specified on the back cover
page of this Prospectus on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his taxpayer identification number (social security number or employer
identification number) and certify that such number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal, so as to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to the
Issuers and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Original Notes are registered and, if possible, the
certificate numbers of the Original Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange trading days after the date of execution of such letter or facsimile
transmission by the Eligible Institution, the Original Notes, in proper form for
transfer, will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Original Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Issuers may, at their option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are being delivered with this Prospectus and the
related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Original Notes (or a timely
Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuers, be unlawful. The Issuers also
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<PAGE> 34
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 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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<PAGE> 35
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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<PAGE> 36
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 $250,000.
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> 37
tender their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture pursuant to which such Original Notes were issued,
except for any such rights under the respective Registration Rights Agreement,
which by their terms terminate or cease to have further effect as a result of
the making of this Exchange Offer. See "Description of the Notes." All
untendered Original Notes will continue to be subject to the restriction on
transfer set forth in the Indenture pursuant to which such Original Notes were
issued. To the extent that Original Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Original Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange."
The Issuers may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
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<PAGE> 38
SELECTED FINANCIAL DATA
The following selected financial data of Globalstar as of December 31, 1996
and 1997, and March 31, 1998, for the years ended December 31, 1995, 1996 and
1997, for the three months ended March 31, 1997 and 1998, and cumulative has
been derived from financial statements of Globalstar included herein and the
selected financial data as of December 31, 1995 and for the periods prior to
December 31, 1994 have been derived from financial statements of Globalstar not
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
--------------------------------
PRE-CAPITAL
SUBSCRIPTION PERIOD(1) MARCH 23
--------------------------- (COMMENCEMENT
YEAR ENDED JANUARY 1 TO OF OPERATIONS) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, MARCH 22, DECEMBER 31, --------------------------------
1993 1994 1994 1995 1996 1997
------------ ------------ ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses.......... 11,510 6,872 28,027 80,226 61,025 88,071
Interest income............. -- -- 1,783 11,989 6,379 20,485
Net loss applicable to
ordinary partnership
interests................. 11,510 6,872 26,244 68,237 71,969 88,788
Net loss per weighted
average
ordinary partnership
interest
outstanding -- basic and
diluted................... 0.73 1.50 1.53 1.74
Cash distributions per
ordinary partnership
interest.................. -- -- -- --
OTHER DATA:
Deficiency of earnings to
cover fixed charges(2).... N/A N/A 81,869 184,683
CASH FLOW DATA:
Used in operating
activities................ -- -- 23,052 38,368 51,756 97,128
Used in investing
activities................ -- -- 50,549 280,345 379,130 591,025
Provided by (used in)
partners' capital
transactions.............. -- -- 147,161 318,630 284,714 132,990
Provided by (used in) other
financing activities...... -- -- -- (1,875) 95,750 998,137
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
-------------------- MARCH 31,
1997 1998 1998
---- ---- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ -- $ -- $ --
Operating expenses.......... 17,582 24,761 282,110
Interest income............. 2,295 5,165 45,801
Net loss applicable to
ordinary partnership
interests................. 20,588 24,896 280,134
Net loss per weighted
average
ordinary partnership
interest
outstanding -- basic and
diluted................... 0.44 0.48
Cash distributions per
ordinary partnership
interest.................. -- --
OTHER DATA:
Deficiency of earnings to
cover fixed charges(2).... 32,848 64,379
CASH FLOW DATA:
Used in operating
activities................ 19,878 14,559 224,863
Used in investing
activities................ 136,265 152,974 1,454,023
Provided by (used in)
partners' capital
transactions.............. 118,084 (4,690) 878,805
Provided by (used in) other
financing activities...... 376,090 -- 1,092,012
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996 1997 MARCH 31, 1998
---- ---- ---- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 71,602 $ 21,180 $464,154 $ 291,931
Working capital (deficiency)............................... 17,687 (53,481) 349,970 142,771
Globalstar System under construction....................... 400,257 891,033 1,527,688 1,718,120
Total assets............................................... 505,391 942,913 2,149,053 2,189,916
Vendor financing liability................................. 42,219 130,694 197,723 271,459
Senior notes............................................... -- -- 1,099,531 1,101,527
Borrowings under long-term revolving credit facility....... -- 96,000 -- --
Redeemable preferred partnership interests(3).............. -- 302,037 303,089 303,352
Ordinary partners' capital................................. 386,838 315,186 380,828 356,601
</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 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.
(3) GTL called for the redemption on, April 30, 1998, of all its outstanding
6 1/2% Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs").
All of the CPEOs were converted before the redemption date into 20,123,230
shares of GTL common stock. As a result of such conversion, Globalstar's
RPPIs were converted into ordinary partnership interests. In connection with
the redemption, GTL issued 539,322 additional shares of GTL common stock in
satisfaction of a required interest make-whole payment. A corresponding
dividend make-whole payment was also made by Globalstar for which ordinary
partnership interests were issued.
31
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis addresses the financial condition and
results of operations of Globalstar. Globalstar Capital, a wholly owned
subsidiary of Globalstar, was formed solely for purposes of serving as a
co-issuer and co-obligor with respect to certain debt obligations of Globalstar.
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this Prospectus, are forward-looking
statements that involve risks and uncertainties, many of which may be beyond
Globalstar's control. These may include, but are not limited to, problems
relating to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. The actual results that Globalstar achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, cash and cash equivalents decreased to $291.9 million
from $464.2 million at December 31, 1997. The net decrease is a result of
expenditures for the Globalstar System of $128.8 million, expenditures for the
additional spare satellites and user terminals of $23.3 million, net cash used
in operating activities of $14.6 million and preferred distributions on the
Redeemable Preferred Partnership Interests of $5.0 million.
Current liabilities increased by $34.7 million from $143.8 million at
December 31, 1997 to $178.5 million at March 31, 1998, primarily as a result of
the classification of a portion of the vendor financing due within one year to
current liabilities.
Through March 31, 1998, Globalstar incurred costs of approximately $1.9
billion for the design and construction of the space and ground segments. Costs
incurred through March 31, 1998, were approximately $207 million.
On February 14, 1998, Globalstar launched its first four satellites and
launched four additional satellites on April 24, 1998. Globalstar expects to
begin commercial service in early 1999 following the launch of 36 additional
satellites during 1998. The remaining 12 satellites, including eight in-orbit
spares, will be launched in the first half of 1999.
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service.
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 initial 38
gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals
from Ericsson for $84 million. Globalstar has also agreed to finance
approximately $67 million of the cost of handsets. Globalstar expects to recoup
the amounts so financed following the acceptance by the service providers of the
gateways, fixed access terminals and handsets.
Globalstar and Globalstar service providers entered into contracts with
Qualcomm, Ericsson OMC Limited and Telital S.p.A. for the initial manufacture
and delivery of approximately 300,000 production handheld and fixed access
terminals.
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<PAGE> 40
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing $100 million of vendor financing. The deferred payments
will accrue interest at a rate of 5.75% per annum, and will be capitalized to
principal quarterly. Globalstar will make eight equal principal payments on a
quarterly basis commencing on January 1, 2000 with final payment due October 1,
2001 accompanied by all then unpaid accrued interest.
On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised, an option to acquire 937,500 Globalstar
ordinary partnership interests for an aggregate purchase price of $18,750,000.
In addition, China Telecom has an option to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000. Globalstar had previously granted these options to China Telecom in
connection with service provider arrangements in China under which China
Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the
sole distributor of Globalstar service in China.
As of July 10, 1998, Globalstar had raised or received commitments for
approximately $2.9 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar credit agreement
($250 million available at March 31, 1998) are sufficient to fund its
requirements for the baseline system into the second quarter of 1999. If future
capital expenditures are not covered by future operating revenues, Globalstar
intends to raise the remaining funds required from a combination of sources
including: debt issuance (which may include an equity component), financial
support from the Globalstar partners, projected service provider payments,
projected net service revenues from initial operations and anticipated payments
from the sale of gateways and Globalstar subscriber terminals. Although
Globalstar believes it will be able to obtain these additional funds, there can
be no assurance that such funds will be available on favorable terms or on a
timely basis, if at all.
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount.
As of April 30, 1998, all the holders of the CPEOs had converted their holdings
into 20,123,230 shares of GTL common stock (as adjusted for Stock Split). As a
result of such conversion, Globalstar's RPPIs were converted into ordinary
partnership interests. In connection with the redemption, GTL issued 539,322
additional shares of GTL common stock (as adjusted for Stock Split) in
satisfaction of a required interest make-whole payment totaling approximately
$16.6 million. A corresponding dividend make-whole payment was also made by
Globalstar for which additional ordinary partnership interests were issued.
Prior to the conversion, interest on the CPEOs and, correspondingly, dividends
on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The
conversion of the CPEOs and the related RPPIs will result in annual cash savings
of approximately $20.1 million.
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended March 31, 1998 and 1997
Globalstar is a development stage partnership and has not commenced
operations. For the period March 23, 1994 (commencement of operations) to March
31, 1998, Globalstar has recorded cumulative net losses applicable to ordinary
partnership interests of $280.1 million. The net loss applicable to ordinary
partnership interests for the three months ended March 31, 1998 increased to
$24.9 million as compared to $20.6 million for the three months ended March 31,
1997. The net loss increased primarily as a result of increased activity in the
development of Globalstar user terminals, and increased in-house engineering and
marketing efforts. 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 $45.8 million on cash balances and
short term investments since commencement of operations. Interest income during
the three months ended March 31, 1998 was $5.2 million as compared to $2.3
million for the three months ended March 31, 1997. Interest income for the
current period increased as a result of higher average cash balances outstanding
during the first quarter of 1998.
Operating Expenses. Development costs during the three months ended March
31, 1998 were $16.5 million as compared to $11.2 million for the three months
ended March 31, 1997. Development costs for the
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<PAGE> 41
current period increased as a result of increased activity in the development of
Globalstar user terminals and in-house engineering.
Marketing, general and administrative expenses were $8.3 million and $6.3
million for the three months ended March 31, 1998 and 1997, respectively. The
increase in marketing, general and administrative expenses is primarily the
result of an increase in the number of employees as compared to the first
quarter of 1997 as Globalstar gears up for operations and increased marketing
costs.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of the
Globalstar Phones and certain technologies under a cost sharing arrangement with
Qualcomm. Globalstar will not record depreciation expense on the Globalstar
System 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, 1997 and 1996
For the period March 23, 1994 (commencement of operations) to December 31,
1997, Globalstar has recorded cumulative net losses applicable to ordinary
partnership interests of $255.2 million. The net loss for the year ended
December 31, 1997 increased to $67.6 million as compared to $54.6 million for
the year ended December 31, 1996 due to an increase in total operating costs
partially offset by an increase in interest income. The net loss applicable to
ordinary partnership interests was $88.8 million during the current period
reflecting $21.2 million of preferred distributions on the redeemable preferred
partnership interests. Globalstar is expending significant funds for the design,
construction, testing and deployment of the Globalstar System and expects such
losses to continue until commencement of commercial operations.
Globalstar has earned interest income of $40.6 million on cash balances and
short term investments since commencement of operations. Interest income during
the year ended December 31, 1997 was $20.5 million as compared to $6.4 million
for the year ended December 31, 1996. Interest income for the current period
increased as a result of higher average cash balances available for investment
during 1997.
Operating Expenses. Development costs of $62.5 million for the year ended
December 31, 1997 represent the development of Globalstar user terminals and
Globalstar's continuing in-house engineering. This compares with $42.2 million
of development costs incurred during 1996. The increase during 1997 is primarily
the result of the increased activity in the development of the Globalstar user
terminals.
Marketing, general and administrative expenses were $25.6 million for the
year ended December 31, 1997 as compared to $18.9 million incurred during the
year ended December 31, 1996. 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.
Comparison of Results for the Years Ended December 31, 1996 and 1995
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
million during 1996 reflecting $17.3 million of preferred distributions on the
redeemable preferred partnership interests.
Interest income during the year ended December 31, 1996 was $6.4 million as
compared to $12 million for the year ended December 31, 1995. Interest income
for 1996 decreased as a result of lower average cash balances available for
investment 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 1996 is primarily
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<PAGE> 42
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.
FINANCIAL ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, Globalstar adopted the Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). The requirements of SFAS 130 had no effect on the financial statements
presented.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), and in February 1998, issued Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
131 establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. SFAS 132 expands and standardizes the
disclosure requirements for pensions and other postretirement benefits.
Globalstar is required to adopt SFAS 131 and SFAS 132 in 1998 and the financial
statements of Globalstar will reflect the appropriate disclosures.
YEAR 2000 ISSUE
Globalstar is evaluating the potential effect on its information processing
systems to determine what actions will be necessary or appropriate in connection
with the "Year 2000 Issue." The Year 2000 Issue is the result of computer
programs which were written using two digits rather than four to signify a year
(i.e., the year 1997 is denoted "97" and not "1997"). Computer programs written
using only two digits may recognize the year 2000 as the year 1900. This could
result in a system failure or miscalculations causing disruption of operations.
It is not known at this time what modifications, if any, will be required. All
costs associated with any modification will be expensed as incurred. In
addition, Globalstar has requested, and will continue to seek, information from
third-party entities on which it relies, certifying that their computer systems
will not negatively affect its operations. No assurance can be given that there
will not be some unforeseen issue, in particular, in connection with third
parties' systems, that may materially affect Globalstar's operations.
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<PAGE> 43
BUSINESS
BUSINESS OVERVIEW
Globalstar is nearing the completion of 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 has launched eight of the 56
satellites, including eight in-orbit spares, that will complete its full
constellation and is scheduled to commence service in early 1999.
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.
Globalstar achieved a significant milestone on April 30, 1998 when Qualcomm
chairman Irwin Jacobs successfully placed a call from San Diego through the
Globalstar System to Globalstar chairman Bernard Schwartz in New York City. In
the call, an on-orbit Globalstar satellite received and relayed Mr. Jacobs's
signal to the system's test-bed gateway in San Diego, which switched the call
into the PSTN. The call was carried for the entire duration of the satellite
pass, through multiple satellite beam switching, validating the adaptation of
CDMA technology to Globalstar service, including variable rate vocoders, gateway
software and switching, and the PSTN interconnect. Voice quality was consistent
with the standards set by terrestrial CDMA implementations and no voice delay or
interruption occurred as the call passed through multiple satellite beams during
the call.
As of July 10, 1998, each of the elements of the Globalstar System -- space
and ground segments, user terminal supply, service provider arrangements and
licensing -- is on schedule to permit Globalstar to commence commercial
operations in the second quarter of 1999, with at least 44 satellites on orbit.
Space Segment. Globalstar launched its first four satellites on
February 14, 1998 and its second group of four satellites on April 24,
1998. The first eight Globalstar satellites have reached their final
orbital positions and are currently being used to test basic system
functionality including, the system's inter-satellite hand-off
capabilities. Globalstar has an additional 16 completed satellites on hand,
and production is proceeding for the remaining satellites to meet scheduled
launch dates. Mission operations preparations, launch vehicle production
and dispenser development are on schedule, and all U.S. export licenses
necessary for foreign launches have been obtained. Globalstar plans to
launch the next 36 of its satellites in three groups of 12 aboard the
Ukrainian Zenit rocket. After the failure of a Zenit launch (which did not
involve any Globalstar satellites) in May 1997, a Zenit rocket carrying six
satellites was successfully launched on July 10, 1998. The next scheduled
Zenit launch (of a Russian military spacecraft), originally scheduled for
May 1998, has also been rescheduled to July 1998. Globalstar's initial
launch on this vehicle has consequently been rescheduled for August 1998,
following the next scheduled Russian launch, but Globalstar does not
believe that this rescheduling will delay the Globalstar in-service date. A
Zenit launch failure could substantially delay Globalstar's launch program.
A launch
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<PAGE> 44
incident that destroys or substantially damages the Zenit launch pad (which
is the only pad from which this rocket can be launched) would result in
further delays in Zenit availability. In the event of any Zenit failure,
Globalstar would be entitled to a free launch on Zenit, but if it elected
to forgo this right and launch on another rocket, it would incur
substantial additional expense. Globalstar intends to launch the last 12
satellites of its constellation, including eight in-orbit spares, in groups
of four on three separate launches of the Russian Starsem Soyuz rocket. See
"Risk Factors -- Development Stage Company -- Sources of Possible Delay and
Increased Cost" and "Risk Factors -- Technological Risks -- Satellite
Launch Risks."
Ground Segment. In preparation for its first launch, Globalstar
completed both its primary SOCC and a functionally-identical back-up
facility, which performed well in support of the first two Globalstar
launches. The SOCCs are fully-operational and have demonstrated their
command and control capabilities with respect to the on-orbit Globalstar
satellites, which they are currently monitoring and controlling. Qualcomm
has completed its design of the Globalstar gateway hardware, has
established the system's test-bed gateway in San Diego, and has shipped
four additional gateways to Texas, France, Australia and South Korea which
helped monitor the launch and orbital placement of Globalstar's satellites.
Thirty-four additional gateways were initially ordered by Globalstar and
are currently in production. Globalstar has resold substantially all of
these gateways under contracts with strategic partners and other service
providers. See "Risk Factors -- Operating Risks -- Dependence on Service
Providers and Other Third Parties." Globalstar anticipates that these
production gateways will be shipped and installed on schedule to commence
commercial operations in the second quarter 1999 with a test version of
their operating software that will be upgraded prior to the commencement of
commercial operations to a more advanced version currently under
development by Qualcomm.
User Terminal Supply. Ericsson, Qualcomm, and Telital are in the
process of manufacturing approximately 300,000 handheld and fixed user
terminals under contracts totalling $353 million from Globalstar and its
service providers. The first generation of Globalstar Phones will weigh
about 0.8 pounds and will be available in attractive designs with
dimensions (excluding antenna) of approximately 7.2" x 2.5" x 1.8".
Globalstar users will be able to access terrestrial wireless systems where
available through dual and tri-mode portable and mobile user terminals.
Qualcomm will offer a tri-mode handset that can access Globalstar, AMPS
(the U.S. analog cellular standard) and digital cellular systems using CDMA
technology. Ericsson's and Telital's Globalstar/GSM dual mode phones will
feature the GSM interface familiar to wireless customers in Europe and many
other areas of the world.
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. Hyundai has recently
informed Globalstar of its intention to withdraw as a service provider in
light of the financial crisis in Asia. Globalstar is currently working with
Hyundai, other strategic partners and prospective in-country service
providers to transition the Hyundai territories, which include India,
Finland and New Zealand. Globalstar's local service providers have already
obtained some or all of the national regulatory approvals they will need to
obtain in 28 nations, including China, the United States, Canada, Russia,
Brazil, Indonesia, Saudi Arabia and Ukraine.
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. In
September 1997, Globalstar applied to the FCC for authorization to launch
and operate satellite systems at 2 GHz and 40 GHz. If these applications
are granted (as to which there can be no assurance), Globalstar would be in
a position to expand its capacity.
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings
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and operating expenses, increased to approximately $2.8 billion, reflecting
revised cost estimates from Qualcomm and other increased Globalstar
expenditures. In addition to expenditures for operating costs, working capital
and debt service, Globalstar anticipates additional expenditures on system
software for the improvement of system functionality and the addition of new
features beyond those planned for the commencement of commercial service. As of
July 10, 1998, Globalstar has raised or received commitments for approximately
$2.9 billion in equity, debt and vendor financing.
In addition, Globalstar has agreed to purchase from SS/L, its satellite
contractor, eight additional ground spares at a cost of approximately $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 initial 38 gateways. In December 1997, Globalstar ordered 40,000
fixed access terminals from Ericsson for $84 million. Globalstar has also agreed
to finance approximately $67 million of the cost of handsets. Globalstar expects
to recoup the amounts so financed following the acceptance by the service
providers of the gateways, fixed access terminals and handsets, respectively.
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 733 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 44 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 207 million in 1997 and is projected to increase to 457 million by
2001. At that time, it is projected that only 40% of the world's population will
live in areas with cellular coverage. The remaining 60% of the world's
population will have access to wireless telephone service principally through
satellite-based systems like the Globalstar System. Globalstar believes that its
addressable market exceeds 30 million people.
The Globalstar System has been designed with attributes which Globalstar
believes compare favorably to other proposed global MSS systems including: (i)
Globalstar's unique combination of CDMA technology and path diversity through
multiple satellite coverage, which will reduce call interruptions and signal
blockage from obstructions and will use satellite power more efficiently; (ii) a
proven space segment design without complex intersatellite links or on-board
call processing and a ground segment with flexible, low-cost gateways and
competitively priced Globalstar Phones; (iii) lower average wholesale prices
than other proposed MSS systems and (iv) gateways installed in most major
countries, minimizing tail charges (i.e. amounts charged by carriers other than
the Globalstar service provider for connecting a Globalstar call through its
network), resulting in low costs for domestic and regional calls, which will
account for the vast majority of Globalstar's anticipated usage.
Loral is a principal founder of Globalstar and, through a subsidiary, is
its managing general partner. After giving effect to the Globalstar Purchase,
Loral owns, directly or indirectly, approximately 42% (on a fully diluted basis)
of Globalstar. On July 6, 1998, Loral purchased 30% of the Globalstar limited
partnership interests (i.e., 4.2 million partnership interests in the aggregate,
corresponding to 16.8 million shares of GTL Common Stock) held by the founding
strategic partners of Globalstar for $420 million in cash. Strategic partners
participating in this transaction have reinvested one half of their proceeds
($210 million in the aggregate) in the Globalstar System for the purchase of
Globalstar gateways and user terminals. Concurrently, entities advised by or
associated with Soros Fund Management L.L.C. purchased from Loral 8.4 million
shares of GTL Common Stock that Loral owned. After giving effect to the
Globalstar Purchase and the Soros Investment, Loral's fully diluted ownership in
Globalstar increased from approximately 38% to approximately 42%, and Soros owns
GTL shares equating to approximately 4% of Globalstar.
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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
- China Telecom - Alenia
- Dacom - DASA
- France Telecom - Finmeccanica
- Vodafone - Hyundai
- SS/L
</TABLE>
On April 21, 1998, Globalstar announced that China Telecom had exercised an
option to acquire 937,500 Globalstar partnership interests for an aggregate
purchase price of $18.75 million. In addition, China Telecom has an option to
acquire an additional 937,500 Globalstar partnership interests for an aggregate
purchase price of $18.75 million. Globalstar had previously granted these
options to China Telecom in connection with service provider arrangements in
China under which an affiliate of China Telecom will act as the sole distributor
of Globalstar service in China.
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 Phones anywhere in the world where
Globalstar service is authorized by local regulatory authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each mobile Globalstar Phone has been designed to communicate with as many as
three satellites simultaneously, combining the signals received to ensure
maximum service quality. As satellites are constantly moving in and out of view,
they will be seamlessly added to and removed from the calls in progress, thereby
reducing the risk of call interruption.
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Superior Call Quality; Increased Privacy. Based on terrestrial simulations
and initial space based tests 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.
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 have been
licensed to manufacture Globalstar Phones in order to promote competition and
reduce prices.
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. To achieve lower 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. The Globalstar space segment
is being manufactured under a fixed-price contract with SS/L. The contract
provides for the construction of 56 satellites, including eight in-orbit spares,
meeting designated performance specifications and for SS/L to obtain launch
services and launch insurance. In addition, Globalstar has agreed to purchase
from SS/L eight additional ground spares that will increase Globalstar's ability
to have at least 40 satellites in service during 1999, even in the event of
launch failures.
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 $5 million to $10 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. Each country with a
Globalstar gateway will have access to domestic service without the imposition
of international tail charges on in-country calls, thereby
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offering subscribers the lowest possible cost for domestic calls, which account
for the vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Ericsson, Qualcomm, and Telital
are currently filling an initial order for approximately 300,000 handheld and
fixed user terminals under contracts totalling $353 million from Globalstar and
its service providers. After these initial production runs, Globalstar
anticipates that competitive pressures and manufacturing efficiencies will
reduce the cost of mobile and private fixed Globalstar Phones to less than $750
each. Private fixed Globalstar Phones will provide wireless local loop to
government offices, businesses and homes beyond the current coverage area of the
PSTN. Fully-installed, turn-key public telephone booths equipped with security
features and credit, debit and phone-card reading capabilities are expected to
cost between $4,000 and $6,000, depending on the number of units sharing a fixed
antenna. In addition, dual mode and tri-mode Globalstar Phones will permit a
Globalstar handset to access GSM, AMPS and CDMA-based digital cellular systems,
and future phones are planned that will access additional modulations.
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, China Telecom, 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 66 countries around
the world in which they have particular marketing strength and experience and
access to an established customer base. 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 2006. There can be no assurance that the
service providers will elect to retain their exclusivity and make such payments.
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,
Aerospatiale, Alcatel, Alenia, DASA, Finmeccanica and Hyundai have designed
Globalstar's satellites, which are now being built and deployed under a fixed
price contract with SS/L. Qualcomm, using its CDMA technology, is designing and
will manufacture Globalstar Phones and gateways and has licensed its user
terminal technology to Ericsson and Telital.
THE GLOBALSTAR SYSTEM
Globalstar intends to offer low-cost, high quality telecommunications
services throughout the world. The Globalstar System will be comprised of a
56-satellite LEO constellation (including eight in-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.
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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 and space-based tests 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 private, fixed Globalstar Phones which will
operate like landline telephones, but will be connected to directional
Globalstar antennas. Directional antennae also provide for more efficient use of
the system's capacity.
Mobile Globalstar Phones for No-Cellular Areas. In certain regions,
land-based cellular systems cannot be economically justified because of their
population density or geographic characteristics. As a satellite-based system
with worldwide coverage, Globalstar can efficiently offer both hand-held and
vehicle-mounted mobile service in these areas through its single-mode mobile
Globalstar Phones. These units are expected to be similar in function and cost
to today's full-featured cellular telephones. Unlike cellular telephones,
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.
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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/AMPS and
Globalstar/GSM.
Other Services
Messaging and Paging Services. In addition to supporting voice services,
the Globalstar System is also expected to function as a worldwide paging and
alphanumeric messaging service. Hand-held or vehicle-mounted Globalstar Phones
are currently being designed with a built-in paging and messaging feature that
allows the user to receive a page or a short alphanumeric message while the unit
is in a very-low-power "quiet listening only" mode. Separate Globalstar
messaging and paging units may also be developed by Globalstar or by third party
vendors. The Globalstar System can readily support these functions without
taxing system resources since, as compared with voice services, messages and
pages have a relatively low data content and do not require instantaneous,
two-way transmission.
Remote Monitoring. Globalstar data terminals integrated with automatic
sensing equipment of various kinds can provide a continuous stream of valuable
information concerning natural events such as weather conditions, seismic shifts
and forest fires, as well as the condition of remote assets, such as oil and gas
pipelines and electric utility transmission lines.
Facsimile and Other Data Services. The Globalstar System is expected to
support fax traffic, as well as transmissions of digital computer data.
Position Location. Frequent, accurate readings of position location for
large numbers of vehicles is critical information for the efficient management
of fleets of trucks and railcars. Qualcomm's OmniTRACS system, which relays
position location information to a central location and offers messaging
capabilities, is expected to be deployed on the Globalstar System and offered to
Globalstar service providers to address this need.
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
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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.
No Perceptible Voice Delay. Globalstar expects that its combination of a
low-earth orbit and simple repeaters will reduce voice delays over its system to
between 150 and 200 milliseconds, a delay which is not perceptible to the
subscriber in a normal phone conversation. Voice delays are comprised of a
propagation delay, as signals move from the Earth to the satellite and back, and
processing delays on-board the satellite. By 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 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 2005 and 2006. 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.
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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 gateways 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 $5 million and $10 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. The Globalstar System is designed to prevent
unauthorized use in those countries that have not licensed a Globalstar service
provider. A single gateway is expected to be able to provide fixed coverage over
an area larger than Saudi Arabia and mobile coverage over an area almost as
large as Western Europe. As a result of the low cost of its gateways, Globalstar
expects that its service providers will install gateways in most of the major
traffic-generating 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.
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. Qualcomm executed the initial Globalstar
gateway design work under its original development contract with Globalstar. In
1997, in order to accelerate the deployment of gateways around the world,
Globalstar placed $340 million in orders with Qualcomm for 38 production
gateways. Globalstar has now resold substantially all of these gateways to its
strategic partners and other service providers, subject to performance
acceptance. Globalstar provided a total of $80 million in vendor financing for
the first 32 of these gateway sales, which it will recover upon resale. 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, Iridium is currently scheduled to commence its MSS service prior
to Globalstar's commencement of operations, and several other competing systems
are in various stages of development. If any of Globalstar's
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competitors succeed in marketing and deploying its system substantially earlier
than Globalstar, Globalstar's ability to compete in areas served by such
competitor may be adversely affected. A number of satellite-based
telecommunications systems not involved in the MSS Proceeding have also been
proposed using geosynchronous satellites and, in one case, the 2 GHz band for a
MEO system.
Globalstar's most direct competitors are the three other MSS applicants
which currently hold FCC licenses, Iridium, MCHI/Ellipso and Constellation. On
December 17, 1997, TRW announced that it would not construct its previously
licensed Odyssey system but would instead invest in ICO. As of June 15, 1998,
Iridium has launched all of its 72 satellites. 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 will not be given preferential treatment in
the local licensing process in those countries.
Constellation and MCHI were granted FCC licenses in July 1997, 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 were 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, MCHI and Constellation,
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 (e.g., 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%.
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. The Conference of European Regulators
(CEPT) has recommended a band plan virtually identical to the U.S. band plan.
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. 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. For example, Comsat offers a global
mobile satellite
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service (Planet-l) with existing Inmarsat satellites, a six-pound, laptop-size
phone, costing $3,000 with an expected per-minute usage rate of $3.00.
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, 1997, 1996 and 1995 were $62 million, $42 million, and
$63 million, respectively.
PATENTS AND PROPRIETARY RIGHTS
In connection with the Globalstar System, Globalstar's design and
development efforts have yielded nine patents issued and 30 patents pending in
the United States, as well as 13 patents issued and more than 152 patents
pending internationally for various aspects of communication satellite system
design and implementation of CDMA technology relating to the Globalstar System.
Qualcomm has obtained 149 issued patents and 380 patents pending in the United
States applicable to Qualcomm's implementation of CDMA. The issued patents
cover, among other things, Globalstar's process of combining signals received
from multiple satellites to improve the signal received and minimize call
fading.
There can be no assurance that any of the pending patent applications by
Globalstar will be issued. Moreover, because the U.S. patent application process
is confidential, there can be no assurance that third parties, including
competitors of Globalstar, do not have patents pending that could result in
issued patents which Globalstar would infringe. In such an event, Globalstar
could be required to redesign its system or satellite, as the case may be, or
pay royalties to obtain a license, which could increase cost or delay
implementation of the system or construction of the satellite, as the case may
be.
EMPLOYEES
As of March 31, 1998, Globalstar had approximately 210 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 Globalstar
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 with options to renew for up to an additional
six years. Management believes that the facilities are sufficient for
Globalstar's operations.
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
licenses to MCHI and Constellation 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. Subsequently, in January 1998, TRW voluntarily returned its MSS
Above 1 GHz authorization to the FCC for cancellation.
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. AirTouch, the exclusive Globalstar service provider in the United
States, has received a license for the Texas gateway, and its application for a
license for Globalstar Phones is still pending. 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.
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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 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, 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. The FCC
has adopted rules to permit satellite services to be provided within the United
States by satellites authorized by foreign countries. If a foreign satellite
system were authorized to operate in the United States using frequencies
assigned to Globalstar, additional coordination obligations may be required.
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, but has not initiated a rulemaking
proceeding to consider the proposal.
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 (5091-5250
MHz) 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
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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 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
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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 obtained all necessary U.S. export licenses
for Globalstar's remaining scheduled launches, a deterioration in the
relationships between the United States and these countries, a change in
government policy or legislation or other factors could adversely effect the
licenses already granted.
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 March 24,
1998, the Commission issued a letter stating that the Globalstar System does not
raise competitive concerns. In addition, the Commission has proposed legislation
at the European Union level which, if adopted, would give the Commission broad
regulatory authority over satellite telecommunications systems such as the
Globalstar System. The legislation proposed by the Commission of the European
Union is under reconsideration at the
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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*................. 72 Chief Executive Officer and Chairman of the General
Partners' Committee of Globalstar; Chairman and Chief
Executive Officer of Globalstar Capital
Gregory J. Clark*.................... 55 Vice Chairman of the General Partners' Committee of
Globalstar; President and Director of Globalstar
Capital
Michael P. DeBlasio.................. 61 Senior Vice President of Globalstar Capital
Nicholas C. Moren.................... 51 Vice President and Treasurer of Globalstar Capital
Harvey B. Rein....................... 44 Vice President and Controller of Globalstar Capital
Eric J. Zahler....................... 47 Vice President, Secretary and Director of Globalstar
Capital
Douglas G. Dwyre..................... 65 President of Globalstar; Vice President of Globalstar
Capital
Anthony J. Navarra................... 50 Executive Vice President, Strategic Development, of
Globalstar; Vice President of Globalstar Capital
William Adler........................ 52 Vice President, Legal and Regulatory Affairs, of
Globalstar; Assistant Secretary of Globalstar Capital
Gloria Everett....................... 54 Senior Vice President of Globalstar
John Klineberg....................... 59 Executive Vice President, Satellite Constellation
Establishment, of Globalstar
Joel Schindall....................... 57 Senior Vice President, Systems Development, of
Globalstar
Robert A. Wiedeman................... 59 Vice President, Systems and Regulatory Engineering,
of Globalstar
Stephen C. Wright.................... 41 Vice President and Chief Financial Officer of
Globalstar; Vice President and Assistant Treasurer of
Globalstar Capital
Sir Ronald Grierson*................. 75 Member of the General Partners' Committee of
Globalstar
A. Robert Towbin*.................... 62 Member of the General Partners' Committee of
Globalstar
</TABLE>
- ---------------
* Member of the Globalstar General Partners' Committee. Messrs. Grierson and
Towbin are the Independent Representatives.
Mr. Schwartz has been Chief Executive Officer and Chairman of the General
Partners' Committee of Globalstar since 1994 and Chairman and Chief Executive
Officer of Globalstar Capital since its formation in July 1995. Mr. Schwartz has
also been the Chairman and Chief Executive Officer of GTL since its initial
public offering in 1995. 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.
Dr. Clark has been the Vice Chairman of the General Partners' Committee of
Globalstar and Vice Chairman and President of GTL since March 1998. He has been
the President and a director of Globalstar Capital since May 1998. Since January
1998, he has been the President and Chief Operating Officer of Loral. Prior to
that time, Dr. Clark was President of News Technology Group, a division of News
Corporation since September 1994. Prior to that, Dr. Clark was Director of
Science and Technology of IBM in Australia since 1988.
Mr. DeBlasio has been Senior Vice President, Chief Financial Officer and
Director of Globalstar Capital since its formation in July 1995 and Senior Vice
President, Chief Financial Officer and Director of GTL since May 1996. Mr.
DeBlasio has been First Senior Vice President of Loral since February 1998 and
Senior Vice
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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 Globalstar Capital since
its formation in July 1995 and Vice President and Treasurer of GTL since its
initial public offering in 1995. Mr. Moren has been Senior Vice President of
Loral since February 1998 and 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 Globalstar Capital since
its formation in July 1995 and Vice President and Controller of GTL since May
1996. Mr. Rein has been Vice President and Controller of Loral since April 1996
and had been Assistant Controller of Old Loral since 1985.
Mr. Zahler has been Vice President and Secretary of Globalstar Capital
since its formation in July 1995 and Vice President and Secretary of GTL since
May 1996. Mr. Zahler has been Senior Vice President of Loral since February 1998
and 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. From 1992 to
March 1994, Mr. Dwyre was President of the Globalstar Program at SS/L.
Mr. Navarra has been Executive Vice President, Strategic 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 of the
Globalstar Program at SS/L from 1992 to March 1994.
Mr. Adler has been Vice President of Legal and Regulatory Affairs of
Globalstar since January 1996 and Assistant Secretary of GTL since May 1996. He
was a partner with Fleischman and Walsh, L.L.P. from May 1994 to November 1995,
specializing in domestic and international telecommunications law, regulation
legislation and policy. From March 1986 to May 1994, he was the Executive
Director of Federal Regulatory Relations with Pacific Telesis Group.
Ms. Everett has been Senior Vice President of Globalstar since March 1998.
From January 1996 to February 1998, she was Vice President, Network Engineering
and Operations, with AirTouch Communications, and from January 1990 to December
1995, she was Executive Director of Technology Development with AirTouch
Communications.
Dr. Klineberg has been Executive Vice President of Satellite Constellation
Establishment of Globalstar since November 1997. Dr. Klineberg was Executive
Vice President of the Globalstar Program at SS/L from July 1995 to November
1997. From July 1990 to April 1995, Dr. Klineberg was Director of NASA's Goddard
Space Flight Center.
Mr. Schindall has been Senior Vice President of Systems Development for
Globalstar since May 1997. Prior to that time, Mr. Schindall was Vice President
of Systems Applications for Globalstar since May 1994. From March 1986 to May
1994, he was President of Conic, a division of Old Loral.
Mr. Wiedeman has been Vice President of Systems and Regulatory Engineering
since March 1994. From 1992 to March 1994, he was Vice President, Systems and
Regulatory Engineering of the Globalstar Program at SS/L.
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
Production Director for the GOES Program at SS/L from April 1995 to December
1995, and from October 1992 to March 1995, he was Business Manager for the GOES
Program 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.
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<PAGE> 62
(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 a Managing Director of C.E. Unterberg, Towbin 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 December 1993,
he was a Managing Director at Lehman Brothers Inc. He is a director of Bradley
Real Estate Inc., Columbus New Millennium Fund (London), Gerber Scientific,
Inc., Globecomm Systems Inc and K & F Industries, Inc.
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. Clark, Mr. Grierson and
Mr. Towbin. Members of the Committee and directors of Globalstar Capital are not
compensated for such services.
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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, Clark and DeBlasio 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, 1997, 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, 1997 and who receive compensation from Globalstar (the
"Named Executive Officers"). The officers of Globalstar Capital are not
compensated for such services.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS(B) COMPENSATION(C) STOCK OPTIONS(D) Compensation(e)
- --------------------------- ---- --------- -------- --------------- ---------------- ---------------
(AS ADJUSTED FOR
STOCK SPLIT)
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Dwyre 1997 $230,000 $150,000 -- 35,000 $17,012
Senior Vice President of 1996 $195,932 $125,000 -- -- $ 9,132
GTL; President of 1995 $176,220 $125,000 -- 60,000 $ 5,400
Globalstar
Anthony J. Navarra 1997 $188,640 $ 90,000 -- 25,000 $ 5,700
Vice President of GTL; 1996 $179,229 $ 90,000 -- -- $ 5,026
Executive Vice President - 1995 $168,334 $ 90,000 -- 50,000 $ 5,151
Strategic Development of
Globalstar
Joel Schindall 1997 $162,180 $ 55,000 -- 20,000 $ 5,501
Senior Vice President - 1996 $157,339 $ 45,000 -- -- $ 500
Systems Development 1995 $153,300 $ 15,000 -- 4,800 $ 5,374
of Globalstar
William F. Adler 1997 $153,000 $ 48,000 -- 12,000 $16,940
Vice President and 1996 $135,692 $ 45,000 $73,546 20,000 $ 4,084
Assistant Secretary of GTL;
Vice President and General
Counsel of Globalstar
Robert Wiedeman 1997 $132,900 $ 50,000 -- 15,000 $41,582
Vice President, Systems 1996 $117,968 $ 40,000 -- -- $ 6,623
and Regulatory Engineering 1995 $104,040 $ 35,000 -- 30,000 $ 5,466
of Globalstar
</TABLE>
- ---------------
(a) 1996 amounts reflect salary actually paid to Mr. Adler, who commenced
employment with Globalstar on January 15, 1996. The annual salary for Mr.
Adler, as of December 31, 1996, was $144,000.
(b) Reflects bonuses earned for the fiscal year ended December 31, 1997, paid in
1998, for the fiscal year ended December 31, 1996, paid in 1997 and for the
fiscal year ended December 31, 1995, paid in 1996.
(c) Represents a relocation payment in 1996 to Mr. Adler.
(d) Does not reflect grants during 1996 of stock options to acquire 25,000,
20,000, 8,000, 5,000 and 10,000 shares of Loral common stock granted by
Loral to Messrs. Dwyre, Navarra, Schindall, Adler and Wiedeman, respectively
(the "Loral Options"). The Loral Options are exercisable at $10.50 per
share, vest in 20% increments over five years and have a 10-year term.
(e) Reflects 1997 company matching contributions to the Savings Plan in the
amounts of $7,622 for Mr. Dwyre, $5,700 for Mr. Navarra, $5,501 for Mr.
Schindall, $5,420 for Mr. Adler and $4,582 for Mr. Wiedeman, respectively.
Also reflects a payout in 1997 of life insurance of $9,390 to Mr. Dwyre and
of invention compensation of $37,000 to Mr. Wiedeman.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on grants to the Named Executive
Officers during 1997 of options to purchase common stock of GTL (as adjusted for
Stock Split).
<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.............. 35,000 6.63% $24.625 $24.625 9/29/2007 $480,008
Anthony J. Navarra............ 25,000 4.74% $24.625 $24.625 9/29/2007 $342,863
Joel Schindall................ 20,000 3.79% $24.625 $24.625 9/29/2007 $274,290
William F. Adler.............. 12,000 2.27% $24.625 $24.625 9/29/2007 $164,574
Robert Wiedeman............... 15,000 2.84% $24.625 $24.625 9/29/2007 $205,718
</TABLE>
- ---------------
(a) The options become exercisable over a four and one half-year period as
follows: 25% on each of the second, third, fourth and four and one
half-year anniversary from the date of grant.
(b) The Black-Scholes model of option valuation was used to determine grant date
present value. The Company 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%, 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 1997 of options to purchase common stock of GTL and
year-end option values (as adjusted for Stock Split).
<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........ -- -- 15,000 80,000 $306,094 $918,281
Anthony J. Navarra...... -- -- 12,500 62,500 $255,078 $765,234
Joel Schindall.......... -- -- 1,200 23,600 $ 24,488 $ 73,462
William F. Adler........ -- -- -- 32,000 -- $173,594
Robert Wiedeman......... -- -- 7,500 37,500 $153,047 $459,141
</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> 65
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 C.E. Unterberg,
Towbin, which firm provided services to Globalstar during 1997.
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 "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, 1997, the contributory credited years of service
for each of the executives in the Summary Compensation Table are as follows:
Douglas G. Dwyre, 24 years; Anthony J. Navarra, 6 years; Joel Schindall, 3
years; William F. Adler, one year; and Robert Wiedeman, one year. In addition,
Mr. Wiedeman had 31 years of non-contributory service.
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<PAGE> 66
RELATED PARTY TRANSACTIONS
SS/L Agreement and Subcontracts. SS/L, which is an affiliate of Globalstar
and a wholly owned subsidiary of Loral, has entered into a contract with
Globalstar 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. In addition, Globalstar has agreed to purchase
from SS/L eight additional ground spare satellites at a cost estimated at $175
million.
SS/L is designing, building and launching the 56 satellites (including
eight in-orbit spares) 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
(including eight in-orbit spares) is $459 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.
Globalstar has granted 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.
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.
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. In addition, under the contract for the additional
eight ground spare satellites, SS/L will provide an additional $43 million of
vendor financing, of which $19 million will be interest bearing. The repayment
terms are substantially the same as those for the vendor financing relating to
the first 56 satellites.
On March 23, 1994, Globalstar entered into an agreement with Hyundai
pursuant to which it agreed to cause the prime contractor of its satellite
constellation to enter into certain arrangements with Hyundai, including
offering Hyundai the right to provide assembly, integration and testing with
respect to satellites in Globalstar's constellation beyond the first 56 and in
any second generation satellite system and supporting Hyundai in its efforts as
a satellite vendor, through for instance, providing training and transferring
certain know-how to Hyundai.
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 300 pre-production Globalstar Phones (the "Qualcomm Segment"). A
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<PAGE> 67
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 a 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 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 license 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 per gateway 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 a
similar license 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 Full
Constellation 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.
On March 4, 1998, Qualcomm entered into a financing agreement with
Globalstar to provide $100 million principal amount of vendor financing. The
principal amount will accrue interest at a rate of 5.75% per annum and will be
capitalized to principal quarterly. Globalstar will make eight principal
payments on a quarterly basis commencing on January 1, 2000 with the final
payment due October 1, 2001 accompanied by all then unpaid accrued interest.
Qualcomm executed the initial Globalstar gateway design work under its
original development contract with Globalstar. In 1997, in order to accelerate
the deployment of gateways around the world, Globalstar placed $340 million in
orders with Qualcomm for 38 production gateways. Globalstar has now resold
substantially all of these gateways to its strategic partners and other service
providers, subject to performance
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<PAGE> 68
acceptance. Globalstar provided a total of $80 million in vendor financing for
the first 32 of these gateway sales, which it will recover upon resale.
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 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.
Vodafone Agreements. Mr. E. John Peett, a director of the Company, was,
until his retirement in October 1997, 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.
Mr. Peett has entered into a consulting arrangement with GTL pursuant to
which GTL will pay to Mr. Peett a fee of $4,200 per day for consulting services
rendered to Globalstar or LQSS. GTL will also reimburse Mr. Peett for certain
expenses incurred in connection therewith. In addition, Mr. Peett received stock
options to purchase 40,000 shares of GTL Common Stock at an exercise price of
$23.63 per share (as adjusted for Stock Split), which options will vest in three
annual installments commencing January 2, 1999.
Service Provider Agreements. Limited partners of Globalstar or affiliates
thereof have entered into service provider agreements with Globalstar granting
them the right to provide Globalstar System service to users in designated
countries as long as specified minimum levels of subscribers are met. These
service providers will receive certain discounts from Globalstar's expected
pricing 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
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.
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 16,741,272 shares of GTL common stock (as adjusted for
Stock Split). 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
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<PAGE> 69
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 16,741,272 shares of GTL Common
Stock issued in connection with the Globalstar Credit Agreement have exercised
such warrants at $6.625 per share (as adjusted for Stock Split), and GTL has
registered for resale the GTL common stock issued upon exercise of such
warrants.
Subscription Rights. In May 1997, GTL issued 4,524,672 GTL shares at a
price of $6.625 per share (as adjusted for Stock Split) in connection with the
exercise of subscription rights. In addition to shares purchased pursuant to the
exercise of subscription rights issued to it, Loral purchased pursuant to a
standby agreement with GTL 64,008 shares of GTL Common Stock (as adjusted for
Stock Split) underlying rights not subscribed for by the holders of such rights.
GTL received proceeds of approximately $140.9 million from the exercise of the
GTL Guarantee Warrants and subscription rights discussed above, which it used to
exercise rights to purchase 5,316,486 Globalstar partnership interests at $26.50
per interest.
Globalstar Managing Partner's Allocation and Distribution. Commencing on
the Full Constellation 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 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, a member of the General Partners' Committee of Globalstar and a
director of GTL, is a managing director in the investment banking firm of C.E.
Unterberg, Towbin, which has rendered advisory and investment banking services
to Globalstar.
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GOVERNANCE OF GLOBALSTAR
The following discussion summarizes provisions of the Globalstar
partnership agreement.
GENERAL PARTNERS' COMMITTEE
Globalstar has two general partners, LQSS and GTL. LQSS is the managing
general partner of Globalstar. Globalstar is governed by the General Partners'
Committee, consisting of four members who are appointed by LQSS two of whom are
not affiliated with Globalstar. The day-to-day activities of Globalstar are
managed by its officers, subject to the supervision of the Committee. However,
LQSS has agreed that certain material partnership decisions will not be put to a
vote of the partners as described below without the consent of at least one of
the Independent Representatives on the Committee. See "-- Certain Actions." In
addition, personnel decisions involving Globalstar officers of the rank of
senior vice president or above cannot be made without the approval of at least
one of the Independent Representatives, provided that LQSS retains the right to
appoint provisional candidates and, under certain circumstances, may override
the veto of the Independent Representatives. GTL directors not affiliated with
Loral, including the Independent Representatives, will determine the vote of
Ordinary Partnership Interests held by GTL in votes submitted to the partners in
Globalstar as to the approval or disapproval of the financial terms and
conditions of material transactions between Globalstar and Loral or any of its
affiliates (or which are deemed to be transactions in which Loral is an
interested party pursuant to the Globalstar partnership agreement). In addition,
Globalstar has agreed with GTL that for so long as GTL remains a general partner
of Globalstar, Globalstar will not issue more than 5,000,000 additional
partnership interests without either the consent of at least one of GTL's
Independent Representatives or the vote of a majority in interest of the
Globalstar partners. The Independent Representatives will determine the vote of
Globalstar partnership interests held by GTL with respect to any such vote
submitted to the partners. Loral through its majority representation on the
Board of Directors of GTL controls GTL's votes in all other matters.
Matters relating to the FCC License for the Globalstar System, including
compliance and other regulatory matters related thereto, will be under the
exclusive control of L/Q Licensee. L/Q Licensee has agreed to use such license
exclusively for the benefit of Globalstar.
Actions by the Committee may be taken only with the concurrence of a
majority of the members whether present in person at a meeting or by written
consent. Written notice of all proposed Committee action will be given to all
members prior to the taking of any such action, unless notice has been waived by
any such member. The Committee may delegate any or all of its powers to officers
of Globalstar except for transactions involving amounts in excess of $100,000
other than transactions taken in the ordinary course of business or actions
taken to implement any business plan previously approved by the Committee.
CERTAIN ACTIONS
The Committee will not take any action that would result in Globalstar
being engaged in a business other than the development and operation of the
Globalstar System without the prior written consent of all the partners of
Globalstar. Certain decisions by the Committee not to construct and launch
satellites in addition to the satellites for the 48-satellite constellation and
the eight spare satellites will be subject to the approval by a majority in
interest of the partners if such construction and launch could be made without
additional contributions from the partners and satisfy certain thresholds
relating to rates of return on investment. In addition, Globalstar will not,
absent the consent of the affected partner, enter into any agreements with any
persons that would conflict with or prejudice in any material respects the
rights of such partner under either the Globalstar partnership agreement or any
agreement entered into between such partner or its affiliate and Globalstar. The
Committee may also not undertake the following actions unless it shall have
first received the consent of a majority of votes cast at a meeting at which
only those Globalstar partners without a financial interest, whether direct or
indirect, in such transaction would be qualified to vote, where each Ordinary
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Partnership Interest would equal one vote and a majority of the qualified
Ordinary Partnership Interests outstanding would constitute a quorum ("Consent
of the Disinterested Partners"):
(i) Enter into any agreements involving amounts in excess of
$1,000,000 with any partner, any strategic partner (including any direct or
indirect corporate parent of any such partner or strategic partner), any
Alliance Partner or any of their respective affiliates;
(ii) Enter into loans by a general partner or its affiliate to
Globalstar; and
(iii) Consent to a limited partner acquiring more than 20% of
Globalstar's outstanding partnership interests.
The following actions may not be undertaken by the Committee unless it
shall have first received the consent described below and, in the case of the
items described in clauses (i) through (iv), will not be put to a vote of the
partners without the consent of at least one of the Independent Representatives:
(i) Make any material amendments to the Globalstar partnership
agreement or adopt any business plan that would materially change
Globalstar's business purpose;
(ii) Acquire either a controlling interest in, or a majority of the
voting stock or equity of, any corporation or other entity, or assets not
in the ordinary course of business, in either case if the aggregate fair
market value is greater than $10 million;
(iii) Sell, lease, exchange or dispose of Globalstar's material assets
(other than to an entity controlled by Globalstar);
(iv) Cause or permit the dissolution and/or liquidation of Globalstar
or file bankruptcy proceedings or consent to such filing;
(v) Adopt any increase in capital expenditures or operating expenses
of more than 10% of the amount set forth in Globalstar's business plan
dated March 1994 (or any revised business plan as approved by a majority in
interest of the partners) and any subsequent increases in such expenditures
or expenses (except as required to account for increases in the Consumer
Price Index);
(vi) Commence any litigation or arbitration, or settle any pending or
threatened litigation, by or against Globalstar, if the damages sought are
in excess of $100,000 or if such litigation or arbitration is against, or
names as an adverse party, a partner;
(vii) Adopt any modification to the specification of the Globalstar
System that would change any major parameter by more than 10% or otherwise
result in a material adverse effect on any service provider;
(viii) Enter into any material business outside the scope of the
partnership agreement;
(ix) Undertake material commitments with respect to Globalstar's
launch strategy, provided that Globalstar may nevertheless undertake
material commitments with respect to its launch strategy absent such
consent if Globalstar undertakes a detailed review of such strategy and
submits a written report of its analysis to the partners;
(x) Appoint a successor to the office of President of Globalstar;
(xi) Issue any equity interests other than partnership interests or
issue or reserve for issuance after February 14, 1995 more than 8,198,837
additional partnership interests plus the partnership interests issuable in
connection with the conversion of the CPEOs and the exercise of the GTL
Guarantee Warrants and the Additional Warrants; and
(xii) Incur any indebtedness, including certain sale and leaseback
transactions, if immediately after the incurrence thereof Globalstar's
outstanding indebtedness would exceed 110% of the maximum amount of debt
obligations contemplated by the then-current Globalstar business plan.
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In order to take the actions described above, Globalstar must receive the
consent of a majority of votes cast at a meeting of Globalstar partners where
each Ordinary Partnership Interest would equal one vote and a majority of the
Ordinary Partnership Interests outstanding would constitute a quorum for the
meeting provided that there has been no veto by partners casting 9,000,000 or
more qualifying votes. All Ordinary Partnership Interests held on behalf of a
partner may cast one qualifying vote, provided that no more than 6,000,000
qualifying votes may be cast on behalf of any single partner regardless of the
total number of Ordinary Partnership Interests held, and, provided further, that
no more than 3,000,000 qualifying votes may be cast on behalf of GTL in respect
of Ordinary Partnership Interests acquired using the proceeds from GTL's initial
public offering or pursuant to the exercise of a partner's Exchange Right
("Consent of the Partners"). For purposes solely of determining the number of
qualifying votes LQSS or a limited partner may cast against an action as
described above, a partner will be deemed to continue to own the number of
Ordinary Partnership Interests equal to the shares of Common Stock acquired by
such Partner pursuant to the Exchange Rights and which have not been disposed
of.
Except as otherwise described above, each partner has the right to cast one
vote for each Ordinary Partnership Interest held by such partner with respect to
the matters set forth above and for which it is qualified to vote. GTL, together
with the limited partners not affiliated with Loral, hold more than 50% of
Globalstar's outstanding Ordinary Partnership Interests. LQSS will cast its vote
with respect to the above matters in accordance with the instructions of its
partners, weighted to reflect the amount of partnership interests held by such
partners in LQSS. LQSS will cast against any proposal the number of votes equal
to the amount of Ordinary Partnership Interests held by it in Globalstar
multiplied by the total percentage interests in LQSS held by all of its partners
who oppose the proposal. The number of votes equal in amount to the remainder of
LQSS's Ordinary Partnership Interests in Globalstar will be cast in favor of any
such proposal.
The Preferred Partnership Interests have no voting rights, other than as
may be required by law.
Each partner has agreed not to acquire any direct or indirect interest in
any MSS applicant other than Globalstar until after the third anniversary of the
In-Service Date, although each reserves the right, on behalf of itself and its
affiliates, to conduct other business activities. Under certain circumstances,
this restriction may not apply.
GTL CHANGE OF CONTROL AND REDUCTION IN INTEREST
A GTL Change of Control is defined in Globalstar's partnership agreement as
an event or series of events by which (i) any "person" or "group" (as such terms
are defined in Section 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act)
directly or indirectly, of more than 30% of the Common Stock of GTL then
outstanding, (ii) GTL consolidates with or merges into another corporation or
conveys, transfers or leases all or substantially all of its assets, including
all or substantially all of its partnership interests in Globalstar, to any
person, or any corporation consolidates with or merges into GTL, in either event
pursuant to a transaction in which GTL's outstanding Common Stock is changed
into or exchanged for cash, securities or other property, other than any
transaction (A) between GTL and either Loral, an affiliate of Loral or a
wholly-owned subsidiary of GTL or (B) after which the shareholders who
beneficially owned GTL Common Stock immediately before such transaction
beneficially own at least 50% of the outstanding voting stock of the surviving
entity and no other person beneficially owns more than 30% of the outstanding
voting stock of the surviving entity, (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted GTL's Board
of Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office, or (iv) GTL makes on any day any distribution or distributions of cash,
property or securities (other than regular dividends, Common Stock or rights to
acquire Common Stock) to its shareholders, or purchases or otherwise acquires
its Common Stock, and the sum of the fair market value of such distribution or
purchase, plus the fair market value of all other such distributions and
purchases which have occurred during the preceding twelve months, exceeds 30% of
the fair market value of GTL's outstanding Common Stock.
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GTL would lose its rights as a general partner of Globalstar and would
automatically revert to the status of a limited partner upon (i) a GTL Change of
Control at a time when GTL owns less than 50% of the Globalstar partnership
interests outstanding or (ii) a Reduction in Interest, which in the event of
either clause (i) or (ii) above, has not been approved either by LQSS or by
Consent of the Partners. In either event, the special governance rights
described above will terminate and GTL might be deemed to be an investment
company, subject to regulation under the Investment Company Act.
COUNCIL OF SERVICE OPERATORS
Globalstar has established a Council of Service Operators (the "Council of
Service Operators" or "CSO"), made up initially of the chief executive officer
of Globalstar, two representatives appointed by the Committee, two
representatives appointed by each of the limited partners (other than
Finmeccanica) who have committed to act, whether directly or indirectly, as
service providers of Globalstar service and one representative appointed by
Finmeccanica. Thereafter, the Committee may nominate three representatives of
service providers not otherwise represented on the CSO, subject to approval by a
majority of the members of the CSO. In addition, any new service provider who
has irrevocably committed to make a capital commitment of $37.5 million to
Globalstar will also be allowed to designate two representatives to the CSO. The
role of the CSO is to give advice to the Committee regarding the practical
implementation of the Globalstar System, thereby allowing the service providers
a voice in the design and operation of Globalstar. Globalstar believes that this
arrangement benefits both Globalstar and the service providers. Globalstar will
benefit from the service providers' expertise and practical on-the-ground
knowledge while at the same time giving the service providers an active role in
the design and coordination of the system that they will ultimately be using.
The CSO will make recommendations to the Committee on matters such as tariffs,
system architecture for the Globalstar System, capacity allocation among
Globalstar service providers and administration of the Qualcomm agreement and
the SS/L agreement. The Committee has agreed to consider in good faith any
recommendations made by the CSO. In certain cases where the interests of the
service providers and Globalstar are not adverse to each other, as determined by
the Committee, or when Loral or its affiliate is the service provider in
question, as determined by those members who are not affiliated with Loral, the
recommendations made by the CSO will be binding on Globalstar.
INDEMNIFICATION AND FIDUCIARY STANDARDS
Globalstar has agreed to indemnify its partners, the partners in LQSS and
LQP, their respective affiliates and all of their respective officers,
directors, partners, controlling shareholders, employees, and agents (each an
"Indemnitee") from and against any and all losses and liabilities arising out of
or incidental to the business of Globalstar so long as such Indemnitee's conduct
did not constitute actual fraud, gross negligence, knowing breach of specific
provisions of the Globalstar partnership agreement or willful or wanton
misconduct. The Globalstar partnership agreement further provides that LQSS,
GTL, the partners in LQSS and LQP, their respective affiliates and all of their
respective officers, directors, partners, controlling shareholders, employees
and agents (each a "General Partner Person") will not be liable to Globalstar or
the limited partners for any losses sustained or liabilities incurred as a
result of any act or omission of a General Partner Person, if such person or
entity acted in good faith and in a manner it or he reasonably believed to be
in, or not opposed to, the best interest of Globalstar and the conduct did not
constitute gross negligence or non-performance. LQSS and GTL, as applicable,
will indemnify the limited partners for losses and liabilities resulting from
conduct of their respective General Partner Person that is found to have
constituted bad faith, gross negligence or non-performance.
ALLOCATIONS AND DISTRIBUTIONS
Allocations. Adjusted income will be allocated first to the Preferred
Partnership Interests (after the Managing Partner's Allocation and any
allocation necessary to bring all partners' capital accounts up to zero) to
bring their capital account to an amount equal to the principal amount of the
CPEOs and unpaid distributions on the Preferred Partnership Interests. Adjusted
income for this purpose is computed by adding amortization and depreciation
expenses to profits and will include increases in the fair market value of
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Globalstar's assets that will be recognized as income when partnership interests
are issued or redeemed. The preferred allocation will be increased by the amount
of the U.S. regular and branch profits taxes that are imposed at a rate of
approximately 60% on GTL's U.S. source income. Losses will be allocated to the
Ordinary Partnership Interests until the capital accounts for such interests
have been reduced to zero. Thereafter losses will be allocated to the Preferred
Partnership Interests until their capital accounts have been reduced to zero and
then to the general partners. GTL expects that U.S. source income will be a
minor portion of its total profit allocation.
Distributions. Globalstar intends to distribute to its partners, including
GTL, its net cash received from operations, less amounts required to repay
outstanding indebtedness, satisfy other liabilities and fund capital
expenditures and contingencies. Distributions after the distribution of the
Managing Partner's Allocation and the Preferred Partnership Interests will
generally be made in accordance with the partners' percentage interests in
Globalstar. Distributions on liquidation will be made in accordance with capital
account balances.
Effect on Common Stock of Globalstar Liquidation. In the absence of
sufficient Globalstar adjusted income, under certain circumstances involving a
liquidation of Globalstar (including a disposition of all its assets), payments
with respect to the CPEOs could exceed Globalstar's liquidating distributions
with respect to the Preferred Partnership Interests and would then reduce the
payment that otherwise would be made with respect to the Common Stock. In such
event, the amount received by the holders of the Common Stock would be less than
the amount that they would have otherwise received and would be less than the
amount they would have received if they had owned Ordinary Partnership Interests
in Globalstar directly.
DISSOLUTION OF GLOBALSTAR
The Globalstar partnership will continue until December 31, 2044, unless
sooner dissolved upon the occurrence of any of the following: (i) the withdrawal
of a general partner, or any other event that results in its ceasing to be a
general partner (i.e., removal, bankruptcy or dissolution) unless at the time
LQSS or a successor to LQSS remains a general partner; (ii) a sale of all or
substantially all of the assets of Globalstar; (iii) the bankruptcy or the
dissolution of LQSS or any successor managing general partner; (iv) upon the
Consent of the Partners; or (v) any other event under Delaware law that would
cause its dissolution. The Globalstar partnership will be reconstituted if a
majority in interest of the partners (or remaining partners, in the event of a
dissolution resulting from the withdrawal, bankruptcy or dissolution of LQSS or
any successor managing general partner) vote to form a new partnership and, in
the case of a dissolution resulting from the withdrawal, bankruptcy or
dissolution of LQSS or any successor managing general partner, to appoint a
successor managing general partner.
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 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.
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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 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.
The Notes are unsecured senior obligations of the Issuers and will rank
senior in right of payment to any existing and future subordinated Debt of the
Issuers, and pari passu in right of payment with all existing and future senior
Debt of the Issuers. As of March 31, 1998, the Notes ranked senior to no Debt
and ranked pari passu with approximately $1.4 billion 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.
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PRINCIPAL, MATURITY AND INTEREST
The Notes are unsecured senior obligations of the Issuers, will be limited
to $300 million aggregate principal amount and will mature on June 1, 2005. The
Notes will bear interest at the rate of 11 1/2% per annum, payable semi-annually
on June 1 and December 1, of each year, commencing December 1, 1998, to the
Person in whose name the Note (or any predecessor Note) is registered at the
close of business on the preceding May 15 or November 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 May 20, 1998. Interest on
the Notes will be computed on the basis of a 360-day year of twelve 30-day
months. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Issuers' option prior to June 1, 2003.
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 June 1 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.750%
2004........................................................ 102.875
</TABLE>
In the event that, on or before June 1, 2001, Globalstar receives net
proceeds from any Equity Offering by Globalstar or GTL, up to a maximum of
33 1/3% of the aggregate principal amount of the Notes originally issued will,
at the option of Globalstar, be redeemable from the net cash proceeds of such
sale at a redemption price equal to 111 1/2% of the stated principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption,
provided, however, that (i) at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding after such redemption and (ii) such
redemption shall occur within 90 days of the date of such offering.
"Equity Offering" means (i) any sale or issuance for cash by Globalstar of
Globalstar partnership interests to a Strategic Investor and (ii) any offering
or sale of GTL Common Stock (a) to the public pursuant to a registration
statement (other than on Form S-8 or any other form relating to securities
issuable under any benefit plan of the Company) or (b) to any Strategic
Investor, provided that all of the net cash proceeds of such offering or sale of
GTL Common Stock are applied promptly to the purchase of Globalstar partnership
interests. An issuance or sale of Globalstar partnership interests shall be
deemed to be "for cash" only to the extent that the net cash proceeds of such
issuance or sale exceed the value of any amounts paid (in cash or otherwise) by
Globalstar to redeem Globalstar partnership interests during the prior six
months.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Note of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions of them called for redemption.
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CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require that the Issuers repurchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages (if any) to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest and Liquidated Damages (if any) due on the relevant interest
payment date).
"Change of Control" means:
(i) the sale, lease or transfer, in one transaction or a series of
related transactions, of all or substantially all the assets of Globalstar
and the Restricted Subsidiaries;
(ii) the adoption of a plan relating to the liquidation or dissolution
of Globalstar or Globalstar Capital;
(iii) one or more Dispositions which cause Loral's direct and indirect
equity interest in Globalstar to be reduced by more than 30% as compared to
its direct and indirect equity interest in Globalstar as of December 31,
1996; or
(iv) the first day on which:
(a) Globalstar fails to own, of record and beneficially, 100% of
the equity interests and voting stock of Globalstar Capital; or
(b) Loral fails to be, or, directly or indirectly, fails solely to
control, the sole managing general partner of Globalstar.
Notwithstanding clauses (i), (ii) and (iv)(b) above, neither the
acquisition by GTL, Loral or any wholly owned subsidiary of Loral of a majority
of the partnership interests in, or substantially all the assets of, Globalstar,
nor the merger of Globalstar with and into GTL, Loral or any wholly owned
subsidiary of Loral shall constitute a change in control; provided, however,
that with respect to clause (iv)(b), Loral continues to control, or is, the
corporate successor to Globalstar.
"Disposition" means (i) the sale, transfer or other conveyance by Loral or
any of its Subsidiaries (other than to a wholly owned subsidiary of Loral) of
(a) Globalstar partnership interests or (b) equity interests in any entity (an
"intermediate entity") which owns, directly or indirectly, Globalstar
partnership interests or (ii) the issue and sale by any such intermediate entity
of its equity securities to one or more third parties if and to the extent the
proceeds of such issue and sale are distributed by such intermediate entity to
Loral or any of its Subsidiaries.
Within 30 days following any Change of Control, the Issuers shall mail a
notice to each Holder with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Issuers
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
(if any) to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest and Liquidated Damages (if any) on
the relevant interest payment date); (ii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization, each after giving effect
to such Change of Control); (iii) the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions determined by the Issuers, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
The Issuers shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuers shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached their obligations under the covenant
described hereunder by virtue thereof.
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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 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".
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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.
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;
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(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 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 $700 million of Debt (including the amount
of Debt outstanding at the time under the 11 3/8% Indenture, the 11 1/4%
Indenture and the 10 3/4% 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;
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(vi) Liens securing Debt Incurred pursuant to clause (viii) of the
second paragraph of the covenant described under "-- Limitation on
Consolidated Debt"; provided, however, that the Lien may not extend to any
assets owned by an Issuer or any Restricted Subsidiary other than (a) the
assets being financed or refinanced and income and proceeds therefrom and
(b) any other assets of such obligor securing other Debt of such obligor to
the same secured party;
(vii) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(viii) Liens existing on the Issue Date;
(ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(x) Liens incurred in the ordinary course of business of the Issuers
and the Restricted Subsidiaries with respect to obligations that do not
exceed $10.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by the Issuers and the Restricted Subsidiaries.
LIMITATION ON RESTRICTED PAYMENTS
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to make a Restricted Payment if at the time such Issuer or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) the Issuers are not
able to Incur an additional $1.00 of Debt pursuant to the first paragraph of the
covenant described under "-- Limitation on Consolidated Debt"; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of:
(a) 50% of the Consolidated Net Income of Globalstar accrued during
the period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which the
Issue Date occurs to the end of the most recent fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(b) the aggregate Net Cash Proceeds received by Globalstar from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of Globalstar and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Globalstar or any of its
Subsidiaries for the benefit of their employees);
(c) the amount by which Debt of Globalstar is reduced on the balance
sheet of Globalstar upon the conversion or exchange (other than by a
Subsidiary of Globalstar) subsequent to the Issue Date of any Debt of
Globalstar convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of Globalstar (less the amount of any cash, or the fair
value of any other property, distributed by Globalstar upon such conversion
or exchange); and
(d) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to Globalstar or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to Globalstar's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of
any Unrestricted Subsidiary,
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the amount of Investments previously made (and treated as a Restricted
Payment) by Globalstar or any Restricted Subsidiary in such Unrestricted
Subsidiary.
Notwithstanding the foregoing, Globalstar may (i) subject to clause (vi)
below, pay any dividend on Capital Stock of any class within 60 days after the
declaration thereof if, on the date when the dividend was declared, Globalstar
could have paid such dividend in accordance with the foregoing provisions; (ii)
repurchase any shares of its Capital Stock or options to acquire its Capital
Stock from Persons who were formerly officers or employees of Globalstar;
provided however, that the aggregate amount of all such repurchases made
pursuant to this clause (ii) shall not exceed $2 million, plus the aggregate
cash proceeds received by Globalstar since the Issue Date of its Capital Stock
or options to acquire its Capital Stock to members, officers, managers and
employees of Globalstar or any of its Subsidiaries; (iii) Refinance, and permit
its Restricted Subsidiaries to Refinance, any Debt otherwise permitted to be
Refinanced by clause (iv) of the second paragraph under "-- Limitation on
Consolidated Debt" above; (iv) so long as Globalstar is treated as a partnership
for U.S. federal income tax purposes, make distributions in respect of members'
or partners' income tax liability with respect to Globalstar in an amount not to
exceed the Tax Amount; (v) make distributions to GTL to pay GTL's ordinary and
reasonable operating expenses related to Globalstar, as set forth in an
Officers' Certificate delivered to the Trustee; (vi) pay any scheduled dividend
on Special Preferred Obligations; provided, however, that at the time of payment
of any such dividend (other than a dividend paid only by distributions of
additional Special Preferred Obligations), no other Default shall have occurred
and be continuing (or result therefrom); (vii) make any Restricted Payment by
exchange for, or out of the proceeds of the substantially concurrent sale of, or
capital contribution in respect of, Capital Stock of Globalstar (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of Globalstar or an employee stock ownership plan or to a trust established by
Globalstar or any of its Subsidiaries for the benefit of their employees);
(viii) contribute its Investment in Globaltel Russia to an Unrestricted
Subsidiary; and (ix) make other Restricted Payments in an aggregate amount not
to exceed $10 million.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vi),
(vii), (viii) and (ix) of the immediately preceding paragraph shall be excluded
from the calculation of the aggregate amount of Restricted Payments made since
the Issue Date; provided, however, that the Net Cash Proceeds from the issuance
of Capital Stock pursuant to clauses (ii) and (vii) of the immediately preceding
paragraph shall be excluded from the calculation of amounts under clause (b) of
the second preceding paragraph.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Issuers may not, and may not permit any Restricted Subsidiary, directly
or indirectly, to create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(i) pay dividends or make any other distributions to the Issuers or
any of their Restricted Subsidiaries on its Capital Stock or with respect
to any other interest or participation in, or measured by, its profits;
(ii) pay any indebtedness owed to the Issuers or any Restricted
Subsidiary;
(iii) make loans or advances to the Issuers or any Restricted
Subsidiary; or
(iv) transfer any of its properties or assets to the Issuers or any
Restricted Subsidiary.
Notwithstanding the foregoing, the Issuers may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction
(a) pursuant to any agreement in effect on the Issue Date; (b) pursuant to an
agreement relating to any Acquired Debt, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person so acquired and its Subsidiaries; (c) pursuant to an agreement
effecting a Refinancing of Debt Incurred pursuant to an agreement referred to in
clause (a) or (b) above or clause (d) below, provided, however, that the
provisions contained in such Refinancing agreement relating to such encumbrance
or restriction are no more restrictive taken as a whole (as determined in good
faith by the Chief Financial Officer of Globalstar) than the provisions
contained
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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 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
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Transaction complies with clause (i) above; and (2) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $10
million, an opinion as to the fairness to Globalstar, Globalstar Capital
or such Restricted Subsidiary, as the case may be, of such Affiliate
Transaction from a financial point of view issued by an Independent
Financial Advisor or, with respect to telecommunications-related
matters, a recognized expert in the satellite telecommunications
industry;
provided, however, that the following shall be deemed not to be Affiliate
Transactions:
(1) employee compensation arrangements entered into in the ordinary
course of business and approved by the General Partners' Committee of
Globalstar;
(2) transactions solely between or among the Issuers and the
Restricted Subsidiaries;
(3) Restricted Payments permitted by the covenant described under
"-- Limitation on Restricted Payments";
(4) Investments by an Affiliate or Related Person of Globalstar or
Globalstar Capital in the Capital Stock (other than Disqualified Stock) of
Globalstar or any Restricted Subsidiary; and
(5) an Affiliate or Related Person of the Issuers acting as agent for
the placement or acquisition of launch services or insurance on behalf of
the Issuers or any Restricted 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
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(iv) in respect of the insurance described in clause (i) of the
preceding paragraph, self-insurance for the launch of up to 12 satellites;
provided, however, that no earlier than 60 days prior to the scheduled
launch of any such satellites:
(a) the Issuers deliver an Officers' Certificate to the Trustee
certifying that they have sufficient committed capital to construct,
launch and insure at least 44 satellites, in addition to the satellites
with respect to which the Issuers are self-insuring; and
(b) the Issuers obtain an opinion from an investment banking firm
that is an Independent Financial Advisor to the effect that the Issuers
would be able to raise sufficient capital in the capital markets to
replace, relaunch and insure such satellites in the event of a failure
to successfully launch such satellites.
Within 30 days following any date on which the Issuers are required to
obtain insurance pursuant to the 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.
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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 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
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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 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
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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 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
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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).
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.
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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, 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.
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"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credits) between Globalstar, Globalstar Capital
or any Restricted Subsidiary and one or more banks or other financial
institutions providing financing for the business of Globalstar and its
Restricted Subsidiaries.
"Build-out" means the construction, acquisition, improvement, operation and
development (including all costs related thereto) of the Globalstar System,
until such time as Globalstar shall have (i) constructed at least 64 satellites
for use in the Globalstar System; (ii) launched or attempted to launch (through
"intentional ignition") at least 56 satellites for use in the Globalstar System;
and (iii) commenced commercial service of the Globalstar System with at least 44
satellites in orbit and Operating.
"Capital Lease Obligation" of any Person means an obligation that is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP (a "Capital
Lease"). The Stated Maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The amount of such Debt represented by such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person and shall (i) include any Special Preferred Obligations
and other preferred equivalent obligations and (ii) exclude debt securities
convertible into Capital Stock.
"Commission" means the Securities and Exchange Commission and any successor
agency.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of Globalstar and its Restricted Subsidiaries for
such period plus Consolidated Interest Expense of Globalstar and its Restricted
Subsidiaries for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense of
Globalstar and its Restricted Subsidiaries for such period, (ii) the
consolidated depreciation and amortization expense included in the income
statement of Globalstar and its Restricted Subsidiaries for such period and
(iii) any non-cash expense related to the issuance to employees of Globalstar or
any Restricted Subsidiary of Globalstar of options to purchase Capital Stock of
Globalstar or such Restricted Subsidiary; provided, however, that there shall be
excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if
positive) of any Restricted Subsidiary (calculated separately for such
Restricted Subsidiary in the same manner as provided above for Globalstar) that
is subject to a restriction which prevents the payment of dividends or the
making of distributions to Globalstar or another Restricted Subsidiary to the
extent of such restriction; provided further, however, that if Consolidated Cash
Flow Available For Fixed Charges for any period shall be less than $1,
Consolidated Cash Flow For Fixed Charges for such period shall be deemed to be
$1.
"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.
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"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of Globalstar and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, less the amount of
any cash dividends paid during such period on Special Preferred Obligations;
provided, however, that there shall be excluded therefrom (i) the net income (or
loss) of any Person acquired by Globalstar or a Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (ii) the net income (and loss) of any Person that is not a
Restricted Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to Globalstar or a Restricted Subsidiary by such
Person during such period, (iii) gains (but not losses) on Asset Dispositions by
Globalstar or any Restricted Subsidiary, (iv) all extraordinary gains and
losses, (v) the cumulative effect of changes in accounting principles, (vi)
non-cash gains or losses resulting from fluctuations in currency exchange rates,
(vii) any noncash gain or loss realized on the termination of any employee
pension benefit plan and (viii) the tax effect of any of the items described in
clauses (i) through (vii) above; provided further, however, that for purposes of
any determination pursuant to the provisions described under
"-- Covenants -- Limitation on Restricted Payments," (a) there shall further be
excluded therefrom the net income (but not net loss) of any Restricted
Subsidiary that is subject to a restriction which prevents the payment of
dividends or the making of distributions to Globalstar or another Restricted
Subsidiary of Globalstar to the extent of such restriction and (b) there shall
further be deducted therefrom an amount equal to the Tax Amount paid by
Globalstar during such period.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less amounts attributable to Disqualified Stock of such Person; provided,
however, that, with respect to Globalstar, adjustments following the date of the
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
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amount of Debt, Guarantees or Liens with respect to letters of credit supporting
Debt otherwise included in the determination of a particular amount shall not be
included.
"Default" means an event that is, or after the passing of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
first anniversary of the final Stated Maturity of the Notes; provided, however,
that any Preferred Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require Globalstar to
repurchase or redeem such Preferred Stock upon the occurrence of a change of
control occurring prior to the first anniversary of the final Stated Maturity of
the Notes shall not constitute Disqualified Stock if the change of control
provisions applicable to such Preferred Stock are no more favorable to the
holders of such Preferred Stock than the provisions applicable to the Notes
contained in the covenant described under "-- Change of Control" and such
Preferred Stock specifically provides that Globalstar will not repurchase or
redeem any such stock pursuant to such provisions prior to Globalstar's
repurchase of such Notes as are required to be repurchased pursuant to the
covenant described under "-- Change of Control"; provided further, however, that
all Special Preferred Obligations shall be deemed to be Disqualified Stock.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Event of Default" has the meaning set forth under "-- Events of Default
and Remedies" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"General Partners' Committee" means the committee consisting of
representatives of the general partners of Globalstar that governs the
activities of Globalstar.
"Globalstar System" means Globalstar's worldwide, low-earth orbit,
satellite-based digital telecommunications system as described in Globalstar's
Offering Memorandum dated May 20, 1998 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
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Debt, or (iii) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Holders" means the registered holders from time to time of the Notes.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to GAAP or otherwise, of any such Debt or other obligation on the balance sheet
of such Person (and "Incurrence", "Incurred" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time becoming Debt
shall not be deemed an Incurrence of such Debt and that neither the accrual of
interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt. Notwithstanding the foregoing, Globalstar may elect to treat
all or any portion of revolving credit debt of Globalstar or a Subsidiary as
being Incurred from and after any date beginning the date the revolving credit
commitment is extended to Globalstar or a Subsidiary, by furnishing notice
thereof to the Trustee, and any borrowings or reborrowings by Globalstar or a
Subsidiary under such commitment up to the amount of such commitment designated
by Globalstar as Incurred shall not be deemed to be new Incurrences of Debt by
Globalstar or such Subsidiary; provided, however, that the undrawn portion of
any such revolving credit debt shall be deemed to be outstanding Debt until such
time as the commitment thereunder is terminated. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Debt.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgement of the General Partners' Committee of Globalstar, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Issuers and their Subsidiaries and Affiliates.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but excluding any loan, advance or extension of credit to an
employee of Globalstar or any Restricted Subsidiary in the ordinary course of
business, accounts receivables and other commercially reasonable extensions of
trade credit.
"Issue Date" means May 20, 1998.
"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
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"A-1" or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than 7
days for Government Securities entered into with an Eligible Institution; and
(vi) any fund investing exclusively in investments of the types described in
clauses (i) through (v) above.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Marketable Securities received (including by way of sale or discounting
of a note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiror of Debt or
other obligations relating to such properties or assets) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of funds
from a foreign subsidiary to Globalstar or another Subsidiary of Globalstar)
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition, (iv) appropriate amounts to be provided by
such Person or any Restricted Subsidiary thereof, as the case may be, as a
reserve in accordance with GAAP against any liabilities associated with such
assets and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each case
as determined by the General Partners' Committee of Globalstar, in its
reasonable good faith judgment evidenced by a board resolution filed with the
Trustee; provided, however, that any reduction in such reserve within twelve
months following the consummation of such Asset Disposition will be treated for
all purposes of the 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.
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"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 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.
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"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 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
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any such preferred partnership interests, convertible preferred equivalent
obligations or similar preferred obligations of Globalstar issued after the
Issue Date shall not constitute Special Preferred Obligations if such interest
or obligation, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the Holders), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final Stated Maturity of
the Notes; provided further, however, that any such interest or obligation which
would constitute Special Preferred Obligations but for provisions thereof giving
holders thereof the right to require Globalstar to repurchase or redeem such
interest or obligation upon the occurrence of a change of control occurring
prior to the final Stated Maturity of the Notes shall constitute Special
Preferred Obligations if the change of control provisions applicable to such
interest or obligation are no more favorable to the holders of such interest or
obligation than the provisions applicable to the Notes contained in the covenant
described under "-- Change of Control" and such interest or obligation
specifically provides that Globalstar will not repurchase or redeem any such
interest or obligation pursuant to such provisions prior to Globalstar's
repurchase of such Notes as are required to be repurchased pursuant to the
covenant described under "-- Change of Control". Notwithstanding the foregoing,
preferred partnership interests, convertible preferred equivalent obligations or
similar preferred obligations of Globalstar issued after the Issue Date shall
not be Special Preferred Obligations unless, at the time of their issuance,
Globalstar shall certify to the Trustee that such interests or obligations shall
be designated Special Preferred Obligations.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Strategic Investor" means any person that, as of the Business Day
immediately before and the Business Day immediately after the date of such
person's purchase of equity in GTL or Globalstar, has, or whose Parent has, a
total market capitalization of at least $1.0 billion on a consolidated basis,
after giving effect to such purchase (including any Debt incurred in connection
with such purchase).
"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
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than another Unrestricted Subsidiary) (1) provides credit support for, or
Guarantee of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt), (2)
is directly or indirectly liable for any Debt of such Subsidiary or any
Subsidiary of such Subsidiary, or (3) has any obligation to make additional
Investments in such Subsidiary or any Subsidiary of such Subsidiary, (b) such
Subsidiary has no Debt other than Non-Recourse Debt; provided, however, that if
any Unrestricted Subsidiary Incurs any Debt other than Non-Recourse Debt or any
Non-Recourse Debt Incurred by such Unrestricted Subsidiary shall thereafter
cease for any reason to be Non-Recourse Debt, such event shall be deemed to
constitute an Incurrence of such Debt by Globalstar and such Unrestricted
Subsidiary shall be deemed to be a Restricted Subsidiary for purposes of the
covenant described under "-- Covenants -- Future Guarantors" and (c) such
Subsidiary and each Subsidiary of such Subsidiary has at least one director on
its board of directors that is not a director or executive officer of Globalstar
or any Restricted Subsidiary and (ii) any Subsidiary of an Unrestricted
Subsidiary. The General Partner's Committee may designate any Subsidiary to be
an Unrestricted Subsidiary unless such Subsidiary or any Subsidiary of such
Subsidiary owns any Capital Stock or Debt of, or owns or holds any Lien on any
property of, Globalstar or any other Subsidiary of Globalstar which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) immediately after giving
effect to such designation, Globalstar could incur an additional $1.00 of Debt
pursuant to the first paragraph under "Covenants -- Limitation on Consolidated
Debt" above and provided further, however, that Globalstar could make a
Restricted Payment in an amount equal to the greater of the fair market value
and the book value of such Subsidiary pursuant to the covenant described under
"-- Covenants -- Limitation on Restricted Payments" and such amount is
thereafter treated as a Restricted Payment for the purpose of calculating the
aggregate amount available for Restricted Payments thereunder. The General
Partners' Committee may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that, immediately after giving effect to such designation,
Globalstar could incur an additional $1.00 of Debt pursuant to the first
paragraph under "-- Covenants -- Limitation on Consolidated Debt" above.
Notwithstanding the foregoing, neither Globalstar Capital nor any of its
Subsidiaries shall be Unrestricted Subsidiaries.
"Vendor Financing Facility" means any agreements between Globalstar,
Globalstar Capital and/or any Restricted Subsidiary and one or more vendors or
lessors of equipment to Globalstar, Globalstar Capital and/or any Restricted
Subsidiary (or any affiliate of any such vendor or lessor) providing financing
for the acquisition by Globalstar or any such Restricted Subsidiary of equipment
from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary 99% or
more of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by
Globalstar or by one or more Wholly-Owned Restricted Subsidiaries of Globalstar
or by Globalstar and one or more Wholly-Owned Restricted Subsidiaries of
Globalstar.
REGISTRATION RIGHTS
The Issuers and the Initial Purchasers have entered into a registration
rights agreement (the "Registration Rights Agreement") dated May 20, 1998,
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.
92
<PAGE> 100
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"),
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.
93
<PAGE> 101
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following is a general discussion of the material U.S. Federal income
tax consequences to a holder of exchanging Original Notes for Exchange Notes
pursuant to the Exchange Offer. This discussion assumes that a holder of
Original Notes purchased such Original Notes for cash at original issue and
holds such Original Notes as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). This discussion
does not deal with all U.S. Federal income tax consequences that may be relevant
to particular investors in light of their personal investment circumstances,
including persons holding Original Notes as part of a conversion or constructive
sale transaction or as part of a hedge or hedging transaction, or as a position
in a straddle for tax purposes, nor does it discuss U.S. Federal income tax
consequences applicable to certain types of investors subject to special
treatment under U.S. Federal income tax laws, including insurance companies,
tax-exempt organizations, financial institutions or broker-dealers, persons that
have a functional currency other than the U.S. dollar, investors in pass-through
entities and foreign persons, including foreign corporations, partnerships and
individuals. In addition, this discussion does not consider the effect of any
foreign, state, local, gift, estate or other tax laws that may be applicable to
a particular investor.
This discussion is based upon current provisions of the Code, Treasury
regulations promulgated thereunder, administrative rulings and pronouncements of
the Internal Revenue Service ("IRS") and judicial decisions currently in effect,
all of which are subject to change, possibly with retroactive effect. The
Issuers have not and will not seek any rulings or opinions from the IRS with
respect to the matters discussed herein, and as a result, there can be no
assurance that the IRS will not disagree with or challenge any of the
conclusions set forth in this discussion.
EXCHANGE OFFER
The Issuers will be required to pay Liquidated Damages in respect of the
Original Notes if they fail to comply with certain of their obligations under
the Registration Rights Agreement. Such Liquidated Damages should be taxable to
a holder as ordinary interest income at the time such Liquidated Damages accrue
or are received in accordance with each such holder's usual method of tax
accounting. It is possible, however, that the IRS might take a different
position, in which case a holder might be required to include such Liquidated
Damages in income as such Liquidated Damages accrue or become fixed (regardless
of such holder's usual method of tax accounting).
The exchange of Original Notes for Exchange Notes pursuant to the Exchange
Offer will not constitute a taxable event for U.S. Federal income tax purposes.
As a result, (i) a holder of Original Notes will not recognize taxable gain or
loss as a result of the exchange of Original Notes for Exchange Notes pursuant
to the Exchange Offer, (ii) the holding period of the Exchange Notes will
include the holding period of the Original Notes surrendered in exchange
therefor and (iii) a holder's adjusted tax basis in the Exchange Notes will be
the same as such holder's adjusted tax basis in the Original Notes surrendered
in exchange therefor.
HOLDERS OF ORIGINAL NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF EXCHANGING ORIGINAL NOTES
FOR EXCHANGE NOTES AND OF OWNING AND DISPOSING OF ORIGINAL OR EXCHANGE NOTES,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND
POSSIBLE FUTURE CHANGES IN SUCH TAX LAWS.
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 October 11, 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 July 10, 1998, partners in Willkie Farr & Gallagher
beneficially own approximately 170,000 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, 1997
and 1996 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and have been
so included in reliance on the reports of such 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-22
Condensed Consolidated Statements of Operations........... F-23
Condensed Consolidated Statements of Cash Flows........... F-24
Notes to Condensed Consolidated Financial Statements...... F-25
GLOBALSTAR CAPITAL CORPORATION (A Wholly-Owned Subsidiary of
Globalstar, L.P.)
Independent Auditors' Report.............................. F-28
Balance Sheets............................................ F-29
Notes to Balance Sheets................................... F-30
GLOBALSTAR TELECOMMUNICATIONS LIMITED (A General Partner of
Globalstar, L.P.)
Annual Financial Statements:
Independent Auditors' Report.............................. F-32
Balance Sheets............................................ F-33
Statements of Operations.................................. F-34
Statements of Shareholders' Equity........................ F-35
Statements of Cash Flows.................................. F-36
Notes to Financial Statements............................. F-37
Interim Financial Statements:
Condensed Balance Sheets.................................. F-43
Condensed Statements of Operations........................ F-44
Condensed Statements of Cash Flows........................ F-45
Notes to Condensed Financial Statements................... F-46
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A General Partner
of Globalstar, L.P.)
Annual Financial Statements:
Independent Auditors' Report.............................. F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Partners' Capital and Subscriptions
Receivable............................................. F-51
Statements of Cash Flows.................................. F-52
Notes to Financial Statements............................. F-53
Interim Financial Statements:
Condensed Balance Sheets.................................. F-57
Condensed Statements of Operations........................ F-58
Notes to Condensed Financial Statements................... F-59
</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 subsidiaries
(collectively the "Partnership") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, partners' capital and
subscriptions receivable and cash flows for each of the three years in the
period ended December 31, 1997 and cumulative. 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 the Partnership at December 31,
1997 and 1996, and the results of its operations and its cash flows for the
periods stated above in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 6, 1998
(June 8, 1998, as to the third paragraph of Note 10)
F-2
<PAGE> 105
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interests)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 464,154 $ 21,180
Other current assets...................................... 29,626 606
---------- ----------
Total current assets.............................. 493,780 21,786
Property and equipment, net................................. 2,574 1,720
Globalstar System under construction:
Space segment............................................. 1,153,344 730,513
Ground segment............................................ 374,344 160,520
---------- ----------
1,527,688 891,033
Additional satellite spares................................. 99,225
Deferred FCC license costs.................................. 10,342 8,690
Deferred financing costs.................................... 14,631 19,577
Other assets................................................ 813 107
---------- ----------
Total assets...................................... $2,149,053 $ 942,913
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 1,272 $ 4,401
Payable to affiliates..................................... 105,357 63,937
Accrued expenses.......................................... 8,312 6,929
Accrued interest on senior notes.......................... 28,869
---------- ----------
Total current liabilities.............................. 143,810 75,267
Deferred revenues........................................... 23,652 23,652
Vendor financing liability.................................. 197,723 130,694
Borrowings under long-term revolving credit facility........ 96,000
Deferred interest payable................................... 420 77
11 3/8% Senior notes payable ($500,000 principal amount).... 475,579
11 1/4% Senior notes payable ($325,000 principal amount).... 303,641
10 3/4% Senior notes payable ($325,000 principal amount).... 320,311
Commitments and contingencies (Notes 4,6,7,9,11 and 13)
Redeemable preferred partnership interests (4,769,230
outstanding at December 31, 1997 and 1996, $310,000
redemption value)......................................... 303,089 302,037
Ordinary partners' capital:
Ordinary partnership interests (52,319,076 and 47,000,000
outstanding at December 31, 1997 and 1996,
respectively).......................................... 368,618 292,585
Warrants.................................................. 12,210 22,601
---------- ----------
Total ordinary partners' capital.................. 380,828 315,186
---------- ----------
Total liabilities and partners' capital........... $2,149,053 $ 942,913
========== ==========
</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 ordinary partnership interest)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
----------------------------- OPERATIONS) TO
1995 1996 1997 DECEMBER 31, 1997
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Development costs.......................... $62,854 $42,152 $62,478 $188,763
Marketing, general and administrative...... 17,372 18,873 25,593 68,586
------- ------- ------- --------
Total operating expenses..................... 80,226 61,025 88,071 257,349
Interest income.............................. 11,989 6,379 20,485 40,636
------- ------- ------- --------
Net loss..................................... 68,237 54,646 67,586 216,713
Preferred distributions and related increase
in redeemable preferred partnership
interests.................................. 17,323 21,202 38,525
------- ------- ------- --------
Net loss applicable to ordinary partnership
interests.................................. $68,237 $71,969 $88,788 $255,238
======= ======= ======= ========
Net loss per ordinary partnership
interest -- basic and diluted.............. $ 1.50 $ 1.53 $ 1.74
======= ======= =======
Weighted average ordinary partnership
interests outstanding -- basic and
diluted.................................... 45,575 47,000 50,981
======= ======= =======
</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>
CUMULATIVE
MARCH 23, 1994
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
1995 1996 1997 DECEMBER 31, 1997
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (68,237) $ (54,646) $ (67,586) $ (216,713)
Deferred revenues......................................... 21,913 1,739 23,652
Stock compensation transactions........................... 317 1,290 1,607
Depreciation and amortization............................. 398 724 1,016 2,253
Changes in operating assets and liabilities:
Other current assets.................................... (506) (100) (29,020) (29,626)
Other assets............................................ (107) (706) (813)
Accounts payable........................................ 857 1,723 (2,017) 1,201
Payable to affiliates................................... 4,865 (3,553) (1,488) (177)
Accrued expenses........................................ 2,342 2,147 1,383 8,312
--------- --------- --------- -----------
Net cash used in operating activities....................... (38,368) (51,756) (97,128) (210,304)
--------- --------- --------- -----------
Investing activities:
Globalstar System under construction...................... (328,261) (490,776) (636,655) (1,527,688)
Payable to affiliates for Globalstar System under
construction............................................ 8,863 19,921 42,908 96,734
Capitalized interest accrued.............................. 5,211 39,552 44,763
Accounts payable.......................................... 67 608 (1,112) (437)
Vendor financing liability................................ 42,219 88,475 67,029 197,723
--------- --------- --------- -----------
Cash used for Globalstar System......................... (277,112) (376,561) (488,228) (1,188,905)
Additional satellite spares............................... (99,225) (99,225)
Purchases of property and equipment....................... (888) (935) (1,870) (4,812)
Deferred FCC license costs................................ (2,535) (1,634) (1,652) (8,107)
Purchases of investments.................................. (126,923) (129,923)
Maturity of investments................................... 126,923 129,923
Other current assets...................................... 190
--------- --------- --------- -----------
Net cash used in investing activities....................... (280,345) (379,130) (591,025) (1,301,049)
--------- --------- --------- -----------
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
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes................................................... 320,197 320,197
Deferred financing costs.................................. (1,875) (250) (2,125)
Proceeds from capital subscriptions receivable............ 133,780 282,441
Payment of accrued capital raising costs.................. (900) (2,400)
Sale of partnership interests to GTL...................... 185,750 140,930 326,680
Sale of redeemable preferred partnership interests to
GTL..................................................... 299,500 299,500
Distributions on redeemable preferred partnership
interests............................................... (14,833) (20,150) (34,983)
Prepaid interest on redeemable preferred partnership
interests............................................... 47 47
Borrowings under long-term revolving credit facility...... 106,000 65,000 171,000
Repayment of borrowings under long-term revolving credit
facility................................................ (10,000) (161,000) (171,000)
--------- --------- --------- -----------
Net cash provided by financing activities................... 316,755 380,464 1,131,127 1,975,507
--------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ (1,958) (50,422) 442,974 464,154
Cash and cash equivalents, beginning of period.............. 73,560 71,602 21,180
--------- --------- --------- -----------
Cash and cash equivalents, end of period.................... $ 71,602 $ 21,180 $ 464,154 $ 464,154
========= ========= ========= ===========
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 $ 22,601
========= ===========
Increase in redemption value of preferred partnership
interests............................................... $ 2,537 $ 1,052 $ 3,589
========= ========= ===========
Supplemental Information:
Interest paid........................................... $ 515 $ 48,527 $ 49,042
========= ========= ===========
</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
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 partner (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
Exercise of warrants in March 1997.......................... 163,488 (22,601) 140,887
Warrant agreement in connection with issuance of senior
notes..................................................... 12,210 12,210
Stock compensation transactions by managing general partner
for the benefit of Globalstar............................. 1,290 1,290
Sale of ordinary partnership interests in connection with
GTL stock option exercises................................ 43 43
Net loss applicable to ordinary partnership interests--Year
ended December 31, 1997................................... (88,788) (88,788)
-------- -------- --------
Capital balances--December 31, 1997......................... $368,618 $ 12,210 $380,828
======== ======== ========
SUBSCRIPTIONS RECEIVABLE
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, 1996 and
1997...................................................... $ -- $ --
======== ========
</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.
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 Globalstar,
Globalstar Telecommunications Limited ("GTL"), Space Systems/Loral, Inc.
("SS/L") and other affiliated businesses, as well as certain other assets and
liabilities, were transferred to Loral Space & Communications Ltd., a Bermuda
company (and with its subsidiaries "Loral").
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 40,000,000 shares of common stock (as adjusted for two-for-one stock
splits, see Note 10) resulting in net proceeds of $185,750,000. Effective
February 22, 1995, GTL purchased 10,000,000 partnership interests from
Globalstar with the net proceeds of the initial public offering. The partners in
Globalstar have the right to convert their partnership interests into shares of
GTL common stock on a one-for-two basis following the Full Constellation 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, 1997, Loral had a direct and indirect ownership of
20,962,211 (40.1%) ordinary partnership interests of Globalstar, including
10,879,356 shares of GTL's outstanding common stock (as adjusted for two-for-one
stock splits, see Note 10).
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."
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,
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)
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 subsidiaries, including 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.
Concentration of Credit Risk
Financial instruments which potentially subject Globalstar to
concentrations of credit risk are cash and cash equivalents. Globalstar's cash
and cash equivalents are maintained with high-credit-quality financial
institutions. The creditworthiness of such institutions is generally substantial
and management believes that its credit evaluation, approval and monitoring
processes mitigate potential credit risks.
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 56 low-earth orbit satellites, including eight in-orbit spare
satellites (the "Space Segment"), and ground and satellite operations control
centers, gateways and user terminals (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 early 1999. Losses from
unsuccessful launches and in-orbit failures of Globalstar's satellites, net of
insurance proceeds, will be recorded in the period when the loss occurs.
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.
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)
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). 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, 1997, 1996 and 1995
was approximately $4,946,000, $5,134,000 and $15,000, respectively.
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized for the years ended December
31, 1997, 1996 and 1995 was approximately $95,895,000, $9,900,000 and $300,000,
respectively.
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 contracts with SS/L call 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 or placing certain assets in service. Amounts deferred as
vendor financing are capitalized as costs of the assets to which they relate as
incurred.
Notes Payable
Interest accrues on the $500 million, $325 million and $325 million
principal amount Senior Notes at 11 3/8%, 11 1/4% and 10 3/4% per annum,
respectively. Globalstar is increasing the carrying value of the senior notes
payable to their ultimate redemption value.
Preferred Partnership Distributions
Distributions accrue on the Redeemable Preferred Partnership Interests
("RPPIs") 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 Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") 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" ("APB 25").
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)
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.
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.
Earnings Per Ordinary Partnership Interest
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Dilutive
earnings per share is very similar to the previously reported fully diluted
earnings per share. The adoption of SFAS 128 had no effect on reported net loss
per ordinary partnership interest. Due to Globalstar's net losses for the years
ended December 31, 1997, 1996 and 1995, diluted average ordinary partnership
interests outstanding excludes the assumed conversion of the Redeemable
Preferred Partnership Interests and the assumed issuance of ordinary partnership
interests upon exercise of GTL's outstanding options and warrants as their
effect would have been anti-dilutive. Accordingly, basic and diluted weighted
average ordinary partnership interests outstanding is based on net loss
applicable to ordinary partnership interests and the weighted average ordinary
partnership interests outstanding during the years ended December 31, 1997, 1996
and 1995.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), and in February 1998, issued Statement No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. SFAS 131 establishes annual and interim reporting standards
for an enterprise's business segments and related
F-10
<PAGE> 113
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
disclosures about its products, services, geographic areas and major customers.
SFAS 132 expands and standardizes the disclosure requirements for pensions and
other postretirement benefits. Globalstar is required to adopt SFAS 130, SFAS
131 and SFAS 132 in 1998 and the financial statements of Globalstar will reflect
the appropriate disclosures.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements..................................... $ 612 $ 473
Furniture and office equipment............................. 4,200 2,469
------- -------
4,812 2,942
Accumulated depreciation and amortization.................. (2,238) (1,222)
------- -------
$ 2,574 $ 1,720
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1996 and 1995, was $1,016,000, $724,000, and $383,000, respectively.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
As of December 31, 1997, Globalstar's current budgeted expenditures for the
design, construction and deployment of the Globalstar System, including working
capital, cash interest on borrowings and operating expenses is approximately
$2.7 billion. Most of the ground segment costs are incurred under a cost-plus
contract with Qualcomm. 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.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites, for approximately $175 million, increasing Globalstar's
ability to have at least 40 satellites in service during 1999, even in the event
of a launch failure. If the launch program is successful, the additional
satellites will serve as ground spares, readily available 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.
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 initial 38 gateways. Globalstar expects to recover this financing upon
resale of such gateways to its partners and service providers. At December 31,
1997, other current assets included $24.1 million of advances made under this
agreement.
In December 1997, an order for 40,000 fixed access terminals totalling $84
million was placed with Ericsson. Globalstar expects to recover this cost
through resale of these terminals to vendors.
F-11
<PAGE> 114
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION (CONTINUED)
As of December 31, 1997, Globalstar had raised or received commitments for
approximately $2.6 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 component), financial support from the Globalstar partners, projected
service provider payments, projected net service revenues from initial
operations, and anticipated payments from the sale of gateways and Globalstar
phones. 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, including eight in-orbit spares. 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 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.
Globalstar has 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. As a result of this decision, total costs for
launch vehicles and insurance are expected to be approximately $459 million.
SS/L has entered into fixed-price subcontracts aggregating approximately
$710 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 6).
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 300 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 has revised its estimated costs under its contract 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. As a result of cost containment and arrangements with
Qualcomm for $100 million of contract payment deferrals (see Note 15),
Globalstar expects the total ground segment expenditure to be approximately $710
million, net of such deferrals, through the In-Service Date.
F-12
<PAGE> 115
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION (CONTINUED)
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 fixed contract price
is approximately $29 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 this 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,
1997 and 1996, approximately $90 million and $72 million, respectively, of the
vendor financing liability was interest bearing.
In addition, Globalstar's contract with SS/L for the eight additional
satellites calls for approximately $43 million of the contract price to be
deferred as vendor financing. Of the $43 million, $19 million is interest
bearing, the remaining $24 million is non-interest bearing. The $19 million in
vendor financing will be repaid pro-rata on a per satellite basis, as follows:
50% as each satellite is place into storage and 50% when the satellite is
delivered and accepted on-orbit. Interest accrues at 10% per annum on the second
50% from the time the satellite is place into storage until the date SS/L is
directed by Globalstar to release the satellite from storage and to ship it to
the launch base for launch. Globalstar will repay the non-interest bearing
portion of vendor financing monthly over a five year term with 50% of the
payments commencing on the date the Preliminary Constellation has been accepted.
Globalstar will commence repaying the remaining 50% when the Full Constellation
has been accepted.
6. CREDIT FACILITY
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar 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 Globalstar Credit
Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin
for any liability in excess of $150 million. The Globalstar 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 Globalstar 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
Globalstar Credit Agreement expires on December 15, 2000.
F-13
<PAGE> 116
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITY (CONTINUED)
In exchange for the guarantee and indemnity, GTL issued warrants to
purchase 16,741,272 shares of GTL common stock at $6.625 per share (as adjusted
for two-for-one stock splits, see Note 10) as follows: Loral and SS/L 4,550,088
warrants, Lockheed Martin 10,044,760 warrants, Qualcomm 1,468,524 warrants and
another Globalstar partner 677,900 warrants. As part of this transaction,
Globalstar issued GTL warrants to purchase an additional 1,131,168 ordinary
partnership interests of Globalstar. In February 1997, GTL accelerated the
vesting and exercisability of these warrants and the holders exercised such
warrants. In addition, GTL distributed to the holders of its common stock rights
to subscribe for and purchase 4,524,672 GTL shares for a price of $6.625 per
share (as adjusted for two-for-one stock splits, see Note 10) of which Loral
received rights to purchase 636,688 shares and Loral agreed to purchase all
shares not purchased upon exercise of the rights. In March 1997, the warrants to
purchase 16,741,272 shares of GTL common stock were exercised for proceeds of
approximately $110.9 million. In May 1997, GTL shareholders exercised the rights
to purchase 4,524,672 shares of GTL common stock (including 700,696 shares
purchased by Loral) for $6.625 per share (as adjusted for two-for-one stock
splits, see Note 10) for proceeds of $30.0 million. GTL used the total proceeds
of $140.9 million to purchase 5,316,486 Globalstar ordinary partnership
interests for $26.50 per interest.
In addition, Globalstar 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, classified as deferred interest payable in
Globalstar's balance sheet, is being deferred and subordinated, with interest at
LIBOR plus 3%, until after the termination date of the Globalstar Credit
Agreement. Globalstar's managing general partner 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.
7. COMMITMENTS
Globalstar leases its primary facility from Lockheed Martin under a
non-cancellable operating lease expiring in 2000. The lease contains renewal
options for up to an additional ten years. 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>
1998........................................................ $2,777
1999........................................................ 3,145
2000........................................................ 2,182
2001........................................................ 156
2002........................................................ 156
Thereafter.................................................. 611
------
Total minimum lease payments................................ $9,027
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995, was
approximately $1,756,000, $1,067,000, and $934,000, respectively. Included in
rent expense are payments to Lockheed Martin of $1,480,000, $869,000, and
$650,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
8. 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 4,129,000 shares of GTL common stock (as adjusted for
two-for-one stock splits, see Note 10) in a private offering. GTL was allocated
F-14
<PAGE> 117
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SENIOR NOTES AND WARRANTS (CONTINUED)
$12,210,000 of the offering proceeds for these warrants which were used to
purchase warrants for Globalstar's ordinary partnership interests. The notes 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
$17.394 per share (as adjusted for two-for-one stock splits, see Note 10) and
expire on February 15, 2004. 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 may not be redeemed prior
to June 2002 and are subject to a prepayment premium prior to 2004. Interest is
paid semi-annually.
On October 29, 1997, Globalstar sold $325 million principal amount of
10 3/4% Senior Notes due 2004 in a private offering. The notes may not be
redeemed prior to November 2002 and are subject to a prepayment premium prior to
2004. Interest is paid semi-annually.
The Senior Notes rank pari passu with each other and senior in right of
payment to the RPPIs (see Note 9). 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.
9. SALE OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL purchased 4,769,230 RPPIs in Globalstar using the net
proceeds of $299.5 million 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 million
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, 1997,
all payments have been made in cash on a timely basis.
10. ORDINARY PARTNERS' CAPITAL
Initial Capital Subscriptions
Prior to the commencement of Globalstar's operations on March 23, 1994,
Loral and Qualcomm undertook independent efforts at their own risk to explore
the feasibility of a Globalstar-type system. Efforts to develop the Globalstar
System were formalized with the initial funding of Globalstar on March 23, 1994
through capital subscriptions of $50,000,000 for 18,000,000 general partner
interests and $225,000,000 for an aggregate of 18,000,000 limited partner
interests. In connection with the initial capital subscriptions, the partners of
Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures
totaling $18,382,000 incurred related to such efforts from January 1, 1993
through March 22, 1994. These expenditures included development costs and
marketing, general and administrative expenses related to the Globalstar System.
F-15
<PAGE> 118
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ORDINARY PARTNER'S CAPITAL (CONTINUED)
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.
GTL Stock Splits
On May 28, 1997, GTL issued a two-for-one stock split. On June 8, 1998, GTL
issued another two-for-one stock split. Prior to the two-for-one stock splits,
GTL's equity securities and convertible securities were represented by
equivalent Globalstar partnership interests on an approximate one-for-one basis.
Globalstar's partnership interests were not affected by the GTL stock splits
and, accordingly, GTL's equity securities and convertible securities are now
represented by equivalent Globalstar partnership interests on an approximate
four-for-one basis. All GTL share and per share amounts have been restated to
reflect the stock splits.
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 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 be used to purchase Globalstar ordinary partnership interests under a
four-for-one exchange arrangement (as adjusted for two-for-one stock splits).
In 1997, 1996 and 1995, options to purchase 527,800, 488,000 and 441,600
shares of GTL common stock (as adjusted for two-for-one stock splits),
respectively, 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, 1996 and 1997 were non-qualified stock options with a price equal to fair
market value at the date of grant. As of December 31, 1997, 1,106,200 shares of
common stock (as adjusted for two-for-one stock splits) were available for
future grant under the Plan.
On September 14, 1995, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 560,000 shares of the GTL
common stock owned by Loral at an exercise price of $5.00 per share (as adjusted
for two-for-one stock splits). The exercise price was greater than 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 608,000 shares of the GTL
common stock owned by Loral at a price $6.344 below market price on the grant
date (as adjusted for two-for-one stock splits). 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 94,000 shares of Loral common stock at $10.50 per
share and 5,000 shares of Loral common stock at $18.9375 per share,
respectively. In April 1997, 5,000 shares were cancelled and 5,000 shares were
granted at 13.75 per share. 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.
F-16
<PAGE> 119
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ORDINARY PARTNER'S CAPITAL (CONTINUED)
As described in Note 2-Summary of Significant Accounting Policies,
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 $1,290,000 and $317,000 of compensation expense in 1997 and 1996,
respectively, related to below market option grants, 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, 5.76% to 6.58% based on date of grant
in 1997, 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 $2,536,000
to $91,324,000 ($1.79 per ordinary partnership interest) in 1997, $1,054,000 to
$73,023,000 ($1.55 per ordinary partnership interest) in 1996 and $156,000 to
$68,393,000 ($1.50 per ordinary partnership interest) in 1995.
A summary of the status of the GTL stock option plan for the years ended
December 31, 1997, 1996 and 1995 is presented below (as adjusted for two-for-one
stock splits):
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Granted in 1995 (weighted average fair value $1.333 per
share).................................................... 441,600 $ 4.1563
--------- --------
Outstanding at December 31, 1995............................ 441,600 4.1563
Granted (weighted average fair value $4.51 per share)....... 488,000 13.7250
Forfeited................................................... (4,800) 4.1563
--------- --------
Outstanding at December 31, 1996............................ 924,800 9.2060
Granted (weighted average fair value $7.10 per share)....... 527,800 21.9650
Forfeited................................................... (58,800) 11.1610
Exercised................................................... (10,360) 4.1563
--------- --------
Outstanding at December 31, 1997............................ 1,383,440 $14.0285
========= ========
Options exercisable at December 31, 1997.................... 95,240 $ 4.1563
========= ========
</TABLE>
F-17
<PAGE> 120
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ORDINARY PARTNER'S CAPITAL (CONTINUED)
At December 31, 1996 and 1995, there were no options exercisable.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1997 (as adjusted for two-for-one stock splits):
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
-------------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.1563...................... 403,640 7.70 $ 4.1563 95,240 $4.1563
$12.5938 to $16.375.......... 578,800 8.69 13.5720
$24.625...................... 401,000 9.75 24.6250
--------- -------- ------ -------
1,383,440 $ 14.0285 95,240 $4.1563
========= ======== ====== =======
</TABLE>
11. 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, post-retirement 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 includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Service cost-benefits earned during the period.............. $ 334 $ 213
Interest cost on projected benefit obligation............... 347 195
Actual return on plan assets................................ (664) (134)
Net amortization and deferral............................... 231 (151)
------- -------
Total pension cost........................................ $ 248 $ 123
======= =======
</TABLE>
F-18
<PAGE> 121
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSIONS AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following presents the plan's funded status and amounts recognized in
the balance sheet (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $ 3,960 $ 2,944
======= =======
Accumulated benefits...................................... $ 4,018 $ 3,129
Effect of projected future salary increases............... 1,154 764
------- -------
Projected benefits........................................ 5,172 3,893
Plan assets at fair value................................... 4,808 4,156
------- -------
Plan assets in excess of (less than) projected benefit
obligation................................................ (364) 263
Unrecognized net gain....................................... 7 386
------- -------
Pension liability........................................... $ 371 $ 123
======= =======
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Discount rate............................................. 7.25% 7.75%
Rate of increase in compensation levels................... 4.50% 4.50%
Expected long-term rate of return on plan assets.......... 9.50% 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.
Post-retirement health care and life insurance costs include the following
components (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Service cost--benefits earned during the period............. $ 39 $ 29
Interest cost on accumulated post-retirement benefit
obligation................................................ 49 32
Net amortization and deferral............................... 34 26
Return on assets............................................ (2) (2)
------- -------
Total post-retirement health care and life insurance
costs..................................................... $ 120 $ 85
======= =======
</TABLE>
At December 31, 1997 and 1996, the total accumulated post-retirement benefit
obligation was $838,000 and $641,000, respectively. Actuarial assumptions used
in determining the accumulated post-retirement benefit obligation include a
discount rate of 7.25% and 7.75% at December 31, 1997 and 1996, respectively,
and an assumed health care cost trend rate of 9.96% decreasing gradually to an
ultimate rate of 5.50% by the year 2004. Changing the assumed health care cost
trend by 1% in each year would change the accumulated post-retirement benefit
obligation at December 31, 1997 by $254,000 and the aggregate service and
interest cost components by $30,000 for the year ended December 31, 1997.
F-19
<PAGE> 122
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value.
The carrying amounts of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of the Senior
Notes is based on market quotations.
The estimated fair values of Globalstar's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash and cash equivalents............................. $464,154 $464,154
10 3/4% Senior notes.................................. 320,311 316,100
11 1/4% Senior notes.................................. 303,641 325,000
11 3/8% Senior notes.................................. 475,579 502,500
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash and cash equivalents............................. $ 21,180 $ 21,180
</TABLE>
13. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 4, 5, 6, 7, 8, 9, 10, 11
and 15, Globalstar has a number of other transactions with its affiliates.
Globalstar believes that the arrangements are as favorable to Globalstar as
could be obtained from unaffiliated parties. The following describes these
related-party transactions.
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Ground
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
A support agreement was entered into among Qualcomm, Loral and Globalstar
pursuant to which Qualcomm agreed to assist Globalstar and SS/L with
Globalstar's system design, support Globalstar and Loral with respect to various
regulatory matters, and assist Globalstar and Loral in their marketing efforts
with respect to Globalstar. For the years ended December 31, 1997, 1996 and
1995, Qualcomm has received approximately $894,000, $1,823,000, and $2,712,000,
respectively, for costs incurred in rendering such support and assistance.
Subsidiaries of Loral have formed joint ventures with partners which have
executed service provider agreements granting the joint ventures exclusive
rights to provide Globalstar service to users in Brazil, Canada
F-20
<PAGE> 123
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
and Mexico as long as specified minimum levels of subscribers are met. Similar
exclusive service provider agreements have been entered into with certain of
Globalstar's limited partners for specific countries. These service providers
will receive certain discounts from Globalstar's expected pricing schedule
generally over a five-year period. Globalstar has also agreed to provide
Qualcomm, under certain circumstances, with capacity on the Globalstar System
for its OmniTRACS services at its most favorable rates and to grant to Qualcomm
the exclusive right to utilize the Globalstar System to provide OmniTRACS-like
services.
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the years ended December
31, 1997, 1996 and 1995, were approximately $143,000, $496,000, and $1,411,000,
respectively. Globalstar anticipates that similar agreements may be entered into
with other strategic partners in the future.
Globalstar has granted to Hyundai Electronics Industries Co., Ltd.
("Hyundai") certain rights, including certain sub-contract rights with respect
to its satellite constellation and the right, at Hyundai's election, to act as
Globalstar's exclusive licensee authorized to manufacture and sell Globalstar
phones in South and North Korea.
Current payable to affiliates consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SS/L........................................................ $ 14,120 $ 22,572
Qualcomm.................................................... 90,817 40,903
Loral....................................................... 420 462
-------- --------
Total....................................................... $105,357 $ 63,937
======== ========
</TABLE>
Commencing after the initiation of Globalstar services, LQP, the general
partner of LQSS, will receive a managing partner's allocation 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 allocation for that year will be reduced by 50% and LQP will
reimburse Globalstar for allocation payments, if any, received in any prior
quarter of such year, sufficient to reduce its management allocation for the
year to 50%. No allocations have been made to date.
14. 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.
15. SUBSEQUENT EVENT
On March 4, 1998, Qualcomm entered into a financing agreement with
Globalstar providing $100 million principal amount of vendor financing. The
principal amount will accrue interest at a rate of 5.75% per annum, and will be
capitalized to principal quarterly. Globalstar will make eight equal principal
payments on a quarterly basis commencing on January 1, 2000 with final payment
due October 1, 2001 accompanied by all then unpaid accrued interest.
F-21
<PAGE> 124
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interest data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 291,931 $ 464,154
Other current assets...................................... 29,335 29,626
---------- ----------
Total current assets.............................. 321,266 493,780
Property and equipment, net................................. 2,908 2,574
Globalstar system under construction:
Space segment............................................. 1,274,083 1,153,344
Ground segment............................................ 444,037 374,344
---------- ----------
1,718,120 1,527,688
Additional satellite spares and user terminals.............. 122,509 99,225
Deferred FCC license costs.................................. 10,551 10,342
Deferred financing costs.................................... 13,394 14,631
Other assets................................................ 1,168 813
---------- ----------
Total assets...................................... $2,189,916 $2,149,053
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 14,672 $ 1,272
Payable to affiliates..................................... 80,276 105,357
Vendor financing liability, current portion............... 45,599 --
Accrued expenses.......................................... 5,423 8,312
Accrued interest on senior notes.......................... 32,525 28,869
---------- ----------
Total current liabilities......................... 178,495 143,810
Deferred revenues........................................... 23,652 23,652
Vendor financing liability.................................. 225,860 197,723
Deferred interest payable................................... 429 420
11 3/8% Senior notes payable ($500,000 principal amount).... 476,576 475,579
11 1/4% Senior notes payable ($325,000 principal amount).... 304,468 303,641
10 3/4% Senior notes payable ($325,000 principal amount).... 320,483 320,311
Commitments and contingencies (Notes 4, 5 and 6)
Redeemable preferred partnership interests (4,769,230
outstanding, $310,000 redemption value)................... 303,352 303,089
Ordinary partners' capital:
Ordinary partnership interests (52,325,825 and 52,319,076
outstanding at March 31, 1998 and December 31, 1997,
respectively).......................................... 344,446 368,618
Warrants.................................................. 12,155 12,210
---------- ----------
Total ordinary partners' capital....................... 356,601 380,828
---------- ----------
Total liabilities and partners' capital........... $2,189,916 $2,149,053
========== ==========
</TABLE>
- ---------------
Note: The December 31, 1997 balance sheet has been derived from audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
F-22
<PAGE> 125
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per ordinary partnership interest data)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
-------------------------------- OPERATIONS) TO
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998
-------------- -------------- ----------------
<S> <C> <C> <C>
Operating expenses:
Development costs............................ $16,490 $11,241 $205,253
Marketing, general and administrative........ 8,271 6,341 76,857
------- ------- --------
Total operating expenses............. 24,761 17,582 282,110
Interest income................................ 5,165 2,295 45,801
------- ------- --------
Net loss....................................... 19,596 15,287 236,309
Preferred distributions and related increase in
redeemable preferred partnership interests... 5,300 5,301 43,825
------- ------- --------
Net loss applicable to ordinary partnership
interests.................................... $24,896 $20,588 $280,134
======= ======= ========
Net loss per ordinary partnership
interest -- basic and diluted................ $ 0.48 $ 0.44
======= =======
Weighted average ordinary partnership interests
outstanding -- basic and diluted............. 52,321 47,326
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE> 126
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED MARCH 23, 1994
MARCH 31, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1998 1997 MARCH 31, 1998
--------- --------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (19,596) $ (15,287) $ (236,309)
Deferred revenues......................................... -- -- 23,652
Stock compensation transactions........................... 322 318 1,929
Depreciation and amortization............................. 347 236 2,600
Changes in operating assets and liabilities:
Other current assets.................................... 291 (299) (29,335)
Other assets............................................ (355) (27) (1,168)
Accounts payable........................................ 1,327 (319) 2,528
Payable to affiliates................................... 5,994 (3,202) 5,817
Accrued expenses........................................ (2,889) (1,298) 5,423
--------- --------- -----------
Net cash used in operating activities....................... (14,559) (19,878) (224,863)
--------- --------- -----------
Investing activities:
Globalstar System under construction...................... (190,432) (137,636) (1,718,120)
Payable to affiliates for Globalstar System under
construction............................................ (31,075) (3,299) 65,659
Capitalized interest accrued.............................. 6,898 9,160 51,661
Accounts payable.......................................... 12,073 (529) 11,636
Vendor financing liability................................ 73,736 25,354 271,459
--------- --------- -----------
Cash used for Globalstar System........................... (128,800) (106,950) (1,317,705)
Additional satellite spares and user terminals............ (23,284) (28,348) (122,509)
Purchases of property and equipment....................... (681) (750) (5,493)
Deferred FCC license costs................................ (209) (217) (8,316)
Purchases of investments.................................. -- -- (126,923)
Maturity of investments................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities....................... (152,974) (136,265) (1,454,023)
--------- --------- -----------
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
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes................................................... -- -- 320,197
Deferred financing costs.................................. -- -- (2,125)
Proceeds of capital subscriptions receivable.............. -- -- 282,441
Payment of accrued capital raising costs.................. -- -- (2,400)
Sale of partnership interests to GTL...................... 347 110,911 327,027
Sale of redeemable preferred partnership interests to
GTL..................................................... -- -- 299,500
Distributions on redeemable preferred partnership
interests............................................... (5,037) (5,037) (40,020)
Prepaid interest on redeemable preferred partnership
interests............................................... -- -- 47
Borrowings under long-term revolving credit facility...... -- 65,000 171,000
Repayment of borrowings under long-term revolving credit
facility................................................ -- (161,000) (171,000)
--------- --------- -----------
Net cash provided by (used in) financing activities......... (4,690) 494,174 1,970,817
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ (172,223) 338,031 291,931
Cash and cash equivalents, beginning of period.............. 464,154 21,180 --
--------- --------- -----------
Cash and cash equivalents, end of period.................... $ 291,931 $ 359,211 $ 291,931
========= ========= ===========
Noncash transactions:
Payable to affiliates..................................... $ 9,308
===========
Accrual of capital raising costs.......................... $ 2,400
===========
Deferred FCC license costs................................ $ 2,235
===========
Warrants issued in exchange for debt guarantee............ $ 22,601
===========
Increase in redemption value of preferred partnership
interests............................................... $ 263 $ 263 $ 3,852
========= ========= ===========
Supplemental Information:
Interest paid during the period........................... $ 28,613 $ 1,704 $ 77,655
========= ========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 127
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules. Globalstar believes
that the disclosures made are adequate to keep the information presented from
being misleading. The results of operations for the three months ended March 31,
1998 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 latest Annual Report on Form 10-K for Globalstar
Telecommunications Limited ("GTL") and Globalstar.
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Space & Communications Ltd. ("Loral") and
QUALCOMM Incorporated ("Qualcomm"), is building and will 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
SFAS 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.
Earnings Per Ordinary Partnership Interest
In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" ("SFAS 128") replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. The adoption of
SFAS 128 had no effect on reported net loss per ordinary partnership interest.
Due to Globalstar's net losses for the quarters ended March 31, 1998 and 1997,
respectively, diluted weighted average ordinary partnership interests
outstanding excludes the assumed conversion of Redeemable Preferred Partnership
Interests ("RPPIs") and the assumed issuance of ordinary partnership interests
upon exercise of GTL's outstanding options and warrants as their effect would
have been anti-dilutive. Accordingly, basic and diluted weighted average
ordinary partnership interests outstanding is based on net loss applicable to
ordinary partnership interests and the weighted average ordinary partnership
interests outstanding during the quarters ended March 31, 1998 and 1997.
F-25
<PAGE> 128
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income
Effective January 1, 1998, Globalstar adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). During the periods presented, Globalstar had no changes in ordinary
partners capital from transactions or other events and circumstances from
non-owner sources. Accordingly, a statement of comprehensive loss has not been
provided as comprehensive loss equals net loss for all periods presented.
Reclassifications
Certain reclassifications have been made to conform prior amounts to the
current period presentation.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service.
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 initial 38
gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals
from Ericsson for $84 million. Globalstar has also agreed to finance
approximately $67 million of the cost of handsets. Globalstar expects to recoup
the amounts so financed following the acceptance by the service providers of the
gateways, fixed access terminals and handsets.
As of April 27, 1998, Globalstar had raised or received commitments for
approximately $2.6 billion, including the vendor financing agreements.
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 component), financial support from the Globalstar partners, projected
service provider payments, projected net service revenues from initial
operations, and anticipated payments from the sale of gateways and Globalstar
phones. 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.
5. VENDOR FINANCING LIABILITY
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing $100 million of vendor financing. The deferred payments
will accrue interest at a rate of 5.75% per annum, and will be capitalized to
principal quarterly. Globalstar will make eight equal principal payments on a
quarterly basis commencing on January 1, 2000 with final payment due October 1,
2001 accompanied by all then unpaid accrued interest.
6. SUBSEQUENT EVENTS
Capital Contribution from ChinaSat
On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised, an option to acquire 937,500 Globalstar
ordinary partnership interests for an aggregate purchase price of $18,750,000.
In addition, China Telecom has an option to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000. Globalstar had previously
F-26
<PAGE> 129
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted these options to China Telecom in connection with service provider
arrangements in China under which China Telecommunications Broadcast Satellite
Corporation ("ChinaSat") will act as the sole distributor of Globalstar service
in China.
Redemption and Conversion of CPEOs and RPPIs
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding Convertible Preferred Equivalent Obligations
("CPEOs"), $310 million aggregate principal amount. As of April 30, 1998, all
the holders of the CPEOs had converted their holdings into 20,123,230 shares of
GTL common stock (as adjusted for two-for-one stock split). As a result of such
conversion, Globalstar's RPPIs were converted into ordinary partnership
interests. In connection with the redemption, GTL issued 539,322 additional
shares of GTL common stock (as adjusted for two-for-one stock split) in
satisfaction of a required interest make-whole payment totaling approximately
$16.6 million. A corresponding dividend make-whole payment was also made by
Globalstar for which additional ordinary partnership interests were issued.
Prior to the conversion, interest on the CPEOs and, correspondingly, dividends
on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The
conversion of the CPEOs and the related RPPIs will result in annual cash savings
of approximately $20.1 million.
Purchase of Globalstar Partnership Interests
On April 24, 1998, Loral announced a series of transactions which, if
completed, will have the effect of (1) increasing Loral's fully diluted
ownership in Globalstar to approximately 42%, (2) establishing a Globalstar
service provider fund of $210 million for reinvestment in the Globalstar project
through the purchase of Globalstar gateways and user terminals and (3) the
acquisition by entities advised by or affiliated with Soros Fund Management
L.L.C. ("Soros") of 8.4 million shares of GTL common stock (as adjusted for
two-for-one stock split) currently held by Loral. The GTL shares proposed to be
acquired by Soros represent an indirect ownership in Globalstar of approximately
4%.
Loral has agreed to purchase 4.2 million partnership interests in
Globalstar from its original service provider partners. Partners participating
in this transaction will reinvest one-half of their proceeds, or $210 million in
the aggregate, into the Globalstar project by establishing an escrow account to
be used solely for the purchase of Globalstar gateways and handsets.
Concurrently, Soros will purchase from Loral 8.4 million shares of GTL common
stock (as adjusted for two-for-one stock split) that Loral currently owns.
In connection with the proposed series of transactions, GTL has agreed to
provide a shelf-registration for the shares sold to Soros within one year after
the purchase.
The consummation of these transactions is contingent upon the completion of
an equity financing by Loral and the satisfaction of all requirements under the
Globalstar partnership agreements and applicable laws and regulations.
GTL Two-For-One Stock Split
On June 8, 1998, 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 an approximate
two-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
an approximate four-for-one basis. All GTL share and per share amounts have been
restated to reflect the stock split.
In May 1998, Globalstar Capital and Globalstar co-issued $300 million
principal amount of 11 1/2% Senior Notes due 2005 under terms generally
consistent with the 11 3/8% Senior Notes, 11 1/4% Senior Notes and 10 3/4%
Senior Notes.
F-27
<PAGE> 130
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,
1997 and 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets 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, 1997 and 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 6, 1998
F-28
<PAGE> 131
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
--------- ------ ------------
(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-29
<PAGE> 132
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial information as of March 31,
1998 has been prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position for the interim period presented. Results of
this interim period are not necessarily indicative of the results to be expected
for the full year.
2. 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.
3. 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
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
("RPPIs"), 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 11 1/4%
Senior Notes due 2004 in a private offering. The notes are senior in right of
payment to Globalstar's RPPIs, may not be redeemed prior to June 2002 and are
subject to a prepayment premium prior to 2004. Interest is paid semi-annually.
10 3/4% $325 MILLION SENIOR NOTES DUE 2004
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 RPPIs, may not be redeemed prior to November
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, the 11 1/4% Senior Notes and
the 10 3/4% 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 March 31, 1998 and December 31,
1997, there were no borrowings outstanding under this agreement. At December 31,
1996 approximately $96 million was outstanding under this agreement.
4. SUBSEQUENT EVENTS (Unaudited)
In May 1998, Globalstar Capital and Globalstar co-issued $300 million
principal amount of 11 1/2% Senior Notes due 2005 under terms generally
consistent with the 11 3/8% Senior Notes, 11 1/4% Senior Notes and 10 3/4%
Senior Notes.
F-30
<PAGE> 133
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS -- (CONTINUED)
Redemption and Conversion of CPEOs
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount.
As of April 30, 1998, all the holders of the CPEOs had converted their holdings
into 20,123,230 shares of GTL common stock (as adjusted for two-for-one stock
split). As a result of such conversion, Globalstar's RPPIs were converted into
ordinary partnership interests. In connection with the redemption, GTL issued
539,322 additional shares of GTL common stock (as adjusted for two-for-one stock
split) in satisfaction of a required interest make-whole payment totaling
approximately $16.6 million. A corresponding dividend make-whole payment was
also made by Globalstar for which additional ordinary partnership interests were
issued. Prior to the conversion, interest on the CPEOs and, correspondingly,
dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum.
The conversion of the CPEOs and the related RPPIs will result in annual cash
savings of approximately $20.1 million.
GTL Two-For-One Stock Split
On June 8, 1998, 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 an approximate
two-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
an approximate four-for-one basis. All GTL share and per share amounts have been
restated to reflect the stock split.
F-31
<PAGE> 134
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, 1997 and 1996 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
March 6, 1998
(June 8, 1998, as to the first paragraph of Note 5)
F-32
<PAGE> 135
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $303,089 $302,037
Ordinary partnership interests............................ 297,417 158,038
Ordinary partnership warrants............................. 12,210 22,601
-------- --------
Total assets........................................... $612,716 $482,676
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.......................................... $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000
principal amount)......................................... 301,410 300,358
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1.00 par value, 200,000,000 shares
authorized (30,638,152 and 10,000,000 issued and
outstanding at December 31, 1997 and 1996,
respectively).......................................... 30,638 10,000
Paid-in capital........................................... 318,643 175,750
Warrants.................................................. 12,210 22,601
Accumulated deficit....................................... (51,864) (27,712)
-------- --------
Total shareholders' equity.................................. 309,627 180,639
-------- --------
Total liabilities and shareholders' equity............. $612,716 $482,676
======== ========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 136
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of
Globalstar, L.P........................................... $24,152 $15,080 $ 12,632
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests..................................... (21,202) (17,370)
Interest expense on convertible preferred equivalent
obligations............................................... 21,202 17,370
------- ------- --------
Net loss.................................................... $24,152.. $15,080 $ 12,632
======= ======= ========
Net loss per share -- basic and diluted..................... $ 0.43 $ 0.38 $ 0.32
======= ======= ========
Weighted average shares outstanding -- basic and diluted.... 55,924 40,000 40,000
======= ======= ========
</TABLE>
See notes to financial statements.
F-34
<PAGE> 137
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>
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
Exercise of warrants in March
1997.......................... 4,185 4,185 129,327 (22,601) 110,911
Exercise of rights in May
1997.......................... 1,131 1,131 28,845 29,976
Stock split..................... 15,317 15,317 (15,317)
Exercise of stock options....... 5 5 38 43
Warrants issued in connection
with Globalstar, L.P.'s
11 3/8% Senior Notes.......... 12,210 12,210
Net loss........................ (24,152) (24,152)
------ -------- -------- ------- -------- --------
Balance, December 31, 1997...... 30,638 $ 30,638 $318,643 $12,210 $(51,864) $309,627
====== ======== ======== ======= ======== ========
</TABLE>
See notes to financial statements.
F-35
<PAGE> 138
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (24,152) $ (15,080) $ (12,632)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P............................ 24,152 15,080 12,632
Increase in redemption value of redeemable preferred
partnership interests................................... (1,052) (858)
Dividends accrued on redeemable preferred partnership
interests in excess of cash received.................... (1,679)
Amortization of convertible preferred equivalent
obligations issue costs................................. 1,052 858
Change in operating liability -- Interest payable......... 1,679
--------- --------- ---------
Net cash provided by (used in) operating activities......... -- -- --
--------- --------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P..................................................... (140,930) (185,750)
Purchase of redeemable preferred partnership interests in
Globalstar, L.P......................................... (299,500)
Purchase of warrants in Globalstar, L.P................... (12,210) --
--------- --------- ---------
Net cash used in investing activities....................... (153,140) (299,500) (185,750)
--------- --------- ---------
Financing activities:
Net proceeds from sale of common stock.................... 43 185,750
Payment of debt offering costs............................ (10,500)
Sale of convertible preferred equivalent obligations...... 310,000
Repurchase of common stock from Globalstar, L.P........... (124)
Repayment of advances from Globalstar, L.P................ (66)
Offering proceeds used to repay initial public offering
costs deferred in prior period.......................... 190
Proceeds from issuance of warrants in connection with sale
of Globalstar, L.P.'s 11 3/8% Senior Notes.............. 12,210
Proceeds from exercise of guarantee warrants.............. 110,911
Proceeds from exercise of rights.......................... 29,976
--------- --------- ---------
Net cash provided by financing activities................... 153,140 299,500 185,750
--------- --------- ---------
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............................. $ 20,150 $ 14,833
========= =========
</TABLE>
See notes to financial statements.
F-36
<PAGE> 139
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, 1997, Loral had a direct and indirect ownership of
20,962,211 (40.1%) ordinary partnership interests of Globalstar, including
10,879,356 shares of GTL's outstanding common stock (as adjusted for two-for-one
stock splits, see Note 5).
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, 1997, GTL owns 15,319,076 (29.3%) of Globalstar's
outstanding 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 affect 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 or acquired from Globalstar in 1996
and 1997 (see Notes 4 and 5). 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-37
<PAGE> 140
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," ("SFAS 123") 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" ("APB 25").
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.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Dilutive
earnings per share is very similar to the previously reported fully diluted
earnings per share. The adoption of SFAS 128 had no effect on reported net loss
per share. Due to GTL's net losses for the years ended December 31, 1997, 1996
and 1995, diluted weighted average shares outstanding excludes assumed
conversion of GTL's Convertible Preferred Equivalent Obligations and the assumed
exercise of outstanding options and warrants as their effect would have been
anti-dilutive. Accordingly, basic and diluted weighted average shares
outstanding is based on the weighted average common shares outstanding for the
years ended December 31, 1997, 1996 and 1995.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), and in February 1998, issued Statement No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. SFAS 131 establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. SFAS 132 expands and
standardizes the disclosure requirements for pensions and other postretirement
benefits. GTL is required to adopt SFAS 130, SFAS 131 and SFAS 132 in 1998 and
the financial statements of GTL will reflect the appropriate disclosures.
F-38
<PAGE> 141
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SALE OF CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS AND PURCHASE OF
REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL issued 6.2 million shares of its 6 1/2% Convertible
Preferred Equivalent Obligations due 2006, par value $50 per share (the
"CPEOs"), for net proceeds of $299.5 million. As of December 31, 1997, 6.2
million shares of the CPEOs were outstanding, of which Loral holds 2.05 million
shares. The fair value of the CPEOs, based on quoted market prices, was
approximately $522.4 million and $329 million on December 31, 1997 and 1996,
respectively.
The CPEOs are subordinated to existing and future debt obligations of GTL,
are convertible into 20,123,336 shares of GTL common stock at a conversion price
of $15.41 per share (as adjusted for two-for-one stock splits, see Note 5),
subject to adjustment for certain antidilution events, bear interest at 6 1/2%
per annum, payable quarterly, are currently redeemable (at a premium which
declines over time) by GTL, 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 $299.5 million were used by GTL to purchase 4,769,230
Redeemable Preferred Partnership Interests ("RPPIs") in Globalstar. The RPPIs
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. At December 31, 1997, the RPPIs were subordinated to
Globalstar's existing indebtedness of approximately $1.2 billion principal
amount.
4. SENIOR NOTES AND WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 4,129,000 shares of GTL common stock (as adjusted for
two-for-one stock splits, see Note 5) in a private offering. GTL was allocated
$12,210,000 of the offering proceeds for these warrants which were used to
purchase warrants for Globalstar's ordinary partnership interests.
The warrants are exercisable on or after February 19, 1998 at a price of
$17.394 per share (as adjusted for two-for-one stock splits, see Note 5) and
expire on February 15, 2004. The warrants represent approximately 1.8% 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.
5. 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. On June 8, 1998,
GTL issued another two-for-one stock split to shareholders of record on May 29,
1998 in the form of a 100% stock dividend. Accordingly, all GTL share and per
share
F-39
<PAGE> 142
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
amounts, excluding the balance sheet and statements of shareholders' equity,
have been restated to reflect the stock splits. Prior to the two-for-one stock
splits GTL's equity securities and convertible securities were represented by
equivalent Globalstar partnership interests on an approximate one-for-one basis.
Globalstar's partnership interests were not affected by the GTL stock splits
and, accordingly, GTL's equity securities and convertible securities are now
represented by equivalent Globalstar partnership interests on an approximate
four-for-one basis.
On February 14, 1995, GTL completed an initial public offering of 40
million shares of common stock (as adjusted for two-for-one stock splits),
resulting in net proceeds of $185,750,000. Effective February 22, 1995, GTL
purchased 10 million ordinary partnership interests from Globalstar with the net
proceeds of the initial public offering. Also on February 22, 1995, GTL
repurchased at original cost, the 48,000 shares of common stock (as adjusted for
two-for-one stock splits) representing the initial capitalization it had sold to
Globalstar in 1994.
Partners in Globalstar have the right to convert their partnership
interests into shares of GTL on a one-for-four basis (as adjusted for
two-for-one stock splits) 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 148 million
shares (as adjusted for two-for-one stock splits) for this purpose.
Guarantee Warrants
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin and certain Globalstar partners guaranteed $206.3 million and $43.7
million of the Globalstar 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 issued warrants to purchase
16,741,272 shares of GTL common stock at $6.625 per share as follows (as
adjusted for two-for-one stock splits): Loral and SS/L 4,550,088 warrants,
Lockheed Martin 10,044,760 warrants and certain Globalstar partners 2,146,424
warrants. As part of this transaction, Globalstar issued GTL warrants to
purchase an additional 1,131,168 ordinary partnership interests of Globalstar.
In February 1997, GTL accelerated the vesting and exercisability of these
warrants and the holders exercised such warrants. In addition, GTL distributed
to the holders of its common stock rights to subscribe for and purchase
4,524,672 GTL shares for a price of $6.625 per share (as adjusted for
two-for-one stock splits) of which Loral received rights to purchase 636,688
shares and Loral agreed to purchase all shares not purchased upon exercise of
the rights. In March 1997, the warrants to purchase 16,741,272 shares of GTL
common stock (as adjusted for two-for-one stock splits) were exercised for
proceeds of approximately $110.9 million. In May 1997, GTL shareholders
exercised the rights to purchase 4,524,672 shares of GTL common stock (including
700,696 shares purchased by Loral) for $6.63 per share (as adjusted for
two-for-one stock splits) for proceeds of $30.0 million. GTL used the total
proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary partnership
interests for $26.50 per interest.
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
F-40
<PAGE> 143
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
for options exercised will in turn be used to purchase Globalstar ordinary
partnership interests under a four-for-one exchange arrangement (as adjusted for
two-for-one stock splits).
As described in Note 2, GTL accounts for its stock-based compensation using
the intrinsic value method in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and its related interpretations. Accordingly, no
compensation expense based on the fair value method has been recognized in GTL's
financial statements for stock-based compensation.
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share as though GTL had adopted the fair value method. 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 weighted average assumptions: expected life, six months
following vesting; stock volatility, 30%; risk free interest rates, 5.76% to
6.58% based on date of grant in 1997, 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 1997, 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 $685,000 ($0.01 per share, as adjusted for
two-for-one stock splits) to $24,837,000 ($0.44 per share, as adjusted for
two-for-one stock splits) in 1997, $223,000 ($0.01 per share, as adjusted for
two-for-one stock splits) to $15,303,000 ($0.38 per share, as adjusted for
two-for-one stock splits) in 1996 and $33,000 to $12,665,000 ($0.32 per share,
as adjusted for two-for-one stock splits) in 1995.
A summary of the status of the GTL stock option plan for the years ended
December 31, 1997, 1996 and 1995 is presented below (as adjusted for two-for-one
stock splits):
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Granted in 1995 (weighted average fair value of $1.333 per
share).................................................... 441,600 $ 4.1563
--------- --------
Outstanding at December 31, 1995............................ 441,600 4.1563
Granted (weighted average fair value of $4.51 per share).... 488,000 13.7250
Forfeited................................................... (4,800) 4.1563
--------- --------
Outstanding at December 31, 1996............................ 924,800 9.2060
Granted (weighted average fair value of $7.10 per share).... 527,800 21.9650
Forfeited................................................... (58,800) 11.1610
Exercised................................................... (10,360) 4.1563
--------- --------
Outstanding at December 31, 1997............................ 1,383,440 $14.0285
========= ========
Options exercisable at December 31, 1997.................... 95,240 $ 4.1563
========= ========
At December 31, 1996 and 1995 no options were exercisable.
</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
F-41
<PAGE> 144
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
December 31, 1997, 1,106,200 shares of common stock (as adjusted for two-for-one
stock splits) were available for future grant under the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1997 (as adjusted for two-for-one stock splits) :
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
-------------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.1563.................... 403,640 7.70 $ 4.1563 95,240 $4.1563
$12.5938 to $16.375........ 578,800 8.69 13.5720
$24.625.................... 401,000 9.75 24.6250
--------- -------- ------ -------
1,383,440 $ 14.0285 95,240 $4.1563
========= ======== ====== =======
</TABLE>
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 four shares of
common stock (as adjusted for two-for-one stock splits) issued to the optionee.
During 1997, the Company issued 10,360 shares of common stock to optionees at a
price of $4.1563 per share (as adjusted for two-for-one stock splits). The
Company purchased 2,590 Globalstar ordinary partnership interests with the
proceeds from the issuance of the common stock.
6. QUARTERLY FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997:
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P..... $4,380 $6,323 $7,278 $6,171
Net loss....................................... 4,380 6,323 7,278 6,171
Net loss per share -- basic and diluted*....... 0.11 0.11 0.12 0.10
1996:
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P..... $3,282 $3,942 $3,345 $4,511
Net loss....................................... 3,282 3,942 3,345 4,511
Net loss per share -- basic and diluted*....... 0.08 0.10 0.09 0.12
</TABLE>
- ---------------
* As adjusted for two-for-one stock splits, see Note 5.
F-42
<PAGE> 145
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $303,352 $303,089
Ordinary partnership interests............................ 290,529 297,417
Ordinary partnership warrants............................. 12,155 12,210
-------- --------
Total assets...................................... $606,036 $612,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.......................................... $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000
principal amount)......................................... 301,673 301,410
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 200,000,000 shares
authorized (30,651,649 shares and 30,638,152 shares
issued and outstanding at March 31, 1998 and December
31, 1997, respectively)................................ 30,652 30,638
Paid-in capital........................................... 319,031 318,643
Warrants.................................................. 12,155 12,210
Accumulated deficit....................................... (59,154) (51,864)
-------- --------
Total shareholders' equity............................. 302,684 309,627
-------- --------
Total liabilities and shareholders' equity........ $606,036 $612,716
======== ========
</TABLE>
- ---------------
Note: The December 31, 1997 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
F-43
<PAGE> 146
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P.............................. $ 7,290 $ 4,380
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests..................................... (5,300) (5,300)
Interest expense on convertible preferred equivalent
obligations............................................... 5,300 5,300
------- -------
Net loss.................................................... $ 7,290 $ 4,380
======= =======
Net loss per share -- basic and diluted..................... $ 0.12 $ 0.11
======= =======
Weighted average shares outstanding -- basic and diluted.... 61,282 41,304
======= =======
</TABLE>
See notes to condensed financial statements.
F-44
<PAGE> 147
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(7,290) $ (4,380)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. ......................... 7,290 4,380
Increase in redemption value of redeemable preferred
partnership interests.................................. (263) (263)
Amortization of convertible preferred equivalent
obligation costs....................................... 263 263
------- ---------
Net cash provided by (used in) operating activities......... -- --
------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P.................................................... (347) (110,911)
Purchase of warrants in Globalstar, L.P................... -- (12,210)
------- ---------
Net cash used in investing activities....................... (347) (123,121)
------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................ 347 --
Proceeds from issuance of warrants in connection with sale
of Globalstar, L.P.'s 11 3/8% Senior Notes............. -- 12,210
Proceeds from exercise of guarantee warrants.............. -- 110,911
------- ---------
Net cash provided by financing activities................... 347 123,121
------- ---------
Net increase (decrease) in cash and cash equivalents........ -- --
Cash and cash equivalents, beginning of period.............. -- --
------- ---------
Cash and cash equivalents, end of period.................... $ -- $ --
======= =========
Supplemental information:
Interest paid during the period........................... $ 5,037 $ 5,037
======= =========
</TABLE>
See notes to condensed financial statements.
F-45
<PAGE> 148
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 ("GTL") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of GTL, 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 SEC rules. GTL believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the latest Annual Report on
Form 10-K for GTL and Globalstar, L.P. ("Globalstar").
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, GTL completed an initial
public offering of 40,000,000 shares of common stock (as adjusted for
two-for-one stock split, see Note 4) resulting in net proceeds of $185,750,000.
Effective February 22, 1995, GTL purchased 21.3% of the ordinary partnership
interests of Globalstar, L.P. (a development stage limited partnership), 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.
GTL's sole business is acting as a general partner of Globalstar, a
development stage limited partnership, which is building and will operate a
worldwide, low-earth orbit satellite-based wireless digital telecommunications
system.
At March 31, 1998, GTL held 29.3% of the ordinary partnership interests and
100% of the Redeemable Preferred Partnership Interests ("RPPI's") in Globalstar.
GTL accounts for its investment in Globalstar on the equity method, recognizing
its allocated share of net loss in the period incurred. GTL's allocated share of
Globalstar's net loss applicable to ordinary partnership interests from the
period February 22, 1995 through March 31, 1998 was $59,154,000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" (SFAS 128") replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. The adoption of
SFAS 128 had no effect on reported net loss per share. Due to GTL's net losses
for the quarters ended March 31, 1998 and 1997, respectively, diluted weighted
average shares outstanding excludes the assumed conversion of GTL's 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") and the
assumed exercise of outstanding options and warrants as their effect would have
been anti-dilutive. Accordingly, basic and diluted weighted average shares
outstanding is based on the weighted average common shares outstanding during
the quarters ended March 31, 1998 and 1997.
Comprehensive Income
Effective January 1, 1998, GTL adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). During the
periods presented, GTL had no changes in equity from transactions or other
events and circumstances from non-owner sources. Accordingly, a statement of
comprehensive loss has not been provided as comprehensive loss equals net loss
for all periods presented.
F-46
<PAGE> 149
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUBSEQUENT EVENTS
Redemption and Conversion of CPEOs
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount.
As of April 30, 1998, all the holders of the CPEOs had converted their holdings
into 20,123,230 shares of GTL common stock (as adjusted for two-for-one stock
split). As a result of such conversion, Globalstar's RPPIs were converted into
ordinary partnership interests. In connection with the redemption, GTL issued
539,322 additional shares of GTL common stock (as adjusted for two-for-one stock
split) in satisfaction of a required interest make-whole payment totaling
approximately $16.6 million. A corresponding dividend make-whole payment was
also made by Globalstar for which additional ordinary partnership interests were
issued. Prior to the conversion, interest on the CPEOs and, correspondingly,
dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum.
The conversion of the CPEOs and the related RPPIs will result in annual cash
savings of approximately $20.1 million.
Purchase of Globalstar Partnership Interests
On April 24, 1998, Loral Space and Communications ("Loral") announced a
series of transactions which, if completed, will have the effect of (1)
increasing Loral's fully diluted ownership in Globalstar to approximately 42%,
(2) establishing a Globalstar service provider fund of $210 million for
reinvestment in the Globalstar project through the purchase of Globalstar
gateways and user terminals and (3) the acquisition by entities advised by or
associated with Soros Fund Management L.L.C. ("Soros") of 8.4 million shares of
GTL common stock (as adjusted for two-for-one stock split) currently held by
Loral. The GTL shares proposed to be acquired by Soros represent an indirect
ownership in Globalstar of approximately 4%.
In connection with the proposed series of transactions, GTL has agreed to
provide a shelf-registration for the shares sold to Soros within one year after
the purchase.
The consummation of these transactions is contingent upon the completion of
an equity financing by Loral and the satisfaction of all requirements under the
Globalstar partnership agreements and applicable laws and regulations.
GTL Two-For-One Stock Split
On June 8, 1998, GTL issued a two-for-one stock split to shareholders of
record on May 29, 1998 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts, excluding the balance sheet 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 an
approximate two-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 an approximate four-for-one basis. At GTL's annual meeting on April
28, 1998, the shareholders approved a proposal to increase the number of GTL
authorized common shares, $1.00 par value, to 600 million shares.
F-47
<PAGE> 150
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, 1997
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, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 6, 1998
(June 8, 1998, as to the second paragraph of Note 3)
F-48
<PAGE> 151
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P.............................. $ -- $ --
------- -------
Total assets............................................... $ -- $ --
======= =======
PARTNERS' CAPITAL:
Partnership interests (18,000 interests outstanding)....... $ -- $ --
------- -------
Total partners' capital.................................... $ -- $ --
======= =======
</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 OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Equity in net loss of Globalstar, L.P....................... $ -- $ -- $26,487
------- ------- -------
Net loss.................................................... $ -- $ -- $26,487
======= ======= =======
</TABLE>
See notes to financial statements.
F-50
<PAGE> 153
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 balances, December 31, 1994......................... $ 26,487
Net loss.................................................... (26,487)
--------
Capital balances, December 31, 1995......................... --
Net loss.................................................... --
--------
Capital balances, December 31, 1996......................... --
Net loss.................................................... --
--------
Capital balances, December 31, 1997......................... $ --
========
SUBSCRIPTIONS RECEIVABLE
Subscriptions receivable, December 31, 1994................. $ 15,000
Cash received............................................... (15,000)
--------
Subscriptions receivable, December 31, 1995, 1996 and
1997...................................................... $ --
========
</TABLE>
See notes to financial statements.
F-51
<PAGE> 154
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,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ -- $ -- $(26,487)
Equity in net loss of Globalstar, L.P................ -- -- 26,487
Net cash provided by (used in) operating activities....... -- -- --
-------- -------- --------
Investing activity:
Cash used for payment of subscription payable to
Globalstar, L.P.................................... -- -- (15,000)
-------- -------- --------
Financing activity:
Proceeds from capital subscriptions receivable....... -- -- 15,000
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... -- -- --
Cash and cash equivalents, beginning of period............ -- -- --
-------- -------- --------
Cash and cash equivalents, end of period.................. $ -- $ -- $ --
======== ======== ========
</TABLE>
See notes to financial statements.
F-52
<PAGE> 155
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 Loral Corporation ("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, 1997, LQSS held a 34.4% 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-53
<PAGE> 156
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, 1997, suspended losses representing LQSS's
unrecognized equity in Globalstar's net losses aggregated approximately
$59,685,000.
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, 1997,
Globalstar had 33,319,076 general and 19,000,000 limited ordinary partnership
interests outstanding.
On May 28, 1997, GTL issued a two-for-one stock split. On June 8, 1998, GTL
issued another two-for-one stock split. Prior to the two-for-one stock splits,
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 splits and,
accordingly, GTL's equity securities and convertible securities are now
represented by equivalent Globalstar partnership interests on an approximate
four-for-one basis. All GTL share and per share amounts have been restated to
reflect the stock splits.
On February 14, 1995, Globalstar Telecommunications Limited ("GTL")
completed an initial public offering of 40,000,000 shares of common stock (as
adjusted for two-for-one stock splits), 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 four-for-one basis (as adjusted for two-for-one stock
splits) 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.
F-54
<PAGE> 157
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN GLOBALSTAR -- CONTINUED
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Credit Agreement") with a group of banks. Lockheed Martin,
Qualcomm, and certain LQSS limited partners SS/L and DASA have individually
guaranteed $206.3 million, $21.9 million, $11.7 million, and $10.1 million of
the Credit Agreement. In addition, Loral agreed to indemnify Lockheed Martin for
any liability in excess of $150 million. In exchange for such guarantee and
indemnity, GTL issued warrants to purchase 16,741,272 shares of GTL common stock
at $6.63 per share (as adjusted for two for-one stock splits) as follows: Loral
and SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants, Qualcomm
1,468,524 warrants and DASA 677,900 warrants. As part of this transaction,
Globalstar issued GTL warrants to purchase an additional 1,131,168 ordinary
partnership interests of Globalstar. In February 1997, GTL accelerated the
vesting and exercisability of these warrants and the holders exercised such
warrants. In addition, GTL distributed to the holders of its common stock rights
to subscribe for and purchase 4,524,672 GTL shares for a price of $6.63 per
share (as adjusted for two-for-one stock splits) of which Loral received rights
to purchase 636,688 shares and Loral agreed to purchase all shares not purchased
upon exercise of the rights. In March 1997, the warrants to purchase 16,741,272
shares of GTL common stock were exercised for proceeds of approximately $110.9
million. In May 1997, GTL shareholders exercised the rights to purchase
4,524,672 shares of GTL common stock (including 700,696 shares purchased by
Loral) for $6.63 per share (as adjusted for two-for-one stock splits) for
proceeds of $30.0 million. GTL used the total proceeds of $140.9 million to
purchase 5,316,486 Globalstar ordinary partnership interests for $26.50 per
interest.
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, 1997, LQSS held directly
18,000,000 ordinary general partnership interests, or 34.4%, of the outstanding
52,319,076 ordinary partnership interests of Globalstar.
Globalstar has reserved additional ordinary partnership interests for
issuance for: 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 (622,410 interests). Assuming all such reserved interests had been
issued at December 31, 1997, LQSS's interest in Globalstar's ordinary
partnership interests would decrease to 30.6%.
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.
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.
On April 15, 1997, LQSS effected a six-for-one split of partnership
interests so that one LQSS partnership interest would represent an effective
ownership of one Globalstar partnership interest. All LQSS interest and per
interest amounts have been restated to reflect the six-for-one split.
F-55
<PAGE> 158
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
Globalstar Managing Partner's Allocation
Commencing after the initiation of Globalstar services, LQSS will receive a
managing partner's allocation equal to 2.5% of Globalstar's revenues up to $500
million, plus 3.5% of revenues in excess of $500 million. This managing
partner's allocation will be distributed to LQSS's general partner, LQP. Should
Globalstar incur a net loss in any year following commencement of services, the
allocation for that year will be reduced by 50% and Globalstar will be
reimbursed for allocation payments, if any, made in any prior quarter of such
year, sufficient to reduce the management allocation for such year to 50%. No
allocations have been received to date.
F-56
<PAGE> 159
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P............................... $ -- $ --
------- -------
Total assets................................................ $ -- $ --
======= =======
PARTNERS' CAPITAL:
Partnership interests (18,000 interests outstanding)........ $ -- $ --
------- -------
Total partners' capital..................................... $ -- $ --
======= =======
</TABLE>
- ---------------
Note: The December 31, 1997 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
F-57
<PAGE> 160
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Equity in net loss of Globalstar, L.P. ..................... $ -- $ --
------- -------
Net loss.................................................... $ -- $ --
======= =======
</TABLE>
See notes to condensed financial statements.
F-58
<PAGE> 161
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Loral/Qualcomm Satellite Services, L.P. ("LQSS") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of LQSS, include
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules. LQSS had no cash
transactions during the three months ended March 31, 1998 and 1997. Accordingly,
Statements of Cash Flows have not been presented. LQSS believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
It is suggested that these financial statements be read in conjunction with
LQSS's audited financial statements and notes thereto.
2. ORGANIZATION AND BACKGROUND
LQSS, a Delaware limited partnership with a December 31 fiscal year end,
was formed in November 1993. On March 23, 1994, LQSS received capital
subscriptions of $50 million and concurrently entered into a subscription
agreement to acquire 18,000,000 general ordinary partnership interests in
Globalstar, L.P. ("Globalstar") for $50 million.
LQSS's only activity is acting as the managing general partner of
Globalstar, a development stage limited partnership, which is building and
preparing to launch and operate a worldwide, low-earth orbit satellite-based
wireless digital telecommunications system.
At March 31, 1998, 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 March 31, 1998,
suspended losses representing LQSS's unrecognized equity in Globalstar's net
losses aggregated approximately $68.2 million.
GTL Two-For-One Stock Split
On June 8, 1998, 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 an approximate
two-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
an approximate four-for-one basis. All GTL share and per share amounts have been
restated to reflect the stock split.
F-59
<PAGE> 162
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 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.
CHINA TELECOM -- China Telecom (Hong Kong) Group Ltd., which was formerly wholly
owned by the Chinese Ministry of Posts and Telecommunications and is expected to
be wholly owned by China's newly formed Ministry of Information and Industry.
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.
COMMON STOCK -- the common stock, par value $1.00 per share, of GTL.
COMSAT -- Comsat Corporation, the U.S. signatory to Intelsat and Inmarsat.
G-1
<PAGE> 163
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.
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.
G-2
<PAGE> 164
FULL CONSTELLATION DATE -- the date on which Globalstar commences full
operations via a 48-satellite constellation.
GEO -- see geosynchronous orbit.
GHZ -- see gigahertz.
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 16,741,272 shares of Common
Stock, at a price of $6.625 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.
GSM -- Global System for Mobile Communications, a distributed open networking
architecture standard for digital wireless systems worldwide.
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.
G-3
<PAGE> 165
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.
INDENTURE -- the indenture pursuant to which the Notes will be issued.
INDEPENDENT REPRESENTATIVES -- representatives on the General Partner's
Committee not affiliated with Loral.
INITIAL PURCHASERS -- Bear, Stearns & Co. Inc., Lehman Brothers Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, BancAmerica Robertson Stephens, C.E.
Unterberg, Towbin and CIBC Oppenheimer.
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 -- May 20, 1998.
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.
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<PAGE> 166
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.
MSS PROCEEDING -- FCC proceeding for considering applications for authorization
to construct, launch and operate MSS systems in the United States.
MEGAHERTZ (MHZ) -- a unit of frequency equal to one million cycles per second.
MERGER -- the merger of Loral Corporation with and into a subsidiary of Lockheed
Martin.
MERGER AGREEMENT -- agreement entered into on January 7, 1996 pursuant to which
Lockheed Martin acquired Old Loral Corporation.
MOBILE SATELLITE SERVICES (MSS) -- services transmitted via satellites to
provide mobile telephone, fixed telephone, paging, messaging, facsimile, data
and position location services directly to users.
MOTOROLA -- Motorola, Inc.
NCRP -- National Council on Radiation Protection and Measurements.
ODYSSEY(TM) -- a medium-earth orbit satellite-based telecommunications system
proposed by TRW, Inc., to operate in the MSS Above 1 GHz Service frequencies.
See MSS applicant.
OFFERING -- the offering of Notes pursuant to the Offering Memorandum.
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.
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 (RPPI) -- Interests in Globalstar acquired by
GTL in connection with its issuance of CPEOs.
PUBLIC SWITCHED TELEPHONE NETWORK (PSTN) -- the complete public telephone system
including telephones, local and trunk lines and exchanges.
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QUALCOMM -- QUALCOMM Incorporated, a Delaware corporation, and its subsidiaries
and affiliates. Qualcomm, a leader in CDMA technology, has successfully
implemented CDMA in multi-user cellular communications applications and owns and
operates OmniTRACS, an international satellite-based truck fleet and position
location service.
RAS -- see Radio Astronomy Service.
RDSS -- see Radio Determination Satellite Service.
RADIO ASTRONOMY SERVICE (RAS) -- a service involving the reception of radio
waves of cosmic origin.
RADIO DETERMINATION SATELLITE SERVICE (RDSS) -- a service using one or more
satellites for radio determination; a function of a LEO system that allows users
to pinpoint the location of their handset or the handset of another user.
RADIO FREQUENCY SPECTRUM -- a portion of the electromagnetic spectrum that
includes electromagnetic waves at frequencies below the infrared frequencies and
usually above 20 KHz. See also electromagnetic spectrum.
RPPIS -- Redeemable Preferred Partnership Interests in Globalstar.
SOCCS -- see Satellite Operations Control Center.
SS/L -- Space Systems/Loral, Inc. is a Delaware corporation 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.
10 3/4% INDENTURE -- the indenture governing the 10 3/4% Senior Notes due 2004
of the Issuers that were issued in October 1997.
10 3/4% SENIOR NOTES -- the $325,000,000 aggregate principal amount of 10 3/4%
Senior Notes due 2004 of the Issuers that were issued in October 1997.
G-6
<PAGE> 168
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.
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
$17.394 per share, would entitle the holders thereof to acquire an aggregate of
4,129,000 shares of Common Stock.
WORLD ADMINISTRATIVE RADIO CONFERENCE (WARC) -- an ITU conference for adopting
international allocations for radio frequencies and satellite orbit locations.
WORLD RADIOCOMMUNICATION CONFERENCE (WRC) -- since 1993, the successor to the
World Administrative Radio Conference.
YUZHNOYE -- Yuzhnoye NPO Yuzhnoye, a Ukraine launch vehicle manufacturer.
References to corporate entities include their subsidiaries unless
otherwise specified.
G-7
<PAGE> 169
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 Mail (Eligible Institutions Only) By Hand or Overnight Delivery
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 October 11, 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> 170
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, Inc., 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 Amendment to Amended and Restated Agreement of Limited
Partnership of Globalstar L.P., dated as of April 8, 1998,
among Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, Telesat Limited, AirTouch
Satellite Services, Inc., San Giorgio S.p.A., Dacom
International, Loral Space & Communications Ltd., Loral/DASA
Globalstar, L.P., TE.S.A.M., and Vodastar Satellite Services
Limited++
3.3 Certificate of Incorporation of Globalstar Capital.****
3.4 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.***
</TABLE>
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<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
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 Corporation's 10 3/4%
Senior Notes due 2004.*****
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital's 11 1/2% Senior Notes due 2005.+
5.1 Opinion of Willkie Farr & Gallagher.+
8.1 Opinion of Willkie Farr & Gallagher (included with Exhibit
5.1).+
10.1 Subscription Agreements by and between Globalstar, and each
of AirTouch Communications, Alcatel Spacecom, Loral General
Partner, Inc., Hyundai/Dacom and Vodastar Limited.*
10.2 Subscription Agreement by and between Globalstar and
Loral/Qualcomm Satellite Services, L.P.*
10.3 Contract between Globalstar, L.P. 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
The Chase Manhattan 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 The Chase Manhattan Bank, as Administrative
Agent.*****
10.9 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase shares of Common Stock of Globalstar
Telecommunications Limited.***
10.10 Registration Rights Agreement dated March 6, 1996 relating
to the Globalstar Telecommunications Limited's 6 1/2%
Convertible Preferred Equivalent Obligations due 2006**
10.11 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 1,032,250 shares of
Common Stock issued in connection therewith.***
10.12 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004.****
10.13 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004.*****
10.14 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital's 11 1/2% Senior Notes
due 2005.+
12.1 Statement Regarding Computation of Ratios.++
12.2 Statement Regarding Computation of Ratios.++
23.1 Consent of Deloitte & Touche LLP.+
23.2 Consent 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 relating to the 11 1/2%
Notes.++
</TABLE>
II-2
<PAGE> 172
- ---------------
* 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 Registration Statement on Form
S-4 (No. 333-25461).
***** Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-41229).
+ Filed herewith.
++ Previously filed.
(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
II-3
<PAGE> 173
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-4
<PAGE> 174
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 JULY 13, 1998.
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/ ERIC J. ZAHLER
-----------------------------------
Eric J. Zahler
Vice President
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>
* Chairman of the Board July 13, 1998
- --------------------------------------------------- (Principal Executive Officer)
BERNARD L. SCHWARTZ
/s/ ERIC J. ZAHLER Vice President and Director July 13, 1998
- ---------------------------------------------------
ERIC J. ZAHLER
*By: /s/ ERIC J. ZAHLER
---------------------------------------------
ERIC J. ZAHLER
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 175
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 JULY 13, 1998.
GLOBALSTAR CAPITAL CORPORATION
By: /s/ ERIC J. ZAHLER
-----------------------------------
Eric J. Zahler
Vice President and Secretary
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>
* Chairman of the Board and Chief July 13, 1998
- --------------------------------------------------- Executive Officer (Principal
BERNARD L. SCHWARTZ Executive Officer)
* President and Director July 13, 1998
- ---------------------------------------------------
GREGORY J. CLARK
* Vice President, Secretary and July 13, 1998
- --------------------------------------------------- Director
ERIC J. ZAHLER
* Senior Vice President (Principal July 13, 1998
- --------------------------------------------------- Financial Officer)
MICHAEL P. DEBLASIO
* Vice President and Controller July 13, 1998
- --------------------------------------------------- (Principal Accounting Officer)
HARVEY B. REIN
*By: /s/ ERIC J. ZAHLER
---------------------------------------------
ERIC J. ZAHLER
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
<S> <C> <C>
3.1 Amended and Restated Agreement of Limited Partnership of
Globalstar, dated as of March 6, 1996, among Loral/Qualcomm
Satellite Services, L.P., Globalstar Telecommunications
Limited, AirTouch Satellite Services, Inc., 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 Amendment to Amended and Restated Agreement of Limited
Partnership of Globalstar L.P., dated as of April 8, 1998,
among Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, Telesat Limited, AirTouch
Satellite Services, Inc., San Giorgio S.p.A., Dacom
International, Loral Space & Communications Ltd., Loral/DASA
Globalstar, L.P., TE.S.A.M., and Vodastar Satellite Services
Limited++
3.3 Certificate of Incorporation of Globalstar Capital.****
3.4 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 Corporation's 10 3/4%
Senior Notes due 2004.*****
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital's 11 1/2% Senior Notes due 2005.+
5.1 Opinion of Willkie Farr & Gallagher.+
8.1 Opinion of Willkie Farr & Gallagher (included with Exhibit
5.1).+
10.1 Subscription Agreements by and between Globalstar, and each
of AirTouch Communications, Alcatel Spacecom, Loral General
Partner, Inc., Hyundai/Dacom and Vodastar Limited.*
10.2 Subscription Agreement by and between Globalstar and
Loral/Qualcomm Satellite Services, L.P.*
10.3 Contract between Globalstar, L.P. 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
The Chase Manhattan 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 The Chase Manhattan Bank, as Administrative
Agent.*****
10.9 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase shares of Common Stock of Globalstar
Telecommunications Limited.***
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
<S> <C> <C>
10.10 Registration Rights Agreement dated March 6, 1996 relating
to the Globalstar Telecommunications Limited's 6 1/2%
Convertible Preferred Equivalent Obligations due 2006**
10.11 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 1,032,250 shares of
Common Stock issued in connection therewith.***
10.12 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004.****
10.13 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004.*****
10.14 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital's 11 1/2% Senior Notes
due 2005.+
12.1 Statement Regarding Computation of Ratios.++
12.2 Statement Regarding Computation of Ratios.++
23.1 Consent of Deloitte & Touche LLP.+
23.2 Consent 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 relating to the 11 1/2%
Notes.++
</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 Registration Statement on Form
S-4 (No. 333-25461).
***** Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-41229).
+ Filed herewith.
++ Previously filed.
<PAGE> 1
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION,
Issuers
11-1/2% Senior Notes due 2005
INDENTURE
Dated as of May 20, 1998
THE BANK OF NEW YORK,
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
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.
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
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. Cancelation ............................ 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
i
<PAGE> 4
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
ii
<PAGE> 5
SECTION 6.09. Trustee May File Proofs of Claim ....... 54
SECTION 6.10. Priorities ............................. 55
SECTION 6.11. Undertaking for Costs .................. 55
SECTION 6.12. Waiver of Stay or Extension Laws ....... 55
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee ...................... 56
SECTION 7.02. Rights of Trustee ...................... 57
SECTION 7.03. Individual Rights of Trustee ........... 58
SECTION 7.04. Trustee's Disclaimer ................... 58
SECTION 7.05. Notice of Defaults ..................... 58
SECTION 7.06. Reports by Trustee to Holders .......... 58
SECTION 7.07. Compensation and Indemnity ............. 59
SECTION 7.08. Replacement of Trustee ................. 60
SECTION 7.09. Successor Trustee by Merger ............ 61
SECTION 7.10. Eligibility; Disqualification .......... 61
SECTION 7.11. Preferential Collection of Claims
Against Issuers ............. 61
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance .................. 62
SECTION 8.02. Conditions to Defeasance ............... 63
SECTION 8.03. Application of Trust Money ............. 64
SECTION 8.04. Repayment to Issuers ................... 64
SECTION 8.05. Indemnity for Government Obligations ... 65
SECTION 8.06. Reinstatement .......................... 65
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ............. 65
SECTION 9.02. With Consent of Holders ................ 66
SECTION 9.03. Compliance with Trust Indenture ........ 67
SECTION 9.04. Revocation and Effect of Consents
and Waivers ................. 67
iii
<PAGE> 6
SECTION 9.05. Notation on or Exchange of Securities .. 68
SECTION 9.06. Trustee To Sign Amendments ............. 68
SECTION 9.07. Payment for Consent .................... 68
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties .............................. 68
SECTION 10.02. Limitation on Liability ................. 71
SECTION 10.03. Successors and Assigns .................. 71
SECTION 10.04. No Waiver ............................... 71
SECTION 10.05. Modification ............................ 71
SECTION 10.06. Release of Subsidiary Guarantor ......... 72
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls ............ 72
SECTION 11.02. Notices ................................. 72
SECTION 11.03. Communication by Holders with Other
Holders ................... 73
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent ...... 73
SECTION 11.05. Statements Required in Certificate
or Opinion ................ 73
SECTION 11.06. When Securities Disregarded ............. 74
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar ................. 74
SECTION 11.08. Legal Holidays .......................... 74
SECTION 11.09. Governing Law ........................... 74
SECTION 11.10. No Recourse Against Others .............. 74
SECTION 11.11. Successors .............................. 75
SECTION 11.12. Multiple Originals ...................... 75
SECTION 11.13. Table of Contents; Headings ............. 76
Exhibit A - Form of Security
Rule 144A Appendix
iv
<PAGE> 7
INDENTURE dated as of May 20, 1998, among
Globalstar, L.P., a Delaware limited partnership
("Globalstar"), Globalstar Capital Corporation, a
Delaware corporation ("Globalstar Capital" and,
together with Globalstar, the "Issuers") and The Bank
of New York, a New York banking corporation (the
"Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuers'
11-1/2% Senior Notes due 2005 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Issuers' 11-1/2%
Senior Notes due 2005 (the "Exchange Securities") and if and when issued
pursuant to a private exchange for Initial Securities, the Issuers' 11-1/2%
Senior Notes due 2005 (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.
<PAGE> 8
2
"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.
"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
<PAGE> 9
3
Debt or redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit
agreements (which may include or consist of revolving credits) between
Globalstar, Globalstar Capital or any Restricted Subsidiary and one or more
banks or other financial institutions providing financing for the business of
Globalstar and its Restricted Subsidiaries.
"Build-out" means the construction, acquisition, improvement,
operation and development (including all costs related thereto) of the
Globalstar System, until such time as Globalstar shall have (i) constructed at
least 64 satellites for use in the Globalstar System; (ii) launched or attempted
to launch (through "intentional ignition") at least 56 satellites for use in the
Globalstar System; and (iii) commenced commercial service of the Globalstar
System with at least 44 satellites in orbit and Operating.
"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
<PAGE> 10
4
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 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
<PAGE> 11
5
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
<PAGE> 12
6
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 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
<PAGE> 13
7
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 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
<PAGE> 14
8
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 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 $325,000,000 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
<PAGE> 15
9
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.
"Equity Offering" means (i) any sale or issuance for cash by
Globalstar of Globalstar partnership interests to any Person that, as of the
Business Day immediately before and the Business Day immediately after the day
of such sale, has, or whose Parent has, a total market capitalization of at
least $1.0 billion on a consolidated basis, after giving effect to such sale
(including any Indebtedness incurred in connection with such sale) and (ii) any
offering of GTL common stock in an underwritten sale to the public pursuant to a
registration statement (other than on Form S-8 or any other form relating to
securities issuable under any benefit plan of Globalstar) that is declared
effective by the Commission, all of the net cash proceeds of which sale are
applied promptly toward the purchase of Globalstar partnership interests. For
purposes of clause (i) of this paragraph, any issuance or sale of Globalstar
partnership interests shall be deemed to be "for cash" only to the extent that
the net cash proceeds of such issuance or sale exceed the value of any amounts
paid (in cash or otherwise) by Globalstar to redeem Globalstar partnership
interests during the past six months.
"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 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
<PAGE> 16
10
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 May 15, 1998, 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 "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.
<PAGE> 17
11
"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.
"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.
<PAGE> 18
12
"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 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
<PAGE> 19
13
to Standard & Poor's Ratings Group (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); (iv) any banker's acceptances or money
market deposit accounts issued or offered by an Eligible Institution; (v)
repurchase obligations with a term of not more than 7 days for Government
Securities entered into with an Eligible Institution; and (vi) any fund
investing exclusively in investments of the types described in clauses (i)
through (v) above.
"Net Available Proceeds" from any Asset Disposition by any
Person means cash or Marketable Securities received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to such properties or assets) therefrom by
such Person, net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses Incurred and all federal, state, provincial, foreign
and local taxes (including taxes payable upon payment or other distribution of
funds from a foreign subsidiary to Globalstar or another Subsidiary of
Globalstar) required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition, (iv) appropriate amounts to be provided by
such Person or any Restricted Subsidiary thereof, as the case may be, as a
reserve in accordance with GAAP against any liabilities associated with such
assets and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each case
as determined by the General Partners' Committee of Globalstar, in its
reasonable good faith judgment evidenced by a board resolution filed with the
Trustee; provided, however, that any reduction in such reserve within twelve
months following the consummation of such Asset Disposition will be treated for
all purposes of this Indenture and the Securities as a new Asset Disposition at
the time of such reduction with Net
<PAGE> 20
14
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 Securities register on the date of the Offer offering
to
<PAGE> 21
15
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.
"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.
<PAGE> 22
16
"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.
"Parent" means, with regard to any Person, any other entity of
which such Person is a Subsidiary.
"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 Security which is due or overdue or is
to become due at the relevant time.
<PAGE> 23
17
"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.
"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
<PAGE> 24
18
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.
"Securities" means the Securities issued under this Indenture.
<PAGE> 25
19
"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 or obligations shall be
designated Special Preferred Obligations.
<PAGE> 26
20
"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).
"10 3/4 Indenture" means the indenture dated as of October 15,
1997, among Globalstar, Globalstar Capital and
<PAGE> 27
21
The Bank of New York, as trustee, pursuant to which the 10 3/4 Notes were
issued.
"10 3/4 Notes" means the $325,000,000 aggregate principal
amount of 10 3/4% Senior Notes due 2004 of the Issuers, together with any
Exchange Securities or Private Exchange Securities (as such terms are defined in
the 10 3/4 Indenture) issued pursuant to the 10 3/4 Indenture.
"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
<PAGE> 28
22
reason to be Non-Recourse Debt, such event shall be deemed to constitute an
Incurrence of such Debt by Globalstar and such Unrestricted Subsidiary shall be
deemed to be a Restricted Subsidiary for purposes of Section 4.04 and (c) such
Subsidiary and each Subsidiary of such Subsidiary has at least one director on
its board of directors that is not a director or executive officer of Globalstar
or any Restricted Subsidiary and (ii) any Subsidiary of an Unrestricted
Subsidiary. The General Partner's Committee may designate any Subsidiary to be
an Unrestricted Subsidiary unless such Subsidiary or any Subsidiary of such
Subsidiary owns any Capital Stock or Debt of, or owns or holds any Lien on any
property of, Globalstar or any other Subsidiary of Globalstar which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) immediately after giving
effect to such designation, Globalstar could incur an additional $1.00 of Debt
pursuant to Section 4.03(a) and provided further, however, that Globalstar could
make a Restricted Payment in an amount equal to the greater of the fair market
value and the book value of such Subsidiary pursuant to Section 4.05 and such
amount is thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments thereunder.
The General Partners' Committee may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary, provided that, immediately after giving effect to such
designation, Globalstar could incur an additional $1.00 of Debt pursuant to
Section 4.03(a). Notwithstanding the foregoing, neither Globalstar Capital nor
any of its Subsidiaries shall be Unrestricted Subsidiaries.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership 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.
<PAGE> 29
23
"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.
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
<PAGE> 30
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SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the Commission;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"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
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25
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
(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 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.
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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 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
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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) 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
<PAGE> 34
28
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 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
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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 cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Issuers or an Affiliate of the Issuers holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee and the Issuers receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest and Liquidated Damages (if any)
payable on that date with respect to the Securities (or portions thereof) to be
redeemed or maturing, as the case may be, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest and
Liquidated Damages (if any) on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive
Securities are ready for delivery, the Issuers may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Issuers
consider appropriate for temporary Securities. Without unreasonable delay, the
Issuers shall prepare and the Trustee shall authenticate definitive Securities
and deliver them in exchange for temporary Securities.
SECTION 2.10 Cancelation. The Issuers at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
may, but shall not be required to, destroy (subject to the record retention
requirements of the Exchange Act) all Securities surrendered for registration of
transfer, exchange, payment or cancelation unless the Issuers direct the Trustee
to deliver canceled Securities to
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the Issuers. The Issuers may not issue new Securities to replace Securities they
have redeemed, paid or delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Issuers default in a
payment of interest and Liquidated Damages (if any) on the Securities, the
Issuers shall pay defaulted interest and Liquidated Damages (if any) (plus
interest on such defaulted interest and Liquidated Damages (if any) to the
extent lawful) in any lawful manner. The Issuers may pay the defaulted interest
and Liquidated Damages (if any) to the persons who are Securityholders on a
subsequent special record date. The Issuers shall fix or cause to be fixed any
such special record date and payment date to the reasonable satisfaction of the
Trustee and shall promptly mail to each Securityholder a notice that states the
special record date, the payment date and the amount of defaulted interest and
Liquidated Damages (if any) to be paid.
SECTION 2.12. CUSIP Numbers. The Issuers in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Issuers shall promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Issuers elect to
redeem Securities pursuant to paragraph 5 of the Securities, they shall notify
the Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Issuers shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
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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 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;
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(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 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 inter est and
Liquidated Damages (if any) on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Issuers to the Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Issuers shall execute and the Trustee
shall authenticate for the Holder (at the Issuers' expense) a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
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ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Issuers shall
promptly pay the principal of and interest and Liquidated Damages (if any) on
the Securities on the dates and in the manner provided in the Securities and in
this Indenture. Principal, interest and Liquidated Damages (if any) shall be
considered paid on the date due if on such date the Trustee or the Paying Agent
holds in accordance with this Indenture money sufficient to pay all principal,
interest and Liquidated Damages (if any) then due.
The Issuers shall pay interest on overdue principal at the
rate specified therefor in the Securities, and shall pay interest on overdue
installments of interest and Liquidated Damages (if any) at the same rate to the
extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Issuers
may not be, or may not be required to remain, subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuers shall file
with the Commission (unless the Commission will not accept such filing) and
provide the Trustee and Holders of the Securities with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.
In addition, for so long as any Securities remain outstanding,
the Issuers shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuers'
compliance with any of their covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
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SECTION 4.03. Limitation on Consolidated Debt. (a) The Issuers
may not, and may not permit any Restricted Subsidiary to, Incur any Debt;
provided, however, that the Issuers or any Restricted Subsidiary may Incur Debt
so long as the ratio of (i) the aggregate consolidated principal amount of Debt
of the Issuers and the Restricted Subsidiaries outstanding as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect to
the Incurrence of such Debt and any other Debt Incurred since such balance sheet
date and the receipt and application of the proceeds thereof to (ii)
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters ending on the date of such balance sheet determined on a pro forma
basis as if any such Debt had been Incurred and the proceeds thereof had been
applied at the beginning of such four fiscal quarters, would be less than 4.0 to
1.0 (the "Debt Coverage Ratio").
(b) Notwithstanding the foregoing limitation, the Issuers and
any Restricted Subsidiary may Incur the following:
(i) Debt Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements to finance the Build-out; provided, however, that Debt
Incurred pursuant to this clause (i), other than Debt Incurred pursuant
to a Bank Credit Agreement or a Vendor Financing Facility, shall not
have a Stated Maturity on or earlier than the Stated Maturity of the
Securities, and shall not be mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or be redeemable at the option of
the holder thereof, in whole or in part, on or prior to the Stated
Maturity of the Securities;
(ii) Debt under any one or more Bank Credit Agreements or
other agreements or arrangements to finance working capital
requirements of Globalstar and any Refinancing Debt in respect of such
Debt; provided, however, at the time of the Incurrence of such Debt and
after giving effect thereto, the aggregate principal amount of all Debt
Incurred pursuant to this clause (ii) and then outstanding shall not
exceed $100 million;
(iii) Debt owed by the Issuers to any Wholly-Owned Restricted
Subsidiary or Debt owed by any Wholly-Owned Restricted Subsidiary to
the Issuers or to another Wholly-Owned Restricted Subsidiary; provided,
however, that upon either (x) the transfer or other
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disposition by such Wholly-Owned Restricted Subsidiary or the Issuers
of any Debt so permitted to a Person other than the Issuers or another
Wholly-Owned Restricted Subsidiary or (y) the issuance (other than
directors' qualifying shares), sale, lease, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger) of such Wholly-Owned Restricted Subsidiary to a Person other
than the Issuers or another such Wholly-Owned Restricted Subsidiary,
the provisions of this clause (iii) shall no longer be applicable to
such Debt and such Debt shall be deemed to have been Incurred by the
Issuers thereof at the time of such issuance, sale, lease, transfer or
other disposition;
(iv) Refinancing Debt Incurred to Refinance Debt Incurred
pursuant to the first paragraph of this covenant or pursuant to clause
(i), (vi) or (vii) or this clause (iv) of this paragraph;
(v) Debt consisting of Permitted Interest Rate
and Currency Protection Agreements;
(vi) Debt represented by the Securities;
(vii) Debt outstanding on the Issue Date (other than Debt
described in clause (i), (ii), (iii), (vi) or (viii) of this
paragraph);
(viii) Debt (including Capital Lease Obligations) of
Globalstar or any Restricted Subsidiary financing the purchase, lease
or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any
Person owning such assets), in each case Incurred no more than 180 days
after such purchase, lease or improvement of such property and any
Refinancing Debt in respect of such Debt, provided, however, that (x)
the amount of such Debt (net of original issue discount) does not
exceed, at the time initially Incurred, 90% of the fair market value of
such acquired property or equipment and (y) at the time of the
Incurrence of such Debt and after giving effect thereto, the aggregate
amount of all Debt Incurred pursuant to this clause (viii) and then
outstanding shall not exceed $100 million;
(ix) Debt consisting of performance and other similar bonds
and reimbursement obligations Incurred in the ordinary course of
business securing the performance of contractual, franchise or license
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obligations of the Issuers or a Restricted Subsidiary, or in respect of
a letter of credit obtained to secure such performance; and
(x) Debt in an aggregate principal amount which, together with
all other Debt of the Issuers and the Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Debt permitted
by clauses (i) through (ix) above or Section 4.03(a)) does not exceed
$50 million.
(c) For purposes of determining compliance with this Section
4.03, in the event that an item of Debt meets the criteria of more than one of
the types of Debt the Issuers and the Restricted Subsidiaries are permitted to
Incur, the Issuers or such Restricted Subsidiary, as the case may be, shall have
the right, in their sole discretion, to classify such item of Debt at the time
of its Incurrence and shall only be required to include the amount and type of
such Debt under the clause permitting the Debt as so classified.
SECTION 4.04. Future Guarantors. In the event that, after the
Issue Date, Globalstar shall acquire or create a Subsidiary, Globalstar shall
cause such Subsidiary (unless such Subsidiary is a Transitory Equipment
Subsidiary or is an Unrestricted Subsidiary) to become a Subsidiary Guarantor
and to Guarantee the Securities pursuant to a Subsidiary Guaranty.
SECTION 4.05. Limitation on Restricted Payments. (a) The
Issuers may not, and may not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time such Issuers or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) Globalstar is not able to Incur an additional $1.00 of
Debt pursuant to Section 4.03(a); or
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(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
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made (and treated as a Restricted Payment) by Globalstar or
any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Globalstar may (i) subject
to clause (vi) below, pay any dividend on Capital Stock of any class within 60
days after the declaration thereof if, on the date when the dividend was
declared, Globalstar could have paid such dividend in accordance with the
foregoing provisions; (ii) repurchase any shares of its Capital Stock or options
to acquire its Capital Stock from Persons who were formerly officers or
employees of Globalstar; provided, however, that the aggregate amount of all
such repurchases made pursuant to this clause (ii) shall not exceed $2 million,
plus the aggregate cash proceeds received by Globalstar since the Issue Date on
sale of its Capital Stock or options to acquire its Capital Stock to members,
officers, managers and employees of Globalstar or any of its Subsidiaries; (iii)
Refinance, and permit its Restricted Subsidiaries to Refinance, any Debt
otherwise permitted to be Refinanced by clause (iv) of Section 4.03(b); (iv) so
long as Globalstar is treated as a partnership for U.S. federal income tax
purposes, make distributions in respect of members' or partners' income tax
liability with respect to Globalstar in an amount not to exceed the Tax Amount;
(v) make distributions to GTL to pay GTL's ordinary and reasonable operating
expenses related to Globalstar, as set forth in an Officers' Certificate
delivered to the Trustee; (vi) pay any scheduled dividend on Special Preferred
Obligations; provided, however, that at the time of payment of any such dividend
(other than a dividend paid only by distributions of additional Special
Preferred Obligations), no Default shall have occurred and be continuing (or
result therefrom); (vii) make any Restricted Payment by exchange for, or out of
the proceeds of the substantially concurrent sale of, or capital contribution in
respect of, Capital Stock of Globalstar (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of Globalstar or an employee
stock ownership plan or to a trust established by Globalstar or any of its
Subsidiaries for the benefit of their employees); (viii) contribute its
Investment in Globaltel Russia to an Unrestricted Subsidiary; and (ix) make
other Restricted Payments in an aggregate amount not to exceed $10 million.
(c) Any Restricted Payment made pursuant to clauses (ii),
(iii), (iv), (vi), (vii), (viii) and (ix) of Section 4.05(b) shall be excluded
from the calculation of the aggregate amount of Restricted Payments made since
the Issue
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Date; provided, however, that the Net Cash Proceeds from the issuance of Capital
Stock pursuant to clauses (ii) and (vii) of Section 4.05(b) shall be excluded
from the calculation of amounts under clause (B) of Section 4.05(a)(3).
SECTION 4.06. Dividend and Other Payment Restrictions
Affecting Subsidiaries. (a) The Issuers may not, and may not permit any
Restricted Subsidiary, directly or indirectly, to create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the
Issuers or any of their Restricted Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by,
its profits;
(ii) pay any indebtedness owed to the Issuers or any
Restricted Subsidiary;
(iii) make loans or advances to the Issuers or any Restricted
Subsidiary; or
(iv) transfer any of its properties or assets to the Issuers
or any Restricted Subsidiary.
(b) Notwithstanding the foregoing, the Issuers may, and may
permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction (i) pursuant to any agreement in effect on the Issue Date; (ii)
pursuant to an agreement relating to any Acquired Debt, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person so acquired and its Subsidiaries; (iii) pursuant
to an agreement effecting a Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (i) or (ii) above or clause (iv) below,
provided, however, that the provisions contained in such Refinancing agreement
relating to such encumbrance or restriction are no more restrictive taken as a
whole (as determined in good faith by the Chief Financial Officer of Globalstar)
than the provisions contained in the predecessor agreement the subject thereof;
(iv) in the case
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of clause (iv) of Section 4.06(a), consisting of customary nonassignment
provisions entered into in the ordinary course of business in leases governing
leasehold interests, but only to the extent such provisions restrict the
transfer of the lease or the property thereunder; (vi) with respect to a
Restricted Subsidiary, imposed pursuant to an agreement which has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary; provided, however, that after
giving effect to such transaction no Default shall have occurred or be
continuing, that such restriction terminates if such transaction is not
consummated and that such consummation or abandonment of such transaction occurs
within one year of the date such agreement was entered into; (vii) imposed
pursuant to applicable law or regulations; (viii) imposed pursuant to this
Indenture and the Securities; or (ix) consisting of any restriction on the sale
or other disposition of assets or property securing Debt as a result of a
Permitted Lien on such assets or property.
SECTION 4.07. Asset Dispositions. (a) The Issuers may not, and
may not permit any Restricted Subsidiary to, directly or indirectly, make any
Asset Disposition unless: (i) Globalstar, Globalstar Capital or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration) of the shares and assets subject to such Asset
Disposition, as determined by the General Partners' Committee of Globalstar in
good faith and evidenced by a resolution filed with the Trustee; (ii) at least
80% of the consideration thereof received by Globalstar, Globalstar Capital or
such Restricted Subsidiary, as the case may be, consists of (a) cash or
Marketable Securities or (b) the assumption of Debt (other than Subordinated
Obligations) of Globalstar, Globalstar Capital or such Restricted Subsidiary and
the release of the Issuers and the Restricted Subsidiaries, as applicable, from
all liability on the Debt assumed; and (iii) all Net Available Proceeds, less
any amounts invested within 180 days of such disposition in assets that comply
with Section 4.12, are applied within 180 days of such disposition (A) first, to
the permanent repayment or reduction of Debt then outstanding under any Bank
Credit Agreement or Vendor Financing Facility, to the extent such 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
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Securities at 100% of their principal amount plus accrued and unpaid interest
and Liquidated Damages (if any) to the date of purchase thereon and, to the
extent required by the terms thereof, any other Debt of Globalstar, Globalstar
Capital or a Restricted Subsidiary that ranks pari passu with the Securities at
a price no greater than 100% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase and (C) third, to the extent of any
remaining Net Available Proceeds following the completion of the Offer to
Purchase, to the repayment of other Debt of Globalstar or Debt of a Restricted
Subsidiary, to the extent permitted under the terms thereof. To the extent any
Net Available Proceeds remain after such uses, Globalstar and the Restricted
Subsidiaries may use such amounts for any purposes not prohibited by this
Indenture. Notwithstanding the foregoing, these provisions shall not apply to
any Asset Disposition which constitutes a transfer, conveyance, sale, lease or
other disposition of all or substantially all of Globalstar's properties or
assets pursuant to Section 5.01(a).
(b) The Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.07. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.07, the Issuers shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations under this Section 4.07 by virtue
thereof.
SECTION 4.08. Transactions with Affiliates. (a) The Issuers
may not, and may not permit any Restricted Subsidiary, directly or indirectly,
to enter into any transactions (or series of related transactions) with an
Affiliate or Related Person of the Issuers (other than the Issuers or a
Wholly-Owned Restricted Subsidiary) (an "Affiliate Transaction") unless:
(i) such Affiliate Transaction is on terms that are no less
favorable to Globalstar, Globalstar Capital or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by Globalstar, Globalstar Capital or such Restricted
Subsidiary, as the case may be, with an unrelated Person; and
(ii) Globalstar delivers to the Trustee:
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(A) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $1 million
(other than financing transactions that are not vendor
financing transactions pursuant to a Vendor Financing
Facility) and entered into in connection with the Build-out, a
certificate of the Chief Executive Officer of Globalstar to
the effect that a majority of the disinterested limited
partners of Globalstar have approved such Affiliate
Transaction; provided, however, that there is at least one
disinterested limited partner at the time of such Affiliate
Transaction; provided further, however, that any limited
partner receiving any compensation in respect of its approval
shall be deemed not to be a disinterested limited partner; or
(B) (1) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $1 million, a
certificate of the Chief Executive Officer of Globalstar to
the effect that such Affiliate Transaction complies with
clause (i) above; and (2) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $10
million, an opinion as to the fairness to Globalstar,
Globalstar Capital or such Restricted Subsidiary, as the case
may be, of such Affiliate Transaction from a financial point
of view issued by an Independent Financial Advisor or, with
respect to telecommunications-related matters, a recognized
expert in the satellite telecommunications industry.
(b) Notwithstanding the foregoing Section 4.08(a), the
following shall be deemed not to be Affiliate Transactions:
(i) employee compensation arrangements entered into in the
ordinary course of business and approved by the General Partners'
Committee of Globalstar;
(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
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Capital Stock (other than Disqualified Stock) of Globalstar or any
Restricted Subsidiary; and
(v) an Affiliate or Related Person of the Issuers acting as
agent for the placement or acquisition of launch services or insurance
on behalf of the Issuers or any Restricted Subsidiary.
SECTION 4.09. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries. The Issuers may not, and may not permit any
Restricted Subsidiary to, issue, transfer, convey, sell or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary or securities convertible
or exchangeable into, or options, warrants, rights or any other interest with
respect to, Capital Stock of a Restricted Subsidiary to any person other than
Globalstar, Globalstar Capital or a Wholly-Owned Restricted Subsidiary except
(i) in a transaction consisting of a sale of all the Capital Stock of such
Restricted Subsidiary and that complies with the provisions of Section 4.07 to
the extent such provisions apply; (ii) if required, the issuance, transfer,
conveyance, sale or other disposition of directors' qualifying shares; (iii) in
a transaction in which, or in connection with which, an Issuer or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; and (iv) Disqualified Stock of a Restricted
Subsidiary Incurred to Refinance Disqualified Stock of such Restricted
Subsidiary; provided, however, that the amounts of the redemption obligations of
such Disqualified Stock shall not exceed the amounts of the redemption
obligations of, and such Disqualified Stock shall have redemption obligations no
earlier than those required by, the Disqualified Stock being Refinanced.
SECTION 4.10. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder of Securities shall have the right to require
that the Issuers repurchase such Holder's Securities at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and 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:
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(1) that a Change of Control has occurred and that such Holder
has the right to require the Issuers to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages
(if any) to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest and Liquidated
Damages (if any) on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such
Change of Control);
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuers, consistent
with this Section 4.10, that a Holder must follow in order to have its
Securities purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Issuers at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Trustee or the Issuers receive not later than one Business Day prior to
the purchase date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the
Issuers under this Section shall be delivered by the Trustee for cancelation,
and the Issuers shall pay 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
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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 $725 million, minus the aggregate
principal amount of Notes issued pursuant to the Initial Purchasers'
over-allotment option, of Debt permitted to be Incurred under this
Indenture (including the Debt outstanding at any time under the 11 3/8
Indenture, the 11 1/4 Indenture and the 10 3/4 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);
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by means
of a merger or consolidation with or into such Person or a Subsidiary
of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property owned by such Person or any of its Subsidiaries;
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(vi) Liens securing Debt Incurred pursuant to clause (viii) of
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.
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.
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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
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required to maintain pursuant to this Section 4.13, such proceeds shall
constitute "Insurance Proceeds". In addition, if the Issuers maintain any Cash
Insurance in satisfaction of any part of their obligations to maintain in-orbit
insurance pursuant to this Section 4.13, then upon the occurrence of the event
(i.e., the in-orbit failure) that would have entitled the Issuers to the payment
of insurance had the Issuers purchased insurance from an insurance provider, the
cash maintained in the Insurance Account shall constitute "Insurance Proceeds".
Promptly following the receipt of any Insurance Proceeds, the Issuers shall
apply such Insurance Proceeds in accordance with the provisions of Section 4.07;
provided, however, that Insurance Proceeds shall only be required to be so
applied to the extent that the aggregate amount of all Insurance Proceeds
received by the Issuers exceeds $5 million in any 12-month period.
SECTION 4.14. Compliance Certificate; Statement by Officers as
to Default. The Issuers shall deliver to the Trustee within 120 days after the
end of each fiscal year of the Issuers an Officers' Certificate, 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 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
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specifying the amount of original issue discount (including daily rates and
accrual periods) accrued on outstanding Securities as of the end of such year
and (ii) such other specific information relating to such original issue
discount as may then be relevant under the Code, as amended from time to time.
ARTICLE 5
Successor Issuers
SECTION 5.01. When Issuers May Merge or Transfer Assets. (a)
Neither Globalstar nor Globalstar Capital may consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to any Person; provided,
however, that Globalstar may consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to any Person, if:
(i) the resulting, surviving or transferee Person (the
"Successor Issuer") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and the Successor Issuer (if not Globalstar) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of Globalstar under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Debt which becomes an obligation of the Successor Issuer
or any Subsidiary as a result of such transaction as having been
Incurred by the Successor Issuer or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Issuer would be able to Incur an additional $1.00 of Debt
pursuant to Section 4.03(a);
(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
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(v) Globalstar shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and such supplemental indenture (if any) comply with this
Indenture.
The Successor Issuer shall be the successor to Globalstar and
shall succeed to, and be substituted for, and may exercise every right and power
of, Globalstar under this Indenture, and Globalstar (other than in the case of a
lease) shall be released from the obligation to pay the principal of and
interest and Liquidated Damages (if any) on the Securities.
(b) Globalstar shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, all or substantially all of its assets
to any Person unless: (i) the resulting, surviving or transferee Person (if not
such Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of the
United States of America, or any State thereof or the District of Columbia, and
such Person shall expressly assume, by a guaranty agreement in a form acceptable
to the Trustee, all the obligations of such Subsidiary, if any, under its
Subsidiary Guaranty; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Debt which becomes an
obligation of the resulting, surviving or transferee Person as a result of such
transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii)
Globalstar delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
guaranty agreement, if any, complies with this Indenture.
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ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of
Default" occurs if:
(1) the Issuers default in any payment of interest or
Liquidated Damages (if any) on any Security when the same becomes due
and payable, and such default continues for a period of 30 days;
(2) the Issuers (i) default in the payment of the principal of
any Security when the same becomes due and payable at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, or (ii) fail to redeem or purchase Securities
when required pursuant to this Indenture or the Securities;
(3) the Issuers fail to comply with Section 5.01;
(4) the Issuers fail to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 or 4.16 (other
than a failure to purchase Securities when required under Section 4.07
or 4.10) and such failure continues for 30 days after the notice
specified below;
(5) the Issuers fail to comply with any of their agreements in
the Securities or this Indenture (other than those referred to in
clause (1), (2), (3) or (4) above) and such failure continues for 60
days after the notice specified below;
(6) Debt of the Issuers or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $10.0 million, or its
foreign currency equivalent at the time and such failure continues for
10 days after the notice specified below;
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(7) any Issuer or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws
relating to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Issuers or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Issuers or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Issuers or any Significant Subsidiary;
or any similar relief is granted under any foreign laws
and the order or decree remains unstayed and in effect
for 60 days;
(9) any judgment or decree for the payment of money in excess
of $10.0 million or its foreign currency equivalent at the time is
entered against the Issuers or any Significant Subsidiary, remains
outstanding for a period of 60 days following the entry of such
judgment or decree and is not discharged, waived or the execution
thereof stayed within 10 days after the notice specified below; or
(10) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty.
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The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clauses (4), (5), or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the outstanding Securities notify the Issuers of the Default and the Issuers do
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Issuers shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Issuers are taking or
propose to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or (8) with respect to the
Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Issuers and the Trustee, may declare the principal of and accrued but unpaid
interest and Liquidated Damages (if any) on all the Securities to be due and
payable. Upon such a declaration, such principal, interest and Liquidated
Damages (if any) shall be due and payable immediately. If an Event of Default
specified in Section 6.01(7) or (8) with respect to the Issuers occurs, the
principal of and interest and Liquidated Damages (if any) on all the Securities
shall ipso facto become and be immediately due and payable without any
declaration or other 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
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consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest and Liquidated Damages (if any) that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest and Liquidated Damages (if any) on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest and Liquidated Damages (if any) on a
Security or (ii) a Default in respect of a provision that under Section 9.02
cannot be amended without the consent of each Securityholder affected. When a
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is 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
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56
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.06. Limitation on Suits. Except to enforce the right
to receive payment of principal, premium (if any) or interest and Liquidated
Damages (if any) when due, no Securityholder may pursue any remedy with respect
to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest and Liquidated Damages (if any)
on the Securities held by such Holder, on or after the respective due dates
expressed in the Securities, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its 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
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57
(if any) to the extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Issuers, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. Priorities. If the Trustee collects any money
or property pursuant to this Article 6, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal, interest and Liquidated Damages (if any),
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, interest and
Liquidated Damages (if any), respectively; and
THIRD: to the Issuers.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Issuers shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
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
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its discretion may assess reasonable costs, including reasonable attorneys'
fees and expenses, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Issuers
(to the extent they may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Issuers (to the extent that they may lawfully do so) hereby expressly waive
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been
enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(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
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59
such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts
stated therein).
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that 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.
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SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and
the advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be deemed to have notice of any
Default or Event of Default unless a Trust Officer has actual knowledge thereof
or unless written notice of any event which is in fact such a default is
received by the Trustee at the principal corporate trust office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal 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 Secur-
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ities, it shall not be accountable for the Issuers' use of the proceeds from the
Securities, and it shall not be responsible for any statement of the Issuers in
this Indenture or in any document issued in connection with the sale of the
Securities or in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest and Liquidated
Damages (if any) on any Security (including payments pursuant to the mandatory
redemption provisions of such Security, if any), the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. If required by
TIA Section 313(a), as promptly as practicable after each May 15 beginning with
the May 15, 1998, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with such TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the Commission and each stock exchange (if
any) on which the Securities are listed. The Issuers agree to notify promptly
the Trustee whenever the Securities become listed on any stock exchange and of
any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuers shall
pay to the Trustee from time to time such compensation as shall be agreed in
writing between the Issuers and the Trustee for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuers shall 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
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Trustee shall notify the Issuers promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the
Issuers of their obligations hereunder. The Issuers shall defend the claim and
the Trustee may have separate counsel and the Issuers shall pay the reasonable
fees and expenses of such counsel. The Issuers need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Issuers' payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest and Liquidated Damages (if any) on particular
Securities.
The Issuers' payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(7) or (8) with
respect to the Issuers, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Issuers. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Issuers shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(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.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition, at the
expense of the Issuers, any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Issuers' obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the 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.
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SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Issuers are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Issuers. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Issuers deliver to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07) for
cancelation 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),
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6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(a)(iii) and (iv) ("covenant defeasance
option"). The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option.
If the Issuers exercise their legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default with
respect thereto. If the Issuers exercise their covenant defeasance option,
payment of the Securities may not be accelerated because of an Event of Default
specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10)
(but, in the case of Sections 6.01(7) and (8), with respect only to Significant
Subsidiaries) or because of the failure of the Issuers to comply with Section
5.01(a)(iii) or (iv). If the Issuers exercise their legal defeasance option or
their covenant defeasance option, each Subsidiary Guarantor, if any, shall be
released from all its obligations with respect to its Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon
request of the Issuers, the Trustee shall acknowledge in writing the discharge
of those obligations that the Issuers terminate.
(c) Notwithstanding clauses (a) and (b) above, the Issuers'
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Issuers' obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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
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deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will
be sufficient to pay principal and interest and Liquidated Damages (if
any) when due on all the Securities to maturity or redemption, as the
case may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Sections 6.01(7) or (8) with
respect to the Issuers occurs which is continuing at the end of the
period;
(4) the deposit does not constitute a default under any other
agreement binding on the Issuers;
(5) the Issuers deliver to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Issuers Act of 1940;
(6) in the case of the legal defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the Issue Date there
has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Securityholders will not recognize income, gain
or loss for Federal income tax purposes as a result of such defeasance
and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(8) the Issuers deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article 8 have been complied with.
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Before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest and Liquidated Damages (if
any) on the Securities.
SECTION 8.04. Repayment to Issuers. The Trustee and the Paying
Agent shall promptly turn over to the Issuers upon written request any excess
money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Issuers upon request any money held by
them for the payment of principal or interest and Liquidated Damages (if any)
that remains unclaimed for two years, and, thereafter, Securityholders entitled
to the money must look to the Issuers for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The
Issuers shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
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
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payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Issuers and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities,
including any Subsidiary Guaranties, or to secure the Securities or to
release such guaranties in accordance with the terms of Section 4.04;
(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.
<PAGE> 75
69
SECTION 9.02. With Consent of Holders. The Issuers and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange for the
Securities). However, without the consent of each Securityholder affected
thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or extend the time for payment of
interest and Liquidated Damages (if any) on any Security;
(3) reduce the principal of or extend the Stated Maturity of
any Security;
(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in
accordance with Article 3;
(5) make any Security payable in money other than that stated
in the Security;
(6) make any change in Section 6.04 or 6.07 or the second
sentence of this Section; or
(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.
<PAGE> 76
70
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder. An
amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Issuers may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
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
<PAGE> 77
71
Counsel stating that such amendment is authorized or permitted by this
Indenture.
SECTION 9.07. Payment for Consent. Neither the Issuers nor any
Affiliate of the Issuers shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend (and,
if appropriate, tender their Securities) in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest and Liquidated Damages (if any) on
the Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other 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
<PAGE> 78
72
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 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
<PAGE> 79
73
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.
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
<PAGE> 80
74
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.
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.
<PAGE> 81
75
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 Security holder shall
be mailed to the Securityholder at the Securityholder's address as it appears
on the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
<PAGE> 82
76
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 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
<PAGE> 83
77
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
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.
<PAGE> 84
78
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> 85
79
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
<PAGE> 86
80
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 Zahler
------------------------------
Name: Eric Zahler
Title: Vice President
GLOBALSTAR CAPITAL CORPORATION,
by /s/ Douglas G. Dwyre
------------------------------
Name: Douglas G. Dwyre
Title: Vice President
THE BANK OF NEW YORK, as Trustee
by /s/ Mary LaGumina
------------------------------
Name: Mary LaGumina
Title: Assistant Vice President
<PAGE> 87
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE
SECURITY]
*/
**/
No. $
11 1/2% Senior Notes due 2005 CUSIP:
Globalstar, L.P., a Delaware limited partnership, and Globalstar Capital
Corporation, a Delaware corporation, each promise to pay to , or
registered assigns, the principal sum of Dollars on June 1, 2005.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 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> 88
2
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK, as Trustee, certifies
that this is one of the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
- --------------------------
*/ If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to the Rule 144A 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 Appendix and
replace the Assignment Form included in this Exhibit A with the Assignment Form
included in such Exhibit 1.
<PAGE> 89
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE
EXCHANGE SECURITY]
11 1/2% Senior Note due 2005
1. Interest and Liquidated Damages
Globalstar, L.P., a Delaware limited partnership and
Globalstar Capital Corporation, a Delaware corporation (such limited partnership
and such corporation, and their successors and assigns under the Indenture
hereinafter referred to, being herein called the "Issuers"), promise to pay
interest on the principal amount of this Security at the rate per annum shown
above; provided, however, that if a Registration Default (as defined in the
Registration Rights Agreement) occurs, Liquidated Damages (as defined in the
Registration Rights Agreement) shall accrue on this Security in an amount equal
to $.05 per week per $1,000 principal amount of Securities held by each Holder
(over and above the interest set forth in the title of this Security) from and
including the date on which any such Registration Default shall occur until the
earlier of (i) the date on which all such Registration Defaults have been cured
or (ii) the date which is 90 days after the date such Registration Default
occurred. The Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of the Securities held by each Holder during each
subsequent 90-day period until the date on which all such Registration Defaults
have been cured; provided, however, that the aggregate amount of Liquidated
Damages shall not exceed a maximum of $.50 per week per $1,000 principal amount
of the Securities held by each Holder. The Issuers will pay interest hereon and
Liquidated Damages (if any) semiannually on June 1, and December 1, of each year
commencing December 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 May 20, 1998. 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
<PAGE> 90
4
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 15 or November 15 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 May 20, 1998 ("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 $300,000,000 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
<PAGE> 91
5
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) 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 will not be redemable at the Issuers' option
prior to June 1, 2003. On and after that date, the Issuers may redeem the
Securities in whole or in part, at any time or from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest and Liquidated Damages (if any) to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest and Liquidated Damages (if any) due on the related interest
payment date):
If redeemed during the 12-month period commencing June 1 of
the years set forth below:
Period Percentage
------ ----------
2003...........................................................105.750%
2004...........................................................102.875%
In the event that, on or before June 1, 2001, Globalstar
receives net proceeds from any Equity Offering by Globalstar or GTL, up to a
maximum of 331/3% of the aggregate principal amount of the Notes originally
issued will, at the option of Globalstar, be redeemable from the net cash
proceeds of such sale at a redemption price equal to 111-1/2% of the stated
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption; provided, however, that (i) at least 66-2/3% of the original
aggregate principal amount of the Notes remains
<PAGE> 92
6
outstanding after such redemption and (ii) such redemption shall occur within 90
days of the date of such offering.
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.
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
<PAGE> 93
7
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 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
<PAGE> 94
8
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.
<PAGE> 95
9
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 (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 withhold 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
<PAGE> 96
10
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 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> 97
11
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> 98
12
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> 99
13
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> 100
RULE 144A APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A.
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions. For the purposes of this Appendix the following terms
shall have the meanings indicated below:
"Definitive Security" means a certificated Initial Security
bearing the restricted securities legend set forth in Section 2.3(d) and which
is held by an IAI in accordance with Section 2.1(c).
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Securities" means the 11 1/2% Senior Notes due 2005
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., Donaldson, Lufkin & Jenrette Securities Corporation, Bancamerica Robertson
Stephens, C.E. Unterberg, Towbin and CIBC Oppenheimer Corp.
"Initial Securities" means the 11 1/2% Senior Notes due 2005,
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 1/2% Senior Notes
due 2005 to be issued pursuant to this Indenture to the Initial Purchasers in a
Private Exchange.
<PAGE> 101
2
"Purchase Agreement" means the Purchase Agreement dated May
15, 1998, among the Issuers and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Issuers,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Securities, to issue and deliver to such Holders, in exchange for the Initial
Securities, a like aggregate principal amount of Exchange Securities registered
under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 20, 1998, 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)
"Rule 144A"........................................2.1(a)
2. The Securities
<PAGE> 102
3
2.1 Form and Dating. The Initial Securities are being offered and sold
by the Issuers pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to
a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") 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.
<PAGE> 103
4
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 physical delivery of certificated
Securities. Purchasers of Initial Securities who are IAIs and are not QIBs 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
$275,000,000 (plus up to $25 million pursuant to the over-allotment option) 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
$300,000,000 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:
<PAGE> 104
5
(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 (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).
<PAGE> 105
6
(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 to a QIB
in accordance with Rule 144A; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books and
records with respect to such Global Security to reflect an increase in
the aggregate principal amount of the Securities represented by the
Global Security, such instructions to contain information regarding the
Depositary account to be credited with such increase, then the Trustee
shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Securities Custodian, the aggregate principal amount of Securities
represented by the Global Security to be increased by the aggregate
principal amount of the Definitive Security to be exchanged and shall
credit or cause to be credited to the account of the Person specified
in such instructions a beneficial interest in the Global Security equal
to the principal amount of the Definitive Security so 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
<PAGE> 106
7
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
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 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 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 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
<PAGE> 107
8
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, OR (D)
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).
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a certificated Security that does not bear the legend set
forth above and rescind any restriction on the transfer of
such Transfer Restricted Security; and
<PAGE> 108
9
(B) in the case of any Transfer Restricted Security
that is represented by a Global Security, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder
certifies in writing to the Registrar that its request for
such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of
the Security).
(iii) After a transfer of any Initial Securities or Private
Exchange Securities during the period of the effectiveness of a Shelf
Registration Statement with respect to such Initial Securities or
Private Exchange Securities, as the case may be, all requirements
pertaining to legends on such Initial Security or such Private Exchange
Security will cease to apply, the requirements requiring any such
Initial Security or such Private Exchange Security issued to certain
Holders to be issued in global form will cease to apply, and a
certificated Initial Security or Private Exchange Security without
legends will be available to the transferee of the Holder of such
Initial Securities or Private Exchange Securities upon exchange of such
transferring Holder's certificated Initial Security or Private Exchange
Security or directions to transfer such Holder's interest in the Global
Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such
Initial Securities are offered Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will cease to apply and certificated Initial Securities
with the Restricted Securities Legend set forth in Exhibit 1 hereto
will be available to Holders of such Initial Securities that do not
exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders that exchange
such Initial Securities in such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Private Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain
<PAGE> 109
10
Holders be issued in global form will still apply, and Private Exchange
Securities in global form with the Restricted Securities Legend set
forth in Exhibit 1 hereto will be available to Holders that exchange
such Initial Securities in such Private Exchange.
(e) 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 be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate certificated
Securities, Definitive Securities and Global Securities at the
Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Issuers may require payment of a sum
sufficient to cover any transfer tax, assessments or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge payable
upon exchange or transfer pursuant to Sections 3.06, 4.10 and 9.05 of
the Indenture).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated or
Definitive Security selected for redemption in whole or in part
pursuant to Article 3 of this Indenture, except the unredeemed portion
of any certificated or Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Securities or
15 Business Days before an interest payment date.
<PAGE> 110
11
(iv) Prior to the due presentation for registration of
transfer of any Security, the Issuers, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Issuers, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of or a participant
in the Depositary or other Person with respect to the accuracy of the
records of the Depositary or its nominee or of any participant or
member thereof with respect to any ownership interest in the Securities
or with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount under
or with respect to such Securities. All notices and communications to
be given to the Holders and all payments to be made to Holders under
the Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any
Global Security shall be exercised only through the Depositary subject
to the applicable rules and procedures of the Depositary. The Trustee
may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers
between or among Depositary participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or
<PAGE> 111
12
evidence as are expressly required by, and to do so if and when
expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Issuers
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Issuers within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Issuers, in their sole discretion,
notify the Trustee in writing that they elect to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee located in the Borough of Manhattan, The City of New York, to be
so transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 principal amount and any integral
multiple thereof and registered in such names as the Depositary shall direct.
Any certificated Initial Security delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.3(d), bear the
Restricted Securities Legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
<PAGE> 112
13
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Issuers will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE> 113
EXHIBIT 1
to
RULE 144A 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 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
<PAGE> 114
2
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 OR (D) 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).
<PAGE> 115
3
No. $
2005 CUSIP:
11 1/2% Senior Notes due 2005
Globalstar, L.P., a Delaware limited partnership and Globalstar Capital
Corporation, a Delaware corporation, promise to pay to , or registered
assigns, the principal sum of Dollars on June 1, 2005.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 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> 116
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> 117
5
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11 1/2% Senior Note due 2005
1. Interest and Liquidated Damages
Globalstar, L.P., a Delaware limited partnership and
Globalstar Capital Corporation, a Delaware corporation (such limited partnership
and such corporation, and their successors and assigns under the Indenture
hereinafter referred to, being herein called the "Issuers"), promise to pay
interest on the principal amount of this Security at the rate per annum shown
above; provided, however, that if a Registration Default (as defined in the
Registration Rights Agreement) occurs, Liquidated Damages (as defined in the
Registration Rights Agreement) shall accrue on this Security in an amount equal
to $.05 per week per $1,000 principal amount of Securities held by each Holder
(over and above the interest set forth in the title of this Security) from and
including the date on which any such Registration Default shall occur until the
earlier of (i) the date on which all such Registration Defaults have been cured
or (ii) the date which is 90 days after the date such Registration Default
occurred. The Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of the Securities held by each Holder during each
subsequent 90-day period until the date on which all such Registration Defaults
have been cured; provided, however, that the aggregate amount of Liquidated
Damages shall not exceed a maximum of $.50 per week per $1,000 principal amount
of the Securities held by each Holder. The Issuers will pay interest hereon and
Liquidated Damages (if any) semiannually on June 1, and December 1, of each year
commencing December 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 May 20, 1998. 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
<PAGE> 118
6
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 15 or November 15 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 May 20, 1998 ("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 $300,000,000 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
<PAGE> 119
7
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) 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 will not be redeemable at the Issuers' option
prior to June 1, 2003. On and after that date, the Issuers may redeem the
Securities in whole or in part, at any time or from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest and Liquidated Damages (if any) to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest and Liquidated Damages (if any) due on the related interest
payment date):
if redeemed during the 12-month period commencing June 1 of
the years set forth below:
Period Percentage
------ ----------
2003..................................................................105.750%
2004..................................................................102.875%
In the event that, on or before June 1, 2001, Globalstar
receives net proceeds from any Equity Offering by Globalstar or GTL, up to a
maximum of 331/3% of the aggregate principal amount of the Notes originally
issued will, at the option of Globalstar, be redeemable from the net cash
proceeds of such sale at a redemption price equal to 111-1/2% of the stated
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption; provided, however, that (i) at least 66-2/3% of the original
aggregate principal amount of the Notes remains
<PAGE> 120
8
outstanding after such redemption and (ii) such redemption shall occur within 90
days of the date of such offering.
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.
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
<PAGE> 121
9
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 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
<PAGE> 122
10
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.
<PAGE> 123
11
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 (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
<PAGE> 124
12
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 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> 125
13
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> 126
14
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> 127
15
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:
(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) / / pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
<PAGE> 128
16
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) 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 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.
<PAGE> 129
17
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> 130
18
[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>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized
Amount of this Amount of this Security following signatory of
Global Security Global Security such decrease or Trustee or
increase Securities
Custodian
</TABLE>
<PAGE> 131
19
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
July 13, 1998
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 $300,000,000 of Senior Notes due 2005 (the "Exchange
Notes") of the Issuers for a like principal amount of Senior Notes due 2005 (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 May 20, 1998 (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 May 15, 1998 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.
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
<PAGE> 2
Globalstar, L.P.
Globalstar Capital Corporation
July 13, 1998
Page 2
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.
2. Our opinion numbered 2 above is based on statutory provisions,
regulations promulgated thereunder and interpretations thereof by the
Internal Revenue Service
<PAGE> 3
Globalstar, L.P.
Globalstar Capital Corporation
July 13, 1998
Page 3
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
<PAGE> 1
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
Up to $300,000,000
11-1/2% Senior Notes due 2005
REGISTRATION RIGHTS AGREEMENT
May 20, 1998
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bancamerica Robertson Stephens
C.E. Unterberg, Towbin
CIBC Oppenheimer Corp.
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:
<PAGE> 2
2
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 May 15, 1998 (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") $275,000,000 aggregate principal amount
of 11-1/2% Senior Notes due 2005 (plus up to $25,000,000 aggregate principal
amount of notes that may be issued pursuant to an over-allotment option granted
to the Initial Purchasers by the Issuers) (collectively, the "Notes"). The Notes
will be issued pursuant to an indenture dated as of May 20, 1998 (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,
<PAGE> 3
3
at their cost and expense, prepare and, not later than 60 days after (or if the
60th day is not a business day, the first business day thereafter) the Issue
Date (as defined in the Indenture) of the Notes, file with the Securities and
Exchange Commission (the "Commission") a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to a proposed offer
(the "Registered Exchange Offer") to the Holders of Transfer Restricted Notes
(as defined in Section 6(e)), who are not prohibited by any law or policy of the
Commission from participating in the Registered Exchange Offer, to issue and
deliver to such Holders, in exchange for the Notes, a like aggregate principal
amount of debt securities (the "Exchange Notes") of the Issuers issued under the
Indenture and identical in all material respects to the Notes (except for the
transfer restrictions relating to the Notes) that would be registered under the
Securities Act. The Issuers shall use reasonable efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act within
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
<PAGE> 4
4
the meaning of the Securities Act, acquires the Exchange Notes in the ordinary
course of such Holder's business, has no arrangements with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and is not prohibited by any law or policy of the Commission
from participating in the Registered Exchange Offer) to trade such Exchange
Notes from and after their receipt without any limitations or restrictions under
the Securities Act and without material restrictions under the securities laws
of the several states of the United States. In connection with such Registered
Exchange Offer, the Issuers shall take all such reasonable further action,
including, without limitation, appropriate filings under state securities laws,
as may be necessary to realize the foregoing objective subject to the proviso of
Section 3(h).
The Issuers and the Initial Purchasers acknowledge that the foregoing
statement of the objective of the Registered Exchange Offer is based upon
current interpretations by the staff of the Commission's Division of Corporation
Finance, which interpretations are subject to change without notice, and further
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, in the absence of an applicable exemption
therefrom, (i) each Holder that is a broker-dealer electing to exchange Notes,
acquired for its own account as a result of market making activities or other
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
<PAGE> 5
5
order to permit such prospectus to be lawfully delivered by all persons subject
to the prospectus delivery requirements of the Securities Act for such period of
time as such persons must comply with such requirements in order to resell the
Exchange Notes; provided, however, that (i) in the case where such prospectus
and any amendment or supplement thereto must be delivered by an Exchanging
Dealer or an Initial Purchaser, such period shall be the lesser of 180 days
after the expiration date of the Registered Exchange Offer and the date on which
all Exchanging Dealers and the Initial Purchasers have sold all Exchange Notes
held by them (unless such period is extended pursuant to Section 3(j) below),
and (ii) the Issuers shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Notes for a period not less than 90 days after the consummation of
the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Transfer Restricted Notes acquired by it as part of its initial
distribution, the Issuers, simultaneously with the delivery of the Exchange
Notes pursuant to the Registered Exchange Offer, shall issue and deliver to such
Initial Purchaser upon the written 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
<PAGE> 6
6
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.
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
<PAGE> 7
7
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 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
<PAGE> 8
8
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 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
<PAGE> 9
9
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 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
<PAGE> 10
10
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 Registration
Statement a section entitled "Plan of Distribution", reasonably acceptable
to the Initial Purchasers, which shall contain a summary statement of
<PAGE> 11
11
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;
<PAGE> 12
12
(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
<PAGE> 13
13
reasonably request. The Issuers consent, subject to the provisions of this
Agreement, to the use of the prospectus or any amendment or supplement
thereto included in the Shelf Registration Statement by each of the selling
Holders of the Securities in connection with the offering and sale of the
Securities covered by such prospectus, or any such amendment or supplement.
(g) The Issuers shall deliver to each Initial Purchaser, any Exchanging
Dealer and such other persons required to deliver a prospectus during the
Exchange Offer Registration Period and/or Shelf Registration Period, as
applicable, without charge, as many copies of the final prospectus included
in the Exchange Offer Registration Statement and any amendment or supplement
thereto as such persons may reasonably request. The Issuers consent, subject
to the provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by any Initial Purchaser, if necessary, any
Exchanging Dealer and such other persons required to deliver a prospectus
following the Registered Exchange Offer in connection with the offering and
sale of the Exchange Notes covered by the prospectus, or any amendment or
supplement thereto, included in such Exchange Offer Registration Statement,
in each case in the form most recently provided to each party by the
Issuers.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Issuers shall use their reasonable efforts to
register 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
<PAGE> 14
14
where it is not then so subject, (iii) register or qualify Securities or
take any other action under the securities or "blue sky" laws of any
jurisdiction if, in the judgment of the Board of Directors or such other
governing body of the Issuers, the consequences of such registration,
qualification or other action would be unduly burdensome to the Issuers or
(iv) make any changes to their respective organizational documents or any
agreement with their respective equity holders.
(i) The Issuers shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing
the Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names
as the Holders may request a reasonable period of time prior to sales of the
Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Issuers
are required to maintain an effective Registration Statement, the Issuers
shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other 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
<PAGE> 15
15
from and including the date of the giving of such notice to and including
the date when the Initial Purchasers, the Holders of the Securities and any
known Exchanging Dealer shall have received such amended or supplemented
prospectus pursuant to this Section 3(j) or (ii) if earlier, until the date
when none of the Securities represent Transfer Restricted Notes (as defined
in Section 6(d)).
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Transfer
Restricted Notes, the Exchange Notes or the Private Exchange Notes, as the
case may be, and provide the applicable trustee with printed certificates
for the Notes, the Exchange Notes or the Private Exchange Notes, as the case
may be, in a form eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration, and Globalstar will
make 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
<PAGE> 16
16
information regarding the Holder and the distribution of the Securities as
the Issuers may from time to time reasonably require for inclusion in the
Shelf Registration Statement, and the Issuers may exclude from such
registration the Securities of any Holder that unreasonably fails to furnish
such information within a reasonable time after receiving such request. Each
such Holder agrees to notify the Issuers as promptly as practicable of any
inaccuracy or change in information previously furnished by such Holder to
the Issuers or of the occurrence of any event, in either case, as a result
of which any prospectus relating to such registration contains or would
contain an untrue statement of a material fact regarding such Holder or such
Holder's intended method of distribution of such Securities, or omits to
state a material fact regarding such Holder or such Holder's intended method
of distribution of such Securities, required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish to the Issuers any
additional information required to correct and update any previously
furnished information or required so that such prospectus shall not contain,
with respect to such Holder or the distribution of such Securities, an
untrue statement of a material fact or omit to state a material fact
required to be stated 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
<PAGE> 17
17
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 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
<PAGE> 18
18
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.
(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
<PAGE> 19
19
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
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
<PAGE> 20
20
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 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
<PAGE> 21
21
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 untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or
<PAGE> 22
22
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
<PAGE> 23
23
election so to assume the defense thereof the indemnifying party will not be
liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, not to
be unreasonably withheld, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement includes an unconditional release of such indemnified party from
all liability on any claims that are the subject matter of such action. No
indemnifying party shall be liable for any amounts paid in settlement of any
action or claim without its written consent, which consent shall not be
unreasonably withheld, but if settled in accordance with its written consent or
if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above for any reason other than as provided in subsection
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the 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
<PAGE> 24
24
of the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Issuers on the one hand or such Holder or such other indemnified person, as the
case may be, on the other, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each officer,
director, employee, representative and agent of an indemnified party and each
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.
<PAGE> 25
25
6. Liquidated Damages Under Certain Circumstances. (a) Additional cash
interest (the "Liquidated Damages") with respect to the Securities shall be
assessed against the Issuers as follows if any of the following events occurs
(each such event in clauses (i) through (iv) below a "Registration Default"):
(i) if the Issuers fail to file either the Exchange Offer
Registration Statement or Shelf Registration Statement on or before the
date specified for the filing thereof in Sections 1 and 2 hereof,
respectively;
(ii) if any such Registration Statement so required to be
filed is not declared effective by the Commission on or before, in the
case of the Exchange Offer Registration Statement, the date that is 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.
<PAGE> 26
26
Liquidated Damages shall accrue on the Transfer Restricted Notes in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted Notes
held by each Holder (over and above the interest set forth in the title of the
Transfer Restricted Notes) from and including the date on which any such
Registration Default shall occur until the earlier of (i) the date on which all
such Registration Defaults have been cured or (ii) the date which is 90 days
after the date such Registration Default occurred. The Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of the Notes
held by each Holder during each subsequent 90-day period until the date on which
all such Registration Defaults have been cured; provided, however, that the
aggregate amount of Liquidated Damages shall not exceed a maximum of $.50 per
week per $1,000 principal amount of the Notes held by each Holder
(b) A Registration Default referred to in Section 6(a)(iii)(B) shall be
deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of 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
<PAGE> 27
27
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 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
<PAGE> 28
28
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 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
<PAGE> 29
29
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 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 10167
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
<PAGE> 30
30
(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: Eric J. Zahler
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street 46th Floor
New York, NY 10022
Fax No: (212) 821-8111
Attention: Bruce R. Kraus
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged by recipient's facsimile machine operator, if sent
by facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Issuers have not, as of the date
hereof, entered into, nor shall they, on or after the date hereof, enter into,
any agreement with respect to their securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Issuers and their successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 31
31
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Issuers. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Issuers or their affiliates (other
than subsequent Holders of Securities if such subsequent Holders are deemed to
be affiliates solely by reason of their holdings of such Securities) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
<PAGE> 32
32
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to Bear Stearns & Co. Inc. a counterpart
hereof, whereupon this Agreement will become a binding agreement among
Globalstar, Globalstar Capital and the several Initial Purchasers in accordance
with its terms.
Very truly yours,
GLOBALSTAR, L.P. by
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its managing
general partner, by
LORAL/QUALCOMM PARTNERSHIP,
L.P. its general partner, by
LORAL GENERAL PARTNER, INC.
its general partner,
by /s/ Eric Zahler
----------------------------------
Name: Eric Zahler
Title: Vice President
GLOBALSTAR CAPITAL
CORPORATION,
by /s/ Douglas G. Dwyre
----------------------------------
Name: Douglas G. Dwyre
Title: Vice President
<PAGE> 33
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
BEAR, STEARNS & CO. INC.
by /s/ J. Andrew Buges
----------------------------------
Name: J. Andrew Buges
Title: Senior Managing Director
LEHMAN BROTHERS INC.
by /s/ Stephen Mehos
----------------------------------
Name: Stephen Mehos
Title: Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
by /s/ Hoyt Davidson
----------------------------------
Name: Hoyt Davidson
Title: Managing Director
BANCAMERICA ROBERTSON STEPHENS
by /s/ Mark S. Dawley
----------------------------------
Name: Mark S. Dawley
Title: Managing Director
C.E. UNTERBERG, TOWBIN
by /s/ A. Robert Towbin
----------------------------------
Name: A. Robert Towbin
Title: Managing Director
<PAGE> 34
CIBC OPPENHEIMER CORP.
by /s/ Walter McLallen
----------------------------------
Name: Walter McLallen
Title: Managing Director
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> 35
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> 36
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 , 1998, 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
- --------
(*) 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> 37
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 38
ANNEX D
_____
/____/ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name: ____________________________________________
Address: _________________________________________
_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
Globalstar, L.P. and Globalstar Capital Corporation
We consent to the use in this Amendment No. 1 to the Registration Statement
(Registration No. 333-57749) 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, 1997 and 1996 and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Amendment No. 1
to the Registration Statement.
DELOITTE & TOUCHE LLP
San Jose, California
July 13, 1998
