<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1996
REGISTRATION NO. 333-6477
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
BERMUDA 13-3795510
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
(809) 295-2244
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC J. ZAHLER
600 Third Avenue
New York, New York 10016
(212) 697-1105
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
BRUCE R. KRAUS, ESQ. ROBERT ROSENMAN, ESQ.
WILLKIE FARR & GALLAGHER CRAVATH SWAINE & MOORE
One Citicorp Center Worldwide Plaza
153 East 53rd Street 825 Eighth Avenue
New York, New York 10022 New York, New York 10019
(212) 821-8000 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF THE COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION 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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1996
$310,000,000
6 1/2% CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS DUE 2006
AND
5,036,486 SHARES OF COMMON STOCK
GLOBALSTAR TELECOMMUNICATIONS LIMITED
------------------------
This Prospectus relates to the 6 1/2% Convertible Preferred Equivalent
Obligations due 2006 (the "Securities") of Globalstar Telecommunications
Limited, a Bermuda company ("GTL" or the "Company"), the shares of Common Stock,
par value $1.00 per share (the "Common Stock"), issuable upon conversion of the
Securities (the "Conversion Shares") and 267,256 shares of Common Stock (the
"LBP Shares") for the account of certain stockholders (the "LB Partnerships").
See "Selling Holders." The Securities are convertible at any time prior to
redemption or maturity, at a conversion price of $65.00 per share, which
represents a conversion ratio of 0.7692 shares per $50.00 principal amount of
Securities, subject to adjustment under certain conditions (the "Conversion
Price"). The Securities were issued and sold by the Company (the "Original
Offering") in March and April 1996, to the Initial Purchasers (as defined
herein, see "Selling Holders") in a private placement and were resold by the
Initial Purchasers in transactions exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), in the United
States to qualified institutional buyers (as defined in Rule 144A under the
Securities Act), to certain accredited investors (as defined in Rule 501(a)
under the Securities Act) and outside the United States to non-U.S. persons in
offshore transactions in reliance on Regulation S under the Securities Act.
The Securities, the Conversion Shares and the LBP Shares (together, the
"Offered Securities") may be offered and sold from time to time by the holders
named herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus. The Offered
Securities may be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan of
Distribution" and "Selling Holders." If required, the names of any such agents
or underwriters involved in the sale of the Offered Securities and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus (the "Prospectus Supplement"). The Selling Holders will receive all
of the net proceeds from the sale of the Offered Securities and will pay all
underwriting discounts, selling commissions and related fees, if any, applicable
to any such sale. The Company is responsible for payment of all other expenses
incident to the offer and sale of the Offered Securities. The Selling Holders
and any broker-dealers, agents or underwriters which participate in the
distribution of the Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commission received by them and any
profit on the resale of the Offered Securities purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act. See "Plan
of Distribution" for a description of indemnification arrangements.
The Common Stock is listed on the Nasdaq National Market (the "NNM") under
the symbol "GSTRF." On September 9, 1996, the last reported sale price of the
Common Stock on the NNM was $44.75 per share.
Interest on the Securities is payable quarterly in arrears on March 1, June
1, September 1, and December 1, commencing on June 1, 1996, subject to deferral
without compound interest or penalty as described herein. So long as any
arrearage of deferred but unpaid interest remains outstanding, the Company will
be prohibited from paying (i) dividends on its Common Stock, (ii) dividends on
any preferred stock or (iii) interest on debt ranking pari passu with or junior
to the Securities from time to time outstanding except on a pro rata basis with
respect to any such pari passu debt. The Securities will be general unsecured
obligations of the Company and will be subordinated in right of payment to all
Debt Obligations (as defined herein) of the Company. See "Description of
Securities -- Ranking." At June 30, 1996, the Company had no outstanding Debt
Obligations. The Securities will not limit the amount of Debt Obligations that
the Company may incur. Although the Securities are not equity securities under
applicable Bermuda law, the Securities are the substantial equivalent of
convertible preferred stock and will be treated as such for U.S. tax purposes.
The Company may make any payments due on the Securities, including redemption
and interest payments, (i) in cash, (ii) by delivery of Common Stock (in the
manner described herein) or (iii) through any combination of the foregoing. The
Company utilized the proceeds of the Original Offering to purchase 4,769,230
redeemable preferred general partnership interests (the "Preferred Partnership
Interests") of Globalstar, L.P., a Delaware limited partnership ("Globalstar"),
the terms of which are generally similar to those of the Securities, and which
will provide the principal source of payments for the Securities. Globalstar
will use substantially all the proceeds from the sale of Preferred Partnership
Interests to the Company for the design, construction and deployment of the
Globalstar System. The Company is a general partner of Globalstar; its sole
asset consists of its partnership interests in Globalstar. As a result, the
obligations of the Company in respect of the Securities will be structurally
subordinate to all indebtedness and other liabilities of Globalstar. See
"Description of Securities."
The Securities are subject to mandatory redemption on March 1, 2006 (the
"Mandatory Redemption Date") and are not redeemable by the Company before March
2, 1999 unless the market price of the Common Stock exceeds certain thresholds.
In such event, the Securities will be redeemable, in whole or in part, by the
Company upon payment of the principal of and premium (including an interest
make-whole payment) and accrued interest, if any, on the Securities. See
"Description of Securities."
The Securities are eligible for trading by qualified institutional buyers on
the PORTAL market.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 13.
THE OFFERED 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.
------------------------
, 1996
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company 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, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding the Company. The address of such Web site is
http://www.sec.gov. The Common Stock is quoted on the NNM, and copies of the
reports, proxy statements and other information filed by the Company with the
Commission may also be inspected at the offices of Nasdaq Operation, 1735 K
Street, N.W., Washington, D.C. 20006.
Globalstar is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act, except those applicable as a
result of the Company's significant investment in Globalstar. The Company has
agreed that, whether or not it is required to do so by the rules and regulations
of the Commission, for so long as any of the Securities remain outstanding, it
will furnish to the trustee and the holders of the Securities and file with the
Commission, or cause to be so filed as part of the financial statements of the
Company (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Globalstar were required to file such forms, 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 Globalstar's
independent public accountants and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if Globalstar were required to file such
reports. In addition, for so long as any of the Securities remain outstanding,
the Company has agreed to make available to any prospective purchaser of the
Securities or beneficial owner of the Securities in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all exhibits and amendments, the "Registration Statement")
under the Securities Act, with respect to the Offered Securities. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Offered Securities, 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.
Statements contained in the Prospectus as to any contracts, agreements or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof, and each
such statement in the Prospectus is qualified in all respects by such reference.
i
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are hereby incorporated by reference into this
Prospectus:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
(b) the Company's Proxy Statement relating to the 1996 Annual Meeting
of Stockholders;
(c) the Company's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1996 (as amended by the Form 10-Q/A filed with the
Commission on May 21, 1996) and June 30, 1996; and
(d) the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under the Exchange Act
and any amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Offered Securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents (provided, however, that the
information referred to in item 402(a)(8) of Regulation S-K of the Commission
shall not be deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement as modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference in this Prospectus (other than exhibits and
schedules thereto, unless such exhibits or schedules are specifically
incorporated by reference into the information that this Prospectus
incorporates). Written or oral requests for copies of these documents should be
directed to Globalstar Telecommunications Limited, 600 Third Avenue, New York,
New York 10016, Attention: Secretary (Telephone (212) 697-1105).
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) incorporated
by reference in this Prospectus. See "Glossary of Terms" for definitions of
certain terms used in this Prospectus. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
in the future could differ significantly from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those discussed in "Risk Factors" as
well as elsewhere in this Prospectus and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" in the
Company's Exchange Act reports incorporated by reference into this Prospectus.
THE COMPANY
The Company is a Bermuda company that acts as a general partner of
Globalstar. Globalstar is building and preparing to launch and operate a
worldwide, low-earth orbit ("LEO") satellite-based digital telecommunications
system (the "Globalstar(TM) System"). The Globalstar System is 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. To
date, Globalstar service providers have agreed to offer Globalstar service and
seek to obtain all necessary local regulatory approvals in nations accounting
for 67% of the world's population.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services rapidly and
economically 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 services and substantially
lower than the prices announced by Globalstar's anticipated principal
competitors.
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
(collectively, the "Globalstar Phones"). Dual-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 is on schedule to begin launching satellites in the second half
of 1997, to commence commercial operations in the second half of 1998 (the
"In-Service Date") and to have its full constellation of 48 satellites, plus
eight in-orbit spare satellites, launched by the end of 1998 (the "Full
Constellation Date"). Significant regulatory and licensing milestones have been
achieved for the Globalstar System, including allocation of required frequencies
by the Federal Communications Commission ("FCC") and the 1995 World
Radiocommunication Conference ("WRC '95"). To date, Globalstar has raised or
received commitments for approximately $1.4 billion in equity, debt and vendor
financing, representing over 75% of the total external financing expected to be
required to complete the system and to achieve worldwide operations. Globalstar
intends to raise the balance of its external financing needs in the capital
markets and may also seek financing support from its strategic partners. See
"-- Sources and Uses of Capital by Globalstar."
Full satellite critical design review was successfully completed in January
1996. Manufacturing of long-lead time components of the Globalstar satellites
has commenced, engineering models are under construction and the non-recurring
design phase of the satellite contract is close to completion. Definitive
agreements have been reached with three launch providers (NPO Yuzhnoye Design
Office, McDonnell Douglas Commercial Delta, Inc. and China Great Wall Industry
Corporation) for the launch of the full Globalstar satellite constellation.
These agreements provide for a variety of launch options, giving Globalstar
considerable launch flexibility.
<PAGE> 6
Internationally, Globalstar's partners have been seeking alliances in their
assigned territories with service providers and have entered into such
agreements in certain territories. Globalstar believes these relationships with
in-country service providers may facilitate the granting of local regulatory
approval for operation of the Globalstar System and provide local marketing and
technical expertise.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than 3 billion people today live without residential
telephone service, many of them in rural areas where the cost of installing
wireline service is prohibitively high. Moreover, even where telephone
infrastructure is available in developing countries, outdated equipment often
leads to unreliable local service and limited international access. The number
of worldwide fixed phone lines has increased from 473 million to 647 million
since 1988 and is projected to increase to one billion by 2002. Nonetheless,
since 1988, waiting lists for fixed service have increased from 36 million to 46
million, resulting in an average waiting time before installation of
approximately one and a half years. Similarly, the cellular market has grown
from 4 million worldwide subscribers in 1988 to an estimated 87 million in 1995
and is projected to increase to 334 million by 2001. At that time, it is
projected that only 40% of the world's population will live in areas with
cellular coverage. The remaining 60% of the world population will have access to
wireless telephone service principally through satellite-based systems like the
Globalstar System. Globalstar's business plan requires penetration of only a
small fraction of these potential markets to achieve its objectives.
The Globalstar System has been designed with attributes which the Company
believes compare favorably to other proposed global mobile satellite service
("MSS") systems (two of which have also been licensed by the FCC; the
applications of three others have been deferred), including: (i) Globalstar's
unique combination of code division multiple access ("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 Space & Communications Ltd. ("Loral SpaceCom") is a principal founder
of Globalstar and, through a subsidiary, is its managing general partner. Loral
SpaceCom has invested $234 million directly and indirectly in Globalstar. Loral
SpaceCom owns, directly or indirectly, 32.8% of Globalstar, on a fully diluted
basis.
Other Globalstar strategic partners include leading domestic and
international telecommunications service providers and space and
telecommunications equipment manufacturers who, together with Loral SpaceCom,
have invested $425 million in equity and committed $310 million in vendor
financing for Globalstar. In addition, Loral SpaceCom, Lockheed Martin
Corporation ("Lockheed Martin") and certain strategic partners have guaranteed,
or provided indemnification with respect to, Globalstar's obligations under a
$250 million credit facility. See "-- Recent Developments."
2
<PAGE> 7
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. In addition to Globalstar's founding partners, Loral SpaceCom and
QUALCOMM Incorporated ("Qualcomm"), the leading supplier of CDMA digital
telecommunications technology, Globalstar's strategic partners are:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS EQUIPMENT
TELECOMMUNICATIONS SERVICE PROVIDERS AND AEROSPACE SYSTEMS MANUFACTURERS
- ----------------------------------------------- --------------------------------------------------------
<S> <C>
- - AirTouch Communications, Inc. ("AirTouch") - Alcatel Espace ("Alcatel")
- - DACOM Corporation ("Dacom") - Alenia Spazio S.p.A. ("Alenia")
- - France Telecom - Daimler-Benz Aerospace AG ("DASA")
- - Vodafone Group Plc ("Vodafone") - Finmeccanica S.p.A. ("Finmeccanica")
- Hyundai Electronics Industries Co. Ltd. ("Hyundai")
- Space Systems/Loral, Inc. ("SS/L")
</TABLE>
Loral SpaceCom, through a subsidiary, has overall management responsibility
for the design, construction, deployment and operation of the Globalstar System.
SS/L, an affiliate of Loral SpaceCom, is providing the system's satellites under
a fixed-price contract that also requires SS/L to obtain launch services and
launch insurance. Qualcomm is designing and will manufacture Globalstar Phones
and gateways and certain ground support equipment.
The Company was organized as a Bermuda company on November 23, 1994 and has
its principal offices at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda
((809) 295-2244). The Company's sole business is to act as a general partner of
Globalstar.
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.
PROVIDING HIGH QUALITY, WORLDWIDE SERVICE
To achieve rapid and sustained customer acceptance of the system,
Globalstar 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 described below 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 millions of people who
currently lack basic telephone services and to enhance wireless
telecommunications in areas underserved or not served by existing or future
cellular systems. Globalstar expects to provide a communications solution in
parts of the world where the build-out of terrestrial systems cannot be
economically justified. The Globalstar System has also been designed to enable
international travelers to make and receive calls at a unique telephone number
through their mobile Globalstar Phone anywhere in the world where Globalstar
service is authorized by local regulatory authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each Globalstar Phone has been designed to communicate
3
<PAGE> 8
with as many as three satellites simultaneously, combining the signals received
to ensure maximum service quality. As satellites are constantly moving in and
out of view, they will be seamlessly added to and removed from the calls in
progress, thereby reducing the risk of call interruption.
Superior Call Quality; Increased Privacy. Based on terrestrial simulations
of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital
technology will enable Globalstar to provide digital voice services which will
have better overall clarity, quality and privacy than those of analog land-based
cellular systems currently in use. Qualcomm's CDMA technology, which is
available to Globalstar on an exclusive basis for commercial MSS applications,
has also been selected for digital cellular service by 12 of the 15 largest U.S.
cellular service providers and the two largest holders of personal
communications services ("PCS") licenses in the U.S. (by population served).
Efficient Use of Satellite Resources. The Globalstar System's use of
multiple satellites to communicate with each Globalstar Phone (a patented SS/L
method of signal reception not available to competing systems) has been designed
to allow its communications signals to bypass obstructions. Path diversity is
expected to permit Globalstar to maintain its desired level of service quality
while using less power and satellite resources than would be required in a
system using single path satellites, which attempt to penetrate obstructions by
using higher single satellite power and overall higher link margins.
No Voice Delay. Globalstar satellites' low-earth orbit of 750 nautical
miles is 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 mid-earth orbit ("MEO") 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
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. Other proposed
satellite-based systems have proposed retail pricing ranging from under $1.00 to
$3.00 per minute plus monthly charges for some of the systems. 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. See
"Business -- Competition."
Simple Space Segment of Proven Design. Globalstar believes its system will
cost less to design and construct and may be the first of the proposed worldwide
systems to provide commercial service. To achieve low cost, reduce technological
risk and accelerate deployment of the Globalstar System, Globalstar's system
architecture uses small satellites incorporating a well-established repeater
design that acts essentially as a simple "bent pipe," relaying signals received
directly to the ground. All of the system's call processing and switching
operations are on the ground, where they are accessible for maintenance and can
benefit from continuing technological advances. The Globalstar space segment is
being manufactured under a fixed-price contract with SS/L. The contract provides
for the construction of 56 satellites meeting designated performance
specifications and for SS/L to obtain launch and launch insurance services.
Flexible, Low-Cost Ground Segment. Globalstar has been designed to offer
local governments and service providers affordable telephone infrastructure
where the cost of build-out of land-based wireline or wireless telephone systems
is either too great or not economically justifiable. By purchasing a single
gateway for approximately $3 million to $8 million (depending on the capacity
desired), a service provider can extend basic telephone service to fixed
terminals on a national basis in countries as large as Saudi Arabia and mobile
service to cover an area almost as large as Western Europe. As a result of the
low cost of its gateways, Globalstar expects that its service providers will
install gateways in most of the major countries in which they offer service.
Each country with a Globalstar gateway will have access to domestic service
without the
4
<PAGE> 9
imposition of international tail charges on in-country calls, thereby offering
subscribers the lowest possible cost for domestic calls, which account for the
vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Hand-held and vehicle-mounted
Globalstar Phones are anticipated to be priced comparably and will be similar in
size and function to current digital cellular telephones. Dual-mode Globalstar
Phones will be able to access both Globalstar and a variety of local land-based
analog and digital cellular services, where available. Mobile and fixed
Globalstar Phones are expected to cost less than $750 each, and Globalstar
public telephone booths are expected to cost between $1,000 and $2,500,
depending upon desired capacity and the number of units sharing a fixed antenna.
Qualcomm is required to license three additional manufacturers of Globalstar
Phones. Qualcomm has granted a license to Orbitel Mobile Communications Ltd.
("Orbitel"), an affiliate of L.M. Ericsson, to manufacture Globalstar Phones and
has contracted with Orbitel to develop a dual-mode GSM/Globalstar CDMA phone.
Globalstar believes that licensing multiple manufacturers will spur competition,
which will reduce prices. As is the case with many cellular systems today,
service providers may subsidize the cost of Globalstar Phones to generate
additional usage revenue. In addition, national and local governments may
subsidize some or all elements of system cost, particularly in rural areas,
thereby reducing the cost of access to subscribers.
LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS
Loral SpaceCom, through a subsidiary, has overall management responsibility
for the design, construction, deployment and operation of the Globalstar System.
Globalstar's strategic partners will play key roles in the design, construction,
operation and marketing of the Globalstar System.
Telecommunications service providers. AirTouch, Dacom, France Telecom and
Vodafone will provide in-country marketing and telephony expertise to
Globalstar. Globalstar's strategic partner service providers (the "Strategic
Service Providers") have been granted exclusive rights to provide Globalstar
service in countries around the world in which they have particular marketing
strength and experience and access to an established customer base of 60 million
subscribers. To maintain their service provider rights on an exclusive basis,
these Strategic 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 $5.0 billion
through 2005. Globalstar anticipates that these service providers will place
orders of approximately $500 million (for 50 gateways and 250,000 Globalstar
Phones) within six to nine months. In order to accelerate the deployment of
gateways around the world prior to the In-Service Date, Globalstar and the
Strategic Service Providers intend to jointly finance the procurement of 25
gateways and long-lead parts for 25 additional gateways for resale to service
providers. Globalstar expects to recover its investment in this gateway
financing program from such resales. There can be no assurance that the service
providers will elect to retain their exclusivity and make such payments or place
such orders for Globalstar Phones and gateways.
Globalstar expects to add additional service providers in order to provide
coverage throughout the world. Each service provider will, subject to obtaining
required local regulatory approvals, market and distribute Globalstar service in
its designated territories and own and operate the gateways necessary to serve
its markets.
Telecommunications equipment and aerospace systems manufacturers. SS/L,
Alcatel, Alenia, DASA, Finmeccanica and Hyundai have contracted to design, build
and deploy the Globalstar System. Qualcomm, using its CDMA technology, is
designing and will manufacture Globalstar Phones and gateways and has primary
responsibility, along with Globalstar, for the design and implementation of the
ground operations control centers ("GOCCs"). Qualcomm's CDMA technology is
available to Globalstar on an exclusive basis for commercial MSS satellite
applications. SS/L is performing under a fixed-price contract for the
construction of Globalstar's satellites in conjunction with its alliance
partners, Aerospatiale Societe Nationale Industrielle ("Aerospatiale"), Alcatel,
DASA and Finmeccanica (collectively, the "Strategic Alliance"), and with
Hyundai.
5
<PAGE> 10
RECENT DEVELOPMENTS
Globalstar remains on schedule to begin launching satellites in the second
half of 1997 and to commence operations in the second half of 1998. Globalstar's
recommended feeder link allocations were adopted at WRC '95, and Globalstar is
currently pursuing the final assignment of such feeder links before the FCC.
On December 15, 1995, Globalstar entered into a credit agreement with a
bank syndicate providing for a $250 million credit facility (the "Globalstar
Credit Agreement").
On January 7, 1996, Loral Corporation ("Loral"), the former parent of Loral
SpaceCom, entered into a merger agreement (the "Merger Agreement") with Lockheed
Martin and its subsidiary pursuant to which Lockheed Martin agreed, upon
satisfaction of certain conditions, to consummate a tender offer (the "Tender
Offer") for all outstanding shares of common stock of Loral. Pursuant to the
Restructuring, Financing and Distribution Agreement, dated as of January 7,
1996, among Loral, Lockheed Martin and certain subsidiaries of Loral (the
"Distribution Agreement"), Loral agreed to contribute its space and
telecommunications businesses, including all of its direct and indirect interest
in Globalstar, to Loral SpaceCom, a newly-formed Bermuda company, the shares of
which were distributed to Loral shareholders of record immediately prior to
Loral's acquisition by Lockheed Martin. The Tender Offer and the Distribution
were consummated in April 1996.
Following the consummation of the Tender Offer, Loral merged with a
subsidiary of Lockheed Martin. As a result of such merger, Globalstar now has,
through its relationship with Loral SpaceCom, the benefit of technical support
from Lockheed Martin. Upon the merger, Lockheed Martin guaranteed $206.3 million
of Globalstar's obligations under the Globalstar Credit Agreement, and SS/L and
certain other Globalstar strategic partners guaranteed $11.7 million and $32
million of Globalstar's obligations under the Globalstar Credit Agreement,
respectively. In addition, Loral SpaceCom has agreed to indemnify Lockheed
Martin for liability in excess of $150 million under its guarantee of the
Globalstar Credit Agreement.
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, the Company issued to Loral SpaceCom, Lockheed Martin, SS/L and the
other strategic partners participating in such guarantee or indemnity, warrants
(the "GTL Guarantee Warrants") to purchase 4,185,318 shares of Common Stock. The
GTL Guarantee Warrants have an exercise price of $26.50, are subject to certain
vesting requirements, expire on April 19, 2003, are not exercisable until six
months after Globalstar commences initial operations unless accelerated at the
sole discretion of the managing general partner of Globalstar and may not be
transferred to third parties prior to such exercise date. In connection with the
issuance of GTL Guarantee Warrants, the Company received (i) warrants to acquire
4,185,318 ordinary partnership interests in Globalstar ("Ordinary Partnership
Interests") plus (ii) additional warrants (the "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. As a
result, the Company will not incur any dilution of the Company's interest in
Globalstar resulting from the issuance of the GTL Guarantee Warrants. In
addition, Globalstar has also agreed to pay to Loral SpaceCom 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").
6
<PAGE> 11
SOURCES AND USES OF CAPITAL BY GLOBALSTAR
(In millions)
The net proceeds of the Original Offering to the Company were approximately
$300 million (after deducting discounts and commissions and expenses).
Globalstar has received commitments for financing which, together with projected
Service Provider Payments (defined in footnote (1) below), anticipated payments
from the sale of gateways and Globalstar Phones and projected net service
revenues from initial operations, will account for approximately $1.8 billion of
the approximately $2.2 billion that Globalstar expects to require to fully fund
the Globalstar System through the Full Constellation Date. See "Risk Factors."
The net proceeds of the Original Offering were used to acquire 4,769,230
Preferred Partnership Interests in Globalstar representing (on a fully converted
basis) an 8.4% equity interest in Globalstar on a fully diluted basis after
giving effect to the exercise of GTL Guarantee Warrants and the Additional
Warrants. Globalstar will in turn use substantially all of the proceeds from the
sale of the Preferred Partnership Interests to the Company towards the design,
construction and launch of the Globalstar System, including the procurement of
launch insurance and ground segment components, as well as related operating and
development expenses. Pending such use, the net proceeds will be invested in
short-term investment grade securities.
The following table summarizes the estimated sources and uses of capital by
Globalstar for the period from inception through the Full Constellation Date:
<TABLE>
<CAPTION>
SOURCES
<S> <C>
Funds Committed to Date:
Initial Equity Investments............... $ 294
Vendor Financing......................... 310
GTL Initial Public Offering Proceeds..... 186
Bank Financing........................... 250
Service Provider Payments(1)............. 33
Net Proceeds of the Original
Offering(2)............................ 300
-------
Total Funds to Date.................... 1,373
-------
Future Funds(3)(5):
Net Service Revenues from Initial
Operations............................. 162
Resale of Gateways(4).................... 88
Service Provider and Other Payments(1)... 164
Future Financing......................... 414
-------
Total Future Funds..................... 828
-------
Total Sources.......................... $ 2,201
=======
USES
Globalstar System:
Satellite Constellation(5)............... $ 998
Launch Services and Insurance............ 394
Ground Segment........................... 416
System Engineering....................... 20
-------
Total System Cost...................... 1,828
Operating Expenses and Working Capital..... 172
Net Cash Interest Expense and Preferred
Distributions............................ 64
Purchase of Gateways for Resale(4)......... 80
Repayment of Vendor Financing.............. 57
-------
Total Uses............................. $ 2,201
=======
</TABLE>
- ---------------
(1) Service Provider Payments are amounts to be paid to Globalstar for services
to be rendered by Globalstar to each service provider exclusively within a
particular territory (subject to certain limitations). Service providers
making such payments will be eligible for certain pricing concessions that
are subject to cumulative limitations. Other payments reflect amounts
anticipated to be received in connection with the sale of gateways and
Globalstar Phones. Globalstar has received commitments for $33 million, of
which $24 million has been paid through March 31, 1996, and expects that
future service provider agreements for territories not yet assigned will
provide an additional $120 million of Service Provider Payments through the
Full Constellation Date.
(2) Represents $310 million of gross proceeds from the sale of the Securities
less discounts and commissions and other expenses of the Original Offering
of $10 million.
(3) Additional funds to complete the Globalstar System are expected to be
obtained from a combination of sources, including the issuance of debt,
projected Service Provider Payments, projected net service revenues from
initial operations, anticipated payments from the sale of gateways and
Globalstar Phones and placements of limited partnership interests with new
and existing strategic investors. There can be no assurance that the future
financing will be available on favorable terms or on a timely basis, if at
all, or that Service Provider Payments and other payments from service
providers or cash flow from operations will be realized as anticipated. See
"Risk Factors -- Development Stage Company -- Additional Financing
Requirements."
(4) Globalstar and the Strategic Service Providers intend to jointly finance the
procurement of 25 gateways and long-lead parts for 25 additional gateways
for resale to service providers, thereby accelerating the deployment of
gateways around the world prior to the In-Service Date.
(5) Globalstar is presently evaluating a plan to purchase long-lead time
component parts for possible use in constructing 6 to 12 additional
satellites. The current estimated additional cost for these components is
approximately $75 to $120 million, depending upon the quantity purchased.
The plan has two purposes: (i) to enable Globalstar to have on-orbit at
least 38 to 44 satellites during 1999, even in the event of launch failures
of up to two launches of 12 satellites each, and (ii) to provide ground
spares that would be readily available to replenish the satellite
constellation in the event of satellite attrition during the first
generation or if there are opportunities for increasing capacity. If
Globalstar were to experience a launch failure, the long-lead time
components would be used to build replacement satellites and the cost
associated with the construction and launch of such satellites would be
reimbursed through insurance. See "Risk Factors -- Development Stage
Company -- Sources of Possible Delay and Increased Cost" and "Risk
Factors -- Technological Risks -- Satellite Launch Risks -- Limited Life of
Satellites."
7
<PAGE> 12
THE SECURITIES
Securities................. 6 1/2% Convertible Preferred Equivalent Obligations
due 2006 (the "Securities") of Globalstar
Telecommunications Limited. Although the Securities
are not equity securities under applicable Bermuda
law, the Securities are the substantial equivalent
of convertible preferred stock and will be treated
as such for U.S. tax purposes.
The Securities are convertible at a conversion
price of $65.00 per share into an aggregate of
4,769,230 shares of Common Stock, representing
approximately 25% of the Common Stock outstanding
on a fully diluted basis, and an indirect
beneficial interest in 4,769,230 units of Ordinary
Partnership Interests upon conversion of the
Preferred Partnership Interests, representing
approximately 8.4% of the total units of Ordinary
Partnership Interests outstanding on a fully
diluted basis after giving effect to the GTL
Guarantee Warrants and the Additional Warrants.
Principal Amount........... $310 million.
Mandatory Redemption
Date....................... March 1, 2006 (the "Mandatory Redemption Date").
Coupon..................... The Securities accrue interest at the rate of
6 1/2% per annum. Interest will be computed on the
basis of a 360-day year of twelve 30-day months and
will be payable quarterly in arrears on March 1,
June 1, September 1 and December 1 of each year
(each an "Interest Payment Date"), commencing on
June 1, 1996. The Company may make such payments in
(i) cash, (ii) by delivery of Common Stock to
Holders (based upon 90% of the Average Market Value
(as defined below)), or (iii) through any
combination of the foregoing; provided however,
that if Globalstar shall have paid the scheduled
distribution with respect to the Preferred
Partnership Interests corresponding to such payment
in cash, the Company shall make such payment in
cash.
The Company may elect to defer interest payments on
any Interest Payment Date if Globalstar shall have
deferred payment of the scheduled distribution in
respect of the Preferred Partnership Interests
corresponding to such interest payment. Arrearages
of deferred but unpaid interest accruals ("Interest
Arrearages") will not themselves bear interest, but
so long as any Interest Arrearage remains
outstanding, the Company will be prohibited from
paying (i) dividends on its Common Stock, (ii)
dividends on any preferred stock or (iii) interest
on debt ranking pari passu with or junior to the
Securities from time to time outstanding, except
with respect to such pari passu debt, on a pro rata
basis based on the aggregate principal amount of
such debt. Preferred distributions equal to the
aggregate amount of interest payable by the Company
on the Securities will be payable to the Company by
Globalstar in respect of the Preferred Partnership
Interests if, as and when declared by Globalstar's
General Partners' Committee. The Company may not
elect to defer any interest payment if Globalstar
has paid the scheduled distribution in respect of
the Preferred Partnership Interests corresponding
to such interest payment. In the event that
interest payments are deferred by the Company for
an aggregate of six quarterly interest payments,
the holders of the Securities (the "Holders") will
have the rights described under "Voting Rights"
below.
8
<PAGE> 13
Provisional Redemption by
Company.................. The Securities may be redeemed (the "Provisional
Redemption") by the Company, in whole or in part,
at any time prior to March 2, 1999, at a redemption
price of 103% of the aggregate principal amount of
the Securities to be redeemed plus accrued and
unpaid interest, if any, to the date of redemption
(the "Provisional Redemption Date"), in the event
that the Current Market Value (as defined below) of
the Common Stock equals or exceeds the following
Trigger Percentages of the Conversion Price then in
effect for at least 20 trading days in any
consecutive 30-day trading period ending on the
trading day prior to the date of mailing of the
notice of Provisional Redemption (the "Notice
Date"), if called for redemption in the 12-month
period ending on March 1 of the following years:
<TABLE>
<CAPTION>
YEAR TRIGGER PERCENTAGES
----- -------------------
<S> <C>
1997.. 170%
1998.. 160%
1999.. 150%
</TABLE>
Upon any Provisional Redemption, the Company will
make an additional payment (the "Interest
Make-Whole Payment") with respect to the Securities
called for redemption in an amount equal to the
present value of the aggregate value of the
interest payments thereafter payable on such
Securities from the Provisional Redemption Date to
the third anniversary of the Issue Date (the
"Interest Make-Whole Period"). Such present value
shall be calculated using the bond equivalent yield
on U.S. Treasury notes or bills having a term
nearest in length to that of the Interest
Make-Whole Period as of the Notice Date. THE
COMPANY SHALL BE OBLIGATED TO MAKE THE INTEREST
MAKE-WHOLE PAYMENT ON ALL SECURITIES CALLED FOR
PROVISIONAL REDEMPTION, REGARDLESS OF WHETHER SUCH
SECURITIES ARE CONVERTED PRIOR TO THE PROVISIONAL
REDEMPTION DATE.
Optional Redemption by
Company.................. Commencing March 2, 1999, the Securities will be
redeemable at any time, in whole or in part, at the
election of the Company (the "Optional
Redemption"), at a redemption price equal to the
percentage of the principal amount set forth below
plus accrued and unpaid interest, if any, to the
date of redemption (the "Optional Redemption
Date"), if redeemed in the 12-month period ending
on March 1 of the following years:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
----- ----------------
<S> <C>
2000.. 103%
2001.. 102%
2002.. 101%
</TABLE>
and thereafter at a redemption price equal to 100%
of the principal amount plus accrued and unpaid
interest, if any, to the Optional Redemption Date.
Mandatory Redemption by
Company.................. The Securities are subject to mandatory redemption
(the "Mandatory Redemption") by the Company on the
Mandatory Redemption Date, at a redemption price of
100% of the principal amount plus accrued and
9
<PAGE> 14
unpaid interest, if any (including all Interest
Arrearages), to the Mandatory Redemption Date.
Method of Payments......... Globalstar may make any payments due on the
Preferred Partnership Interests (i) in cash, (ii)
by delivery of Ordinary Partnership Interests to
the Company (as described below) or (iii) through
any combination of the foregoing. Likewise, the
Company may make any payments due on the
Securities, including redemption payments, interest
payments and the Interest Make-Whole Payment: (i)
in cash; (ii) by delivery of Common Stock (based
upon 90% of the Average Market Value (as defined
below) in the case of interest payments, including
Interest Make-Whole Payments, and 100% of the
Average Market Value in the case of all other
payments); or (iii) through any combination of the
foregoing, provided, however, that if Globalstar
shall have paid the scheduled distribution with
respect to the Preferred Partnership Interests
corresponding to any such payments in cash, the
Company shall make such payment in cash.
If Globalstar shall have made any payment on the
Preferred Partnership Interests by delivery of
Ordinary Partnership Interests, the Company may
make payments by delivery of Common Stock or a cash
payment from the proceeds of a sale of Common
Stock. The Company also reserves the right to make
interest payments notwithstanding the fact that it
shall not have received a distribution on the
Preferred Partnership Interests for the
corresponding Interest Payment Date.
If the Company elects to make a cash payment from
the proceeds of any issuance of Common Stock and
Globalstar shall have previously declared its
intent to pay its corresponding distribution in
Ordinary Partnership Interests, the valuation of
the Ordinary Partnership Interests to be delivered
to the Company underlying the Common Stock to be
issued shall be based upon the price at which such
Common Stock is sold. If the Company elects to
deliver Common Stock to the Holders in lieu of a
cash payment and Globalstar shall have previously
declared its intent to pay its corresponding
distribution in Ordinary Partnership Interests, the
valuation of the Ordinary Partnership Interests to
be delivered to the Company underlying such Common
Stock shall be based upon 90% of the Average Market
Value of the Common Stock, in the case of an
interest payment, including Interest Make-Whole
Payments, and 100% of the Average Market Value of
the Common Stock, in the case of all other
payments.
The Indenture (as defined below) for the Securities
and the agreement governing the Preferred
Partnership Interests will contain certain notice
procedures to provide the Company adequate time to
make all payments due on the applicable payment
date. Holders will receive notice, as described in
"Description of Securities -- Method of Payments",
stating (i) in the case of a Provisional or
Optional Redemption, the date of any such
Provisional or Optional Redemption and (ii) in the
case of all non-cash payments, the form of
consideration that the Company will make on the
applicable payment date.
"Average Market Value" of the Common Stock will
mean the arithmetic average of the Current Market
Value for the ten trading days ending on the second
business day prior to the applicable date of
payment.
10
<PAGE> 15
"Current Market Value" of the Common Stock will
mean the average of the high and low sale prices of
the Common Stock as reported on the NNM or any
national securities exchange upon which the Common
Stock is then listed, for the trading day in
question.
Optional Conversion
by Holders............... The Securities are convertible, in whole or in
part, at the option of the Holders at any time
after 60 days from the Issue Date and prior to the
Mandatory Redemption Date (unless earlier redeemed
by the Company), initially at the conversion price
of $65.00 per share (equivalent to 0.7692 shares of
Common Stock for each $50.00 principal amount of
Securities). Holders will not be entitled to any
Interest Arrearage upon conversion. The Conversion
Price is subject to adjustment upon the occurrence
of certain dilutive events.
Upon an optional conversion of Securities into
Common Stock, the Company will convert a
proportionate number of Preferred Partnership
Interests into Ordinary Partnership Interests.
References in this Offering Memorandum to
Globalstar partnership interests shall refer
collectively to the Preferred Partnership Interests
and the Ordinary Partnership Interests.
Voting Rights.............. Except as required by law, the Holders of the
Securities are not entitled to any voting rights
unless the Company has deferred interest payments
for an aggregate of six quarterly interest payments
(a "Deferral Trigger Event"), in which case the
number of members of the General Partners'
Committee of Globalstar will be increased by one
and the Holders of the Securities, voting
separately as a class with the holders of any other
securities upon which similar voting rights have
been conferred and are exercisable, will be
entitled to elect one representative to such
General Partners' Committee (the "CPE
Representative"). In addition, upon a Deferral
Trigger Event, Loral SpaceCom has agreed to use its
best efforts to cause the shareholders of the
Company to approve and elect a nominee to the Board
of Directors of the Company designated by the
Holders of the Securities (the "CPE Nominee"). If
the shareholders shall fail to approve such CPE
Nominee, Loral SpaceCom will seek the resignation
of a Loral SpaceCom designee director from the
Board of Directors of the Company and will use its
best efforts to cause the Board of Directors of the
Company to appoint the CPE Nominee to the Board of
Directors of the Company until the next annual
meeting of shareholders, at which time such
appointment will be submitted to the shareholders
of the Company for their approval; provided,
however, that if such shareholder approval is not
obtained, the above-described mechanics shall
continue to be in effect. The CPE Representative
and the CPE Nominee, if appointed to the Board,
will promptly resign their offices upon receipt of
notice from the Company that all Interest
Arrearages with respect to the Securities have been
paid.
Restrictive Covenants...... None.
Registration Rights........ Pursuant to a registration rights agreement (the
"Registration Rights Agreement") among the Company,
Globalstar and the Initial Purchasers, the Company
has agreed for the benefit of the Holders of
Securities that it will: (i) within 120 days after
the Issue Date, file a shelf registration statement
(the "Shelf Registration Statement") with the
11
<PAGE> 16
Commission with respect to resales of the
Securities and the Common Stock issuable upon
conversion thereof; (ii) use its best efforts to
cause such Shelf Registration Statement to be
declared effective by the Commission within 180
days after the Issue Date; and (iii) maintain such
Shelf Registration Statement continuously effective
under the Securities Act until the third
anniversary of the Issue Date or such earlier date
as of which the Securities shall no longer
constitute restricted securities pursuant to Rule
144(k) or until all the Securities or the Common
Stock issuable upon conversion thereof have been
sold pursuant to such Shelf Registration Statement.
Listing.................... The Securities are eligible for trading by
qualified institutional buyers on the PORTAL
Market. The Common Stock is listed on the NNM and
the Company has applied for listing the Conversion
Shares on the NNM.
Ranking of Securities...... The Securities will be subordinated to all existing
and future Debt Obligations (as defined herein) of
the Company and rank senior to preferred stock and
the Common Stock with respect to the payment of
dividends, payments on redemption and payments of
amounts distributable upon dissolution, liquidation
or winding up of the Company. The Securities will
be structurally subordinate to all existing and
future obligations of Globalstar. See "Ranking of
Preferred Partnership Interests" below.
Preferred Partnership
Interests.................. In connection with the Original Offering,
Globalstar and the Company amended the partnership
agreement to provide for the Company's purchase of
4,769,230 Preferred Partnership Interests. The
Preferred Partnership Interests have generally the
same terms and conditions as the Securities, except
that they will not be subject to any registration
rights, will be subordinate not just to the debt
obligations of Globalstar, but to all existing and
future liabilities of Globalstar, and cash
distributions thereon will be limited to the amount
of the partnership capital accounts that are
maintained for such interests and that reflect a
preferred allocation of Globalstar profits to such
accounts. The Preferred Partnership Interests will
have no voting rights, except as provided by law.
See "Governance of Globalstar -- Preferred
Partnership Interests" and "-- Allocations and
Distributions."
Ranking of Preferred
Partnership Interests...... The Preferred Partnership Interests are
subordinated to all existing and future liabilities
of Globalstar including without limitation: (i)
certain distributions made to partners in respect
of taxes levied upon the operations of Globalstar;
(ii) distribution of the Managing Partner's
Allocation (as defined below) to Loral/Qualcomm
Satellite Services, L.P. ("LQSS"), the managing
general partner of Globalstar; and (iii) the
Guarantee Fee or notes that may be issued to the
partners of Globalstar in lieu of such Guarantee
Fee. The Preferred Partnership Interests will,
however, rank senior to the Ordinary Partnership
Interests with respect to the payment of
distributions and otherwise receive certain
preferred allocation of profits and losses. See
"Risk Factors -- Risks Relating to the
Securities -- Subordination of Securities" and
"Governance of Globalstar -- Allocations and
Distributions."
12
<PAGE> 17
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained elsewhere in this Prospectus, in
evaluating whether to purchase the Offered Securities. The following risk
factors relate to the Company and Globalstar. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results in the future could differ significantly from the results
discussed in such forward-looking statements. Factors that could cause or
contribute to such a difference include, but are not limited to, those discussed
below in "Risk Factors" as well as elsewhere in this Prospectus and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" in the Company's Exchange Act reports incorporated by
reference into this Prospectus.
DEVELOPMENT STAGE COMPANY
Development Stage Company; Expectation of Continued Losses; Negative Cash
Flow. Globalstar is a development stage company and has no operating history.
From its inception, Globalstar has incurred net losses and expects such losses
to continue. Globalstar will require expenditures of significant funds for
development, construction, testing and deployment before commercialization of
the Globalstar System. Globalstar does not expect to launch satellites until the
second half of 1997, to commence operations before the second half of 1998 or to
achieve positive cash flow before 1999. There can be no assurance that
Globalstar will achieve its objectives by the targeted dates. In addition, upon
deployment and commencement of operations, any failure on the part of management
to manage effectively the growth of Globalstar may have an adverse effect on the
business of Globalstar.
Additional Financing Requirements. Globalstar expects to require total
capital of approximately $2.2 billion for capital expenditures, development and
operating costs of the system through 1998. To date, Globalstar has raised or
received commitments for approximately $1.4 billion in equity, debt and vendor
financing. Globalstar believes that its current equity, debt and vendor
financing commitments and the net proceeds of the Original Offering are
sufficient to fund Globalstar's requirements into the first quarter of 1997.
Additional funds to complete the Globalstar System are expected to be obtained
from a combination of sources, including the issuance of debt, projected Service
Provider Payments, projected net service revenues from initial operations,
anticipated payments from the sale of gateways and Globalstar Phones and
placements of limited partnership interests with new and existing strategic
investors. There can be no assurance that additional funds required to complete
the Globalstar System will be available or realized as anticipated. 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 in view of the early stage of
Globalstar's development, additional capital will be required. The ability of
Globalstar to achieve positive cash flow will depend upon the successful and
timely design, construction and deployment of the Globalstar System, the
successful marketing of its services by service providers and the ability of the
Globalstar System to successfully compete against other satellite-based
telecommunications systems, as to which there can be no assurance. If Globalstar
fails to commence commercial operations in the second half of 1998 or achieve
positive cash flow in 1999, additional capital will be needed.
Although Globalstar believes it will be able to obtain the additional
financing it requires, there can be no assurance that the capital required to
complete the Globalstar System will be available from the public or private
capital markets or from its existing partners on favorable terms or on a timely
basis, if at all. A substantial shortfall in meeting its capital needs would
prevent completion of the Globalstar System. See "Summary -- Sources and Uses of
Capital by Globalstar."
Sources of Possible Delay and Increased Cost. Potential investors should
be aware of the problems, delays and expenses that may be encountered by an
enterprise in Globalstar's stage of development, 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. Delay in the timely design, construction, deployment,
commer-
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cial operation and achievement of positive cash flow of the Globalstar System
could result from a variety of causes, including delays associated with 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 due to regulatory developments or
otherwise, delays encountered in the construction, integration or testing of the
Globalstar System by Globalstar vendors, delayed or unsuccessful launches,
delays in financing, insufficient or ineffective service provider marketing
efforts, slower-than-anticipated consumer acceptance of Globalstar service and
other events beyond Globalstar's control. Substantial delays in any of the
foregoing matters would delay Globalstar's achievement of profitable operations.
REGULATION
Licensing Risks; Impact of Multiple FCC Licensees; Impact on System
Capacity. 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 jurisdictions in which its service
providers intend to operate. On January 31, 1995, the FCC authorized
Loral/Qualcomm Partnership, L.P. ("LQP"), the general partner of Globalstar's
managing general partner, to construct, launch and operate the Globalstar System
for the purpose of providing MSS in the United States (the "FCC License"). The
FCC License was subsequently assigned to L/Q Licensee, Inc. ("L/Q Licensee"), a
wholly owned subsidiary of LQP. Even though Globalstar has received an 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. The FCC License authorizes the construction,
launch and operation of the satellite constellation and assigns the system's
user links in the United States. Globalstar must still receive unconditional
authorization for its feeder links. Separate licenses must also be obtained from
the FCC for operation of gateways and Globalstar Phones in the United States.
Failure to obtain, or delay in obtaining, any such authorization would adversely
affect implementation of the system. As discussed below, the feeder link
spectrum proposed for use with the Globalstar System has been allocated
internationally but has not yet been allocated in the United States for MSS
feeder links.
The MSS applications of LQP and five other companies (the "MSS applicants")
were considered concurrently at the FCC (the "MSS Proceeding") for authority to
construct, launch and operate MSS systems in the United States capable of
operating within the MSS user links. The FCC has stated that it could grant up
to five licenses for systems in the MSS user link spectrum. On January 31, 1995,
LQP and two other applicants (one a time division multiple access ("TDMA")
system and the other a CDMA system) were granted authorizations to construct,
launch and operate their proposed MSS systems. The three remaining applicants
have been given until September 16, 1996 to demonstrate that they meet the FCC's
financial qualification standard for MSS systems. The FCC has stated that it
will not consider additional applications for these user links until the
processing of these first six applications has been completed.
To the extent that additional MSS systems are authorized by the FCC or
other national regulatory bodies to use the spectrum for which Globalstar has
been authorized, the Globalstar System's capacity would be reduced. The FCC
licensees, and any others that may be licensed from the three pending
applications, will compete with Globalstar for investment capital, subscribers
and service providers in markets all over the world. See
"-- Demand -- Competition." In addition, the FCC License is subject to two
pending judicial appeals. The FCC dismissed or denied petitions for
reconsideration and denied an application for review of the decision to grant
LQP's application; however, two of the deferred applicants have filed judicial
appeals of the FCC's decision to find LQP qualified to hold the FCC License. The
two unsuccessful applicants have also appealed the FCC decisions on their
applications as well as the grant of licenses to other applicants. While
Globalstar believes that these appeals are without merit, there can be no
assurance that these appeals would not result in either reversal or stay of the
FCC's decision to grant the FCC License to LQP or ultimately result in the grant
of additional licenses by the FCC.
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In the event that the FCC were to be judicially required to reconsider its
licensing procedures as a result of judicial appeals, there is a risk that the
FCC could 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. There is also no assurance
that licensing authorities in other jurisdictions would not adopt auction
procedures. If an applicable regulatory authority were to adopt an auction
procedure, there can be no assurance that L/Q Licensee or the applicable
Globalstar service providers in such territories would be willing or able to
compete therein as successfully as other MSS applicants. In addition, even if
L/Q Licensee or the applicable Globalstar service providers were successful in
obtaining MSS licenses as a result of such spectrum auctions, the increased cost
and expenses incurred for such licenses could adversely affect Globalstar's
prospects.
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 territories 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.
Availability of Requested Feeder Link Spectrum. The frequencies in which
Globalstar proposes to operate its feeder links were allocated internationally
at the International Telecommunication Union's ("ITU") WRC '95 for
non-geostationary MSS feeder links. The FCC has granted LQP conditional
authority to construct a system at its own risk capable of operating in a
similar set of frequencies, and L/Q Licensee has filed a request at the FCC for
unconditional assignment of feeder links consistent with WRC '95 allocations.
Potential Interference with Glonass. A segment of the Russian Global
Navigation Satellite System ("Glonass") currently operates worldwide in a
portion of the frequency band proposed to be used by Globalstar and other MSS
systems for the user uplinks, resulting in potential difficulty in meeting
protection requirements for Glonass in the lower portion of the MSS band.
Glonass is a Russian multi-satellite geopositioning system, operating in
non-geostationary orbit. Glonass was developed for use in military aircraft
navigation and for precision deployment of missiles. However, Glonass may soon
be used in civilian aviation navigation. An agreement has been secured to move
Glonass to a lower frequency band by 1998, thereby providing additional
separation between MSS and Glonass operations to MSS systems. Negotiations are
ongoing between U.S. government officials and officials from the Russian
Federation to move Glonass to an even lower frequency band, thereby facilitating
full use of the 1610-1626.5 MHz band for MSS. Pending this frequency
modification, a segment of the MSS spectrum may not be useable for MSS user
uplinks so as to create a protective band of spectrum for Glonass. This is not
expected to have an adverse effect on Globalstar's capacity in the United
States. A decision to protect Glonass on the part of regulatory authorities in
nations making extensive use of Globalstar fixed services, however, could reduce
Globalstar's effective system capacity in such jurisdictions.
European Union Regulatory Matters. European Union competition law
proscribes agreements that have the effect of appreciably restricting or
distorting competition in the European Union. Globalstar and others have
received an inquiry from the Commission of the European Union requesting
information regarding its activities. A violation of European Union competition
law could subject Globalstar to fines or enforcement actions that could result
in expenses to Globalstar, delay the commencement of Globalstar service in
western Europe, and/or depending on the circumstances, adversely affect
Globalstar's contractual rights vis-a-vis its European strategic partners. In
addition, the Commission has proposed legislation at the European Union
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level which, if adopted, would give the Commission broad regulatory authority
over "satellite PCS" systems such as Globalstar.
TECHNOLOGICAL RISKS
Technological Risks. 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 tested or used as a commercial whole. Deployment of the Globalstar
satellite constellation will involve volume production and testing of satellites
in quantities significantly higher than those previously prevailing in the
industry. The integration of a worldwide LEO satellite-based system like
Globalstar has never occurred; there is no assurance that such integration will
be successfully implemented. The operation of the Globalstar System will require
the detailed design and integration of advanced digital communications
technologies in devices from personal handsets and public telephone networks to
gateways in remote regions of the globe and satellites operating in space. The
failure to develop, produce and implement the system, or any of its diverse and
dispersed elements, as required, could delay the In-Service or Full
Constellation Date of the Globalstar System or render it unable to perform at
the quality and capacity levels required for success.
Satellite Launch Risks. Satellite launches are subject to significant
risks, including disabling damage to or loss of the satellites. Historically,
launch failure ("hot failure") rates on low-earth orbit and geostationary
satellite launches have been approximately 10%. However, launch failure rates
may vary depending on the particular launch vehicle. The McDonnell-Douglas Delta
launch vehicle, scheduled to launch the first eight satellites (four per launch)
of the Globalstar satellite constellation, recently suffered a partial launch
failure on one out of its last fifty launches. The Ukrainian Zenit launch
vehicle, which is proposed to launch 36 Globalstar satellites (twelve per
launch), has never been used in commercial applications. The Chinese Long March
2E, which is currently scheduled to be used as the vehicle to launch the last
twelve satellites of the Globalstar satellite constellation (twelve per launch),
has experienced two failures in its last five attempts. In addition, a Long
March 3B recently suffered a failure on its maiden launch attempt. These
failures are being studied to assess their implications for the deployment of
Globalstar satellites. Globalstar currently anticipates launching satellites in
groups of either four or 12 satellites in each launch. Satellite launches of
more than eight commercial satellites have not been attempted before. There is
no assurance that Globalstar satellite launches will be successful or that its
launch failure rate will not exceed the industry average.
Globalstar's contract with SS/L for the construction and launch of its
satellite constellation requires SS/L to procure insurance covering the
replacement cost of satellites lost in the event of hot failure. There is no
assurance, however, that launch insurance will be available or that, if
available, would be at a cost or on terms acceptable to Globalstar. Globalstar's
launch contracts for 64% of its satellite constellation provide for relaunches
at no additional charge in the event of a hot failure. However, the launch
provider may, because of financial reasons or otherwise, be unable to provide
such relaunches. A single launch failure would result in a loss of either four
or 12 Globalstar satellites. Although the cost of replacing such satellites and
launch vehicles will in most cases be covered by insurance, a launch failure
could result in delays in the In-Service or the Full Constellation Date. See
"-- Limited Insurance."
SS/L has agreed to obtain launch vehicles on behalf of Globalstar and
arrange for the launch of Globalstar satellites at an estimated total cost of
$302 million for all 56 satellites, subject to an equitable adjustment 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.
Two of Globalstar's launch operators are subject to export control
regulations. China Great Wall Industry Corporation ("China Great Wall"), the
manufacturer of the Long March 2E and 3B, is located in China. NPO Yuzhnoye
("Yuzhnoye"), based in Ukraine, has certain ties with Russia and intends to
launch the Zenit rocket from a launch site in Kazakhstan. Changes in
governmental policies or political leadership in the
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United States, China, Ukraine, Russia or Kazakhstan could affect the cost,
availability, timing and/or overall advisability of utilizing these launch
providers. While there is no assurance that the necessary export licenses will
be obtained, Globalstar has provided against the risk that such licenses will
not be granted or that the deterioration in the relationships between the United
States and these countries may make the use of such launch providers inadvisable
by procuring options on sufficient launches with a U.S.-based launch provider to
launch all the remaining satellites of the Globalstar constellation. If
Globalstar were to exercise these options for U.S. launches in the wake of the
failure to obtain any necessary export licenses or as a result of adverse
developments in U.S. relations with these countries, the cost of launching the
Globalstar satellite constellation would be significantly increased.
Limited Life of Satellites. A number of factors will affect the useful
lives of Globalstar's satellites, including the quality of construction,
expected gradual environmental degradation of solar panels and the durability of
component parts. Random failure of satellite components could result in damage
to or loss of a satellite ("cold failures"). In rare cases, satellites could
also be damaged or destroyed by electrostatic storms or collisions with other
objects. As a result of these factors, the first-generation satellite
constellation (including spares) is designed to operate at full performance for
a minimum of 7 1/2 years, after which performance is expected to gradually
decline. However, there can be no assurance of the constellation's specific
longevity. Globalstar's operating results would be adversely affected in the
event the useful life of the satellites were significantly shorter than 7 1/2
years. Globalstar anticipates using funds generated from operations to develop a
second generation of satellites. If sufficient funds from operations are not
available and Globalstar is unable to obtain external financing for the
second-generation constellation, Globalstar will not be able to deploy a
second-generation satellite constellation to replace first-generation satellites
at the end of their useful lives. In that event, the Globalstar System would
cease operations at that time.
Limited Insurance. Globalstar intends to obtain insurance against launch
failure which would cover the cost of relaunch and the replacement cost of lost
satellites in the event of hot failures for 56 satellites in its constellation.
However, Globalstar may self-insure for hot failures for up to 12 such
satellites. Globalstar's contract with SS/L provides for the construction and
launch of eight spare satellites to minimize the effect of any launch or orbital
failures. Globalstar currently does not intend to purchase insurance to cover
any cold failures that may occur once the satellites have been successfully
deployed from the launch vehicle. Globalstar's management believes that this
quantity of spare satellites will be sufficient for full commercial operation.
However, there can be no assurance that additional satellites and launches will
not be required. In such an event, in addition to the replacement costs incurred
by Globalstar, the date for commencement of full commercial operations may be
delayed.
SS/L has agreed to obtain on Globalstar's behalf insurance for the cost of
replacing satellites lost in hot failures, and for any relaunch costs not
covered by the applicable launch contract, for an estimated premium of $92
million, in certain circumstances subject to an equitable adjustment in light of
future market conditions. An adverse change in insurance market conditions may
result in an increase in the insurance premium paid by Globalstar, which may be
substantial. In addition, there is no assurance that launch insurance will be
available or that, if available, would be at a cost or on terms acceptable to
Globalstar. Globalstar's contract with SS/L provides for the construction and
launch of eight spare satellites to minimize the effect of any launch or orbital
failures. Globalstar's management believes that this quantity of spare
satellites will be sufficient for initial operation. However, there can be no
assurance that additional satellites and launches will not be required. In such
an event, in addition to the replacement costs incurred by Globalstar,
Globalstar's In-Service or Full Constellation Date may be delayed.
FUTURE OPERATING RISKS
Dependence on Service Providers and Other Third Parties. The availability
of Globalstar service in each region or country will depend upon the
cooperation, operational and marketing efficiency, competitiveness, finances and
regulatory status of Globalstar's service provider in that region or country.
The willingness of companies to become service providers will depend upon a
variety of factors, including pricing, local regulations and Globalstar's
competitiveness with other satellite-based telecommunications systems.
Globalstar believes that enlisting the support of established telecommunications
service providers, some of which are
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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 70 countries although it is anticipated that in
many cases these partners will enter into strategic alliance with local service
providers to provide Globalstar service in these countries. In addition,
Globalstar expects to raise additional funds prior to the Full Constellation
Date in the form of Service Provider Payments from prospective service providers
in other territories throughout the world. Globalstar's business plan assumes
that Globalstar will contract with service providers to provide service in the
remaining territories of the world, in certain cases, on terms more favorable to
Globalstar than those contained in its founding service provider agreements, and
that such agreements will provide for Service Provider Payments due prior to the
Full Constellation Date aggregating $120 million. There can be no assurance that
additional service provider agreements will be entered into in the future or
that this plan will be achieved. If such Service Provider Payments are not
realized, Globalstar will be required to obtain other sources of financing in
order to complete the Globalstar System.
If the service providers fail to obtain the necessary local regulatory
approval or to adequately market and distribute Globalstar's services,
Globalstar's business could be adversely affected. There can be no assurance
that enough service providers will contract for Globalstar service and procure
and install the gateways and obtain the regulatory licenses necessary for
complete global service. Failure to offer service in any particular region will
eliminate that area's market potential and reduce Globalstar's ability to
service its global roamer market.
Certain strategic partners and other third parties are designing and
constructing the component parts of the Globalstar System and launching the
Globalstar satellites. In the event such parties are unable to perform their
obligations or are unable or not permitted due to political considerations to
provide Globalstar with a launch vehicle to launch its satellites, Globalstar's
In-Service and Full Constellation Date may be delayed and its costs may be
increased.
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, under certain pricing arrangements that Globalstar will offer
to its service providers, exchange rate fluctuations may affect the price
Globalstar will be entitled to receive for its services. There can be no
assurance that, in connection with entering into agreements with additional
service providers, or in connection with any agreements with its present service
providers, Globalstar will not incur any additional risks relating to currency
fluctuations.
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. In the event that
Globalstar is unable to offset any increased costs resulting from inflation with
efficiency advances in its technology, Globalstar's business may be adversely
affected.
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 or that such terms will, on the one hand, be high enough
to provide an attractive return on Globalstar's costs of designing, constructing
and operating the Globalstar System or, on the other hand, be attractive enough
to service providers to induce them to provide service, including, where
applicable, to make Service Provider Payments and, further, to permit them to
offer the service to end users at
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rates which will attract adequate subscriber volume. In the event that
Globalstar reduces its standard pricing, Globalstar's revenues at given levels
of usage will be lower than the revenue levels currently anticipated.
Substantial Leverage. Globalstar has entered into an agreement with a bank
syndicate for a $250 million credit facility expiring December 15, 2000, and
also expects to utilize $310 million of committed vendor financing which is
scheduled to mature earlier than the Mandatory Redemption Date. The Globalstar
Credit Agreement permits Globalstar to incur up to $950 million of indebtedness
on a senior basis to finance the buildout of the Globalstar System; an unlimited
amount of indebtedness may be incurred by Globalstar on a subordinated basis.
The Preferred Partnership Interests also do not limit the amount of indebtedness
that Globalstar may incur. Significant additional debt is expected to be
incurred in the future. As a result, Globalstar is expected to become 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.
Globalstar's current and future debt service requirements could have important
consequences to holders of the Offered Securities, including the following: (i)
limiting Globalstar's ability to obtain additional financing for future working
capital needs or financing for deployment, development and operation of the
Globalstar System or other purposes; (ii) dedicating a substantial portion of
Globalstar's cash flow from operations to the payment of principal and interest
on its indebtedness, thereby reducing funds available for operations and
distributions on its Preferred Partnership Interests; and (iii) increasing
Globalstar's vulnerability to adverse economic conditions than less leveraged
competitors and, thus, limiting its ability to withstand competitive pressures.
The discretion of Globalstar's management with respect to certain business
matters will be limited by covenants contained in the Globalstar Credit
Agreement and future debt instruments. Among other things, the covenants
contained in the Globalstar Credit Agreement restrict, condition or prohibit
Globalstar from paying cash distributions on its partnership interests, creating
liens on its assets, making certain asset dispositions, conducting certain other
business and entering into transactions with affiliates and related persons.
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 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 "Summary -- Sources
and Uses of Capital by Globalstar" and "-- Development Stage
Company -- Additional Financing Requirements."
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 March 11,
1993, the FCC proposed amending and updating its guidelines for evaluating
environmental radio frequency radiation from FCC-regulated transmitters. On
August 1, 1996 the FCC announced new guidelines to become applicable to
applications filed after January 1, 1997, based primarily on the exposure
criteria recommended in 1986 by the National Council on Radiation Protection and
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. The handsets Globalstar has
contracted with Qualcomm to develop for use by mobile subscribers will have
antennas for communication with the satellites and, in the case of the dual-mode
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.
Effect of Loss of Key Personnel. The success of Globalstar's business will
be partially dependent upon the ability of Globalstar to attract and retain
highly qualified technical and management personnel. None of Globalstar's
existing employees has an employment contract with Globalstar nor does
Globalstar maintain "key man" insurance with respect to any of such individuals.
There can be no assurance that Globalstar will be
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able to retain such persons or attract other highly qualified personnel.
Globalstar is dependent upon officers of Loral SpaceCom or subsidiaries thereof
for senior management services. Although one such officer has an employment
agreement with Loral SpaceCom, there can be no assurance that such person will
continue to be employed by Loral SpaceCom and thus continue to be available to
Globalstar. The loss of any of these individuals and the subsequent effect on
business relationships could have an adverse effect on Globalstar's business.
DEMAND
Competition. Competition in the telecommunications industry is intense,
fueled by rapid and continuous technological advances and alliances between
industry participants on an international scale. Although no present participant
is currently providing the same global personal telecommunications service
proposed by Globalstar, it is anticipated that one or more additional competing
MSS systems will be launched and that the success, or anticipated success, of
Globalstar and its competitors could attract other entrants. If any of
Globalstar's competitors succeeds in marketing and deploying its system
substantially earlier than Globalstar, Globalstar's ability to compete in areas
served by such competitor may be adversely affected. A number of satellite-based
telecommunications systems not involved in the MSS Proceeding have also been
proposed using geostationary satellites and, in one case, a MEO system.
Globalstar's most direct competitors are the two other FCC-licensed MSS
applicants, Motorola, Inc.'s ("Motorola") IRIDIUM system ("Iridium") and TRW,
Inc.'s ODYSSEY system ("Odyssey"), and ICO Global Communications' global
satellite system ("ICO"). ICO was not an applicant or a licensee in the MSS
Proceeding or any other proceedings before the FCC; it is seeking to operate in
a different frequency band not available for use by MSS systems under current
international guidelines in place until 2000. Comsat Corporation ("Comsat"), the
U.S. signatory to the International Maritime Satellite Organization
("Inmarsat"), has applied to the FCC to participate in the procurement of
facilities of the system proposed by ICO. It has also sought FCC approval of a
proposal to extend the scope of services provided by Inmarsat, currently limited
to maritime services, to include telecommunications services to land-based
mobile units. These applications are currently pending before the FCC. Comsat
has been instructed in the past by the U.S. government to seek to ensure that
ICO does not receive preferred access to any market and that non-discriminatory
access to such areas for all mobile satellite communications networks be
established, subject to spectrum coordination and availability. Nonetheless,
because ICO is affiliated with Inmarsat and because its investors include
state-owned telecommunications monopolies in a number of countries, there can be
no assurance that ICO might not be given preferential treatment in the local
licensing process in those countries. It is also possible that one or more of
the three pending MSS applicants will demonstrate financial qualification
sufficient to obtain an FCC license and become a competitor of Globalstar.
In addition to competing for investment capital, subscribers and service
providers in markets all over the world, the MSS systems, including Globalstar,
also compete with each other for the limited spectrum available for MSS
operations. Unlike CDMA systems such as Globalstar and Odyssey, which permit
multiple systems to operate within the same band, the design of Iridium's TDMA
system requires a separate frequency segment dedicated specifically for its use.
If more than two CDMA systems become operational, CDMA systems like Globalstar
will effectively have a smaller spectrum segment within which to operate their
user uplinks in the U.S. While CDMA does permit spectrum sharing among competing
systems, the capacity of the systems operating within that spectrum will
decrease as the number of systems operating in the band increases. For example,
Globalstar's capacity over a given area would decrease by approximately 25% if
the total number of licensed MSS systems increased from three to four, assuming
that Iridium is one of the licensed systems and the two other CDMA systems
receiving licenses have technical characteristics similar to Globalstar's and
are experiencing the same level of usage.
The FCC has declined to make efforts 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.
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Geostationary-based satellite systems, including American Mobile Satellite
Corporation ("AMSC"), Asia Pacific Mobile Telecom ("APMT"), Afro-Asian Satellite
("ASC"), PT Asia Cellular Satellite ("ACES"), Lockheed Martin's Satphone and
Comsat's Planet-1 plan to provide satellite-based telecommunications services in
areas proposed to be serviced by Globalstar. 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 has announced a global mobile satellite service (Planet-1) to
commence in 1996 using existing Inmarsat satellites, a six-pound, laptop-size
phone, costing $3,000 with an expected per-minute usage rate of $3.00. Comsat
has announced plans to offer Planet-1 services on a regional basis in Asia,
Africa and the Middle East in the summer of 1996 and in Europe and the Americas
in the fourth quarter of 1996.
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
begin operations. If the capacity of Globalstar and any competing systems
exceeds demand, price competition could be particularly intense. See
"-- Regulation -- Licensing Risks; Impact of Multiple FCC Licensees; Impact on
System Capacity."
TELEDESIC(R) ("Teledesic"), GM Hughes Electronics Corp.'s Spaceway(R)
("Spaceway") and Loral SpaceCom's Cyberstar ("Cyberstar") have each applied to
the FCC for licenses to operate satellite-based telecommunications and video
transmission systems in the 28GHz Ka-band. Certain MSS applicants, not including
Globalstar, have applied to use this band for their feeder uplinks, as have
proponents of land-based Local Multipoint Distribution Services ("LMDS") for
cellular television services. The FCC is in the process of developing a
band-width allocation plan for use of the available Ka-band spectrum by these
services, and recently adopted a band plan which designates frequencies for MSS
feeder links and Fixed-Satellite Service Systems, such as Teledesic, Spaceway
and Cyberstar. Globalstar's primary business will be voice telephony, and its
data transmission business will be focused on small data packet services such as
paging and messaging. It therefore does not regard the television or broadband
data services to fixed terminals proposed by Teledesic, Spaceway and Cyberstar
or the wireless cable and fixed telephony services proposed by the LMDS
applicants as competing services.
Risk of Accelerated Build-Out and Competing Technological Advances. It is
expected that as land-based telecommunications services expand to regions
currently underserved or not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems are
constructed at a more rapid rate than that anticipated by Globalstar, the demand
for Globalstar service may be reduced at rates higher than those assumed in
Globalstar's market analysis. Globalstar may also face competition in the future
from companies using new technologies and new satellite systems. New technology
could render Globalstar obsolete or less competitive by satisfying consumer
demand in alternative ways or through the introduction of incompatible
telecommunications standards. A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on Globalstar as a
result of their initial marketing efforts. Globalstar's business would be
adversely affected if competitors begin operations or existing or new
telecommunications service providers penetrate Globalstar's target markets
before completion of the Globalstar System.
21
<PAGE> 26
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 smallest and lightest 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 overhead. 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.
STRUCTURAL AND MARKET RISKS
Potential Conflicts of Interest. Partners of LQSS, the managing general
partner of Globalstar, or their affiliates are principal suppliers to Globalstar
of the major components of the Globalstar System, and are also expected to
engage in the manufacture of system elements to be sold to service providers and
subscribers. A substantial portion of the proceeds of the Original Offering will
be used to fund Globalstar's obligations under these contracts. During the
design, development and deployment of the Globalstar System, Globalstar will be
substantially dependent upon the management skills of Loral SpaceCom and certain
technologies developed by affiliates of Loral, Qualcomm and SS/L to design and
manufacture the Globalstar satellite constellation, satellite operations control
centers ("SOCCs"), GOCCs, gateways and Globalstar Phones. Globalstar has entered
into contracts for the design of various segments of the Globalstar System with
affiliates of LQSS, including a fixed-price satellite production contract with
SS/L and a cost-plus-fee contract with Qualcomm to design the gateways, GOCCs
and Globalstar Phones. To the extent that such contracts have been or will be
awarded to partners of Globalstar or LQSS or their affiliates, such parties will
have a conflict of interest with respect to the terms thereof.
Partners and affiliates of Globalstar, including companies affiliated with
or controlled by Loral SpaceCom, will be among Globalstar's principal service
provider customers and may therefore have conflicts of interest with respect to
the terms of Globalstar's service provider agreements and any proposed
amendments thereto. In addition, if Globalstar is unable to offer Globalstar
service to a service provider on competitive terms in a particular country or
region, such a service provider, which may be a partner of Globalstar, can act
as a service provider to a competing MSS system in such region or country while
at the same time serving as a Globalstar service provider in other markets.
Controlling Person. Globalstar is currently managed by a General Partners'
Committee, a majority of the representatives on which are designated directly or
indirectly by Loral SpaceCom. Representatives on the General Partners' Committee
not affiliated with Loral SpaceCom (the "Independent Representatives") will,
however, have the right to pass upon certain matters prior to any decision to
submit such matters to a vote of the partners and will have certain authority
over the hiring or dismissal of senior officers of Globalstar.
Change of Control of GTL and Reduction in Interest; Investment Company Act
Considerations. In the event of (i) a change of control of the Company at a
time when the Company owns less than 50% of the Globalstar partnership interests
outstanding, including certain changes in the Company's Board of Directors, or
(ii) a sale or other disposition of partnership interests following which the
equity interest of the Company in Globalstar has been reduced to an interest of
less than 5% (a "Reduction in Interest"), which, in the event of either clause
(i) or (ii) above has not been approved by LQSS or by the partners of
Globalstar, the Company will become a limited partner in Globalstar and will no
longer appoint representatives to serve on Globalstar's General Partners'
Committee. Certain other governance rights granted to the Company under
Globalstar's partnership agreement will also be revoked, and the Company will
enjoy only the rights of a limited partner in Globalstar. If the Company were to
cease participation in the management of Globalstar, which would result if the
Company were to undergo a change of control or a Reduction in Interest shall
have occurred, its interest in Globalstar could be deemed an "investment
security" for purposes of the Investment Company Act of 1940,
22
<PAGE> 27
as amended (the "Investment Company Act"). In general, a person is an
"investment company" if, subject to certain exceptions, it owns investment
securities having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities and cash items). The Company's sole
asset is its partnership interests in Globalstar. A determination that such
investment was an investment security could result in the Company's being deemed
to be an investment company under the Investment Company Act and its becoming
subject to the registration and other requirements of the Investment Company
Act. In order to register, the Company might be required to reincorporate as a
domestic U.S. corporation and would thereafter be subject to U.S. tax on its
worldwide income, subject to any applicable foreign tax credits. Absent a change
of control or a Reduction in Interest, Globalstar intends to conduct its
operations so as to avoid being deemed an investment company under the
Investment Company Act.
No Dividends; Holding Company Structure; General Partner Liability. GTL
has not declared or paid any dividends on its Common Stock, and Globalstar has
not made any distributions to its partners, since their respective dates of
inception. Except for interest payments by the Company on the Securities and
distribution payments by Globalstar on the Preferred Partnership Interests, the
Company and Globalstar do not currently anticipate paying any such dividends or
distributions prior to Globalstar's Full Constellation Date and achievement of
positive cash flow, which is not expected to occur until 1999. GTL is a holding
company, the sole asset of which is its partnership interests in Globalstar. The
Company has no independent means of generating revenues. Globalstar will pay the
Company's operating expenses related to Globalstar; such expenses are not
expected to be material. As a general partner of Globalstar, the Company is
jointly and severally liable with the other general partner for the debts and
other obligations of Globalstar to the extent Globalstar is unable to pay such
debts. To the extent permitted by applicable law and agreements relating to
indebtedness, Globalstar intends to distribute to its partners, including the
Company, its net cash received from operations, less amounts required to repay
outstanding indebtedness, pay distributions on the Preferred Partnership
Interests, satisfy other liabilities and fund capital expenditures and
contingencies (including funds required for design, construction and deployment
of the second-generation satellite constellation). The Company intends to
promptly distribute as dividends to holders of its Common Stock the
distributions made to it by Globalstar, less any amounts required for the
payment of taxes, for repayment of any liabilities, including payments on the
Securities, and to fund contingencies.
Rights of Shareholders under Bermuda Law. The Company is incorporated
under the laws of the Islands of Bermuda. Principles of law relating to such
matters as the validity of corporate procedures, the fiduciary duties of the
Company's management, directors and controlling shareholders, and the rights of
its shareholders are governed by Bermuda law and the Company's Memorandum of
Association and Bye-Laws. Such principles of law may differ from those that
would apply if the Company were incorporated in a jurisdiction in the United
States. In addition, there is uncertainty as to whether the courts of Bermuda
would enforce (i) judgments of United States courts obtained against the Company
or its officers and directors resident in foreign countries predicated upon the
civil liability provisions of the securities laws of the United States or any
state or (ii) in original actions brought in Bermuda, liabilities against the
Company or such persons predicated upon the securities laws of the United States
or any state.
Tax Considerations. Special U.S. tax rules apply to U.S. taxpayers who own
stock in a "passive foreign investment company" (a "PFIC"). Although the Company
believes that it will not become a PFIC, there is a risk that in the future it
may become one. In such an event, a U.S. shareholder would be subject at his
election either to (i) a current tax on undistributed earnings or (ii) a tax
deferral charge on certain distributions and on gains from a sale of the
Securities or Common Stock (which will be taxed as ordinary income).
The Company expects that a significant portion of its worldwide income will
not be subject to tax by the United States, Bermuda or by the countries from
which it derives its income. However, the extent to which certain foreign
jurisdictions may require the Company to pay tax or to make payments in lieu of
tax cannot be determined in advance. See "-- Investment Company Act
Considerations" and "Taxation."
Shares Eligible for Future Sale. As of June 30, 1996, the Company had
outstanding 10,000,000 shares of Common Stock and GTL Guarantee Warrants
entitling the holders thereof, subject to vesting requirements, to purchase
4,185,318 additional shares of Common Stock. In addition, the existing partners
of Globalstar will have the right, following the satisfaction of certain
performance criteria by the Globalstar
23
<PAGE> 28
System and after at least two consecutive reported fiscal quarters of positive
net income, to exchange their Ordinary Partnership Interests for an equal number
of shares of Common Stock of the Company, subject to certain limitations on the
amount of Ordinary Partnership Interests that may be so exchanged in any twelve-
month period (the "Exchange Right"). This Exchange Right may be accelerated upon
the occurrence of certain events, including a change of control of the Company.
As of June 30, 1996, an aggregate of 250,000 shares of Common Stock were
reserved for issuance under the Company's stock option plan. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock. The Company agreed to file, within 120
days after the Issue Date (as defined below), the Registration Statement with
the Commission covering the resale of the Securities and the Conversion Shares.
See "-- Dilution."
Volatility. The trading price of the Common Stock has been highly
volatile, and the trading price for the Securities may also be highly volatile.
Factors such as announcements of fluctuations in the Company's or its
competitors' operating results and market conditions for growth stocks or
technology stocks in general could have a significant impact on the future
trading price of the Common Stock and the Securities. In particular, the trading
price of the common stock of many technology companies has experienced extreme
price and volume fluctuations, which have at times been unrelated to the
operating performance of such companies whose stocks were affected. In addition,
the trading price of the Common Stock and the Securities could be subject to
significant fluctuations in response to variations in Globalstar's prospects and
operating results which will in turn be affected by delays in the design,
construction, deployment, customer acceptance and commercial operation of the
Globalstar System, delays in obtaining service providers or regulatory approvals
in particular countries, launch failures, general conditions in the
telecommunications industry, regulation, international events, changes in
interest rates and other factors. There can be no assurance that these factors
will not have an adverse effect on the trading price of the Common Stock or the
Securities.
Dilution. Globalstar expects to fund its remaining capital requirement of
approximately $828 million from a combination of sources, including the issuance
of debt, projected Service Provider Payments, projected net service revenues
from initial operations, anticipated payments from the sale of gateways and
Globalstar Phones and placements of limited partnership interests with new and
existing strategic investors. Globalstar may, subject to certain preemptive and
approval rights of Globalstar's other partners, sell additional equity interests
(either directly or through the issuance of warrants to purchase, or debt
securities convertible into, partnership interests), diluting the indirect
percentage ownership in Globalstar represented by the shares issuable upon
conversion of the Securities. Issuing additional partnership interests to new or
existing partners would dilute, pro rata, the percentage ownership in Globalstar
of the other Globalstar partners. The issuance of additional partnership
interests at prices lower than the Conversion Price would result in further
dilution to the Company.
The Company has issued the GTL Guarantee Warrants to purchase 4,185,318
shares of Common Stock of the Company. In connection with the issuance of the
GTL Guarantee Warrants, Globalstar issued to the Company warrants to purchase
4,185,318 Ordinary Partnership Interests plus Additional Warrants to purchase
1,131,168 Ordinary Partnership Interests. In order to raise proceeds sufficient
to exercise the Additional Warrants, GTL may be required to issue additional
shares of Common Stock. Furthermore, Ordinary Partnership Interests in
Globalstar are convertible, over a period of years following the Full
Constellation Date and after at least two consecutive reported fiscal quarters
of positive net income, into shares of Common Stock, subject to certain
restrictions, on a one-for-one basis, subject to adjustment in certain events.
RISKS RELATING TO THE SECURITIES
Subordination of Securities. Although the Securities are not equity
securities under applicable Bermuda law, the Securities are the substantial
equivalent of convertible preferred stock. The Securities will be subordinated
to all Debt Obligations with respect to the payments of interest and amounts
distributable upon dissolution, liquidation or winding up of the Company. At
June 30, 1996, the Company had no outstanding Debt Obligations. The Indenture
(as defined herein) governing the Securities will not limit the amount of
indebtedness or other obligations that the Company may incur. The Company may
incur additional
24
<PAGE> 29
indebtedness in order to finance the completion of the Globalstar System. Such
indebtedness in all likelihood will rank senior to the Securities. The Indenture
does not provide the Holders with any rights to accelerate the payment of the
Securities. See "-- Development Stage Company -- Additional Financing
Requirements."
In addition, because the Company is a holding company, the sole asset of
which is its partnership interests in Globalstar, its obligations on the
Securities will be structurally subordinate to all liabilities of Globalstar,
including, without limitation (i) the distribution of Globalstar's Managing
Partner's Allocation (the "Managing Partner's Allocation"); (ii) the Guarantee
Fee or notes that may be issued to the partners of Globalstar in lieu of such
Guarantee Fee; and (iii) certain distributions made to partners in respect of
taxes levied upon the operations of Globalstar. At June 30, 1996, Globalstar had
approximately $160 million of current liabilities and vendor financing ranking
senior to the Preferred Partnership Interests.
There can be no assurance that, in the event of a dissolution, liquidation,
reorganization or winding up of the Company, the purchasers of Securities will
receive any portion of their initial investment.
Absence of Existing Market for the Securities. The Company does not intend
to list the Securities on any national securities exchange or to seek the
admission thereof for trading on any automated dealer quotation system. The
Securities have been and may continue to be traded in the PORTAL market, the
National Association of Securities Dealers' screen-based automated market for
trading of securities eligible for resale under Rule 144A; however, no assurance
can be given as to the liquidity of, or trading market for, the Securities. The
Company has been advised by the Initial Purchasers that they are making and
currently intend to continue to make a market in the Securities. However, the
Initial Purchasers are not obligated to do so and any market-making activities
with respect to the Securities may be discontinued at any time without notice.
Notwithstanding the effectiveness of the Registration Statement of which this
Prospectus is a part, no assurance can be given as to the liquidity of the
trading market for the Securities.
The liquidity of, and trading market for, the Securities also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for the Company.
Dependence on Globalstar for Payments; Conflict of Interest. The Company
will be dependent in large part upon the distributions on the Preferred
Partnership Interests to service its cash payments on the Securities. The
payment of the scheduled distribution from Globalstar to the Company
corresponding to the interest payment due on the Securities and the redemption
payments corresponding to the Provisional Redemption and Optional Redemption are
at the sole discretion of Globalstar. To the extent that Globalstar defers
payment on the Preferred Partnership Interests in order to finance the buildout
of the Globalstar System or otherwise, the Company and Globalstar may be deemed
to have a conflict of interest. In addition, Globalstar may defer any scheduled
distribution with respect to interest payments on the Securities without
compound interest or penalty. As a result, whether the Company makes any of
these payments to Holders is primarily controlled by Globalstar.
Interest Deferral; Payments in Common Stock. Interest payments on the
Securities are subject to deferral by the Company without compound interest or
penalty. The Holders will not have any rights to accelerate payment following
such deferral and will only be entitled to certain voting rights described
herein. See "Description of Securities--Voting Rights." If any scheduled
distribution from Globalstar is made by delivery of Ordinary Partnership
Interests, the Company may make the corresponding interest payment by delivering
Common Stock or by selling Common Stock and using the proceeds from such sale to
make such payment. There is no assurance that the liquidity of, or trading
market for, the Common Stock will be sufficient to allow a Holder of Securities
to fully realize the value of Common Stock received in payment therefor. See
"Description of Securities -- Method of Payments."
In addition, the Company may deliver Common Stock or sell Common Stock and
use the proceeds from such sale to make a payment on the Securities, even if
Globalstar has elected not to make the corresponding payment with respect
thereto. To the extent that the Company sells Common Stock in such a manner, the
interest of the Holders of the Securities in the Company and in Globalstar will
be diluted.
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<PAGE> 30
Dependence on Globalstar Capital Accounts for Cash Distributions to the
Company. The amount of cash that Globalstar can pay to the Company in
redemption of its Preferred Partnership Interests will be limited to the balance
in the capital account maintained by Globalstar with respect to such Preferred
Partnership Interests. Such capital account balance initially will equal the net
proceeds of the Original Offering (approximately $300 million); subsequently,
such capital account balance will be increased by the amount of adjusted income
allocated to, and decreased by the amount of losses allocated and cash
distributed to, the Company with respect to such Preferred Partnership
Interests. Adjusted income for this purpose is computed by adding amortization
and depreciation expense to profits and will include increases in the fair
market value of Globalstar's assets that will be recognized as income when
partnership interests are issued or redeemed. Losses would be allocated to the
Preferred Partnership Interests only after losses have first been allocated to
reduce the capital accounts for all Ordinary Partnership Interests to zero. To
the extent the aggregate cash distributions made by Globalstar to the Company
with respect to the Preferred Partnership Interests plus the Original Offering
expenses exceed the aggregate amount of adjusted income allocated to the
Preferred Partnership Interests of the Company, the balance in the capital
account will be less than the full amount of the redemption price for the
Preferred Partnership Interests at the Mandatory Redemption Date. In such case,
Globalstar will pay the excess of the redemption price over the balance in the
capital account by issuing additional Ordinary Partnership Interests to the
Company.
To the extent the Company receives some or all of the redemption price of
the Preferred Partnership Interests in Ordinary Partnership Interests, the
Company will pay the redemption price of the Securities, to the extent in excess
of cash received, by issuing shares of Common Stock to Holders of the Securities
or by selling Common Stock and using the net proceeds therefrom to make such
payment.
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 Securities 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.
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<PAGE> 31
RATIOS
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES(1)
The ratio of earnings to fixed charges presented below should be read in
conjunction with the Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" found in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1995 ENDED JUNE 30, 1996
----------------------------------------------------------------------------
<S> <C>
N/A 1x
</TABLE>
- ---------------
(1) The earnings of the Company available to cover fixed charges consist solely
of dividends from Globalstar on the Redeemable Preferred Partnership
Interests held by the Company.
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands)
The deficiency of earnings to fixed charges and preferred stock dividends
presented below should be read in conjunction with the Financial Statements and
the notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" found in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 incorporated herein by
reference.
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994 MARCH 23, 1994
(COMMENCEMENT OF SIX MONTHS (COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1996
- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
$26,244 $68,237 $35,044 $129,525
</TABLE>
USE OF PROCEEDS
The Securities, the Conversion Shares and the LBP Shares offered by the
Selling Holders are not being sold by the Company, and the Company will not
receive any proceeds from the sale thereof.
DIVIDEND POLICY
Except for payment by the Company on the Securities and payment by
Globalstar on the Preferred Partnership Interests, the Company and Globalstar do
not currently anticipate paying any such dividends or distributions prior to
Globalstar's Full Constellation Date and achievement of positive cash flow,
which is not expected to occur until 1999. The Company is a holding company, the
sole asset of which is its partnership interests in Globalstar; the Company has
no independent means of generating revenues. Globalstar will pay the Company's
operating expenses related to Globalstar; such expenses are not expected to be
material. To the extent permitted by applicable law and agreements relating to
indebtedness, Globalstar intends to distribute to its partners, including the
Company, its net cash received from operations, less amounts required to repay
outstanding indebtedness, pay distributions on the Preferred Partnership
Interests, satisfy other liabilities and fund capital expenditures and
contingencies (including funds required for design, construction and deployment
of the second-generation satellite constellation). Cash distributions by
Globalstar may be restricted by future debt covenants. The Company intends to
promptly distribute as dividends to the holders of its Common Stock the
distributions made to it by Globalstar, less any amounts required to be retained
for the payment of taxes, for repayment of any liabilities, including payments
on the Securities, and to fund contingencies. See "Risk
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<PAGE> 32
Factors -- Structural and Market Risks -- No Dividends; Holding Company
Structure; General Partner Liability."
REGULATION
UNITED STATES FCC REGULATION
On January 31, 1995, LQP was granted authority by the FCC to construct,
launch and operate the Globalstar System in assigned bands of the radio
frequency spectrum for the user links. The authorization was subsequently
assigned to L/Q Licensee, Inc. The FCC is the United States agency with
jurisdiction over commercial uses of the radio spectrum. All commercial MSS
systems such as Globalstar must obtain an authorization from the FCC to
construct and launch their satellites and to operate the satellites to provide
MSS services in assigned spectrum segments in the United States. The FCC may
also adopt rules from time to time applicable to MSS systems which may impose
constraints on the operation of Globalstar satellites, subscriber terminals
and/or gateway earth stations.
In November 1994, LQP requested that the FCC grant it authority to
construct, launch and operate the Globalstar System using four separate segments
of the radio frequency spectrum. The four segments proposed for Globalstar MSS
operations were:
<TABLE>
<S> <C>
User links: 1610-1626.5 MHz (user-to-satellite)
2483.5-2500 MHz (satellite-to-user)
Feeder links: 5025-5225 MHz (gateway-to-satellite)
6875-7075 MHz (satellite-to-gateway)
</TABLE>
The FCC License grants authority to construct the Globalstar System capable
of operating in the 1610-1626.5 MHz and 2483.5-2500 MHz bands, but authorizes
launch and operation in the 1610-1621.35 MHz and 2483.5-2500 MHz bands,
consistent with the United States band plan for MSS Above 1 GHz systems. While
the FCC granted LQP authority to construct the system at its own risk using the
requested feeder link bands, it deferred action on grant of launch and operation
authority for specific feeder link assignments until after WRC '95. L/Q Licensee
has filed an application requesting assignment of feeder links in the 5 GHz and
7GHz bands consistent with the international allocation for non-geostationary
MSS feeder links in these bands adopted at WRC '95. As described below, the WRC
'95 allocation for the feeder uplinks was different from the initial Globalstar
proposal. Accordingly, L/Q Licensee has also filed a request for the FCC to
modify its construction authority related to feeder links to conform to the WRC
'95 allocation for MSS feeder links in the 5 GHz band.
The authorization granted by the FCC to LQP for Globalstar requires that
construction, launch and operation of the system must be accomplished in
accordance with the technical specifications set forth in the Globalstar FCC
application, as amended, and consistent with the FCC's rules unless specifically
waived. During the process of constructing the Globalstar System, there may be
certain modifications to the design set forth in the application on file with
the FCC which may require filing an application to modify the authorization,
such as the application for feeder link assignments. 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.
LQP's MSS application was one of six considered concurrently by the FCC. On
January 31, 1995, Motorola and TRW also were granted FCC licenses for MSS above
1 GHz systems. The applications of three other applicants were deferred, and
these three applicants were given until January 1996 to establish that they are
financially qualified to receive an MSS license. In January 1996, at the request
of two of the deferred applicants, the FCC granted an extension of the deadline
for demonstrating such financial qualification for all three deferred
applicants. On August 15, 1996, this deadline was extended until September 16,
1996.
The FCC License only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar Phones in the
United States. Globalstar's authorized United States service provider, AirTouch,
will apply for the required regulatory authorizations for operation of gateways
and Globalstar Phones, and the
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manufacturer will apply for equipment authorization for Globalstar Phones.
Failure to obtain, or delay in obtaining, such licenses and authorizations would
adversely affect the implementation of the Globalstar System. Similar procedures
are expected to apply internationally.
Globalstar proposes to operate on an international basis, but the FCC
License only authorizes construction and launch of the system for operation in
the United States. Even though the Globalstar System is licensed to 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 Globalstar.
User links. "User link" refers to frequencies used for links between the
satellites and Globalstar Phones. The Globalstar System has been licensed to
operate with its user uplinks (earth-to-satellite) in the 1610-1621.35 segment
of the 1610-1626.5 MHz band and with its user downlinks (satellite-to-earth) in
the 2483.5-2500 MHz band. The 1610-1626.5 MHz and 2483.5-2500 MHz bands have
been allocated in both the United States and internationally for MSS user links.
These two frequency bands are also allocated in the United States for the
Radio-Determination Satellite Service ("RDSS") on a co-primary basis with MSS
systems. RDSS is a service which provides radio location through one or more
satellites. Co-primary status requires systems in the relevant services to
coordinate operations as specified by the FCC. "Coordination" generally refers
to development of operational standards which allow two or more transmitting
radio frequency stations to share the same frequency band so that neither causes
or is subject to interfering emissions greater than a specified permissible
level.
The 1610-1626.5 MHz band is also allocated in the United States on a
co-primary basis with MSS for the Aeronautical Radio-Navigation Service
("ARNS"), and the 1610.6-1613.8 MHz segment is also allocated on a co-primary
basis with MSS for the Radio-Astronomy Service ("RAS"). ARNS is a radio-
navigation service intended for the benefit and for the safe operation of
aircraft. RAS involves reception of radio waves of cosmic origin. Operation of
Globalstar user links for MSS in the United States will be constrained to the
extent that the FCC requires L/Q Licensee to coordinate its operations with and
to provide interference protection for authorized systems in the RDSS, RAS or
ARNS services in these bands. "Interference protection" refers to protection for
a radio frequency receiver and is generally stated as a ratio, usually expressed
in decibels, at the receiver input determined under specified conditions such
that a specified reception quality of the wanted (or desired) signal is achieved
at the receiver input.
The FCC recently concluded that the Russian Glonass system is unlikely to
be used for ARNS in the United States prior to the year 2005 when Glonass is
scheduled to operate outside Russia only below 1605 MHz. There is now a petition
for reconsideration of this decision pending at the FCC, which requests the FCC
to require MSS Above 1 GHz systems to protect Glonass operations above 1605 MHz
through 2005. Moreover, the aviation community is seeking stringent protection
levels for Glonass operations below 1605 MHz. There can be no assurance that the
FCC would not impose requirements for protection of Glonass operations below or
above 1605 MHz which may adversely effect the usefulness of a segment of the
1610-1626.5 MHz band for Globalstar user links.
As a CDMA system, Globalstar must coordinate its operations in the United
States with other licensed Big LEO 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 1610-1621.35 MHz and 2483.5-2500 MHz bands, but the FCC did not adopt
specific guidelines for coordination among CDMA systems. There may be an adverse
effect on the implementation of the Globalstar System as a result of this
intersystem coordination process, depending upon the number of CDMA systems with
which it must coordinate operations, their relative stages of development and
readiness to coordinate, and their willingness to coordinate in good faith and
in a timely manner. While the FCC has stated that authorized CDMA systems may
request relief at the FCC in the event that this CDMA coordination process is
delayed, there can be no assurance that, if LQP sought such
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relief, the FCC would take favorable action or that it would act in a timely
manner. The FCC has also encouraged the CDMA Big LEO systems to coordinate
operations with the TDMA system to resolve any potential interference issues.
Again, there can be no assurance that such intersystem coordination would not
have an adverse effect on Globalstar operations.
Feeder links. "Feeder link" refers to frequencies used for links between
the satellites and gateway earth stations. The feeder links in which Globalstar
applied to operate in November 1994 consist of the 5025-5225 MHz band for feeder
uplinks and the 6875-7075 MHz band for feeder downlinks. L/Q Licensee has been
granted conditional authorization to construct the Globalstar System with these
feeder link frequencies at its own risk. In March 1996, L/Q Licensee submitted a
modification application to the FCC, requesting that it be assigned the
5091-5250 MHz and 6875-7055 MHz bands for use as feeder links for the Globalstar
System to conform to action taken at WRC '95.
At WRC '95, the ITU adopted modifications to the International Table of
Frequency Allocations to allocate the 5091-5250 MHz band (earth-to-space) and
6875-7075 MHz (space-to-earth) for non-geostationary MSS feeder links.
Generally, in order to adopt an allocation into the U.S. Table of Frequency
Allocations, the FCC initiates a notice-and-comment rulemaking proceeding. The
FCC has not yet initiated such a proceeding to adopt the WRC '95 MSS feeder link
allocations for the United States. There can be no assurance that the FCC will
initiate and complete such a rulemaking on a timely basis, or that the U.S.
allocation would be identical to the international allocation. Although
Globalstar has requested a waiver of the U.S. Table to expedite the FCC's
assignment of its feeder links, there can be no assurance that an unconditional
assignment would be made before the conclusion of such a rulemaking proceeding.
There can also be no assurance that third parties would not object to the
allocation and/or the proposed feeder link assignment to Globalstar. In April
1996, the FCC initiated a notice-and-comment rulemaking to adopt rules which
would make available 350 MHz in the 5 GHz band, including 5150-5250 MHz, for use
by unlicensed devices for wireless high speed data services. In 1995, LQP
opposed the petitions for rulemaking which sought promulgation of such rules on
the grounds that the proposals were inconsistent with the U.S. recommendations
for the 5000-5250 MHz band at WRC '95 and that the petitioners had not
demonstrated the feasibility of sharing with MSS feeder links or the need for
the bandwidth requested. In its rulemaking notice, the FCC has proposed rules
which are designed to ensure that these devices do not cause harmful
interference into licensed services using these bands, such as MSS feeder links.
L/Q Licensee filed comments opposing the use of the 5150-5250 MHz band by these
unlicensed devices with the technical parameters proposed by the FCC. However,
there can be no assurance that adoption of the rules proposed by the FCC, 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 or on the usefulness of these bands for MSS
feeder links.
The 5000-5250 MHz band, which includes Globalstar's proposed feeder
uplinks, is allocated on an international basis and in the United States for
ARNS. Use of the 5 GHz band for MSS feeder links may be subject to stringent
interference protection criteria and coordination requirements with ARNS
systems. The 6875-7075 MHz band is allocated on a co-primary basis in the United
States to Fixed-Satellite Service uplinks and to terrestrial fixed and mobile
microwave systems, with which Globalstar may also be required to coordinate.
Such coordination requirements may adversely affect the usefulness of these
bands for MSS feeder links. Although both Motorola and TRW have requested feeder
links in the 20/30 GHz band, other U.S. Big LEO systems have requested feeder
links in the same bands as Globalstar. If such systems are licensed and are
assigned feeder links in the same bands as Globalstar, Globalstar would be
required to coordinate its use of the feeder links with such systems. Such
inter-system coordination may adversely affect the usefulness of these bands for
Globalstar feeder links.
In May 1996, the FCC initiated a notice-and-comment rulemaking to adopt
rules governing procedures to authorize service in the United States by
satellite systems licensed by foreign countries. If a foreign satellite system
was authorized to operate in the United States on the frequencies assigned as
Globalstar user links or feeder links, additional coordination obligations may
be imposed upon the Globalstar System.
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In its order adopting rules and policies for MSS above 1 GHz (the "Order"),
the FCC stated that an MSS above 1 GHz license would impose implementation
milestones on licensed systems. 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. However, the milestone schedule does not become effective until Globalstar
is granted an unconditional authorization which includes feeder link
frequencies. 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 in the Order have been
challenged in a judicial appeal and were the subject of petitions for
reconsiderations at the FCC. On February 15, 1996, the FCC released an order
resolving petitions for reconsideration of the Order. Three petitions seeking
further reconsideration or clarification of this order have been filed. Judicial
appeals regarding the FCC's decisions on the petitions for reconsideration may
also be filed. In the event that the FCC were to be judicially required to
reconsider its licensing procedures as a result of the pending judicial appeal,
or an appeal of the orders on reconsideration, there is a risk that the FCC
would reprocess the MSS applicants and adopt a different licensing procedure.
Under these circumstances, there can be no assurance that the FCC would not use
an auction procedure to award licenses. If the FCC were to use an auction
procedure, there can be no assurance that L/Q Licensee 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 L/Q Licensee were successful
in obtaining an MSS license in the spectrum auction, the increased cost and
expenses incurred in bidding for the license would adversely affect Globalstar.
Applicable statutes and regulations permit a judicial appeal of the grant
of the FCC License in order to seek reversal of the FCC's decision to grant the
FCC License. The FCC has dismissed or denied petitions for reconsideration and
denied an application for review of the decision to grant LQP's application. Two
of the deferred applicants have filed judicial appeals of the FCC's decision to
find LQP qualified to hold the FCC License. There can be no assurance that these
appeals would not be granted. Furthermore, there can be no assurance that the
court will take timely action on such appeals. If such an appeal were
successful, there can be no assurance that on remand the FCC would not decide to
deny L/Q Licensee's application, or that on remand the FCC would take action on
L/Q Licensee's 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 not be able to make such information
available to some investors or 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 transfer of technology, including rocket technology, to China and
certain republics of the former Soviet Union. Because Globalstar's launch
strategy contemplates using Chinese and Ukrainian launch providers with launch
sites located in China and Kazakhstan, special export licenses are required to
be obtained by SS/L in connection with these launches.
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While Globalstar and SS/L have received informal confirmations from various
governmental officials that all necessary permits should be forthcoming, and
Globalstar has no reason to believe such permits will not be obtained, there can
be no assurance that such export licenses will be granted, or, once granted,
that the United States will not impose additional restrictions or trade
sanctions against China or republics of the former Soviet Union in the future
that would adversely affect the planned launches of the Globalstar satellite
constellation.
The Export Administration Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which 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. The Company does not believe that these regulations will have a
material adverse effect on Globalstar's operations.
PRINCIPAL PARTNERS OF GLOBALSTAR
The following table sets forth, as of August 15, 1996, certain information
regarding the beneficial ownership of ordinary partnership interests in
Globalstar. Globalstar has been involved in ongoing discussions with certain
potential strategic partners and other strategic investors regarding
transactions involving, among other things, possible investments in Globalstar
Ordinary Partnership Interests.
GLOBALSTAR, L.P.(1)
<TABLE>
<CAPTION>
INTEREST PARTNERSHIP INTERESTS PERCENTAGE
-------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Loral SpaceCom(2)....................................... 17,507,867 36.0%
Public Stockholders of GTL(3)........................... 11,785,163 23.5
Qualcomm................................................ 3,726,000 7.9
Vodafone................................................ 3,540,000 7.5
AirTouch................................................ 3,000,000 6.4
Finmeccanica............................................ 2,800,000 6.0
Hyundai(4).............................................. 2,400,000 5.1
Alcatel(5).............................................. 2,190,000 4.7
DASA(6)................................................. 1,720,000 3.7
France Telecom(7)....................................... 1,530,000 3.2
SS/L(8)................................................. 970,200 2.1
Dacom(9)................................................ 600,000 1.3
</TABLE>
- ---------------
(1) Includes impact of the conversion of the Securities and Preferred
Partnership Interests issuable in connection therewith and excludes the
issuance of the GTL Guarantee Warrants and the Additional Warrants, as such
warrants are not exercisable within 60 days. Beneficial ownership of
partnership interests has been calculated pursuant to Regulation 13d-3
under the Securities Exchange Act of 1934, as amended, which provides that:
"Any securities not outstanding which are subject to such options,
warrants, rights or conversion privileges shall be deemed to be outstanding
for the purpose of computing the percentage of outstanding securities of
the class owned by such person but shall not be deemed to be outstanding
for the purpose of computing the percentage of the class by any other
person."
(2) Of the amount held by Loral SpaceCom (i) 2,000,000 partnership interests
represent Loral SpaceCom's allocable share of the 3,000,000 partnership
interests held by Loral/DASA Globalstar, L.P., a joint venture between
Loral SpaceCom and DASA which is 66.7% owned by Loral SpaceCom and 33.3%
owned by DASA, (ii) 1,009,800 partnership interests represent Loral
SpaceCom's indirect interest in 1,980,000 partnership interests held by
SS/L, (iii) 1,407,144 partnership interests represent Loral SpaceCom's
holdings of Common Stock of the Company, without giving effect to the grant
by Loral SpaceCom to certain of its executive
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officers and directors of options to acquire an aggregate of 340,000 shares of
Common Stock (none of such options have yet been exercised) and (iv) 1,576,923
partnership interests represent the conversion of the Securities and Preferred
Partnership Interests.
(3) Includes (i) 3,192,307 partnership interests which represent the conversion
of the Securities and Preferred Partnership Interests. Does not include
partnership interests attributed to Loral SpaceCom described in note
(2)(iii) and (iv) above and (ii) 267,256 partnership interests held by the
LB Partnerships through their ownership of Common Stock.
(4) Represents Hyundai's allocable share of the 3,000,000 partnership interests
held by Hyundai/Dacom, a joint venture which is 80% owned by Hyundai and
20% owned by Dacom.
(5) Of the amount held by Alcatel, 1,470,000 partnership interests represent
Alcatel's allocable share of the 3,000,000 partnership interests held by
TESAM, which is 51% owned by France Telecom and 49% owned by Alcatel.
(6) Of the amount held by DASA, 1,000,000 partnership interests represent
DASA's allocable share of the 3,000,000 partnership interests held by
Loral/DASA Globalstar, L.P.
(7) Represents France Telecom's allocable share of the 3,000,000 partnership
interests held by TESAM.
(8) Excludes 1,009,800 partnership interests attributable to Loral's 51%
interest in SS/L.
(9) Represents Dacom's allocable share of the 3,000,000 partnership interests
held by Hyundai/Dacom.
GOVERNANCE OF GLOBALSTAR
The following discussion summarizes certain provisions of the Globalstar
partnership agreement. This summary is qualified in its entirety by reference to
the Globalstar partnership agreement, a copy of which has been filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 which is incorporated by reference into this Prospectus.
GENERAL PARTNERS' COMMITTEE
Globalstar has two general partners, LQSS and GTL. LQSS is the managing
general partner of Globalstar. Globalstar is governed by the Globalstar General
Partners' Committee (the "Committee" or the "General Partners' Committee"),
consisting of four members who are appointed by LQSS and two members not
affiliated with the Company. 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 SpaceCom, 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 the Loral
SpaceCom or any of its affiliates (or which are deemed to be transactions in
which the Loral SpaceCom 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 SpaceCom 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.
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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
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
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<PAGE> 39
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 more than 8,198,837 additional partnership
interests plus the partnership interests issuable in connection with the
Original Offering and 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. See
"Risk Factors -- Risks Relating to Securities -- Effect on Common Stock of
Globalstar Liquidation."
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 SpaceCom, 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.
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
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<PAGE> 40
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 where the Company or its affiliate is the
service provider in question, as made by those members who are not affiliated
with the Company, 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.
PREFERRED PARTNERSHIP INTERESTS
The Company will purchase at a purchase price equal to the net proceeds of
the offering, 4,769,230 Preferred Partnership Interests. The Preferred
Partnership Interests have generally similar terms and conditions to the
Securities, except that they are not subject to any registration rights, will be
subordinate, not just to the debt obligations of Globalstar, but to all existing
and future liabilities of Globalstar, and cash distributions thereon will be
limited to the amount of the partnership capital accounts that are maintained
for such interests and that reflect a preferred allocation of Globalstar profit
to such accounts. Preferred distributions equal to the aggregate amount of
interest payable by the Company in respect of the Securities are payable, if as
and when declared by the Globalstar General Partners' Committee, to the Company
by Globalstar in respect of the Preferred Partnership Interests, which
declaration shall be made no later than 20 business days before each Interest
Payment Date. All payments due on the Preferred Partnership Interests, may be
made (i) in cash, (ii) by delivery of Ordinary Partnership Interests to the
Company or (iii) any combination of the foregoing. The partnership agreement
provides that upon any optional conversion of Securities into Common Stock, the
Company will convert a proportionate amount of Preferred Partnership Interests
into Ordinary Partnership Interests. The Preferred Partnership Interests held by
the Company have redemption provisions substantially similar to the Provisional
Redemption, Optional Redemption and Mandatory Redemption provisions described
under "Description of the Securities."
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
Securities 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 the Company'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. The Company 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
the Company, 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.
Dependence on Globalstar Capital Accounts.
The amount of cash that Globalstar can pay to the Company in redemption of
its Preferred Partnership Interests will be limited to the balance in the
capital account maintained by Globalstar with respect to such Preferred
Partnership Interests. Such capital account balance initially will equal the net
proceeds of the Original Offering (approximately $300 million); subsequently,
such capital account balance will be increased by the amount of adjusted income
allocated to, and decreased by the amount of losses allocated and cash
distributed to, the Company with respect to such Preferred Partnership
Interests. Adjusted income for this purpose is computed by adding amortization
and depreciation expense to profits and will include increases in the fair
market value of Globalstar's assets that would be recognized as income when
partnership interests are issued or redeemed. Losses would be allocated to the
Preferred Partnership Interests only after losses have first been allocated to
reduce the capital accounts for all Ordinary Partnership Interests to zero. To
the extent the aggregate cash distributions made by Globalstar to the Company
with respect to the Preferred Partnership Interests plus the Offering expenses
plus the amount of losses allocated to such interests exceed the aggregate
amount of adjusted income allocated to the Company with respect to the Preferred
Partnership Interests, the balance in the capital account will be less than the
full amount of the redemption price for the Preferred Partnership Interests at
the Mandatory Redemption Date. In such case, Globalstar will pay the excess of
the redemption price over the balance in the capital account by issuing
additional Ordinary Partnership Interests to the Company.
Based upon the current trading value of the Company, the Company expects
that the capital accounts for the Ordinary Partnership Interests, after giving
effect to the Offering, would be in excess of $2 billion and the capital
accounts for the Preferred Partnership Interests would be eroded by losses only
if future losses exceeded such amount.
In computing capital accounts, Globalstar's profits and losses are computed
in accordance with the principles of the United States Treasury Regulations
governing the valid allocation of taxable income and loss for U.S. tax purposes.
The Treasury Regulations differ from generally accepted accounting principles in
several ways, including permitting increases (or decreases) in the book value of
partnership assets to reflect their fair market value upon the issuance or
redemption of a partnership interest. Under the Globalstar partnership agreement
and the Treasury Regulations, increases or decreases in the book value of
Globalstar assets (which should reflect changes in the market value of the
Company's stock and Securities) will be treated as an item of profit or loss to
be allocated to the capital accounts of the Globalstar partners.
To the extent the Company receives some or all of the redemption price of
the Preferred Partnership Interests in Ordinary Partnership Interests, the
Company will pay the redemption price of the Securities, to the extent in excess
of the cash received, by issuing shares of Common Stock to Holders of the
Securities or by selling Common Stock and using the net proceeds therefrom to
make such payment.
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
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assets), payments with respect to the Securities 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
Globalstar 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. Globalstar 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 plus the partnership interest issuable in connection with
the conversion of the Preferred Partnership Interests, the GTL Guarantee
Warrants and the Additional Warrants, will be subject to the Consent of the
Partners. In addition, Globalstar has agreed with GTL that for so long as GTL
remains a general partner of Globalstar, Globalstar will not issue more than
5,000,000 additional partnership interests without either the consent of at
least one of GTL's Independent Representatives or the vote of a majority in
interest of the Globalstar partners. The Independent Representatives will
determine the vote of Ordinary Partnership Interests held by GTL with respect to
any such vote submitted to the partners.
LIMITATIONS OF TRANSFER OF PARTNERSHIP INTERESTS
Transfer by General Partners. Under the Globalstar partnership agreement,
any transfer of partnership interests by a general partner would be subject to
the Consent of the Disinterested Partners. A general partner may transfer any or
all of its partnership interests to an affiliate without requiring the Consent
of the Disinterested Partners. In the case of GTL, however, a transfer may be
made only to a 100%-owned affiliate and is subject to the consent of LQSS. In
addition, any transfer of partnership interests by GTL would be subject to a
right of first offer to the other partners of Globalstar and to Globalstar
itself. Any successor to a general partner must be found by a Consent of the
Disinterested Partners to have the financial, technical and managerial
capabilities to permit it to perform the duties under the Globalstar partnership
agreement. For the three-year period following the Full Constellation Date,
Loral SpaceCom will not withdraw as a general partner or otherwise permit
Globalstar to be managed by any entity other than Loral SpaceCom. Following such
three-year period, Loral SpaceCom will be required to hold, through a general
partner, at least 15% of the total number of Globalstar partnership interests
outstanding, unless it shall have received the Consent of the Disinterested
Partners.
Transfer by the Limited Partners. Transfers of partnership interests by a
Globalstar limited partner made before March 24, 1997 are subject to the consent
of the Committee, which will not be unreasonably
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withheld or delayed. In addition, any transfer of partnership interests by a
limited partner will be subject to a right of first offer to the other partners
of Globalstar and to Globalstar itself. The limited partners may, subject to the
provision set forth below, freely transfer their partnership interests under the
following circumstances: (i) the transfer is made to an affiliate; (ii)
Globalstar is no longer managed, directly or indirectly, by the Company; or
(iii) the Company shall itself have undergone a change of control.
The limitations on transfers described above (other than Loral SpaceCom'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 (as defined below).
The partners in Globalstar have the right, following the satisfaction of
certain performance criteria by the Globalstar System and after at least two
consecutive reported fiscal quarters of positive net income, to exchange their
Ordinary Partnership Interests in Globalstar for an equal number of shares
(subject to antidilution adjustments) of Common Stock (the "Exchange Rights"),
subject to the following limitations: (i) in any 12-month period, the sum of the
number of Ordinary Partnership Interests so transferred, plus all other
transfers of Ordinary Partnership Interests, will not be permitted to exceed 5%
of the total number of Ordinary Partnership Interests outstanding (including
those held by the Company) and (ii) the number of shares of Common Stock so
issued in any twelve-month period will not exceed 10% of the number of such
shares outstanding at the beginning of that period. In the event of a bona fide
offer or solicitation that would result in a change of control involving a
majority of the outstanding shares or a majority of the Company's Board of
Directors not approved by the partners of Globalstar, the Exchange Rights will
become fully exercisable, regardless of such limitations, whether or not the
performance criteria of the Globalstar System have been met. During the period
that the Exchange Rights are in effect, the Company has agreed that the Company
will file and use its best efforts to maintain the effectiveness of a
registration statement covering such shares as may be exchanged during any given
period and the resale of such shares so received by such other partners. Such
exchanges will not dilute a shareholder's indirect interest in Globalstar.
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.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of 60,000,000 shares of
Common Stock, par value $1.00 per share. As of June 30, 1996, there were
10,000,000 shares of Common Stock outstanding.
COMMON STOCK
Except as otherwise discussed below, the holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the shareholders. The holders of Common Stock are entitled to receive
ratably the dividends, if any, that may be declared from time to time by the
Board of Directors out of funds legally available for such dividends. The
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities. Holders of Common Stock have no preemptive rights
and no right to convert their Common Stock into any other securities. There are
no redemption or sinking fund provisions applicable to the Common Stock. All the
outstanding shares of Common Stock are, and the Conversion Shares, when issued
and paid for as described herein, will be, validly issued, fully paid and
nonassessable.
BERMUDA LAW
The following discussion is based upon the advice of Appleby, Spurling &
Kempe, Bermuda counsel for the Company.
The Company was incorporated as an exempted company under The Companies Act
1981 of Bermuda (the "Act") and the rights of its shareholders are governed by
Bermuda law and the Company's Memorandum of Association and Bye-Laws. The
following is a summary of certain provisions of Bermuda law and the Company's
organizational documents. This summary is not a comprehensive description of
such laws and documents and is qualified in its entirety by appropriate
reference to Bermuda law and to the organizational documents of the Company.
Dividends. Under Bermuda law, a company may pay such dividends as are
declared from time to time by its board of directors unless there are reasonable
grounds for believing that the company is or would, after the payment, be unable
to pay its liabilities as they become due or that the realizable value of its
assets would thereby be less than the aggregate of its liabilities and issued
share capital and share premium accounts.
Voting Rights. Under Bermuda law, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders present
at the meeting (or by such majority as the Act or the Bye-Laws of the company
prescribe), each shareholder having one vote, irrespective of the number of
shares held, unless a poll is requested. The Company's Bye-Laws provide that,
subject to the provisions of the Act, any questions proposed for the
consideration of the shareholders will be decided by a simple majority of the
votes cast, with each shareholder present, or person holding proxies for any
shareholder, entitled to one vote. If a poll is requested, each shareholder
present in person or by proxy has one vote for each share held. A poll may only
be requested under the Company's Bye-Laws by (i) the Chairman of the meeting,
(ii) at least three shareholders present in person or by proxy, (iii) any
shareholder or shareholders, present in person or by proxy, holding between them
not less than 10% of the total voting rights of all shareholders having the
right to vote at such meeting or (iv) a shareholder or shareholders present in
person or by proxy holding voting shares in the company on which an aggregate
sum has been paid up equal to not less than 10% of the total sum paid up on all
such voting shares.
Rights in Liquidation. Under Bermuda law, in the event of liquidation,
dissolution or winding up of a company, after satisfaction in full of all claims
of creditors and subject to the preferential rights accorded to any series of
preferred stock, the proceeds of such liquidation, dissolution or winding up are
distributed pro rata among the holders of common stock.
Meetings of Shareholders. Under Bermuda law, a company is required to
convene at least one general shareholders' meeting per calendar year. Bermuda
law provides that a special general meeting may be called by the board of
directors and must be called upon the request of shareholders holding not less
than 10% of such of the paid-up capital of the company carrying the right to
vote. Bermuda law also requires that shareholders be given at least five days'
advance notice of a general meeting but the accidental omission of
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notice to any person does not invalidate the proceedings at a meeting. Under the
Bye-Laws of the Company, at least ten days' notice of the annual general meeting
and of any special general meeting must be given to each shareholder.
Under Bermuda law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the bye-laws of a company. The
Company's Bye-Laws provide that the presence in person or by proxy of the
holders of more than 50% of the voting capital stock of the Company constitute a
quorum.
Access to Books and Records and Dissemination of Information. Members of
the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These
documents include the company's Certificate of Incorporation, its Memorandum of
Association (including its objects and powers) and any alteration to the
company's Memorandum of Association. The shareholders have the additional right
to inspect the Bye-Laws of the company, minutes of general meetings and the
company's audited financial statements, which must be presented at the annual
general meeting. The register of shareholders of a company is also open to
inspection by shareholders without charge and to members of the general public
on the payment of a fee. A company is required to maintain its share register in
Bermuda but may, subject to the provisions of the Act, establish a branch
register outside Bermuda. A company is required to keep at its registered office
a register of its directors and officers which is open for inspection for not
less than two hours in each day by members of the public without charge. Bermuda
law does not, however, provide a general right for shareholders to inspect or
obtain copies of any other corporate records.
Election or Removal of Directors. Under Bermuda law and the Company's
Bye-Laws, directors are elected at the annual general meeting or until their
successors are elected or appointed, unless they are earlier removed or resign.
Under Bermuda law and the Bye-Laws of the Company, a director may be
removed at a special general meeting of shareholders specifically called for
that purpose, provided that the director was served with at least 14 days'
notice. The director has a right to be heard at the meeting. Any vacancy created
by the removal of a director at a special general meeting may be filled at such
meeting by the election of another director in his or her place or, in the
absence of any such election, by the Board of Directors.
Amendment of Memorandum of Association and Bye-Laws. Bermuda law provides
that the Memorandum of Association of a company may be amended by a resolution
passed at a general meeting of shareholders of which due notice has been given.
An amendment to the Memorandum of Association other than an amendment which
alters or reduces a company's share capital as provided in the Act also requires
the approval of the Bermuda Minister of Finance, who may grant or withhold
approval at his discretion. The Bye-Laws may be amended by a resolution passed
by a majority of shares cast at a general meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in par
value of a company's issued share capital have the right to apply to the Bermuda
Court for an annulment of any amendment of the Memorandum of Association adopted
by shareholders at any general meeting, other than an amendment which alters or
reduces a company's share capital as provided in the Act. Where such an
application is made, the amendment becomes effective only to the extent that it
is confirmed by the Bermuda Court. An application for amendment of the
Memorandum of Association must be made within 21 days after the date on which
the resolution altering the company's memorandum is passed and may be made on
behalf of the persons entitled to make the application by one or more of their
number as they may appoint in writing for the purpose. No such application may
be made by persons voting in favour of the amendment.
Appraisal Rights and Shareholder Suits. Under Bermuda law, in the event of
an amalgamation of two Bermuda companies, a shareholder who is not satisfied
that fair value has been paid for his shares may apply to the Bermuda Court to
appraise the fair value of his shares. The amalgamation of a company with
another company requires the amalgamation agreement to be approved by the board
of directors and by a meeting of the holders of shares of the amalgamating
company of which they are directors and of the holders of each class of such
shares. Under Bermuda law, an amalgamation also requires the consent of the
Bermuda Minister of Finance, who may grant or withhold consent at his
discretion.
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Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of is alleged to
be beyond the corporate power of the company or is illegal or would result in
the violation of the company's Memorandum of Association or Bye-Laws.
Furthermore, consideration would be given by the Court to acts that are alleged
to constitute a fraud against the minority shareholders or, for instance, where
an act requires the approval of a greater percentage of the company's
shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to the Bermuda Court for an order regulating the
company's conduct of affairs in the future or ordering the purchase of the
shares by any shareholder, by other shareholders or by the company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for GTL's Common Stock is The Bank of New
York.
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CERTAIN FOREIGN ISSUER CONSIDERATIONS
The following discussion is based on the advice of Appleby, Spurling &
Kempe, Bermuda counsel to the Company.
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority ("BMA").
There are no limitations on the rights of non-Bermuda owners of the
Company's Common Stock to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes, there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Company's Common
Stock, other than in respect of local Bermuda currency.
In the case of an applicant acting in a special capacity (for example, as
an executor or trustee), certificates may, at the request of the applicant,
record the capacity in which the applicant is acting. Notwithstanding the
recording of any such special capacity, the Company is not bound to investigate
or incur any responsibility in respect of the proper administration of any such
estate or trust. The Company will take no notice of any trust applicable to any
of its shares whether or not it had notice of such trust.
Under Bermuda law, the Company is an exempted company (that is, it is
exempted from the provisions of Bermuda law which stipulate that at least 60% of
the equity must be beneficially owned by Bermudians). Consents under The
Exchange Control Act 1972 of Bermuda and the regulations made thereunder have
been obtained for the issue and subsequent transfer of the Conversion Shares to
and among persons not resident in Bermuda for exchange control purposes. Persons
regarded as residents of Bermuda for exchange control purposes require specific
consent under The Exchange Control Act 1972 to purchase such shares of Common
Stock into which the Securities are convertible (the "Conversion Shares"). The
Act permits companies to adopt bye-law provisions relating to the transfer of
shares of its Common Stock. Neither Bermuda law, the Memorandum of Association
nor the Bye-Laws of the Company impose limitations on the right of foreign
nationals or non-residents of Bermuda to hold or vote shares of Common Stock of
the Company. Pursuant to the provisions of Section 28 of the Company Act 1981 of
Bermuda, there is no minimum subscription which must be raised by the issue of
the Securities to provide the funds required to be provided in respect of the
matters set forth in that section.
As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company the Company may not participate in certain business
transactions, including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an
amount in excess of $50,000 without the consent of the Bermuda Minister of
Finance; (3) the acquisition of securities created or issued by, or any interest
in, any local company or business, other than certain types of Bermuda
government securities or securities of another exempted company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Bermuda Minister of Finance.
The Bermuda government actively encourages foreign investment in exempted
entities like the Company that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, the Company is subject neither to taxes on its
income or dividends nor to any foreign exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits can be
accumulated by the Company, as required, without limitation.
The consent of the BMA Exchange Control has been obtained for the issue of
the Securities and the Conversion Shares. Approvals or permissions received from
the BMA do not constitute a guarantee by the BMA as to the performance of the
scheme or creditworthiness of the company involved. Furthermore, in giving such
approvals or permissions, the BMA shall not be liable for the performance or
default of the scheme or for the correctness of any opinions or statements
expressed.
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DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued under an Indenture, dated as of March 6, 1996
(the "Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee"). Section references in parentheses below are to sections in the
Indenture. The following summarizes the material provisions of the Indenture and
is subject to, and qualified in its entirety by reference to, all the provisions
of the Indenture, including the definition therein of certain terms, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Capitalized terms that are used but not otherwise defined
herein have the meanings assigned to them in the Indenture.
The Securities are limited to $310,000,000 aggregate principal amount and
are unsecured obligations of the Company subordinated to all Debt Obligations
(as defined below) of the Company. Although the Securities are not equity
securities under applicable Bermuda law, the Securities are the substantial
equivalent of convertible preferred stock and will be treated as such for U.S.
tax purposes. See "Taxation."
The Company is a holding company, the sole asset of which is its
partnership interests in Globalstar. Consequently, the Securities will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of Globalstar. The Company has no independent means
of generating revenue, and, therefore, the Company is dependent in large part
upon the revenues and cash flow of Globalstar to meet its obligations, including
its obligations under the Securities. The Indenture does not provide the Holders
with any rights to accelerate the payment of the Securities. See "Risk
Factors -- Risks Relating to the Securities."
The specific terms of the Globalstar partnership agreement as it relates
to, and affects, the Securities are summarized below. Such summary is qualified
in its entirety by reference to the Globalstar partnership agreement, a copy of
which has been filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 which is incorporated by reference into
this Prospectus. The terms of the Company's Preferred Partnership Interests in
Globalstar are intended generally to match the terms of the Securities, so that
the Company's interest in Globalstar will be generally similar to the interests
that the holders of the Securities (the "Holders") have in the Company. See
"Risk Factors -- Risks Relating to the Securities -- Dependence on Globalstar
Capital Accounts for Cash Distributions to the Company."
The Securities are eligible for trading in the PORTAL market, a
screen-based automated market for trading of securities eligible for resale
under Rule 144A.
INTEREST PAYMENTS
The Securities will bear interest from March 6, 1996 at the rate per annum
of 6 1/2% and will mature on March 1, 2006 (the "Mandatory Redemption Date").
Interest will be computed on the basis of a 360-day year of twelve 30-day months
and will be payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year (each an "Interest Payment Date"), commencing on June 1,
1996, to the person in whose name the Security is registered at the close of
business on the day of February 15, May 15, August 15, or November 15, as the
case may be (each a "Regular Record Date"), next preceding such Interest Payment
Date. (Section 3.07).
The Company may elect to defer interest payments on any Interest Payment
Date if Globalstar shall have deferred payment of the scheduled distribution in
respect of the Preferred Partnership Interests corresponding to such interest
payment. Arrearages of deferred but unpaid interest accruals ("Interest
Arrearages") will not themselves bear interest, but so long as any Interest
Arrearage remains outstanding, the Company will be prohibited from paying (i)
dividends on its Common Stock, (ii) dividends on any preferred stock or (iii)
interest on debt ranking pari passu with or junior to the Securities from time
to time outstanding except on a pro rata basis with respect to any such pari
passu debt based on the aggregate principal amount of such debt. Preferred
distributions equal to the aggregate amount of interest payable by the Company
on the Securities will be payable to the Company by Globalstar in respect of the
Preferred Partnership Interests on each Interest Payment Date, if, as and when
declared by the Globalstar General Partners' Committee. The
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Company may not elect to defer any interest payment if Globalstar has paid the
scheduled distribution in respect of Preferred Partnership Interests
corresponding to such interest payment. In the event that the Company fails to
pay the interest due for an aggregate of six quarterly interest payments, the
Holders will have the rights and remedies described herein under "-- Voting
Rights."
OPTIONAL REDEMPTION
Provisional Redemption. The Company may redeem, in whole or in part (the
"Provisional Redemption"), at any time prior to March 2, 1999, at the redemption
price of 103% of the aggregate principal amount of the Securities to be redeemed
plus accrued and unpaid interest, if any, to the date of redemption (the
"Provisional Redemption Date"), in the event that the Current Market Value (as
defined below) of the Common Stock equals or exceeds the following Trigger
Percentages of the prevailing Conversion Price (as defined below) then in effect
for at least 20 trading days in any consecutive 30-day trading day period ending
on the trading day prior to the date of mailing of the notice of Provisional
Redemption (the "Notice Date"), if called for Redemption in the 12-month period
ending on March 1 of the following years:
<TABLE>
<CAPTION>
TRIGGER
YEAR PERCENTAGE
- --------- --------------
<S> <C>
1997 170%
1998 160%
1999 150%
</TABLE>
UPON ANY PROVISIONAL REDEMPTION, THE COMPANY WILL MAKE AN ADDITIONAL
PAYMENT (THE "INTEREST MAKE-WHOLE PAYMENT") WITH RESPECT TO THE SECURITIES
CALLED FOR REDEMPTION, INCLUDING THOSE SECURITIES CONVERTED INTO COMMON STOCK
BETWEEN THE NOTICE DATE AND THE PROVISIONAL REDEMPTION DATE, IN AN AMOUNT EQUAL
TO THE PRESENT VALUE OF THE AGGREGATE AMOUNT OF INTEREST PAYMENTS THEREAFTER
PAYABLE ON SUCH SECURITIES FROM THE PROVISIONAL REDEMPTION DATE TO THE THIRD
ANNIVERSARY OF THE ISSUE DATE (THE "INTEREST MAKE-WHOLE PERIOD"). Such present
value shall be calculated using the bond equivalent yield on U.S. Treasury notes
or bills having a term nearest in length to that of the Interest Make-Whole
Period as of the Notice Date.
Subsequent Optional Redemption. Commencing March 2, 1999, the Securities
will be redeemable at any time, in whole or in part, at the election of the
Company (the "Optional Redemption"), at a redemption price equal to the
percentage set forth below of the principal amount to be redeemed plus accrued
and unpaid interest, if any, to the date of redemption (the "Optional Redemption
Date") if redeemed in the 12-month period ending on March 1 of the following
years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- --------------
<S> <C>
2000 103%
2001 102%
2002 101%
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount to be
redeemed plus accrued and unpaid interest, if any, to the Optional Date of
Redemption.
The Company may not initiate either a Provisional Redemption or Optional
Redemption unless and until it receives a notice from Globalstar that Globalstar
intends to make a corresponding redemption of an equal amount of Preferred
Partnership Interests. The Company shall effect a Provisional Redemption or
Optional Redemption following notice from Globalstar of a corresponding
redemption of an equal amount of Preferred Partnership Interests.
MANDATORY REDEMPTION
Each Security (if not earlier redeemed or converted) will be mandatorily
redeemed by the Company on the Mandatory Redemption Date at a redemption price
of 100% of the principal amount per Security plus accrued and unpaid interest,
if any (including all Interest Arrearages), to the Mandatory Redemption Date.
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<PAGE> 50
METHOD OF PAYMENTS
Globalstar may make any payments due on the Preferred Partnership Interests
(i) in cash, (ii) by delivery of Ordinary Partnership Interests to the Company
(as described below) or (iii) through any combination of the foregoing.
Likewise, the Company may make any payments due on the Securities, including
redemption payments, interest payments and the Interest Make-Whole Payment, (i)
in cash; (ii) by delivery of Common Stock (based upon 90% of the Average Market
Value in the case of interest payments, including the Interest Make-Whole
Payment, and 100% of the Average Market Value in the case of all other
payments); or (iii) through any combination of the foregoing, provided, however,
if Globalstar shall have paid the scheduled distribution or redemption payment
on the Preferred Partnership Interests corresponding to such payment in cash,
the Company shall make such payment in cash. The Company intends to use the same
form of consideration as Globalstar used with respect to the Preferred
Partnership Interests, except that the Company will deliver Common Stock instead
of Ordinary Partnership Interests; however, the Company reserves the right to
make a cash payment from the proceeds of an issuance of Common Stock following a
payment by Globalstar through a delivery of Ordinary Partnership Interests. In
the event that Globalstar pays a scheduled distribution to the Company in cash,
the Company shall pay the corresponding interest payment in cash. The Company
also reserves the right to make interest payments notwithstanding the fact that
it shall not have received a distribution on the Preferred Partnership Interests
for the corresponding Interest Payment Date. See "Risk Factors -- Risks Relating
to the Securities -- Dependence on Globalstar for Payments; Conflicts of
Interest" and "Risk Factors -- Risks Relating to the Securities -- Interest
Deferral; Payments in Common Stock."
If the Company elects to make a cash payment from the proceeds of any
issuance of Common Stock, the valuation of the Ordinary Partnership Interests to
be delivered to the Company underlying the Common Stock to be issued shall be
based upon the price at which such Common Stock is sold, which sale shall occur
no later than the fifth business day prior to the applicable payment date. If
the Company elects to deliver Common Stock to the Holders in lieu of a cash
payment, the valuation of the Ordinary Partnership Interests to be delivered to
the Company underlying such Common Stock shall be based upon the 90% of the
Average Market Value of the Common Stock in the case of interest payments,
including the Interest Make-Whole Payment, and 100% of the Average Market Value
of the Common Stock in the case of all other payments. No fractional shares of
Common Stock will be delivered to the Holders, but the Company shall instead pay
a cash adjustment determined as described under "-- Adjustment for Fractional
Shares." Any portion of a redemption that is declared and not paid through the
delivery of shares of Common Stock will be paid in cash.
Globalstar will be required to deliver to the Company, no later than 20
business days prior to each Interest Payment Date, a notice stating (i) whether
it will pay the applicable preferred distribution and (ii) if so, the form of
consideration in which it will make such distribution. In addition, Globalstar
will deliver to the Company a notice, no later than 20 business days prior to
any Provisional Redemption Date, any Optional Redemption Date and the Mandatory
Redemption Date, stating (i) in the case of a Provisional or Optional
Redemption, that it has initiated such Redemption and (ii) the form of
consideration which it will make on the applicable Redemption Date. The Company
shall (i) in the case of a Provisional or Optional Redemption, notify the
Holders, within one business day of receipt of the notice described above from
Globalstar, of its intention to make such redemption, if such election shall
have been made by the Company, and the date of any such Provisional or Optional
Redemption and (ii) notify Globalstar, at least 12 business days prior to each
Interest Payment Date or any applicable Redemption Date, as the case may be, of
whether it has elected to pay the interest or redemption payment on the
Securities in cash or in Common Stock. The Company shall also deliver notice
described in clause (ii) above to the Holders but only if the form of payment
includes Common Stock.
"Average Market Value" of the Common Stock will mean the arithmetic average
of the Current Market Value of the Common Stock for the ten trading days ending
on the second business day prior to the applicable date of payment.
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<PAGE> 51
"Current Market Value" of the Common Stock will mean the average of the
high and low sale prices of the Common Stock as reported on the NNM or any
national securities exchange upon which the Common Stock is then listed, for the
trading day in question.
CONVERSION RIGHTS
The Securities are convertible into Common Stock at the option of the
Holder at any time prior to the Mandatory Redemption Date (unless earlier
redeemed by the Company), initially at the conversion price (the "Conversion
Price") of $65.00 per share (equivalent to 0.7692 shares of Common Stock for
each $50 principal amount of Securities). The Securities are initially
convertible into an aggregate of 4,769,230 shares of Common Stock, representing
approximately 25% of the Common Stock outstanding on a fully diluted basis, and
an indirect beneficial interest in 4,769,230 Ordinary Partnership Interests upon
conversion, representing approximately 8.4% of the total units of Ordinary
Partnership Interests outstanding after giving effect to the GTL Guarantee
Warrants and the Additional Warrants. Upon a conversion of any Securities, a
corresponding number of the Company's Preferred Partnership Interests in
Globalstar will be converted into Ordinary Partnership Interests.
Securities surrendered for conversion during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except Securities called
for redemption on a Redemption Date within such period) must be accompanied by
payment in cash of an amount equal to the interest thereon which the registered
Holder is to receive; provided, that no payment shall be owed or payable to any
converting Holder if the Board of Directors of the Company shall have elected to
defer the interest payment to be made on such Interest Payment Date. No other
adjustment for interest or dividends, including for any Interest Arrearages, is
to be made upon conversion. Fractional shares of Common Stock will not be issued
upon conversion, but in lieu thereof the Company will pay a cash adjustment in
the manner described under "-- Adjustment for Fractional Shares."
The right of conversion attaching to any Security may be exercised by a
Holder by delivering the Security at the specified office of a conversion agent
(as described under "-- Payments, Paying Agents and Conversion Agents" below)
accompanied by a duly signed and completed notice of conversion. The conversion
date shall be the date on which the Security and the duly signed and completed
notice of conversion shall have been so delivered. A Holder delivering a
Security for conversion will not be required to pay any taxes or duties payable
in respect of the issue or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issue or delivery of the Common Stock in a name other than that
of the Holder. Certificates representing shares of Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the Holder
have been paid.
The Conversion Price is subject to adjustment (under formulae set forth in
the Indenture) under certain circumstances, including: (i) the issuance of
Common Stock as a dividend or distribution on Common Stock (other than the
issuance of Common Stock in connection with the conversion of Securities); (ii)
the issuance to all holders of Common Stock of rights or warrants entitling them
to subscribe for or purchase Common Stock at a price per share less than the
Current Market Price (other than the Guarantee Warrants and the Additional
Warrants); (iii) certain subdivisions and combinations of Common Stock; (iv) the
issuance as a dividend or distribution to all holders of Common Stock of shares
of capital stock of the Company (other than Common Stock) or evidences of
indebtedness, cash or other assets of the Company (including securities, but
excluding those rights, warrants, dividends and distributions referred to above
and dividends and distributions in connection with the liquidation, dissolution
or winding up of the Company or paid exclusively in cash); (v) dividends or
other distributions consisting exclusively of cash (excluding any cash portion
of distributions referred to in clause (iv)) to all holders of Common Stock to
the extent such distributions, combined with (A) all such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made plus (B) any cash and the fair market value of other consideration payable
in respect of any tender offers by the Company for Common Stock concluded within
the preceding 12 months in respect of which no adjustment has been made, exceeds
10% of the Company's market capitalization (being the product of the then
current market price of the Common Stock times the number of shares of Common
Stock then outstanding) on the record date for such distribution; and (vi) the
purchase of Common Stock pursuant to a
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<PAGE> 52
tender offer made by the Company to the extent that the aggregate consideration,
together with (X) any cash and the fair market value of any other consideration
payable in any other tender offer expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer.
In the case of certain consolidations or mergers to which the Company is a
party or the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, each Security then outstanding would, without the
consent of any Holders of Securities, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Stock into which the Security might have been converted
immediately prior to such consolidation, merger, conveyance or transfer,
assuming such holder of Common Stock failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon the consolidation, merger, conveyance or transfer (provided that
if the kind of amount of securities, cash or other property so receivable is not
the same for each non-electing share, the kind and amount so receivable by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). The Company may not become a
party to any such consolidation or merger unless the terms thereof are
consistent with the foregoing. (Section 12.06)
RANKING
The Securities will be subordinated and subject, to the extent and in the
manner set forth in the Indenture, to the prior payment in full of all Debt
Obligations of the Company (Section 13.01). "Debt Obligations" mean the
principal of, premium, if any, interest and other amounts due on any
indebtedness, whether now outstanding or hereafter created, incurred, assumed or
guaranteed by the Company, for money borrowed from others (including obligations
under capitalized leases, purchase money indebtedness or any trade credit),
liabilities incurred in the ordinary course of business, commitment, standby and
other fees due and payable to financial institutions with respect to credit
facilities that may be maintained by the Company or in connection with the
acquisition by the Company of any other business or entity, or in respect of
letters of credit or bid, performance or surety bonds issued for the account or
on the credit of the Company, and, in each case, all renewals, extensions and
refundings thereof, other than (i) any such indebtedness as to which, in the
instrument creating or evidencing the same, it is provided that such
indebtedness is pari passu or junior in right of payment to the Securities and
(ii) the Securities. In addition, the Securities will rank senior to the
Company's Common Stock with respect to the payment of dividends, payments on
redemption and payments of amounts distributable upon dissolution, liquidation
or winding up of the Company. The Indenture does not limit the amount of
indebtedness or other obligations that the Company may incur. See "Risk
Factors -- Risks Related to the Securities -- Subordination of Securities."
No cash payments of principal of, premium, if any, or interest on, the
Securities may be made and no Securities may be redeemed, retired or purchased
for cash (excepting payment for fractional shares) if the Company is then in
default in the payment of any Debt Obligations or if at the time any other Event
of Default under the terms of any Debt Obligations exists permitting
acceleration thereof. Upon any payment or distribution of assets of the Company
in the event of any insolvency, reorganization, liquidation or similar
proceeding, all Debt Obligations must be repaid in full (including any interest
thereon accruing after the commencement of any proceeding) before the Holders
will be entitled to receive or retain any payment. The Securities may not be
declared due and payable prior to the Mandatory Redemption Date because of the
failure to make interest payments when due or to make payments with respect to
any applicable redemption or under the terms of any Debt Obligations. By reason
of such subordination, in the event of insolvency, creditors of the Company who
are holders of Debt Obligations may recover more, ratably, than Holders.
(Section 13.02)
The priority provisions of the Preferred Partnership Interests are
generally similar to the subordination provisions of the Securities. The
Company's Preferred Partnership Interests will be subordinated to the existing
and future liabilities of Globalstar, and the Preferred Partnership Interests
will rank senior only to the Ordinary
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<PAGE> 53
Partnership Interests with respect to payment of distributions. The Preferred
Partnership Interests also will be subordinated to (i) the distribution of the
Managing Partner's Allocation which equals 2.5% of Globalstar's revenues up to
$500 million plus 3.5% of revenues in excess of $500 million, which will be
reduced by 50% in any year in which Globalstar incurs a net loss; (ii) the
Guarantee Fee and the notes that may be issued in lieu of such Guarantee Fee;
and (iii) certain distributions made to partners in respect of taxes levied upon
the operations of Globalstar. Because the Company is a holding company, the sole
asset of which is its partnership interests in Globalstar, the obligations of
the Company in respect of the Securities will be structurally subordinated to
all obligations of Globalstar, including the Managing Partner's Allocation, the
Guarantee Fee and tax distributions of Globalstar. At June 30, 1996, Globalstar
had approximately $160 million of current liabilities and vendor financing
ranking senior to the Preferred Partnership Interests. See "Risk Factors --
Risks Relating to the Securities -- Subordination of Securities."
DENOMINATION, REGISTRATION AND TRANSFER
The certificates representing the Securities have been issued in fully
registered form, without coupons. Except as described in the next paragraph, the
Securities have been deposited with, or on behalf of, The Depository Trust
Company, New York, New York ("DTC"), and registered in the name of Cede & Co.,
as DTC's nominee in the form of a global Securities certificate (the "Global
Certificate") or will remain in the custody of the Trustee pursuant to a FAST
Balance Certificate Agreement between DTC and the Trustee.
Securities originally purchased by or transferred to "accredited investors"
(as defined in Rule 501(a) under the Securities Act) who are not "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act and
referred to as "QIBs") have been issued and registered in certificated form
without coupons (the "Restricted Certificated Securities"). Securities
originally purchased by or transferred to persons outside of the United States
pursuant to sales in accordance with Regulation S have been issued and
registered in certificated form without coupons (the "Certificated Securities")
or in the form of a temporary certificate as described more fully below.
Restricted Certificated Securities are not eligible to be exchanged for an
interest in a global Securities certificate.
Securities originally purchased by persons outside the United States
pursuant to sales in accordance with Regulation S under the Securities Act were
represented upon issuance by a temporary Security certificate (the "Temporary
Certificate") which were not exchangeable for an interest in the Global
Certificate or Certificated Securities until the expiration of the "40-day
restricted period" within the meaning of Rule 903(c)(3) of Regulation S under
the Securities Act. Each Temporary Certificate was registered in the name of,
and held by, a temporary certificate holder until the expiration of such 40-day
period, at which time the Temporary Certificate may have been delivered to the
Trustee in exchange for an interest in a Global Certificate or a Certificated
Security.
Ownership of beneficial interests in a Global Certificate will be limited
to persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in a Global Certificate directly through DTC if they
are participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Securities represented by such Global
Certificate for all purposes under the Indenture and the Securities. No
beneficial owner of an interest in a Global Certificate will be able to transfer
the interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the Indenture or described above.
Payments of the principal of, premium, if any, and interest on, a Global
Certificate will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee nor any Paying Agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest on a Global Certificate, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Certificate as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Certificate held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a Holder requires physical delivery of a
Certificated Security for any reason, including to sell Securities to persons in
jurisdictions which require such delivery of such Securities or to pledge such
Securities, such Holder must transfer its interest in a Global Certificate in
accordance with the normal procedures of DTC and the procedures set forth in the
Indenture. Once an interest in a Global Certificate is delivered as a
Certificated Security to an Accredited Investor, such Certificated Security may
not be exchanged for an interest in a global Securities certificate.
The Company expects that DTC will take any action permitted to be taken by
a Holder of Securities (including the presentation of Securities for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Certificate is credited and only in
respect of such portion of the aggregate principal amount of the Securities as
to which such participant or participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although the Company expects that DTC will agree to the foregoing
procedures in order to facilitate transfers of interests in a Global
Certificate, among participants of DTC, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as depositary for a
Global Certificate and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Securities in exchange for a
Global Certificate which will bear the legend referred to under "Notice to
Investors" subject to the provisions of such legend.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Securities selected for redemption. Also, the Company is not required to
transfer or exchange any Securities for a period of 15 days before a selection
of Securities to be redeemed.
The registered Holder of Securities will be treated as the owner of such
Securities for all purposes.
The transfer of Securities may be registered, and Securities may be
presented in exchange for other Securities of different authorized
denominations, at the office of Trustee or agency maintained by the
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Company for such purpose in New York City and any other office or agency
maintained by the Company for such purpose, without service charge (other than
the cost of delivery) and upon payment of any taxes or other governmental
charges. Securities may also be presented for purposes of such exchange (but not
registration) at the offices of the Trustee in London, or such other paying
agents as may be specified in notices to the Holders of Securities in accordance
with "Notices" below. The Company shall not be required, in the event of a
redemption in part, (i) to register the transfer of Securities for a period of
15 days immediately preceding the date notice is given identifying the serial
numbers of the Securities called for such redemption; or (ii) to register the
transfer of or exchange of, any such Securities, or portion thereof, called for
redemption. (Section 3.05)
PAYMENTS, PAYING AGENTS AND CONVERSION AGENTS
The principal or Redemption Price of and interest, including any Interest
Make-Whole Payment, on the Securities will be payable (whether such payments are
in cash or Common Stock), and the Securities will be convertible and
exchangeable and transfers thereof will be registrable, at the office of the
Trustee or the office or agency of the Company maintained for such purpose in
The City of New York and at any other office or agency maintained by the Company
for such purpose, provided that, at the option of the Company, payment of
interest in cash may be made by check mailed to the address of the person
entitled thereto as it appears in the Security Register. All payments of cash
will be made in United States Dollars.
Payments (whether in cash or Common Stock) of the principal or Redemption
Price of the Securities will be made at the corporate trust office of the
Trustee or agency maintained by the Company for such purpose in New York City or
any office or agency maintained for such purpose. If the payments are made in
cash, such payments shall be made by United States dollar check drawn on, or
wire transfer to a United States dollar account maintained by the Holder with, a
bank located in New York City mailed to the Holder at such Holder's registered
address or (if arrangements satisfactory to the Company are made by the agent of
the Holder) by wire transfer to a dollar account maintained by the Holder with a
bank in New York City. Payment of interest on any Interest Payment Date will be
made to the person in whose name such Securities is registered at the close of
business on the Regular Record Date prior to the relevant Interest Payment Date.
Accrued interest payable on any Securities that are redeemed in cash will be
payable in the manner described above with respect to payments of the Redemption
Price of the Securities, except Securities that are redeemed on a date after the
close of business on the Regular Record Date immediately preceding such Interest
Payment Date and on or before the Interest Payment Date, on which interest will
be paid to the Holder of record on the Interest Record Date. Any Interest
Make-Whole Payment will be paid to the Holder of Record on the date of
conversion or date of redemption, as the case may be.
The Securities may be surrendered for conversion or exchange at the
corporate trust office of the Trustee or agency maintained by the Company for
such purpose in New York City or, at the option of the Holder and subject to
applicable laws and regulations, at the office of any of the conversion agents.
The paying agents and conversion agents may be terminated at any time and
additional or other paying and conversion agents may be appointed, provided that
until the Securities have been delivered for cancellation, or monies and/or
Common Stock sufficient to pay the principal of and interest on the Securities
have been made available for payment and either paid or returned to the Company,
a paying, conversion and transfer agent will be maintained (i) in New York City
for the payment of the principal or Redemption Price of and interest, including
any Interest Make-Whole Payment, on Securities and for the surrender of
Securities for conversion or redemption and (ii) in a European city for the
payment of the principal or Redemption Price of and interest, including any
Interest Make-Whole Payment, on Securities and for the surrender of Securities
for conversion or redemption. Notice of any such termination or appointment and
of any change in the office through which any paying, conversion or transfer
agent will act will be given in accordance with "Notices" below.
All monies paid and all Common Stock delivered by the Company to a paying
agent for the payment of principal or Redemption Price of or interest, including
any Interest Make-Whole Payment, on any Securities that remain unclaimed at the
end of two years after such principal or interest shall have become due and
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payable will be repaid or returned, as the case may be, to the Company, and the
Holder of such Securities will thereafter look only to the Company for payment
or delivery thereof.
VOTING RIGHTS
Except as required by law, the Holders will not be entitled to any voting
rights unless the Company has deferred scheduled interest payments for an
aggregate of six quarterly interest payments (a "Deferral Trigger Event"). In
such case, the number of members of the General Partners' Committee of
Globalstar will be increased by one and the Holders of the Securities, voting
separately as a class with the Holders of any other securities upon which
similar voting rights have been conferred and are exercisable, will be entitled
to elect one representative to such General Partners' Committee (the "CPE
Representative"). In addition, upon a Deferral Trigger Event, Loral SpaceCom has
agreed to use its best efforts to cause the shareholders of the Company to
approve and elect a nominee to the Board of Directors of the Company designated
by the Holders of the Securities (the "CPE Nominee"). If the shareholders shall
fail to approve such CPE Nominee, Loral SpaceCom will seek the resignation of a
Loral SpaceCom designee director from the Board of Directors of the Company and
will use its best efforts to cause the Board of Directors of the Company to
appoint the CPE Nominee to the Board of Directors of the Company until the next
annual meeting of shareholders, at which time such appointment will be submitted
to the shareholders of the Company for their approval; provided, however, that
if such shareholder approval is not obtained, the above-described mechanics
shall continue to be in effect. The CPE Representative and the CPE Nominee, if
appointed to the Board, will promptly resign upon receipt of notice from the
Company that all Interest Arrearages with respect to the Securities have been
paid. See "Risk Factors -- Structural and Market Risks.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement among the Company, Globalstar
and the Initial Purchasers ("the Registration Rights Agreement"), the Company
agreed for the benefit of the Holders of the Securities that it would: (i)
within 120 days after the date the Securities were initially issued (the "Issue
Date"), file a shelf registration statement (the "Shelf Registration Statement")
with the Commission with respect to resales of the Securities and the Conversion
Shares; (ii) use its best efforts to cause such Shelf Registration Statement to
be declared effective by the Commission within 180 days after the Issue Date;
and (iii) maintain such Shelf Registration Statement continuously effective
under the Securities Act until the third anniversary of the Issue Date or such
earlier date as of which the Securities shall no longer be restricted securities
pursuant to Rule 144(k) or all the Securities or the Common Stock issuable upon
conversion thereof have been sold pursuant to such Shelf Registration Statement.
THE INTEREST RATE DUE ON THE SECURITIES DOES NOT INCREASE IN THE EVENT THAT
THE COMPANY BREACHES ANY OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT.
The Company will provide to each Holder copies of the prospectus, which
will be a part of such Shelf Registration Statement, notify each such Holder
when such Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of the Securities
and the Conversion Shares. A Holder of Offered Securities that sells such
securities pursuant to a Shelf Registration Statement generally will be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a Holder (including certain indemnification and contribution
rights and obligations). The Preferred Partnership Interests will not be subject
to any registration rights.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any Securities are outstanding, the Company will file with the
Commission and furnish to the Holders of Securities 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
Results of Operations and Financial Condition" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants.
SINKING FUND
There will be no sinking fund established for the retirement of the
Securities.
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<PAGE> 57
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of two-thirds in principal
amount of the Outstanding Securities; provided, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (i) change the Mandatory Redemption Date of the principal of,
or the due date of any installment of interest on, the Securities, (ii) reduce
the principal amount or Redemption Price of, the rate of interest thereon, or
any Interest Make-Whole Payment payable on, any Securities, (iii) change the
place of payment where, or the coin or currency in which, any Security or any
payment thereon is payable, (iv) impair the right to institute suit for the
enforcement of any such payment when due, (v) adversely affect the conversion
rights of the Holders, (vi) modify the provisions of the Indenture with respect
to the subordination of the Securities in a manner adverse to the Holders, (vii)
adversely affect the right to require the Company to redeem Securities or (viii)
reduce the percentage in principal amount of Securities the consent of whose
Holders is required for modification or amendment of the Indenture or for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults. (Section 9.02)
ADJUSTMENT FOR FRACTIONAL SHARES
No fractional shares of Common Stock will be delivered upon the redemption
or conversion of any Securities. Whether or not a fractional share would be
delivered to a Holder of Securities shall be based upon the total number of
Securities at the time held by such Holder and the total number of shares of
Common Stock otherwise deliverable in respect thereof. In lieu of the issuance
of a fraction of a share of Common Stock, the Company shall pay instead an
amount in cash (rounded to the nearest whole cent) equal to the same fraction of
the closing sales price of a share of Common Stock on the trading day
immediately preceding the redemption or conversion date. (Section 12.03)
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
The Indenture provides that the Company shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any person, unless (i) any such successor
assumes the Company's obligations under the Securities and the Indenture, (ii)
after giving effect thereto, no Event of Default shall have occurred and be
continuing and (iii) certain other conditions under the Indenture are met.
(Section 8.01) Upon any such consolidation or merger, or any such conveyance or
transfer of the properties and assets of the Company substantially as an
entirety, the successor corporation formed by such consolidation, or into which
the Company is merged, or to which such conveyance or transfer is made, shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture with the same effect as if such successor
corporation had been named as the Company. The Company as the predecessor
corporation shall be relieved of all obligations and covenants under the
Indenture. (Section 8.02)
NOTICES
Notice to Holders of Securities will be given by mail to the registered
addresses of such Holders. (Section 1.06)
REPLACEMENT OF SECURITIES
Securities that become mutilated, destroyed, stolen or lost will be
replaced by the Company at the expense of the Holder upon delivery to the
Trustee of the Securities or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Security, an indemnity satisfactory to the Company and the Trustee may
be required at the expense of the Holder of such Security before a replacement
Security will be issued. (Section 3.06)
GOVERNING LAW
The Indenture will provide that the Securities will 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 law of another jurisdiction would be required thereby.
(Section 1.12)
THE TRUSTEE
The Bank of New York will be the Trustee under the Indenture.
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<PAGE> 58
TAXATION
This summary of certain tax considerations is based upon current (as of the
date of this Prospectus) laws, treaties, cases, regulations and rulings. It does
not consider all the tax issues that might be relevant to an investor or that
depend upon an investor's particular circumstances.
Prospective investors should consult their own professional advisors about
the tax consequences of an investment in the Company under the laws of the
jurisdictions in which they are subject to taxation.
The legal conclusions set forth below in the discussion of U.S. tax law are
the opinions of Willkie Farr & Gallagher, special U.S. counsel to the Company.
The summary of certain Bermuda tax consequences is the opinion of Appleby,
Spurling & Kempe, Bermuda counsel to the Company.
UNITED STATES TAX CONSIDERATIONS
Taxation of United States Investors in the Company. For U.S. tax purposes
the Securities will be classified as preferred stock and not as debt
obligations. Interest payments will be taxed as dividends. A payment will be
taxable as ordinary dividend income to the extent it is paid out of the
Company's current or accumulated earnings and profits. Payments in excess of
such earnings and profits will be treated as a tax-free return of capital to the
extent of the Holder's tax basis in the Securities. Such payments will reduce
the tax basis at which the Security is held. The Company expects that payments
during at least the first two years will not be covered by earnings and profits
and will constitute a tax-free return of capital. Subject to the discussion
below, and assuming that the holder holds the Security as a capital asset,
payments in excess of the Holder's tax basis will be a capital gain that is
long-term or short-term depending on the holding period for the Security.
Interest paid with Common Stock will be taxed in the same manner as a cash
distribution in an amount equal to the fair market value of such stock. Certain
adjustments to the Conversion Price also would be taxed as if they were cash
distributions, generally equal in amount to the fair market value of the
increased proportionate interest in the Company affected by the adjustment.
Because the Company is a foreign corporation, the dividend payments will
not be eligible for the inter-corporate dividends-received deduction.
Subject to the discussion below on PFICs and assuming the Holder holds the
Security as a capital asset, any gain or loss recognized by a U.S. holder on the
sale or other disposition (other than a redemption by the Company) of a Security
will be capital gain or loss. Such capital gain or loss will be long-term or
short-term depending on the holding period for the Security. A Holder will also
generally recognize capital gain or loss upon a redemption of Securities for
cash.
Notwithstanding the foregoing, on a redemption of Securities, in certain
limited circumstances (primarily those involving Holders whose proportionate
interests in the Company remain the same or increases after the redemption, or
in the case of Holders with significant interests in the Company, whose
interests in the Company are not materially reduced as a result of the
redemption), such Holders may be required to treat any payments received with
respect to such redemption as a dividend (taxable as described above) in whole
or in part, without offset for such holder's basis in the Securities, and may
not be entitled to recognize a loss.
Subject to the discussion below on PFICs, the conversion of Securities into
Common Stock or the receipt of solely Common Stock on a Provisional, Optional or
Mandatory Redemption would not be a taxable event. If both cash and Common Stock
are received in a redemption, the Holder would realize a gain (which under
certain limited circumstances may be taxed as ordinary dividend income) equal to
the amount by which the fair market value of the Common Stock and the cash
received exceeded his tax basis in the Security surrendered. However, the gain
recognized for tax purposes would be the lesser of (x) the gain realized or (y)
the cash received.
Special rules apply to the taxation of a U.S. shareholder in a "passive
foreign investment company" (a "PFIC"). A PFIC is a foreign corporation (i) 75%
or more of whose income is passive or (ii) 50% or more of whose assets produce
or are held to produce passive income. The Company believes that it has not been
a PFIC and will not become one. The Company expects to earn, through Globalstar,
sufficient active income to avoid PFIC status. However, Globalstar may earn
passive income such as interest on working capital and
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<PAGE> 59
royalties on certain intangibles. Furthermore, the extent and timing of
Globalstar's active business income cannot be predicted with certainty.
If the Company were a PFIC, unless a U.S. holder of Securities or Common
Stock makes the QEF election described below, he would be subject to a
tax-deferral charge on gain on a disposition of and on certain "excess
distributions" received from the Company. Any such gains or excess distributions
would be taxable at ordinary income rates. Under currently proposed, but not yet
adopted, Treasury Regulations, the exchange of the Securities for Common Stock
(either on conversion or on redemption of the Securities) would not be a
"disposition" if the Company was a PFIC for the taxable year in which the
conversion occurred. If the Company had been a PFIC but was no longer, the
exchange would appear to be considered a taxable event.
If a shareholder makes the qualified electing fund ("QEF") election, he
would be required to include in his taxable income his pro rata share of the
Company's ordinary earnings and net capital gain for each taxable year
(regardless of when or whether cash attributable to such income is actually
distributed to such shareholder by the Company). If the shareholder makes a QEF
election, the tax-deferral charge and ordinary income rules described in the
preceding paragraph will not apply. Actual distributions out of amounts so
included in income will not be taxable to the shareholder. A shareholder's tax
basis in its shares of Common Stock will be increased by the amount so included
and decreased by the amount of nontaxable distributions.
The QEF election is effective only if certain required information is made
available by the Company to the U.S. Internal Revenue Service ("IRS"). In the
event the Company is characterized as a PFIC for federal income tax purposes,
the Company will undertake to provide to each U.S. shareholder the information
needed to comply with the IRS information requirements and to determine each
U.S. holder of Securities or Common Stock's pro rata share of the Company's
ordinary earnings and net capital gain.
Taxation of Non-U.S. Investors in the Company. The Company expects that
most of its income will be from sources outside the United States and will not
be effectively connected with a U.S. trade or business. Thus, a non-U.S.
resident alien individual, a non-U.S. corporation, a non-U.S. trust or a
non-U.S. estate will not be subject to U.S. federal taxation on distributions
received from the Company unless those distributions are effectively connected
with the conduct by the investor of a trade or business in the United States. In
addition, such a non-U.S. investor will not be subject to U.S. federal taxation
on gains realized by the investor on a sale or exchange of Securities or Common
Stock unless the sale of such securities is attributable to an office or fixed
place of business maintained by the investor in the United States. The
determination of whether an investor is engaged in the conduct of a trade or
business in the United States or whether the sale of an investor's Securities is
attributable to an office or fixed place of business of the investor in the
United States depends on the facts and circumstances of each investor's case.
Each prospective investor should consult with his own tax advisor to determine
whether his distributions or gains will be subject to U.S. federal taxation.
Taxation of the Company. The Company's tax consequences result from its
status as a partner in Globalstar. As a partnership, Globalstar itself will not
be subject to federal income taxation. Generally, its partners will be taxed as
if they directly expended their share of Globalstar expenditures and directly
realized their share of Globalstar income. The Company expects, based on
Globalstar's description of its proposed activities, that most of the Company's
income will be from sources outside the United States and that such income will
not be effectively connected with the conduct of a trade or business within the
United States ("Foreign Income"). Thus, there generally will be no U.S. taxes on
the Company's share of Globalstar's Foreign Income.
The Company will be subject to U.S. tax at regular U.S. federal, state and
local corporate rates on the Company's share of Globalstar's income which is
effectively connected with the conduct of a trade or business in the United
States ("U.S. Income"), and will be required to file federal, state and local
income tax returns with respect to such U.S. Income. Globalstar is obligated to
provide the information required for the Company to prepare its federal, state
and local income tax returns. Globalstar intends to make cash distributions, to
the extent of available funds, to all partners until the non-U.S. partners, such
as the Company, have been distributed an amount sufficient to enable them to pay
the federal, state and local income taxes on their share of Globalstar's U.S.
Income. The distribution to non-U.S. partners for federal income taxes may be
made by a withholding tax payment made by Globalstar to the U.S. Treasury. The
amount withheld may exceed the
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<PAGE> 60
amount of the Company's federal income tax liability and the Company would then
be entitled to seek a refund from the U.S. Treasury for the excess amount. In
addition to the regular U.S. taxes, the Company will be subject to a United
States branch profits tax (currently 30%) on actual or deemed withdrawals of its
share of Globalstar's U.S. Income. A portion of each distribution by Globalstar
to the Company will be a taxable withdrawal of U.S. income and, to the extent
that it has cash available, Globalstar is required to make a distribution to the
Company to enable it to pay its regular U.S. tax liability.
BERMUDA TAX CONSIDERATIONS
At the date of this Prospectus, there is no Bermuda income tax, corporation
or profits tax, withholding tax, capital gains tax, capital transfer tax, estate
or stamp duty or inheritance tax payable by the Company or the Holders (other
than Holders ordinarily resident in Bermuda) in respect of their investment in
the Securities.
The Company has obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966, as amended, a certificate confirming that,
in the event of there being enacted in Bermuda, any legislation imposing tax
computed on profits or income, or computed on any capital asset, gain or
appreciation or any tax in the nature of estate duty or inheritance tax, such
tax shall not until March 28, 2016 be applicable to the Company or to any of its
operations, or other obligations of the Company except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such Securities or
other obligations, or to any land in Bermuda leased or let to the Company.
The Company is liable to pay the Bermuda government an annual registration
fee calculated on a sliding scale based upon the assessable capital of the
Company which fee will not exceed BD$25,000.00.
The Company has been classified as non-resident of the Bermuda exchange
control area by the Bermuda Monetary Authority, whose permission for the issue
of the Securities has been sought. The transfer of Securities between persons
regarded as non-resident of Bermuda for exchange control purposes and the issue
and redemption of Securities to and by such persons may be effective without
specific consents under the Exchange Control Act 1972 of Bermuda and Regulations
made thereunder. Transfers involving any person regarded as resident in Bermuda
for exchange control purposes requires specific authorization under that Act.
The Company by virtue of being a non-resident of Bermuda for exchange control
purposes, is free to acquire, hold and sell any foreign currency, securities and
other investments without restrictions.
Purchasers of Securities may be required to pay stamp taxes and other
charges in accordance with the laws and practices of the country of purchase.
Prospective purchasers should consult their tax advisers as to the tax laws of
applicable jurisdictions and the specific tax consequences of acquiring, holding
and disposing of the Securities.
The Securities do not provide for additional payments by the Company
following a change in the tax laws or rules of Bermuda that is adverse to the
Holders.
TAX CONSIDERATIONS IN OTHER JURISDICTIONS
Based upon its review of current tax laws, including applicable
international tax treaties of certain countries that Globalstar believes to be
among its significant potential markets, the Company expects that a significant
portion of its worldwide income will not be subject to tax by the United States,
Bermuda or by the countries from which it derives its income. However, to the
extent that Globalstar bears a higher foreign tax because any holder of Ordinary
Partnership Interests (including the Company) is not subject to United States
tax on its share of Globalstar's foreign income, the additional foreign tax will
be specifically allocated to such partner and will reduce amounts distributed by
Globalstar to such partner with respect to its Ordinary Partnership Interests.
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<PAGE> 61
SELLING HOLDERS
The Securities were originally issued and sold by the Company in March and
April 1996, to Lehman Brothers Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and Unterberg Harris (the "Initial
Purchasers") in a private placement, and were resold by the Initial Purchasers
in transactions exempt from the registration requirements of the Securities Act
in the United States to qualified institutional buyers (as defined in Rule 144A
under the Securities Act), to certain accredited investors (as defined in Rule
501(a) under the Securities Act) and outside the United States to non-U.S.
persons in offshore transactions in reliance on Regulation S under the
Securities Act. In August 1996, Lehman Brothers Merchant Banking Portfolio
Partnership L.P. (the "Merchant Banking Partnership"), Lehman Brothers Capital
Partners II, L.P. ("Capital Partners"), Lehman Brothers Offshore Investment
Partnership L.P. (the "Offshore Partnership") and Lehman Brothers Offshore
Investment Partnership-Japan L.P. (the "Japan Partnership," and together with
the Merchant Banking Partnership, Capital Partners and the Offshore Partnership,
the "LB Partnerships") entered into a transaction with Loral SpaceCom and Loral
SpaceCom Corporation whereby the LB Partnerships exchanged shares of preferred
stock of SS/L (Bermuda) Ltd., an affiliate of Loral SpaceCom, held by them for
the 267,256 LBP Shares and certain other consideration in a transaction exempt
from the registration requirements of the Securities Act. Lehman Brothers
Holdings Inc. or certain of its wholly owned subsidiaries constitute the general
partners of each of the LB Partnerships. The Selling Holders may from time to
time offer and sell the Offered Securities set forth below pursuant to this
Prospectus.
The following table sets forth as of August 15, 1996, the respective number
of Securities and Conversion Shares beneficially owned by each Selling Holder
other than the LB Partnerships. The term Selling Holders includes the holders
listed below and the beneficial owners of the Offered Securities and their
transferees, pledgees, donees or other successors. With the exception of Loral
SpaceCom and the LB Partnerships, other than as a result of the ownership of the
Securities, none of the Selling Holders has, or within the past three years has
had, any position, office or material relationship with the Company or any of
its predecessors or affiliates. The table has been prepared based upon
information furnished to the Company by or on behalf of the Selling Holders.
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF CONVERSION
SELLING HOLDERS SECURITIES SHARES
- --------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Loral SpaceCom(1).................................................... $102,500,000 1,576,923
Hull Capital Corp. .................................................. 50,000,000 769,230
Ardsley Partners..................................................... 33,250,000 511,538
Snyder Capital Management(2)......................................... 13,305,000 204,692
EOS Partners, L.P. .................................................. 12,500,000 192,307
Zurich Kemper Investments............................................ 12,500,000 192,307
Oaktree Capital Management, LLC...................................... 10,150,000 156,153
Pecks Management Partners LTD........................................ 8,200,000 126,153
Weiss Peck & Greer, LLC. ............................................ 7,500,000 115,384
John A. Levin & Co., Inc. ........................................... 6,620,000 101,846
J.P. Morgan & Co. Incorporated(3).................................... 6,300,000 96,923
Froley, Revy Investment Company Inc. ................................ 5,350,000 82,307
Kayne, Anderson Investment(4)........................................ 5,000,000 76,923
Capital Research & Management Company................................ 5,000,000 76,923
Allstate Insurance Co. .............................................. 4,500,000 69,230
Glusken Sheff & Associates........................................... 4,500,000 69,230
Laterman Companies................................................... 4,500,000 69,230
Phoenix Mutual Life Insurance........................................ 4,000,000 61,538
Gruber & McBaine Capital(5).......................................... 3,200,000 49,230
HPB Associates....................................................... 2,500,000 38,461
Warburg, Pincus Counsellors, Inc.(6)................................. 2,000,000 30,769
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF CONVERSION
SELLING HOLDERS SECURITIES SHARES
- --------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Public Employees' Retirement Association of Colorado(7).............. 2,000,000 30,769
Libertyview Capital Management....................................... 1,000,000 15,384
Orion Capital Corp. ................................................. 1,000,000 15,384
Buchanan Partners Limited(8)......................................... 750,000 11,538
Gabelli & Company(9)................................................. 250,000 3,846
Bentley Capital Management, Inc. .................................... 150,000 2,307
Other Selling Holders(10)............................................ 1,475,000 22,704
------------ ----------
Total.............................................................. $310,000,000 4,769,230
=========== ========
</TABLE>
- ---------------
(1) Does not include 1,407,144 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(2) Does not include 8,500 shares of Common Stock which are beneficially owned,
but which are not being offered hereby.
(3) Does not include 96,919 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(4) Does not include 2,000 shares of Common Stock which are beneficially owned,
but which are not being offered hereby.
(5) Does not include 149,300 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(6) Does not include 261,300 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(7) Does not include 40,000 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(8) Does not include 1,000 shares of Common Stock which are beneficially owned,
but which are not being offered hereby.
(9) Does not include 66,000 shares of Common Stock which are beneficially
owned, but which are not being offered hereby.
(10) Information regarding these Selling Holders will be added by supplement to
this Prospectus.
The following table sets forth, as of August 15, 1996, information with
respect to the shares of Common Stock beneficially owned by the LB Partnerships,
all of which are expected to be sold before the termination of this offering.
See "Plan of Distribution."
<TABLE>
<CAPTION>
SHARES OWNED BEFORE
THE OFFERING
-------------------
NAME NUMBER PERCENT
- ----------------------------------------------------------------------- ------- -------
<S> <C> <C>
Merchant Banking Partnership........................................... 129,799 1.30%
Capital Partners....................................................... 88,224 *
Offshore Partnership................................................... 35,667 *
Japan Partnership...................................................... 13,566 *
------- -------
Total................................................................ 267,256 2.67%
======= ======
</TABLE>
- ---------------
* Less than 1%.
The LB Partnerships are affiliates of Lehman Brothers Inc. From time to
time, Lehman Brothers Inc. has provided investment banking, underwriting,
financial advisory and other services to the Company and its affiliates, for
which services Lehman Brothers Inc. has received customary indemnification,
underwriting discounts and fees. In addition, Lehman Brothers Inc. acts as a
market maker for the Company's securities.
The information concerning the Selling Holders may change from time to
time. If required, such changes will be set forth in Prospectus Supplements. The
per share conversion price and, therefore, the number of shares of Common Stock
issuable upon conversion of the Securities, are subject to adjustment under
certain circumstances. Accordingly, the number of shares of Common Stock
issuable upon conversion of Securities may increase or decrease. Because the
Selling Holders may offer all or some portion of the Securities or Conversion
Shares pursuant to this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of
Securities or Conversion Shares, no estimate can be given as to the amount of
Securities or Conversion Shares that will be held by the Selling Holders upon
termination of this offering.
PLAN OF DISTRIBUTION
The Offered Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Offered Securities to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
underwriting discounts,
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<PAGE> 63
concessions or commissions from the Selling Holders or the purchasers of Offered
Securities, for whom they may act as agent. The Selling Holders and any
underwriters, broker-dealers or agents that participate in the distribution of
the Offered Securities may be deemed to be "underwriters" within the meaning of
the Securities Act and any profit on the sale of Offered Securities by them and
any discounts, commissions, concessions or other compensation received by any
such underwriter, broker-dealer or agent may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Offered Securities offered hereby may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
Such prices will be determined by the Selling Holders or by agreement between
the Selling Holders and underwriters and dealers who may receive fees or
commissions in connection therewith. The sale of the Offered Securities may be
effected in transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which the Securities
or the Common Stock may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such exchanges
or in the over-the-counter market or (iv) through the writing of options. At the
time a particular offering of Offered Securities is made, a Prospectus
Supplement, if required, will be distributed which will set forth the aggregate
amount and type of Offered Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker-dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker-dealers.
The outstanding Common Stock is listed on the NNM, and the Company has
applied for listing the Conversion Shares on the NNM. There is no assurance as
to the development or liquidity of any trading market that may develop for the
Securities. Certain of the Initial Purchasers have engaged in transactions with
and performed certain investment banking and other services for the Company in
the past and received customary fees in connection therewith, and may do so from
time to time in the future.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold (unless they
have been registered or qualified for sale) in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Securities or the Common Stock may not
simultaneously engage in market-making activities with respect to such
securities for a period of two (with respect to the Conversion Shares) or nine
(with respect to the Securities) business days prior to the commencement of such
distribution. In addition to and without limiting the foregoing, each Selling
Holder and any other person participating in a distribution will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of any of the Offered Securities by
the Selling Holders or any such other person. All of the foregoing may affect
the marketability of the Securities and the Common Stock and brokers' and
dealers' ability to engage in market-making activities with respect to these
securities.
Pursuant to the Registration Rights Agreement with respect to the
Securities and the Conversion Shares, and an agreement with Loral SpaceCom and
Loral SpaceCom Corporation with respect to the LBP Shares, all expenses of the
registration of the Securities, Conversion Shares and LBP Shares will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Holders will pay all underwriting discounts, selling commissions and
related fees, if any. Holders of Securities and the Company have agreed to
indemnify each other against certain liabilities, including certain liabilities
arising under the Securities Act, or will be entitled to contribution in
connection therewith. Loral SpaceCom Corporation has agreed to cause the Company
to indemnify the LB Partnerships, and the LB Partnerships have agreed to
indemnify Loral SpaceCom Corporation, in each case against certain liabilities,
including certain liabilities arising under the Securities Act, or such parties
will be entitled to contribution in connection therewith.
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<PAGE> 64
This offering will terminate upon the earlier of (i) March 6, 1999, (ii)
the date that the Securities no longer constitute restricted securities under
Rule 144(k) of the Securities Act, or (iii) the date that all of the Securities,
Conversion Shares and LBP Shares covered by the Registration Statement have been
sold pursuant to the Registration Statement. In the event that this offering is
terminated before the end of three years from the date of effectiveness of the
Registration Statement and all of the LBP Shares have not been sold pursuant to
the Registration Statement, Loral SpaceCom Corporation has agreed to provide the
LB Partnerships certain registration rights with respect to the LBP Shares.
The LB Partnerships are affiliates of Lehman Brothers Inc. From time to
time, Lehman Brothers Inc. has provided investment banking, underwriting,
financial advisory and other services to the Company and its affiliates, for
which services Lehman Brothers Inc. has received customary indemnification,
underwriting discounts and fees. In addition, Lehman Brothers Inc. acts as a
market maker for the Company's securities. The LB Partnerships own the 267,256
LBP Shares offered hereby and 7,500,000 shares of common stock of Loral
SpaceCom, an affiliate of the Company, and, pursuant to a registration rights
agreement with Loral SpaceCom, if the LB Partnerships so elect, Lehman Brothers
Inc. or its affiliate will serve as managing underwriter for the sale of such
Loral SpaceCom shares by the LB Partnerships.
LEGAL OPINIONS
Certain United States tax matters described under "Taxation" will be passed
upon for the Company by Willkie Farr & Gallagher, New York, New York, general
counsel to the Company. The validity of the Securities and Conversion Shares
offered hereby will be passed upon for the Company by Appleby, Spurling & Kempe,
Hamilton, Bermuda. As of August 15, 1996, partners and counsel in Willkie Farr &
Gallagher beneficially owned 22,400 shares of the Common Stock. Mr. Robert B.
Hodes is of counsel to the law firm of Willkie Farr & Gallagher, and a Director
of the Company and Loral SpaceCom and a member of the Audit, Compensation and
Executive Committees of the Boards of Directors of both the Company and Loral
SpaceCom.
EXPERTS
The financial statements of the Company and Globalstar, L.P. incorporated
in this Prospectus by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of said firm given upon their authority as experts in auditing and
accounting.
60
<PAGE> 65
GLOSSARY OF TERMS
AMSC -- see American Mobile Satellite Corporation.
ARNS -- see Aeronautical Radio Navigation Services.
AERONAUTICAL RADIO NAVIGATION SERVICES (ARNS) -- a radio navigation service
intended for the benefit of and safe operation of aircraft.
AEROSPATIALE -- Aerospatiale Societe Nationale Industrielle.
AIRTOUCH -- AirTouch Communications, Inc. or an affiliate thereof.
ALCATEL -- Alcatel Espace, or an affiliate thereof.
ALENIA -- Alenia Spazio S.p.A., a subsidiary of Finmeccanica, or an affiliate
thereof.
AMERICAN MOBILE SATELLITE CORPORATION (AMSC) -- originally applied in the MSS
Proceeding for a license to develop a geosynchronous satellite system. On
November 16, 1994, AMSC amended its application to propose a MEO constellation.
See MSS applicant.
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.
ANGLE OR INCLINATION ANGLE -- the angle at which a satellite orbit is tilted
relative to the Earth's axis. Globalstar satellites are at a 52 degree
inclination.
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 can be sent through the circuit in a given amount of time.
BEAM -- the coverage offered by a satellite.
BYPASS -- the method of establishing an international telecommunications link
without using the facilities of local exchange carriers in the respective
national jurisdictions involved.
CDMA -- see Code Division Multiple Access.
C-BAND -- portion of the radio frequency spectrum, approximately 5 GHz to 7 GHz,
used primarily for satellite and microwave transmission and proposed for use by
the Globalstar System to transmit information from a satellite to a gateway and
from a gateway to a satellite (known as the feeder link).
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
employs 25 MHz of spectrum to provide service to the public. Cellular systems
are based on multiple base stations, or "cells," that permit efficient frequency
reuse and on software that permits the system to hand mobile calls from cell to
cell as subscribers move through the cellular service area.
CIRCUIT -- 1) means of two-way communication, voice or data, between two or more
points; 2) a group of electrical/electronic components connected to perform a
specific function. Satellite capacity is most often stated in the number of
circuits a satellite can carry simultaneously.
CODE DIVISION MULTIPLE ACCESS (CDMA) -- a transmission system that superimposes
audio or data information 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 serves as a code to
distinguish that particular telephone call from others on the air.
COLD FAILURE -- failure of a satellite in-orbit, due to random failure of
satellite components, electrostatic storms or collisions with other objects.
G-1
<PAGE> 66
COMMON CARRIER -- a provider of telecommunications services or facilities to the
general public on a non-discriminatory basis.
COMSAT -- Comsat Corporation.
CONSTELLATION -- Constellation Communications, Inc., an applicant for a LEO
system in the MSS Proceeding.
DASA -- Daimler-Benz Aerospace A.G., or an affiliate thereof (formerly Deutsche
Aerospace AG).
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 both in a land-based cellular system
and over the Globalstar System.
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.
ELLIPSO -- the LEO system proposed in the MSS Proceeding by Mobile
Communications Holdings, Inc.
FCC -- see Federal Communications Commission.
FEDERAL COMMUNICATIONS COMMISSION (FCC) -- regulatory agency established by the
Communications Act of 1934, charged with regulating all electrical and radio
communications within the United States, including commercial LEO satellite
systems.
FEEDER LINK -- the path by which information flows when traveling from a
satellite to a gateway and from a gateway to a satellite. LQP has applied for
feeder links in the C-band region of the frequency spectrum.
FINMECCANICA -- Finmeccanica S.p.A., or an affiliate thereof.
FRANCE TELECOM -- France Telecom, or an affiliate thereof.
FREQUENCY -- an expression of how frequently a periodic (repetitious) wave form
or signal regenerates itself at a given amplitude.
FULL CONSTELLATION DATE -- the date on which Globalstar commences full
operations via a 48-satellite constellation, which is expected to occur by the
end of 1998.
GHZ -- see gigahertz.
GOCC -- see Ground Operations Control Center.
GSM -- see Global System for Mobile Communications.
GATEWAY -- the earth terminal which connects the Globalstar satellite
constellation to the land-based switching equipment of telecommunications
service providers.
GEOSYNCHRONOUS SATELLITE -- a satellite using the geosynchronous orbit, 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 provided wherever Globalstar service is
authorized by local regulatory authorities.
G-2
<PAGE> 67
GLOBALSTAR -- Globalstar, L.P., a Delaware limited partnership.
GLOBALSTAR PHONES -- hand-held or vehicle-mounted units similar to today's
cellular telephones, fixed telephones similar to phone booths and ordinary wired
telephones, and data and specially adapted facsimile machines through which
users will access the Globalstar System. Each Globalstar Phone will communicate
through the satellite constellation with a local Globalstar service provider's
land-based interconnection point or gateway.
GLOBALSTAR SERVICE -- the transmission and/or reception of voice, data,
messaging, facsimile, paging, position location or other information by
Globalstar Phones through the Globalstar System using the service providers'
gateways.
GLOBALSTAR SYSTEM -- a low-earth orbit satellite-based telecommunications system
proposed by Globalstar to operate in the MSS Above 1 GHz Service frequencies.
See MSS applicant.
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 gateways and SOCCs which comprise the
Globalstar Ground Segment.
HAND-HELD GLOBALSTAR PHONE -- Globalstar voice service to a hand-held, portable
terminal.
HOT FAILURE -- failure of a satellite during launch.
HYUNDAI -- Hyundai Electronics Industries Co. Ltd.
ITU -- see International Telecommunication Union.
IN-SERVICE DATE -- the date on which Globalstar expects to commence initial
commercial operations via a 32-satellite constellation.
INMARSAT -- International Maritime Satellite Organization which has announced
efforts to fund a MEO satellite telecommunications service that would operate in
the 2 GHz band.
INTERCONNECT -- connection of a telecommunications device or service to the
public switched telephone network and communication with any other party that
can be reached over it.
INTERNATIONAL TELECOMMUNICATION UNION (ITU) -- telecommunications agency of the
United Nations, established to provide standardized communications procedures
and practices including frequency allocation and radio regulations on a
worldwide basis.
IRIDIUM -- a low-earth orbit satellite-based telecommunications system proposed
by a consortium headed by Motorola Inc. to operate in the MSS Above 1 GHz
Service frequencies. See MSS applicant.
KA-BAND -- portion of the electromagnetic spectrum allotted for satellite
transmission; frequencies are approximately in the 20 to 30 GHz range.
LEO -- low-earth orbit between 500 and 1,500 nautical miles in altitude.
LGP -- see Loral General Partner, Inc.
LMDS -- see Local Multipoint Distribution Services.
LQP -- see Loral/Qualcomm Partnership, L.P.
LQSS -- see Loral/Qualcomm Satellite Services, L.P.
LOCKHEED MARTIN -- Lockheed Martin Corporation.
LORAL -- Loral Corporation, or an affiliate thereof.
G-3
<PAGE> 68
LORAL GENERAL PARTNER, INC. (LGP) -- a wholly-owned indirect subsidiary of Loral
SpaceCom, which serves as the general partner of LQP.
LORAL/QUALCOMM PARTNERSHIP, L.P. (LQP) -- a Delaware limited partnership
comprised of subsidiaries of Loral SpaceCom and Qualcomm. LQP is the general
partner of LQSS.
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (LQSS) -- a Delaware limited partnership
which is the managing general partner of Globalstar.
LORAL SPACECOM -- Loral Space & Communications Ltd., a Bermuda corporation.
Loral SpaceCom is a principal founder of Globalstar and, through a subsidiary,
its managing partner.
L/Q LICENSEE -- L/Q Licensee, Inc., a wholly-owned subsidiary of LQP and the
holder of the FCC license to construct, launch and operate the Globalstar
system.
MEO -- medium-earth orbit between 2,000 and 18,000 nautical miles in altitude.
MHZ -- see megahertz.
MSS -- see Mobile Satellite Service.
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 which 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. See
AMSC, Constellation, Ellipso, Globalstar System, Iridium and Odyssey.
MSS PROCEEDING -- Mobile Satellite Service Proceeding Above One Gigahertz.
MEGAHERTZ (MHZ) -- a unit of frequency equal to 1 million cycles per second.
MOBILE SATELLITE SERVICE (MSS) -- services transmitted via satellites to provide
mobile telephone, fixed telephone, paging, messaging, facsimile, data, and
position location services directly to users.
MULTIPLE SATELLITE COVERAGE -- a distinct feature of the Globalstar System
whereby each mobile Globalstar Phone will communicate with as many as three
satellites simultaneously, combining the signals received to ensure maximum
service quality.
ODYSSEY -- 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.
ORBITAL PLANE -- the flight path of a satellite.
ORBITEL -- Orbitel Mobile Communications Ltd.
PCS -- see personal communications service.
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.
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.
QUALCOMM -- QUALCOMM Incorporated, or an affiliate thereof.
RAS -- see Radio Astronomy Service.
RDSS -- see Radio Determination Satellite Service.
G-4
<PAGE> 69
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. The
service has been employed in Qualcomm's OmniTRACS position location system.
RADIO FREQUENCY -- a frequency that is higher than the audio frequencies but
below the infrared frequencies, usually above 20 KHz. See also electromagnetic
spectrum.
SOCC -- see Satellite Operations Control Center.
SS/L -- Space Systems/Loral, Inc.
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 Ground Segment.
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 which 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.
SIGNAL -- a physical, time-dependent energy value used for the purpose of
conveying information through a transmission line.
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.
STRATEGIC ALLIANCE -- refers to SS/L and its strategic equity investors,
Aerospatiale, Alcatel, DASA and Finmeccanica.
STRATEGIC SERVICE PROVIDERS -- refers to the strategic partner service providers
granted exclusive rights to provide Globalstar service around the world.
SUBSCRIBER -- any customer purchasing hand-held, mobile or fixed subscriber
units for such subscriber's own use and who is registered on 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.
TDMA -- see Time Division Multiple Access.
TELEMETRY -- radio transmission of coded data between a ground station and a
satellite.
TELEPHONY -- science of construction and operation of telephones and telephonic
systems.
TIME DIVISION MULTIPLE ACCESS (TDMA) -- a digital method of multiplexing that
combines a number of signals through a common point by organizing them
sequentially and transmitting each in bursts at different instants of time.
Communicating devices at different geographical locations share a multipoint or
broadcast channel by means of a technique that allocates different time slots to
different users.
UPLINK -- the transmitting of a satellite circuit extending from the Earth to
the satellite (compare to downlink).
USER LINK -- the path by which information flows when traveling from a
Globalstar Phone to a satellite and from a satellite to a Globalstar Phone.
VODAFONE -- Vodafone Group Plc, or an affiliate thereof.
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<PAGE> 70
WRC -- see World Radiocommunication Conference.
WRC '95 -- the 1995 World Radiocommunication Conference.
WIRELINE -- land-based telephone line.
WORLD ADMINISTRATIVE RADIO CONFERENCE (WARC) -- an ITU conference for adopting
international allocations for radio frequencies and satellite orbit locations.
WORLD RADIOCOMMUNICATION CONFERENCE (WRC) -- the successor to the World
Administrative Radio Conference.
G-6
<PAGE> 71
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE OFFERED SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY OR GLOBALSTAR SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.............................. 1
Risk Factors......................... 13
Ratios............................... 27
Use of Proceeds...................... 27
Dividend Policy...................... 27
Regulation........................... 28
Principal Partners of Globalstar..... 32
Governance of Globalstar............. 33
Description of Capital Stock......... 40
Certain Foreign Issuer
Considerations..................... 43
Description of Securities............ 44
Taxation............................. 54
Selling Holders...................... 57
Plan of Distribution................. 58
Legal Opinions....................... 60
Experts.............................. 60
Glossary of Terms.................... G-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
GLOBALSTAR
TELECOMMUNICATIONS LIMITED
$310,000,000
6 1/2% CONVERTIBLE
PREFERRED EQUIVALENT
OBLIGATIONS DUE 2006
AND
5,036,486 SHARES
OF COMMON STOCK
-------------------------
PROSPECTUS
, 1996
-------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the
Registrant in connection with this offering, other than underwriting discounts
and commissions. All the amounts shown are estimates, except the SEC
registration fee:
<TABLE>
<S> <C>
SEC registration fee...................................... $110,883
Nasdaq National Market listing fee........................ 17,500
Legal fees and expenses................................... 35,000
Accounting fees and expenses.............................. 15,000
Miscellaneous fees and expenses........................... 21,617
--------
Total................................................ $200,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bermuda law permits a company to indemnify its directors and officers,
except for any act of willful negligence, willful default, fraud or dishonesty.
The Registrant has provided in its Bye-Laws that its directors and officers will
be indemnified and held harmless against any expenses, judgments, fines,
settlements and other amounts incurred by reason of any act or omission in the
discharge of their duty, other than in the case of willful negligence, willful
default, fraud or dishonesty.
Bermuda law and the Bye-Laws of the Registrant also permit the Registrant
to purchase insurance for the benefit of its directors and officers against any
liability incurred by them for the failure to exercise the requisite care,
diligence and skill in the exercise of their powers and the discharge of their
duties, or indemnifying them in respect of any loss arising or liability
incurred by them by reason of negligence, default, breach of duty or breach of
trust.
The Registrant intends to enter into indemnification agreements with its
officers and directors. To the extent permitted by law, the indemnification
agreements may require the Registrant, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities arising from
willful misconduct of a culpable nature) and to advance their expenses incurred
as a result of any proceedings against them as to which they could be
indemnified.
The Registrant maintains a directors' and officers' liability insurance
policy.
II-1
<PAGE> 73
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- ----------------------------------------------------------------------------------
<S> <C>
4.1* -- Indenture, dated as of March 6, 1996, by and between the Company and the Bank of
New York, as trustee, including form of security.
4.2* -- Registration Rights Agreement, dated March 6, 1996, by and among the Company,
Globalstar and the Initial Purchasers.
5 -- Opinion of Appleby, Spurling & Kempe.
8.1 -- Tax Opinion of Willkie Farr & Gallagher.
8.2 -- Tax Opinion of Appleby, Spurling & Kempe (included as part of their opinion filed
as Exhibit 5).
12* -- Statement Regarding Computation of Ratios.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Appleby, Spurling & Kempe (included in their opinion filed as Exhibit
5).
23.3* -- Consent of Willkie Farr & Gallagher.
24* -- Powers of Attorney.
25* -- Statement on Form T-1 of Eligibility of Trustee.
</TABLE>
- ---------------
* previously filed
II-2
<PAGE> 74
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
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;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described under item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 75
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2 TO
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 SEPTEMBER 10,
1996.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By: /s/ MICHAEL B. TARGOFF
--------------------------------------
Michael B. Targoff
President and
Chief Operating Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO 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 September 10, 1996
- ------------------------------------------ Executive Officer (Principal
BERNARD L. SCHWARTZ Executive Officer)
/s/ MICHAEL B. TARGOFF President, Chief Operating September 10, 1996
- ------------------------------------------ Officer
MICHAEL B. TARGOFF and Director
* Director September 10, 1996
- ------------------------------------------
ROBERT B. HODES
* Director September 10, 1996
- ------------------------------------------
A. ROBERT TOWBIN
* Senior Vice President, Chief September 10, 1996
- ------------------------------------------ Financial
MICHAEL P. DEBLASIO Officer (Principal Financial
Officer)
and Director
* Vice President and Treasurer September 10, 1996
- ------------------------------------------ (Principal Accounting Officer)
NICHOLAS C. MOREN
* By: /s/ MICHAEL B. TARGOFF
- ------------------------------------------
Michael B. Targoff
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- ----------------------------------------------------------------------------------
<S> <C>
5 -- Opinion of Appleby, Spurling & Kempe.
8.1 -- Tax Opinion of Willkie Farr & Gallagher.
8.2 -- Tax Opinion of Appleby, Spurling & Kempe (included as part of their opinion filed
as Exhibit 5).
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Appleby, Spurling & Kempe (included in their opinion filed as Exhibit
5).
</TABLE>
II-5
<PAGE> 1
Exhibit 5/8.2/23.2
[Letterhead of Appleby, Spurling & Kemp]
September 10, 1996
Globalstar Telecommunications Limited
Cedar House
41 Cedar Avenue
Hamilton, HM 12
Bermuda
Dear Sirs,
We have acted as counsel to Globalstar Telecommunications Limited, a
Bermuda company (the "Company"), in connection with its registration for resale
of $310,000,000 Convertible Preferred Equivalent Obligations (the "Convertible
Obligations"), the 4,769,230 shares of Common Stock issuable upon conversion
thereof, subject to adjustment in certain circumstances (the "Conversion
Shares") and 267,256 shares of Common Stock for the account of certain
stockholders (the "LBP Shares"), as described in the Company's Prospectus (the
"Prospectus") contained in the Form S-3 Registration Statement (the
"Registration Statement"), filed with the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended.
For the purposes of this opinion, we have been supplied with and
reviewed a copy of the Registration Statement, and have relied upon the
Memorandum of Association and Bye-Laws of the Company and such other documents,
certificates and records and have made such investigations as we deem necessary
or appropriate in order to give the opinion expressed herein.
We have assumed:
(i) The genuineness of all signatures on the documents which
we have examined.
(ii) The conformity to original documents of all documents
produced to us as copies and the authenticity of all
original documents which, or copies of which, have been
submitted to us.
Based upon and subject to the foregoing and subject to the reservations
mentioned below and to any matters not disclosed to us, we are of the opinion
that:
(i) the Convertible Obligations have been duly
authorised and validly issued by the Company and that
the Conversion Shares, when issued in accordance with
the terms of the Convertible Obligations, will be duly
authorised, validly issued, fully paid and subject to
no further calls;
<PAGE> 2
(ii) the LBP Shares have been duly authorized, validly issued,
fully paid and subject to no further calls; and
(iii) the statements set forth in the Prospectus under the
headings "Description of Capital Stock" and "Certain Foreign
Issuer Considerations" to the extent that they constitute
matters of Bermuda law, or legal conclusions with respect
thereto, have been reviewed by us and are accurate in all
material respects and fairly present the information disclosed
therein in all material respects.
In addition, the discussion of Bermuda law set forth under the heading
"Taxation-Bermuda Tax Considerations" is our opinion as to the material
Bermuda tax consequences of an investment in the Convertible Obligations and
Common Stock.
Our reservations are as follows:
(A) We express no opinion as to any law other than Bermuda law and none of the
opinions expressed herein relates to compliance with or matters governed by
the laws of any jurisdiction other than Bermuda. Where an obligation is to
be performed in a jurisdiction other than Bermuda, a Bermuda court may
decline to enforce it to the extent that such performance would be illegal
or contrary to public policy under the laws of such other jurisdiction.
(B) We express no opinion as to the availability of equitable remedies, such as
specific performance or injunctive relief, or as to any matters which are
within the discretion of the Bermuda courts, such as the award of costs, or
questions related to jurisdiction. Further, we express no opinion as to the
validity or binding effect in Bermuda of any waiver of or obligation to
waive any provision of law (whether substantive or procedural) or any right
or remedy arising through circumstances not known at the time of the filing
of the Registration Statement.
(C) Section 9 of the Interest and Credit Charges (Regulation) Act 1975
provides that the Bermuda courts have discretion as to the amount of
interest if any payable on the amount of a judgment after date of
judgment. If the court does not exercise that discretion, then interest
will accrue at the statutory rate which is currently seven per cent per
annum.
Where a party is vested with a discretion or may determine a matter in its
opinion, such discretion may have to be exercised reasonably or such an opinion
may have to be based on reasonable grounds.
We consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the reference to our firm under the caption "Legal Opinions",
"Description of Capital Stock", "Certain Foreign Issuer Considerations" and
"Taxation" in the Prospectus which is a part of the Registration Statement. This
opinion is issued on the basis that it will be construed in accordance with the
provisions of Bermuda law. It is issued
-2-
<PAGE> 3
solely for the benefit of the addressee in relation to the transaction
described above and is not to be made available to or relied upon by any other
person, firm or entity.
Yours faithfully,
Appleby, Spurling & Kempe
-3-
<PAGE> 1
Exhibit 8.1
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
September 10, 1996
Globalstar Telecommunications Limited
Cedar House
41 Cedar Avenue
Hamilton HM 12 Bermuda
Ladies and Gentlemen:
We have acted as counsel for Globalstar Telecommunications Limited, a
Bermuda corporation (the "Company"), in connection with its registration for
resale of $310,000,000 Convertible Preferred Equivalent Obligations due 2006
(the "Securities") and the 4,769,230 shares of Common Stock issuable upon
conversion thereof, subject to adjustment in certain circumstances (the
"Conversion Shares"), and 267,256 shares of Common Stock for the account of
certain stockholders, as described in the Company's Prospectus (the
"Prospectus"), contained in the Form S-3 Registration Statement (as amended, the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. The Securities have been issued
pursuant to an Indenture, dated as of March 6, 1996 (the "Indenture"), between
the Company and The Bank of New York, as Trustee.
As counsel for the Company, we have examined copies of the Registration
Statement and the Amended and Restated Agreement of Limited Partnership, dated
as of December 31, 1994 (the "Partnership Agreement"), of Globalstar, L.P.
("Globalstar"). We have examined originals, certified copies or photocopies of
such records of Globalstar, the Company and its subsidiaries and such other
certificates and documents as we have deemed relevant and necessary for the
opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
<PAGE> 2
September 10, 1996
Page 2
us as originals and the conformity to originals of all documents submitted to us
as certified copies or photocopies. As to various questions of fact material to
such opinions, we have relied upon certificates of officers of the Company and
of Globalstar and public officials.
Based upon the foregoing and having regard for such legal questions as
we have deemed relevant,
(i) The legal conclusions set forth in the discussion of U.S. tax law
under the heading "Taxation--United States Tax Considerations" are our opinions,
and it is our opinion that this discussion addresses the material U.S. tax
consequences of an investment in the Securities and Common Stock; and
(ii) It is our opinion that the statements set forth under the heading
"Governance of Globalstar," insofar as such statements purport to summarize
provisions of the Partnership Agreement, provide a fair summary of such
provisions, and the statements set forth under the heading "Description of
Securities" in the Prospectus, insofar as such statements purport to summarize
provisions of the Securities and the Indenture, provide a fair summary of such
provisions.
We call to your attention that we are members of the Bar of the State
of New York and do not purport to be experts in, or to render any opinions with
respect to, the laws of jurisdictions other than the State of New York, except
for the federal laws of the United States of America and the Revised Uniform
Limited Partnership Act of the State of Delaware.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement No. 333-6477 of Globalstar Telecommunications Limited on
Form S-3 of our reports dated January 26, 1996 (March 6, 1996 as to Notes 4 and
11 of Globalstar Telecommunications Limited and Globalstar, L.P., respectively),
appearing in the Annual Report on Form 10-K of Globalstar Telecommunications
Limited for the year ended December 31, 1995 and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
San Jose, California
September 9, 1996
