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FILED PURSUANT TO RULE 424(B)(4)
REGISTRATION NO. 333-22063
PROSPECTUS
4,185,318 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF WARRANTS TO PURCHASE SUCH SHARES
GLOBALSTAR TELECOMMUNICATIONS LIMITED
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All of the 4,185,318 shares of Common Stock, par value $1.00 per share (the
"Common Stock"), of Globalstar Telecommunications Limited (the "Company" or
"GTL") offered hereby (the "Warrant Share Offering") are offered by the Selling
Holders (as defined herein). Such shares (the "Warrant Shares") will be acquired
by the Selling Holders upon exercise of certain warrants (the "Guaranty
Warrants") issued to them in connection with their guaranties of a $250 million
credit agreement for Globalstar, L.P. ("Globalstar"). The Company is a general
partner in Globalstar. See "Summary -- Background of the Warrant Share
Offering."
The Warrant Shares 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 Warrant Shares to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of Warrant Shares, for whom they may act as agent. The Warrant
Shares 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 Warrant Shares may be effected in transactions (which
may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which 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 Warrant
Shares is made, a Prospectus Supplement, if required, will be distributed which
will set forth the aggregate amount and type of Warrant Shares 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
Company will not receive any of the proceeds from the sale of the Warrant Shares
offered hereby, but the Company will receive approximately $110.9 million from
the Selling Holders upon their exercise of the Guaranty Warrants. See "Selling
Holders," "Plan of Distribution" and "Use of Proceeds."
In conjunction with the Warrant Share Offering, the Company is distributing
to holders of record of its Common Stock outstanding as of March 24, 1997,
transferable subscription rights (the "Rights") to subscribe for and purchase in
the aggregate 1,131,168 additional shares of Common Stock (the "Rights Shares").
The offer and sale by GTL of the Rights Shares (the "Rights Offering") is being
effected by means of a separate prospectus.
The Common Stock is listed on the Nasdaq National Market (the "NNM") under
the symbol "GSTRF." On March 21, 1997, the last reported sale price of the
Common Stock on the NNM was $55 1/4 per share.
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED
UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MARCH 24, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with 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 Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
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 securities offered hereby. 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 securities offered hereby,
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.
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INCORPORATION 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, 1996;
(b) the Company's Proxy Statement relating to the 1997 Annual Meeting
of Stockholders; and
(c) 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 Shares 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, Cedar House, 41 Cedar Avenue,
Hamilton HM12, Bermuda, Attention: Secretary (Telephone (441) 295-2244).
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. From time to time, GTL, Loral and Globalstar or their
representatives have made or may make forward-looking statements, orally or in
writing. Furthermore, such forward-looking statements may be included in, but
are not limited to, various filings made by GTL, Loral or Globalstar with the
Commission, or press releases or oral statements made by or with the approval of
an authorized executive officer of GTL, Loral or Globalstar.
Management wishes to caution the reader that these forward-looking
statements, such as the statements regarding Globalstar's planned timetable for
launching and operating the Globalstar System, the extent of the market
opportunity for Globalstar's services and products presented by the growing
demand for telecommunications services worldwide, its anticipation of enabling
local service providers to extend low-cost, high-quality telecommunications
services to millions of people, its anticipated future revenues and capital
expenditures and other statements contained above and herein in this Prospectus
regarding matters that are not historical facts involve predictions. No
assurance can be given that the future results will be achieved; actual events
or results may differ materially as a result of risks facing Globalstar. Such
risks include, but are not limited to, problems related to technical development
and launch of the Globalstar System, the competitive environment in which the
system will operate, doing business in developing markets, obtaining the
necessary financing while being substantially leveraged, obtaining any required
U.S. and foreign government authorizations, licenses and permits, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions, as
well as regulatory, legislative and judicial developments that could cause
actual results to vary materially from the future results indicated, expressed
or implied, in such forward-looking statements. See "Risk Factors."
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SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto included elsewhere in
this Prospectus. Unless otherwise indicated, the information contained herein
gives effect to the issuance of an aggregate of 5.3 million shares of Common
Stock and 5.3 million underlying Globalstar partnership interests upon (i) the
exercise of the Rights and the Partnership Warrants underlying such rights and
(ii) the exercise of the Guaranty Warrants and the Partnership Warrants
underlying such warrants. Unless otherwise indicated, information contained
herein regarding the number of outstanding partnership interests of Globalstar
or shares of Common Stock of GTL and the beneficial ownership thereof does not
give effect to the issuance of Common Stock by GTL or the issuance of
partnership interests by Globalstar upon (i) the conversion of the CPEOs and the
purchase of underlying Globalstar partnership interests and (ii) the exercise of
the warrants issued as part of the Units and the underlying rights to purchase
Globalstar partnership interests. Unless otherwise specified or the context
otherwise requires, references in this Prospectus to "dollars," "$" and "U.S.$"
are to United States dollars. Certain capitalized terms used herein are defined
in the Glossary.
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 the
Globalstar System designed to enable local service providers to offer low-cost,
high quality wireless voice telephony and data services in virtually every
populated area of the world. Globalstar's designated service providers have
agreed to offer service and seek to obtain all necessary local regulatory
approvals in more than 100 nations, accounting for about 88% of the world's
population. The Company's sole asset is its interest in Globalstar.
The Globalstar System's worldwide coverage is designed to extend affordable
modern telecommunications services to millions of people who lack basic
telephone service and to enhance wireless telecommunications in areas
underserved or not served by cellular systems, providing a telecommunications
solution in parts of the world where terrestrial systems cannot be economically
justified. The Globalstar System has been designed to provide services at prices
comparable to today's cellular service and substantially lower than the prices
announced by Globalstar's anticipated satellite-based competitors. Globalstar
service providers will set their own retail pricing in their territories and
will pay Globalstar about $0.35 to $0.55 per minute on a wholesale basis.
Globalstar customers will use a variety of Globalstar Phones, including
hand-held and vehicle-mounted units similar to today's cellular telephones,
fixed telephones similar either to phone booths or ordinary wireline telephones,
and data terminals and facsimile machines. Dual-mode and tri-mode Globalstar
Phones will provide access to both the Globalstar System and the subscriber's
land-based cellular service. Each Globalstar Phone will communicate through one
or more satellites to a local Globalstar service provider's interconnection
point (known as a gateway) which will, in turn, connect into existing
telecommunications networks.
The elements of the Globalstar System -- space and ground segments, digital
communications technology, handset supply, service provider arrangements and
licensing -- are on schedule to begin launching satellites in the second half of
1997, to commence commercial operations in the second half of 1998 and to have a
full constellation of 48 operational satellites, plus eight in-orbit spares,
launched by the end of 1998:
Space Segment. The first Globalstar satellite has been assembled and
is now in pre-flight testing, and another four satellites are currently
being assembled. Production is on schedule for the remaining satellites.
Three different launch providers have signed agreements for the launch of
the satellite constellation, providing a variety of launch options and
considerable flexibility. Mission operations preparations and launch
vehicle production and dispenser development are on schedule.
Ground Segment. The first four gateways, which are to be in
Australia, France, South Korea and the United States, are under
construction. These gateways will support Globalstar's data network,
monitor the initial launch and orbital placement of Globalstar's first
satellites, and will serve as prototypes
<PAGE> 6
for production gateways that will support Globalstar service. Globalstar's
SOCC facility has been completed.
Digital Communications Technology. Qualcomm's CDMA technology has
been successfully deployed in South Korea, Hong Kong and cities in the
United States supporting terrestrial PCS and digital cellular service.
Qualcomm's CDMA implementation for Globalstar has been successfully
demonstrated in a simulated satellite environment. This demonstration
validated Globalstar's encoding, modulation, control software, time and
frequency distribution and up/down links between satellites and handsets.
Handset Supply. Qualcomm and two other manufacturers, Ericsson and
TELITAL, are on schedule in their design and development of Globalstar's
handset.
Service Providers. Globalstar and its partners have been seeking
alliances with service providers throughout the world and have entered into
agreements in a number of territories. For example, in November 1996,
ChinaSat, a subsidiary of China's Ministry of Posts and Telecommunications,
agreed to act as the exclusive distributor of Globalstar services in China,
and to support four Globalstar gateways, the first of which is expected to
be operational by 1998. Globalstar has also formed a joint venture with the
principal Russian long distance carrier, Rostelecom, to provide Globalstar
service in that country and is negotiating a service provider agreement
with that joint venture. Globalstar believes that these relationships with
in-country service providers will facilitate the granting of local
regulatory approvals--particularly where, as is the case in China, the
service provider and the licensing authority are the same--as well as
providing local marketing and technical expertise.
Licensing. In January 1995, the FCC granted authority for the
construction, launch and operation of the Globalstar System and assigned
spectrum for its user links. Later that year, WRC'95 allocated feeder link
spectrum on an international basis for MSS systems such as Globalstar, and
in November 1996 the FCC authorized Globalstar's feeder links.
As a result of several recent decisions designed to assure and upgrade
system performance and maintain schedule--including procurement of three
launches on the Starsem Soyuz launch vehicle, additional testing procedures,
development of additional and enhanced service features, cost growth and other
factors--Globalstar currently estimates the cost for the design, construction
and deployment of the Globalstar System, including working capital, cash
interest on anticipated borrowings and operating expenses, to be approximately
$2.5 billion. In addition, Globalstar has agreed to purchase from SS/L eight
additional spare satellites at a cost estimated at $175 million. After giving
effect to the exercise of the Rights and the Guaranty Warrants, Globalstar will
have raised or received commitments for approximately $2.0 billion in equity,
debt and vendor financing, representing about 78% of the total financing
expected to complete the Globalstar System and achieve worldwide operations.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many in rural areas where the cost of wireline
service is prohibitively high. Moreover, even where telephone infrastructure is
available in developing countries, outdated equipment often leads to unreliable
local service and limited international access. The number of worldwide fixed
phone lines has increased from 469 million in 1988 to 753 million in 1996 and is
projected to increase to 1.2 billion by 2002. Nonetheless, during the same
period, waiting lists for fixed service have increased from 30 million to 45
million, resulting in an average waiting time before installation of about one
and a half years. Similarly, the cellular market has grown from four million
worldwide subscribers in 1988 to an estimated 123 million in 1996 and is
projected to increase to 334 million by 2001. At that time, it is projected that
only 40% of the world's population will live in areas with cellular coverage.
The remaining 60% of the world's population will have access to wireless
telephone service principally through satellite-based systems like the
Globalstar System. Globalstar believes that its potential market exceeds 30
million people.
The Globalstar System has been designed with attributes which Globalstar
believes compare favorably to other proposed global mobile satellite service
systems including: (i) Globalstar's unique combination of
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CDMA technology and path diversity through multiple satellite coverage, which
will reduce call interruptions and signal blockage from obstructions and will
use satellite power more efficiently; (ii) a proven space segment design without
complex intersatellite links or on-board call processing and a ground segment
with flexible, low-cost gateways and competitively priced Globalstar Phones;
(iii) lower average wholesale prices than other proposed MSS systems; and (iv)
gateways installed in most major countries, minimizing tail charges (i.e.
amounts charged by carriers other than the Globalstar service provider for
connecting a Globalstar call through its network), resulting in low costs for
domestic and regional calls, which will account for the vast majority of
Globalstar's anticipated usage.
Loral is a principal founder of Globalstar and is its managing general
partner. Following exercise by Loral of its Guaranty Warrants, Loral will have
invested $269 million in Globalstar, and will own effectively 33.8% 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 have invested an
additional $210 million in equity and, together with Loral, committed or
obtained $310 million in vendor financing.
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
and its telephone number is (441) 295-2244.
GLOBALSTAR STRATEGIC PARTNERS
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
System. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of CDMA digital telecommunications technology. Globalstar's other
strategic partners are:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS EQUIPMENT
TELECOMMUNICATIONS AND AEROSPACE GLOBALSTAR SYSTEMS
SERVICE PROVIDERS MANUFACTURERS
----------------------------------------------- ---------------------------------------
<S> <C>
- AirTouch - Alcatel
- Dacom - Alenia
- France Telecom - DASA
- Vodafone - Finmeccanica
- Hyundai
- SS/L
</TABLE>
SS/L is providing the system's satellites under a fixed-price contract that
also requires SS/L to obtain launch services and launch insurance. Qualcomm is
designing and will manufacture Globalstar Phones, gateways and certain ground
support equipment.
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BACKGROUND OF THE WARRANT SHARE OFFERING
On December 15, 1995, Globalstar entered into the Credit Agreement
providing for a $250 million credit facility, which was guaranteed by certain
Globalstar strategic partners. In connection with such guaranties and a guaranty
support provided by Loral, GTL issued to these parties the Guaranty Warrants to
purchase 4,185,318 shares of GTL common stock. In connection with the issuance
of the Guaranty Warrants, GTL received (i) rights to acquire 4,185,318 ordinary
partnership interests in Globalstar and (ii) rights to purchase an additional
1,131,168 ordinary partnership interests, on terms and conditions generally
similar to those of the Guaranty Warrants.
Globalstar and GTL have entered into an agreement pursuant to which GTL and
Globalstar have agreed that upon the exercise of any Guaranty Warrant, GTL will
purchase from Globalstar, and Globalstar will sell to GTL, a number of ordinary
partnership interests equal to the number of shares of Common Stock issuable
upon such exercise for a purchase price equal to the exercise price of the
Guaranty Warrant.
The Guaranty Warrants have an exercise price of $26.50 per share expiring
on April 19, 2003 and originally were not exercisable until six months after the
In-Service Date, subject to acceleration by LQSS in its sole discretion. The
Guaranty Warrants may not be transferred to third parties prior to such exercise
date.
GTL, LQSS and the holders of the Guaranty Warrants (the "Selling Holders")
have entered into an agreement under which GTL and LQSS have agreed to
accelerate the vesting and exercisability of the Guaranty Warrants to purchase
the Warrant Shares, consisting of 4,185,318 shares of Common Stock, at $26.50
per share, and the Selling Holders have agreed to exercise such warrants. The
Company will use the proceeds of such exercise, estimated to be approximately
$110.9 million, to purchase a like number of general partnership interests in
Globalstar. The Selling Holders will offer the Warrant Shares for sale as
provided under "Plan of Distribution." See "Selling Holders" and "Plan of
Distribution."
In addition, in order to enable the GTL shareholders to benefit directly
from the appreciation in the value of the 1,131,168 Partnership Warrants that
will not be exercised with the proceeds from the exercise of the Guaranty
Warrants (which appreciation is reflected by the difference between the recent
market price of the Common Stock and the exercise price of the Partnership
Warrants) and to enable GTL to obtain the funds necessary for it to exercise
such Partnership Warrants, GTL is distributing to the holders of its Common
Stock Rights to subscribe for and purchase 1,131,168 shares of Common Stock for
a price of $26.50 per share. In conjunction with the Warrant Share Offering, the
Company is currently registering the Rights and the underlying Rights Shares for
sale by means of a separate prospectus. Loral has agreed to purchase all Rights
Shares not purchased upon exercise of the Rights.
Upon the exercise of the Guaranty Warrants and the Rights, GTL will receive
proceeds of approximately $140.9 million, which it will use to exercise the
Partnership Warrants to purchase 5,316,486 Globalstar partnership interests at
$26.50 per interest. Globalstar will use such proceeds to continue the
construction and deployment of the Globalstar System.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Warrant
Shares by the Selling Holders. The Company will, however, receive proceeds of
approximately $110.9 million assuming all the Guaranty Warrants are exercised.
The Company also expects to obtain approximately $30 million in proceeds from
the concurrent Rights Share Offering being effected by means of a separate
prospectus. The Company intends to use the aggregate proceeds from such
transactions, expected to be approximately $140.9 million, to exercise the
Partnership Warrants it holds to purchase additional general partnership
interests in Globalstar. Globalstar will use the proceeds of the exercise of the
Partnership Warrants to continue the construction and deployment of the
Globalstar System. See "Use of Proceeds."
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GLOBALSTAR OWNERSHIP
The following is a chart depicting Globalstar's ownership. The ownership
percentages in parentheses reflect the ownership of GTL and Globalstar prior to
the issuance of 5,316,486 shares of Common Stock constituting the Rights Shares
and the Warrant Shares and the issuance by Globalstar of 5,316,486 underlying
Globalstar partnership interests upon the exercise of the Partnership Warrants.
The ownership percentages without parentheses reflect the ownership of GTL and
Globalstar after issuance of the Common Stock constituting the Rights Shares and
the Warrant Shares and the underlying Globalstar partnership interests referred
to in the prior sentence assuming that all Shareholders exercise all of their
Rights and that none of Loral, its affiliates or the other holders of the
Warrant Shares sell their Warrant Shares. Prior to the issuance of the Rights
Shares and the Warrant Shares, the Shareholders other than Loral and its
affiliates owned 85.9% of GTL which represented an indirect beneficial ownership
of 18.3% of Globalstar. After the issuance of the Rights Shares and the Warrant
Shares, the Shareholders other than Loral, its affiliates and the other holders
of the Warrant Shares will own 62.4% of GTL which represents an indirect
beneficial ownership of 18.3% of Globalstar. Accordingly, if all of the Rights
and the Guaranty Warrants are exercised, the public shareholders of GTL will
individually and in the aggregate retain the same indirect beneficial interest
in Globalstar that existed prior to the issuance of the Rights Shares and the
Warrant Shares.
[GLOBALSTAR STRUCTURE CHART]
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RISK FACTORS
Investors should consider the following risk factors, in addition to the
other information contained in this Prospectus, in evaluating whether to
purchase Warrant Shares. The following relate to the Company and Globalstar.
DEVELOPMENT STAGE COMPANY
Development Stage Company; Expectation of Continued Losses; Negative Cash
Flow. Globalstar is a development stage company. It has no operating history.
Globalstar has incurred net losses and expects them to continue. It will require
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 begin operations before the second
half of 1998 or to have positive cash flow before 1999. There can be no
assurance that Globalstar will achieve its objectives by the targeted dates.
Additional Financing Requirements. Globalstar estimates the cost for the
design, construction and deployment of the Globalstar System, including working
capital, interest on borrowings and operating expenses, to be about $2.5
billion. Actual amounts may vary from this estimate. Additional funds would be
required upon unforeseen delays, cost overruns, launch failures, technological
disappointments, adverse regulatory developments, for system enhancements and
measures to assure system performance and readiness for the space and ground
segments. As of March 21, 1997, Globalstar had raised or received commitments
for approximately $2.0 billion. Globalstar believes that its current capital,
vendor financing commitments, the availability of the Credit Agreement and the
proceeds from the exercise of the Partnership Warrants are enough to fund its
needs into the first quarter of 1998. Globalstar intends to raise the remaining
requirements from a combination of sources including borrowing (which may
include an equity component), support from the Globalstar partners, service
provider payments, revenues from initial operations, payments from the sale of
gateways and Globalstar Phones and placement of partnership interests. If there
are unforeseen delays, if technical or regulatory developments result in a need
to modify the design of the Globalstar System, if service provider agreements
for additional territories are not entered into when or on the terms anticipated
or if other additional costs are incurred, the risk of which is substantial,
additional capital will be needed. The ability of Globalstar to achieve positive
cash flow will depend upon the successful and timely deployment of the
Globalstar System, its successful marketing 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 begin commercial operations in the second half of 1998 or achieve
positive cash flow in 1999, additional capital will be needed.
Globalstar believes it will be able to obtain the additional financing it
requires, but there can be no assurance that the capital required to complete
the Globalstar System will be available from 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.
Sources of Possible Delay and Increased Cost. Many of the problems, delays
and expenses that may be encountered by an enterprise in Globalstar's stage of
development may be beyond its control. These may include those 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 that may exceed estimates.
As a result of measures designed to assure and upgrade performance and maintain
schedule, Globalstar's total cost is now estimated to be $2.5 billion, as
compared with $2.2 billion estimated at December 31, 1995. The increase is due
to a decision to launch 12 satellites on the Starsem Soyuz launch vehicle and to
Qualcomm's estimates indicating an increase in costs under its contracts to $545
million. The Qualcomm estimates are subject to review. In addition, Globalstar
has agreed to purchase from SS/L eight additional spare satellites at a cost of
$175 million in order to have at least 40 in service in 1999, even if there are
launch failures. Delay in the design, construction, deployment, commercial
operation and achievement of positive cash flow of the Globalstar System could
result from a variety of causes. These include delays in regulatory processes in
various jurisdictions, the integration of the Globalstar System into the
land-based network, changes in the technical specifications of the Globalstar
System made to enhance
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<PAGE> 11
its features, performance or marketability or in response to regulatory
developments or otherwise, delays encountered in the construction, integration
or testing of the Globalstar System by Globalstar vendors, delays in or
unsuccessful launches, delays in financing, weak service provider marketing
efforts, slower-than-anticipated consumer acceptance and other events beyond
Globalstar's control. Substantial delays in any of the foregoing would delay
Globalstar's achievement of profitable operations.
REGULATION
Licensing Risks. The operations of the Globalstar System are and will
continue to be subject to United States and foreign regulation. The Globalstar
System must be authorized to provide MSS in each of the markets in which its
service providers intend to operate. Even though a Globalstar affiliate has
received 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 soon enough or in the form necessary to implement
Globalstar's proposed operations. Globalstar's business may also be affected by
regulatory changes resulting from judicial decisions and/or adoption of
treaties, legislation or regulation by the national authorities where the
Globalstar System plans to operate.
Globalstar's FCC license, as modified on November 19, 1996, authorizes the
construction, launch and operation of the satellite constellation and assigns
the Globalstar System user links and feeder links in the United States.
Globalstar's feeder link frequencies were allocated internationally at WRC '95,
and have been assigned by the FCC for use in the United States in accordance
with the international allocation. However, use of the feeder link frequencies
remains subject to restrictions that may be adopted in a potential FCC
proceeding to adopt the international allocations into the U.S. Table of
Frequency Allocations. The FCC recently adopted rules for the use of a portion
of the frequencies allocated at WRC '95 for MSS feeder links (such as
Globalstar's) to a proposed high-speed wireless data service. Although these
rules are intended to preclude harmful interference with other uses of these
bands, they may ultimately permit uses of these frequencies that could diminish
their usefulness for MSS feeder links. Separate licenses must also be obtained
from the FCC for operation of gateways and Globalstar Phones in the United
States.
To the extent that additional MSS systems are authorized by the FCC or
other national regulatory bodies to use the spectrum for which Globalstar has
been authorized, the Globalstar System's capacity would be reduced. In addition,
Globalstar's FCC license is subject to two pending judicial appeals. While
Globalstar believes that these appeals are without merit, there can be no
assurance that these appeals would not result in either reversal or stay of the
FCC's decision to grant Globalstar's FCC license to LQP or ultimately result in
the granting of additional licenses by the FCC or its adoption of an auction
procedure to award licenses, which might materially increase the cost of
obtaining such licenses.
Authorization will be required in each country in which Globalstar Phones
are used and in which Globalstar's gateways are located. Local regulatory
approval for operation of the Globalstar System is the responsibility of the
service providers in each territory. Although many countries have moved to
privatize the provision of telecommunications service and to permit competition,
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, and if they are not, Globalstar service will not be available in
such territories. In that event, depending upon geographical and market
considerations, Globalstar may or may not have the ability to redirect the
system capacity that such territories would have otherwise used to serve markets
in which service is authorized.
Regulatory schemes in countries in which Globalstar or its service
providers seek to operate may impose impediments on Globalstar's operations.
There can be no assurance that such restrictions would not be unduly burdensome.
Glonass operates worldwide in a portion of the frequency band proposed to
be used by Globalstar and other MSS systems for user uplinks. Although Glonass
has proposed to migrate to lower frequencies, interference protection
requirements for Glonass receivers are under consideration, which, if adopted,
may render a segment of the MSS spectrum unusable for MSS user uplinks. While
this is not expected to have an
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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, could reduce Globalstar's effective
system capacity in such markets.
European Union Regulatory Matters. European Union competition law
proscribes agreements that restrict or distort competition in the Union.
Globalstar and others have responded to an inquiry from the Commission of the
European Union requesting information regarding their activities. A violation of
European Union competition law could subject Globalstar to fines or enforcement
actions that could delay service in western Europe, and/or depending on the
circumstances, adversely affect Globalstar's contractual rights vis-a-vis its
European strategic partners. In addition, the Commission has proposed
legislation which, if adopted, would give the Commission broad regulatory
authority over satellite telecommunications media such as the Globalstar System.
TECHNOLOGICAL RISKS
General. The Globalstar System is a large-scale complex telecommunications
system employing advanced technologies which must be adapted to the Globalstar
application and which have never before been used as a commercial whole.
Deployment of the Globalstar satellite constellation will involve volume
production and testing of satellites in quantities significantly higher than
those previously prevailing in the industry. The integration of a worldwide LEO
satellite-based system like Globalstar has never occurred; there is no assurance
that such integration will be successful. 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 Globalstar
System, or any of its diverse and dispersed elements, could delay the In-Service
or Full Constellation Date of the Globalstar System or render it unable to
perform at the levels required for commercial 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, suffered a launch failure on January
17, 1997. The United States government is investigating the cause, the second in
this rocket's last 62 launches. Globalstar's first launch, which is scheduled
for September 1997 aboard a Delta II rocket, could be delayed by this
investigation. Nevertheless, Globalstar does not expect that such delay, if any,
in the initial launch date would result in a delay in the In-Service Date or the
Full Constellation Date. The Ukrainian Zenit launch vehicle, which is proposed
to launch 36 Globalstar satellites (12 per launch), has never been used in
commercial applications. Satellite launches of groups of more than eight
commercial satellites have not been attempted before. Globalstar intends to
launch the last 12 satellites of its constellation in groups of four on three
separate launches of the Russian Starsem Soyuz rocket. There is no assurance
that Globalstar satellite launches will succeed or that its launch failure rate
will not exceed the industry average.
Globalstar's Zenit launch contracts provide for relaunches at no additional
charge upon a hot failure. However, the launch provider may, for financial
reasons or otherwise, be unable to provide such relaunches. A single launch
failure would result in a loss of either four or 12 satellites. Although the
cost of replacing such satellites and launch vehicles will in most cases be
covered by insurance, a launch failure could result in delays in the In-Service
or the Full Constellation Date.
SS/L has agreed to obtain launch vehicles for Globalstar and arrange for
the launch of all 56 satellites, subject to pricing adjustments in light of
future market conditions, which may, in turn, be influenced by international
political developments. An adverse change in launch vehicle market conditions
which prohibits Globalstar from utilizing the launch vehicles for which it has
contracted could result in an increase in the 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.
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Two of Globalstar's launch operators are subject to U.S. export control
regulations. Yuzhnoye, based in Ukraine, has ties with Russia and intends to
launch the Zenit rocket from the Baikonur launch site in Kazakhstan.
Arianespace, which will be providing the Soyuz rockets, also intends to launch
from Baikonur. Changes in governmental policies or political leadership in the
United States, Ukraine, Russia or Kazakhstan could affect these launch
providers. While there is no assurance that the necessary export licenses will
be obtained, Globalstar has provided against the risk that they 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 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 its satellite
constellation would be significantly increased.
Limited Life of Satellites. A number of factors will affect the useful
lives of satellites, including the quality of construction, 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"). Satellites could also be damaged by electrostatic
storms or collisions. As a result of these factors, the first-generation
Globalstar System 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 if the useful life of the satellites were significantly
shorter than 7 1/2 years. Globalstar anticipates developing a second generation
of satellites. If enough funds are not available and Globalstar is unable to
obtain external financing for the second-generation, it will not be able to
deploy the second-generation constellation to replace first-generation
satellites at the end of their useful lives. In that event, the Globalstar
System would cease operations at that time.
Insurance Risks. Globalstar intends to obtain insurance against launch
failure which would cover the cost of relaunch and the replacement cost of lost
satellites in the event of hot failures for 56 satellites in its constellation.
SS/L has agreed to obtain on Globalstar's behalf insurance for the cost of
replacing satellites lost in hot failures, and for any relaunch costs not
covered by the applicable launch contract, in certain circumstances subject to
pricing adjustments in light of future market conditions. An adverse change in
insurance market conditions may result in an increase in the insurance premium
paid by Globalstar, which may be substantial. In addition, there is no assurance
that launch insurance will be available or that, if available, would be at a
cost or on terms acceptable to Globalstar.
Globalstar may self-insure for hot failures for up to 12 such satellites.
Globalstar's contract with SS/L provides for the construction and launch of
eight spare satellites to minimize the effect of any launch or orbital failures.
However, there can be no assurance that additional satellites and launches will
not be required. If so, in addition to the replacement costs incurred by
Globalstar, Globalstar's In-Service or Full Constellation Date may be delayed.
In addition, unless otherwise required by the Indenture, Globalstar does not
currently intend to purchase insurance to cover cold failures that may occur
once the satellites have been successfully deployed from the launch vehicle.
Risks Associated with Changing Technology. The space and communications
industries are characterized by rapid technological advances and innovations.
Technologies utilized or under development by Globalstar may become obsolete, or
its services may not be in demand by the time they are offered. Globalstar will
be dependent upon technologies developed by third parties to implement key
aspects of its strategy to integrate its satellite systems with terrestrial
networks, and there can be no assurance that such technologies will be available
to Globalstar in time or on reasonable terms.
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 there. The willingness of
companies to become service providers will depend upon a variety of factors,
including pricing, local regulations and Globalstar's competitiveness.
Globalstar believes that enlisting the support of established telecommunications
service providers, some of which are dominant carriers in their markets, will be
essential both to obtaining necessary
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local regulatory approvals and to reaching a broad market of potential users.
Globalstar's strategic service providers have agreed to act as exclusive
providers in 71 countries although it is anticipated that in many cases these
partners will enter into alliances with local entities to provide Globalstar
service in these countries. In addition, Globalstar expects to raise additional
funds before the Full Constellation Date in the form of payments from service
providers in other territories throughout the world. Globalstar's business plan
assumes that Globalstar will contract with service providers for the remaining
territories of the world, in certain cases, on terms more favorable to
Globalstar than those contained in its founding service provider agreements.
There can be no assurance that additional service provider agreements will be
entered into in the future or that this plan will be achieved. If such service
provider payments are not realized, Globalstar will be required to obtain
alternative 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 System services,
Globalstar's business could be adversely affected. There can be no assurance
that enough service providers will contract for Globalstar service and procure
and install the gateways and obtain the regulatory licenses necessary for
complete global service. Failure to offer service in any particular region will
eliminate that area's market potential and reduce Globalstar's ability to
service its global roamer market.
Certain strategic partners and other third parties are designing and
constructing the component parts of the Globalstar System. In the event such
parties are unable to perform their obligations, Globalstar's In-Service and
Full Constellation Date may be delayed and its costs may be increased.
Risks Inherent in Foreign Operations. A substantial portion of
Globalstar's business will be outside of the United States. Such operations are
subject to certain risks such as changes in government regulations and
telecommunications standards, tariffs or taxes and other trade barriers.
Accordingly, government actions in foreign countries could have a significant
effect on operations. Political, economic or social instability or other
developments including currency fluctuations, could also adversely affect
operations. In addition, Globalstar's agreements relating to local operations
may be governed by foreign law or enforceable only in foreign jurisdictions. As
a result it may be difficult for Globalstar to enforce its rights under such
agreements.
In addition, the majority of Globalstar System satellites are scheduled to
be launched by Ukrainian and Russian launch vehicles from the Russian-operated
cosmodrome in Kazakhstan. Disputes between any of these former Soviet Republics,
whether concerning Globalstar, their space operations generally or otherwise, or
internal political, social or economic instability in any of them could
adversely affect Globalstar's launch schedule and costs.
Risks of Doing Business in Developing Markets; Currency
Risks. Globalstar's largest potential markets are in developing countries or
regions that are underserved and not expected to be served by existing
telecommunications systems. 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 more volatile
than those commonly experienced in the United States and other industrialized
countries. Although Globalstar anticipates that it will receive payments from
its service providers in U.S. dollars, limited availability of U.S. currency in
these local markets may prevent a service provider from making payments in U.S.
dollars. Moreover, exchange rate fluctuations may affect the price Globalstar
will be entitled to receive for its services.
Pricing Risk. Globalstar's pricing will, under certain circumstances, not
be automatically adjusted for inflation; in such cases, Globalstar will be able
to increase its pricing only if the service provider increases its prices to
subscribers, and Globalstar 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 prices to compensate for inflation.
Although Globalstar expects future service provider agreements to contain
pricing terms more favorable than those contained in its agreements with
founding service providers, there can be no assurance that such terms will be
achieved.
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Substantial Leverage. Globalstar has entered into an agreement with a bank
syndicate for a $250 million credit facility expiring December 15, 2000, and
also expects to utilize $310 million of committed vendor financing. The Credit
Agreement permits Globalstar to incur up to $950 million of indebtedness on a
senior basis, including $500,000,000 aggregate principal amount of the notes
issued pursuant to the Indenture, to finance the Globalstar System; an unlimited
amount of subordinated indebtedness may be incurred. Additional debt is expected
to be incurred in the future; 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 operations will adversely affect
Globalstar's ability to service debt. The discretion of management with respect
to certain business matters will be limited by covenants contained in the Credit
Agreement, the Indenture and future debt instruments. Among other things, the
covenants contained in the Credit Agreement and the Indenture restrict
Globalstar from paying cash distributions on its ordinary partnership interests,
creating liens on its assets, making certain asset dispositions, conducting
certain other business and entering into transactions with affiliates and
related persons. In addition, the Indenture contains certain financial covenants
limiting the ability of Globalstar to incur additional indebtedness unless
certain financial ratios are met. If the Credit Agreement ceases to be
guaranteed, it will also contain certain financial covenants limiting additional
indebtedness. There can be no assurance that Globalstar's leverage and such
restrictions will not adversely affect Globalstar's ability to finance future
operations or capital needs or to engage in other business activities. Moreover,
a failure to comply with the obligations contained in the Credit Agreement and
the Indenture or any agreements with respect to additional financing could
result in an event of default under such agreements, which could permit
acceleration of the related debt and acceleration of debt under future debt
agreements that may contain cross-acceleration or cross-default provisions.
Competition. Competition in telecommunications is intense, fueled by rapid
and continuous technological advances and alliances between industry
participants on an international scale. Although no present participant is
providing the same global personal 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 others. 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, the 2 GHz band for an MEO system.
Globalstar's most immediate competitors are the two MSS applicants which
have received FCC licenses, Iridium and Odyssey. ICO was not an applicant or a
licensee in the MSS Proceeding or any other proceedings before the FCC; it is
seeking to operate in a different frequency band not available for use by MSS
systems under current international guidelines in place until 2000. Comsat, the
U.S. signatory to Inmarsat, has applied to the FCC to participate in the
procurement of facilities of the system proposed by ICO. It has also sought FCC
approval of a proposal to extend the scope of services provided by Inmarsat,
currently limited to maritime services, to include telecommunications services
to land-based mobile units. These applications are currently pending before the
FCC. Comsat has been instructed in the past by the U.S. government to seek to
ensure that ICO does not receive preferred access to any market and that
non-discriminatory access to such areas for all mobile satellite communications
networks be established, subject to spectrum coordination and availability.
Nonetheless, because ICO is affiliated with Inmarsat and because its investors
include government owned telecommunications monopolies in a number of countries,
there can be no assurance that ICO might not be given preferential treatment in
the local licensing process in those countries. It is also possible that one or
more of the two pending MSS applicants will demonstrate financial qualification
sufficient to obtain an FCC license and become an additional competitor of
Globalstar.
The MSS systems, including Globalstar, also compete with each other for the
limited frequency 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
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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.
The FCC has no authorization to extend the U.S. band plan for CDMA and TDMA
Big LEO systems to other countries. However, it has stated that it plans to
express the view in discussions with other administrations that global satellite
systems are more likely to succeed if individual administrations adopt
complementary systems for licensing them.
Geostationary-based satellite systems, including AMSC, APMT, ASC, ACeS,
Lockheed Martin's Satphone and Comsat's Planet-1, plan to provide
satellite-based telecommunications services in areas proposed to be serviced by
Globalstar. Because some of these systems involve relatively simple ground
control requirements and are expected to deploy no more than two satellites,
they may succeed in deploying and marketing their systems before Globalstar. In
addition, coordination of standards among regional geostationary systems could
enable these systems to provide worldwide service to their subscriber bases,
thereby increasing the competition to Globalstar. For example, Comsat has
announced a global mobile satellite service (Planet-1) using existing Inmarsat
satellites, a six-pound, laptop-size phone, costing $3,000 with an expected
per-minute usage rate of $3.00.
Some of these potential competitors have financial, personnel and other
resources substantially greater than Globalstar's. Many of them 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 better
service. However, Globalstar believes, based upon the public statements and
other publicly available information of the other MSS applicants, that
Globalstar will be a low-cost provider. However, competition could require
Globalstar to reduce pricing to service providers, thus adversely affecting
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 be known until such systems are operational. If the capacity of
Globalstar and any competing systems exceeds demand, price competition could be
particularly intense. See "-- Regulation -- Licensing Risks."
Risk of Accelerated Build-Out and Competing Technological Advances. 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, the demand for Globalstar service may be reduced
faster than is assumed in Globalstar's market analysis. Globalstar may also face
future competition from new technologies and new satellite systems. New
technology could render Globalstar obsolete or less competitive by satisfying
consumer demand in alternative ways or through the introduction of incompatible
telecommunications standards. A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on Globalstar as a
result of their initial marketing efforts. Globalstar's business would be
adversely affected if competitors begin operations or existing or new
telecommunications service providers penetrate Globalstar's target markets
before completion of the Globalstar System.
Subscriber Acceptance. Subscriber acceptance of the Globalstar System
(both in terms of placement of Globalstar Phones and usage) will depend upon a
number of factors, including price, demand and the availability of alternative
systems. If the level of actual subscriber demand is below that expected by
Globalstar, its 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
pocket-sized, hand-held cellular telephones and is expected to have a
significantly longer and thicker antenna than hand-held cellular telephones. The
Globalstar System will function best when there is an unobstructed line-of-sight
between the user and one or more of the Globalstar satellites. Obstacles such as
buildings, trees or mountainous terrain may degrade service quality, more than
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 hurt demand for Globalstar service.
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Product Liability; Alleged Health Risks. There has been publicity
concerning alleged health risks associated with the use of portable hand-held
telephones with transmitting antennas integrated into handsets. Because
hand-held Globalstar Phones will use on average lower power to transmit signals
than traditional cellular units, Globalstar does not believe that proposed FCC
new guidelines will require any significant modifications of the Globalstar
System or of the mobile hand-held Globalstar Phones. There can, however, be no
assurance that the guidelines, as adopted, or any associated health concerns,
would not have an adverse effect on Globalstar's mobile handset business.
Reliance on Key Personnel. The success of Globalstar's business will be
partially dependent upon the ability of Globalstar to attract and retain
technical and management personnel. No employee of Globalstar has an employment
contract with Globalstar nor does Globalstar expect to maintain "key man"
insurance. The loss of any such individuals could have a material adverse effect
on Globalstar's business.
STRUCTURAL AND MARKET RISKS
Potential Conflicts of Interest. Partners of LQSS or their affiliates are
principal suppliers of the major components of the Globalstar System, and are
also expected to manufacture system elements contracted to be sold to service
providers and subscribers. Much of the proceeds of the offering of the Rights
Shares and the exercise of the Guaranty Warrants will fund such obligations.
During the design, development and deployment of the Globalstar System,
Globalstar will depend upon Loral's management skills and technologies, Qualcomm
and SS/L to design and manufacture the satellite constellation, SOCCs, GOCCs,
gateways and Globalstar Phones. Globalstar has contracted the design of 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. Contracts with
partners of Globalstar or LQSS promote conflicts of interests.
Partners and affiliates of Globalstar, including companies affiliated with
Loral, will be among the principal service provider customers and as such may
have conflicts of interest. If Globalstar is unable to offer service on
competitive terms in a particular country or region, a service provider there,
which may be a partner of Globalstar, can act as a service provider to a
competing MSS system in that area while serving as a Globalstar service provider
in other markets.
Controlling Person. Globalstar is managed by a committee, a majority of
whose members are Loral designated. The Independent Representatives on the
committee, however, have the right to pass upon certain matters before any
decision to submit them to a vote of the partners and will have certain
authority over the employment of senior officers of Globalstar.
Change of Control of GTL and Reduction in Interest; Investment Company Act
Considerations. If there is (i) a change of control of GTL when GTL owns less
than 50% of the Globalstar partnership interests outstanding or (ii) a sale or
other disposition of partnership interests by which the equity interest of GTL
in Globalstar is reduced to less than 5%, which has not been approved by LQSS or
by the partners of Globalstar, GTL will become a limited partner in Globalstar
and will no longer appoint representatives to serve on the General Partners'
committee. Certain other governance rights granted to GTL under Globalstar's
partnership agreement will also be revoked, and GTL will enjoy only the rights
of a limited partner in Globalstar. If GTL were to cease participation in the
management of Globalstar, which would result if GTL were to undergo a change of
control or a reduction in interest, its interest in Globalstar could be deemed
an "investment security" for purposes of the Investment Company Act. In general,
an entity is an "investment company" if, it owns investment securities having a
value exceeding 40% of the value of its total assets (exclusive of U.S.
government securities and cash items). GTL's sole asset is its partnership
interest in Globalstar. A determination that such investment was an investment
security could result in GTL's being deemed to be an investment company under
the Act and subject to its registration and other requirements. In order to
register, GTL might be required to reincorporate in the U.S. and would be
subject to U.S. tax on its worldwide income, subject to any applicable foreign
tax credits. Globalstar intends to conduct its operations so as to avoid
becoming an investment company under that Act.
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No Dividends; Holding Company Structure; General Partner Liability. GTL
has not paid any dividends on its Common Stock, and Globalstar has not made any
distributions to its partners. Except for interest payments by GTL on the CPEOs
and distribution payments by Globalstar on the Preferred Partnership Interests,
GTL and Globalstar do not anticipate any such dividends or distributions before
Globalstar's Full Constellation Date and positive cash flow, which is not
expected before 1999. GTL may not pay dividends on its Common Stock while
interest arrearages remain outstanding on its CPEOs. GTL's sole asset is its
partnership interest in Globalstar. GTL has no independent means of generating
revenues. Globalstar will pay GTL's operating expenses related to Globalstar;
such expenses are not expected to be material. As a general partner of
Globalstar, GTL is jointly and severally liable with the other general partner
for its obligations to the extent Globalstar is unable to pay. To the extent
permitted by law and agreements relating to indebtedness, Globalstar intends to
distribute to its partners, including GTL, 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). GTL intends to promptly distribute as dividends on its Common
Stock the distributions made by Globalstar, less any amounts required for taxes,
liabilities and contingencies.
Rights of Shareholders under Bermuda Law. GTL 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 GTL's management,
directors and controlling shareholders, and the rights of its shareholders are
governed by Bermuda law and GTL's Memorandum of Association and Bye-Laws. Such
principles may differ from those that would apply if GTL were incorporated in
the United States. There is uncertainty as to whether the courts of Bermuda
would enforce (i) United States court judgments obtained against GTL or its
officers and directors resident in foreign countries predicated upon the civil
liability provisions of United States securities laws or (ii) in original
actions brought in Bermuda, liabilities against GTL or such persons predicated
upon United States securities laws.
Tax Considerations. Special U.S. tax rules apply to U.S. taxpayers who own
stock in a "passive foreign investment company ("PFIC")." Although GTL believes
that it will not become a PFIC, there is a risk that in the future it could.
Then 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 shares of the Common Stock (which will
be taxed as ordinary income).
GTL expects that a significant portion of its income will not be subject to
tax by the United States, Bermuda or by the countries from which it derives
income. However, the extent to which certain foreign jurisdictions may require
GTL 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. On January 31, 1997, GTL had outstanding
10,000,000 shares of Common Stock. An additional 4,769,230 shares are issuable
upon conversions of GTL's CPEOs (subject to anti-dilution adjustment to be
effected upon consummation of the Rights Offering). There will be 1,032,250
shares of Common Stock issuable upon exercise of the warrants issued as part of
the Units. In addition, 37,000,000 shares are issuable upon exercise by the
other partners in Globalstar of their rights to exchange their ordinary
partnership interests for shares of Common Stock. As of December 31, 1996, an
aggregate of 250,000 shares of Common Stock were reserved for issuance under a
stock option plan and a proposal to increase this number by 375,000 is being
submitted to shareholders for their approval at GTL's next annual meeting.
Pursuant to the Warrant Acceleration and Registration Rights Agreement, the
Company has agreed to use its reasonable efforts to register the Warrant Shares
under the Securities Act and to effect an underwritten public offering of the
Warrant Shares by April 15, 1997. Sales of substantial amounts of Common Stock
in the public market or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. GTL has an effective
registration statement relating to the shares of Common Stock issuable upon
conversion of the CPEOs.
Volatility. The market price of the Common Stock has been volatile. In
particular, the trading prices of the common stock of many technology companies
have reflected extreme price and volume fluctuations,
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<PAGE> 19
which have at times been unrelated to operating performance. The trading price
of the Shares could be subject to significant fluctuations in response to
variations in Globalstar's prospects and operating results which could 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. Such factors may have an
adverse effect on the trading price of the Common Stock from time to time.
Dilution. Globalstar expects to fund its remaining capital requirement of
approximately $500 million from a combination of sources including debt issuance
(which may include an equity component), exercise of warrants, financial support
from the partners, service provider payments, service revenues from operations,
payments from the sale of gateways and Globalstar Phones and additional
placements of partnership interests. Globalstar may, subject to certain
preemptive and approval rights of its other partners, sell equity interests
(either directly or through the issuance of warrants, or convertible debt
securities), diluting the percentage ownership in Globalstar represented by the
Shares. Issuing additional partnership interests to new or existing partners,
would dilute the ownership of other partners. The issuance of additional
partnership interests at prices lower than the price at which GTL may purchase
them would further dilute GTL. 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 Common Stock, subject to certain restrictions, on a one-for-one basis,
subject to adjustment.
Certain Rights Offering Considerations. Shareholders who do not exercise
their Rights in full will realize a dilution in their percentage voting rights
and ownership interests in future net earnings, if any, of the Company to the
extent that Rights are exercised by other shareholders. The Rights subscription
price represents a 52% discount from the market price as of the date of this
Prospectus and could result in a reduction in the market price for the Company's
Common Stock. Although the Company reserves the right to extend the period
during which Rights may be exercised, absent any such extension the Rights will
expire on April 30, 1997, and therefore have a limited life. While the Rights
will be transferable, they will not be listed for trading on NNM or any
exchange, and there can be no assurance that a market for the Rights will
develop or, if developed, be maintained, especially considering their limited
life.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Warrant
Shares by the Selling Holders. The Company will, however, receive proceeds of
approximately $110.9 million assuming all the Guaranty Warrants are exercised.
The Company also expects to obtain approximately $30 million in proceeds from
the concurrent Rights Share Offering being effected by means of a separate
prospectus. The Company intends to use the aggregate proceeds from such
transactions, expected to be approximately $140.9 million, to exercise the
Partnership Warrants it holds to purchase additional ordinary general
partnership interests in Globalstar. The expenses of the Company in connection
with the Rights Offering and the Warrant Share Offering will be paid by
Globalstar, which will receive the proceeds of the issuance of the Rights Shares
and the Warrant Shares upon exercise of the Partnership Warrants. The net
proceeds to Globalstar of the exercise of the Partnership Warrants, estimated to
be $140.7 million, will be used by Globalstar towards the construction and
deployment of the Globalstar System.
DIVIDEND POLICY
GTL has not declared or paid any cash dividends on its Common Stock, and
Globalstar has not made any distributions to its partners. Except for interest
payments by GTL on the CPEOs and distribution payments by Globalstar on the
Preferred Partnership Interests, GTL and Globalstar do not currently anticipate
paying any such dividends or making such distributions (other than to the extent
that Globalstar's payment of GTL's operating expenses related to Globalstar
would be treated as a distribution) prior to Globalstar's Full Constellation
Date and achievement of positive cash flow. Cash distributions by Globalstar may
also be restricted by covenants relating to Globalstar's present and future debt
obligations. In addition, GTL is
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prohibited from paying dividends on its Common Stock as long as any interest
arrearages remain outstanding on its CPEOs. GTL is a holding company, the sole
asset of which is its interest in Globalstar. GTL has no independent means of
generating revenues. Globalstar will pay the GTL'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 GTL, its net cash received from
operations, less amounts required to repay outstanding indebtedness, satisfy
other liabilities and fund capital expenditures and contingencies (including
funds required for design, construction and deployment of the second-generation
satellite constellation). The Globalstar Credit Agreement and the Indenture
restrict the ability of Globalstar to pay cash distributions on its ordinary
partnership interests. GTL intends to promptly distribute as dividends to its
shareholders the distributions made to it by Globalstar, less any amounts
reasonably required to be retained for payment of taxes, for repayment of
liabilities and to fund contingencies.
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THE COMPANY
GTL was organized as a Bermuda company on November 23, 1994 and has its
principal offices at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda
(441-295-2244). GTL's sole business is to act as a general partner of
Globalstar. Globalstar is a Delaware limited partnership whose managing general
partner is LQSS; the general partner of LQSS is LQP, a Delaware limited
partnership comprised of subsidiaries of Loral and Qualcomm. The general partner
of LQP is LGP, a Loral subsidiary. Globalstar, LQSS and LQP are collectively
referred to as the Globalstar Partnerships. GTL serves as the other general
partner of Globalstar. Globalstar Capital Corporation was organized as a
Delaware corporation on July 24, 1995, and other than serving as issuer of
certain notes, does not conduct any business. The principal offices of
Globalstar and Globalstar Capital Corporation are located at 3200 Zanker Road,
San Jose, California 95164 (408-473-5550).
Matters relating to the FCC License for the Globalstar System, including
compliance requirements and other regulatory matters related thereto, are under
the exclusive control of LQP. Such FCC License is held by L/Q Licensee, a
wholly-owned subsidiary of LQP.
BUSINESS
BUSINESS OVERVIEW
The Company is a Bermuda company that acts as a general partner of
Globalstar. Globalstar is building and preparing to launch and operate the
Globalstar System designed to enable local service providers to offer low-cost,
high quality wireless voice telephony and data services in virtually every
populated area of the world. Globalstar's designated service providers have
agreed to offer service and seek to obtain all necessary local regulatory
approvals in more than 100 nations, accounting for about 88% of the world's
population. The Company's sole asset is its interest in Globalstar.
The Globalstar System's worldwide coverage is designed to extend affordable
modern telecommunications services to millions who lack basic telephone service
and to enhance wireless telecommunications in areas underserved or not served by
cellular systems, providing a telecommunications solution in parts of the world
where terrestrial systems cannot be economically justified. The Globalstar
System has been designed to provide services at prices comparable to today's
cellular service and substantially lower than the prices announced by
Globalstar's anticipated satellite-based competitors. Globalstar service
providers will set their own retail pricing in their territories and will pay
Globalstar about $0.35 to $0.55 per minute on a wholesale basis.
Globalstar customers will use a variety of Globalstar Phones, including
hand-held and vehicle-mounted units similar to today's cellular telephones,
fixed telephones similar either to phone booths or ordinary wireline telephones,
and data terminals and facsimile machines. Dual-mode and tri-mode Globalstar
Phones will provide access to both the Globalstar System and the subscriber's
land-based cellular service. Each Globalstar Phone will communicate through one
or more satellites to a local Globalstar service provider's interconnection
point (known as a gateway) which will, in turn, connect into existing
telecommunications networks.
The elements of the Globalstar System -- space and ground segments, digital
communications technology, handset supply, service provider arrangements and
licensing -- are on schedule to begin launching satellites in the second half of
1997, to commence commercial operations in the second half of 1998 and to have a
full constellation of 48 operational satellites, plus eight in-orbit spares,
launched by the end of 1998:
Space Segment. The first Globalstar satellite has been assembled and
is now in pre-flight testing, and another four are currently being
assembled. Production is on schedule for the remaining satellites. Three
different launch providers have signed agreements for the launch of the
satellite constellation, providing a variety of launch options and
considerable flexibility. Mission operations preparations and launch
vehicle production and dispenser development are on schedule.
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Ground Segment. The first four gateways, which are to be in
Australia, France, South Korea and the United States, are under
construction. These will support Globalstar's data network, monitor the
initial launch and orbital placement of Globalstar's first satellites, and
will serve as prototypes for production gateways that will support
Globalstar service. Globalstar's SOCC facility has been completed.
Digital Communications Technology. Qualcomm's CDMA technology has
been successfully deployed in South Korea, Hong Kong and cities in the
United States supporting terrestrial PCS and digital cellular service. Its
CDMA implementation for Globalstar has been successfully demonstrated in a
simulated satellite environment. This demonstration validated Globalstar's
encoding, modulation, control software, time and frequency distribution and
up/down links between satellites and handsets.
Handset Supply. Qualcomm and two other manufacturers, Ericsson and
TELITAL, are on schedule in their design and development of Globalstar's
handset.
Service Providers. Globalstar and its partners have been seeking
alliances with service providers throughout the world and have entered into
agreements in a number of territories. For example, in November 1996,
ChinaSat, a subsidiary of China's Ministry of Posts and Telecommunications,
agreed to act as the exclusive distributor of Globalstar services in China,
and to support four Globalstar gateways, the first of which is expected to
be operational by 1998. Globalstar has also formed a joint venture with the
principal Russian long distance carrier, Rostelecom, to provide Globalstar
service in that country and is negotiating a service provider agreement
with that joint venture. Globalstar believes that these relationships with
in-country service providers will facilitate the granting of local
regulatory approvals -- particularly where, as is the case in China, the
service provider and the licensing authority are the same -- as well as
providing local marketing and technical expertise.
Licensing. In January 1995, the FCC granted authority for the
construction, launch and operation of the Globalstar System and assigned
spectrum for its user links. Later that year, WRC'95 allocated feeder link
spectrum on an international basis for MSS systems such as Globalstar, and
in November 1996 the FCC authorized Globalstar's feeder links.
As a result of several recent decisions designed to assure and upgrade
system performance and maintain schedule -- including procurement of three
launches on the Starsem Soyuz launch vehicle, additional testing procedures,
development of additional and enhanced service features, cost growth and other
factors -- Globalstar currently estimates the cost for the design, construction
and deployment of the Globalstar System, including working capital, cash
interest on anticipated borrowings and operating expenses, to be approximately
$2.5 billion. In addition, Globalstar has agreed to purchase from SS/L eight
additional spare satellites at a cost estimated at $175 million. After giving
effect to the exercise of the Rights and the Guaranty Warrants, Globalstar will
have raised or received commitments for approximately $2.0 billion in equity,
debt and vendor financing, representing about 78% of the total financing
expected to complete the Globalstar System and achieve worldwide operations.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many in rural areas where the cost of wireline
service is prohibitively high. Moreover, even where telephone infrastructure is
available in developing countries, outdated equipment often leads to unreliable
service and limited international access. The number of worldwide fixed phone
lines has increased from 469 million in 1988 to 753 million in 1996 and is
projected to increase to 1.2 billion by 2002. Nonetheless, during the same
period, waiting lists for fixed service have increased from 30 million to 45
million, resulting in an average waiting time before installation of about one
and a half years. Similarly, the cellular market has grown from four million
worldwide subscribers in 1988 to an estimated 123 million in 1996 and is
projected to increase to 334 million by 2001. At that time, it is projected that
only 40% of the world's population will live in areas with cellular coverage.
The remaining 60% of the world's population will have access to wireless
telephone service principally through satellite-based systems like the
Globalstar System. Globalstar believes that its potential market exceeds 30
million people.
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The Globalstar System has been designed with attributes which Globalstar
believes compare favorably to other proposed global mobile satellite service
systems including: (i) Globalstar's unique combination of CDMA technology and
path diversity through multiple satellite coverage, which will reduce call
interruptions and signal blockage from obstructions and will use satellite power
more efficiently; (ii) a proven space segment design without complex
intersatellite links or on-board call processing and a ground segment with
flexible, low-cost gateways and competitively priced Globalstar Phones; (iii)
lower average wholesale prices than other proposed MSS systems; and (iv)
gateways installed in most major countries, minimizing tail charges (i.e.
amounts charged by carriers other than the Globalstar service provider for
connecting a Globalstar call through its network), resulting in low costs for
domestic and regional calls, which will account for the vast majority of
Globalstar's anticipated usage.
Loral is a principal founder of Globalstar and is its managing general
partner. Loral has invested $269 million in Globalstar. Loral owns effectively
33.8% 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 have
invested an additional $210 million in equity and, together with Loral,
committed or obtained $310 million in vendor financing.
GLOBALSTAR STRATEGIC PARTNERS
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
System. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of CDMA digital telecommunications technology. Globalstar's other
strategic partners are:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS EQUIPMENT
TELECOMMUNICATIONS AND AEROSPACE GLOBALSTAR SYSTEMS
SERVICE PROVIDERS MANUFACTURERS
----------------------------------------------- ---------------------------------------
<S> <C>
- AirTouch - Alcatel
- Dacom - Alenia
- France Telecom - DASA
- Vodafone - Finmeccanica
- Hyundai
- SS/L
</TABLE>
SS/L is providing the system's satellites under a fixed-price contract that
also requires SS/L to obtain launch services and launch insurance. Qualcomm is
designing and will manufacture Globalstar Phones, gateways and certain ground
support equipment.
BUSINESS STRATEGY
Globalstar's strategy for successful operation is based upon: (i) providing
potential users worldwide with high quality telecommunications services; (ii)
employing a system architecture designed to minimize cost and technological
risks; and (iii) leveraging the marketing, operating and technical capabilities
of its strategic partners.
WORLDWIDE HIGH QUALITY SERVICE
To achieve rapid and sustained customer acceptance of the system, the
Globalstar System has been designed to provide a high quality, worldwide service
that combines the best of existing cellular service with the technological
advantages of the Globalstar System as described herein to meet the needs of
individual end users.
Worldwide Coverage and Access. The Globalstar System's worldwide coverage
has been designed to enable its service providers to extend modern
telecommunications services rapidly and economically to significant numbers of
people who currently lack basic telephone services and to enhance wireless
telecommunications in areas underserved or not served by existing or
contemplated cellular systems. Globalstar expects to
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provide a communications solution in parts of the world where the build-out of
terrestrial systems cannot be economically justified. The Globalstar System has
also been designed to enable international travelers to make and receive calls
at a unique telephone number through their mobile Globalstar Phones anywhere in
the world where Globalstar service is authorized by local regulatory
authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each mobile Globalstar Phone has been designed to communicate with as many as
three satellites simultaneously, combining the signals received to ensure
maximum service quality. As satellites are constantly moving in and out of view,
they will be seamlessly added to and removed from the calls in progress, thereby
reducing the risk of call interruption.
Superior Call Quality; Increased Privacy. Based on terrestrial simulations
of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital
technology will enable Globalstar to provide digital voice services which will
have clarity, quality and privacy similar to those of existing digital
land-based cellular systems. Qualcomm's CDMA technology, which is available to
Globalstar on an exclusive basis for commercial MSS applications, has also been
selected for digital cellular service by 12 of the 15 largest U.S. cellular
service providers and the two largest holders of PCS licences in the U.S. (by
population served).
Efficient Use of Satellite Resources. The Globalstar System's use of
multiple satellites to communicate with each Globalstar Phone (a patented SS/L
method of signal reception not available to competing systems) has been designed
to allow its communications signals to bypass obstructions. Path diversity is
expected to permit Globalstar to maintain its desired level of service quality
while using less power and satellite resources than would be required in a
system using single path satellites, which attempt to penetrate obstructions by
using higher single satellite power and overall higher link margins.
No Voice Delay. Globalstar satellites' low-earth orbits of 750 nautical
miles are expected to result in no perceptible voice delay, as compared with the
noticeable time delay of calls utilizing geosynchronous satellites, which orbit
at an altitude of 22,500 nautical miles. Globalstar believes that its system
will also entail noticeably less voice delay than medium orbit MSS systems and,
in many cases, than LEO systems requiring on-board satellite call processing to
support satellite-to-satellite switching systems.
EMPLOYING A SYSTEM ARCHITECTURE DESIGNED TO MINIMIZE COST AND RISK
Simple, Cost-Effective System Architecture. To achieve low cost, reduce
technological risk and accelerate its deployment, Globalstar has devised a
system architecture using small satellites incorporating well-established design
features, and located the system's call processing and switching operations on
the ground, where they are accessible for maintenance and can benefit from
continuing technological advances. Hand-held and vehicle-mounted Globalstar
Phones are anticipated to be priced comparably and will be similar in size and
function to current digital cellular telephones. Dual-mode and tri-mode
Globalstar Phones will be able to access both Globalstar and a variety of local
land-based analog and digital cellular services, where available. Multiple
manufacturers will be licensed to manufacture Globalstar Phones in order to
promote competition and reduce prices. Globalstar gateways have been
competitively priced in order to encourage the placement of one or more gateways
in each country served, thus reducing tail charges for the terrestrial portion
of each call.
Low-Cost Service. Globalstar intends to offer its service providers
effective average prices substantially lower than those announced by its
anticipated principal competitors. Globalstar's service providers will set their
own retail pricing and will pay to Globalstar wholesale prices generally
expected to range between $0.35 and $0.55 per minute. Another proposed
satellite-based system has proposed retail pricing of more than $3.00 per
minute. As a result of its pricing commitments to its service providers or as a
result of competitive pressures, Globalstar may not be in a position to pass on
to its service providers unexpected increases in the
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<PAGE> 25
cost of constructing the Globalstar System. However, Globalstar believes that
its low system and operating costs and high gross margins at target pricing and
usage levels provide it with substantial additional pricing flexibility if
necessary to meet competition.
Simple Space Segment of Proven Design. Globalstar believes its system will
cost less to design and construct and may be the first of the proposed worldwide
systems to provide commercial service. To achieve low cost, reduce technological
risk and accelerate deployment of the Globalstar System, its architecture uses
small satellites incorporating a well-established repeater design that acts
essentially as a simple "bent pipe," relaying signals received directly to the
ground. All of the system's call processing and switching operations are on the
ground, where they are accessible for maintenance and can benefit from
continuing technological advances. The Globalstar space segment is being
manufactured under a fixed-price contract with SS/L. The contract provides for
the construction of 56 satellites meeting designated performance specifications
and for SS/L to obtain launch services and launch insurance.
Flexible, Low-Cost Ground Segment. Globalstar has been designed to offer
local governments and service providers affordable telephone infrastructure
where the cost of build-out of land-based wireline or wireless telephone systems
is either too great or not economically justifiable. By purchasing a single
gateway for approximately $3 million to $8 million (depending on the capacity
desired), a service provider can extend basic telephone service to fixed
terminals on a national basis in countries as large as Saudi Arabia and mobile
service to cover an area almost as large as Western Europe. As a result of the
low cost of its gateways, Globalstar expects that its service providers will
install gateways in most of the major countries in which they offer service.
Each country with a Globalstar gateway will have access to domestic service
without the imposition of international tail charges on in-country calls,
thereby offering subscribers the lowest possible cost for domestic calls, which
account for the vast majority of all cellular calls today.
Competitively Priced Globalstar Phones. Hand-held and vehicle-mounted
Globalstar Phones are anticipated to be priced comparably and will be similar in
function to current digital cellular telephones. Moreover, mobile Globalstar
Phones will use less power on average than conventional analog cellular
telephones and are therefore expected to enjoy longer battery life. Dual-mode
and tri-mode Globalstar Phones will be able to access both Globalstar and a
variety of local land-based analog and digital cellular services, where
available. Mobile and fixed Globalstar Phones are expected to cost less than
$750 each, and Globalstar public telephone booths are expected to cost between
$1,000 and $2,500, depending upon desired capacity and the number of units
sharing a fixed antenna. Qualcomm is required to license three additional
manufacturers of Globalstar Phones and has granted a license to each of Ericsson
and TELITAL for such purpose; Globalstar believes that licensing multiple
manufacturers will spur competition, which will reduce prices. As is the case
with many cellular systems today, service providers may subsidize the cost of
Globalstar Phones to generate additional usage revenue. In addition, national
and local governments may subsidize some or all elements of system cost,
particularly in rural areas, thereby reducing the cost of access to subscribers.
LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS
Loral has overall management responsibility for the design, construction,
deployment and operation of the Globalstar System. Globalstar's strategic
partners will play key roles in the design, construction, operation and
marketing of the Globalstar System.
Telecommunications service providers. AirTouch, Dacom, France Telecom and
Vodafone are providing in-country marketing and telephony expertise to
Globalstar. Globalstar's strategic partner service providers have been granted
exclusive rights to provide Globalstar service in 71 countries around the world
in which they have particular marketing strength and experience and access to an
established customer base of 60 million subscribers. Six additional service
providers have agreed to offer Globalstar service in 32 additional countries. To
maintain their service provider rights on an exclusive basis, these service
providers and additional service providers are required to make minimum payments
to Globalstar equal to 50% of target revenues. Based upon current targets (which
are subject to adjustment in 1998 based upon an updated market analysis), such
minimum payments total approximately $5.0 billion through 2005. In order to
accelerate the deployment of gateways around the world prior to the In-Service
Date, Globalstar, Qualcomm and the service providers
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<PAGE> 26
intend to jointly finance the procurement of 33 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
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, Alcatel, DASA and
Finmeccanica, and with Hyundai.
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REGULATION
UNITED STATES FCC REGULATION
The FCC is the United States agency with jurisdiction over commercial uses
of the radio frequency spectrum. All commercial MSS systems such as Globalstar
must obtain an authorization from the FCC to 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 from time to time
rules applicable to MSS systems, which may impose constraints on the operation
of Globalstar satellites, subscriber terminals and/or gateway earth stations.
The Globalstar System requires regulatory authorization for two pairs of
frequencies: user links (from the user to the satellites, and vice versa) and
feeder links (from the gateways to the satellites, and vice versa). On January
31, 1995, the FCC authorized the construction, launch and operation of the
Globalstar System and assigned bands of the radio frequency spectrum for the
user links. A modification of this authorization on November 19, 1996 assigned
feeder link frequencies. This license is held by L/Q Licensee, a subsidiary of
LQP which has agreed to use the FCC license exclusively for the benefit of
Globalstar. The FCC license grants authority to construct, launch and operate
the Globalstar System with user links in the 1.6 and 2.4 GHz bands, consistent
with the United States band plan for MSS Above 1 GHz Globalstar Systems, and
feeder link frequencies in the 5 and 7 GHz bands. These feeder link frequencies
were allocated internationally for non-geostationary MSS feeder links at WRC
'95, and the FCC assigned them for use by Globalstar in the United States in
accordance with this international allocation. However, use of the feeder link
frequencies remains subject to any applicable restrictions which may be
promulgated in an FCC proceeding to adopt the international allocations into the
U.S. Table of Frequency Allocations.
The authorization granted by the FCC to LQP for Globalstar requires that
construction, launch and operation of the system must be accomplished in
accordance with the technical specifications set forth in the Globalstar FCC
application, as amended, and consistent with the FCC's rules unless specifically
waived. During the process of constructing the Globalstar System, there may be
certain modifications to the design set forth in the application on file with
the FCC which may require filing an application to modify the authorization.
There can be no assurance that the FCC will grant these requests or do so in a
timely manner. Denial of such requests or delay in grant of such requests could
adversely affect the performance of the Globalstar System or result in schedule
delays or cost increases. In addition, use and operation of Globalstar's feeder
and user links are subject to FCC regulations regarding interference protection
and coordination with other systems which may have an adverse effect on the
usefulness of such frequencies.
LQP's MSS application was one of six considered concurrently by the FCC. On
January 31, 1995, Motorola Satellite Communications, Inc. and TRW Inc. also were
granted FCC licenses for systems providing MSS Above 1 GHz Service.
Consideration of three other applications was deferred for over a year in order
to give the applicants time to establish their financial qualification to
receive an MSS license. As of September 16, 1996, one applicant withdrew its
application, one amended its application with information on new financial
arrangements for review by the FCC, and one amended its application without
providing the details of any new financial arrangements. Subsequently, both
applicants have provided additional information for the FCC to consider. Action
on the two remaining applications is pending at the FCC.
The FCC license only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar Phones in the
United States. Globalstar's authorized service provider in the U.S., AirTouch,
will apply for the required regulatory authorizations for gateways and
Globalstar Phones, and the manufacturer will apply for equipment authorization
for Globalstar Phones. Failure to obtain, or delay in obtaining, such licenses
would adversely affect the implementation of the Globalstar System. Similar
procedures are expected to apply internationally.
Globalstar proposes to operate on an international basis, but the FCC
license only authorizes construction and launch of the system for operation in
the United States. Even though the Globalstar System is licensed to operate in
the United States by the FCC, in order to provide MSS service in other
countries, Globalstar or its
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service providers must obtain the required regulatory authorizations in those
countries. There can be no assurance that the required regulatory authorizations
will be obtained in any other country in which Globalstar proposes to operate,
or that they will be obtained in a timely manner, or that, if granted, they will
authorize MSS service on the same terms as the U.S. license. Failure or delay in
obtaining licenses for the Globalstar System in other countries or grant of
licenses on substantially different terms and conditions would have an adverse
effect on the operation of Globalstar.
The operation of Globalstar in the assigned user links and feeder links
must be coordinated with licensees of other existing radio services operating in
these bands in accordance with FCC and international rules and policies. Such
coordination may adversely affect the usefulness of the frequencies for
Globalstar operations. On January 9, 1997, the FCC adopted rules which would
make available 300 MHz of bandwidth in the 5 GHz band, including frequencies
from 5150 to 5250 MHz, for use by unlicensed devices for wireless high speed
data services. The FCC adopted rules which are designed to ensure that these
devices do not cause harmful interference with licensed services using these
bands, such as MSS feeder links. In the November 1996 order modifying the
Globalstar license, the FCC stated that Globalstar gateway earth station
licenses may be subject to sharing with unlicensed transmitters in accordance
with rules adopted in this proceeding. This proceeding is not yet final. There
can be no assurance that adoption of these rules as initially promulgated or as
they may be modified during the rulemaking process, would not have an adverse
effect on the timing or the adoption in the United States of the WRC '95
allocation for MSS feeder links at 5 GHz or on the usefulness of these bands for
MSS feeder links.
As a CDMA system, Globalstar must coordinate its operations in the United
States with other licensed MSS CDMA systems and the TDMA system. The FCC's band
plan provides that up to four CDMA systems may be licensed to operate in the 1.6
GHz and 2.4 GHz user links, but the FCC did not adopt specific guidelines for
coordination among CDMA systems. There may be an adverse effect on the
implementation of Globalstar depending upon the number of CDMA systems with
which it must coordinate and their willingness to coordinate in good faith and
in a timely manner. The CDMA systems must also coordinate with the TDMA system,
and there can be no assurance that such intersystem coordination would not have
an adverse effect on Globalstar operations. In May 1996, the FCC initiated a
notice-and-comment rulemaking to adopt rules governing procedures to authorize
service in the United States by satellite systems licensed by foreign countries.
If a foreign satellite system were authorized to operate in the United States on
frequencies assigned to Globalstar, additional coordination obligations may be
required.
In its Order adopting rules and policies for MSS Above 1 GHz Service, the
FCC stated that a license for MSS Above 1 GHz Service would impose
implementation milestones on licensed systems. In the November 1996 order
modifying the Globalstar license to assign feeder links, the FCC also imposed
these implementation milestones on Globalstar. If these milestones are not met,
the FCC has stated that the license would be deemed null and void. Globalstar's
current estimated implementation schedule falls within the milestones adopted by
the FCC. Delays in construction, launch or commencing operations of the
Globalstar System could result in loss of the FCC license. The FCC license will
be effective for 10 years from the date on which the licensee certifies to the
FCC that its initial satellite has been successfully placed into orbit and that
the operations of that satellite conform to the terms and conditions of its MSS
license. While a licensee may apply to replace its MSS license to continue
operations beyond the initial 10-year license term, there can be no assurance
that, if applied for, such a replacement license would be granted.
The rules and policies adopted for MSS Above 1 GHz Service in the Order
have been challenged in a judicial appeal and were the subject of petitions for
reconsideration at the FCC. On February 15, 1996, the FCC released an order
resolving petitions for reconsideration of the Order. Three petitions seeking
further reconsideration or clarification of the Order on reconsideration have
been filed and remain pending. Judicial appeals regarding the FCC's decision on
the petitions for reconsideration may also be filed. In the event that the FCC
were to be judicially required to reconsider its licensing procedures as a
result of the pending judicial appeal, or an appeal of the orders on
reconsideration, there is a risk that the FCC would reprocess the MSS applicants
and adopt a different licensing procedure. Under these circumstances, there can
be no assurance that the FCC would not use an auction procedure to award
licenses. If the FCC were to use an auction procedure, there can be no assurance
that Globalstar or its affiliates would be willing or able to outbid other
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applicants to obtain a license for the spectrum needed to operate the Globalstar
System. In addition, even if Globalstar or its affiliates were successful in
obtaining an MSS license in the spectrum auction, the increased cost and
expenses incurred in bidding for the license would adversely affect Globalstar.
Applicable statutes and regulations permit a judicial appeal of the grant
of the FCC license in order to seek reversal of the FCC's decision to grant the
license. Petitions for reconsideration and an application for review of the
order granting the FCC license were filed and have been denied. Two judicial
appeals of the order resolving these petitions have been filed and remain
pending. There can be no assurance that such appeals will not be granted, or
that the court will take timely action. If such an appeal were successful, there
can be no assurance that on remand the FCC would not decide to deny the
application for the Globalstar System, or that on remand the FCC would take
action on the application in a timely manner.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Globalstar's operations will fall within the scope of these
regulations. As a result, Globalstar may have to restrict access to that
information.
EXPORT REGULATION
From time to time, Globalstar requires import licenses and general
destination export licenses to receive and deliver components of the Globalstar
System.
The United States Department of Commerce has imposed restrictions on
certain transfers of technology, including rocket technology, to certain
republics of the former Soviet Union. Because Globalstar's launch strategy
contemplates using Russian and Ukrainian launch providers with launch sites
located in Kazakhstan, special export licenses are required to be obtained by
SS/L in connection with these launches.
While Globalstar and SS/L have received informal confirmations from various
governmental officials that all necessary permits should be forthcoming, and
Globalstar has no reason to believe such permits will not be obtained, there can
be no assurance that such export licenses will be granted, or, once granted,
that the United States will not impose additional restrictions or trade
sanctions against republics of the former Soviet Union in the future that would
adversely affect the planned launches of the Globalstar satellite constellation.
The Export Administration Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology that are not affected by the
International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Globalstar's
ability to deploy the satellite constellation, the export or re-export of
Globalstar Phones, as well as gateways and related equipment and technical data,
may be subject to these regulations, if such equipment is manufactured in the
United States and then exported or re-exported. These regulations may also
affect the export, from one country outside the United States to another, of
United States-origin technical data or the direct products of such technical
data. As a result, Globalstar may not be able to ensure the unrestricted
availability of such equipment or technical data to certain customers and
suppliers. Globalstar does not believe that these regulations will have a
material adverse effect on its operations.
INTERNATIONAL COORDINATION
The Globalstar System proposes to operate in frequencies which were
allocated on an international basis for MSS user links at WARC '92 and for MSS
feeder links at WRC '95. Globalstar is required to engage in
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<PAGE> 30
international coordination procedures with other proposed MSS systems under the
aegis of the ITU. Globalstar and the two other U.S. MSS licensees have entered
into an agreement pursuant to which they have agreed to promote the FCC's
spectrum allocation plan before other governmental and international bodies and
to seek authorization for "landing rights" based on that plan.
Because Globalstar's proposed feeder link bands are allocated on an
international basis for LEO MSS feeder links, foreign LEO MSS systems may also
seek to use these bands for MSS feeder links. ICO has filed with the ITU its
plans to use the same feeder link spectrum as Globalstar. Globalstar will be
required to coordinate the use of its feeder links with ICO and any other
foreign system which has similar plans. Both a Russian and a Brazilian LEO MSS
system have filed with the ITU their intention to use the same feeder link
spectrum as Globalstar. There can be no assurance that such coordination will
not adversely affect the use of these bands by Globalstar.
Pursuant to the Intelsat and Inmarsat treaties, international satellite
operators are required to demonstrate that they will not cause economic or
technical harm to Inmarsat or Intelsat and to coordinate with Intelsat and
Inmarsat under obligations imposed on United States satellite systems by
international treaties. Globalstar will engage in technical coordination of its
feeder downlinks with Intelsat, which uses the same frequency band for an
uplink. Globalstar believes that the proposed provision of competitive MSS
service by ICO, in which Inmarsat is a significant investor, may effectively
eliminate the requirement to demonstrate lack of economic harm. Globalstar
expects such coordination to be successful.
EUROPEAN UNION
European Union competition law proscribes agreements that have the effect
of appreciably restricting or distorting competition in the European Union.
Globalstar and others have responded to an inquiry from the Commission of the
European Union requesting information regarding their activities. On December
18, 1996, the Commission issued a decision concluding that the Iridium system is
not inconsistent with European Union competition law and policy. A violation of
European Union competition law could subject Globalstar to fines or enforcement
actions that could result in expenses to Globalstar, delay the commencement of
Globalstar service in Western Europe, and/or depending on the circumstances,
adversely affect Globalstar's contractual rights vis-a-vis its European
strategic partners. In addition, the Commission has proposed legislation at the
European Union level which, if adopted, would give the Commission broad
regulatory authority over satellite telecommunications systems such as the
Globalstar System. The legislation proposed by the Commission of the European
Union is under reconsideration at the direction of the European Union ministers,
and Globalstar is unable to predict what effect, if any, the results of any
inquiry or proposed legislation may have on Globalstar's operations.
REGULATION OF SERVICE PROVIDERS
In order to operate gateway earth stations, including the user uplink
frequency, the Globalstar service provider in each country will be required to
obtain a license from that country's telecommunications authority. In addition,
the Globalstar service provider will need to enter into appropriate
interconnection and financial settlement agreements with local and interexchange
telecommunications providers. Globalstar intends to use in-country service
providers to facilitate the obtaining of such licenses and agreements. In
October 1996 the ITU's Policy Forum on Global Mobile Personal Communications by
Satellite adopted a set of voluntary principles which, if enacted or adopted by
individual countries, would help facilitate the licensing of in-country service
providers.
Although many countries have moved to privatize the provision of
telecommunications service and to permit competition in the provision of such
service, some countries continue to require that all telecommunications service
be provided by a government-owned entity. While service providers have been
selected, in part, based upon their perceived qualifications to obtain the
requisite local approvals, there can be no assurance that they will be
successful in doing so. If a service provider does not obtain a license,
Globalstar will have the right to substitute another service provider to attempt
to obtain such a license, but if no service provider in a territory is
successful in obtaining the requisite local authorization, Globalstar service
will not be available in such territory. In that event, depending upon
geographical and market considerations, Globalstar may or may
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not have the ability to redirect the system capacity that such territories would
have otherwise used to serve territories in which service is authorized.
TAXATION
This discussion of certain tax considerations is based upon applicable
laws, treaties, regulations and interpretations thereof as currently in effect,
and is limited to persons who hold the Common Stock as a "capital asset" within
the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986 (the
"Code"). This discussion does not address the consequences to holders of the
Guaranty Warrants of the exercise of such warrants in exchange for the Warrant
Shares. This discussion does not consider all aspects of taxation which may be
relevant to a particular investor and which may depend upon the investor's
particular circumstances.
Prospective investors should consult with their own professional advisors
about the tax consequences to them of an investment in the Company under the
laws of the jurisdictions in which they are subject to taxation.
The following discussion of U.S. tax laws is based upon the opinion of
Willkie Farr & Gallagher, special U.S. counsel to the Company. The summary of
certain Bermuda tax consequences is based upon the opinion of Appleby, Spurling
& Kempe, Bermuda counsel to the Company.
CERTAIN UNITED STATES TAX CONSIDERATIONS
Taxation of the Company. The Company is a foreign corporation established
for the sole purpose of acquiring and holding a partnership interest in
Globalstar, a Delaware limited partnership. The Company's tax consequences will
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 pro rata 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. This requirement to distribute to
non-U.S. partners for federal income taxes may be satisfied by a withholding tax
payment made by Globalstar to the U.S. Treasury. The amount withheld may exceed
the 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.
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 shares of Common
Stock unless the sale of such shares 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
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investor's shares of Common Stock 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 United States Investors in the Company. Special rules apply to
the taxation of 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 and will not become a PFIC. In particular, the
Company expects to earn, through Globalstar, sufficient active business income
to avoid PFIC status. However, Globalstar may earn passive income such as
interest on working capital and royalties on certain intangibles. Furthermore,
the extent and timing of Globalstar's active business income cannot be predicted
with certainty.
If the Company is or were to become a PFIC, a U.S. shareholder would be
subject to a tax-deferral charge on gains on a sale of shares of Common Stock
and on certain "excess distributions" received from the Company, and such gains
and excess distributions will be taxable at ordinary income rates, unless the
shareholder makes the QEF election described below. The amount of the charges
will depend, in part, on the period during which the shareholders held their
shares of Common Stock.
If a shareholder makes the qualified electing fund ("QEF") election
provided in Section 1295 of the Code, the shareholder will be required to
include its pro rata share of the Company's ordinary earnings and net capital
gain in income for tax purposes 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 IRS. In the event the Company is characterized
as a PFIC for federal income tax purposes, the Company will undertake to comply
with the IRS information requirements necessary to permit shareholders to make
the election, and provide to each U.S. shareholder information needed for the
determination of such shareholder's pro rata share of the Company's ordinary
earnings and net capital gain.
BERMUDA TAX CONSIDERATIONS
At the present time, there is no Bermuda income or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable by a Bermuda company or its shareholders, other than shareholders
ordinarily resident in Bermuda. The Company has obtained an assurance from the
Minister of Finance under the Exempted Undertakings Tax Protection Act 1966
that, in the event that any legislation is enacted in Bermuda imposing any 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 to the shares, debentures or other obligations of the Company
except insofar as such tax applies to persons ordinarily resident in Bermuda and
holding such shares, debentures or other obligations of the Company or any land
leased or let to the Company. Therefore, there will be no Bermuda tax
consequences with respect to the sale or exchange of the Common Stock or with
respect to distributions in respect of the Common Stock. As an exempted company,
the Company is liable to pay in Bermuda a registration fee based upon its
authorized share capital and the premium on its issued shares.
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
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because any particular partner (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 to such partner by Globalstar.
SELLING HOLDERS
The Guaranty Warrants were issued by the Company to Lockheed Martin
Tactical Systems, Inc., Qualcomm China, Inc. (f/k/a Qualcomm Limited Partner,
Inc.), DASA Globalstar Limited Partner, Inc., Loral Space & Communications Ltd.
and Space Systems/Loral, Inc. (collectively, the "Selling Holders") in a private
placement in April 1996 in connection with the Selling Holders' agreement to
guaranty Globalstar's obligations under a $250 million credit facility. See
"Summary -- Background of the Rights Offering."
The following table sets forth as of March 21, 1997, the respective number
of shares of Common Stock to be beneficially owned by each of the Selling
Holders prior to the Warrant Share Offering, after giving effect to the exercise
of the Guaranty Warrants, all of which Warrant Shares are expected to be sold in
connection with the Warrant Share Offering, together with the number of shares
to be beneficially owned after the Warrant Share Offering. See "Plan of
Distribution."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES THAT MAY BE OWNED AFTER INITIAL
WARRANT SHARE SHARES TO BE SOLD IN A WARRANT SHARE
OFFERING(1) SOLD IN INITIAL SUBSEQUENT OFFERING(3)
------------------- WARRANT SHARE WARRANT SHARE -------------------
NAME NUMBER PERCENT OFFERING OFFERING(2) NUMBER PERCENT
- ----------------------------- --------- ------- --------------- ------------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Lockheed Martin Tactical
Systems, Inc............... 2,511,190 16.4% 2,511,190 0 0 0%
Loral Space & Communications
Ltd........................ 2,508,744 16.4 0 942,428 2,508,744 16.4
Qualcomm China, Inc.......... 367,131 2.4 367,131 0 0 0
Space Systems/Loral, Inc..... 195,094 1.3 0 195,094 195,094 1.3
DASA Globalstar Limited
Partner, Inc............... 169,475 1.1 169,475 0 0 0
-------- ---- --------- --------- ----
Total........................ 5,751,634 37.6% 3,047,796 1,137,522 2,703,838 17.7%
======== ==== ========= ========= ====
</TABLE>
- ---------------
(1) After giving effect to the full exercise of the Guaranty Warrants and of the
Rights.
(2) Loral and SS/L do not presently intend to sell any Warrant Shares in the
initial Warrant Share Offering. Loral and SS/L may seek to increase their
total direct and indirect ownership in Globalstar and, in connection
therewith, may sell Warrant Shares in a subsequent Warrant Share Offering to
fund the purchase of Globalstar partnership interests held by other
Globalstar strategic partners. If required, any such transaction would be
described in a supplement to this Prospectus. Loral and SS/L do not intend
to sell any Rights Shares they acquire in the Rights Offering, whether by
virtue of the Rights distribution or pursuant to Loral's standby commitment
to purchase all Rights Shares relating to unexercised Rights. Accordingly,
none of the Rights Shares that may be acquired by Loral or SS/L in
connection with the Rights Offering will be offered for resale by means of
the Registration Statement of which this Prospectus forms a part.
(3) Does not give effect to Warrant Shares that may be sold by Loral and SS/L in
a subsequent Warrant Share Offering as described in Note 2 above. If such
sale occurs, Loral and SS/L would own 1,566,316 (10.2%) and no (0%) shares
of Common Stock, respectively, after giving effect to such sale.
The Company is registering the Warrant Shares by means of the Registration
Statement pursuant to Rule 415 of the Securities Act of which this Prospectus
forms a part, in fulfillment of its obligations under the Warrant Acceleration
and Registration Rights Agreement. Such agreement also requires the Company to
use its reasonable efforts to effect an underwritten public offering of the
Warrant Shares by April 15, 1997, and the Selling Holders have agreed not to
transfer their Warrant Shares until such date, except pursuant to Rule 144 of
the Securities Act. However, if the Selling Holders determine not to sell their
Warrant Shares under such underwritten public offering, the Company has agreed
to cause the Registration Statement of which this Prospectus forms a part to be
declared and to remain effective until the earlier of the date on which all the
Warrant Shares have been sold or December 31, 1997, subject to extension under
certain circumstances. The
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information concerning the Selling Holders may change from time to time. If
required, such changes will be set forth in Prospectus Supplements.
The following summarizes the material relationships among the Selling
Holders, Loral or SS/L and GTL and its affiliates, and is qualified in its
entirety by the agreements which are available to investors upon request.
SS/L Agreement and Subcontracts. Globalstar has entered into an agreement
with SS/L to design, manufacture, test and launch its satellite constellation.
The price of the contract consists of three parts, the first for non-recurring
work at a price not to exceed $117.1 million, the second for recurring work at a
fixed price of approximately $15.6 million per satellite (including certain
performance incentives of up to approximately $1.9 million per satellite) and
the third for launch services and insurance. SS/L will design, build and obtain
launch vehicles for the 56 satellites in Globalstar's constellation, which are
designed to have a minimum life-span of 7 1/2 years. SS/L has agreed to obtain
insurance on Globalstar's behalf for the cost of replacing satellites lost in
hot failures and any relaunch costs not covered by the applicable launch
contract in certain circumstances subject to pricing adjustments in light of
future market conditions. SS/L has also agreed pursuant to the agreement to
obtain launch vehicles and arrange for the launch of all 56 satellites on
Globalstar's behalf, subject to pricing adjustments in light of future market
conditions, which may, in turn, be influenced by international political
developments. Termination by Globalstar of this agreement will result in
termination fees, which may be substantial. Such termination fees are generally
limited to SS/L's cost incurred and uncancellable obligations under subcontracts
and outstanding orders for satellite materials at the time of termination plus a
reasonable fee.
Globalstar has also authorized SS/L to procure three launches of the
Starsem Soyuz launch vehicle, which will launch four Globalstar satellites each.
As a result of this decision, total costs for launch vehicles and insurance are
expected to be approximately $455 million.
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
SS/L has subcontracted the design and integration of the payload modules to
Alcatel who will manufacture Globalstar's satellite communication equipment at a
fixed price of approximately $208 million, subject to certain adjustments.
Subcontracts have also been awarded to Alenia ($175 million) for final assembly,
integration and testing of the Globalstar satellites, DASA ($178 million) for
providing Globalstar's satellite power propulsion elements and solar arrays, and
Aerospatiale ($41 million) for designing and manufacturing the satellite bus
structure and communication support panels. Globalstar, SS/L and Hyundai have
also entered into a subcontract ($44 million) under which Hyundai will provide
certain electronic components for the Globalstar satellites. Globalstar and SS/L
have further agreed to support Hyundai in its efforts as a satellite vendor,
including providing training and transferring certain technological know-how to
Hyundai at a compensation to be agreed upon among the parties.
The agreement provides for liquidated damages to Globalstar in the event
SS/L fails to supply the satellites at the times specified in the contract.
Liquidated damages of approximately $45,000 are payable by SS/L for each day of
delay, subject to an overall cap of approximately $33 million. Such liquidated
damages are Globalstar's exclusive remedies in the face of any delay by SS/L in
the delivery of the satellites or for any events of default specified in the
agreement.
SS/L and its subcontractors have committed $310 million of vendor financing
to Globalstar, of which $220 million will be non-interest bearing. Globalstar
will repay the non-interest bearing portions as follows: $49 million following
the launch and acceptance of 24 or more satellites, $61 million upon the launch
and acceptance of 48 or more satellites, and the remainder in equal installments
over the five-year period following acceptance of the preliminary and final
Globalstar constellations. The remaining $90 million will bear interest, the
payment of which will be deferred until the Full Constellation Date or December
31, 1998, whichever is earlier. Thereafter, interest and principal will be
repaid in equal quarterly installments during the next five years.
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In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites which increases Globalstar's ability to have at least 40
satellites in service during 1999, even in the event of the failure of as many
as two 12-satellite launches. If Globalstar were to experience a launch failure,
the costs associated with the construction and launch of replacements would be
substantially covered by insurance, and in that event the cost of the additional
satellites used as replacements, currently estimated at $175 million, would be
reimbursed to Globalstar.
Qualcomm Agreement. Globalstar and Qualcomm have entered into an agreement
providing for the design, development, manufacture, installation, testing and
maintenance by Qualcomm of four gateways, two ground operations control centers
and 100 pre-production Globalstar Phones (the "Qualcomm Segment"). A portion of
the GOCC is being developed and manufactured by Globalstar. The contract is a
cost-plus-fee contract that provides for payment to Qualcomm of a 12% fee, along
with reimbursement for costs incurred in performing such contract, such as
labor, material, travel, license fees, royalties and general administrative
expenses. The contract also includes a cost sharing arrangement for certain
technologies being developed by Qualcomm.
Qualcomm is currently preparing a revised estimate of costs under its
contract with Globalstar and has given Globalstar a preliminary indication that,
due to additional integration testing procedures to support system readiness on
schedule, scope changes to add features, capabilities and functions, cost growth
and other factors, those costs may increase to $545 million. The Qualcomm
estimate is still subject to further review by Globalstar. In addition,
Globalstar has authorized the expenditure of $25 million for the development of
additional service features and $30 million to fund development efforts by
additional handset suppliers.
Except for the intellectual property contained in certain software relating
to the public switched networks and the GOCCs (excluding any software or
technical data contained in Qualcomm's CDMA technology) which will be owned by
Globalstar, Qualcomm retains all intellectual property in the Qualcomm Segment.
However, Qualcomm has granted Globalstar an exclusive license to use its CDMA
technology for MSS commercial applications.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Qualcomm
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide
license to use Qualcomm's intellectual property to manufacture and sell gateways
to Globalstar's service providers. The foregoing licenses will be granted by
Qualcomm to one or more such vendors on reasonable terms and conditions, which
will in any event not provide for royalty fees in excess of 7% of a gateway's
sales price (not including the approximately $400,000 in recoupment expenses
payable to Globalstar). Qualcomm has granted a license to manufacture Globalstar
Phones to each of Ericsson and TELITAL and has also agreed to grant similar
licenses to at least one additional qualified manufacturer to enable it to
manufacture and sell the Globalstar Phones to service providers. On March 23,
1994, a letter agreement was entered into among Qualcomm, Globalstar and Hyundai
pursuant to which Hyundai may elect to become a licensee authorized to
manufacture and sell Globalstar Phones to service providers. Should Hyundai so
elect, it would, for a five-year period following Globalstar's In-Service Date,
be the exclusive licensee authorized to manufacture and sell such units in South
and North Korea.
Globalstar will receive a payment of approximately $400,000 on each
installed gateway sold to a Globalstar service provider. Globalstar will also
receive up to $10 on each Globalstar Phone, which will be payable until
Globalstar's funding of that design has been recovered.
The agreement provides for liquidated damages to Globalstar in the event
Qualcomm fails to supply the Qualcomm Segment at the times specified in the
contract. Liquidated damages of approximately $29,000 are payable by Qualcomm
for each day of delay, subject to an overall cap of approximately $11 million.
Such liquidated damages are Globalstar's exclusive remedies in the face of any
delay by Qualcomm in the delivery
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of the Qualcomm Segment or for any other events of default specified in the
agreement. Qualcomm's obligation to license the intellectual property necessary
to manufacture gateways and Globalstar Phones to Globalstar or a third-party
manufacturer will continue even upon a default or breach by Qualcomm under the
agreement. Termination by Globalstar of this agreement will result in
termination fees, which may be substantial.
Gateway Program. Globalstar, Qualcomm and the service provider partners
intend to jointly finance the procurement of 33 gateways for resale to service
providers, thereby accelerating the deployment of gateways around the world
prior to the In-Service Date. Globalstar has agreed to finance approximately $80
million of the cost of this program, which cost it expects to recover from such
resales.
Qualcomm Support Agreement. A support agreement was entered into among
Qualcomm, Loral and Globalstar pursuant to which Qualcomm agreed to (i) assist
Globalstar and SS/L with Globalstar's system design, (ii) support Globalstar and
Loral with respect to various regulatory matters, including the FCC application
and (iii) assist Globalstar and Loral in their marketing efforts with respect to
Globalstar. As compensation for its efforts, Qualcomm would be paid an amount
equal to the costs incurred in rendering such support and assistance.
Contract for the Development of Satellite Operations Control
Centers. Globalstar has entered into an agreement with a subsidiary of Lockheed
Martin for the development and delivery of two SOCCs and 33 Telemetry and
Command units for the Globalstar System. This contract is a cost-plus-fee
contract with a maximum price of $25.1 million which includes a fee of 12% under
the contract, 6% of which would be payable at the time the costs are incurred
with the remainder payable upon achievement of certain milestones. Globalstar
will own any intellectual property produced under the contract.
Contract for S-Band Beam Forming Network Engineering Model. Globalstar
entered into an agreement with a subsidiary of Lockheed Martin for an S-Band
Beam Forming Network Engineering Model. The contract is a firm fixed-price
contract for approximately $463,000.
Consulting Contracts. Globalstar has entered into consulting agreements
with Vodafone for approximately $700,000 under which Vodafone will develop
Globalstar's security architecture design and billing system requirements. Under
a consulting contract estimated at $980,000, a joint venture formed by France
Telecom and Alcatel is providing Globalstar with various services including
engineering support at WRC '95, quality of services studies and European
regulatory support services.
OmniTRACS Services Agreement. Globalstar has granted Qualcomm the
worldwide exclusive right to utilize the Globalstar System to provide
OmniTRACS-like services, including certain data-messaging and
position-determination services offered by Qualcomm, primarily to fleets of
motor vehicles and rail cars and/or vessels and supervisory control and data
acquisition services. Qualcomm will utilize the Globalstar System in particular
territories to provide its OmniTRACS-like services if the Globalstar service
provider in such region or country offers pricing that is the most favorable
rate charged by it for a comparable service and that is at least as favorable as
the pricing then charged to Qualcomm for geostationary satellite capacity in the
United States. In the event Qualcomm and the service provider fail to reach an
agreement with respect to such access, Globalstar has agreed to provide Qualcomm
with access to the Globalstar System at Globalstar's most favorable rates. To
the extent consistent with Qualcomm's prior commitments, Qualcomm has also
agreed to offer each Globalstar service provider certain rights of first refusal
to participate with Qualcomm in the provision of OmniTRACS-like services using
the Globalstar System in the service provider's territory.
Office Leases. Globalstar currently leases office space from Lockheed
Martin at a cost of approximately $72,000 per month. This space is leased
pursuant to an agreement that expires in August 2000 (with an option to extend
for two additional five year periods).
Conflicts of Interest. The Globalstar partnership agreement provides that
Globalstar cannot enter into any agreement involving amounts in excess of
$1,000,000 with any partner, any strategic partner (including any direct or
indirect corporate parent of such partner or strategic partner), any Alliance
Partner or any of
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their respective affiliates unless the terms and conditions of such transaction
have been first approved by a vote of the disinterested partners.
Guaranty Fee and Warrants. On December 15, 1995, Globalstar entered into
the Credit Agreement providing for a $250 million credit facility. Following the
consummation of a merger between Old Loral and a subsidiary of Lockheed Martin,
Lockheed Martin guaranteed $206.3 million of Globalstar's obligation under the
Credit Agreement, and SS/L and the other Selling Holders guaranteed $11.7
million and $32 million, respectively, of Globalstar's obligation. In addition,
Loral has agreed to indemnify Lockheed Martin for liability in excess of $150
million under Lockheed Martin's guaranty of the Credit Agreement.
In connection with such guaranties and indemnity of the Credit Agreement,
GTL issued to Loral, Lockheed Martin, SS/L and the other Selling Holders, the
Guaranty Warrants to purchase 4,185,318 shares of GTL common stock. In
connection with the issuance of Guaranty Warrants, GTL received (i) rights to
acquire 4,185,318 ordinary partnership interests in Globalstar plus (ii) rights
to purchase an additional 1,131,168 ordinary partnership interests, on terms and
conditions generally similar to those of the Guaranty Warrants. In addition,
Globalstar has also agreed to pay to Loral and the other Selling Holders a fee
equal to 1.5% per annum of the average quarterly amount outstanding under the
Credit Agreement (the "Guaranty Fee"). Payment of the Guaranty Fee will be
deferred and subordinated, with interest at LIBOR plus 3%, until after the
termination date of the Credit Agreement. LQSS may also defer payment of such
fee if it determines that such deferral is necessary to comply with the terms of
any applicable credit agreement or indenture.
Globalstar and GTL have entered into an agreement pursuant to which GTL and
Globalstar have agreed that upon the exercise of any Guaranty Warrant, GTL will
purchase from Globalstar, and Globalstar will sell to GTL, a number of ordinary
partnership interests equal to the number of shares of Common Stock issuable
upon such exercise for a purchase price equal to the exercise price of the
Guaranty Warrant.
The Guaranty Warrants have an exercise price of $26.50 per share expiring
on April 19, 2003 and originally were not exercisable until six months after the
In-Service Date, subject to acceleration by LQSS in its sole discretion. The
Guaranty Warrants may not be transferred to third parties prior to such exercise
date.
GTL and the holders of the Guaranty Warrants have entered into an agreement
under which GTL has agreed to accelerate the vesting and exercisability of the
Guaranty Warrants to purchase 4,185,318 shares of Common Stock at $26.50 per
share and the holders have committed to exercise such warrants. GTL also has
agreed to register for resale the GTL shares issuable upon exercise of the
Guaranty Warrants. In addition, GTL is distributing to the holders of its Common
Stock Rights to subscribe for and purchase 1,131,168 Rights Shares for a price
of $26.50 per share. Loral has agreed to purchase all Rights Shares not
purchased upon exercise of the Rights. Upon the exercise of the Guaranty
Warrants and the Rights, GTL will receive proceeds of about $140.9 million,
which it will use to exercise the Partnership Warrants to purchase 5,316,486
Globalstar partnership interests at $26.50 per interest. Globalstar will use
such proceeds to continue the design, construction and deployment of the
Globalstar System.
Globalstar Managing Partner's Allocation and Distribution. Commencing on
the In-Service Date, Globalstar will make distributions to LQSS equal to 2.5% of
Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500
million. Loral and Qualcomm ultimately will receive 80% and 20% of such
distribution, respectively. Should Globalstar incur a net loss in any year
following commencement of operations, the distribution for that year will be
reduced by 50% and Globalstar will be reimbursed for managing partner's
allocations, if any, made in any prior quarter of such year, sufficient to
reduce the managing partner's allocation for such year by 50%. Any managing
partner's allocation may be deferred (with interest at 4% per annum) in any
quarter in which Globalstar would report negative cash flow from operations if
the managing partner's allocation were made.
LQSS has a right to a preferred allocation of gross operating revenue until
such allocated revenue cumulatively equals LQSS's distributions payable (whether
or not deferred for a shortfall in cash flow from operations). To the extent
that distributions exceed such allocated profit, they will be charged against
LQSS's capital account and will not be allocated among the Globalstar partners
as a Globalstar expense.
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Lockheed Martin's Relationship with Loral. As a result of a merger between
Old Loral and a subsidiary of Lockheed Martin, Lockheed Martin holds Series A
Preferred Stock of Loral representing an approximate 17% fully-diluted equity
interest in Loral. Loral and an affiliate of Lockheed Martin are parties to a
Shareholders Agreement which, among other matters, regulates the voting rights
of Lockheed Martin and its affiliates and limits their ability to acquire
additional voting securities or assets of, or solicit proxies or make a public
announcement of a proposal of any extraordinary transaction with respect to
Loral. The Shareholders Agreement also provides that under certain circumstances
and subject to certain conditions, Lockheed Martin and its affiliates may
require Loral to register under the Securities Act any Loral securities held by
them. Bernard L. Schwartz, Chairman and Chief Executive Officer of Loral, serves
on the Board of Directors of Lockheed Martin.
Agreements with DASA. DASA is an affiliate of DASA Globalstar Limited
Partner, Inc. Loral has agreed to purchase DASA's 12 1/4% interest in SS/L in
exchange for approximately $93.5 million in cash or marketable securities.
Pursuant to a Stockholders Agreement among Loral, DASA and the other Alliance
Partners, DASA is entitled to appoint one representative to the SS/L Board of
Directors, and DASA, when acting together with at least one other Alliance
Partner, has certain limited veto rights regarding SS/L's corporate decisions.
DASA, the other Alliance Partners, and SS/L are parties to an Operational
Agreement, which regulates certain matters relating to the submission of bids
for space program contracts and the subsequent allocation of contracting duties
among the parties. Upon consummation of Loral's purchase of DASA's interest in
SS/L, DASA's rights under the Stockholders Agreement and Operational Agreement
shall terminate. Loral and DASA have formed a partnership to act as the
exclusive Globalstar service provider in Brazil.
PLAN OF DISTRIBUTION
The Warrant Shares 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 Warrant Shares to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of Warrant Shares, for whom they may act as agent. The Selling
Holders and any underwriters, broker-dealers or agents that participate in the
distribution of the Warrant Shares may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of Warrant Shares 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 Warrant Shares 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 Warrant Shares may be
effected in transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which 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 Warrant Shares is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and type
of Warrant Shares 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 Company is registering the Warrant Shares by means of the Registration
Statement pursuant to Rule 415 of the Securities Act of which this Prospectus
forms a part, in fulfillment of its obligations under the Warrant Acceleration
and Registration Rights Agreement. Such agreement also requires the Company to
use its reasonable efforts to effect an underwritten public offering of the
Warrant Shares by April 15, 1997, and the Selling Holders have agreed not to
transfer their Warrant Shares until such date, except pursuant to Rule 144 of
the Securities Act. However, if the Selling Holders determine not to sell their
Warrant Shares under such underwritten public offering, the Company has agreed
to cause the Registration Statement of which this
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Prospectus forms a part to be declared and to remain effective until the earlier
of the date on which all the Warrant Shares have been sold or December 31, 1997,
subject to extension under certain circumstances.
The outstanding Common Stock currently trades, and the Common Stock
representing the Warrant Shares will trade, on the NNM under the symbol GSTRF.
To comply with the securities laws of certain jurisdictions, if applicable,
the Warrant Shares will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the Warrant Shares 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 Common Stock may not simultaneously engage in
market-making activities with respect to such securities for a period of two
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 Warrant Shares by the Selling Holders or any
such other person. All of the foregoing may affect the marketability of the
Common Stock and brokers' and dealers' ability to engage in market-making
activities with respect to these securities.
Pursuant to the Warrant Acceleration and Registration Rights Agreement with
respect to the Warrant Shares, all expenses of the registration of the Warrant
Shares will be paid by Globalstar, 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 Warrant Shares 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.
This offering will terminate upon the earlier of (i) the date on which all
Warrant Shares have been disposed of by the Selling Holders or (ii) December 31,
1997 (subject to extension under certain circumstances).
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. Certain Bermuda tax matters described under "Taxation"
and the validity of the Warrant Shares offered hereby will be passed upon for
the Company by Appleby, Spurling & Kempe, Hamilton, Bermuda. As of March 21,
1997, 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 and a member
of the Audit and Executive Committees of the Boards of Directors of both the
Company and Loral.
EXPERTS
The financial statements of the Company and Globalstar incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 have been audited by Deloitte & Touche LLP
as stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance on the reports of said firm given upon their
authority as experts in auditing and accounting.
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GLOSSARY OF TERMS
ACeS -- PT Asia Cellular Satellite, a GEO satellite-based telephony system
proposed for Asia.
ACS -- Afro-Asian Satellite.
AMPS -- see Advanced Mobile Phone System.
AMSC -- American Mobile Satellite Corporation.
APMT -- Asia Pacific Mobile Telecom, a GEO satellite-based telephony system
proposed for Asia.
ADVANCED MOBILE PHONE SYSTEM (AMPS) -- the analog cellular modulation in general
use in the United States today.
AEROSPATIALE -- Aerospatiale SNI.
AIRTOUCH -- AirTouch Communications, Inc., a Delaware corporation. AirTouch is a
leading wireless telecommunications company with 1.6 million cellular customers
worldwide.
ALCATEL -- Alcatel, N.V., a Netherlands company. Alcatel is the world's largest
manufacturer of telecommunications equipment, with operations in 32 countries.
ALENIA -- Alenia S.p.A., a subsidiary of Finmeccanica. Alenia is Italy's largest
aerospace company and has broad experience in complete space systems,
telecommunications, remote sensing, weather and scientific satellites, manned
space systems, launch and re-entry systems, and fixed and mobile ground systems
for spacecraft support.
ALLIANCE PARTNERS -- four major European companies involved in aerospace,
telecommunications and space communications (Aerospatiale, Alcatel, DASA and
Finmeccanica), which currently hold a 49% equity interest in SS/L.
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.
APPROVED PAYMENT METHOD -- such payment method for the Rights Shares as the
Company may approve in writing in the case of persons acquiring the Rights
Shares at an aggregate Subscription Price of $500,000 or more.
BANDWIDTH -- the range of frequencies, expressed in hertz (Hz), that can pass
over a given transmission channel. The bandwidth determines the rate at which
information can be transmitted through the circuit. The greater the bandwidth,
the more information that can be sent through the circuit in a given amount of
time.
CDMA -- see Code Division Multiple Access.
CPEOs -- GTL's outstanding 6 1/2% Convertible Preferred Equivalent Obligations
due 2006.
CELLULAR -- domestic public cellular radio telecommunications service authorized
by the FCC in the 824-893 MHz band, in which each of two licensees per market
employ 25 MHz of spectrum to provide service to the public.
CHINASAT -- Chinese Telecommunications Broadcast Satellite Corp., which is
operated by the Chinese Ministry of Posts and Telecommunications.
CODE -- the Internal Revenue Code of 1986, as amended.
CODE DIVISION MULTIPLE ACCESS (CDMA) -- a digital transmission system that
superimposes audio signals or data onto a specified coded address waveform. CDMA
allows a large number of wireless users simultaneously to access a single radio
frequency band without interference. As each wireless telephone gains access,
its gateway assigns it a unique sequence of frequency shifts that serve as a
code to distinguish that particular telephone call from others on the air.
COLD FAILURE -- failure of satellite components resulting in partial or total
failure of the satellite.
G-1
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COMMISSION -- the Securities and Exchange Commission.
COMMON STOCK -- common stock, par value $1.00 per share, of GTL.
COMMUNICATIONS ACT -- Act of Congress passed in 1934, as amended, which
established the Federal Communications Commission and regulates the
communication industries, including radio, telephone and cable, in the United
States.
COMSAT -- Comsat Corporation, the U.S. signatory to Intelsat and Inmarsat.
CREDIT AGREEMENT -- Agreement by and between Globalstar and a bank syndicate for
a $250 million credit facility expiring December 15, 2000.
DASA -- Daimler-Benz Aerospace A.G., and its subsidiaries and affiliates. DASA
is a leader in the development and production of aerospace, defense technology
and propulsion systems, and the manufacture of military and commercial aircraft,
satellites, space transportation and propulsion systems.
DACOM -- DACOM, or an affiliate thereof. Dacom is a leading South Korean
telecommunications company which provides a broad range of services, including
international telephone service connection to 169 countries with South Korea.
DIGITAL -- a method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission/switching technologies employ a sequence of
discrete, distinct pulses to represent information, as opposed to the
continuously variable analog signal. Digital cellular networks will utilize
digital transmission.
DOWNLINK -- the receiving portion of a satellite circuit extending from the
satellite to the Earth (compare to uplink).
DUAL-MODE -- handsets designed to operate on both a land-based cellular system
and the Globalstar System.
DUAL USE ITEMS -- technology and commodities designated under the Export
Administration Act as capable of both civilian and military applications.
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.
ERICSSON -- L.M. Ericsson, parent of Orbitel.
EXCHANGE ACT -- the Securities and Exchange Act of 1934, as amended.
EXPIRATION DATE -- 5:00 p.m. New York City time on April 30, 1997.
FCC -- see Federal Communications Commission.
FEDERAL COMMUNICATIONS COMMISSION (FCC) -- regulatory agency established by the
Communications Act, charged with regulating all electrical and radio
communications within the United States.
FEEDER LINK -- the path by which information flows when traveling from a
satellite to a gateway and from a gateway to a satellite. Globalstar feeder
links are in the C-band region of the frequency spectrum.
FINMECCANICA -- Finmeccanica S.p.A., or an affiliate thereof. Finmeccanica owns
Alenia. See above.
FOOTPRINT -- the geographic areas served by a radio transmission device, such as
a communications satellite.
FRANCE TELECOM -- France Telecom, or an affiliate thereof. France Telecom is the
world's fourth largest telecommunications operator with 30 million subscribers
and operations in over 19 countries.
FREQUENCY -- an expression of how frequently a periodic (repetitious) wave form
or signal regenerates itself at a given amplitude.
G-2
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FULL CONSTELLATION DATE -- the date on which Globalstar commences full
operations via a 48-satellite constellation, which is expected to occur by the
end of 1998.
GEO -- see geosynchronous orbit.
GHz -- see gigahertz.
GOCC -- see Ground Operations Control Center.
GTL -- Globalstar Telecommunications Limited, a Bermuda company quoted on the
NNM, which acts as one of two general partners of Globalstar.
GATEWAY -- the earth terminal which connects the Globalstar satellite
constellation to PSTN through the land-based switching equipment of
telecommunications service providers.
GENERAL PARTNERS -- GTL and LQSS.
GEOSYNCHRONOUS ORBIT (GEO) -- the orbit directly over the equator, about 22,300
nautical miles above the Earth, also known as synchronous, geostationary,
stationary and Clarke orbits. When positioned in this orbit, a satellite appears
to hover over the same spot on the Earth because it is moving at a rate that
matches the speed of the Earth's rotation on its axis.
GIGAHERTZ (GHz) -- a measure of frequency equal to one billion cycles per
second.
GLOBAL ROAMING -- the ability of a Globalstar subscriber to travel worldwide and
make and receive Globalstar telephone calls outside the service area of the
subscriber's communications service wherever Globalstar service is authorized.
GLOBALSTAR(TM) -- Globalstar, L.P., a Delaware limited partnership that is
building and preparing to launch an MSS system comprised of 56 LEO satellites
designed to provide worldwide wireless telephony and other services.
"Globalstar" is a trademark of Globalstar, L.P.
GLOBALSTAR PHONES -- hand-held and vehicle-mounted units similar to today's
cellular telephones and fixed telephones similar to ordinary wireline telephones
through which Globalstar users will make and receive calls.
GLOBALSTAR SERVICE -- the transmission and/or reception of voice, data,
messaging, facsimile, paging, position, location or other information through
the Globalstar System using the service providers' gateways.
GLOBALSTAR SYSTEM -- 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 pathways and SOCCs which comprise the
Globalstar ground segment.
GROUND SEGMENT -- the ground-based portion of the Globalstar System. The ground
segment consists of the SOCCs, the GOCCs, the gateways, TCUs located at selected
gateways, and the Globalstar Data Network which interconnects all of the
ground-based elements.
GUARANTY FEE -- the fee equal to 1.5% per annum of the average quarterly amount
outstanding under the Credit Agreement, paid by Globalstar to Loral and the
other guaranteeing partners.
GUARANTY WARRANTS -- Warrants to purchase 4,185,318 shares of Common Stock, at a
price of $26.50 per share, issued by GTL to DASA, Loral, Lockheed Martin,
Qualcomm and SS/L.
HAND-HELD SERVICE -- Globalstar voice service to a hand-held, portable terminal.
HOT FAILURE -- launch failure resulting in damage to or loss of a satellite.
G-3
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HYUNDAI -- Hyundai Electronics Industries Co. Ltd. Hyundai is a leading South
Korean manufacturer of telecommunications equipment, including the development
and production of portable and mobile cellular telephones, and multimedia
systems.
ICO(TM) -- Global Communications' MEO satellite telecommunications service that
would operate in the 2 GHz band.
INDENTURE -- the indenture pursuant to which the notes comprising a part of the
Units are issued.
INFORMATION AGENT -- W.F. Doring & Co., Inc.
ITU -- see International Telecommunication Union.
IN-SERVICE DATE -- the date on which Globalstar expects to commence initial
commercial operations via a 32-satellite constellation.
INDEPENDENT REPRESENTATIVES -- representatives on the General Partners'
committee not affiliated with Loral.
INMARSAT -- International Maritime Satellite Organization, which has formed an
affiliate, Global Communications, Inc., which is a proponent of ICO.
INTELSAT -- International Telecommunications Satellite Organization, a
consortium of 135 member nations and the world's largest operator of
communications satellites.
INTERNATIONAL TELECOMMUNICATION UNION (ITU) -- telecommunications agency of the
United Nations, established to provide standardized communication procedures and
practices, including frequency allocation and radio regulations on a worldwide
basis.
INVESTMENT COMPANY ACT -- the Investment Company Act of 1940, as amended.
IRIDIUM(TM) -- a low-earth orbit satellite-based telecommunications system
proposed by a consortium headed by Motorola to operate in the MSS Above 1 GHz
Service frequencies. See MSS applicant.
KHz -- see kilohertz.
KILOHERTZ (KHz) -- a unit of frequency equal to one thousand cycles per second.
LEO -- low-earth orbit between 500 and 1,500 nautical miles in altitude.
LGP -- Loral General Partner, Inc., general partner of LQP.
LMDS -- Local Multipoint Distribution Services.
L/Q LICENSEE -- a wholly owned subsidiary of LQP to which LQP assigned its FCC
license granting authority to construct, launch and operate the Globalstar
System for the purposes of providing MSS in the United States.
LQP -- see Loral/Qualcomm Partnership, L.P.
LQSS -- see Loral/Qualcomm Satellite Services, L.P.
LOCKHEED MARTIN -- Lockheed Martin Corporation, a Maryland corporation, and its
subsidiaries and affiliates. Lockheed Martin acquired Old Loral pursuant to an
Agreement and Plan of Merger, dated as of January 7, 1996.
LORAL -- Loral Space & Communications Ltd., a Bermuda company. Loral is a
principal founder of Globalstar and, through a subsidiary, its managing partner.
LORAL/QUALCOMM PARTNERSHIP, L.P. (LQP) -- a Delaware limited partnership
comprised of subsidiaries of Loral and Qualcomm. LQP is the general partner of
LQSS, and was an MSS applicant for the FCC license to construct, launch and
operate the Globalstar System.
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (LQSS) -- a Delaware limited partnership
which is the managing general partner of Globalstar.
G-4
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MEO -- Medium-earth orbit, between 2,000 and 18,000 nautical miles in altitude.
MHz -- see megahertz.
MSS -- see Mobile Satellite Services.
MSS ABOVE 1 GHz SERVICE -- an MSS service regulated by the FCC in the United
States which has been allocated spectrum in 1610-1626.5 MHz for the user uplink
and in 2483.5-2500 MHz for the user downlink.
MSS APPLICANTS -- six companies that have applied to the FCC for licenses to
provide LEO satellite-based telecommunications services in the United States in
the 1610-1626.5/2483.5-2500 MHz portions of the radio frequency spectrum.
MSS PROCEEDING -- FCC proceeding for considering applications for authorization
to construct, launch and operate MSS systems in the United States.
MEGAHERTZ (MHz) -- a unit of frequency equal to one million cycles per second.
MOBILE SATELLITE SERVICES (MSS) -- services transmitted via satellites to
provide mobile telephone, fixed telephone, paging, messaging, facsimile, data
and position location services directly to users.
MOTOROLA -- Motorola, Inc.
NNM -- Nasdaq National Market.
ODYSSEY(TM) -- a medium-earth orbit satellite-based telecommunications system
proposed by TRW, Inc., to operate in the MSS Above 1 GHz Service frequencies.
See MSS applicant.
OLD LORAL -- Loral Corporation, a New York corporation which merged into a
subsidiary of Lockheed Martin pursuant to an Agreement and Plan of Merger, dated
as of January 7, 1996.
OMNITRACS -- an international satellite-based truck fleet and position location
service, owned and operated by Qualcomm.
ORBITAL PLANE -- the flight path of a satellite.
ORBITEL -- Orbitel Mobile Communications Ltd., a subsidiary of L.M. Ericsson.
ORDER -- FCC order adopting rules and policies for MSS Above 1 GHz Service.
PCS -- see personal communications service.
PFIC -- a passive foreign investment company within the meaning of the Code.
PSTN -- see Public Switched Telephone Network.
PAGING -- a service designed to deliver a message to a person whose location is
unknown; messages may be received via an alphanumeric display or small speaker.
PARTNERSHIP WARRANTS -- the rights to purchase 5,316,486 Globalstar partnership
interests, at a price of $26.50 each, upon the exercise of the Guaranty Warrants
and of the Rights.
PATH DIVERSITY -- the character of the angles of view formed by the 48 LEO
satellites orbiting the Earth to facilitate continuous overlapping global
coverage.
PENETRATION RATE -- the percentage of total population in a national or regional
area subscribing to a given telecommunications service.
PERSONAL COMMUNICATIONS SERVICES (PCS) -- terrestrial wireless telecommunication
service similar to cellular telephone service but operating in a different set
of frequencies.
PREFERRED PARTNERSHIP INTERESTS -- Interests in Globalstar acquired by GTL in
connection with its issuance of CPEOs. The Preferred Partnership Interests
represent (on a fully diluted basis) an 8.4% equity interest in Globalstar.
G-5
<PAGE> 45
QUALCOMM -- QUALCOMM Incorporated, a Delaware corporation, and its subsidiaries
and affiliates. Qualcomm, a leader in CDMA technology, has successfully
implemented CDMA in multi-user cellular communications applications and owns and
operates OmniTRACS, an international satellite-based truck fleet and position
location service.
RADIO FREQUENCY SPECTRUM -- a portion of the electromagnetic spectrum that
includes electromagnetic waves at frequencies below the infrared frequencies and
usually above 20 KHz. See also electromagnetic spectrum.
RECORD DATE -- March 24, 1997.
RIGHTS SHARES -- 1,131,168 shares of Common Stock available for purchase
pursuant to the exercise of Rights.
RIGHTS -- rights to subscribe for and purchase 1,131,168 shares of Common Stock
for a price of $26.50 per share, distributed by GTL to the holders of Common
Stock.
RIGHTS OFFERING -- the offering of the Rights Shares issuable upon exercise of
the Rights.
SOCCs -- see Satellite Operations Control Center.
SS/L -- Space Systems/Loral, Inc., a Delaware corporation, in which Loral holds
a 51% equity interest, is a leading manufacturer of commercial communications
satellites. Loral is contractually obligated to increase this interest to 75.5%.
SATELLITE OPERATIONS CONTROL CENTER (SOCC) -- monitors and controls the
satellite after it is launched. There are no antennas or radio frequency
equipment located at the SOCC. Radio frequency links to and from the satellite
are via telemetry and command units that are physically located at selected
gateways. The SOCC coordinates with other elements of the Globalstar Ground
Segments.
SECURITIES ACT -- the Securities Act of 1933, as amended.
SELLING HOLDERS -- the holders of the Guaranty Warrants.
SERVICE (OR GLOBALSTAR SERVICE) -- the transmission and reception of voice,
data, messaging, paging, position, location or other information through the
Globalstar System using a service provider's gateway(s).
SERVICE PROVIDER -- Globalstar's partners and other entities that will act as
local intermediaries between Globalstar and the subscribers. Service providers
will build and own the gateways, obtain the necessary regulatory approvals and
market and distribute Globalstar service in their respective markets.
SHAREHOLDERS -- holders of record of Common Stock outstanding as of the Record
Date.
SHARES -- Warrant Shares and Rights Shares.
SPACE SEGMENT -- the space-based portion of the Globalstar System.
SPECTRUM -- the radio frequency spectrum.
STANDBY AGREEMENT -- the agreement between GTL and Loral, pursuant to which
Loral has agreed to subscribe for and purchase at the Subscription Price all
Rights Shares not otherwise subscribed for on or prior to the Expiration Date.
STRATEGIC PARTNER -- Globalstar's direct and indirect partners which will play
key roles in the design, construction, operation and marketing of the Globalstar
System.
SUBSCRIPTION AGENT -- The Bank of New York.
SUBSCRIPTION CERTIFICATES -- transferable subscription certificates underlying
the Rights.
SUBSCRIPTION PRICE -- $26.50 per share of Common Stock.
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.
G-6
<PAGE> 46
TCUs -- telemetry and command units, self-contained units installed in selected
gateways which use the gateway antennas. They include the ground-based telemetry
receiver and the ground-based command transmitters. They interface with and are
directly controlled by SOCCs via the Globalstar data network.
TDMA -- see Time Division Multiple Access.
TELITAL -- TELITAL S.r.L., a private company organized under the laws of Italy,
which designs, develops and produces telephony products for European and
international markets.
TIME DIVISION MULTIPLE ACCESS (TDMA) -- a digital method of multiplexing that
combines a number of signals through a common point by organizing them
sequentially and transmitting each in bursts at different instants of time.
Communicating devices at different geographical locations share a multipoint or
broadcast channel by means of a technique that allocates different time slots to
different users.
UNIT OFFERING -- the offering of the Units.
UNITS -- the 500,000 units issued on February 19, 1997, consisting of
$500,000,000 11 3/8% Senior Notes due 2004 of Globalstar and its subsidiary,
Globalstar Capital Corporation, and warrants to purchase 1,032,250 shares of
Common Stock.
UPLINK -- the transmitting of a satellite circuit extending from the Earth to
the satellite. Compare to downlink.
USER LINK -- the path by which information flows when traveling from a
Subscriber Terminal to a satellite and from a satellite to a Subscriber
Terminal. LQP has applied for user uplinks in the L-band and user downlinks in
the S-bank regions of the frequency spectrum.
VODAFONE -- Vodafone Group Plc, a U.K. company. Vodafone is one of the largest
providers of mobile telecommunications services in the world, with 1.4 million
cellular subscribers worldwide.
WARC -- see World Administrative Radio Conference.
WARC '92 -- the 1992 WARC.
WRC -- see World Radiocommunication Conference.
WRC '95 -- the 1995 World Radiocommunication Conference.
WARRANT ACCELERATION AND REGISTRATION RIGHTS AGREEMENT -- the agreement by and
among GTL, LQSS and the Warrant Holders pursuant to which GTL and LQSS agreed to
accelerate the vesting and exercisability of the Guaranty Warrants.
WARRANT SHARES -- 4,185,318 shares of Common Stock issuable upon exercise of the
Guaranty Warrants.
WORLD ADMINISTRATIVE RADIO CONFERENCE (WARC) -- an ITU conference for adopting
international allocations for radio frequencies and satellite orbit locations.
WORLD RADIOCOMMUNICATION CONFERENCE (WRC) -- since 1993, the successor to the
World Administrative Radio Conference.
YUZHNOYE -- YUZHNOYE NPO YUZHNOYE, A UKRAINE LAUNCH VEHICLE MANUFACTURER.
References to corporate entities include their subsidiaries unless
otherwise specified.
G-7
<PAGE> 47
======================================================
NO DEALER, SALESPERSON OR OTHER 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 WARRANT SHARES 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.......................... 6
Use of Proceeds....................... 15
Dividend Policy....................... 15
The Company........................... 17
Business.............................. 17
Regulation............................ 23
Taxation.............................. 27
Selling Holders....................... 29
Plan of Distribution.................. 34
Legal Opinions........................ 35
Experts............................... 35
Glossary of Terms..................... G-1
</TABLE>
======================================================
======================================================
GLOBALSTAR
TELECOMMUNICATIONS LIMITED
4,185,318 Shares
of Common Stock
Issuable upon Exercise
of Warrants to Purchase
such Shares
---------------------------
PROSPECTUS
March 24, 1997
---------------------------
======================================================
